Liquidity and Capital Resources
Our current cash and cash equivalents balances, investments and cash expected to
be provided by future operations are our primary sources of liquidity. We
believe that these sources, along with our borrowing capacity, are sufficient to
fund future growth and expansion. See Note 11 to these financial statements for
a discussion of our investment securities.
The Company's Board of Directors declared a regular quarterly cash dividend of
$.575 per share of its common stock payable on January 7, 2020, to shareholders
of record as of the close of business on December 20, 2019.
We did not purchase any shares of our common stock in fiscal year 2019 or in the
three months ended December 28, 2019. On August 4, 2017 the Company's Board of
Directors authorized the purchase and retirement of 500,000 shares of the
Company's common stock; 384,506 shares remain to be purchased under this
authorization.
Fluctuations in the valuation of the Mexican and Canadian currencies and the
resulting translation of the net assets of our Mexican and Canadian subsidiaries
caused an decrease of $810,000 in accumulated other comprehensive loss in the
2020 first quarter and an increase of $1,359,000 in accumulated other
comprehensive loss in the 2019 first quarter.
Our general-purpose bank credit line which expires in November 2021 provides for
up to a $50,000,000 revolving credit facility. The agreement contains
restrictive covenants and requires commitment fees in accordance with standard
banking practice. There were no outstanding balances under this facility at
December 28, 2019.
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RESULTS OF OPERATIONS
Net sales increased $11,285,000 or 4% to $282,897,000 for the three months ended
December 28, 2019 compared to the three months ended December 29, 2018.
Excluding sales from the acquisition of ICEE Distributors in October 2019, sales
increased 3%.
FOOD SERVICE
Sales to food service customers increased $3,422,000 or 2% in the first quarter
to $183,448,000. Soft pretzel sales to food service increased 2% to $49,941,000
as higher sales to convenience store chains more than offset lower sales to
schools.
Frozen juices and ices sales decreased 6% to $7,043,000 in the three months with
sales decreases primarily to school food service customers.
Churro sales to food service customers were up 8% in the quarter to $16,391,000
with sales increases to warehouse club stores and generally across our customer
base.
Sales of bakery products increased $2,127,000 or 2% in the first quarter to
$96,372,000 with significant offsetting increases and decreases in sales to
particular customers.
Sales of handhelds decreased $1,613,000 or 18% in the quarter with the decrease
primarily coming from lower sales to co-pack customers. Sales of funnel cake
increased $1,240,000 or 25% in the quarter primarily due to higher sales to one
casual dining restaurant chain.
Sales of new products in the first twelve months since their introduction were
approximately $2.5 million in this quarter. Price increases were approximately
$2.7 million for the quarter and net volume increases accounted for
approximately $700,000 of sales in the quarter.
Operating income in our Food Service segment increased from $17,697,000 to
$18,034,000 in the quarter primarily because of higher volume and improved
operations at our Hill & Valley bakery.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets decreased $1,853,000 or 6% to
$29,426,000 in the first quarter. Soft pretzel sales for the first quarter were
down 4% to $9,826,000, sales of frozen juices and ices were down 8% to
$10,093,000 in the first quarter and sales of biscuits were down 11% to
$6,978,000 in the first quarter as we lost some volume and placements in all
three product categories due to price increases implemented a year ago. We
expect volume to at least stabilize beginning in our second quarter. Handheld
sales to retail supermarket customers increased 8% to $2,761,000 in the quarter.
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There were virtually no sales of new products in the first quarter. Price
increases provided about $1.3 million of sales in the quarter and net volume
decreased by about $3.2 million.
Operating income in our Retail Supermarkets segment was $2,217,000 in this
year's first quarter compared to $2,211,000 in last year's quarter as the
benefits of higher prices offset the negative impact of lower volume.
FROZEN BEVERAGES
Frozen beverage and related product sales increased 16% to $70,023,000 in the
first quarter. Beverage related sales were up 13% to $35,255,000. Excluding
sales from the acquisition of ICEE Distributors in October 2019, frozen
beverages and related product sales increased 12% and beverage related sales
increased 4%. Gallon sales were up 6% for the three months exclusive of ICEE
Distributors' gallons. Service revenue increased 13% to $22,486,000 in the first
quarter with sales increases and decreases spread throughout our customer base.
Machines revenue (primarily sales of frozen beverage machines) were $11,981,000,
an increase of 35%. Operating income in our Frozen Beverage segment decreased to
$1,452,000 in this quarter compared to $2,174,000 last year as a result of
generally higher costs, including approximately $1 million of costs for the
relocation of ICEE's headquarters. We expect additional relocation costs of
about $800,000 in our second quarter.
CONSOLIDATED
Gross profit as a percentage of sales was 27.52% in the three month period this
year and 28.30% last year. Gross profit percentage decreased because of lower
volume in our combined food service and retail supermarket segments, product mix
changes including higher machines sales in our frozen beverages segment and
generally higher costs in our frozen beverages segment.
Total operating expenses increased $1,377,000 in the first quarter but as a
percentage of sales decreased to 19.9% from 20.2% last year. Marketing expenses
increased to 8.04% of sales in this year's quarter from 7.89% last year.
Distribution expenses were 8.32% of sales in this year's quarter and 8.82% of
sales in last year's quarter primarily because of lower freight rates.
Administrative expenses were 3.40% of sales this quarter compared to 3.40% of
sales last year.
Operating income decreased $379,000 or 2% to $21,703,000 in the first quarter as
a result of the aforementioned items.
Investment income increased by $746,000 in the first quarter primarily because
of recognized unrealized gains of $71,000 this year compared to recognized
unrealized losses of $1,027,000 last year.
Net earnings decreased $467,000, or 3%, in the current three month period to
$17,059,000. Net earnings in last year's quarter benefitted by a reduction of
approximately $900,000 in tax as the provision for the one time repatriation tax
as a result of the Tax Cuts and Job Act of 2017 was reduced as the amount
recorded the year prior was an estimate. Excluding the reduction in the
provision for the one time repatriation tax, our effective tax rate was 28.0% in
last year's quarter. Our effective tax rate was 27.3% in this year's quarter.
There are many factors which can impact our net earnings from year to year and
in the long run, among which are the supply and cost of raw materials and labor,
insurance costs, factors impacting sales as noted above, the continuing
consolidation of our customers, our ability to manage our manufacturing,
marketing and distribution activities, our ability to make and integrate
acquisitions and changes in tax laws and interest rates.
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