J&J Snack staying alert for licensing, acquisition opportunities

by Jeff Gelski
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J&J Snack Foods acquired Philly Swirl last May.

PENNSAUKEN, N.J. — J&J Snack Foods Corp. bought Philly Swirl less than a year ago, but the company already is considering other acquisitions. J&J Snack Foods began shipping Oreo Churros in December, but other licensing arrangements soon may follow.

Company executives talked about such potential future moves during a Jan. 27 earnings conference call to discuss J&J Snack Foods’ first-quarter earnings, which dropped 9%.

Pennsauken-based J&J Snack Foods last May acquired the stock of Philly’s Famous Water Ice, Inc. (Philly Swirl), which produces frozen novelty products sold to both retail and food service locations in the United States and Canada.

“We acquired it in May, and it’s a little company in Tampa, Fla.,” said Gerry Shreiber, president and chief executive officer of J&J Snack Foods. “We’ve watched its sales. We watched it establish a niche. It pretty much was under the radar screen.”

As Philly Swirl had annual sales of about $25 million, Mr. Shreiber said he understood J&J Snack Foods generally has bought smaller companies.

“We’ve bought some things over the years rather (economically) — I don’t want to use the word cheap — and we’ve had a unique, uncanny ability to fix them,” he said. 

 Now, the company is looking at a couple of bigger companies that are more premium in value, such as in EBITDA, he said.

“We have the ability to make these acquisitions,” Mr. Shreiber said. “We have the cash in our coffers. It certainly doesn’t burn a hole in our pockets.”

The company partnered with Mondelez to launch Oreo Churros in food service.

On the licensing front, J&J Snack Foods is partnering with Mondelēz International for Oreo Churros, which feature a crispy coating with Oreo cookie pieces throughout the churro. The item currently is available in food service.

“We’ve gotten fair — an unusual amount — of publicity on the Oreo Churro,” Mr. Shreiber said. “But the fact of the matter is, it was introduced at a show, at a convenience store show in October, and we really didn’t begin shipping product until December in there. So we’re not going to see, we’re not going to be able to have any kind of measurables on that probably well into the second or third quarter.”

Mr. Shreiber said J&J Snack Foods has looked at a couple of other licensing opportunities that would have helped J&J Snack Foods’ handheld items.

“But when we dug deeper and deeper into it and measured the impact of royalty and limited impact of what they’d done, it just did not make for good business deals,” he said. “One of them was in participation with a restaurant chain that was out there.”

He said J&J Snack Foods expects to add a license or two over the next couple of years.

J&J Snack Foods’ net earnings for the first quarter ended Dec. 27, 2014, decreased 9% to $11,256,000, or 60c per share, which was down from $12,426,000, or 66c per share, in the previous year’s first quarter. Operating income dropped almost $1.4 million to $16,610,000 from $17,971,000. Philly Swirl accounted for $951,000 of the decrease. First-quarter sales increased 5% to $212,752,000 from $203,523,000. Excluding sales of Philly Swirl, sales increased about 3.5%.

In food service, sales increased 3% in the quarter, largely because of sales to education and school food service customers. Bakery sales increased 8%, and soft pretzel sales were up 4%. Italian ice and fruit and frozen juice bar dessert sales were unchanged. Sales fell 7% for churros.

In retail supermarkets, sales were up 11%. Excluding the benefit of Philly Swirl, sales fell by less than 1%. Sales of frozen juice bars and Italian ices increased 6%, and sales of soft pretzels were up 3%. Handheld sales fell 8%. Frozen beverage and related product sales were up 5%.

“Although we were slightly disappointed in this quarter’s results, we point out that our core products remained fertile, and we look at this quarter as an aberration,” Mr. Shreiber said. “We are continually optimistic about our long-term prospects.”
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