J & J Snack Foods Corp (JJSF) 2005 Q2 法說會逐字稿

Good morning everybody, and thank you for attending our second quarter conference call. I'm Jerry Shreiber, and with me today is Dennis Moore, our Senior Vice President and CFO; Bob Radano, our Senior Vice President and Chief Operating Officer; and Michael Karaban, our Senior Vice President of Marketing.

We're also joined today with special people in our food service and marketing group that were having a meeting of their own, and I've invited them to listen in to the conference call.

Let me begin with the obligatory statement. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements.

You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof.

We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Results of operations. Net sales increased 4% for the quarter, and 13% for the six months, excluding Country Home Bakers, acquired in January of '04, sales increased to 6% for the six months.

For the quarter, our net earnings increased to $3.8 million, or $0.41 a share from $3.3 million, $0.36 a share a year ago.

For the six months, our net earnings increased to $6.3 million, $0.68 a share, from $5.2 million, $0.57 a share, a year ago. This past quarter marks the 16th straight quarter of increased earnings over the prior year, that's 16 straight quarters.

Our EBITDA for the last 12 months reached an all-time high of $61.4 million for a 12-month period.

Food service. Sales to booth service customers increased 4% for the quarter and 15% for the six months. Without Country Home Bakers, sales increased 3% for the six months, so our pretzel sales were up 2% in the quarter and for the 6 months.

Excluding sales of pretzels resulting from the recent Snackworks LLC acquisition near the end of March, soft pretzels were up a little more than 1% for the quarter and 6 months.

We estimate the National Hockey League strike impacted pretzel sales by about 1 to 1.5% for both periods.

Italian ice and frozen juice bars and dessert sales increased 11% in the quarter, and 10% in the six months. Increases in sales were to school food service customers, and to warehouse club stores.

We expect higher sales to continue through the balance of our fiscal year as in the same period last year, we had lost some skewed shelf space in the warehouse club stores due to the low carb phenomena, which now appears to have run its course.

Churro sales to food service customers increased 11% for the quarter, and 8% for the 6 months, as sales increased across our total customer base. Sales of bakery products increased 4% for the quarter, and 20% for the six months. Excluding Country Homes, sales of bakery products were up 3% for the six months.

Retail supermarkets, grocery stores, sales of products to retail supermarkets increased 5% for the quarter, were up 8% for the first six months.

Soft pretzel sales, led by the geographic expansion of pretzel fills, and by increased sales of Super Pretzel in existing markets, were up 23% from a year ago for the quarter, and 21% for the 6 months. Indeed, a very healthy increase.

Sales of our frozen juices and Italian ices were down 2% in the quarter, and less than 1% for the 6 months as this product line continues to un-perform in the short term. Couponing costs were up $726,000 in the quarter as we attempted to gain new customers, and new trial and long-term customers.

The restaurant group. Sales of our Bavarian pretzel bakery decreased 28% for the quarter and 29% for the six months due to the closing or licensing of unprofitable stores.

This was a strategy that we had adopted some time ago and we're pleased to say that it appears to be working out very well.

We've closed 5 stores so far this year, and have 25 remaining open stores at quarter end. ICEE and frozen beverages and related product sales increased 7% for the quarter, and were up 14% for the 6 months.

Machine sales. ICEE drink machines, were $4.1 million higher for the 6 months compared to last year, and accounted for about 60% of the 6 month sales increase.

Beverage sales alone were down slightly 1% for the quarter, and were flat for the 6 months. We continue to emphasize growing our managed service business to take advantage of our strong, tactical national service infrastructure. Revenue from this business was up 45% for the quarter, and 45% for the year.

Consolidated. Gross profit as a percentage of sales decreased by 6/10th of a percent in the quarter, mainly due to increased couponing costs in the retail supermarket business. Total operating expenses as a percentage of sales decreased to 26% from 27% a year ago for both the quarter, and 6months.

Marketing expenses dropped to 13% of sales in the quarter, and six months from 14% last year, due to lower spending throughout all of our business groups. Distribution expenses increased to 9% from 8% in last year's period due to the higher cost of gasoline and energy and third-party freight and trucking costs.

Administrative expenses decreased by about 1/3 of a percentage point of sales for both periods. Operating income increased by 11% in the quarter, to $5.7 million from $5.1 million last year, and increased 18% in the 6 months to $9.3 million from $7.9 million last year.

Capital spending and cash flow. Our balance of cash, and cash equivalents and marketable securities decreased $11.6 million in the quarter to $15 million in the quarter as a result of the acquisition of Snack Works, which was completed on March 17.

Our capital spending was $9.8 million for the 6 months. We are projecting capital spending to be about $20 million again this year, which we estimate will leave us with free cash flow, operating cash flow less capital spending, of 25 to $30 million.

We paid a regular quarterly dividend again on April 5 of 12 1/2 cents per share, and that amounted to about $1,133,000.

Snackworks LLC acquisition, as previously announced on March 17, we acquired the assets of Snackworks LLC doing business as Bavarian Brothers, a manufacturer of soft pretzels headquartered in Rancho Cucamonga, California.

Snackworks operates production facilities in California and Chambersburg, Pennsylvania and markets its products under the brand names Seriously Twisted, Bavarian Brothers, and Cinnapretzel.

Snackworks sells throughout the continental United States primarily to mass merchandisers and theaters. Annual sales are approximately $11 million.

Although we are not completely satisfied with our overall sales growth of 4% this quarter, we have several reasons for optimism. With the exception of soft pretzels, our food service product lines had strong growth in the quarter.

As I mentioned previously, we have realigned the selling structure of our food service business to take advantage of certain strengths.

This, combined with the acquisition of Snackworks, should enable us to continue to improve sales growth in this area. We have also made some progress toward our goal of penetrating the casual dining and bar market with appetizers.

We have been designated the exclusive supplier of stuffed pretzels by Cisco, and we have a market test with a 1,200 location restaurant chain for our funnel cake product scheduled for this summer.

We're also expecting a better upcoming season for our frozen novelties as, I mentioned before, as last year, we were displaced in some warehouse club stores because of low carb product offerings.

We introduced three varieties of Pretzelfils in the supermarkets in September of 2003. Pretzelfils are filled with pop bite-sized soft pretzel sticks.

Based on their success in the past year, 2004, we are rolling out the Pretzelfils into other markets, which resulted in a 23% increase in overall retail soft pretzels this quarter, a 21% increase for the 6 months, which come on top of a 13% increase for the year 2004.

We are cautiously optimistic that we continue - that we can continue this strong growth trend.

We have just introduced another Coca-Cola brand, a Fana brand frozen novelty product, in select markets. We have expanded our selling markets for BarQ's floats.

In retail, we aggressively couponed this past quarter, which impacted our earnings for the quarter, but in hopes of gaining new end users and building for the future.

ICEE beverage sales alone in our frozen beverage segment were down 1% in the second quarter and are flat for the year. The continued decline in a major customer that we service continues.

We are considering to pursue other opportunities in the managed service area as we continue to grow in profitability of this part of our business.

As stated before, we are aggressively pursuing exit strategies for our restaurant business, and to closing or licensing to others, 18 stores in 2004.

We have closed 5 additional stores so far this year, which had $200,000 of negative cash flow in 2004. After closing these stores, we have 25 stores still operating, now, only a few of which lose money.

Our goal is to continue on this path and to close down or license to others the money-losing stores as quickly as we can. If we accomplish this, while at the same time, we do see overhead supporting the remaining stores, we should be able to reduce the losses significantly from this business.

Excluding gains and losses regarding the closing of the stores, losses in this segment and our restaurant group were reduced by approximately $150,000 in the second quarter from a year ago.

Although the overall prices of food commodities are still high by historical standards, the year-over-year impact continues to be less with each passing quarter.

However, high gasoline and trucking costs and natural prices of electricity and natural gas have taken their place in impacting our bottom line. The impact of these higher costs in the second quarter was over $500,000, and it's possible the increases may be higher going forward.

We expect to continue the impact of our increased group health insurance costs and liability insurance costs, and that means this year's cost for health insurance will be more than $1 million higher than last year.

Our robotics packaging equipment has been installed in our frozen juice bar manufacturing facility, and is running near full efficiency.

Robotics equipment at our Pennsauken manufacturing plant is being tested on line and we expect it to be fully operational in the fourth quarter of this year. We have increased our estimated income tax rate for 2005 to 37% from 36% in 2004, due to increased state income taxes we expect to incur.

We've also conducted a process of complying to the requirements of Sarbanes-Oxley.

This process is quite onerous and expensive. We presently expect external costs to comply to be in the range of 500,000 to $700,000, of which we have incurred about $100,000 through our second quarter.

I thank you for your continued interest and support. We think we had a decent quarter. We're looking forward to having a good third quarter and good fourth quarter and having another record year.

I'll turn it back to the listening audience for questions or comments.

Thank you. We will now begin the question and answer session

[Operator Instructions]

The first question comes from Mitch Panero (ph). Please go ahead.

Yes, good morning.

Good morning, Mitch.

Hey, looking at the profitability, I mean, it's sort of a little concerning just to hear. There was $500,000 of increased fuel and energy costs, in the second quarter, and it may be higher in the second half, I believe you said.

A million dollar incremental cost for the insurance, medical and liability.

You add to that about half a million dollars to 700,000 in the external costs related to SOX compliance, so there's like $2 million or roughly $0.14, $0.15 cents a share of cost headwinds that you have, you know, for the full year '04.

And a lot of that looks like it's going to come in the back half, at least three-quarters of it is going to come in the back half.

So how are you going to (a) offset that pressure? Are you anticipating any crisis, higher pricing?

Mitch, this is Jerry. And you've got good instincts. You've been following us for a long time and we kind of like under promised and over delivered.

We've been doing this for years and years. We're going to win the game whether there is consolidation of retailers or whether there is a higher energy cost or higher healthcare costs or commodity costs in there.

We have a lot of flexibility. We have a lot of things that we've done. Our business is still very, very fertile and, you know, again, we're going to win the game.

OK. I understand that from, you know, let's say you certainly have overcome sort of every challenge that's been presented over the - really as long as I've followed you and I don't dismiss your ability to do that here.

Specifically for fiscal '05, and specifically for the next two quarters, do you still think you can win the game in the next two quarters?

I know you can do it over a period of time. I'm just specifically, are the headwinds, you know, onerous, or as you said, you have flexibility, to accomplish what you want to accomplish?

We've got more sale width, and momentum, all right, to beat down these headwinds.

OK. Does pricing come into that all?

We take a look at pricing sometimes on an aggregate level, sometimes on a selective basis. We think that there maybe some opportunities for pricing.

There's also some opportunities -we're really enthused with some of the products that we're getting from the Snackworks acquisition and as good produces, and we've proven that over the years, we think that we can drive some cost out of that product, and if we can do that, and do it pretty quickly, we'll get -- you know, we'll improve the margins a little bit, which need to be improved quite frankly and then we'll go from there.

So Snackworks might be accretive back half of the year ...

That's what our plan and goal is, and we've made acquisitions before. We've fit them in, and we've made them work, so it's not like, you know, we have to send a whole bunch of people to school to learn to do this.

OK. Now, if you're looking at your business, sort of just one more question, I'll yield the floor after this, if you -- FCB is obviously, you know, a second half story, and so how reliant are you --how much of the headwind is offset by the FCB business?

I don't mean just because of its strength in the back half, but it's a large part of your profitability ...

Hey, ICEE has to have a good second half of the year. When the weather is hot, and the kids are out of school, and the amusement parks are opened up in there, ICEE pours drinks, and it sells. It's -- you know, it's a pretty basic piece of business for us.

Barring the roof from falling in, and a bunch of days of rain or what not, you know, we expect to be OK.

Is there any chance that you have -- are there any other I guess one time factors, any risks in the ICEE business that you're concerned about?

Well, ...

Besides weather.

... over the past several years, that ICEE has gone through, you know, and met a lot of its challenges.

We have one big customer that still continues to decline at a double-digit rate. There's not many clicks left in the numbers there, and it still continues to decline into double-digit rates.

ICEE continues to explore new opportunities, both in managed service business for its traditional ICEE drink. We made a very small acquisition to complement our frozen uncarbonated beverage business in there, so we're doing a lot of things that I see right, thousands of things right every single day, and we expect the ICEE to, you know, deliver a stellar performance the second half of the year and to have a decent year.

I'll yield the floor. I have a couple other questions, but I'll yield right now.

Your next question comes from Mark Secondow (ph) please go ahead.

Good morning.

Good morning Mark, how are you?

Good. On the Snackworks deal, looking at the price paid, you know, you know, even if you were to get a 10% plus EBITDA margin, it still looks like your paying a double-digit EBITDA multiple.

Is there something different about this acquisition or am I -- is there some kind of wrong assumption that you would pay less of an EBITDA multiple than that? It seems I guess a little high, given your history for buying things on the cheap.

Let's say that I paid more than I wanted to, and less than what the owners wanted, but we think, and to some degree you're going to have to look at our track record, we think that it's a nice careful bid that will be accretive very very quickly, and we'll be able to grow it in years to come.

And would you comment on -- you know, did you have a pretzel production facility up in New England, not too far from where you are? Would we be looking to consolidate these facilities? I would imagine that you have the capacity to take on that kind of volume and stock in (ph).

We're still looking at these issues now, Mark. As a matter of fact, the facility is in Chambersburg, Pennsylvania, which we have visited. Our people are on top of that, and I think quite frankly that facility has been impressive to us, the facility and its people.

The one in Rancho Cucamonga, we're looking at it with a more strategic economy of scale, if you know what I mean, and we've given that assignment to Jerry Law (ph) to consolidate it into our Vernon bakery operations, but we think that between gleaning some efficiencies and gleaning some cost out, that we're going to be accretive pretty quickly, and just like when you looked at Uptown a couple years ago, or Country Home a year ago, or whatever other acquisition, we made them, we made them fit, and we continued on.

OK, switching over to ICEE, was there anything outside of, you're declining customers, is there anything of your other customers, especially on the entertainment side that was concerning, headed into the back half of the year, when you were really dependent on ICEE sales (inaudible) down one %, at least the beverage piece was down one % in the quarter.

Entertainment side, you mean amusement parks and what not?

Yes.

Not really, no.

OK.

Now, we have a standard word that rears its ugly head whenever sales are flat to down, and whether or not weather played a role not, I'm not so sure.

I refuse to accept weather from my people, and so if we had a little bad weather in February and March that impacted it, it was a bad winter months, so it really doesn't matter much.

We get some decent weather from May through September in there, hey, you know, we're going to benefit a lot more than what the burden was in February and March.

Yes. Now, also, you know, a few calls ago I think you had talked about more efficient trade spending. You know, getting more bang for your buck when you're working with a trade.

You know, how does the couponing strategy fit in there? You know, what drives that? It seems as though pretzel fills was growing nicely, even without necessarily an aggressive couponing strategy. So I guess could you walk us through the, you know, what kind of returns you think you're getting?

Here's what we did: Last year, during the second quarter, pretzel sales were a little bit soft. All right? And my people came to me this year and we aggressively expanded pretzel fills for the year, and we did something a little bit different to pull against the consumer.

We decided to embark on a fairly aggressive couponing, and including $1.00 off of a box of pretzels, any pretzels, but primarily, you know, designed for the new pretzels fill product, and since a lot of this was new areas for pretzel fills in there, we wanted to create, you know, new users, new triers. Now, was this aggressive, was it too aggressive?

I don't know that, all right? I know that in this particular case I would rather spend a little bit more than not enough, all right, and regret it next year and the year after.

But our people are fully aware, you know, of what they're doing and managing it, and we expect that this product will continue to grow and that the -- we will be able to grade ourself on this, and be able to react accordingly in future quarters and years.

OK. Also, the Snackworks seems to have a lot of amortizable intangibles. You have I guess a totaled D&A number I guess we should use on an annual basis now?

Well, we have something that we've estimated here. I think what we're going to be doing is getting...what?

Yes, Mark. This is Dennis. At this point, we're estimating about $1 million of additional D&A related to Snackworks, however -- well, actually, including the CKs (ph) it's probably closer to $1.5 million.

However, you know, we're having evaluation done by a third party, so the numbers will be adjusted prior to the June 10-Q, and we just -- we did not have enough time to get the third party evaluation done to really, with what the numbers would be.

OK, thank you.

You know -- and this is Jerry. Going back, and you only have to go back about five, six years, when we had a lot of depreciation on the books on an ongoing basis, it's not a real big significant number for us.

OK, thank you.

The next question comes from Bob Costello (ph). Please go ahead.

Hi, I just had a couple of quick questions. The restaurant business, when you exit the business, what are the savings ongoing that you anticipate, once you franchise out banks at the business? You had 25 stores you mentioned.

Bob, this is Jerry. I don't know if we're ever going to close down all the stores. We have a few stores -- four stores that do very, very well. As a matter of fact, they serve as -- we use them for some R&D efforts.

They're part, you know, aligned into a branch distribution, so we may get down to a core 10 or 12 stores, but we think that the savings going forward when we license out I guess half of what -- or relations or seller close this, will be in the couple hundred thousand dollar range.

OK.

It'll be a little bit, but in the overall scheme of things it's not as significant. You know, we adopted a strategy a few years ago. It took us a little while to get it into place, but Mark Froehlich (ph), and we have a young guy backing Mark up, Gavin Mudder (ph), have been executing this strategy very well, and we're pleased with what's happening.

Regarding ICEE, what distribution channels can you mention where you're seeing the most growth right now?

Well, you know, we're still heavily connected with the mass merchandisers. ICEE has been doing more business trying to develop its school and educational distribution channel, and convenience stores is a big channel for us.

ICEE is also testing its products in the fast food restaurant business. And of course, you know, the theater group, notwithstanding the consolidation that it's been under the past couple years, is a big part of distribution.

On the CStore side you have the Wawa chain locally, with a lot of the machines in there. What about outside of the mid-Atlantic? What's your penetration rate in that segment?

Inside the mid-Atlantic?

Right.

We have Circle K in the South and the West. We have White Hen, which is in the Midwest. We have some pantry stores.

We're probably in most of the major -- the major CStore petroleum store chains, with the exception of Southland 7-Eleven, which sells their own branded product, called Slurpee. Vallero Energy, V-A-L-L-A-R-O, which operates I guess under about 6 or 7 CStore different names and brands, primarily in the South, Southwest, through Texas, there may be close to 2000 stores.

That's a newer chain that we have been working with and implementing a successful sales program within the past year.

Right. Two last questions; you mentioned the Sarbanes Oxley costs. Are they going to the ongoing or at a onetime? The 5 to 700,000.

Probably -- I would say more than half will be onetime, but there will be costs going forward.

Right, and last question on the couponing, I noticed them in the paper on the pizza products. You know, the pretzels. Is that a onetime thing you're going to do at this time of the year or do you expect to do it until you see sustainable demand that meets your expectation?

This was our second couponing drop, I believe, all right? And we measure that and we're in the process of measuring that, and I would love to have reason to continue to do this.

However, however, and I'm not just looking to reward existing loyal buyers and consumers with a dollar a case off, if you know what I'm saying.

Right, right.

We're looking to get new triers, new trials. We think we've got a terrific product, and this is a strategy that we believe can work and should work, and by getting the product into somebody's hands and mouth to taste, we think that we will create a loyal consumer.

And it's not just the pizza, all right? There's cheese, there's mozzarella, there's onion veggie. I mean there's for all five different products, and they're all savory and they all have their, you know, their appeals.

Thanks a lot.

Thank you. Incidentally, there's one community store chain I forgot to mention, and that's AMPM. AMPM has been a loyal and a good customer for us ...

What about Kroger?

We're in some Kroger communities for us too.

Right, yes, because they are a big operator. Thanks again.

You're welcome.

Your next question comes from Brian Raffin (ph). Please go ahead.

Good morning, Jerry.

Good morning Brian, how are you?

Pretty good. Could you kind of drill down, Jerry, on the food and commodities, and can you give us a sense where sure go, flour, eggs, teas are? Are you at a higher plateau but it's stabilized? Is it rolling over and kind of what -- you know, if you say -- you look at your costs may be three, four years ago, where you'd be today.

Well, actually a couple of years ago, we really had some real headaches. These things were running faster than we could get a hand on them. We think we're pretty comfortable now, but I'm going to let Dennis ...

You know Brian, in 2003 our commodity costs were up about $4 million compared to the prior year. Last year, 2004 versus 2003, probably about half of that, and this year we're expecting to the even less than half of that again. So at this point we would say less than $1 million higher compared to last year for the full year.

OK. Then you guys made a comment on your distribution costs being up about nine percent. Is that pretty much all fuel charge surcharges or is there any volume statistics in there? Can you know, from just higher volumes going through your carriers.

No, it's up to 9% of sales.

Oh, OK.

So it's really up about 11 1/4 % what not, and it really has to do with the cost of fuel and overall freight costs.

You know, the Department of Transportation has issued rules and regulations. Probably has cost the independence, as well as the big national carriers, something to comply with that.

They passed off some costs, some of them regulatory, some with out, so we've had some increased costs and direct freight costs, and the rest is by our fuel, but we think we do a pretty good job managing our overall logistics and distribution of freight costs.

OK. Can you give us a sense -- you guys were talking about the placement of ICEE, specifically in the academic -- the education school area. There's been some -- I don't know if it's a social rebuff, relative to soft drinks, sugary, sweet, snacks in schools in vending machines.

Have you guys come across that being in the snack food business at all from that distribution channel?

Yes, we have, and we have a school foodservice specialist, Mimi Ford, who is Director of our School Food Service Initiative, who has been teaching us and training us, and been making sure that we are the real -- you know, that we are the truck, and we're listening to what's going on there. ICEE has reformulated in the ICEE squeeze cubes about a year, a year and a half ago, so it contains enough juice to meet the threshold and hurdle of school foodservice, and we are in the process of reformulating some of our other products, mainly cookies.

Fortunately for us, you know, pretzels appear to be like not only, you know, meeting the standards and the guidelines, but even encouraged, and so you know, that's something that everybody has gone through and transfats and labeling, and we're going through it too, and I guess suffice to say that, you know, that our organization is skilled and poised to handle it.

OK, good. Relative to -- you guys had mentioned I think the impact of the Atkins and the South Beach. What's kind of your volumes in the freezer, case, and the warehouse clubs, relative to some of your frozen snacks and that? Are you getting more volume, more shelf space, more fridge space?

Well, we are recovering -- recapturing these shelf space that we had in the warehouse and club stores perhaps two years ago that we lost may be a few SKUs, but heavy volume, with the Sams and Costcos and B.J's a year ago, and mainly because, and with all due respect to the claims and the phenomena of Atkins, you know, it has -- anything goes up that fast, you know, generally will come down and correct.

So we look at it as an opportunity. We will have more products and SKUs for sale there. We expect to have a much better season, and we're just getting into the season right now, so we're all ready, we have good products, we have commitments, and take a look at these stores and look for our Minute Maid, and our Luigis, and our ICEE products in there, and we have quite a few products that have been selected, chosen, for some very limited shelf space, so we're looking to have a pretty good year this year.

OK. Can you kind of give us a sense of the product line of Snackworks, and what types of products you might be able to leverage on volume? And if you could bring some of your current J&J Snack food pretzel products back through their production manufacturing facilities, can you give us a sense where that might work out?

Snackworks produced and sold a line of gourmet soft pretzels, kind of like high-level upper priced. One of them was a product that had -- by design it had some superior shelf life, which allowed itself to be sold through locations in there, including theaters where they had made some real good progress in getting the product accepted throughout.

It also licensed the Cinnabon name and they were selling a combination soft pretzel with a Cinnabon middle together with some specialty icing, the same icing that Cinnabon uses in their locations.

That product which they spent the past year trying to get the product, pretty much down from a quality standpoint and going to get tested in t he selling arena. We think that product has some tremendous potential, we want to make sure that we do it justice, the sizing and the margins are right and that it be given the full benefit to grow with in our network.

So we think that the resources that we bring with our food services group and together with the manufacturing expertise that we have, because no body makes pretzels as efficient as we do, we think that we can improve the Snack Works over all efficiency and be able to sell that product throughout several different channels.

Okay. Given your success with Barqs float product, the pretzel fill, the acquisition of Snack Works. Does that - - are you right now in kind of a position where some of the R&D pipeline of development of new products is maybe waning a little bit as you're out moving to kind of develop and build volumes in some of the issues that you just launched or are the R&D guys still in the laboratory - - ?

On the contrary. And you make a good point. One of the reasons we're having the meeting here is because we're reviewing our last meeting, I think it was in February, the R&D Initiative. We have our marketing people and our R&D people and our sales people here because we have a half a dozen different items, some designed for schools, some designed for restaurants, some designed for all over, that we expect to launch in the second half of this year which begins now. Sometimes things never happen as fast as you would like them, or I would like them but I really think that our R&D group has done a tremendous job in the past year launching some new products. They're not all going to work, alright? But it won't because they're not good products and it won't be because the effort wasn't there from our people.

Okay. And one final one. Ah, Jerry, relative to, you mentioned Icee, relative, do - - you mentioned certainly its leveraged to weather. Is the sales in theaters and that, do you have to have, is there a correlation to volumes in the theater distribution chain relative to how well the box office does number of $200 million pictures that are released in the summer. Does that leverage at all with your volume of Icee?

More people watching movies means more customers, and then it's a matter of getting their per capa. We get good space in a theater and if it's a kids theater, if somebody is watching Catching Nemo, or Finding Nemo or Where's Rudney in there, you're going to have a lot of kids in the movies and they're going to buy Icee, they're going to buy pretzels.

One of the things that Snack Works had done, they had executed a delivery system where their pretzels were able to obtain upfront shelf space in the theaters because of a specialty warmer that they had designed into the system there.

So if we can't produce movies for Hollywood, at least we can't so far, alright? But we can get our products into the theaters and have them, end point of sale, and have them popularly priced, as popularly priced as you can be in a theater. We expect to grow that business this year over all, both in pretzels and perhaps in beverage too.

Okay, superb job guys, you make my job a lot easier. Thank you.

The next question is a follow up from Mitch Panero(ph). Please go ahead.

Yeah, hi.

Hi Mitch.

Hey, just a couple things. One acquisitions, anything - - how's your pipeline look?

Well, Mitch, you know how we look at things and we don't just make acquisitions for acquisitions sakes and we're kind of particular. So saying all that, Dennis and I look at something often and is there anything that's going to happen today? No. Is there anything that's going to happen in the near term, in the next 6 months or so? We're working on it. Anything we do, we expect it to be [acreative], anything we do we expect to make it work. So we're going to continue to grow our business by - - organically from within and when we make an acquisition we'll grow by acquisition too.

Is there anything - -

We're looking at things.

Is there anything outside of our core competencies - - is that - - what I mean is there any new sort of initiative, new businesses that you're looking at or are they staying within our core competencies?

We did go outside our core competency, I would expect our core competency to increase proportionately quickly.

I got you.

We're not going to go into something that's, myself and my team would have to hopefully learn in a hurry.

Okay.

Who knows, there's some niches out there that are still undiscovered you know. We're looking at a couple things, sometimes we have to kick the tires again and again and again to make it real. I'm not going to - - we've worked too hard for too long and I owe too much to too many people to go out there and to make something monstrous in there because somebody says we need an acquisition.

We spend every dollar like it's our first or our last and I think that's a pretty good strategy. Yes, we're looking at acquisitions, we'll probably be making something in the future and we want to make real real sure that we understand how it's going to fit and work.

Okay. Last question, this relates to earnings for this year. I know you don't give formal guidance. The first half - -

Neither does General Motors anymore, huh?

You know it. You started a trend.

The first half was up 21% and I know the first half's only about 25% of your total company earnings, so in the second half, and I just sort of did back of the envelope math, which is always dangerous, I figure you only need to get 7% earnings growth in the back half to sort of hit a double digit growth rate for this year.

And so far, you know I'm just going back the last, jeez, 8 quarters or so, you've exceeded double digit growth in practically every quarter, so almost by - - unless there's something that's changed, it seems that exceeding a 10% year over year earnings growth for '05 seems very achievable if not, if not maybe on the low side. Would you have any comments surrounding that?

We don't give guidance but your math's pretty good.

Okay. That's it from here. Thank you very much.

Thank you Mitch.

Gentlemen, at this time there are no additional questions. Please go ahead with any concluding comments.

This is Jerry, on behalf of myself, and Dennis, and all of our people who are in this conference room listening and all, indeed all of our employees and share holders, I thank you for your continued interest and support. I look forward to talking to you in a few months and reporting equally as good news. Thanks you.

Thank you for participating in today's teleconference, you may all disconnect at this time.