J & J Snack Foods Corp (JJSF) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the J&J Snack Foods second quarter earnings conference call.

(Operator Instructions).

I will now turn the call over to Mr.

Gerry Schreiber, President and CEO.

You may begin.

Good morning, everyone.

This is Gerry Schreiber, and with me today is Dennis Moore, our CFO and Senior Vice President; Bob Radano, our Senior Vice President and COO; and Vince Mechiorre, who is our Executive Vice President of Sales and Marketing.

I will report on the quarter and then be happy to take questions and comments from the field.

Let me begin with the disclosure 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.

Overall, we had another good quarter.

Actually, if we can say that, we had something to crow about.

Net sales increased 4% for the quarter and 6% for the six months.

For the quarter, our net earnings increased by 81% to $7.2 million, $0.39 a share from $4.0 million or $0.21 a year ago.

For the six months, our net earnings increased by 96% to $0.62 a share from $0.31 a share a year ago period.

Our EBITDA -- earnings before interest taxes, depreciation and amortization -- for the past 12 months climbed to $83.5 million.

Food service.

Sales to food service customers increased 5% for the quarter -- which is not insignificant, given the general difficult times in the economy -- and 7% for the six months.

Soft pretzel sales were down 1% in the quarter and up 1% in the six months; but unit sales declined in the quarter and for the six months.

Italian ice and frozen juice bar and dessert sales increased 4% for the quarter and 3% for the six months.

Churro sales were up strong, 16% in the quarter and 24% in the six months, primarily due to sales to one customer.

Bakery sales, excluding biscuit and dumpling sales and fruit and fig bar sales, were up 5% in the quarter and 7% for the six months.

Biscuit and dumpling sales were down slightly in the quarter and up 2% for the six months; and fruit and fig bar sales were up 23% and 24%, as sales to its channel segments -- including dollar stores and discount grocery stores -- increased through improved penetration and geographic expansion.

Retail supermarkets.

Sales of products to retail supermarkets were up 4% in the quarter, and were essentially unchanged for the six months.

Soft pretzel sales were up 5% on a case volume decline of 6% for the quarter.

Let me repeat that.

Sales were up 5%, although case volume decline was 6% in the quarter, and up less than 1% on a case volume decline of 12% for the six months.

Sales of our frozen juice and Italian Ices were up 1% on a case volume increase of 18% in the quarter, and down 3% on a case volume increase of 7% for the six months.

ICEE and frozen beverages.

ICEE and frozen beverages -- which includes our other brands, Arctic Blast and Slush Puppie and related product sales -- were down 1% in the quarter and up 4% for the six months.

Beverage sales alone were up 2% in the quarter and 3% for the six months.

The beverage dollar sales increase resulted from a change of program structure for one customer, which resulted in both higher sales and higher cost of sales and operating expenses.

Without this change in the program structure, beverage sales would have been down less than 0.5% for both periods.

Gallon sales were up 1% in our based ICEE business in the quarter, and down 1% in the six months.

Service revenue for others was up 11% in the quarter and 21% for the six months, as our managed service business continued its excellent performance.

Sales of frozen carbonated beverage machines were down $1.6 million in the quarter and $1.7 million for the six months, reflecting a downturn in the economy and the acquisition of machines by this segment.

Consolidated gross profit as a percentage of sales in the quarter increased to 30.4% from 28% last year, and to 29.6% in the six months from 27.5% a year ago.

We benefited by over $1.5 million of lower commodity costs in the quarter; although for the six months, commodity costs were higher than last year by about $1 million.

Total operating expense as a percentage of sales was 1.6 percentage points lower in the quarter, primarily due to lower fuel and transportation costs and lower selling expenses in our food service business and frozen beverage segment.

Our operating income was impacted by about 900 (inaudible) higher group health and insurance costs for the six months, with most of the increase coming in the second quarter.

Capital spending and cash flow.

Our cash and investment security balance increased $7.0 million in the quarter to $82.5 million.

Our capital spending was $5.6 million in the quarter, and we estimate the capital spending for the year would be in the 21 to $22 million range as we continue to invest in overall plant efficiencies and in growing our business.

A cash dividend of $0.0975 a share was declared by our Board of Directors and paid on April the 2nd.

Our Board of Directors authorized a million share stock buy back in February 2008 -- that's a year ago.

We have since bought back and retired 586,000 shares through the end of this period, the end of March.

We did not buy back any stock in the March quarter.

The remaining balance of our AMPS -- our auction market preferred stock -- was redeemed or sold in the quarter, with no loss realized.

We have been paid in par our carrying value for the entire amount which we held, which was $45.2 million, when the market bore -- the auction market preferred stocks failed in February 2008.

Just to repeat, we got all of our money back from those AMPS.

Commentary.

Our sales growth of 4% this quarter resulted from a combination of price increases, unit volume increases and decreases, and increased trade spending in our retail supermarket segment related to the introduction of our Whole Fruit Frozen Fruit bars and pints.

In food service, soft pretzels had significant volume declines, while frozen juices and ICEE, churros, fruit and fig bars, and other bakery items, had positive to strong positive unit growth.

Unit sales of soft pretzels in our retail supermarket segment were down 6% in the quarter, which was a significant improvement from last quarter when case sales were down 19%.

Case sales of frozen ice and juices were up 18% in the quarter compared to being down 9% in the first quarter.

Operating income in this segment was impacted by $300,000 of production costs for a TV commercial which has not run yet, and higher slotting costs for supermarket -- costs of $700,000 which were reflected in the second quarter, expensed in the second quarter which will -- hopefully we'll have some seasonal pickup from that as that product is being put into distribution.

Gallon sales in our base ICEE business were up 1% in the quarter, an improvement from the first quarter when gallon sales were down 4%.

Our service revenue in others continues to grow -- up 11% in the quarter following a 30% increase from the first quarter and 24% for all of last year -- as this is a key component of our growth plans going forward.

ICEE continues with its investment in China, as well as looking at possible opportunities in the rest of the world.

We have taken a very conservative "go slow" approach with that, recognizing that there are some long-term benefits, and we are gradually but surely taking advantage of some of these opportunities.

We expect our investment income will be significantly lower over the short-term, even though our balance of investment securities and cash equivalent is higher than a year ago.

We have invested in lower risk investments since mid-September, and we have lost the benefit from our holdings of higher yielding auction market preferred stock.

Additionally, the drop in interest rates in general will impact our investment income.

Our estimated income tax rate increased to 40% for this year from 37% last year because of less tax advantage investment income this year and because last year's rate benefited from the recognition of previously unrecognized tax benefits.

Our Company finished 2008 last year with a theme of standing strong.

We are now off to a good start for 2009 after two quarters, and we are standing stronger.

We believe it is sustainable.

Our fundamentals have never been better.

The future remains bright.

Our financial condition is pristine -- cash growth and no debt.

New product development and older products are being given injections of new life as recognized by our progress in the -- with Whole Fruit.

Our management team, which was always good, is getting more skilled, experienced and being honed to perfection.

I thank you all for your continued interest and look forward to talking to you again next quarter.

I'm sending it back to the audience for questions.

(Operator Instructions).

And we have a question from Robert [Castillo].

Please go ahead.

Hi.

The question, can you break out the sales increase for the quarter and the six months on a unit versus price basis?

It's roughly -- Bob, this is Gerry -- it's roughly half and half.

All right.

And you talked about China and the rest of the world with regards to ICEE.

What about like places closer in the Caribbean and things?

Well, when we look at the possible opportunities in China, we are looking at a population with a whole lot of 0s behind it, and we have a Chinese partner that it is both experienced in business and experienced in China in there, and we have decided to move forward with that partnership.

The Caribbean and some of the other islands are a little bit smaller; and believe it or not, it's almost as expensive to get our product and merchandise there as it is to get them around the world.

So we are looking at some of these bigger opportunities.

We're not taking advantage of every one, but we are cautiously continuing to grow the ICEE rights internationally.

Right.

So in Canada, Mexico, and do you sell ICEE right now?

In Mexico, we do, and we have been doing it for some time now.

Mexico had an excellent year.

Its sales have topped the -- it's over $11 million now, and it contributes significantly to the bottom line.

But with recent issues with devaluation, I would say that our Mexican business is operating really strong; and we are doing our -- our business in Canada is improving, too.

We've always been conservative in our approach.

We didn't exactly go out and raise tons of debt to expand in these international countries, but we have the rights and we have the licenses to it, and now as Dan Fachner and his team are -- not running out of growth opportunities but are studying these growth opportunities -- we are making sure that the measured steps that we take are managed properly.

Great.

Last question.

You got into the dollar store business, and it appears that it's been pretty successful.

What about the restaurant business that you've talked about off and on for a couple of years?

It's obviously weak right now, but you don't have a big presence there.

Is the timing right, or -- the restaurant business.

Well, that's a good (inaudible) question in there, for two reasons.

One, we got into the fruit and fig bar business as we were growing -- I mentioned we were already in; and then a couple of things happened, and most of them good.

The economy weakened a little bit.

We got some experience selling to that segment.

It's being run by Jerry Law, Senior Vice President, and the young man has been with us for 15 years in the West Coast, and the dollar store business grew very, very well.

We were able to double the size of the company we own in the past couple of years, and we are looking to expand that business again.

We've had a major push in the fast food restaurant business.

But like you said, that business is a little bit weak right now; but Vince and his team are making some significant progress there, and we think when -- it's not a question of if it comes back, but when it does come back -- we'll be in a position to benefit from it.

Right.

So you are in Burger King, I see, and other fast food.

What about the sit down, the --

We are in some selective Burger Kings which are called the off-theme restaurants, as well as selective McDonald's; but we are in a few restaurant chains, and we are not in any big ones in any big way yet -- although we're working on things.

Suffice to say that when I said our management team is getting skilled and experienced and honed, we have people that are dedicated to this segment of the business, and they are gradually but determinedly making progress.

We recently rolled out a progress in Jack in the Box that was started out, going out there on an in and out basis that has now become a permanent part of their menu items.

So you'll get business from that two ways -- one, selling the equipment and the service; and two, on the units sold through them?

How are you going to record it?

Let's start out by getting business one way and building from there.

All right, thanks a lot.

All right, Bob.

Thank you.

Our next question is from Mitchell Pinheiro.

Please go ahead.

Hey, good morning.

Hi, Mitch.

How are you?

Hey, good.

So a couple of questions for you.

First, just -- obviously the margins in the quarter were a big surprise, or at least to me.

Probably not to you.

And the 8% EBIT margin that you posted was -- looks like about 200 basis points above the best second quarter margin that I've seen.

So my question in that light is, was there anything unusual in this quarter that drove that much better than expected, or is there something structure in your business that has changed?

And the third part would be, so I could expect that type of margin improvement for the remainder of the year based on historical levels?

Let me comment on your three-part question.

When there was evidence of a slowdown in the economy a year ago, I rallied my team.

We spoke about what was happening, and we talked about -- not -- again, looking at costs -- and we kind of like made a conscious effort to manage costs with a better determination -- not that we weren't doing it good before, but we made sure that we didn't cut any muscle in there, but we looked -- and we put into place certain measures that appear to be benefiting from.

And overall, we have continued in the past several years to have operating efficiencies from the plants, operating efficiencies from logistics, and now we are getting some operating efficiencies from the consolidation of the sales and marketing under Vince, who joined us two years ago.

So is this something that is sustainable?

We hopefully think that it is.

Does that mean we are going to have quarter after quarter of 50 to 80% increased results of operations?

No, I don't think so there.

But I do think that we're going to see a gradual and a surely determination improvement of certain margins.

And so you start out with basis points, and you do that enough, and then you get complete points.

So you do.

So you think that some of the improvement is permanent?

Yes.

Okay.

When I look -- just a couple of other things.

When I look at the coupon cost -- I'm surprised the coupon cost is down -- only because I hear from all the other companies I follow, redemptions are up.

So I would have sort of half expect redemptions to be up in yours, but they are down.

What drives that in your quarter?

The one thing we're looking for is we want to make sure that we don't want to starve our product categories, and sometimes -- we are looking at that.

All right?

Because we are looking to improve sales; and then to improve sales you have got to do certain things in selling efforts and marketing, so we are looking at that because we are not trying to get ourselves in a position from too much turning off the faucet.

Okay.

I mean, it just seems like it's a good time -- couponing is a good strategy in this environment.

I just saw it coming down, so --

Actually, some of it was -- and Vince, you had a comment on that.

Why don't you -- Move closer to the phone.

Mitch, we changed some of our values.

We went from a buck off 2 to 75 off 1; so we gave the consumer a better value, but as a result, if you get a little bit more coupons redeemed, but if they're $0.75 off a buck, that's (inaudible).

Okay, got it.

That was the strategy.

Got it.

And this is an ongoing -- we are always looking at that, almost every quarter.

Are we doing too little?

Are we doing too much?

It's never just the right perfectly balanced amount.

Right.

Looking at the frozen novelties, I was expecting a little more out of it just because of the Whole Fruit.

But I understand, I guess in your commentary, that Whole Fruit is just starting to get distribution.

Is that correct?

(Inaudible) just starting, like this month -- like April.

A lot of what we produced in March, you either produce it, all right?

And we booked the expense right away.

We have always been transparent when booking our production and we are booking our slotting in there; but we are getting out in the stores now; and of course, we are not going to see any kind of real results in there until probably come next month, May.

But we are very, very satisfied with what looks to be like a nice launch, with a nice product, at the right time, with the right name and the right stores.

Right.

It's a great product.

I was wondering, when you -- within your segments, am I to look for this in food service, or in retail supermarket, or in both?

Well, in retail supermarket, all of the Whole Fruit pints and sticks are being introduced and distributed now.

Interestingly, in the food service, we have started to use that brand and that packaging in a better-for-you,100% natural for school food service on the lunch program, and it appears to be -- particularly with those states where they have increased the restriction of sugar and sweetness -- it appears to be getting, this quarter, a nice acceptance rate.

So -- okay, so just for modeling purposes, Whole Fruit -- so things like in the club stores, which you've historically put through food service, is not going to have much of an impact?

Whole Fruit won't have much, or do I have to -- I mean, how do I model that?

(Inaudible) on an impact there, although there are conversations going on with some of the club stores on that exact brand.

Okay.

Okay.

Another thing that -- once again, from a margin perspective -- with soft pretzel volume down -- and with my understanding is that's being one of your top margin items -- it just also caught me a little bit by surprise from a margin mix that with volumes down you were still able to expand margins as strong as you did.

How does that -- can you talk about that, the product mix and soft pretzels as it relates to margin improvement?

I'll talk about it little bit, and then I am going to give you to Dennis, but we are looking at the soft pretzel volume and some of the reasons for the decline.

Some of it is attributed directly to the overall softness in the economy.

There were some challenges in school food service.

We didn't have the best of years in the leisure and theme parks with soft pretzels; but there are signs -- just a few signs now -- of it improving just a little bit marginally and fractionally, that hopefully that we can say -- not with a great degree of confidence yet -- but those trailing periods, those declines, are over with.

We are looking at ways that we can juice that volume up the right way, not just on big discounts for a certain period.

But our -- it's one of our most profitable products in our food service -- and for that matter, for the entire business in there.

So obviously, it behooves us to establish and maintain those sales.

We are not losing shares, but there are some softness in the marketplace, and we are doing a lot of different things to both examine them and reverse them.

Dennis, do you have a comment on -- ?

No, I have no further comment on that.

Dennis just said he doesn't want to talk to you [LAUGHTER].

But so how -- so with -- obviously, soft pretzels is a big piece of your business, and a very good margin business; and with that down, I just didn't -- I just needed to understand.

I mean, if soft pretzel volume were flat or up, I mean, would that say that your operating profit margin could be meaningfully higher than it was in this quarter?

I mean, was it -- did the soft pretzel volume depress margins even further?

Mitch, the soft pretzel volume is now only roughly 15% of our overall volume.

So over the years, that number obviously has continued to decline as it drives the balance of the business.

So I think just doesn't have the impact that it had years ago.

And margin, on the other product line, may be less in and some cases more, they are not all that much less to cause that much of an impact.

Okay.

Okay.

All right, that is all I have.

Thank you very much.

Our next question is from Sarah Lester.

Please go ahead.

Good morning.

Hi, how are you?

I'm good.

Just one question on pricing.

I know that raw materials cost has come down.

The perception is that they have come down a lot, but they are still high relative to historical.

How confident are you that you'll be able to maintain your current pricing?

Well, we believe that our product, which remain properly priced, provide good value; and we are going to strive to make sure that we continue to provide the consumer and our customers with the best possible value.

Soft pretzels, when you look at it in a mass merchandising or in a discount store, it still remains probably the lowest priced item being sold there.

And we never took real strong increases in the past when we could have; and if anything, we were a little bit reluctant when we finally passed it on about a year ago.

So we remain cautiously -- we remain optimistic that we will maintain our pricing strategy and integrity.

Okay.

And then on the fruit and fig bars, is more growth coming from just consumers increasing purchases, or is it more increased distribution?

A combination of both.

Okay.

We take a good product, we've extended our business segments, and it's getting good acceptance.

And it is true that during these economic times, perhaps more people are looking into the value channel, which includes the dollar stores.

Right.

Okay.

Thank you.

Your next question is from Brian Rafn.

Please go ahead.

Good morning, guys.

Good morning, Brian.

A question for you from the standpoint -- and I jumped on a little later.

What are you guys seeing from the standpoint of commodity prices down from the peak?

Can you give a sense of magnitude if you run down certainly some of your raw feedstock -- sugar, eggs, shortening, wheat -- that type of thing?

Well, we look at these things, and we look at these things on a -- certainly on a week to week and monthly basis, and on a rear view mirror and a long-view mirror.

Right now, we are still at pretty high from two years ago.

It's true we are down from a year ago, and hopefully we'll remain at these levels.

We are probably booked in our major ingredients into our fourth quarter, but it's something that we watch with both a wary and a cautious eye, because we've experienced what we and others experienced a year ago.

Yes.

Can you -- Gerry, can you give us a sense of magnitude the last, say, three, four years, what that total cost feature would have been up, either on a per year basis?

Would you say your raw materials over the last three, four years would be up 100% 50%, 80?

Give us a sense for the peak.

I really -- Brian, I don't have that.

I can just tell you that it would depend on the ingredient; but historically, raw materials are still -- major commodities are up from where they were two years ago, but not from last year.

Okay.

Okay.

(Inaudible) gas and energy.

Gas is down from last year, but it's certainly up from when you and I used to fill up our cars for $1.10, right?

Yes, right.

Right, right.

Give us a sense -- and a question for you philosophically.

You guys spent -- certainly in the last year, year and a half, two years -- tremendous time on efficiency, throughput, productivity.

How much does that take away from your development of products, new flavorings, new launchings, and trying to defend the manufacturing side?

I'm not quite sure we understand the question, Brian.

Well, there's been so much focus from the standpoint of -- in operating J&J Snack Foods in the packaged food area the last couple of years.

Raw material hikes, manufacturing productivity, efficiency, those types of things, obviously came to the forefront.

And while you were focusing on that, how much did that rob from your focus on developing new product launchings, line extensions, adding new flavorings, launching new different product (inaudible), that type of thing.

Brian, I'm going to have -- and if anything, we have had an increased emphasis on new product development, and Vince says -- I put that all under Vince Melchiorre, who is in charge of sales and marketing.

He holds weekly meetings.

Vince, why don't you comment on that?

I don't think there's been any decline in our push on innovation at all.

Matter of fact, I think it's even more than it was a year ago or two years ago.

So I think we are doing both.

Okay, okay.

Give me a sense -- you guys have been in the dollar channel now for a while.

Give me a sense from the standpoint of -- because you guys have not done it -- you've certainly maintained your volume at a specific -- or a volume size per unit at a specific dollar price.

There's been a lot of packaged food manufacturers who are constantly slimming down the packaging, cutting down the volume while they're maintaining the price.

In the dollar channel, where you are looking at your sales leader, your dollars -- your revenue per unit -- how have you found the profitable mix from the standpoint of having to maybe shrink the volume, because you obviously have to get your price down to a dollar?

Is that profitable business for you guys relative to how many ounces or to the size or the number of the amount of ingredients that you go into a product that you have to sell under that dollar chain?

Well, I've heard the question -- and I don't want to duck the question, either -- but we've looked at that with each one of our products, and we have done a little bit of what you'd call some "creative packaged design reduction", but nothing that would be inconsistent with values.

And again, that's a business that we've only been in a couple of years -- although we've been making fig and fruit bars for over over ten years -- but the particular business segment which includes the economy channel and dollar stores, we've been in it two years.

We've doubled the business.

We are doing well.

It's throwing off projected EBITDA for us.

So we have a good team behind that, and we are hopeful it will continue.

Yes, okay.

Let me ask you, Gerry.

You've been the absolute maestro relative to resurrecting brands and marketing and bringing new life and adding line extensions and marketing and that type of thing.

As you've done it now some-odd 30-plus years, is it easier today with the infrastructure you guys have to resurrect a brand, or to bring new brands to the market, get them into the supermarkets, get them into the wholesale clubs?

Or is it the same tedious process as it was maybe decades ago?

Well, I'm going to tell you -- I want to answer that in two ways.

One, it's always more difficult to operate in an environment in there, in (inaudible) information; but over the years, I've put together a team, and this team is operating.

And I think to me personally, and I think in the long view, it's easier for us as we get some of these products and we kind of like regenerate some life and enthusiasm and branding and imaging into them.

And so when I go back -- when I think back over some of the early years and some of the earlier attempts, it was a little bit more -- I didn't have the team that I'm blessed with today.

So without trying to sound too optimistic, all right, I think it's a little bit easier today.

Okay, okay.

Fair enough.

What do you see, Gerry, in the supermarkets from the standpoint of private label, either competition from other private label brands or from supermarket grocery chains coming to you and saying "Hey, would you make us a private label in this specific product line"?

How would you characterize that business today?

Well, just the way you did.

All right?

There appears to be a little bit more request for private label.

We balance that; and again, we are in a rather unique position because of some good strategy decisions and investments over the years.

We are the low-cost producer, and so we can trade some of that expertise into establishing positions in private label.

And it's a balancing act for us.

We expect to see more private label opportunities for us that we will participate in, but we also believe in the value of brands, our brands.

Okay, okay.

Give me a sense, now that you've had it a couple of years, what are your thoughts on the success of Slush Puppie is as an acquisition?

Slush Puppie is -- has now been successfully integrated into our entire ICEE organization, and it is a contributor to EBITDA, and we think that it will improve its performance over the next few years.

Okay.

There's also a licensing opportunity with Slush Puppie that we are going be taking advantage of beginning the fourth quarter of this year.

Okay, okay, fair.

We've had a better run of -- at least Blockbuster -- movies from Hollywood.

How has that -- obviously, we are coming out now.

Prior to the summer launches, the summer season, how has that affected in the concession area, Gerry, your demand for the different products, the ICEEs and that type of thing, with a couple of years of good pictures, good box office receipts versus something that may have been weaker in the past?

Our movie business, we expect it to be up.

Okay, okay.

And finally in the M&A area -- go ahead.

We are in a lot of segments, and if you add up all the pluses and minuses, overall it pluses up, if you know what I mean.

Just, mass merchandisers are down, malls are down; we had some concerns in the school food business, but the dollar store segment is new to us and we seem to have found an integrated and initiated way to get into that business successfully.

Our movie business we expect to be up.

Even though there are soft sales being experienced by the fast food and restaurant business, for us it gives us an opportunity to get in there with one of our -- and you mentioned new products before.

Vince and his team has developed a new (inaudible) funnel fries, which although it's still early on in the game, we are experiencing sales at the rate of about roughly 150 to $200,000 a month.

That's right now, and that's before any of the big hits we are anticipating with the fast food restaurant business.

So we have a lot of good things happening that are going to happen in both 2009 and 2010.

You asked the question before, is it easier or harder?

If I go back a few years ago, I used to worry about how I was going to operate the business next week and next month.

Now we are projecting a little bit further ahead.

We are looking ahead certainly several quarters, and looking for things in 2010 right now.

So I am as optimistic about the business as I've ever been, but that doesn't mean that I'm satisfied yet.

Okay, okay.

Staying on that movie cinema side, Gerry, so many of these cinemas has gotten so much larger.

They have, certainly, the arcades to them and the food selections.

In some cases, you have dinner theaters.

With the expansion of that, is there more venues for you to sell other products into that channel than versus just your standard ICEEs in some of your boxed candies, whatever.

Right.

Well, we are not in the boxed candy business; but we sell our ICEEs in there; and probably a decade ago, I don't think there was a cinema in this country that had an ICEE machine in there, and we are probably in better than half of them throughout the country, and trying to get into the rest of them.

We are in pretzels in a lot.

Our soft frozen lemonaid is in there.

We are introducing churros, and we have a plethora of items that are somewhere between our R&D concept idea and on the team of development people who are getting that product out to test.

A lot of the items we have come out with are still in the infancy stage, dragging their knees.

Good product; but where do we sell it, how do we sell it, who do we sell it to?

So we want to take these products that our R&D team and our manufacturing people have helped us with, and then make sure that we get the selling, honing edge so we get this market placement right.

One last question for you, Gerry.

Relative to M&A deals -- you again have been the master in that area -- what are you seeing from the standpoint of -- I would assume valuation multiples of EBITDA are down, but what are you seeing as to the quality of the businesses?

Are you seeing more damaged goods or more orphans?

Give me a sense as to -- kind of as you look across the pipeline.

Well, you can always buy a dirty, raggedy orphan for a cheap price, and then you have got to work real hard to integrate it in.

We are looking more at quality, all right?

And we are hopeful that we will be converting some of these opportunities into part of our organization.

The pricing really hasn't come down nearly as much as what you might think, because people still remember the higher multiples.

But when you talk about fair multiples, you are talking about something between 5 and 7, 7.5 in there, would be northern multiple; and even up until very recently, even we at J&J -- a public Company with no debt and with 37 years of consistent sale increases and profitable years -- we were only trading at roughly a 6 times EBITDA.

So we have those standards, so we are not going to be running out and paying something too far beyond that.

Okay.

Sounds good.

Well, once again, Gerry, you guys have done an immensely fantastic job.

You are giving the essence of J&J not to mean band-aids on Wall Street, but to mean frozen novelties; so you guys have done a great job.

So thanks again.

That's something.

And at this time, we have no further questions.

I want to thank everybody for participating.

Hopefully, we'll all be here next quarter, and we'll equally have an opportunity to talk about and crow about.

Thank you very much.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may all disconnect.