J & J Snack Foods Corp.

Good day, and thank you for standing by. Welcome to the J&J Snack Foods third quarter 2024 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Norberto Aja, Investor Relations. Please go ahead.

Thank you, Operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2024 Third Quarter Conference Call. Before getting started, let me take a minute to read the safe harbor language. This call contains forward-looking statements within the meaning of the Private Security Litigations Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives, and their anticipated financial performance. These statements are neither promises or guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our annual report on Form 10-K for the year ended September 30th, 2023 and or other filings with the Securities and Exchange Commission could cause an actual result to differ materially from those indicated by the forward-looking statements made today. Any such forward-looking statements represent management's estimates as to the date of this call, Tuesday, August 6, 2024. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so. Even subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share, all of which are reconciled to the nearest GAAP measure in the company's earnings press release, which you can find in our investor relations section of the website. Joining me on the call today is Dan Faschner, our Chief Executive Officer, along with Ken Plunk, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, I would now like to turn the call over to Mr. Dan Faschner. Please go ahead, Dan.

Thank you, Roberto. Good morning, everyone, and thank you for joining us today. J&J Snack Foods delivered an excellent third quarter, building on our strong momentum from the first half of the year. I'm so proud of the J&J team and employees who continue to execute our strategy while delivering consistent results. These results continue to validate that the investments we have made and the strategies that we have implemented are having a positive impact on the sales and earnings power of our business. And it's positioning J&J to win in what remains a dynamic consumer and operating environment. To further illustrate our success, I will share a few highlights from the quarter, followed by a review of our sales performance and operations. Our record third quarter net sales of 440 million marked the second highest quarterly net sales performance in our company's 53 year history. This impressive result was led by strong sales in our food service and retail segments, offset by temporary challenges in the frozen beverages, which were impacted by softer sales in the theater channel. Our ability to grow the top line 3.3% while maintaining a healthy 33.6% gross margin underscores the strength of our strategy led by improved operating efficiencies and a balanced and diverse portfolio of products, brands, and customer channels. We continued our trends of growing profits faster than sales with the third quarter operating income and net earnings growth of 3.8%. This resulted in a record high quarterly earnings per diluted share in the quarter. Kim will provide more insights into our financial performance in just a few minutes. Our strategies to leverage innovation and cross-selling opportunities to expand placements of our core products and brands continue to deliver positive results. Taking a closer look at our sales performance, third quarter net sales growth was driven by higher volumes across most of our core products and brands, as well as strong business performance in our food service and retail segments. As we had anticipated, production delays related to the 2023 actor strike had a negative effect on this quarter's film slate as compared to last year, especially in April and May. The theater industry reported declines in attendance during the quarter of approximately 30%, which impacted fiscal third quarter sales of frozen beverages, soft pretzels, and churros. We estimate that these temporary challenges impacted sales by approximately 7 million. compared to the same period last year. While the sales theater channel declined in the third quarter, I do want to highlight the impact of great movie releases in the market and why we remain so confident in growing sales in this channel. The opening of Inside Out 2 in mid-June created momentum as we closed the quarter, resulting a record month of frozen beverage sales with gallons up 4%, an overall sales increase of 6% compared to last year. Inside Out 2 was the first of several strong releases planned for Q4 and the remainder of the year. This momentum should also benefit our Dippin' Dots business as they complete the rollout to AMC, Cinemark, and Marcus Theaters over the next few months. Looking ahead, our movie theater customers, as well as industry observers, expect box office and attendance trends to begin to recover in the second half of calendar 2024. These positive trends are expected to continue into calendar 2025 with a greater number of titles including a diverse offering of proven franchise films and highly anticipated new titles. As a result, we expect sales of our products and brands to significantly improve in this channel as attendance trends recover. Moving on to our segments. In food service, frozen novelty sales increased 9.1%, led by the continued growth of Dippin' Dots, which increased 5.3%. Bakery sales increased 6.8%, driven by unit volume growth in cookies, new products, encouraging thin stir results, and expanded customer placements, In addition, we saw a meaningful improvement in the handheld sales, up 25.3%. Overall, food service segment sales grew 3.7% with the increase in these product categories, partially offset by softness in soft pretzels and churros due to the previously mentioned challenges in the theater. We continue to see strong growth in churros with the third largest QSR and remain confident in this opportunity going forward. Moving to retail, we experienced broad-based growth across nearly all of our product categories, resulting in a 12.4% increase in sales for the quarter. Handhelds grew approximately 70%, driven by expanded placements with a major mass merchant. Frozen novelty sales increased 11%, led by growth of Luigi's, icy tubes, and dogsters, which was driven by unit volume growth and incremental placements in the club channel. Soft pretzel sales increased 8.2%, led by our continued expansion of super pretzel products, largely reflecting strong demand for super pretzel Bavarian sticks. Biscuit sales were down slightly in the quarter. The frozen beverage segment declined 2.6% for the quarter, driven by the previously discussed softness in the theater channel. Frozen beverages decreased 1.1% due to a 6% drop in gallons. However, gallons increased 3% in Q3, excluding the impact of theaters. Let me just say that one more time, gallons increased 3% in Q3, excluding the impact of theaters, driven by strong performance in mass merchandisers, amusement, and QSR. We continue to diversify our customer portfolio, finding growth opportunities in channels like QSR. In fact, we are very encouraged with the current test at KFC that was recently highlighted on Good Afternoon Kentucky as they market this new program and new flavors like Sweet Lightning and Blackberry Lemonade in the local Lexington market. Repair and maintenance revenues decreased 1.6%, reflecting lower preventative maintenance call volumes. Machine sales, while exceeding our internal budget for the quarter, were down 15.4% as we lapped a large QSR rollout from last year. Let me quickly highlight a couple of other important focus areas as we continue to cross-sell our brands and products across channels. Starting with Super Pretzel, this iconic brand is outperforming the snack category and continues to provide opportunities for growth, new product extensions, or new points of sale. We are expanding across retail, led by the launch of Bavarian Sticks, which remains the number two seller in the Super Pretzel portfolio reaching an ACV now of 28% and growing. I'm so pleased with the incremental distribution we are achieving with leading retailers. In late fiscal Q4, we expect to double our store count with a major grocery retailer under the Super Pretzel and Annie Ann's brand. Let's talk about Dippin' Dots. Summer promotions are underway with Regal and Chuck E. Cheese, resulting in higher volumes and increased brand awareness. We also continue to roll out Dippin' Dots at AMC, Cinemark, and Marcus Theaters with expectations to be in approximately 930 locations by the end of the calendar year. Currently, we have installed Dippin' Dots in 176 AMC locations, 134 Cinemark locations, and 51 Marcus locations. We are actively testing new opportunities with convenience store customers and will be installing freezers in approximately 230 locations with a major food service customer. We remain confident in our plans to expand DippinDots across customers and channels. I'd like to spend some time highlighting the significant impact of our operational investments over the last couple of years. The investments we have made in manufacturing and distribution capabilities are resulting in improvements across key efficiency metrics. Starting with our supply chain strategy, all three RDCs are exceeding expectations and will enable us to continue driving productivity improvements. At this time, 85% of our sales orders are shipped from the new distribution network. versus only 26% a year ago, with the average length of haul decreasing by 38%, and on-time performance improving to over 82% versus 73% a year ago. Line haul cost per pound decreased 17% compared to the same quarter last year in our snack food business. We have reduced the number of cold storage locations to 10, driving efficiencies in how we ship products and reducing transfers across our network by 9%. Shifting to operations, the addition of six new production lines has significantly expanded our capacity. This has enabled added efficiencies and given us the ability to meet growth opportunities across our core products, such as pretzels, churros, and frozen novelties. The expanded capacity has created production efficiencies and higher output metrics through better automation, which improves product margins, decreases overtime, and provides the flexibility to respond to new sales opportunities. Fill rates have reached 98.5%, a high point for J&J's business and high relative to the overall industry trends. Finally, As many of you likely saw in our 8K filing, our CFO, Ken Plunk, will be retiring at the end of this calendar year. The company will be conducting a thorough search process to identify a successor and to ensure a smooth transition. Ken's been a great partner and leader to both me and the organization. I want to thank Ken for his help and support as we transformed the business over these past four years. the entire J&J team, the board of directors, and I wish him and his family the very best in his new chapter of his life. Thank you, Ken. In summary, I am pleased with our ability to post record third quarter sales and profits while managing through continued challenges in the consumer environment. I'm so proud of how the J&J team continues to execute on our growth agenda. While we expect our 2024 fiscal fourth quarter results to be impacted by one less sales week versus the comparable prior year period, it is clear that our strategies to maximize sales across our customer channels and improve operating efficiencies are working. We have a strong portfolio of beloved products and brands with tremendous growth opportunities ahead of us. and we remain confident in our ability to deliver long-term value to our employees, our partners, and our shareholders. With that, I would now like to pass the call over to Ken to review our financial performance in more detail. Ken?