J & J Snack Foods Corp (JJSF) 2010 Q4 法說會逐字稿

Welcome to the J&J Snack Foods Fourth Quarter Earnings Conference Call. My name is John and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. I'll now turn the call over to your host Gerry Shreiber. You may begin, Gerry.

Thank you, John. And good morning everybody and thank you for participating in our fourth quarter and year-end conference call. With me today is Bob Radano, our Senior Vice President and the COO; Dennis Moore, our Senior Vice President and CFO; Ted Shepherd, our [CED]; and Bob Pape, Senior Vice President of Sales and Marketing.

I will begin the conference call 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. We had a good quarter. We had a good year. Net sales increased 10% for the quarter and 7% for the year representing the 39th consecutive year of sales increases and a 156 straight quarters of sales increases. Excluding sales of the acquisition of Parrot-Ice in February 2010 and California Churros in June of 2010. Sales increased a healthy 8% for the quarter and 6% for the year, approximately $2.3 million or 13% for the three months and $12.7 million or 29% for the year of the increased sales or sales of Funnel Cake Fries, a new product to one customer Burger King, which is carrying the product in virtually all of its domestic locations.

Although we are not able to provide an estimate of the sales going forward, we anticipate that these sales will be significantly less in fiscal year 2011. For the quarter, our net earnings increased by 17% to $16.5 million or $0.88 a share from $14.8 million or $0.79 a share a year ago.

With the year, our net earnings also increased by 17% to $2.59 a share from $2.21 a share in the year ago period. Our EBITDA, earnings before interest, taxes, depreciation and amortization for the past 12 months was $108.1 million versus $96.1 million in 2009, another record. Let me just put that in perspective a little bit, we went public in 1986 and our sales were $18.7 million.

Last year our EBITDA was $108.1 million. Food service, sales to food service customers increased 6% for the quarter and 5% for the year without sales of California Churros. Without sales of California Churros sales increased 5% and 4% for the quarter and year. Without the sales to Burger King sales increased 4% in the quarter and 2% for the year.

Soft pretzels sales were up 1% in the quarter and 1% in the year. Italian ice and frozen juice bar and dessert sales decreased 4% for the quarter and 6% for the year. Churros sales were up 37% in the quarter and 8% in the year benefited from the acquisition of California Churros. Bakery sales excluding biscuit and dumpling sales and fruit and fig bars sales were up 6% in the quarter and 3% for the year.

Biscuit and dumpling sales were down 1% in the quarter and up 1% for the year and big bar and fruit bar sales were down 13% and 14% caused by lower sales to one customer who discontinued a particular SKU.

Retail supermarket and groceries. Sales of products to retail supermarkets were up 18% for the quarter and 17% for the year. So our pretzel sales were down 7% on a case volume decrease of 6% for the quarter and virtually unchanged on a case volume decrease of less than 1% for the year.

Sales of our frozen juice and Italian ices were up 28% on a case volume increase of 27% for the quarter and up 28% on a case volume increase of 24% for the year.

ICEE and frozen beverages. Our frozen beverage category which includes ICEE, Arctic Blast, Slush Puppie, and more recently Parrot-Ice and related product sales were up 13% in the quarter and up 8% for the year.

Beverage sales alone were up 16% in the quarter and 13% for the year. Gallon sales were up 13% in our base ICEE business in the quarter and 16% for the year was driven by increased sales to three customers.

Service revenues for others was down less than 1% in the quarter and 4% for the year as we hit a couple of minor speed bumps in this growing part of our business.

Sales of frozen beverage machines were up $1.4 million in the quarter and up $235,000 for the year. Consolidated. Gross profit as a percentage of sales in the quarter decreased to 33.4% from 33.8% last year. In essence 60 basis points and increased to 32.7% in the year from 32% a year ago.

We were impacted by about $1.3 million of higher ingredients and packaging costs in the quarter and benefited by about $2.2 million of lower ingredient and packaging cost in the year. We cannot project the impact or benefit of changes in ingredient and packaging cost going forward.

However there has been a very significant increase in the market cost of flour over the past six months, which we anticipate and we are anticipating it now will result in higher cost over some portions of our fiscal year 2011.

Total operating expense as a percentage of sales was 0.3 percentage points higher in the quarter and 0.1 percentage points lower in the year. Fourth quarter operating expenses included cost of an unclaimed property assessment of $1.6 million and about $473,000 in acquisition cost in the quarter, which did not happen. Capital spending and cash flow.

Our cash and investment securities balance increased $7.0 million in the quarter to $116.4 million. We continue to look for acquisitions, proper acquisitions as a use of our cash.

Our capital spending was $12.2 million in the quarter and $33.5 million for the year, as we continue to invest in plant efficiencies and growing our business. This spending includes $5.8 million for the purchase of our distribution warehouse building for frozen in Pennsauken.

A cash dividend of $0.1075 a share was declared by our Board of Directors and paid on October 6, 2010. During the year, we bought back and retired 204,000 shares in our fiscal year. Added commentary, our sales growth of 10% this quarter and 7% for the year primarily resulted from unit volume increases and decreases.

In food service, we had a mixed bag with soft pretzels continuing to show improvement and Italian ice and frozen juice treat and dessert sales continuing to stabilize after being down 10% in the first six months of the year.

Our convenience store business has also shown some signs of stability as well. Without sales of California Churros, food service sales were up 5% for the quarter, an improvement from being up 4% for the nine months of the year.

Unit sales of soft pretzels in our retail supermarket segment were down 6% in the quarter and down less than 1% for the year. Case sales of frozen juice bars and ices were up 27% in the quarter. Year-over-year increases in unit volume of frozen ices and juice bars continue a trend, which began over a year ago.

We remain optimistic and bullish about this segment. Our frozen beverages segment had strong gallon sales growth in our base ICEE business, primarily because of two new customers and other customer growth. Our service revenue to others was down less than 1% in the quarter, an improvement from earlier in the year and we are optimistic we will continue to grow this business going forward.

We were impacted by $867,000 of higher fuel cost this year, virtually all in the first nine months of the year. Our estimated income tax rate was 34% for the quarter and 38% for the year. Fourth quarter rate benefited from a reduction of $750,000 of unrecognized tax benefits and a general decrease in our estimated taxes.

As I mentioned before, we were also impacted by -- in the quarter by over $2 million of what I would almost term extraordinary charges non-operating charges during the quarter. We are estimating a tax rate of 39% going forward.

I thank you for your continued interest and we'll now turn it back to the field for questions.

Thank you. (Operator Instructions). And we have a question from Akshay Jagdale. Please go ahead.

Good morning, Gerry and Dennis, how are you doing?

Good.

Congratulations first of on a very solid quarter and a solid year as well. So I wanted to first -- yes, first one is just talk about that a little bit and then get into some of what I would call the tougher questions. But, on the strength that you saw this year, it seems like a lot of it came from the beverage segment. Can you just talk about maybe did weather have an impact this quarter by any chance? (technical difficulty).

I don't know if you wanted me to respond or you (inaudible) question was continuing.

No, keep going -- yes, you can go ahead.

Yes, we did. There is no question. When you have two, three months in the summer where temperatures are in 90 degrees and in excess of 90 degrees. Anybody in the beverage, ice cream, ices business is going to benefit. And we did too. And of course we were able to execute on that benefit, on that potential benefit operationally. We were able to make the product and distribute the product and have the sales and have the sets. But yes we did benefit from it. And hopefully we'll have that kind of weather benefits in the future. Conversely, when it's that hot out there, 95 degrees, 94 degrees, people are not going to eat as many of our bakery -- pretzel and bakery products. So, for years I have been talking about a nice balance of portfolio of products together with a nice balance of customers and business segments and seasonality with it, and 2010 represents that balance.

Okay, that's helpful. And just going -- talking about the input cost. You did mention flour going up and you expect it to negatively impact you in terms of higher cost. Can you help us understand, magnitude-wise, maybe relative to '08, what that could be? And also how you are thinking of pricing because you're already seeing cost go up? So I wonder if -- I'm sure you've thought of pricing but are you starting to put through pricing on your flour based products and if not why not?

Actually, you're going to ask all these questions, we're going to have nothing to talk about when we meet in a couple of weeks. But anyhow, we anticipate, we're going to be in a lot better shape than what we were three years ago when we got to the -- when we were a little bit slow getting out of the gate, catching up with pricing and Bob Pape and Teddy have been on this and we're not going to have a repercussion unless the roof falls and it's in pretty good shape of what happened a couple of years ago. So we're on top of this.

So, I mean just to help us with your models and what not. I mean would you still -- are you managing your business setting targets such that you expect fully for income to grow next year?

We're planning on increasing the top line and the bottom line next year just like we have been doing consistently over the years. And we are cautiously optimistic about it. We are disciplined. We've got good management. And we have been through some things in the past that have -- that (inaudible) well for these new experiences. We expect to be in good shape.

Okay and then just lastly on, you mentioned your balance sheet and of course your cash position. So can you help us just refresh us on your strategy there. I mean people have talked about special dividends I know in meetings et cetera. I know you're focused on acquisitions but it's been a while now and people have been waiting. So, there is a little bit more pressure I would say as we hear a lot more questions regarding what's going to happen with the cash?

Yes. It's true we have a surplus of cash and it's true we build on that cash every year. It's also true in the past 8, 10 years, a lot of businesses out there ran into shaky financial times. I don't know if any of them went out of business because they had too much cash. So, I'm not going to be -- I am comfortable in our reserves and nor am I going to be -- our cash is designed to grow the business and we organically and by acquisition, we started paying a dividend five years ago and we increase that dividend every year. I'm not so certain that a (technical difficulty) dividend would be in the best interest of the organization long-term. So, hopefully we will be able to put that -- some of these cash surplus to use in the coming year for the benefit of the shareholders and the Company for the long-term.

Okay. I will pass it along and try to get back in line. Thanks.

Thank you, Akshay. Good talking to you.

Same here.

Next Question is from Mitch Pinheiro. Please go ahead.

Hey, good morning guys.

Good morning, Mitch.

So just following up on Akshay's question on sort of commodity cost pricing for next year. So you guys fully expect to be able to offset the commodity cost pressure with pricing. Is that fair?

Mitch, we don't. We really don't know and nor can I guess what the cost of wheat is going to become next spring with the harvest. But to the extent that we've been looking at it, we've been looking at it for two months now and making (inaudible) and we're, in essence, we have a plan. All I can tell you just like -- we don't expect to have the same impact that it had a few years ago.

Okay. But a few years ago, I mean the impact was dramatic. So, on the negative side, I guess we just need to get, since a lot of your business is food service and just knowing and seeing how, what happened a couple of years back, not only in your business but in a lot of the companies that I follow that have above average food service exposure. It just takes, there is a process and a dance that you go through that just doesn't happen in three weeks. It's a six-month kind of process so.

Well that's true, all right. We have started the music. We've turned the music on (multiple speakers).

Okay. All right. Good. And then in terms --.

Again, we believe -- we got some good successful brands and we got good niches. And we spend years and years and months and months in developing these niches. All right. We are sensitive to the business community but we also think that there is reasonable price elasticity and we still represent a good value to the consumer and to the shopper.

Yeah. I would -- just having followed you for a while; I certainly think you have pricing power. You've been largely -- I [won't] say reluctant but over the years, you've been growing mostly via volume and keeping prices fairly low. And it seems like at some point, you should be able to exercise your right to earn a respectful return on your -- on these sales and on your capital. So --

(technical difficulty) customers (inaudible). But you got a good point. And we're understanding that point better too.

Okay, good. And then how about -- you certainly have some very difficult -- well, you always -- you have been able to grow your top line quite well over the years but it seems like you have some difficult comps in 2011 more so than the typical year. So what are the drivers that we should be focused on by sort of your business segments? Where do you think you're going to see better than average growth and where do you think you might see below average?

Well if you look at our history and our track record, three or four years ago, when we looked at the soft pretzels sales were kind of declining couple of points a year and ICEE business was maybe flat to down in gallon sales. Look how the time has changed. ICEE is up double digits in gallon sales. And we've reversed a couple of year decline in soft pretzels. We've also very quietly added some $120 million in new sales through little tuck-in acquisitions, (inaudible) company, a Slush Puppie, a big and fruit bar company, a Whole Fruit brand. We have some of these things that we're still working on. We have some new products that we are going to be introducing. Are they all going to be successful? Probably not. But every once in a while, there is going to be a Funnel Cake Fry. Every once in a while, there is going to be a [topper]. Every once in a while, there is going to be (inaudible). So, we are going to have some of these new products as well as continued growth in our niche products and then occasionally the acquisitions.

I'm comfortable. I'm still very active in the business and I'm very comfortable with our management. And I'm comfortable that even though this year was a good year even in spite of the economic recession that we were in, I think that 2011 has plenty of promise too.

Okay. If you look specifically at the upcoming quarter, which -- at some of your key businesses like your -- in the retail supermarket channel, up 26% in the year ago first quarter. That's a big number to get over, do you think I mean, is that going to be hard to beat that or? Yeah.

No, Mitch, we're not going to beat. But we benefited [later] I believe from the drive with Whole Fruits, which stuck. When I say stuck, I mean it's stuck in the grocery market, in the freezer doors, and this year probably not until January or February, we are introducing what we call wave two of this Whole Fruit phenomenon that we've been able to resuscitate a brand and to grow it. So, we expect to have growth in all of our major business categories.

Okay. And then finally in terms of the acquisition pipeline and just generally, not just your pipeline but what you see out there, what's the current temperature, [which holds] your line, pipeline what can you talk about?

We're look at the things, there is always things that for one reason or another that we turn down because it's not to fit or we deem it inappropriate for our standards. You know we're conservative. We worked on something for a couple of months in the summer that it looked like we were going to go ahead with and then when the numbers that come in, not ours, theirs, all right, we had to back off and pause. Now does pause mean we're going reset it and go or does pause mean -- so there is some things that we're looking at, there is nothing hot on the boiler plate and I have to take off right now.

Okay. All right. Thank you. I appreciate it.

Thank you.

Our next question is from Brian Rafn. Please go ahead.

Good morning, Gerry. Good morning, Dennis.

Good morning, Brian. Good to hear from you.

Good morning.

All right. Tell me, you've always talked about new product line launches. If you look at 2011, Gerry, versus 2010, do you get a sense that new product line launches will accelerate or decelerate? You know what I mean, new distinct products, not a different flavor or a different size or a different seasoning iteration, but an actual new product or is it about the same steady. Just give us a sense 2011 versus 2010?

Well Bob Pape is here with us today and Bob is in charge of sales and marketing and new product has been on the top of his `To Do` list this year. So Bob, why don't you comment on what is -- kind of some of the things we're doing.

As far as leveraging, some opportunities that we have within the categories, specifically snacks, we are looking at various products that we could execute utilizing our capabilities with pretzel products and to deliver, for instance, protein, as part of that meats, and the ability to expand that category outside of just the standard pretzel offerings that we have now to be able to make us grow our share of that hot snacks and appetizer category. That's a major focus for us for this year moving forward. And we feel that that's a very significant opportunity for us.

Okay. Back to raw materials. Gerry you talked about wheat flour inflating somewhat. Are you guys doing anything with stockpiling raw materials or forward purchases or anything, be it shortening or eggs and sugar, or corn syrup?

Well, we're users of these commodities and I mean we're not doing what you call future trading, but we're buying out within reasonable limits. Part of the issue of buying out (inaudible), you get exposed to carrying charges and let's -- wheat, with flour and sugar and chocolate, almost everything has been going up. You guys read the same papers that we do and we're just going to have to keep a sharp eye and a steez head on all of these things so that we can stay balanced. Then we have pricing models and sales models in there and we know when our costs go up or when our projected cost go up that we've got to act to react and we're going to be with the curve or reasonably ahead of the curve this year.

Let me ask, you had -- on your ability to pass on pricing inflation, Gerry. As you stand now here in November of 2010, you look back over the last couple of years, the whole 2007 and 2009 mortgage meltdown, do you think the elasticity or sensitivity of the customer, either in the grocery store or in the food service area, do you see the economy improving? Do you see maybe the sensitivity, the price elasticity is a little less, your ability to pass on or is it still a tough difficult market?

Now, let me, Brian, I really don't know. We saw a -- like a decline by business segment, we saw C-stores decline about a year, year and a half ago, particularly when the trade, the building and trade business was at its bottom. The electrician or the craftsmen were not going in and spending their $10, $15 on coffee and pretzels and doughnuts in there, but we've seen a stabilization there and hopefully, the worst is over. I've often said that our business and our balanced business segments and our portfolio balance of niche products that we're not recession proof, but we're reasonably resistant to the highs and the lows. And to the extent that input costs will be aggravated in there, we may have to look at some pricing initiatives. We feel reasonably comfortable.

Okay. Okay. In your portfolios, Gerry, and when you look at shelf space at the grocery store, are you seeing any differences in national brands versus private label, either in store stocks or store stocking allocations on the shelf or in demand from your customers for more private label or more national brands, give us a sense on that mix?

It's a good point. When it comes to pretzels, we have our brands and -- but we are also -- we also do the private label for the grocers. We've noticed that there have -- a couple of years ago, there was more of an emphasis on store labels and private labels, and then what happens there is a little pendulum that swings almost, and you could almost (inaudible) because there will be pressure, there will be pressure on the brand people, and then the private labels will come out, and then the branded people will come back and the private labels will come out. And then before you know it in the end they're recovering ground. We're in our niches and we will be a small niche player in the overall big industry.

Okay. Let me -- I'll just ask one more and get back in line. You've been a master [Julian] in making acquisitions since J&J Pretzel in 1971. When you look at acquisitions, is there any more capital requirements or attention or risk profile on your part in doing a bankruptcy turnaround versus just maybe resuscitating a brand or putting in some more CapEx?

They all have their pluses and minuses. At this stage in our careers and our lives we are looking for specialty companies or products that maybe have some good balance in their legs and that we can provide resources to whether it be distribution sales and financing there. When we bought a few companies that had to be resuscitated or were bankrupt, but what we were able to find with all these which I used to -- or have to explain to people we (inaudible) we know if somebody, if they weren't doing well on this particular product that we put them in one of our plants and immediately gained X number of points in distribution and market share. We saw through what was a [above] then that others didn't seeing through. Now, it takes a little bit more to move the needle now, we're not going from $18 million to $25 million. Last year, we went from [650] something to [697], all right that's 7% growth but that represents $45 million or $900,000 a week. All right, just saying those kind of number in there, it gives you a little bit pause for what overall has to happen. I would be -- we would be comfortable, happy making an acquisition where something can add 10 to 15, 18, 20 points to our top line and correspondingly to our operating income, but we want something that is good that we can make gooder.

Okay. Thanks Jerry, superb job.

Thank you.

Our next question is from [Shaunmo Adikan]. Please go ahead.

Hi, Gerry. Can you talk about the --.

I'm sorry who is this, operator?

This is Shaunmo Adikan from Merrill Lynch. Gerry, hi. I'm trying to figure out how much your organic growth was for the quarter. And I mean is it right that California Churros added $10 million to the quarter?

Not to the quarter. No, for the year.

(multiple speakers). Okay. So how much is your organic growth --

(multiple speakers) about a little under $11 million, for the quarter it would have been maybe [2.5, 2.7].

I see. So how much was your organic growth for the quarter itself?

I think it was about 6% Dennis or --.

Yes.

7%?

Pretty healthy when you consider, and it seemed like we gained, how many, 8% Dennis is counting. Dennis just showed me five fingers and three toes, so it's 8%.

8%.

And we appeared to gain momentum throughout the year because first, it was three, then four. So the regular business contributed (inaudible) and of course, the acquisitions put the little whip cream and cherries on the top.

Okay. Perfect. Thank you.

Your next question is from [Robert Costello]. Please go ahead.

Hello, Gerry. I got to questions. One is on the food service side. You picked up the Burger King contract, which you talked about in the first quarter this time last year going forward and it helped your sales growth.

Right.

What's the likelihood going forward of additional business in that area or expansion with other chains in the near term?

Let me answer them. One answer that we have been concentrating and targeting sales growth and expansion with fast food chains for a number of years and for up until a year, year and a half ago, we had very little show forth. But in the past two years, we have made inroads with Burger King and that's a good partnership, a terrific partnership so far. We have had product offerings and (inaudible). We have Jack in the Box, which is selling some of our products and we're in at least advanced discussions or test with several other chains too with different products not necessarily a pretzel, but either a beverage, or perhaps one of our Churro products or perhaps one of our cookie products. So we're making nice progress and that was a big [mountain] that we had recognized before the past and now we're getting close to it and we're making little bit [of fill] advances all the time. And we feel cautiously optimistic we're going to be continuing to do so.

So you have the internal capacity manufacturing line to pick up an account like that that you've got from Burger King, if you did sign it without any substantial costs?

I don't know about that. Even with the Burger King, about 16 months ago, when we were advancing in negotiations with them, we had to do some -- we have to gear up in plants and fortunately, for us we have 11 operating plants in there and we've one on the East -- we put a line in on the East Coast. We expanded a line on the West Coast and we did it in record time, our operations people. So, if we have to do that now for somebody, it's something that's almost parallel with the discussions or advanced negotiations that we're planning.

Right. How many stores do you have with Burger King right now?

I think it's something 6,900 -- 7,000.

All right. The Churros question. Now that you have the acquisition, you have two brands, LA and California, which one are you staying with or you're going to keep them both that you're going to market with?

Well, that's (technical difficulty).

Pardon.

Actually, we had Tio Pepe for years and then we had L.A. Churros, which was a brand that we developed to be like others, and we have California Churros. So California Churros and Tio Pepe will be the two remaining brands.

Right. And that came with the manufacturing plant or no?

It did. Very good manufacturing plant.

Right. So going forward in all the distribution channels you have, what's the timeframe that you've set with the acquisition to fill out the product distribution in convenience stores, food supermarkets, because Churros obviously in East Coast is hardly unavailable at frozen?

You got a good point. And we're still -- even our soft pretzels, which we've been in for decades now, we're still doing that. When I got into the Churros business in the early '80s, it took us several years to get to $1 million in sales. Now we're $47 million and looking at how we can grow that business significantly. The timetable is as soon as possible but consistent with our planned strategy of doing it efficiently, quickly and properly.

So do you think like within two years it would be a fair estimate or what -- any idea you could narrow it down?

Well, we're looking at some things for grocery market, which we'd launch this coming March. And a lot would depend on the years after that, how well we're doing or what we're going to be doing in 2011.

Right. Because as I said to you before there is nothing available and I think it would go over very well. And you are the only game --

We're not resting on our laurels, right. And we are not [horsing around with it yet]. But it sometimes it's a little bit hard, you get out there, the markets are crowded and we're competing for space and we're competing for shares --.

Right.

But hey, that's what we do and that's what we like to do. We're going to find our way. We're going to find our niche.

Right, right. That's what we know you would do. Thanks a lot.

Thank you.

We have a question from Akshay Jagdale. Please go ahead.

Thanks for taking the follow-up. A couple of issues I wanted to again, I think I asked a few questions, but just try to get a better sense of. So really the most important one from my perspective is what's going to happen with gross margin? So, in sort of answering that directly, can you just again help me understand, Gerry, what's different now in terms of flour prices going up and your reaction to it relative to '08 meaning, the way I interpret it what you said before was that you're just -- you're moving a bit faster on maybe taking prices? That's how I saw it, but it wasn't very clear. So there's two.

That's because I didn't want to be clear. I wanted to give you the information and you as a good analyst, a superb analyst, know how to digest it and write it.

Okay. So I'll leave that right there and I'll go to -- on the sales side, if I just look at historical sales growth and I'm just looking at last five years by product group or so, it looks like soft pretzels have been weaker than the Company average partly driven by a lack of, I guess, acquisitions there. But I mean, is it fair to say that for you guys to continue to grow 4%, 5%, 6% or more on the top line, you're going to have to see more faster growth in soft pretzels? Is that -- would that be a fair statement?

I understand what you're saying, but that's really not a fair statement. We have had better than 4% to 5% growth over the past two years, whereas the contribution of soft pretzels has not been anyways near that.

Okay.

So (technical difficulty) product innovation and Bob Pape mentioned, protein, we're filling soft pretzels with different -- now with cheeses and pizza (inaudible) with some other products too. But we have been able to grow our business faster than the overall growth in the food business with contributions coming from soft pretzels even though where the market leader have been -- not nearly as robust as some of the other product categories.

Look at ICEE, there is a perfect example, for years and years, we have got the tailwind of what was going on with the cola companies, Coca Cola and Pepsi and we weren't growing. ICEE found a way to grow its business and really deliver volume increases on gallon sales. Partly we developed a sourced new equipment that we could expand on (inaudible) we went into some specialty accounts that heretofore didn't have a frozen beverage. And in course of an acquisition or two helped that too. But of all of our businesses ICEE has contributed solid increases organically to the top line and the bottom line based on gallon sales increases. Hopefully, we're going to find that with some of soft pretzel and some of our other products too. Obviously, we are with Churros.

Yes. Just that was helpful. I'm just trying to get a better sense of what, how you focus your investments in new products or categories and the only way I could look at it was based on what historical growth has been. But how does profitability play into those plans. So I mean I would think pretzels are up there in terms of profitability in your portfolio. So how do you think of profitability by product category when you are thinking of investing in future growth?

We balance all of that with our need to grow the business and get to market. And it's true what you said that some of our more mature products, core products have a better profitability or margin in some of the other items and partly it was because of over the years we have gained efficiencies in the manufacturing area and also improved our logistics in our distribution and in marketing. A newer product you're going to have to -- may not have the marginal profits of what our core products will be, but in some cases it's a new business segment that has more opportunities or an attractive growth.

That's helpful. One last one on capital allocation. Where do share buybacks fall. It seems again I'm interpreting your comments as being acquisitions remain sort of number one priority for you followed by maybe share buybacks. But I'm just trying to understand with deal flow sort of being slower than what most have expected, how you are thinking of share buybacks and how should we think of those?

Well we bought some shares back this past year. Most of it I think in fourth quarter.

First quarter.

First quarter. Our best use to our cash, in my opinion, would be on growing the business by nice fitting in acquisitions. We continue to look at the possibility of share buyback. We have an authorization. When the price tilted below 40 we thought it was indeed very attractive, we bought some back. I wish we would have bought more. But the (inaudible) what do you say?

Okay. Thanks a lot. I will pass it on.

And we have a question from Brian Rafn. Please go ahead.

Yes, Gerry. A question on your -- when you build core density in your multiple brands, you guys have done it certainly in pretzels, you have done it in the frozen beverage area with ICEE and Arctic Blast and Slush Puppie, and now Parrot-Ice. You are doing it in Churros. Does the multiple brands give you a leg up relative to being a single source supplier to (inaudible) than having a portfolio of brands or has the multiple brands really given you more regional geography. In another words, what one brand might be big in the west versus another one down in the Southeast Dixie. Give me a sense as to what your brand strategy is?

It's a good point. There is sometimes we I marvel at the logistics and distribution systems of DSD of companies like a Frito Lay. And then I look at a Nestle which owns just about every water company you can think of or names from Poland to Nestle to Deer Park to -- and all regional brands that were acquired but all still kept in their place.

We are a combination of both. We got a good management of the brands, we got good management of the facilities and I -- where it needs to be consolidated under one brand, we will look at that, certainly when it needs to be consolidated under one of our subsidiary organizations like ICEE brand, Arctic Blast, Slush Puppie and now more recently Parrot-Ice, we'll look at it that way. But they are still operating within their regions and within their specialty business segments.

Okay. Maybe a question for Dennis. Can you give us a sense what the infield installation of the [spencers] are for maybe ICEE and Slush Puppie and Parrot-Ice, if you got just a -- maybe a broad range, number of units?

You mean what we have out there now?

Yes, just in your machine count?

38,000.

We probably this past year, we probably added about 2,000 machines or so in frozen beverages or carbonated beverages (inaudible) or so in the Slush, not Slush Puppie but Parrot-Ice mainly through the acquisition.

Totally we have close to 39,000 now.

Something like that, yes.

Did you get that, Brian?

Okay. Yes, that's helpful. If you look at your plans, I think the last quarter I asked you guys, and you said you were, I believed, doubling or making material expenditures for capacity in Moscow Mills at Daddy Ray's. If you look across your whole manufacturing footprint all your factories, are you adding capacity anywhere, or are you seeing any bottlenecks, are you putting any CapEx in any specific area for 2011?

Well, we're freshening up a couple of our older pretzel lines here. But we believe we have the capacity to considerably increase our business volume, of course everything has to start with a sale. But we're spending about $25 million to $30 million of CapEx. Dennis, is that about right a year?

Generally, yes.

We'll be adding about, refreshing a couple of our lines in our major plants and stocking up about $8 million to $10 million over the next 12 to 18 months. So, but we are still, we will still stay within those rough parameter boundaries, unless there is a need to accelerate that. And then the one thing we can do, we could move quickly and to get ourselves up to a level, take advantage of the opportunity.

Okay. Gerry you mentioned cash is king and that you certainly are very sharp in that.

(technical difficulty) we can close out.

Yes. That's all right. You get that. Your cash reserves, are you seeing the cash reserves and the stability that gives -- we'd call it a fortress balance sheet. Does that give you any stability with other vendors being someone that they obviously would look at as not having a credit quality issue, not having a disruption in business as a supply vendor?

You know what, that's a good point. Too often in the everyday hustle and bustle of business activity, there are little things like that, you're not looking at it. I'm sure the vendors who know us that we may drive a hard bargain, but we're fair and we are firm, and we pay our bills. So, surely we're getting benefit from that.

All right, guys. Happy holidays to you guys. Take care.

Thank you. Same to you. I look forward to talking to you again.

And we have no further questions at this time.

All right, I want to thank everybody for participating in the call. And we look forward to having you on our future calls and hopefully the results will be equally good and impressive. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may all disconnect.