JJSI Financial Analysis

Analysis Date: 2/5/2025

Business Model

J&J Snack Foods generates revenue through the manufacturing and selling of branded snack foods and beverages to foodservice and retail supermarket outlets.

Revenue Sources

• Food Service Segment: Sales to foodservice outlets.
• Retail Supermarket Segment: Sales to retail supermarkets.
• Frozen Beverage Segment: Sales of frozen beverages, beverage machines, and related services.

Revenue Distribution by Channel

• Food Service: $238.9 million (Q1 2025)
• Retail Supermarket: $44.7 million (Q1 2025)
• Frozen Beverages: $79.0 million (Q1 2025)

Income Statement Analysis

• Revenue increased by 4.1% year-over-year, driven by volume growth and price increases across all segments (Food Service, Retail Supermarket, and Frozen Beverages). (Pro)
• Cost of goods sold increased at a higher rate (5.9%) than revenue (4.1%), leading to a decrease in Gross Profit. (Con)
• Gross margin decreased to 25.9% from 27.2% due to unfavorable sales mix, input cost inflation not fully offset by price increases, and foreign exchange headwinds. (Con)
• Operating expenses increased by 3.3%, but as a percentage of sales, it slightly decreased to 24.2% from 24.4%. Distribution costs decreased as a percentage of sales, benefiting from strategic initiatives. (Neutral)
• Operating income decreased significantly by 35.6% due to lower gross profit and increased operating expenses. (Con)
• Net earnings decreased by 29.4% year-over-year, reflecting the decline in operating income. (Con)

Balance Sheet Analysis

• Cash and cash equivalents remained relatively stable. (Neutral)
• Accounts receivable decreased by 13.4%, which could indicate improved collection efficiency or lower sales at the end of the quarter. (Pro/Neutral - needs further investigation)
• Inventories decreased slightly by 2.0%, which could be a positive sign of inventory management. (Pro)
• Prepaid expenses and other current assets increased significantly by 39.2%, which needs further investigation to understand the driver. (Con/Neutral - needs further investigation)
• Total current assets decreased by 5.1%, mainly due to a decrease in accounts receivable and inventories. (Neutral)
• Property, plant, and equipment, net, slightly increased by 0.6%, indicating continued investment in fixed assets. (Pro)
• Total liabilities decreased slightly by 1.7%, driven by a decrease in current liabilities, particularly accounts payable and accrued compensation expense. (Pro)
• Total stockholders' equity decreased by 1.1%, primarily due to a decrease in retained earnings, likely due to net earnings not fully offsetting dividends and other comprehensive loss. (Neutral)
• Company has no long-term debt, indicating a strong financial position. (Pro)

Capital Allocation

The company announced a new $50 million stock repurchase authorization, effective for two years, indicating a focus on shareholder returns. Dividends were paid, as reflected in the cash flow statement. Management emphasizes opportunistic capital deployment, balancing share repurchases with investments in organic and inorganic growth opportunities and maintaining financial flexibility. Reinvestment in business is evidenced by capital expenditures in property, plant, and equipment.

Management Commentary

Delivered solid top line growth of 4.1 percent to $362.6 million driven by a combination of volume increases and pricing.

Frozen beverage business achieved record 1st quarter results on a rebound in theater traffic.

Board has approved a new $50,000,000 stock repurchase authorization.

Gross margin declined to 25.9% from 27.2% compared to the prior year.

Unfavorable mix impact during the quarter primarily reflects 2 items. The first is the loss of some seasonal business within bakery with a declining margin profile that we bid on, but did not retain. The second is attributed to lower churro volumes in foodservice.

We experienced significant inflation in chocolates, eggs and proteins that was only partly offset by deflation primarily in flour and dairy.

Overall Sentiment: Neutral. Management acknowledges near-term challenges related to margin pressures and sales mix but expresses confidence in addressing these issues through pricing actions and operational efficiencies. They highlight positive aspects like top-line growth, record frozen beverage performance, and a new share repurchase authorization, balancing the negative impacts on profitability. The overall tone suggests a cautious optimism with a focus on recovery and long-term value creation.

Recommendation

Rating: Hold

Reason for Rating: Hold recommendation based on mixed performance in Q1 2025. While revenue grew, profitability declined due to margin pressures and unfavorable sales mix. Management is taking actions to improve profitability, but near-term challenges persist.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/5/2025, 7:58:26 AM