J & J Snack Foods Corp (JJSF) 2011 Q3 法說會逐字稿

Welcome to the J&J Snack Foods Third Quarter Earnings Conference Call. My name is Sandra, and I'll be your operator for today's call. (Operator instructions)

I will now turn the call over to Mr. Gerry Shreiber. Mr. Shreiber, please go ahead.

Thank you very much. I'm Gerry Shreiber. And welcome to our Third Quarter Conference Call. With me today is Dennis Moore, our Chief Financial Officer; Bob Radano, our Senior Vice President and COO; Ted Shepherd, our CED; Bob Pape, our Senior Vice President in charge of Sales and Marketing; and Susan Murphy, Director of Marketing.

I will start with the obligatory forward-looking statements. 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 from operations -- net sales increased 9% for the quarter and 6% for the nine months. Excluding sales from the acquisition of Parrot Ice in February 2010 and California Churros in June 2010, and the frozen handheld business of ConAgra Foods in May of 2011, sales increased 4% for the quarter and 3% for the nine months.

For the quarter, our net earnings before bargain gain increased by 6% to $16.7 million, or $0.89 a share; from $15.9 million, or $0.85 a share a year ago. For the nine months, our earnings before bargain gain increased by 2% to $32.5 million, or $1.73 a share; from $32 million, or $1.71 a share a year ago. Our EBITDA -- earnings before interest, taxes, depreciation and amortization -- before bargain gain for the past 12 months was $108.2 million.

Food service -- sales to food service customers increased 8% for the quarter and 5% for the nine months. Without sales of California Churros and the recently acquired handheld portion, sales increased 2% for the quarter and 1% for the nine months. Soft pretzel sales were up 5% and 2% for the corresponding periods.

Italian ice and frozen juice and desert sales increased 8% for the quarter and for the nine months, due in part to higher sales to school food service. Churros sales were up 37% in the quarter and 42% for the nine months, benefitting from sales of California Churros. Without the sales from California Churros, churro sales were down about 5% for the quarter and flat for the nine months.

Bakery sales, excluding biscuit and dumpling sales and fruit and fig bar sales, were up 4% in the quarter and 3% for the nine months. Biscuit and dumpling sales were up 7% in the quarter and 4% in the nine months. Fruit and fig bar sales were down 11% in the quarter and 13% for the nine months, with sales generally down across the board. A drop in funnel cake sales to one customer of [$3.0] million in the quarter and $7.2 million for the nine months had a large negative impact on food service sales. But this drop was not unexpected.

Retail supermarkets -- sales of products to retail supermarkets were up 16% for the quarter and 14% for the nine months. Without the sales of the recently acquired handhelds, sales were up 5% and 9% for the quarter and nine months. Soft pretzel sales were (inaudible) for the quarter and 4% for the nine months on a case volume increase of 4% and 2%. Sales of our frozen juices and Italian ices were up 3% in the quarter and 11% for the nine months on case volume increases of 2% and 11%.

ICEE and frozen beverages -- frozen beverage and related product sales were up 7% in the quarter and 5% in the nine months. Beverage sales alone were up 6% in the quarter and up 4% for the nine months. Gallon sales were up 2% in our base ICEE business in the quarter and essentially flat for the nine months. Service revenue for others was up 6% in the quarter and 3% for the nine months as we continue to grow this new, important segment of our business.

Consolidated -- gross profit as a percentage of sales in the quarter decreased to 32.7% from 34.3% last year, and for the nine months decreased to 31% from 32.4% a year ago -- almost all of it because we were impacted by about $6 million and $11 million of higher ingredient and packaging costs in the quarter and nine months. We cannot project the impact or benefit of changes in ingredient and packaging costs going forward. However, there has been a very significant increase in the market cost of flour since June 2010, and the cost of our other ingredients on a net basis has increased as well over the past year. Although we have implemented price increases, we expect our margins to be pressured for at least the balance of our fiscal year.

Total operating expense as a percentage of sales was 0.9 percentage points lower in the quarter and 0.9 percentage points lower in the nine months. Operating expenses in the quarter included $464,000 of acquisition cost.

Capital spending and cash flow -- our cash and investment securities balance increased $2.2 million in the quarter to $135.2 million, even though we spent $8.8 million on the handheld acquisition. We continue to look for acquisitions as a proper use of our cash.

Our capital spending was $9.5 million in the quarter as we continued to invest in plant efficiencies and growing our business. We are presently estimating capital spending for the year to be $25 million to $30 million, which includes $8 million for the expansion of our Midwest Bakery manufacturing facility. A cash dividend of $0.1175 a share was declared by our Board of Directors and paid on July 6, 2011. We did not buy back any of our stock this year.

Commentary -- our sales growth of 4% this quarter, before our acquisitions, was a significant improvement from 1% growth in the second quarter. Sales of soft pretzels and food service picked up substantially, as we continue as targeted to take inroads into the chain restaurant channel. Frozen juice bars and ices showed strengths as we were able to pick up added school food service account.

Churro sales were down, aside from the benefit of the acquisition of California Churros. But we expect this business to grow over the long run. Our fig and fruit bar business has had four consecutive quarters of double-digit sales declines. Funnel cake sales to our largest customers were down 100% in the quarter, and we expect no sales to this customer the balance of the year, compared to $2.2 million in the last three months of last year. More than half of the decline in sales to this customer were offset by increased funnel cake sales to other customers.

Unit sales of soft pretzels in our retail supermarket segment were up in the third quarter, primarily due to the introduction of our SuperPretzel Pretzel Dogs. Case sales of frozen juice bars and ices were up 2% in the quarter, a decrease from recent trends. We have replaced our TV advertising this year with a billboard and mass transit campaign in several of our key pretzel markets, which concluded during the quarter.

ICEE frozen beverages, including Arctic Blast, Slush Puppie and Parrot Ice segment, had strong gallon sales growth. Our service revenue to others was up 6% in the quarter, and we hope to continue to show growth in this area. We were impacted by significantly higher gasoline costs in this quarter, and we expect to be impacted over the next three months of our year. A decrease in operating expenses combined with strong revenue growth resulted in a $2 million increase in operating income in the quarter for ICEE.

Our estimated income tax rate before bargain gain was at 39% for the quarter. So much for corporations that don't pay taxes -- tongue in cheek. We're estimating a rate of between 38% and 39% for the year. On May 13th, 2011, we acquired the [frozen handheld] business of ConAgra Foods for $8.8 million. The business sells dough-enrobed products sold under the Patio, Hand Fulls, Holly Ridge, Villa Taliano, Top Picks, private-label and burritos brands, with manufacturing facilities in Holly Ridge, North Carolina and Weston, Oregon.

We are presently integrating the business into our organization. We do not expect the acquired business to contribute operating income to the Company over the short term. The business is presently generating sales at an annual rate of approximately $50 million. We recorded a $6.6 million bargain gain on purchase of a business as a result of this acquisition because the fair value of assets acquired exceeded the purchase price. Note 13 in our 10-Q provides detail on how this gain was computed.

I thank you for your continued interest. And I will turn back the call to those in the audience for any questions or comments.

(Operator instructions) Akshay Jagdale.

Congratulations on a good quarter.

Thank you.

Just focusing on beverage -- the results in the beverage division were pretty good. Do you have a sense of how much of that was weather-related? We saw the summer really pick up, where heat was really intense over the last week or so. But do you think that played a factor, or it's just people like your drinks, and they're drinking more of them?

To be perfectly honest -- obviously, when the weather is hot, we get a benefit. If it was rainy and cold, it would be the other way. So I believe that our ICEE group is really a good organization, operating on all cylinders. But sometimes they got to be good and lucky. And when the weather is 90 to 100 for a bunch of days in a row, that's the luck part. But yes, weather did play a part.

I never like to use weather as an excuse, and my people don't use it with me, either, if we miss in there. But there's no question that when the weather is 95 to 98 degrees every day, and ICEE is such a refreshing, nutritious drink, that it plays a part. But conversely, some of our bakery -- our soft pretzel sales and our bakery products -- people don't consume as much of them.

That's helpful.

And just on the commodity cost issue -- you weren't very specific, other than to say that you see pressure, at least for the next quarter, on your margins. Can you give us a sense of magnitude? This quarter, I think costs were up about $6 million. Would it be more or less than that in 4Q? And what are your expectations beyond this fiscal year?

It could be more. Chances are it's not going to be less, but it could be more. But, hey, we're managers. This is [some] stiff winds out there in commodities. It's not a gentle breeze, it's a stiff wind in there. So we're going to have to live with it. We're good at living with challenges.

But price increases are also -- are they fully implemented? Can you help us understand the $3.5 million increase related to prices? When was that implemented? Are we going to see that tick up in 4Q? Just trying to get a sense of magnitude of impact going forward.

(Inaudible) there'll be additional benefit going forward, but I don't know how significant it's going to be. Besides pricing initiatives in there, we're looking for other ways to gather efficiency, both in the manufacturing area and the logistics end of it. But we expect to get a little bit more pricing later on next month in there. But it will not be real significant. Most of the pricing has taken place this past January through March.

Perfect.

Just two questions on acquisitions, if I may, Gerry -- on the one that you just did with ConAgra -- obviously, the price you paid -- you called it a bargain gain -- but certainly, the price you paid relative to the sales you're getting seems to me like a bargain and one of the best buys, just on a EV-to-sales basis, as far as we can tell. But the other --

(Inaudible) --

Yes. But the other side of it is, clearly there's got to be some issues with this business for ConAgra to sell it at the price that it did. So can you help us understand the risks involved in making this transaction happen for you, and why you're comfortable with those risks? And then, anything you could say about the level of accretion we might expect from this acquisition would be helpful.

Yes, the business had some issues and challenges. And yes, we're fully aware of the challenges. Our people, our team -- Jerry Law, Bob Pape and Dennis Moore -- we kind of attacked it, getting comfortable with it. We acquired two plants, both USDA -- one in North Carolina, one on the West Coast. They're both well-operated, with good people.

They needed some attention, they needed some motivation, they needed some encouragement -- we're good at that. The product had not been, for whatever reason -- ConAgra's a terrific company, they got a great portfolio of brands -- but for whatever reason, some of these brands were like orphans. We have acquired over the years some brands that people never heard of. Nobody ever heard of a Tio Pepe. Nobody ever heard of a [Dooby Bob], nobody ever heard of a Whole Fruit. But we have acquired brands over the years and then given it a little bit of life, and given it some speed and given it some strength.

So our first challenge here is to stabilize the business, and then get it expanded into our business segments that we sell to and through every day -- private label, retail grocery, food service, fast food restaurants -- and then to grow it. And I am pleased that after -- actually, it's two months in there, that we are making significant head roads into that. And I am optimistic, and more than cautiously optimistic, that it'll deliver good results down the road.

Just one last one on what you see in the market out there -- you still have a pretty solid cash position. Can you help us understand -- just give us a sense of what are the type of brands or assets that you're looking at, and why you've -- [it's] been pretty cautious over the last couple of years. We've seen a lot of deal activity -- obviously not at the prices that you're paying -- but we've seen a lot of activity in the food space in general, M&A-wise. But you've been particularly cautious. So help us understand your filter there again.

To begin with, we're conservative. That doesn't mean that we wouldn't certainly acquire something at a big, higher range. But we want to make sure that it is the right product line, with the right infrastructure, with the right products. Our track record over the years has been pretty damn good. And we're not going to bet the store on a maybe, either. We're in the niche snack food and beverage business, and we have expanded that well over the years. When you think we went from soft pretzels to churros, to juice bars to ICEE, to some of the frozen juice bar -- we have expanded our portfolio. And now, our people who are carrying the bags, or pulling the bags, really have a full line of nutritional snack foods to both the food service and the supermarket industries. And we continue to expand our portfolio of products there.

We're looking at other things. And to be perfect honest, actually most things, for one reason or the other, are -- we pass on. But we're looking at some things right now. Occasionally, we pass on something that I regret. But I don't regret the reasons we pass on it.

Perfect.

I'll get back in line.

Mitchell Pinheiro.

A couple questions, following up on Akshay -- first, regarding cash -- your bank credit line expires in December. Do you renegotiate that now?

We kind of handle that routinely, and Dennis does that. You might say -- why do we even have a bank credit line? Because there's the possibility that we may do something that will be bigger than that. But I won't say there's a probability. But it's a small price to pay to have lots of flapjack available to you.

Okay. So you intend to renegotiate or get an extension, or whatever you --? Was that yes?

Yes. Yes, Mitch.

Okay, thanks.

On the balance sheet, a couple things -- receivables were up $17 million, inventories up $9 million. Is that related to the working capital acquired at the handheld business?

Dennis?

Mitch, this is Dennis. Yes, most of the inventory increase was related to the handheld.

Was over $8 million, right?

The receivables was a combination of the handheld and the balance of the business. Our sales in the quarter were a little bit -- as they [usually are, and] weighted into June, which would tend to give you a higher receivables balance [with us]. And then, it's a little bit on the high side, but not higher than where it's been at some point in the past.

That's helpful.

Then, was there -- getting back to FCB for a sec -- your marketing equipment was up in the quarter. And I see installations over you gave in the Q, at 39,300, was up 4%. Were there any meaningful new FCB installations in the quarter?

Not really, Mitch. We're growing our international business a little bit. We continue to grow domestically. Mexico contributed very solidly to the quarter and the year. But our FCB business just continues to grow. And I am encouraged [particularly] that the beverage sales that we have been able to generate -- after a couple years ago, when all of the colas were flat down in there -- but we've been able to generate some positive gains in overall gallon sales.

But it looks like same-store sales per dispenser is flattish, at least this year over last; maybe down a little. If total installations are up -- I know some of that's service revenue -- but if total installations are up 4% and gallon sales up 2%; it's roughly flat -- is that an accurate picture? Or are you seeing same-store sales up on average?

That's fairly accurate.

So you're still seeing pressure just from alternative beverages? Is there anything that you're looking at that you can sort of capture the non-sugar or -carbonated soft drink flavors, tastes, from energy drinks and things like that? Is there anything you can do on the margin there?

We're always looking at opportunities. We have a 100% juice now on our Slush Puppie line. In looking at our ICEE business, it wasn't [too long ago] that ICEE was sold, just ICEE in two colors and whatnot. Now we have a Mix It Up variety, we have Arctic Blast, we have Slush Puppie, we have Parrot Ice. So ICEE has expanded its niches very intelligently and very carefully.

Are you able to -- have you seen the Coca-Cola Freestyle machine?

I have.

Coca-Cola's using that proprietary or the license -- that micro-dispensing technology for syrup. And they're able to stick, in some machines, 100-plus flavors. Is that technology adaptable to FCB, where you can have these machines that provide 20 different flavors, so you can allocate slots for diet drinks and other weird things? Is that at all applicable to your business?

We look at that -- I would say that's futuristic. That's probably like what the typewriter of 40 years ago is to the iPad of today. Might it happen? Could happen. Will it happen, and will we be there? If it happens, we'll be there.

Mitchell Pinheiro Okay.

In terms of pricing across your business -- Akshay was getting into that a little bit. Are we going to see -- when do you lap your current 2% pricing? Or is there this phase-in of constant price adjustments that we'll see, and a low-single-digit type of pricing contribution will continue for next couple quarters? How do you see that playing out?

We're probably going to be lapping come January. Because that's when we really implemented it. There is a more targeted pricing that's covering a lot of our bakery products sans pretzels that is going to be implemented during August.

Okay.

(Inaudible) mostly because of the heavy run-up and ingredient commodity costs.

Okay.

Back to handhelds -- you're making significant progress two months out of the gate. What type of things have you -- what has been the low-hanging fruit? Has there been headcount adjustments? Has there been freight distribution cost savings in any way? What are the first couple tangible things that you've been able to implement?

This is a little bit unusual -- we acquired the assets, and the plants and the people; we've made no cuts in the organization. As a matter of fact, we've gone out and we're giving them a little bit of R&D support. We had all of their people in here. We wanted to get that something special that we have. Sometimes it's hard to define. But you either have it, or you don't. And we have culture. And the guys from Holly Ridge and Weston in there -- they're getting the J&J culture. And all of a sudden, they have team partners and friends in there that are excited about the products that we can develop.

There's no low-hanging fruit, like we're picking peaches that are ripe in there. And if there was really low-hanging fruit, I guess we wouldn't have the business to begin with. But our people were looking for products with protein and -- when I say our people -- our sales and marketing team were looking for that. We were in the development stages of a half a dozen different things in there, through our R&D and other co-packers.

So rarely does something come along that defines both the opportunity and the benefit. This has some challenges. There's a reason that the company that owns it decided that it was -- they drew the line on there. But we looked at it. The process went quickly and smoothly. There were some negotiations on the price. But from the time we entered into the letter of intent, we were running on all cylinders. We were running -- our forces were moving, and we were getting things done in a hurry. But I think that the solid -- our solid business practice of identifying the opportunity, making sure the products are good products, and nutritious, and quality, and presented right. And we're creating some new products, too, right from the get-go.

So for this business to contribute to operating profit, is it a function of a higher revenue base? Is that what you need -- more revenue? Or is this going to be -- or is there pricing -- can you price the products a little stronger? How do you get the profitability in this business?

Sales, Mitch.

Sales? Okay.

And besides the acquisition costs related to the handhelds, was there any -- was this any meaningful or negative in the quarter on EBIT?

No.

So it was a flat --

For accounting and (inaudible) in accounting, it was roughly $0.5 million. Is that right, Dennis? And that was charges in expense in the quarter. But there was no negative impact. And --

So it was neutral. So outside of those one-time items, it was relatively neutral to your performance?

Essentially.

Okay.

But again, we don't expect to have any type positive impact for at least a year with this. Now, if I wanted to project out two, three years in there -- yes, there's numbers that we have in mind. But we don't give that kind of guidance.

Okay. I guess it'll take -- I guess the challenge is, in the selling process, now that you own it, to get it in front of your customer base, I imagine. And that takes a little bit of time to work through that. Is that right?

We've been doing every day since the end of May. So we're moving.

Okay.

Mitch, you of all people know us -- you know how we move, you know how we act, you know how we react. Give us a year on this, and then we'll be able to measure the report card.

A year? That's like three quarters later than the typical.

Hey, come on now.

All right.

Thank you very much. Appreciate the insight.

Jon Hegranes.

Regarding acquisitions, I was curious -- what part does the consumer base, what part does internal logistics, kind of play in your screening or target process as you look for new acquisition candidates?

We're looking for things that either can expand our portfolio of brands or can certainly get us into different and other business segments. Our marketing people have also been challenging us so that we can be able to use the technology that is out there, as there are more and more people using Smartphones and social media, for influencing them on product sales.

Okay. That's interesting.

Secondly, it sounds like organic growth is improving, at least this quarter. Certainly you had some acquisitions come through. And I know it's been, I think, 139 quarters of sales growth. But do you guys see that rate of increase improving over the next couple of years as you think about your cash position and how you can continue to grow this business?

Let me make one minor correction. I think we've had -- it's now 158 straight quarters of sales growth. And we believe the cash that we have -- and it's built, and we've some in there -- we're going to use it. We're going to use it to grow the business. We're going to use it for capital improvements, or we may use it for additional other things. But we're not going to waste it, and we're going to try very hard to make sure that it, the cash, works just as hard as what we do and as our shareholders deserve.

Okay.

Finally, I know in the past you've looked at some hedging, or some ways to mitigate ingredient or transportation costs. Is that something that you're looking at? Or is it not a favorable time at this juncture?

We've looked at it in the past, and we've had some studies done. But essentially, we buy out anywhere from six, seven, eight months at a time in there. So we know what our costs are. Sometimes we're not happy with our costs, but at least we can plan and budget, and work with that, as opposed to worrying about hedging and swaps and whatnot in there that we're not really tuned to do.

Got you. Thank you, guys.

Brian Rafn.

Let me ask you -- let's go back to the commodity costs a little bit. You talked about pressures through the end of the year. Are you seeing, in any of your individual ingredients, Gerry -- flour, sugar, eggs, shortening -- are you seeing, as we speak today, any increases going forward? Or is it more of a plateauing?

I'll give you one comment that shortening oils have come back a little bit in there. By that, I mean you don't see the dramatic rise that we might have saw a few months back. Flour is about 40% higher than a year ago. But it's been a little bit higher than that, and it's come back. And sugars are up. And eggs have kind of stabilized. But commodities are an issue. Commodities are an issue. We've had a -- in three of the last four years, commodities have reared their ugly heads and started to run away with us. And it's kind of almost like trying to catch onto a runaway horse. It's not easy.

Let me ask you guys -- you've been very good, Gerry -- you talked about, like in that freezer case, that when you break a $3 price point, there are some natural price points when Mom is shopping with the kids down the freezer aisle. If you get beyond those price points, then you start losing some volume. You guys have also not played the game of managing the same price while you cut the volume. Are you, with your price increases, running into any natural barriers, where the pressure of commodity prices may force you to violate some of those kind of cultural covenants that you had over the years?

That's a good point, Brian. And let me just point out a certain segment. Over the past four years, we've been able to grow a new channel for us, which was the dollar store channel. We had product in there at $0.99, which is the plateau number. The past couple years, because of the escalating of ingredients costs, nearly everything that goes into a fig or fruit bar has risen, risen, risen. And as a result, we had to -- after trying to -- absorbing as much as we could, we had to increase our pricing and kind of reduce some sizes. And this did cause some disruption into SKUs, into shelf space, and into shoppers' buying habits.

That was a more specific channel. We've seen a little bit in our novelty business. We have some terrific brands -- Minute Maid, Whole Fruit, Luigi's -- we have some terrific brands in there. But when the shopper suddenly sees something -- there's a magic number. Maybe you could be from $3.29 to $3.69 for a long time in there. But if you hit that $4 price, or if you go over in there, it's going to cause a little bit of softness. And then you have to decide how to kind of recover from that.

Okay. Good.

Let me ask you, with all of the discussion about organic foods and natural foods, fat-free, low-sugar -- you guys are in the snack business. That's kind of a tougher area because people use that for enjoyment. How do you mitigate some of those trends?

We've had offerings -- whole wheat pretzels, oat bran pretzels, fat-free. I'm sorry, Bob, what --

51% whole-grain cookies.

Yes. And sales are not like the weather, if you know what I mean. Sales are --

Yes, right.

People talk healthy and nutritious, but they don't buy healthy and nutritious as often as they think they do.

Okay.

Go into one of the fast food restaurants, and you still see the hamburgers, French fries; and you don't see as many carrot spears and broccoli dippers.

Right.

Can you talk a little bit about the frozen beverage area? As you've added Slush Puppie and Arctic Blast and Parrot to ICEE, how have you developed out the flavors? Or did you buy those portfolios [and] kind of maintained the same flavors?

Good question. We have developed out the flavors. We have a program of flavors now that's really came in together with the Slush Puppie acquisition, where it's Mix It Up. And it's a -- I started to say a child -- a person, a buyer, can mix up a whole variety of flavors. And it's been a pretty good hit for us over the last couple years. We've also developed some -- we changed some flavors in there to give us a little bit more, keeping in line with what is being offered in smoothies and mangos and the lemonades. But ICEE has always done a real good job in staying on top of trends, and of getting in there with flavor impact.

Part of the issue is that at a location we may only have four valves to use. So your two most popular flavors are always cherry and blue ras, and then Coke in there. So the fourth flavor becomes a rotation flavor. And that could be anything from watermelon to honeydew, to a mango to a peach, to a Hawaiian Punch.

Okay.

Talk a little bit about -- when you have a hot summer like we've seen, how much pressure -- you mentioned a little bit about lemonades and smoothies -- how much incremental volume pressure is there on your kind of ice-based drinks versus some of these smoothies and the lemonades, and that type of thing?

That's the kind of pressure that we like. In other words, it's hot; we got to sell more of this. Over the years, we've improved the reliability and the engineering of the machines in there that can fill up a 24-ounce cup quicker, and repeat, and go to 32-ounce cups in there.

So if there's a hot flavor -- for example, I'll give credit where credit is due -- McDonalds has a smoothie program, and they have a couple of hot flavors -- a mango and a pineapple in there. And that's led to other offshoots for everybody in the beverage business, including our frozen beverage group, be it Slush Puppie or ICEE, or Parrot Ice.

Okay.

You talked about some CapEx to expand, or to be deployed to Midwest Bakery. Are there any other specific lines that are looking at capacity constraints or shift constraints, or were you looking at putting some more CapEx?

We're always doing things within our plants to make ourselves more efficient. Some of it's a matter of refreshing lines, some of it's to improve the quality of the product, and some of it is -- when it gets right down to it -- to add special capacity for special products, like our pretzel rolls and whatnot, which is a new product from a couple years ago. But we will continue to invest in our plants on an ongoing basis to make our company stronger as well as more fertile.

Okay.

The ConAgra, Gerry, the handheld dough -- when you looked at the two plants that you've got out in Holly Ridge and Weston -- if you looked at the quality of the plants, the age of the equipment, the [cellular] or the line layouts -- what is your sense of those plants versus what you guys -- the standards you have at J&J?

Both good. ConAgra knows what they're doing when it comes to processing and manufacturing. We've put those plants under one of our young tigers, Jerry Law, who's Senior Vice President for us. And we're very happy with those plants, and we think that we can learn some things from those plants -- they're both USDA. And we think that we could add some benefit, too. So it's a good deal.

Okay.

(Inaudible) couple things I've looked at over the past four, five, six years that I might've liked the product, I might've liked the potential, I might've liked the people. And I walk into a plant in there that you knew -- I just have to move it or close it down. And I spent a lot of years, early years within the J&J history, struggling with plant stuff all the time. And I've been committed to having first-class operations. Coast to coast, we have 14, 15 plants now. I want them all to be -- each one to be better than the other, if you know what I mean.

Yes, sure.

Talk a little bit about the Daddy Rays, the fig and fruit bar. There's the one you resuscitated a brand. What kind of sales level would they be running at now?

They're running something between $35 million and $40 million. And they have run into, the past year -- and we think it's an aberration; it's not permanent -- they're run into the past year -- because of commodity pressure and because of some resizing, where the growth has slowed and stalled. But we're expanding that.

We're putting another product line in there in connection with a major manufacturer that I'm not at liberty to say right now. But we will be doing a sizable co-pack. That plant was a good plant when we acquired it. And we've made some additions and expanded it. So we're happy with it.

Let me ask you -- over the years, you've done a great job. You talked a little bit about resuscitating orphan brands and adding some capital or CapEx, or getting some enthusiasm. With all of the LBO transactions we've had since the 1980s, with all of the Six Sigma and lean manufacturing and that, are you finding that the volume of damaged businesses or tarnished brands is less prevalent today than maybe you had in the past?

That's an interesting question. I see some that -- I wish they were better, and I've seen (inaudible) the private equity groups that they have improved. We're looking at some, and we'll see what happens.

Let's give somebody else a chance.

Thanks, Gerry, appreciate it.

Akshay Jagdale.

This is more about EPS growth and your expectations for this year. How is your -- can you just help me understand, relative to your internal scorecard, how has the Company done, sales growth- and EPS growth-wise?

Akshay, there's few analysts who are as sharp as you. Just take a look at the past decade. Our EPS has quadrupled, sales growth has tripled. I'm not a college graduate, but I think that's good. I'm not trying to duck your question in there. But if the next five years are as good as the last five years, we're all going to be happy as employees and analysts and shareholders.

Thank you for that. But I was focusing more on year-over-year growth. And you've had some, obviously, issues with commodity costs and some challenges this year, which have impacted your EPS growth. So I was just more curious about how you look at this year. I know your long-term record has been spectacular, really, so I'm not questioning that. I'm just trying to get a sense of -- how satisfied are you with the growth this year? And how much -- the real question is -- there were some factors that may not continue next year, like commodity costs may flatten out. You have a benefit from pricing. You are not losing a big, new product introduction; there's not going to be a drag to your P&L next year. So there's quite a few benefits which make me believe that there could be a rebound in your margins next year. But I'm --

(Inaudible)

-- just trying to get a sense of what you're expecting, and how you think of this year in the context of the long-term framework that you have.

If those things happen, and if commodities flatten or are pulled back -- yes, it's true that we won't be lapping some of the challenges we had last quarter in sales. We might have something to crow about. But all these things to happen -- for all of them to happen would be unlikely. But suffice to say, I think the business is certainly resilient enough and strong enough that we're going to have forward growth both in sales and EPS. And if we get any kind of benefit with commodities dropping back, or any other kind of [commodity] that maybe truly [will flow], we'll have something -- we'll have additional benefit. To be like what hot weather is to ICEE, commodity drop-offs would be to the rest of the business.

Perfect. I'll end it right there. Thanks a lot.

At this time, we have no further questions.

I want to thank everybody for participating in our call. And we look forward to having you participate in our fourth quarter call. Thank you.

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