J & J Snack Foods Corp.

Welcome to the J&J Snack Foods First Quarter Earnings Conference Call. My name is Paulette and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star then 1 on your touch-tone phone. Please note that this conference is being recorded. I will now turn the call over to Jerry Shreiber. You may begin.

Thank you, Paulette. Good morning, everybody, and welcome to our conference call for our first quarter. Let me begin by introducing who is in the room with me. Dennis Moore, our Chief Financial Officer, Bob Rodano, our Chief Operations Officer, Bob Tape, our Vice President of Sales, Jerry Law, Senior Vice President of Operations, Marjorie Shreiber Roscoff, our legal representative, and Bo Powell, sales manager for food service. Did I get everybody? Let me begin. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ from those projected in the forward-looking statements. Your caution not to place undue reliance on these forward-looking statements would reflect management's analysis only as of the date hereof, whether it take no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof. Results of operations. Net sales increased 4% for the quarter. which includes sales from the acquisition of a Icy distributor in October 2019. Without that, sales increased 3%. Food service. Sales to food service customers increased 2% for the quarter. Our sales increase was due to increased sales of soft pretzels up 2%, churros up 8%, funnel cake products up 25%, and bakery sales up 2%. Frozen Juice Bars and Isis sales were down 6% and handheld sales were down 18%. Sales to restaurant chains were up this quarter while sales to schools were down. Operating income in our food service segment increased to $18,034,000 from $17,697,000 last year Primarily because of higher volume and improved operations at our Helen Valley plant in the Midwest. Retail supermarkets. Sales of products to retail supermarkets were down 6% for the quarter. Soft pretzel sales were down 4% for the quarter. Sales of frozen juice bars and Italian ices were down 8%. Handheld sales were down 15%. and bakery sales including biscuits were down 11%. Operating income in our retail supermarket segment was essentially the same as last year as the benefit of price increase implemented a year ago offset the impact of slightly lower volume. We expect to see volumes at least stabilizing and improving in this second quarter. Frozen beverages which include icy, Slush Puppy, Arctic Blast Brands. Frozen beverage and related product sales were up 16% in the quarter, and beverage-related sales were up 13%. Without the sale of Icy Distributors and acquisition in the first quarter from the Festivan Group, overall sales were up 12%, and beverage-related sales were up 4%. Service revenue for others was up 13%. Machine revenue was $12 million, up from $8.9 million last year. Operating income in our frozen beverage group increased to $1,452,000 from $2,174,000 primarily because of relocation costs and expenses related to the IC headquarters move to Tennessee. Approximately $1 million this quarter and estimated to be about $800,000 in our second quarter in connection with the relocation of IC headquarters. In October, we purchased the asset of IC Distributors, the Festvan Group, which does business in Arkansas, Louisiana, and Texas with annual sales of approximately $13 million. Consolidating, gross profit as a percentage of sales was 27.52% in the three-month period this year, down from 28.3% last year. Gross profit percentage decreased because of lower unit volume in the snack side of our business, generally higher costs on unfavorable products and exchanges. Total operating expense as percentage of sales was 19.9% in the quarter, down from last year's 20.2%. The decrease was due primarily to lower distribution costs in connection with freight. Capital spending and cash flow. Our cash and investment securities balance of $306 million was down $37 million from our September year end, primarily because of the purchase of the IC distributor. We continue to look for acquisitions as a use of our cash. $116 million of our investments are in corporate bonds with a purchase price yield to maturity of 2.8%. Our capital spending was $18 million in the quarter as we continue to invest in plant efficiencies and growing our businesses. We estimate our spending for the year to be about $60 million as we continue to invest in our manufacturing plants and the icy business. A cash dividend of 57.5 cents 0.575 a share was declared by our board of directors and paid on January the 7th. This was a 15% increase from the previous dividend. We did not buy back any shares of our stock during the quarter. Our investment income this year was $746,000 more than last year. because we recognized $1,027,000 of unrealized investment losses in last year's quarter. Last year, we had a tax benefit of $900,000 related to the Tax Cuts and Jobs Act, which benefited last year's EPS by 5 cents a share. Thank you for your continued interest, and we look forward to continuing our growth and success.

Thank you. We will now begin the question and answer session. If you have a question, please press star, then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. There will be delay before the first question is announced. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. J Snack Foods Corp.