For J&J Snack, churros are hot

by Monica Watrous
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A partnership with Mondelēz International to introduce Oreo Churros in quick-service restaurants and other food service outlets helped advance sales.

PENNSAUKEN, N.J. — Churro sales are up for J&J Snack Foods Corp., even after the company lost its biggest customer of the fried dough snack last year. The maker of Superpretzel, Philly Swirl and ICEE reported an 8% increase in net earnings for the second quarter ended March 28 to $14,637,000, or 78c per share on the common stock, which compared with $13,521,000, or 72c per share, in the year-ago period. Net sales advanced nearly 10% to $225,008,000 from $205,321,000. Excluding sales of Philly Swirl, which the company acquired in May 2014, sales increased 7% for the quarter.

The company’s churro business grew 9% in the quarter, following Taco Bell’s removal of the product from its menu in August. Excluding the loss of that business, churro sales advanced 28%. A new partnership with Mondelēz International to introduce Oreo Churros in quick-service restaurants and other food service outlets helped advance sales and is expected to drive significantly more business in the coming year.

“Oreo Churros, which is a terrific product and we’re getting a lot of interest in it, we’ve really just begun to sell the last couple of months, and sales are running roughly at a $500,000 to $600,000 of new sales in the last two months,” said Gerald Shreiber, chairman, president and chief executive officer, during an April 28 earnings call with financial analysts. “We think as we get a little bit further in the third quarter, this will ramp up considerably as the product is getting great, great reviews and it’s been getting great inquiries. And now, we’re going to have to execute on that, but we have a long list of customers. It’s now spring, and they want it in the spring as the new offering.

“And churro sales are growing overall. Even though we lost the Taco Bell business roughly about last August, I think it’s noteworthy that this category is up for us, despite the loss of the one big customer.”

Introduced last November, Oreo Churros are available in traditional churro sticks, double-twisted churros and bite-size churros and may be served with Oreo cookie creme dip, supplied by J&J Snack Foods, rolled in sugar or topped with a favorite ice cream.

“Oreo is well, well known,” Mr. Shreiber said. “On a positive side, we don’t have to explain what an Oreo is to (customers) nationwide. Years ago, and even more recently, we had to explain to people, well, what’s a churro? What is a churro? So I think overall, we might have a bigger pie to fill. But it’s going to take smaller bites in there. And it’s going to be added to the menu of existing operations. But I think overall, by this time next year, we’ll really have something to crow about with Oreo Churros.”

Meanwhile, the company is looking to get a hold on its handheld snack business, which declined 5% in the quarter. Brands include Supreme Stuffers savory pockets, Sweet Stuffers hand pies and Patio burritos.

“We’re not pleased with what’s happening,” Mr. Shreiber said. “We’re addressing certain things. We have plenty of capacity, plenty of capacity, and two exceptional U.S.D.A. plants. And we’re looking at ways to manage that capacity better and certainly, to grow the products better. And I would be less than candid with you and everyone else if I said we have all the answers. But trust me, we’re working very, very hard to correct that.”

Net earnings for the first half of the year were relatively flat at $25,893,000, or $1.38 per share, which compared with $25,947,000 and $1.38 per share for the first half of fiscal 2014.

Net sales for the six-month period increased 7% to $437,760,000 from $408,844,000.

“Sales to food service customers increased 5% for the quarter and 4% for the six months, in large part due to increased sales to school food service customers and convenience stores,” Mr. Shreiber said.

In food service, soft pretzel sales increased 6% for the quarter and 4% for the six months, Italian ice and frozen juice bar and dessert sales fell 7% in the quarter and 4% in the six months, and churro sales advanced 9% in the quarter and nearly 1% for the six months. Bakery sales increased 7% in the quarter and for the six months.

“Sales of products to retail supermarkets were up 24% for the quarter and 18% for the 6 months, and up 4% for the quarter and 2% for the 6 months without Philly Swirl,” Mr. Shreiber said.

In retail supermarkets, soft pretzel sales grew 5% for the quarter and 4% for the six months, Italian ice and frozen juice bar sales increased 9% in the quarter and 7% for the six months without Philly Swirl, handheld sales decreased 5% in the quarter and 6% for the six months, and ICEE and frozen beverages sales were up 17% in the quarter and 11% for the six months. Service revenue for others advanced 20% in the quarter and 16% for the six months.

Executives said the company continues to carefully evaluate acquisition opportunities.

“We’ve looked at some things that are very sizeable compared to the things that we’ve done in the past from $100 million up to $200 million,” Mr. Shreiber said. “We look at them very carefully. And again, we don’t want to take undue risk and buy something and then have to worry about it afterwards, that it doesn’t fit or we can’t integrate it properly, but yes, we’re looking at things.

“They’ve become more pricier. For one reason or the other, we have not executed on them. It’s not for our lack of trying. When I said we’re studying a couple of things, and we still are, we continue to look for acquisitions as a good use of our cash, given our conservative and well managed efforts.”
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