J&J Snack Foods reports financial results for fourth quarter and full year

J&J Snack Foods Corp. reported financial results for the fourth quarter and full year ending September 24, 2022.

Dan Fachner, J&J Snack Foods president and CEO, said in the announcement: “We are pleased with our strong top-line growth across all three of our business segments, including a 24% increase in net sales for the fiscal fourth quarter and a 21% increase in net sales for the full year. These results mark a fourth consecutive quarterly revenue record, including full year revenue over $194 million greater than our prior highest annual revenue. Adjusted EBITDA increased 4% for the quarter compared to prior year even as we continue to experience unprecedented cost inflation. As a company, we remain focused improving profitability.

“Our ability to deliver strong results in a very challenging cost and operating environment reflects the success of our sales-centric initiatives. Our focus on new product innovation, leveraging core-brands to create compelling product extensions, repositioning how we market our brands, and driving cross-selling opportunities is driving this sales momentum. In addition, we continue to see robust demand for our higher-margin core products along with continued strength across key sales channels and increased demand of our products with both new and existing customers. We are also making progress on our operational initiatives focused on continuous improvement, including specific plant projects focused on reducing cost and inefficiencies, centralizing our procurement and R&D functions, expanding and improving our production line capabilities, and optimizing our supply chain. We expect these actions will result in significant contributions to our overall results in the coming fiscal years, and help to offset the ongoing costs pressures across the business.

“Despite the record sales, we continue to experience historically high inflation pressures across just about every segment of the business including wages, fuel, packaging, shipping and commodities. While our profit has been significantly impacted by this dynamic, we are pleased with our quarterly sequential improvement in gross margin and expect to see further progress in the coming quarters as the effect of our most recent pricing, product mix, SKU management initiatives take hold.

“In summary, we are executing on our strategy. We are aggressively growing sales led by the strength of our core brands and making progress offsetting a historic cost environment. We are well positioned as we head into fiscal 2023 and expect to continue our strong sales momentum while also improving profitability. I am confident that our strategy will continue our long history of creating value for our employees, partners and shareholders.”

Total company fourth quarter highlights

Net sales increased 23.9% to $400.4 million in Q4 of fiscal 2022, compared to Q4 of fiscal 2021.

Key highlights include:

• Sales included approximately $31.5 million in revenue from Dippin’ Dots. Excluding the contribution from Dippin’ Dots, sales increased by 14.2%, compared to Q4 ’21.
• Organic sales growth was driven by growth across all three business segments, led by core products including pretzels, churros, frozen novelties and frozen beverages.
• Food service sales exceeded Q4 ’21 by 29.2%.
• Retail segment sales exceeded Q4 ’21 by 11.3%.
• Frozen beverage segment sales exceeded Q4 ’21 sales by 18.2%.

Gross profit as a percentage of sales was 28.9% in Q4 ’22, compared favorably to 28.4% in Q4 ’21, and showed an improving trend versus Q3 ‘22 despite the still significant inflationary pressures facing the industry. Key ingredients including flour, oils, eggs, meats, sugar and dairy continue to experience inflation pressures and were approximately 4% higher than Q3 ’22 and 40% higher than Q4 ’21. Pricing actions implemented earlier in fiscal 2022 along with a third price increase at the end of Q4 ’22 combined with improved mix helped to partially offset these headwinds and are expected to provide additional benefits in future quarters.

Adjusted operating income was $25.8 million in the fourth quarter of fiscal 2022, compared to $27.6 million in the prior year period, with the decrease driven by the continued inflationary pressures, somewhat offset by growth across all three of our business segments. This led to net earnings in Q4 ’22 of $17.3 million, compared to $18.9 million in Q4 ’21. 

Total company fiscal 2022 highlights

Net sales increased 20.6% to $1.381 billion for full year fiscal 2022, versus full year fiscal 2021, reflecting strong performance across the full year. Key highlights include:

Food service sales grew 20.4% in fiscal 2022, compared to the prior year, led by frozen novelties, which benefited from the Dippin’ Dots acquisition, as well as churros, handhelds, pretzels, and bakery.

Retail sales continued their strong performance growing 7.1%, driven by soft pretzels and our frozen novelties business, and offset by a decline in our handhelds business.

Frozen beverages segment sales grew 32.1% as amusement, live event venues, convenience, restaurants, and retail venues continued to see increasing visitation metrics through-out the year, including the ongoing recovery in the theater channel.

Gross profit as a percentage of sales improved to 26.8% for fiscal 2022, compared to 26.1% for the prior year, with the increase largely attributable to the benefit of increased top-line demand, favorable product mix and corresponding margin efficiencies.         Fiscal 2022 operating income decreased to $61.8 million, versus $71.2 million for fiscal 2021, largely as the result of the aforementioned inflation pressures on operating expenses.

Fiscal 2022 net earnings decreased to $47.2 million, compared to $55.6 million in fiscal 2021. Our effective tax rate was 24% in fiscal 2022.

Food services segment fourth quarter highlights

Q4 ’22 food service sales exceeded Q4 ’21 by $58.0 million, or an increase of 29.2%, including approximately $31.5 million in sales from the recent acquisition of Dippin’ Dots.

Outdoor venues, including stadiums and amusement parks, as well as schools and restaurants and strategic accounts continued to experience strong sales across all of our product lines, including 228% increase frozen novelties largely due to the acquisition of Dippin’ Dots, a 43.8% increase in handhelds, a 38.4% increase in churros and a 10.8% and 2.8% increase in bakery and soft pretzel sales, respectively, compared to Q4 ‘21.

Sales of new products were approximately $4 million driven primarily by new bakery products, expanded placement of a Bavarian pretzel stick and an empanada product at major convenience customers.

Q4 ’22 operating income decreased 31.8% to $6.3 million reflecting the significant increase in input, production and distribution costs.

Retail segment fourth quarter highlights

Q4 ’22 retail sales increased 11.3% to $53.5 million, compared to Q4 ’21.

Soft pretzels sales grew by 29.5%, compared to Q4 ’21, while handhelds sales grew by 25.5%, and frozen novelty sales increased 6.6%. Biscuit sales decreased 14.8%, versus the prior year period.

New product innovation contributed approximately $1.5 million in the quarter driven by the continued success of the new Luigi’s gelato product and additional placement of Dogsters skus at major grocery retailers.

Operating income decreased 81.4% to $1.1 million, versus the prior year period driven by higher cost of goods sold and shipping and distribution related expenses.

Frozen beverages segment fourth quarter highlights      

Frozen beverage segment sales were $90.2 million and beat Q4 ’21 sales by 18.2%.

Beverage sales grew 19.5%, or $9.3 million higher than in Q4 ’21 led by improving trends at travel, sporting events, concerts, amusement parks and theater venues.

Machine Service revenues increased 11.8%, versus the prior year period reflecting healthy maintenance call volumes, while equipment sales increased 30.4% driven by strong growth from large QSR and convenience customers.

Q4 ’22 operating income improved to $14.2 million, compared to a Q4 ’21 operating income of $10.2 million, as strong sales drove leverage across the business.