Inflation outweighs strong sales for J&J Snack Foods

PARSIPPANY, NJ. — J&J Snack Food Corp. saw strong demand for churros and other key offerings across its three business segments in the third quarter, but inflationary pressures and a one-time $3.1 million cost impact associated with its Dippin’ Dots acquisition weighed on earnings.

Net income at J&J Snack Foods in the third quarter ended June 25 totaled $15.6 million, equal to 81¢ per share on the common stock, down 46% from $28.9 million, or $1.51 per share, in the same period a year ago. Net sales increased 17% to $380.2 million from $324.3 million.

Costs for ingredients, including flour, eggs, dairy, oils and chocolates were nearly 10% higher than the previous quarter, according to the company. J&J Snack Foods responded by implementing its second price increase early in the quarter. It has already communicated a third high single-digit increase that will take effect late in the fourth quarter.

Price increases have so far had little impact on consumer demand for the company’s snacks and beverages, said Daniel Fachner, president, and chief executive officer of J&J Snack Foods.

“Historically, as a company, we’ve done pretty well during times like these,” he told financial analysts during an Aug. 3 conference calls to discuss third-quarter results. “We have great products that are a snack and a treat and a reward that people will still buy during recessionary periods.”

Operating income for the company’s foodservice segment plummeted 85% to $2.6 million from $17.6 million in the third quarter, reflecting the increase in input, production and distribution costs. Sales, meanwhile, grew 16% to $227.8 million from $196.5 million. The sales gains were led by handhelds, with sales growing 36% to $25.7 million. Sales of soft pretzels were $55.9 million, up 10% from the same period a year ago. Sales of bakery products grew 11% to $95.5 million, sales of frozen novelties grew 23% to $17.2 million and sales of churros grew 28% to $25.6 million.

The company is looking to churros to fuel future growth. It will relaunch its foodservice churro portfolio under the new ¡Hola! Churros brand later this year. The company, which is already the largest domestic producer of churros, plans to invest in ongoing innovation and product expansion under the new brand.

“Churros is a significant opportunity for us, having grown 38% in just the past four years across American menus,” Mr. Fachner said. “Growth will continue in every segment within foodservice, including a projected 8.5% growth in casual dining restaurants, 4.5% in fast casual and nearly 4% in QSR.”

Operating income in the supermarket retail segment decreased 74% to $2.3 million, while sales increased 13% to $61 million. Soft pretzel sales increased 5% and frozen novelty sales increased 14%. Sales of biscuits and handhelds both increased by 33% in the quarter.

Operating income for the company’s frozen beverage segment was $16.3 million, up from $11.4 million a year ago. Sales increased 24% to $91.4 million from $74 million, reflecting increased demand across theaters and amusement parks.

The amusement park channel continued an upward trajectory, with both domestic and international park visits exceeding pre-COVID levels in the third quarter. Theaters saw attendance approaching 75% of pre-pandemic levels and an uptick in moviegoers purchasing snacks, Mr. Fachner said.

Companywide net earnings for the nine-month period ended June 25 were $29.9 million, or $1.56 per share, down from $36.7 million, or $1.93 per share, in the same period a year ago. Nine-month net sales were $980.2 million, up from $851.5 million.

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