J & J Snack Foods Corp (JJSF) 2017 Q3 法說會逐字稿

Welcome to the J&J Snack Foods third quarter earnings conference call.

My name is Cynthia, and I will be your operator for today's call.

(Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Gerry Shreiber.

Gerry, you may begin.

Good morning, everyone, and thank you for participating for our third quarter conference call.

Let me begin by introducing myself.

I'm Gerry Shreiber, President and CEO of J&J Snack Foods, and with me today on the call, I'm going left to right, Bob Radano, our Senior Vice President and Chief Operations Officer; Dennis Moore, Senior Vice President in charge of Accounting and Administration; Robert "The Bull" Pape, Senior Vice President in charge of Sales; Bo Powell, Vice President in charge of Food Service Sales; and Gerry Law, who is Senior Vice President in charge of Marketing and R&D, and also my personal assistant.

Also with us on the call, remotely, is Dan Fachner, who is President of our ICEE subsidiary.

I will 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 6% for the quarter and 5% for the 9 months.

2% for both periods without the benefit of the sales of Hill & Valley, which was acquired this past January.

And a ICEE distributor, which was acquired this past May.

For the quarter, our net earnings decreased by 6% to $25.3 million or $1.34 a share from $26.8 million or $1.43 a share a year ago.

For the 9 months, our net earnings were $54.8 million, $2.91 a share, a decrease of 1% from the $55.4 million or $2.95 a share from a year ago.

Our EBITDA, that's earnings before interest, taxes, depreciation and amortization, for the past 12 months was a healthy $157.9 million.

Food service.

Sales to food service customers increased 8% for the quarter.

Our sales up increase of 2% without Hill & Valley was due to increased sales of soft pretzels; handhelds which were up sharply; churros, up 11%; and bakery products, up 5%.

Sales of frozen juice bars and ices were down 11%.

And funnel cake sales were down 34% for the 9 months.

Food service sales were up 8%, and without Hill & Valley, were up 3%, with increased sales of soft pretzels, up 3%; churros, up 7%; handhelds, up 19%; and bakery products, up 3%.

Sales of frozen juice bars and ices were down 12% for the 9 months and funnel cake sales were down 5%.

Last year, we had sales of almost $4 million, actually $3.8 million, of funnel cake products to one restaurant chain for a product rollout, and that is the main reason why funnel cake sales were down for both periods.

The chain is still selling the product but they don't have -- we didn't have the benefit of the major rollout.

Retail supermarkets and grocery.

Sales of products to retail supermarkets were up 3% for the quarter and flat for the 9 months.

Soft pretzel sales were up 5% for the quarter and flat for the 9 months.

And sales of frozen juice bars and Italian Ices were up 5% in the quarter and for the 9 months.

Handheld sales were down 7% in the grocery market for both periods.

ICEE frozen beverages, which includes Arctic Blast and Slush Puppie.

Frozen beverage and related product sales were up 3% in the quarter and 2% for the 9 months.

Beverage-related sales alone were up 10% in the quarter and 6% for the 9 months, with gallon sales up 7% and 5%, respectively, in our ICEE business in the quarter and 9 months.

Service revenue for others was up 1% and 2% for the periods.

Equipment sales, which follow no specific trend, were down sharply.

Consolidated.

Gross profit as a percentage of sales in the quarter decreased to 32.08% from 33.13% last year and decreased from 30.75% to 30.42% for the 9 months.

Gross profit margin in the quarter was impacted by the lower gross profit margin of the Hill & Valley business, along with higher cost in our ICEE business and a product mix in our food service business.

Additionally, our quarter last year benefited from significant rollouts of funnel cake and soft pretzels to 2 restaurant chains, a total of $5 million of sales.

Total operating expense as a percentage of sales was 19.3% in the third quarter, up from last year's 18.6%.

For the 9 months, the percentage increased to 19.8% from 19.5%.

A variety of factor such as higher payroll and payroll cost, product storage and warehouse expense, in addition to product mix, impacted our operating expense.

Capital spending and cash flow.

Our cash and investment securities balance of $239 million was the same as at March quarter end.

We continue to look for acquisitions as a use of our cash.

$114 million of our investments are in corporate bonds with a yield to maturity of 2.1%.

Our capital spending was $24 million in the quarter, as we continue to invest in plant efficiencies and growing our business.

We are presently estimating capital spending for the year to be $60 million to $65 million.

We expect to see operational benefits in our plants beginning this very quarter, our fourth quarter.

A cash dividend of $0.42 a share was declared by our Board of Directors and paid on July 6, 2017.

In addition, we bought back 13,004 shares of our stock during the quarter, at a cost of $1.7 million, average price of $129 a share.

Some commentary.

Sales of our food service products improved this quarter with significant increased sales of churros in restaurants and warehouse club stores, funnel cake products in schools and handhelds to a handful of customers.

Overall sales of frozen juice bars and ices though were down because of lower sales to one warehouse club store.

That is primarily the result of the timing of a program, which will move sales to our fourth quarter.

Last year, we had the benefit of most of it in the third quarter.

Funnel cake sales -- funnel cake product sales were down overall, as we had a $3.8 million sales rollout to one restaurant chain in last year's quarter.

Bakery sales continue to grow, led by private label business.

Soft pretzel sales were up modestly, going up against a $1.2 million rollout to one restaurant chain in last year's quarter.

Overall, food service sales to schools, up 4%; and to restaurant chains, up over 3% have been strong this year.

Hill & Valley sales were $21 million since acquired in January, but had only modest, somewhat disappointing, operating income.

We expect significantly higher operating income in the coming quarter from Hill & Valley.

This past quarter, we entered into a license agreement to sell Auntie Anne's retail products, including soft pretzels.

This will be 3 items: soft pretzels, a brat hotdog and a sandwich.

We will be selling that exclusively.

The license was effective as of late May, and we expect to improve our overall position in grocery with that.

Estimated sales today are $9 million.

Sales of soft pretzels in our retail supermarket segment were up a good 5% in the quarter.

Frozen juice and ices were up in the quarter as our Luigi's Real Italian Ice product line is performing well.

Our handheld sales in this category continue to decline.

In frozen beverages, gallon sales were up 7%, but service revenue to others was up only 1% in the quarter, and that's the smallest increase the ICEE group has had in some time.

Machine sales have been down significantly this year, 29% this quarter and 14% for the 9 months, contributing to lower operating income.

We acquired the Southern ICEE, the ICEE distributor that was operating in Tennessee and Georgia, on May 22.

That deal was completed and it's integrated and we are now operating it within our ICEE group.

Overall, consolidated operating income in the quarter decreased $2.7 million from a year ago, a 7% decrease.

Even though this quarter's operating income included a gain from an insurance recovery from insurance loss in 2016.

Our estimated income tax rate was at 35.4% this year and 35.3% last year for the quarter and 35.0% for the 9 months.

We are estimating a rate of about 35.5% in fiscal year 2017, which compares to a full year rate of 35% in 2016.

I thank you for your continued interest and I will turn back now to the listeners for any questions or comments for specialty items or events.

(Operator Instructions) And we have a question from Francesco Pellegrino.

I noticed you did an acquisition during the quarter that you didn't discuss.

Well, yes, we did 2. They were small.

They're nice fits.

And we've been looking at bigger, and we think better things, but sometimes you pick some things up along the way because that's the right thing to pick up.

We acquired an ICEE distributor that was operating in the south, and they were a good distributor in there.

And we have completely integrated them.

And the Auntie Anne's was really, we believe, in the long run, is going to be significant.

We didn't buy the mall operations.

We bought their products that were in the supermarkets.

I’m not saying there’s going to be any pattern here because the malls are just suffering all over the country.

I’ve read an interesting article yesterday that most of them, 25% to 50% of them, are going to be gone in the next 5 years.

But we acquired their products that were being sold in the grocery market.

It's a good name.

And Gerry Law engineered that whole deal for us, and we’re looking forward to selling it right next to our products in the grocery and growing it.

Okay.

Interesting stuff.

Just wanted to talk about your other most recent acquisition, Hill & Valley, did that lose money during the third quarter?

No, it did not lose money, cash-on-cash, all right?

But its operating income was significantly off what was projected.

And a couple of us here have, what we call, rabbit ears.

We hear that.

And we're involved.

We're extremely confident in the management group that they had.

We think that the fourth quarter is going to be better, and the first quarter next year will be even more better.

So it is not anywhere as near panic time and we’re extremely confident.

If I could just point that in yesterday's press release, since you acquired Hill & Valley, Hill & Valley has contributed $102,000 in operating income, right?

Right.

In the second quarter, it generated $144,000 alone.

So the difference between that is a negative number?

Right.

That's correct.

It's down $50,000, marginally down.

Right, okay.

So it is losing money.

It lost money in the second quarter marginally, however...

Right, right.

Okay.

But then when I start thinking about the margin of Hill & Valley, when I do the margin calculation for the second quarter, I get a 1.5% operating margin.

There’s no operating margin in the third quarter.

This was acquired for 6x EBITDA.

You paid $31 million.

That would imply a $5 million EBITDA valuation, haven't really heard any issues about low operating leverage because you're not getting enough sales volumes for the product line.

What's going wrong with the integration here?

Gerry?

Overall, we've been disappointed with the sales and the mix coming out of the business.

So the sugar-free mix has been a little bit lower, and it's contributed a little bit less than we had planned.

We're working on spinning that around, and we're confident in the future of Hill & Valley.

Okay.

Just to shift gears to one of your legacy products to soft pretzel.

The soft pretzel category, do you think maybe the category had sort of reached its full impact just given where your market share numbers are?

And just the -- like the modest revenue growth we've really seen over the past 6 or 7 quarters, we've seen maybe one impressive quarter, but we've seen just really modest revenue growth.

No, I don't think so.

I think that if you take each business segment and you look at our soft pretzel position in that segment, and you look at some of the growth that we're having outside of it, we are still very much bullish on the future of soft pretzels, not only its growth, but our market share.

And we've added people in the past 3 months that have been specially dedicated to some of what we call our challenges in this business segment, both in C stores and the education system, opportunity channels.

What does that mean, Bull?

But we're adding people in there and we have full confidence that we can grow that 4% or 5% on a regular basis.

I'll be pleased, and I think you guys will be pleased.

Okay.

Just want to talk about your manufacturing facilities cause I get that a geographical footprint for manufacturing makes sense based it on where your customers are located.

But there’s a very high concentration in the northeast for soft pretzel manufacturing.

And when I look at the northeast, there’s 5 different soft pretzel manufacturing facilities, 2 of them strictly just do soft pretzels, while the other 3 have a couple of different products that they also manufacture.

Is there a potential to maybe consolidate some of these facilities?

Because there’s a very, very, very high concentration of soft pretzel manufacturing in the northeast, and I would just wonder if maybe you can get a little bit more leverage if we consolidated these operation into -- I'm not saying, consolidate it into 1 or 2 locations, but...

You raise a very good point.

You have good instincts.

And that's something that we'll address further, probably at the next quarter conference call because things are in the works.

Okay.

If things are in the works, is now the best time to do it just given the modest growth that we're getting in soft pretzels?

The savings and improvement in the manufacturing process combined with the logistic savings make good sense.

Okay.

And my last question for you is, so I think last year in the year ago period, you generated a really impressive operating margin in food service.

It was 14.5%.

You reported yesterday at 12.8%.

That was enhanced by that insurance recovery, we're probably looking closer to like 11% operating margin.

Given today's product mix, where do you think, if we put manufacturing inefficiencies aside, today's product mix -- what type of operating margin can food service generate under the best case scenario?

A long time ago, when we were in single digits, I remember saying we're going to get to 10% plus.

And my Vice President, Controller, looked at me with glaring eyes, he thought it was too high.

I would like to think that at some point we can get into the lower double digits, 13%, 14% again and everything we're doing within the plants to streamline production, to reduce labor, to improve engineering, can add points to that.

If you can just turn Hill & Valley around, it seems as if it's definitely doable.

And our next question comes from Jonathan Feeney.

I was disappointed in all that discussion, to have no puns about Hill or Valley, being in a valley and wanting to be on a hill or anything like that.

But I have questions that don't relate to Hill & Valley.

The -- I would like to start, if you could, if you could maybe talk -- and I'm sorry if I missed this, why the 29% decline in machine sales?

And as part of that, does that broadly relate at all to some of the weakness in the convenient store channel I've seen with some of my other food companies?

You know what?

It might.

Now equipment sales for us, we've never had a geographic or a -- it just it comes and it goes, it follows no specific pattern.

As the convenience stores remodel or build new stores, we have an opportunity to provide new equipment which leads to new sales.

But it's -- the last, I guess, 6 to 9 months, it's been a little bit off from what it was.

And just like we had surprises maybe 2 years ago, where we had a sudden influx and Wawa bought a bunch of machines for new stores in Florida.

The last 2 quarters have been soft.

So it may have something to do with the convenience store channel?

Let me ask it this way.

Do you see in any of your other businesses -- it doesn't seem like, I don't know what the mix is of the different businesses.

I know you have -- some bigger businesses have, like soft pretzel, have a pretty big convenience store bent.

Did you see any weakness in convenience stores particularly in the quarter?

Actually, with soft pretzels, there is more of a effort and a plan by design to sell more soft pretzels and other products to them.

ICEE does a great job already with convenience stores.

But ICEE was up against -- and it's to their credit that they were able to have plus numbers on beverage sales when they've lost, again, 300 more Kmart's, combination of Sears.

Target has closed and remodeled a bunch of stores.

So ICEE has been, not back on its heels, but has had to rally against some of the phase that's suddenly come out that are testy.

You called out like -- it's apparent when you do the math what maybe the gross margin effect was of Hill & Valley.

But I'm concerned about the gross margin more broadly on an apples-to-apples basis.

Did you -- on the quarter, is it a struggle to -- where there’s commodity cost increases or even distribution cost increases, is it a -- were there places where you tried to take pricing and you weren't able to get it?

Is -- or is that -- was this always the plan to -- just the natural flow of the business?

Let me just say that pricing in today's economy is difficult.

And Dennis, you have -- you want to have a comment on that?

Well, we haven't had any pricing to speak of in the past year or so.

And it's very tough, as Gerry said, because there's not -- when there’s headlines out there about commodity cost going up and all that, it's easy to go -- not easy, but it's...

Easier.

(inaudible) more receptive to taking pricing.

With flat or in some cases down, they just won't -- you just can't get it through.

So we're not anticipating that we're going to have any pricing going forward or in the near future.

In terms of expenses, the ratio of expenses to sales going up, as long as -- if our organic sales are in the very low single digits that increase as they have been, then it's very, very tough to keep those expenses as a percent of sales from going up.

Because you've got your cost increases, your payroll cost increases, your group insurance cost increases.

All kinds of cost increases that are just coming through naturally and you really -- was that -- does that (inaudible).

Understood.

Gerry, just a clarification, I had a question, too.

You mentioned $9 million in sales for the Auntie Anne's retail business.

That seems awfully small.

Would you anticipate an ability to grow that?

I mean, what has been the constraints on that business in the past?

I mean, it seems that -- is it a very regional brand?

And I seem to see it everywhere in the Mid-Atlantic.

Is it -- and other -- can you move that geographically?

Can you get better placement for that?

Can you talk about how big that could be?

Yes, yes and yes.

And that was (inaudible).

They were right there in the same set, alongside of (inaudible).

There's always an advantage, real or perceived, when you can in essence (inaudible) with a competitor and take (inaudible) that level of competition.

A competitor -- I'm sorry, there are competitors in the -- who would be the big competitors in that category?

It seems like kind of a niche item.

Competitors in that category?

In grocery?

No, I’m just saying, you're talking about wrapped hotdogs and a sandwich and...

Anybody that’s selling alongside of us, but particularly, if it comes -- if it's soft pretzels, that was a natural fit, was it not?

And Auntie Anne's had only been in the soft pretzel business, I believe, for about 5 years, and they had a good name.

And we can -- and they were building a business that had some potential.

We think we can do it quicker and we can have better results.

Do you have some experience with -- I think you do, with some like -- the brand awareness that -- translating the brand awareness that comes with a food service brand, you mentioned the mall business, it translating that to retail sales?

How you go about doing that and how good of an indicator brand awareness -- how well that translates over.

And I guess, did you -- you mentioned -- you were pretty quick to mention, you didn’t take the mall business; did you look at it?

I mean was it -- was that something you thought about?

Not often.

It's a different business.

It's a franchise business.

And given the general overall condition of the malls, with more closing and certainly that are very few opening, it's not a business because of the (inaudible) that we want to be exactly in.

Okay.

Let me ask you then one final question.

Interest rates and borrowing costs have never been lower, really.

I mean as far as the combination of depth of the credit market and what it costs to borrow.

Does that -- it would seem to me -- and like you just saw McCormick borrow -- a company that, in my memory, has never gone over 3x debt to EBITDA go to 5x debt to EBITDA for a deal.

Does that drive your sense of urgency at all to make larger acquisitions?

And -- or maybe go further afield from where you've gone historically to take advantage of that?

It kind of spurs our senses, but we've always had a defined strategy of niche products, being the low-cost producer and dominating the marketing and distribution channels.

McCormick is a terrific company, terrific company.

They're into spices and this.

I think it was French's…

French's and Frank's Hot Sauce, all of the sauce businesses of Reckitt Benckiser.

That was an interesting acquisition.

And I don't know whether or not, given similar circumstances, that we could or would pay that kind of multiple for something.

And so I guess, does that mean you're seeing a lot deals where the multiples are too high?

Some that are too high.

But again, like I mentioned in the last quarter and the quarter before that, we are looking to make bigger -- we're looking to make acquisitions that have more heat but don't take meat as the word.

They're not in the meat category.

But we're looking to make acquisitions that are bigger.

And hopefully, have management team and growth.

So it's not for lack of looking or effort.

And our next question comes from Akshay Jagdale.

I think that was meant for Akshay.

This is actually Lubi on for Akshay.

So I wanted to ask a question on some of the products that you guys have launched fairly recently.

Now the ones that come to mind are -- there was a Pillsbury handheld item, Oreo churros.

How are those products doing maybe in terms distribution?

And what are consumption trends looking like?

Oreo churros are still out there.

And we had some good hits last year in Walmart with some facings.

Overall, with the Pillsbury handhelds, we've been less than satisfied with the sales growth there.

It's been (inaudible) and we'll get a comment from the Bull as well.

(inaudible)

(inaudible) category.

We are -- we've made the entree into the dessert category.

The products are different.

And we think that that's a -- it's a bake at home product that can appeal to consumers.

We got through our first year.

There’s some headwinds in the category, but we still feel, given some of our capabilities manufacturing-wise, that we can offer the consumers a very high-quality product and give them the ability to also have a bake at home product.

So we see some potential in the Pillsbury.

It's a great brand.

And the products are of high quality.

And we think that, that will continue to move forward for us.

So -- and Lubi, if you can't tell, it has been less than stellar but it's not been terrible.

And we're not giving up anything yet.

And our investment in this was very, very small and it made a lot of sense.

And then the velocities in desserts are just less than hot snack and appetizer.

Got it.

And then, so along those lines, are there any other new products or maybe licensing agreements that you guys are working on to the extent that you can share any of that with us that you're excited about?

There’s always things that we're working on and looking at, but there's nothing that we can share at this time.

Got it.

Okay.

And then going back to Hill & Valley, could you elaborate a little bit on what's really driving the confidence that results are going to get significantly better in the upcoming quarter?

I mean, I'm sure that there are a number of things that you guys are working on, but it does sound, at least, like you're calling for a pretty significant turnaround in a short order of time.

So I’m just wondering if there is sort of some specific factors that you have good visibility on, that might be driving some of that optimism.

One of it we have, I guess it's commitments, if not contracts on hand, which to go all the way out till September, October and through Christmas.

So that we can visually see, and knowing what our costs are and what our production has been, and we have some product in storage, so that's helping us add visibility to determine the profitability.

Beyond that, we're just relying, at this point, on the talent of our management there and their budgeting factor.

And certainly, they have performed well in the 2 years leading up to our acquisition.

So we had a natural comfort level with them.

That's helpful.

Okay.

And then if I could just ask one last one.

So just speaking more broadly in terms of the level of sales growth, so I think organic sales growth has probably been in sort of that 2% range for a number of quarters now whereas, historically, this was more of a mid-single-digit type organic growth business.

I'm just wondering, as you look longer-term down the road, do you kind of -- do you see a pathway back to that mid-single-digit range or do you think this is kind of the -- this low single digit is kind of the new normal, just given sort of the macro trends that we're seeing out there?

Well, we believe that we can get back to that mid-single-digit level of growth and that may be something between 4% and 6%, without acquisitions.

We've hired some people, recently in April, some people that have been assigned certain developments, certain targets, which include the education channel, which includes C store and health care.

Now it's early on.

They've only been -- they're on for less than 6 months, which is 180 days.

But they're starting to make some progress.

As a matter of fact, I had some meetings going on last week and this week with this team to see how we can accelerate the process and what we really have in the bag coming into maturity for next year.

And our next question comes from Jon Andersen.

I'll tell you, most of my -- almost all my questions have been asked.

But I'll lob a couple more in.

Could you talk a little bit about the -- if you take out the insurance recovery, the operating income in the food service business, as you pointed out, was down about $4 million, a little more than $4 million year-over-year.

And I guess I'm still trying to get a sense for how we should think about that.

Because you've called out a number of, I guess things that could be considered more transitory.

The pipeline shipments, I guess the funnel cakes last year, the push out of the -- I think you mentioned club store business into the fourth quarter versus third quarter this year.

Can you give us a sense?

I mean, is that the right way to think about it that, that year-over-year decline is more comp related and temporary in nature?

Or are there more structural things going on?

There’s nothing structural, fundamentally different.

Bob, you have a comment?

Yes, I think there were events that took place last third quarter, and that provided a challenge for this quarter.

But we don't see that as a long term or product situation.

Okay.

And Gerry, I think you said in your prepared comments that we should start to see operational benefits beginning in the fourth quarter, which does imply some recovery, I suppose, in the margin profile of the business, in aggregate, and maybe food service more specifically.

End of fourth quarter.

We're a full month into it now.

Okay.

Can you talk a little more specifically, when you talk about operational benefits, are these manufacturing changes you've made to improve throughput and yield?

What are the more specific operational benefits we should be looking for?

Exactly.

I mean we've completed several large projects now and put them into service.

And they worked.

And they worked.

Had a little start up blues on them, so we should start to see the benefits, particularly in yield and efficiency, from these projects coming online in a couple of the plants right now.

Okay.

And just the last one for me, it's on more of a customer channel orientation.

So restaurants, I think historically you've talked about how you've built that business to $50 million to $60 million.

Could potentially double that over time.

Is that still your expectation sitting here today?

And then the second part of that question is, with the hiring that you've done to pinpoint opportunities in C stores and health care and the educational channel, what kind of opportunity -- how big could that kind of be over time, when you think about those pieces of business that you're going after?

When you say with the hiring of the people and -- we think it's going to get us to this 5% to 6% growth in the -- our overall food service category.

One of the issues we're also facing when it comes to club stores is that one of our major clubs, BJ's, has closed down their restaurants unit, which was selling our pretzels and some other products, in favor of leasing it to a restaurant chain.

And we go through these things now and then.

And sometimes we're able to recover.

And sometimes it lasts a lot longer than what we think.

We're also going through a little bit of that with Target, which is going through both a remodeling and a shifting of their Target Café, and they are leasing it to other restaurant operators.

But how we get hurt we have a cookie and pretzel in there, and most cases, an ICEE machine.

And ICEE has been able to soften their loss by opening up a special fountain stand within the Target stores.

But we truly believe, in adding these people and having them concentrate the efforts that we believe, there are growth in, will help the business and will get us back to our numbers.

I read an interesting article just the other day on malls.

Malls in America and how they used to be, where we or our kids grew up hanging out.

That was the social life.

They went there and they went there all day.

Now that has changed.

It has changed not just significantly, dramatically in there.

I guess 20 years ago, perhaps 25% of our business was in the malls.

Now it would not even be a weak 2% of our business.

Where are they going now?

Well, we're looking at ways to sell online.

We're looking at ways to sell in these little village and small shops.

We're looking at ways to get into more convenience stores.

And we're certainly looking for a way because -- the biggest restaurants in any city, of every city in the country, is schools.

We have a decent school business.

And now we're trying to make it even more decent.

So we are exploring all or most of the opportunities to get our products in and everywhere.

And our next question comes from Brian Rafn.

Let me ask, Ger.

From the standpoint of your experience, just in -- you go back over the last 10, 15, 20 years.

If you look at some of the recent acquisitions, Gerry, how have they met kind of your expectations for sales growth?

If you look at -- forget about Hill & Valley, but like New York Pretzel, Philly Swirl -- versus some of the things over time that you had: ICEE, Daddy Ray's and that.

What's been kind of your expectation and what's been versus plan?

Well, we're pleased -- essentially, we're pleased.

The jury is still out on Hill & Valley.

Obviously, we've made acquisitions in the beverage line and ICEE, and all of them have worked out.

And some have worked out better than others.

And we've made acquisitions in the pretzel group, and we've rolled it into a category.

But I can't particularly -- only area that we made an acquisition was when we went into the retail business.

We made an acquisition of something called Bavarian Pretzel Shops -- Factories.

It was about 60 stores.

I expanded it to 80.

Never quite got my arms around it, we as a company, different kind of business, different kind of traffic patterns constantly changing, remodeling in there.

And ultimately, we drew a line, and we are now down to a couple stores and we're no longer in that business which is why I have a great hesitancy about expanding into that type of business today.

Yes.

Okay.

No, I certainly remember that from back.

Let me ask you, relative to the pretzel business, the challenges, you have a mature market share that -- is it your thought that the growth in soft pretzels and that, that the standalone pretzel itself really needs some of the line extension iterations of fills and flavors and seasonings?

Or can you just still sell a raw dough pretzel but in a different channel somewhere?

You're exactly right.

We have all the line extensions.

We fill them with cheese.

We wrap them around a hotdog.

We put caramel in them.

We put jughead fills in them.

We put all these things in the pretzels -- and we still sell some raw product in there.

So -- and just the other day, I was in our Bellmawr Plant, which is our main R&D center, and they're working on some product -- what was the hot stuff I tasted?

Jalapeno.

Now I go through it, R&D, I talk to people, I pick up something.

And man, I took a bite into a little hot raw Jalapeno bite.

And I lifted up off my feetwear.

I'm told this particular customer, and it is a chain, and it's way out in the west.

And they have a critical mass.

They love it.

So we're going to see if we're going to get that.

We’re going to -- but we are doing all these things.

And we can go from concept.

This is our people within (inaudible) something in the lab in almost record time.

Customers love that.

And that's been a factor in our restaurant and quick service restaurant growth.

And our people are good at it.

Let me ask you, Gerry, from that cycle time between laboratory concept, flavorings, ingredients, recipes to actually production.

How -- if you go back 10, 15 years, how much has that cycle compressed?

How much faster have you been able to drive that?

Oh, my God, it's like noncomparable.

Something that would take a year before is done in a month to 6 weeks.

And I mean we get on our horse and we're moving.

Awesome, awesome.

Let me ask you, in the supermarket channel, the old battle between shelf space, national brands versus private label, and what is the appetite for supermarket grocery stores coming to you for more private label recipes and that?

What's your take on that here in 2017?

We do a fair amount of private label business.

Some of our private label business, we're in partnership with people like Walmart.

(inaudible) So we're partners with the grocers.

We also make sure that our brands are the preferred brand of pretzels, the preferred brand of Italian Ice, the preferred brand of churros.

In all those things we have established and maintained a leadership quality.

And Mondelez, we're doing 2 or 3 items for Mondelez, one -- either a controlled brand or in their brand.

So we have a fair amount of business that is, what we call private label.

And mostly, we have it because we're good producers.

And we've earned their confidence and their respect.

Our Daddy Ray's plant in Missouri, which we've only had for about 8 years?

No, 10.

10 years.

We've expanded that a couple of times.

And the last couple of expansions has been in partnership with Mondelez.

Yes, okay.

The -- I would imagine, in this kind of low growth, unit volume driven market that couponing and promotional and shelf slotting and that’s still very intensive?

Yes.

It's intensive.

Okay, okay.

You guys -- maybe a question for Dennis.

Do you guys break out or discuss -- I've not seen it in your press releases -- what new product sales are, say, for the quarter or trailing 12-months from things launched in the last 2 or 3 years?

Or is that something that's difficult because you got differences in the lifespan between one ingredient launch versus another flavors or that?

It is in the Q, and I'm not sure.

And it's in the press release as well.

Okay.

I'll go back and check.

Maybe a little bit forward asking.

Anything spring, early summer here?

Weather impacting, obviously, heat and that type of thing drives ICEE, it drives your frozen food.

What is your sense here, this year, 2017, versus what you experienced 2016?

Last year, weather was terrific.

I don't like to depend or blame weather, whether it's good or bad.

I know our third quarter, April to June, was tough on us for weather.

I talk to Dan Fachner at least 3, 4 times a week, and Dan is out in California when he’s not flying around the country and there.

But one of the things I always tell hey Dan, we got great weather.

It's hotter than hell here.

Good.

That's good for ICEE.

Conversely, when it's too hot, it affects a little bit our regular food product sales.

But in any event, it's a nice balance.

Seasonal, seasonal is a nice balance.

And we're gearing up, right, for schools.

And our school business has been growing significantly.

And we expect to have another banner year for schools this year.

Yes.

Let me ask you on that.

You guys have talked -- you've had certainly major challenges in sugar content, saturated fats.

The Obamas wanted broccoli on a stick.

Kids don't like that.

How has that market for you matured?

Are you getting a little better because you -- there’s kind of like a fine line between healthy and something that a teenager is going to eat.

Right.

And it has to taste good.

And we seem to have unlocked some of the secrets into happy complying and getting sugars out and getting trans fats out but keeping the flavor in.

The key: it has to taste good.

And we're good at developing taste good.

Okay.

You talked a little bit about -- someone made a comment about several projects, yield and efficiency and that.

The $60 million to $65 million, what specifically -- is that targeted all over the manufacturing footprint?

Is it -- is there a little more or less than one product line?

Or little more emphasis to pretzels versus frozen beverage?

Or where is that kind of going?

Well, it's our main plant, in Pennsauken, Bellmawr.

These are the heavy pretzel plants.

There may be one plant that we're going to be closing and shifting it in there.

And our uptown plant, which is primarily dedicated to Wawa, who's growing significantly every year.

So it's primarily there.

We've also made investments in our North Carolina plant and our Oregon plant.

These are the 2 USDA plants that we acquired in the ConAgra deal some 6 years ago.

And although originally we were concerned that we had not enough volume there, we put some pretzel products in there.

And we had a new product that we've developed called Brauhaus that's being made out there and shipped around.

So we have a lot of good things happening.

And that's why we mentioned that some of the manufacturing improvements will yield, not only the direct manufacturing improvements within the plant, but also benefit logistically because we'll be able to distribute them at site, not the old way of horse and buggy.

Got you.

Let me just ask one more, Ger.

ICEE has been such a home run over the years.

You guys have just done such a fabulous job of that.

A little more niche has been certainly Slush Puppie, Arctic Blast and Parrot-Ice.

What's kind of the organic story there?

Are they just kind of niche fill-ins or -- I mean obviously, they're not ICEE.

You have to go back and look at the history.

Originally, we had ICEE for the West Coast and Mexico, when Mexico wasn't worth 2 pesos, all right?

Over the years, we've acquired a couple ICEE distributors.

And then when we had to, let's say, compete with them, we developed a brand, Arctic Blast.

And we moved into the territories and they competed, which until we kissed and made up and then bought them.

Slush Puppie was an independent distributor, originally owned by, Dan, what was his name?

Will Radcliff.

Radcliff, who did a great job getting it out.

It's a little bit different.

It's more of a -- it's not a carbonated product.

And they had distributors.

And then Dr. Pepper bought it.

We bought it and we integrated it in.

And the last one you mentioned was the…

Parrot-Ice.

Parrot-Ice, which has not done well for us.

It's a bar mix.

There was a company in Texas that was -- they had big aspirations.

We talked to them a couple of times.

We couldn't get a fix on their numbers.

It was worse than an episode on Shark Tank.

Finally went bankrupt.

We bought the assets, and we added it into our portfolio.

And our people have done a reasonable and adequate job with it, but it's just tough to compete with the thousands upon thousands of little van trucks delivering many brands.

And we have no further questions at this time.

I want to thank you all very much for participating.

We know that we’re not happy with the results of the quarter.

I can boldly predict we're going to be a lot happier next quarter.

Bye now.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for participating.

You may now disconnect.