Shreiber disappointed in sluggish sales at J&J Snack

by Eric Schroeder
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J&J Snack Foods frozen products - Whole Fruit juice tubes, PhillySwirl
J&J Snack Foods' frozen juices and ices were down 11% in the quarter, due to increased trade spending to introduce Whole Fruit organic juice tubes and new Philly Swirl products.

PENNSAUKEN, N.J. — Although pleased with earnings that increased nearly 10% during the third quarter, J&J Snack Foods Corp. was disappointed with a lack of sales growth during the period, said the company’s top executive.

Gerald Schreiber, J&J Snack Foods Corp.
Gerald Shreiber, president and c.e.o. of J&J Snack Foods

“Well, we certainly want to be better than what we are … far be it for me to say we didn’t exactly want to crow about earnings, which was significant, because they were up 10% for the quarter, but I am not happy with and our team is not happy with the sales growth in the third quarter,” Gerald Shreiber, president and chief executive officer, said during a July 26 conference call with analysts. “However — and it’s too early to say — sometimes you get into a flat period; and then, sometimes, it’s ignited. For example, the hot weather that we’ve really been having, I think that has ignited some things on our beverage and our frozen things that we’ll look at in the fourth quarter.”

In the third quarter ended June 25 net income was $26,791,000, equal to $1.44 per share on the common stock, up from $24,462,000, or $1.31 per share, in the same period a year ago. Net sales eased to $277,981,000 from $278,724,000.

Operating income in the company’s Retail Supermarket business fell 34% to $4,266,000 from $6,406,000, while sales in the division declined 10% to $37,013,000 from $41,128,000.

J&J Snack Foods Superpretzel Bavarian Pretzel Rolls
Sales of soft pretzels suffered after the company discontinued its SuperPretzel Bavarian bread items.

“Sales of soft pretzels in our retail supermarkets segment continue to be weak as our SuperPretzel Bavarian bread items were discontinued,” Mr. Shreiber said. “They were launched a year ago. However, we did see some improvement this quarter. Frozen juices and ices were down 11% in the quarter, as we had increased trade spending to introduce the Whole Fruit organic juice tubes and the new Philly Swirl products. Although Philly Swirl products’ decline continued, we expect improvement in the fourth quarter. Handheld sales in retail supermarkets declined due to decreased volume and increased trade spending for the introduction of the Pillsbury mini dessert pies.”

One product that Mr. Shreiber said J&J Snack expects more from going forward is Oreo Churros. The roll-out has taken a little longer than expected, and as a result the product thus far has failed to gain traction.

“One of the reasons (for the delay was) midway through the launch, we made a change in a design and the filling of a cream,” he explained. “Really, we want to kick ourselves because we couldn’t get — and we have a terrific partner, Mondelez — with it. We couldn’t get that on board early. Now, the product comes with a cream already inside it and we’re expecting not a strong quarter, (but rather) a very, very strong quarter in quarter four.”

J&J Snack Foods Oreo Churros
The roll-out of Oreo Churros has taken longer than expected.

J&J Snack fared better in its Food Service segment, where operating income during the third quarter increased 20%, to $24,619,000 from $20,479,000, and sales rose 1%, to $169,148,000 from $167,248,000.

“Sales of soft pretzels in food service improved this quarter as sales to restaurant chains rebounded,” Mr. Shreiber explained. “They were up 13% as we had sales of $1.2 million to one chain under an L.T.O., limited-time offer program. Sales to schools also improved this quarter. Handheld sales and food service continued to be strong, led by sales to two customers. Churros sales were up 6% as sales were strong across the board.

“Our whole grain funnel cake product has been well received in schools and contributed significantly to our sales growth in this quarter and for the nine months. We also had sales of $3.8 million to our new restaurant chain customer. However, we do not expect additional funnel cakes sales to this company in the near future.

J&J Snack Foods funnel cake fries
Funnel cake products have contributed significantly to J&J Snack's food service sales growth.

“Bakery sales were down 6% as sales were down $4.4 million to one customer as that customer added a secondary supplier. We expect sales to this customer to be down about $1 million a month through January 2017 and then it should flatten up with decent comps. Additionally, cookie sales to school customers were down this quarter, as we shed some low-margin business.”

During the conference call, Mr. Shreiber expanded on the loss of business with the bakery customer. He said J&J Snack did not receive much lead time that the potential loss of business was in the works.

“This was in the wind and this is a terrific customer,” he said. “They have been a customer for years and we make a cookie product for them and we make it very, very well and we were the sole supplier. They put together a project that they did want to have a sole supplier on this at all, and finally, they worked with somebody and they wound up taking a sizable portion of the business from them — I say roughly 20% to 25%. … It took them a year to implement it but now it’s affected our sales volume, probably a lot more than it affected our bottom line because our margins were indeed tight and the commodity factor was weighted to any kind of increases up or down in a couple of critical ingredients and components. The relationship with the customer is still good, I would say very, very good. And yes, we’re looking to do what we can to replace that business.”

J&J Snack Foods food service cookies
Cookie sales to school customers were down during the quarter.
For the nine months ended June 25, net income at J&J Snack Foods totaled $55,357,000, or $2.97 per share, up 10% from $50,355,000, or $2.70 per share, from the same period a year ago. Net sales increased 2% to $730,541,000 from $716,484,000.
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