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 July 7, 2020, to shareholders of
record as of the close of business on June 15, 2020.
27
--------------------------------------------------------------------------------
In the three months ended March 28, 2020, we purchased and retired 65,648 shares
of our common stock at a cost of $8,972,292. We did not purchase any other
shares of our common stock in this fiscal year nor did we purchase any shares of
our common stock in fiscal year 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; 318,858 shares remain to be purchased under this
authorization.
In the three months ended June 27, 2020 and June 29, 2019, 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
$41,000 in accumulated other comprehensive loss in the 2020 third quarter and a
decrease of $496,000 in accumulated other comprehensive loss in the 2019 third
quarter. In the nine-month period, 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 increase of $3,070,000 in
accumulated other comprehensive loss in the 2020 nine-month period and an
increase of $469,000 in accumulated other comprehensive loss in the 2019 nine
month period.
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 June
27, 2020.
RESULTS OF OPERATIONS
Net sales decreased $112,138,000 or 34% to $214,563,000 for the three months and
decreased $105,113,000 or 12% to $769,502,000 for the nine months ended June 27,
2020 compared to the three and nine months ended June 29, 2019, respectively.
Excluding sales from the acquisition of ICEE Distributors in October 2019 and
BAMA ICEE in February 2020, sales decreased 35% for the quarter and decreased
about 13% for the nine months.
Sales for the last 5 weeks of the third quarter (our fiscal June) improved to
being down approximately 24% from a year ago as parts of the economy that impact
our operations began to open up. Approximately 2/3 of the Company's sales are
to venues and locations that have shut down or sharply curtailed their
foodservice operations, and therefore we anticipate COVID-19 will continue to
have a negative impact on our business. As we have $270 million of cash and
marketable securities on our balance sheet, up from $267 million at March 28,
2020, we do not expect to have any liquidity issues, nor do we anticipate a
material amount of our assets would be impaired.
28
--------------------------------------------------------------------------------
FOOD SERVICE
Sales to food service customers decreased $76,735,000 or 40% in the third
quarter to $116,621,000 and decreased $77,048,000 or 14% to $471,401,000 for the
nine months. Soft pretzel sales to the food service market decreased 62% to
$21,384,000 in the three months and 24% to $116,985,000 in the nine months.
Frozen juices and ices sales decreased 37% to $8,688,000 in the three months and
decreased 17% to $25,222,000 in the nine months. Churro sales to food service
customers were down 61% in the quarter to $7,321,000 and were down 23% to
$38,466,000 in the nine months. Sales of bakery products decreased $20,847,000
or 23% in the third quarter and decreased $13,719,000 or 5% to $255,016,000 for
the nine months. Sales of handhelds decreased $1,102,000 or 13% in the quarter
and $3,255,000 or 13% in the nine months. Sales of funnel cake decreased 57%, or
$3,181,000, to $2,435,000 in the quarter and $5,311,000, or 29%, to $12,997,000
in the nine months. Sales are down across all product lines as many of the
venues and locations where our products are sold have been shut down for some or
all of the third quarter due to COVID-19.
Sales of new products in the first twelve months since their introduction were
approximately $600,000 in this quarter and $4.7 million in the nine months.
We had an operating loss in the quarter in our Food Service segment of
$18,242,000 compared to operating income of $21,030,000 last year and operating
income decreased to $7,743,000 from $57,909,000 in the nine months primarily
because of lower production and sales volume due to COVID-19. This year's three
months operating loss and nine months operating income were impacted by plant
shutdown impairment costs of $5.1 million for the pending shutdown of one of our
manufacturing plants. We expect to reduce manufacturing overhead and
distribution costs by about $7-8 million annually as a result of this plant
closure. This year's quarter and nine months also included approximately $5
million of costs for employee safety and increased COVID-19 compensation.
RETAIL SUPERMARKETS
Sales of products to retail supermarkets increased $15,735,000 or 38% to
$57,502,000 in the third quarter and increased $17,286,000 or 16% in the nine
months. Soft pretzel sales for the third quarter were up 74% to $12,716,000 and
up 23% to $34,874,000 for the nine months. Sales of frozen juices and ices
increased $6,807,000 or 26% to $33,322,000 in the third quarter and increased
$7,100,000 or 14% in the nine months. Handheld sales to retail supermarket
customers increased 6% to $3,257,000 in the quarter and 13% to $9,135,000 in the
nine months. Biscuit sales for the third quarter were up 56% to $8,151,000 and
12% to $21,759,000 for the nine months. Sales were generally higher for all
product lines as sales in the year ago periods were impacted by lost volume and
placements due the price increases implemented in last year's first quarter and
because of increased sales to supermarkets generally since mid-March 2020 due to
COVID-19.
Sales of new products in the third quarter were approximately $500,000 and were
approximately $1.0 million for the nine months.
Operating income in our Retail Supermarkets segment was $7,910,000 in this
year's third quarter compared to $3,775,000 in last year's quarter, a 110%
increase and increased to $14,464,000 in this year's nine months compared to
$9,025,000 in last year's nine months primarily due to higher volume.
29
--------------------------------------------------------------------------------
FROZEN BEVERAGES
Total frozen beverage segment sales decreased 56% in the three months to
$40,440,000 and 21% to $173,602,000 for the nine months. Beverage sales were
down 71% to $16,456,000 in the quarter and down 31% to $83,606,000 in the nine
months. Excluding sales from the acquisition of ICEE Distributors in October
2019 and BAMA ICEE in February 2020, total frozen beverage segment sales
decreased 60% in the quarter and were down 25% for the nine months and beverage
sales decreased 78% for the quarter and 39% for the nine months. Gallon sales
were down 72% in the quarter and down 36% in the nine months exclusive of ICEE
Distributors' gallons. Service revenue decreased 23% to $17,259,000 in the
third quarter and was down 1% at $61,524,000 in the nine months. Machines
revenue (primarily sales of frozen beverage machines) were $6,363,000, a
decrease of $5,447,000 in the quarter and $27,254,000, a decrease of $6,621,000,
in the nine months, with the decrease due to two significant install projects
during the prior fiscal year, as well as the slowdown due to COVID-19. Sales are
down across all product lines as many of the venues and locations where our
products are sold have been shut down for some or all of the third quarter due
to COVID-19.
Our Frozen Beverage segment had an operating loss of $9,088,000 compared to
operating income of $14,237,000 in last year's quarter and an operating loss of
$8,942,000 for the nine months compared to operating income of $18,961,000 last
year primarily as a result of lower sales volume due to COVID-19. This year's
operating income was also impacted by relocation costs of our ICEE's
headquarters of 2.5 million in the nine months.
CONSOLIDATED
Gross profit as a percentage of sales was 17.34% in the third quarter and 31.02%
last year. Gross profit as a percentage of sales was 23.98% in the nine month
period this year and 29.44% last year. Gross profit percentage decreased for
both periods because of lower volume in our food service and frozen beverages
segments, higher costs related to production disruptions due to volume mix
changes, expenses related to employee safety and increased COVID-19 compensation
and reserves of approximately $1.5 million for inventory.
Total operating expenses decreased $5,691,000 in the third quarter and as a
percentage of sales increased to 26.4% from 19.1% last year. For the nine
months, operating expenses decreased $330,000 and as a percentage of sales
increased to 22.3% from 19.6% last year. Operating expenses for both periods
this year included $5.1 million of plant shutdown impairment costs for the
pending shutdown of one of our manufacturing plants. Marketing expenses
increased to 10.2% of sales in this year's quarter from 8.1% last year and were
8.9% in the nine months compared to 8.0% of sales in last year's nine months.
Distribution expenses were 9.9% of sales in the third quarter and 7.5% of sales
in last year's quarter and were 9.1% in this year's nine months compared to 8.1%
in last year's nine months. Administrative expenses were 3.9% of sales in the
third quarter compared to 3.3% of sales last year in the third quarter and were
3.7% in this year's nine months compared to 3.4% of sales in last year's nine
months. The percentage increases mentioned above were because of the drop in
sales (lower denominators) and our inability to reduce expenses in line with the
decrease in sales because of fixed costs that do not fluctuate with sales.
30
--------------------------------------------------------------------------------
We had an operating loss of $19,420,000 in the three months and operating income
of $13,265,000 in the nine months this year compared to operating income of
$39,042,000 and $85,895,000 in last years' three and nine months, respectively.
Investment income decreased to $1,300,000 from $1,953,000 in last year's quarter
due primarily to lower interest rates. Investment income decreased to $2,673,000
from $5,775,000 in the nine month period due to lower interest rates and because
of an increase in unrealized losses to $1,708,000 this year from $385,000 last
year.
We had a net loss of $12,647,000 in the current three month period compared to
net earnings of $30,872,000 last year and net earnings decreased $57,031,000, or
83%, to $11,721,000 for the nine month period this year compared to $68,752,000
for the nine month period last year.
Net earnings in last year's nine months 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 27.5% in
last year's nine months. Our effective tax rate was 26.2% in this year's nine
months.
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.
© Edgar Online, source Glimpses
J&J SNACK FOODS CORP. 
