J & J Snack Foods Corp (JJSF) 2017 Q1 法說會逐字稿

Welcome to the J&J Snack Foods first-quarter earnings conference call. My name is Jason, and I will be your operator.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Gerry Shreiber. You may begin, sir.

Good morning, everyone, and welcome to our first-quarter's conference call. With me today is Dennis Moore, our CFO; Bob Radano, our Senior Vice President and COO; Bob Pape, Vice President of Sales; and Marjorie Roshkoff Shreiber, our in-house counsel.

Let me begin with the obligatory statement. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Results of operations: net sales increased 1% for the quarter, and our net earnings increased by 4% to $13.5 million or $0.72 a share, from $13.0 million or $0.69 a share a year ago. Our EBITDA -- that is earnings before interest, taxes, depreciation and amortization -- the past 12 months was $158.4 million, again establishing a new record.

Food service: sales to food service customers were up 2% for the quarter, but with increased sales of soft pretzels up 7%, churros up 4%, funnel cake up 42%, and handhelds up 22% leading the way. Sales of frozen juice bars and ices were down 10%, and bakery sales were down 2%.

Retail and grocery supermarkets: sales of products to retail supermarkets were up 2% for the quarter, soft pretzel sales were up 2% for the quarter and sales of frozen juice and Italian ices were up 9%. Handheld sales were down 11% in the quarter to $3.5 million.

Icee and frozen beverages: Icee -- which includes Arctic Blasts and Slush Puppies frozen beverages and related product sales -- were down 2%. Beverage-related sales alone were up 1% in the quarter, with [talence] pretty much flat in our base Icee business. Service revenue for others was up 2% in the quarter.

Consolidated: gross profit as a percentage of sales in the quarter increased to 29.2% from 28.6% last year. The gross profit percentage in this year's quarter compared to last year was helped by increased sales in our food service business and lower ingredient costs and improved operating efficiencies. Total operating expense as a percentage of sales increased from 20.4% to 20.6%, with the increase mainly attributable to higher marketing spending in our retail supermarket business and the relatively small overall increase in sales of 1%.

Capital spending and cash flow: our cash and investment securities balance increased $8 million in the quarter to $282.4 million as we continue to generate cash in excess to our needs. We continue to look for acquisitions as a use of our cash. Our capital spending was $11.4 million in the quarter as we continue to invest in plant efficiencies and growing our business.

We are presently estimating capital spending for 2017 to be $50 million or so, about the same as last year. We are refocusing our efforts to take costs out of manufacturing through improved efficiencies and improved controls. A cash dividend of $0.42 a share was declared by our Board of Directors and paid on January 11. We did not purchase any shares for retirement of our common stock in the first quarter.

Commentary: food service sales of soft [pretzels], funnel cake and handhelds were strong this quarter, with increases in the restaurant, c-stores and school food service channels. Sales to restaurant chains were up about 10% for the quarter. Frozen juice and ice sales in food service were down 10% in the quarter, with half of the decrease being lower sales to one school district, which we expect to come back online in the second quarter for the spring.

Handheld sales in food service continue to be strong, led by sales to three customers. Our whole-grain funnel cake product has been well-received in schools, and continues to contribute significantly to our sales growth of funnel cake products.

For the quarter, bakery sales were down 2%, as sales were up and down for a wide range of customers. Sales to three customers were down $5.5 million for the quarter. We expect sales to two of these customers who were down $2.9 million to flatten out and perhaps begin to increase in sales starting in the second quarter. But the other customer may continue to be down in sales roughly about $1 million a month for the next nine months.

Sales of soft pretzels in our retail supermarket segment improved, benefiting from increased couponing. Frozen juice bars and ices were up 9% for the quarter, with strong performances across our product lines. Handheld sales in retail supermarket continued to decline due to decreased volume, although sales of our licensed Pillsbury mini-dessert pies were relatively good this quarter.

We also had significant sales in the quarter of our licensed Oreo Churros. And Icee and frozen beverages sales were down overall 2%, primarily because of lower machine sales. Also be aware that this business had been running up significantly, and it was up 17% in the year-ago quarter.

Operating income in the quarter was up $1 million from a year ago, a 5% increase. Our estimated income tax rate was 34% this year and 33.4% last year for the quarter. Both year's rate benefited from unusually high tax benefit on share-based compensation. We are estimating a rate of about 35.5% in FY17, which compares to a full-year rate of 35.0% in 2016.

On January 3, 2017, we acquired the business of Hill & Valley Incorporated, a premium bakery located in Rock Island, Illinois, for approximately $31 million. Hill & Valley, with sales of over $45 million annually, is a manufacturer of a variety of pre-baked cookies, cakes, pies, muffins and other desserts to in-store bakeries in the retail supermarket segment. Hill & Valley is the leading brand of sugar-free and no-sugar-added, pre-baked, in-store bakery items.

Additionally, Hill & Valley sustains strategic private labeling partnerships with major retailers nationwide. We are comfortable with the Hill & Valley management, and we expect the president to remain on with us for several years. We expect this business to add about $0.10 to earnings per share its first year. I thank you for your continued interest, and now I will turn it back to the listening audience for any questions or comments.

Thank you.

(Operator Instructions)

Francesco Pellegrino, your line is open.

Good morning, Gerry. How is it going?

It is going well, thank you, except for the weather.

Yes, well, every time I seem to meet with you, it is sort of downpouring; isn't it?

So, you're the cause of us kind of like tramping through a quarter?

Tramping through? Well, when I look at your page 1 -- and I always appreciate the commentary that you give. It is very simplistic, and usually it is very forward-looking; it is positive. But for this quarter, you're quoted as saying -- Overall, we are satisfied with our results for the quarter. And I am looking at the quarter. You have revenue up 1% year over year. You have EPS growth of 4%.

And then sometimes when I look back at some of your commentaries on some prior press releases -- like for example, I pulled up 2Q FY16, where you had 2% revenue growth, but you had 7% EPS growth; and you are encouraged. Could you maybe just talk about why you are satisfied for this quarter, just given what just appears to be, I don't know, a lackluster quarter?

Well, anytime you can grow the core business by decent single digits and grow the earnings even better, I would have to say that I am reasonably satisfied. Am I thrilled? Hey, we've had much stronger quarters before in the past. But given the economic uncertainty and given the competitive nature of the markets, 4% earnings growth on modest sales increases is not too bad.

I understand that, and I know you always set the bar high. When I think about you setting the bar high, I think about you setting the bar high when it comes to manufacturing costs and you being a low-cost producer. When I revisit the Company's fourth-quarter conference call from early November, there seemed to be a significant concern about higher manufacturing costs in the fourth quarter persisting into the first quarter, and it was something that you really drove home on the call.

To be honest with you, when I look at the Food Service segment operating margin in the fourth quarter, and then I compare it to what happened in the first quarter -- like, this was a really great quarter for Food Service. And I'm not just sure if maybe when you had the fourth-quarter conference call, if October was looking really bad and (multiple speakers) --

Let me interrupt -- and I apologize for that. We had some challenges in the fourth quarter; we addressed them head-on, but nothing showed in October. Then taking a conservative view, we kind of echoed that in the call. However, our efforts and changes and fixes -- it is like a football team can go up and down the field and use up six minutes, but we got up and down the field in about three minutes; and we see the benefits of it now.

So are you saying that there was no elevated manufacturing costs at all during the quarter within Food Service?

No. This is Dennis.

Last year in the first quarter, we put in a new manufacturing line in one of our New Jersey plants; and there is significantly start-up costs because of that. So this year, with those gone, we did not have those costs. So that would be the biggest reason to compare year to year for the benefit -- you know, this year compared to last year.

I get the benefit from the year-ago period and how you are benefiting from that, having certain costs in the year-ago period. But what I'm trying to get at is maybe that there were a lot of favorable things that occurred during the first quarter that might have offset some elevated manufacturing costs that you guys were touching on during the fourth quarter. That's sort of being masked by maybe just an improvement in some operating leverage that you guys have gotten from investments in CapEx over the year.

I'm not sure if we're able to quantify it because going forward, if there were elevated manufacturing expenses during the first quarter and we do not have that going forward, then I would think that your Food Service segment could really benefit from higher margins going forward; and this is just the beginning of maybe a higher-performing segment.

Well, hopefully you're right. We will see.

Okay. And then just the last thing I wanted to ask you about was the bakery acquisition. It looks as if you acquired it for $31 million. I am assuming when I look at peers in this space, that probably you acquired it for six times EBITDA.

You are right on that.

This is an acquisition that, like, sort of -- it is not really the type of acquisition you guys have done in the past. When you guys do an acquisition, you do an acquisition of a company that has a niche product that has a large market share within that niche product.

For example, pretzels -- you guys do soft pretzels well. You've now acquired Kim & Scott's, which has a gluten-free pretzel. I get it because it is something that rolls up well into an industry that you dominate. But just to be doing acquisitions in the bakery space -- I would think there is a lot of competition in that space. I am just wondering if you are maybe getting away from something that you have done well?

We looked at this acquisition very carefully. Gerry Law and I and some others I visited the plant. We met with management. We hosted management here. We thought that they have a special niche in the sugar-free, in-store bakery.

We reviewed that niche. We were pleased with what we found. This was part of a private equity who was the group that was selling it. We got into the process and we acquired it, and we are very comfortable with the acquisition and its future.

Anytime we can acquire something that fits in our overall portfolio -- and we're not talking about something 10 or 12 times earnings, you're talking about something 6 times earnings -- and it is a nice fit, and we think we are going to benefit from it. Our regular in-store bakery and cookie business will also share in some of the benefits.

All right, perfect. Thanks so much for your time, guys.

Akshay Jagdale.

Good morning, Akshay.

Good morning. How are you?

I'm good. How are you? You're out on the West Coast now?

Actually, I am in New York, but Lubi is in the West Coast. I am enjoying the perfect weather here in the East Coast.

Good.

So I wanted to ask about the acquisition too. Sugar-free cookies -- how do they taste? I have never tried one. Is that a market that you think has, quote-unquote, legs? I mean, we all love cookies for sugar.

We think these sugar-free cookies taste better than its competitors. As a result, it has made significant inroads into the in-store bakeries, particularly the last three or four years.

Okay, that's helpful.

The $0.10 this year -- so on an annualized basis -- can we just gross that up for an additional quarter, or is there something unique there? I mean, this is simple math, right? It is three quarters, $0.10; four quarters should be more than that, correct?

Well, I am trying to make sure I understand your question. (Multiple speakers) $0.10 for the year, not $0.10 for the quarter.

Yes, I know. I'm saying -- you're saying $0.10 for this fiscal year or $0.10 for its first full year?

First full year.

Got it. Okay, my bad on that.

Can you update us just a little bit on the M&A environment? Obviously this seems like one of those deals that you're very good at finding and executing on. So it looks like it is right in your wheelhouse, but you still have a lot of try powder. Can you talk to larger-size deals and your appetite for it, and sort of what is out there and why --?

Well, we have an appetite, but we're not going to eat crazy and get filled up with too much fat. So we continue to look at these acquisitions with a careful eye. We want to be reasonable, liberal, and evaluate them, but certainly continue to be conservative in our discipline.

Okay. Back to sales growth, there was quite a few positives, obviously in the Food Service segment. I thought that was a pretty good performance. But there is always some puts and takes; and more recently, there has been more that fall into the sort of leaky bucket area.

As a result, you have gone from a Company that is doing mid single sales growth to low single digits for several quarters now. I know you have several initiatives in place, and you are working on accelerating the growth. But when you look at the next 12 months, what would you say are the three biggest opportunities in terms of sales growth for your Company?

Well, obviously we are looking to grow the Company and all of its products, particularly its core products. We have had some challenges in the bakery business in the past year. I might have mentioned a portion of the business that we lost with a major wholesale club, and there were some other issues. But we are looking to grow our base business in the low single digits. Then again, that would be complemented by any possible acquisitions.

So the low-single-digit target, should I consider that a change in the way you are managing the business? Because historically, you try to grow it mid single digits. So is that just because the environment is tough, or is that how we should think about the growth algorithm going forward?

You know, we have several initiatives in our R&D area to help drive this growth better. But we're looking at a lower annualized growth of these products. Combined with the other products in our portfolio, it looks to be a little bit more conservative. It would be low -- and that low-single growth can be 3% to 5%, and certainly we're hopeful of doing better than 1% to 2%, which we have been in that thicket the last couple of quarters.

Okay, I'll get back in line. Thank you.

Eric Gottlieb.

Yes, hi, Gerry.

Hi, Eric.

Thanks for taking my questions.

I want to touch on the acquisition a little bit more. So this was a little bit lower margin than your overall Company margin. I'm wondering the strategy here? Are we looking to bring margins higher, bring it under your system gross sales cross-marketing opportunities? Does it get you in additional doors? What is the real rationale for making the acquisition?

Good company, well-managed, opportunities for growth -- they have been growing. And we think it complements what is our basic stationary line.

Do you think you can get your margins, or their margins, closer or in line with your overall margins? Or this is just a lower-margin business, and they are not (multiple speakers).

Overall, bakery is a lower-margin business, but there is a lot of connecting points between the business that you can benefit from.

Got it, okay.

Touching on the school, why didn't they not take product and why did they resume? What happened there?

This was out in California, L.A. Unified. And without fully understanding all the reasons, there was some interruption to start the school year. The school year for us starts in, I guess, July or August. But from what I understand, they are back on track now -- meaning, like, mid-January. And it should be better the rest of the year.

Got it, okay.

The three customers that added $3.8 million, are they new; or is this additional sales for existing customers? Is this a short-term thing, or like they just had an increase for this quarter? Or we can expect a bump in the second quarter when we start lapping that $2.9 million of lost business?

Bob, (inaudible). Oh, a part of that was --?

Eric, help me with this.

I can ask it offline, that's fine.

(Inaudible).

New product sales, I noticed they were down. Did something lap, or did we experience a slowdown there?

What are you referring to?

He does not have the script.

Well, but there was a statement that handheld sales in Food Service continues to be strong, led by sales to three customers. Is that your question?

Yes. So we have got -- I could ask it offline. But essentially, three customers added $3.8 million. I'm curious if those are existing customers that just upped their sales, or is there new customers -- that kind of thing?

Well, let's start --

It is both, Eric.

Okay.

It comes -- one customer that just has new products.

All right, and then my question on the new product. I've noticed they are down from previous quarters, sales of new products. Did we lap something that rolled off the 12-month period, or are we experiencing some slowdowns?

We are not experiencing any slowdowns. Part of this is timing. Our Restaurant and Fast Food segment was up strong, 10%. Sometimes you get -- it is almost like in a funnel: I like this, I like this, I want this, but this is going to be pushed back.

Okay, moving on to lower ingredient costs, the tailwind. Which ones specifically are providing the most benefit, and how long will those stay on for?

Hopefully, a long time, all right? But Dennis, what, we're looking at --?

The question has to do with ingredient costs. You know, egg costs are providing the most benefit, but other ingredients as well. We would expect the tailwind to continue for several quarters, but to begin to diminish.

Okay. Does that coincide with the increased marketing and couponing? Are you just taking the benefit and trying to increase sales with it, or those events are just unrelated?

I think they are unrelated.

Okay, then let's talk about that marketing and couponing strategy. Is this ongoing? How would you rate the success of the program so far? Is it going to be restricted to this quarter, or this is a new take on attacking the retail segment?

It supports the brands, especially our core brands. We feel that it is a good complement to our (inaudible) promotion to be able to continue to both look at consumer couponing, as well as social media and opportunities to coupon online. So those are the things that we're doing right now to help support the business in different facets.

Okay, is that going to continue into the future quarters; or is that just something you wanted to do this first quarter?

No, as we do this, we're looking to see what's the results. The results could be early results as well as ongoing results, and we will tend to look at the couponing and promotion more favorably.

Got it. I think that is all I have for you. Thanks for the additional color.

Well, thank you.

Jon Andersen.

Good morning, everybody.

Gerry, could I ask about the Restaurant business? It was quite strong in the quarter, and just wondering if you can talk a little bit about the strength there? Is this whole new customers coming online? Is it some new products that you're launching into that segment? And how you're thinking about kind of the sustainability of the growth in that restaurant business going forward?

Is a combination of all of that, Jon. We have a team -- a small team -- dedicated to nurturing and growing that. You will recall that whole industry was like a blank canvas to us five years ago. We jumped on and we got to $40 million-plus, and then we went through some cutbacks -- not cutbacks, but we went through some declining sales. Now it appears to be being driven again by the industry and our continued efforts to add new products in it.

The original new products started out with pretzel rolls and pretzel buns. Now there are special twist pretzels, and Churros, and we have a litany of new product offerings. Our teams are really up-to-speed and anxious to put these things forth. But we've got to make sure that we do not crowd the offerings in there, that it gets lost in their initial exposure.

So are you viewing the new products that are driving the growth, are you viewing those as more permanent placements versus LTO or limited time only?

Everything starts with an LTO. Then you can get lucky; you can get good. I would rather be both. But an LTO becomes permanent in there, and then you can reap the benefits for a long time. But we have a handful of product offerings that are being developed as an LTO. Even the LTO volume -- and some of it, we are working on a year in advance, so to speak -- that can be quite, quite strong for a while.

Okay, shifting gears to pricing. Historically you have been able to, I think, get a couple of points a price every year, it seems. The last three or four quarters, pricing has been more neutral, I think, overall. Could you talk about that? Is that just a reflection of lower commodity costs, or is there something else going on here too that it's just more competitive or harder to kind of get priced in your principal channels?

You are right on both points, Jon. Probably we will -- we're not looking for any price benefits in the near future.

Okay. Going back --

When it is a tougher environment, we have seen the adverse result of some of the pricing, which is a decline in sales and units. So I think where at we're at right now, we are going to be at the same -- we do not see any type of price initiatives in the near future.

Okay, going back to the manufacturing side, I think you had some inefficiencies in the fiscal fourth quarter in bakery, maybe an Atlanta facility. Where do you stand in terms of getting that kind of optimized? Are you finding more opportunities at present? What inning are you in?

We are ahead of schedule with respect to our improvement schedule.

Okay, last one for me. On Hill & Valley, are there any acquisition or integration costs that you're going to occur that we should be aware of going forward?

We are well into it. Our sales and marketing people are going to be out there next week integrating thoughts, idea and strategy. We are very comfortable with their management team, and we are excited.

Okay, thank you, guys. Good luck.

Brian Rafn.

Good morning, Gerry.

Good morning, Brian. Dennis waves from across the room.

Hi, Dennis. How are you doing? Question for you, Dennis, off the open. You spoke a little bit about ingredient and commodity costs, saying they were going to diminish. Are you doing anything, as you kind of go sequentially in quarters forward, to do any longer-term forward buying?

Not any more than usual.

Okay.

We go after six months to a year on most of the larger items, and some items we go after more than that. But we're not doing anything unusual.

Okay, fair enough. On the Hill & Valley premium bakery, how large and what type of delta growth organically is in that no-sugar or sugar-free? You can't swing a dead cat, but you've got a diabetes ad on television. How big is that category, the total bakery cookies and some of the areas, and how fast is that growing?

Well, first of all, I do not swing dead cats or dead animals (laughter). But we expect that business to grow. Now, it is the premium sugar-free product line that is out in the in-store supermarkets, and there is room for it to develop into the other -- with sugar.

We are expecting a decent growth from that group this year. Like I said, they were roughly $45 million, $46 million when we bought them; and we're looking for perhaps as much as 10% growth this year from Hill & Valley.

Okay. Well, your overall -- I think in your 10-K, you talked about 85% to 90% penetration with supermarkets. When you look at national distribution channels, are there any other areas in supermarkets where Hill & Valley is not? Can you cross-sell those sugar-free and no-sugar in maybe the institutional school district market?

We're looking into that as we speak, Brian.

Okay.

(Multiple speakers) are cross-selling.

Okay, but your sense -- you said that management is going to stay. Plant and equipment -- what is your assessment of their factory facilities?

It's a nice facility; it is relatively new. Doug Davidson and his group of talented people are staying on, and we're pleased with that. They are going to be running essentially autonomously but with strategic goals from headquarters.

Okay, when you look at it, in the past you guys have done some cold-branding. I am thinking of Barks and Minute Maid and the frozen juice, Oreo and Churros. How important is that going forward with new product launches, kind of cold-branding?

Well, Oreo Churros has certainly been a winner for us. We're hopeful that our license from Pillsbury, which is starting to show some traction, will have similar success.

All right, from the standpoint we talk about the impact of weather on some of the snack food categories you had, if you see with the new deregulation lower taxes trump the pro-business, from your experience in the past, is there any leverage that your snack foods can garner with better economies, better consumer optimism?

The one thing about our business -- and it has been consistent for 45 years -- we are fairly stable. I mean, our business shifts in the summer and in the winter with schools and leisure and theme parks. Our movie business in the off-season has been better as the snack bars have expanded. But we are basically -- and I hate to say this -- but we are reasonably recession-free. Unless there would be something major, we expect to be able to continue to be that way.

Okay, that is fair enough.

Relative to, I think you mentioned, Dennis, $50 million in CapEx, how is that allocated across your factories in the US? Are there any major projects maybe that you could single out?

No, I would not single out anything in the first quarter, nor at this point, anything for the balance of the year.

Okay.

Generally along the lines we've always done in the past.

Okay, all right.

Gerry, if you look at some of the acquisitions you have made just in the near-recent, Philly Swirl and some of those, what has been your sense of your ability to take some of these niche local brands and take them nationally or regionally? You know, Philly Swirl -- what is your sense is the success over the last couple of years of actually growing some of the acquisitions you have made?

I am sorry. Can you repeat that?

Yes. I get a sense from the standpoint of the acquisitions that you have recently made, like Philly Swirl -- what has been your sense as the success, once you integrate those in J&J with your manufacturing and your national distribution? How successful are some of those near-term within the last, say, three, four years in actually growing some of those acquisition target sales?

Well, we have had some mixed success; but overall, we believe in our strategy. We have niche products, and we grow the category and we add specialty brands to it.

Okay, well, final one for me. I think your case said you had about 119,000 dispensers in the Icee/Arctic Blast area. Is that a pretty saturated number, or are there still geographic areas to penetrate?

Well, we grow in every year, all right? That number includes both machines that are buying our syrup and other machines that we service. So with the exception of this quarter -- which Icee paused for this quarter -- the Icee business and the service end of the Icee business has been growing quite well. We're hopeful of that continuing.

Gerry, do you manufacture any of those machines; or are those all OEM vendors, not J&J?

We rebuild, but we do not manufacture. Years ago, we did manufacture. Instead, we made the conscious decision, and strategic decision, to partner with a couple of the major producers so that we would get the best of reliability, engineering and economy. But we do rebuild quite often.

All right, thanks, Gerry. Good luck, guys.

Thank you

(Operator Instructions)

Jonathan Feeney.

Hi, this is David Mandel in for Jonathan. Thank you for taking my question.

I have a couple of questions. The first one is about the brand-new political regulatory environment. Do you guys see any tailwinds from the new political climate kind of around food, school policy, regulation, kind of (multiple speakers) --

(Multiple speakers) in terms of [regulations], that there won't be any new ones that we have to adhere to. A lot of it relating to us is a lot of paperwork, a lot of extra costs. So we would think that a lot of that is going to be coming to an end -- different bageling requirements. So we hope for the best.

You hope for the best, but you are not expecting any rollback of current regulations? It's more of that it won't be headwind going forward?

[That's not] the case, but we hope there are some rollbacks.

Sure. And then one last question, just a quick one on marketing spend. It looks like the increase in marketing spend, if I am not incorrect, was basically machine supply-driven on the food service side. What does that mean for the full-year run rate?

Would you repeat that question?

Yes. It looks like marketing spend, the uptick, was focused more on machine-supplying. Is that correct?

No, the uptick mostly related to spending in our supermarket business related to the additional couponing.

Ah, thank you. And what do you expect, I guess, for the full-year cadence of marketing spend?

We would expect the percentage of sales to be relatively the same as last year.

Thank you very much.

Bob Costello.

Hi, Bob. How are you?

Hi, how are you doing? Funnel cakes -- you said you had a 40% increase in the food service. Is that to existing customers, or is that in new accounts that you brought in?

Well, actually, Bob, with funnel cake, that was a new customer. Also schools, after reviewing the regulations, and us reformulating, schools increased significantly. So we're hopeful that trend will continue.

What about selling the funnel cakes in the bakery category?

You say the bakery category. In the --?

In the in-store bakery. I mean, cross-selling it in other areas. I know you have done a lot trying to get in the food service, but in the other areas? I am talking about in the supermarkets specifically. Is there any opportunity there with this new acquisition or --?

It's something we can look at because funnel cake is a lot more popular today than perhaps what it was 10 or 12 years ago. It is something we can look at. But keep in mind, in the in-store bakeries, they are generally prepping the evening before, letting the products black out. They are not really frying anything in that department, so this would be a different twist.

Two last questions, one on product and one on taxes. The first one on the product. Is there any new product similar to last year that you're introducing -- not having to be specific here, but just in general -- that you will be introducing, that should have a major push in the spring selling season starting?

Well, when you say major, there's new products that we are introducing all the time. There's new pretzel products; there is new bakery products; there's new frozen juice bar products. Will these products have a major impact in the spring? We're hopeful that they will be accepted widely enough so that it will generate some sales and profits.

Specifically to that, do you anticipate -- like, what percentage do you budget that your goal is for new product on the total sales -- 1%, 1.5%? What is your general goal there that you're trying to shoot for?

Our general goal is roughly in that area -- as high as 2% or 2.5%, depending on the product. But keep in mind that new products need support both from the customer and the store. With our marketing and with our R&D department, it is really a joint effort in there in getting some of these new products out there.

Right. Your new machines in the convenience store for Icee look great, with the four categories versus the older line two.

Thank you.

Last question, the tax benefit that you mention on the share component. Is that something that you expect to continue in the near term for the next couple quarters? Because your tax rate overall has trended down versus what it was, say, four or five years ago, when it used to be 35%, 36%. Is that something in this range that we can expect in the near term to stay that way?

This tax benefit resulted from a change in accounting policy overall -- not just for us, but overall -- that took effect last year. So we expect to continue to have that every year going forward, for the next several years at least. It has to do with the options that we issue and their exercise. So that is the main reason why we have a drop in the rate compared to last year. We're not comparing it to this year; we're comparing it to the year before.

So the 34%, 33.5% rate, is that something you expect to continue and not in the near term?

In the course of this new requirement on taking the benefit of the tax benefit, there will be fluctuations from quarter to quarter. So for this year, we're expecting it will be roughly in the 35.5% range.

Okay, all right. Thank you very much.

Thank you.

Eric Gottlieb.

All right, yes, just a housekeeping item. Hill & Valley -- when you report, is it going to bunched up with the bakery items in food service; or are you going to create a new category in retail?

Yes, it will be. But we would be glad to entertain any specific questions that you may have that would be directed at that.

Okay, so it will be masked by the rest of the division. Okay, that is it for me. Thank you.

Brian Rafn.

Gerry, you mentioned a little bit about -- back to Icee -- with cinema and movie. Hollywood produces anywhere from 165 to 195 major pictures a year. They spend a lot with stadium seating, large screens, Dolby Atmos speaker systems, recliners and, on the menu side, with prepared steaks and things, like with The Marcus Corp in Milwaukee.

How much penetration has Icee had in kind of the revolution at the cinema? Is it about the same? Have you had entrees? Is there additional business you have been able to capture?

Well I'm a little bit of a skeptic with respect to the plush seating and restaurant part of the movie theater business, although we know it is there and our people are engaged. But Icee has had very good growth, dramatic growth. Icee is quick to react, and they have good equipment; and they are almost in every single snack bar in every single movie theater chain.

What drives the business is good movies, whether it is for children or adults -- but particularly for the younger set. So to that end, we are hopeful and cautiously confident that will continue.

Okay, that is a good point.

Let me ask one final one. When I was a kid, there was only one kind of Oreo. Now you get them chocolate-covered, white, vanilla, peanut butter, every flavor. Do you get a sense that the lifespan of new products today is less because there is such an avalanche with the consumer with iterations, formula extensions and that?

That is true. But Oreo cookies may have lots of colors and flavors, but there is only one Oreo Churros. So we are going to build on that.

All right, thanks, Gerry.

Thank you, and we have no additional questions.

This is Gerry again. I want to thank everybody for participating, and I look forward to talking to you again three months from now. Thank you and take care.

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