J & J Snack Foods Corp (JJSF) 2017 Q4 法說會逐字稿

Welcome to the J&J Snack Foods fourth quarter earnings conference call. My name is [Sylvia], 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. Mr. Shreiber, you may begin.

Thank you, [Sylvia], and welcome to the J&J quarterly conference call. Let me begin by advising the forward-looking statements. 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 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 operation, net sales increased 21% for the quarter and 9% for the year. Let me just repeat that for emphasis, net sales increased 21% for the quarter and 9% for the year. This year's fourth quarter had 14 weeks compared to 13 weeks last year and the year had 53 weeks compared to 52 last year. This is a normal one time every 7 year event when the extra week heads in. The additional week added about 9% of sales for the quarter and 2% for the year. Excluding sales of the extra week in 2017, sales increased approximately 12% for the fourth quarter and 7% for the year. Excluding sales from Hill & Valley acquired in January 2017 and an ICEE distributor located in the Southeast acquired in June 2017, and Labriola Bakery, which was acquired in August 2017, sales increased approximately 6% for the quarter and 3% for the year.

Our EBITDA, that's earnings before interest, taxes, depreciation, and amortization for the past 12 months was a $164.8 million, once again establishing a new record.

Food service, without the extra week and without Hill & Valley and Labriola sales were up 11% for the quarter and 5% for the year. Sales to food service customers increased 30% for the quarter and our sales increase of 19% without Hill & Valley and Labriola was due to increased sales of soft pretzels, which were up double digit, handhelds which were up 81%, churros up 16%, bakery products up 20%, frozen juice bars and ices up 15%, and funnel cake up 33%. We had an exciting year in food service. For the year food service sales were up 13% and without Hill & Valley and Labriola were up 7% with increased sales of soft pretzel up 5%, churros up 10%, handhelds up 35%, bakery products and funnel cake up 7% and 4% respectively. Sales of frozen juice bars and ices were down 4% for the year. Retail, grocery and supermarkets, sales of products to retail supermarkets were up 4% for the quarter and 1% with the year, soft pretzel sales were up 23% for the quarter and 5% for the year and sales of frozen juice bars and Italian ices were flat in the quarter and up 3% for the year. Handheld sales were up 7% for the quarter. Frozen beverages, which includes ICEE, Arctic Blast and Slush Puppie. Frozen beverage and related products sales were up 8% in the quarter and 4% for the year, 6% and 3% respectively without the sales of the acquired ICEE distributor. Drink sales or beverage related sales alone were up 9% in the quarter and 7% for the year with gallon sales up 8% and 6% in our base ICEE business both in the quarter and the year. Service revenue, which has been growing over the last decade was up 12% and 5%.

Consolidated gross profit as a percentage of sales in the quarter increased to 30.8% from 30.43%, that's 37 basis points. Gross profit decreased from 30.67% or 30.53% for the year. Gross profit margin in the quarter and the year was impacted by the lower gross profit margin of our Hill & Valley business, but an overall improvement in our business led to the increased profit margin in the quarter. Total operating expense as a percentage of sales was 19.2% in the fourth quarter up from last year's 18.7%. For the year the percentage increased to 19.6% from 19.3%. The increase in these costs in both periods was primarily in our distribution costs due to higher shipping costs and customer requirements. Our cash and investment securities balance of $241 million was up $2 million from our June quarter. We continue to look for acquisitions as the 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 $15 million in the quarter, as we continue to invest in plant, efficiencies and growing our business. Our spending for the year was $23 million higher this year than last as we invested in several one time manufacturing projects and overall improvements to our manufacturing facilities. Cash dividend of $0.42 a share was declared by our Board of Directors and paid on October 4, that computes to [$1.68] a year and I'm happy to say that since we started initiating a dividend, we have gone 40 plus quarters. We bought back a 116,735 shares of our stock during the quarter at a cost of $14.9 million or an average price of $127 a share. We recently announced a new buyback authorization of 500,000 shares, which we would expect to take place over several years.

Commentary, sales of our food service product improved this quarter with significant sales of churros in restaurants and warehouse club stores, funnel cakes in schools and handhelds to a handful of customers. Overall, sales of frozen juice bars and ices were up this quarter, because of higher sales to one warehouse club store that was the result of the timing of a program which move sales to our fourth quarter this year from our third quarter last year. Bakery sales notwithstanding Hill & Valley were up this quarter, a very strong 20% led by private label business. Soft pretzel sales were up 14% including Labriola sales and sales of our specialty pub pretzel, our new Brauhaus pretzel. Handheld sales were up very strong 81% for the quarter and 35% for the year, as we have had strong increases to a handful of customers, both existing and new. Overall, food service sales to schools up 8% and to restaurant chains up 4% have been strong this year. Hill & Valley sales were $36 million since acquired in our fiscal January, but has had only modest operating income. We expect significantly higher operating income from Hill & Valley in the coming quarters. Sales in our grocery and retail supermarket segment were down slightly for the year and quarter backing off the extra week. Although, soft pretzel sales were strong in both periods, primarily because of sales of the recently licensed Auntie Anne's pretzel, that was acquired few months back. Why? We believe we just do that better. Sales in our frozen beverage segment were up slightly for the year and down slightly for the quarter. Service revenue was up stronger in the quarter, but machine sales, drink sales have been down significantly this year, 10% in the quarter and 13% for the year, contributing to lower operating income for the year. Although operating income in the fourth quarter was up 6% over last year, as we benefited from the improved service revenue and the ICEE acquisition made in June.

Overall, consolidated operating income in the quarter increased $6.0 million -- $6 million from a year ago, that's a 20% increase, although an all fairness and not just slight or improved performance, in this year's quarters our operating income and last year's fourth quarter was down $2.9 million or 9% in the previous year. Our income tax rate was 35.6% this year and 35.0% from last year, and 35.2% and 35.0% for the year. We are estimating a taxable rate of about 36% in fiscal year 2018. Just as in a side note, we continue to grow and expand our niches, our business is (inaudible) and growing. We enjoy what we're doing, and we are excited to measure our performance each and every quarter. I thank you for your continued interest.

Now I'll turn it back to the listeners for any questions [to our presenters]. And I have my team with me, which I'll introduce to you as we get these questions. Thank you.

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And our first question comes from Francesco Pellegrino.

So this is a nice quarter. I was just wondering, just because we're dealing with the extra week, we're layering in the acquisition, just sort of backing into some of the math. Can you provide us with what the, I guess the organic growth rate was for the acquired businesses, because I thought those businesses should have been contributing about like $11 million on a quarterly basis in revenue?

I think $11 million would be high. And keep in mind that -- there were 4 -- there were 3 small acquisitions, an ICEE distributor, the Auntie Anne's license, which we did make a big deal over, we announced it down from the stores and the Labriola Baking. I would expect that probably less than half [Danish].

Let me make sure we understand the question. so you're saying what was the annualized rate of the sales of the acquired businesses?

Okay. Let me rephrase the question. So your bakery product sales did $103 million of revenue. The year ago period, it did $73 million. This year we have the extra week in the fourth quarter, as well as layering in the 2 acquisitions for the bakery segment. It looked that the bakery segment, I'm not sure if the legacy business got growth or if the new business you've been able to expand greater to a degree. Was that --

Sales from Hill & Valley were about $15 million in the quarter. But the bakery sales were down, Hill & Valley were up about 20% in the quarter.

On the last conference call, I was asking about the operating margins for Hill & Valley, and I guess at the time, it was operating with an operating loss. It looks as if you're able to marginally turn the business profitable during the quarter, it looks like Hill & Valley had a 3% operating margin. What's the ceiling for this business?

A nice complementary business to our other products and it has for the longest period of time sugar-free cookies were at the top of the ladder of everybody's head. It has less -- it has [dimmed] a little bit in there, but the business itself is improving.

And I guess, while we were talking about, just some of the commentary from the prior conference call, I guess one of the thing that you were going to provide us with in regards to incremental insight, as you guys have been spending a lot of money on CapEx this year and there seems is that there has been some geographical manufacturing inefficiencies just given a strong consolidation of pretzel manufacturing in the northeast, there looks like there could be the potential for maybe consolidation amongst this product line. I was hoping to get a little bit more incremental detail color what you guys are thinking about that product line and maybe investing in greater CapEx or reducing CapEx to get greater operating leverage for that business?

Probably a combination of both. We have always invested, over invested in our manufacturing business and sometimes we have got and caught as far as it logistically and servicing, but we're looking at both of these things, and matter of fact we have Jerry Law on a conference call, he's in the Midwest, and that's one of his assignments for this [site], make sure that we push and pull through faster and more efficiently. Right, Gerard?

Correct.

Is this, I guess, when you start looking at consolidation, is it going to be a little bit more difficult now, only because this quarter you got some impressive growth in the soft pretzel line. So as you start getting more growth in the product line, you start thinking about consolidating facilities. When I look at what was happening in the fourth quarter of 2016 through the third quarter of 2017, that business was flat. That would've been the ideal time to really probably consolidate those facilities. So there's a lot of dynamics and I'm just wondering what the timeline would be for when you would probably start pulling the trigger on this type of consolidation, this manufacturing consolidation?

The timelines are a little bit advanced, but we're doing some things that should bear fruition, certainly in fiscal year 2018, and maybe as soon as the next 6 months. But look for us to improve in both of these areas.

And then my last question would be, given that these changes would be occurring in the first half of 2016, is there any way to quantify what the margin lift could be from these changes?

Not at this point, we have to put the lines in place, make sure they run [debugs that] and all the while maintain the revenue and profitability of our business, while picking up incremental points from sales and manufacturing.

Our following question comes of Akshay Jagdale.

So I wanted to ask about the M&A environment. Obviously, you might have noticed that in the public markets valuations in the food space have come under significant pressure, and I would say more than normalized. What are you seeing out there in the M&A space. I know you're pretty active there obviously. You haven't done anything I would say, of size, but I'm just curious to see if there is anything that's changed recently, because it looks like valuations had been one of the main reasons why probably you passed on a few things. So, has anything changed, are you seeing anything change with the public markets having corrected?

Well, I won't say corrected, alright, but maybe they're coming back into knee deep water instead of over your head. So we continue to look at things and be presented with things. And as you know, you've been following us a long time, we're able to spot and connect and catch some of the smaller acquisitions and integrate them into our system, and that's a talent that we have, and that's a talent that we're going to continue, I believe to demonstrate. Jerry Law who's on -- now, he helped assisting a couple of acquisitions and as always one down and last to go, there is [couple of] ICEE distributors that are still out there and I think sooner or perhaps later than sooner or sooner than later, we will be bringing a Mall into our fold.

And my next question is not related to the quarter at all, it's just an overall, about the strategy of the company as it relates to margins specifically. So obviously, Jerry, this company has been your baby and it's been an amazing company from an investment perspective and you have had great result. But as you've sort of taken a step back a little bit, is there a culture that's changing a little, do you need to do anything differently now in this environment where consumers are asking for different things and more things, it seems like -- really, what I'm trying to get at is, your top line results have done really well, right? So you sort of back to your top line growth trajectory that you used to have and maybe even exceeding that in the current quarter, but the bottom line you've sort of lost momentum, right? And what you've seen across this space is a lot of tightening of the belt even from companies that are well managed like yourself. So is there a need for at J&J Snack Foods, are you already doing something in that regard behind this surface, if I may, and if not, why not take a deeper look, because it seems like to me, the momentum on the margin side is somewhat [lost] here, right? And I feel like something needs to happen there for investors to get more excited?

I appreciate the critic, but I'm with -- my team is in this call, Dan Fachner, Jerry law, who's my [assistant] Bob Pape, who is in charge of sales, Bo Powell, who is Vice President of Food Servic -- all of these guys have been into growth with our success over the years. We've added some staff recently both in sales and both in accounting and analysis and information systems to assist that. If you look at our earnings and over the past 5 years, 8 years, 10 years, our sales have doubled, our earnings had [triple] our EPS have tripled. I'm not reading from a book or magazine. There is a constant attention to not only establishing the right margins, but maintaining them. And I think we will continue to do that and we are something of changes or [wears] its ugly head. We will be able to attack it maybe with a vengeance in getting correct. We were still involved with niche products, very niche products and we kind of dominate in market share and we are a low cost producer and every effort will be to both maintain that and prove that, and not just quarters to come, but in years to come.

One last one for me. It's again goes back to little bit of the question on margins, but if you look at the mix of your sales growth and sales this year, a lot of the growth if I may, has come from the bakery products division or bakery products in general. And those are lower margins, right? You've also acquired some businesses that are lower margins that are now turning around, at least on the top line, including handhelds. So is there a greater focus on mix management, such that the margins again or the profit growth sort of follows or even starts to exceed the top line growth?

That could happen. And would mean is in this room is to my left is Bo Powell, he's in charge of Food Service general; Steve Taylor, who's been a loyalist, he's our Vice President of National Accounts. His role switched a few years ago and he only calls on change national accounts and we've build up our business there, which is now probably $60 million, overall. It takes a little bit longer to secure that business and we have R&D support throughout the country that helps to assist that. Bob Pape is our Senior Vice President of Sales. He has under his umbrella, both food service and retail. We all know, what's the grocery and retail, it's not like we're getting thrown out of stores or what not, we still have our presence, but there are less of these stores. So I'm satisfied with my team. And we've recently added this April or so, 4 or 5 other people in the team to help (technical difficulty) drive to our goal.

Next question comes from Jonathan Feeney.

I wanted -- one question for Jerry, one question for Dennis, you could -- so obviously valuations have corrected quite a bit, I know you get into this a little bit, but what's going on with the interest rates and particularly food company valuations, has it [bled] from large companies and the smaller companies as far as the kind of deals you're looking at as the valuations come down, maybe a little bit more reasonable. It seems like the disruption is the kind of thing that could shake lose, more assets or just your commentary on that line of thought and maybe increased likelihood for more things to join that [happy] J&J Snack Foods family? And for Dennis, I know we communicated a little bit about this split. If you could briefly just kind of shed light on what I missed on organic sales for the quarter, might be something very simple, but it's, I think it's a point I messed it up, that's a point worth making more generally? Thank you.

Okay. Let me just -- or at least reply to your overall question for me. We look at things and sometimes we look at some very seriously, would ready to jump in with at least with one foot, it's not both. But I'm not going to do anything that's going to fundamentally change our focus in our direction. We can certainly acquire something in the several hundred million dollar revenue category, and we won't have to go to the banks to borrow for this, we want to continue to look, we want to make sure it's at least a structural fit. We want to value the risk and continue to grow 5% to 6% to 7% a year with what we have now, and if something comes along that can bring a couple of hundred million dollars in sales and sitting in with what we're doing, we're going to look at that more closely.

But the valuations now really a very big part of it is what you're telling me?

As in [turn] so far does, when something is real crazy, we'll say thank you and we'll get back to you later.

I mean, in terms of the [thanks for] what you did, but in terms of the organic growth in the quarter as Jerry has said in food service our sales were up about 11% into the back half of the acquisition, the extra -- week and overall organic sales were 6% for the quarter.

I'll take that. This is Gerry, I will take that every quarter for the next 5 to 10 years.

As long as there is nothing, there's nothing unusual about that 53 week like -- is that just is the extra week a heavy shipping week or anything like that or we just literally talking about 14 over 13?

No. It's -- and then actually you're talking about 53 over 52 and that puts in more perspective.

For the year, right. Got you. Okay. We can follow-up offline on that, thank you very much guys.

And our next question comes from Brian [Rafn].

Maybe one question for Dennis, as you kind of look out in the 2018, are you seeing any commodity food ingredients inflation, sugar, flour, cocoa, egg, shortening kind of whole gamut?

(inaudible) so it's relatively flattish at this point is what we think.

Let me ask you Gerry, on some of the recent niche tuck-in acquisitions you made, I'm just wondering what's your sense on kind of your organic ability to build -- I'm thinking New York pretzel and Philly Swirl, you were very successful with Daddy Ray's, some of the ones and niche you want that you bought in last say 3 years, what's been your kind of level of what you think has been success the plan?

Well. Some of them the results are not in yet, but I can tell you that we have the Labriola acquisition, I tried to buy that about 5 or 6 years ago. Quite frankly, we put in a bid, we put in -- and we were outbid, it went for something significantly more than we wanted to pay at that time. That investment group got in trouble, they gave it to one of you guys to sell it and we were able to buy it at a fraction of what it was originally, we've been out there a couple of times, as a matter of fact Jerry Law is out there now. We think that that's going to be perhaps a shining star for us in the future. They make a terrific product both on a soft pretzel standpoint and some specialty, that's going to do well. The southern ICEE acquisition [Dan] has already integrated that and that will be a plus performer for us. Obviously the [Cookie] acquisitions that we've made in the past year took complement our business, but not quite pretzels, and we have enough I believe on the pretzel market and we will continue to grow that perhaps at mid-single digits in there, and we will increase the profitability by something even more because of our strong position in that market. And hopefully we will find other things that were either left in the dust or that nobody noticed and we'll be able to add them to our portfolio over the next couple of years.

Now that the [Obamas] are out of the White House, and the Trumps are in, there has been a lot played on deregulation. Have you guys seen any retardant in the whole nutritional thing from the food service and the schools and the cafeterias relative to the (inaudible) out of stack, and you guys really had to change some recipes, made things much healthier, [pull out] fat sugar, does that get any easier or is that really something that's designed at the local level?

Well. That's to be determined, we did have to go through some of the reformulations and submissions and this, and it took a long time, as a matter of fact our school food service business [K-12] probably took somewhere it's between a double-digit hit for a year or 2. We have gone through heavy lifting with that, the schools, the cafeterias are happy with our products, they taste good, they know that they can depend on us to be on trend, but to try and project, what's going to happen with this administration or any new administration, we just want to remain both steadfast and equal to the course and our people done a good job with the R&D group, who report to Jerry Law, and our products and the compliance.

Let me ask Jerry, a little different question on that, with the big -- with Amazon buying whole foods and the big drive with organic foods in that in the last 5 to 10 years, is there a niche organic food area for the snack food area that you're in, and is there any interest in formulating recipes for that area?

Let me differed to Bob Pape, who's sitting here and Jerry Law who's on the call, because who should be something that I would lean heavily on that.

We were looking at several executions of products that address needs with relative to organic products as well as (technical difficulty)

[We're not beyond this], we're not going to be just forcing around.

Let me ask you too, Jerry. When I was a kid Oreos came in one size, now they come in double stuff, triple stuff, peanut butter and that there is also in the last few years more of a seasonality, you get Oreo cookies for Easter, Oreo cookies for Christmas colors, Oreo cookies for Halloween. Are there seasonal recipes that impact maybe your snack food area or it seems to an awful lot of differentiation in that snack area?

Now the Oreo, I would call that TMM, too much marketing. And a little bit less than churros, but we -- our pretzels -- we are the category leader. So every once in a while we can take the edges and what not (inaudible) and you're right Oreo does have some things in different colors and different sizes for almost every event.

Let me ask you anything on the dollar stores, any new products, any new initiatives?

Yes. We're doing well with the dollar stores and we've been putting in ICEE in there, we're putting in some of our big and fruit bars and we got some other products going on there (technical difficulty).

And how many ICEE distributors would there be left for you to purchase, either numbers or geographic proximity?

Well, let's just say a couple of states and less than, I'll say just a few people.

And then on Hill & Valley Bakery [Gerard], are there things that you can do to expand their recipes, is it about leveraging commodity costs for them, is there skew rationalization, is there new plant equipment, is there anything you can do to continue kind of your management of that from where they were?

[Are in a new plant] and that was one of the criteria that we looked at before we acquired in about 6 or 8 months ago, and they have plenty of space, they have a plenty of talented people -- improvement for them for this year and beyond.

And I'll just ask anything going out on the private label area. Maybe talk a little bit how competitive slotting in shelf spaces and the supermarket area for you guys?

Jerry Law, you want to talk about private label, because I know you and your group are doing things for them all the time.

Yes. We continue to evolve and put product in the private label there or an expansion of our manufacturing capabilities, we might not have a brand against them, there are the slotting pieces still there, slotting is competitive we're in the competitive categories and we compete well there.

Our next question comes from Francesco Pellegrino.

Hi. Back again. One question that I want to ask and it's rather -- it's been a little bit puzzling just when I hear commentary in the rest of the state. And I know it's not a big percentage of your overall sales, but your retail segment has been performing really well. I was just wondering if you could just give us a little bit of commentary in regards to maybe just why you're able to have strong performance in this segment, because we haven't been seeing a lot of acquisitions rolling up into retail in the past couple of years?

Both in grocery and supermarkets?

Yes.

(technical difficulty) last name and middle initial when it comes to soft pretzels. We also are the number one selling ices. So we continue to use these products as well as some new products including private labels, but our retail business is growing, okay, it's dealing with its challenges pretty much with store closings and what not and consolidation, but we're satisfied with our grocery business. I wish it would be, I wish it could grow more.

Well. Given all the headwinds that you've mentioned, I think it's performing pretty well. One of the things that I want to ask is don't you have a lot of [SKUs] in this segment relative to what its contribution or what the nominal figure is on an annual basis?

Let me just say this, some of the [SKUs] are similar as far as form, body and function, it's only the packaging, which IS different (technical difficulty) to that segment. I don't necessarily think that we have too many SKUs and exception in the frozen novelties, which we're competing with people who are -- have much larger resources, but what do we have bought, that we have 2,000 SKUs total.

Two dozen [SKUs] total in the frozen or for the entire retail supermarket segment?

Frozen, it'd be a lot more --

Is there a way to sort of quantify in regards to for example like x percentage of [SKUs] account for x percent of gross sales, just to see if maybe, there is some imbalance or there is some sort of [SKU] for specific product line within the segment?

That's a good question. It's not very seldom do we want to turn our back on sales unless there is a compelling economic reason. So something that we will consider and look at and I just pointed to the person that's going to look at that.

The only reason why I asked is we're seeing a lot of peers in the category focusing in on [SKU] rationalization. Obviously. retail supermarket shelf space is highly competitive. And I was wondering if investing amongst a broad SKU base, if it might be a little bit more efficient to invest marketing and trade spending behind a reduction or a reduced number of [SKUs].

You've raised an interesting comment, and we'll take a look at it.

Well. If you're looking to hire for a position, I guess we can speak about that offline. Thanks, again.

Our next question comes from Jon Andersen.

So I know you've been investing in some of your, I guess, new or emerging channels with more of a concerted sales and marketing focus. I think you've called out convenient stores, maybe healthcare, education channels, are you in a position to talk a little bit about maybe your progress along some of those channels?

Well, yes, we are. And it's still early in the progress, healthcare is still small, although we have a person dedicated to that. But we've been doing really, really well in stores with both certainly what ICEE and some of the new pretzel and other (technical difficulty)

Yes. On pricing, the pricing kind of across the board I guess for the business has been relatively flat for the past several quarters. If you go back to several years, it used to be kind of a positive (inaudible) overall to the top line. Can you talk about just a general tenor of the pricing environment both in food service and retail and your expectations for that going forward? Thanks.

We are working to try and execute pricing where we can, as we know (technical difficulty) we have other costs associated (technical difficulty) try and recruit those costs.

Actually what we're looking at our pricing and planning on a price increase, this year, that'd be 2018 for all the [sensitive] to going out with increasing cost, because the formulation are not sure to increased prices going to excel. And the buyers and they've always been sharp and smart, but now they can look at the commodities, they can look at this, and one of the things we hear is nobody else is increasing pricing, and we can show them other people are, starting next week. Every year for the past 15 years, we know a major beverage company increases their price by 3% to 5% every year. And then the other -- one of the other major beverage companies [follow suit] 2 weeks later, so we're on with that information and when we have to deal with these senior buyers in there, we could show them the same thing. Now our costs relatively the commodity maybe fall in the median balance. But we're still paying healthcare, we're still paying wages, we're still paying specialty transportation costs. So we're impacted by all these things too, and our people have to be aware of it, so they could explain to the [Johnson's] when they're dealing with it.

Brian is online with a question.

Question for Jerry, I think you said that without an acquisition you might be 5% to 7%, we're in that range of organic growth. It might have take that here that's probably biased mostly unit volume growth, not so much price inflation?

I wouldn't say that, I said that's our goal to begin with. And if we could, it's really going to be in dollars.

Let me ask maybe a question for Bob, you see in the grocery stores on the front end by the cash hearing area, there is this kind of speed rack for lunches, single beverages, premade sandwiches, single chips, maybe cut fruit, is there anyway to sneak in bakery or brownies or something like that in that area. And those areas seem to be getting larger?

I think there are opportunities. We would work with each customer individually. We have, again, we have premium rolls, pretzel rolls and products that could be used for sandwiches, which we explore.

But he's talking about, I think specialty rack where there will be singles, single sort of supplies I've noticed. How well they're doing?

Well. [In some of the rolls] that's good too, so I mean that kind of addresses that. Let me ask another question Bob on that, how much tougher on the retail side relative to sliding in that, maybe private label, is it to go against the Kroger's, the Safeway's, and the Walmart's versus some of the regional players like maybe a Weis Markets or Wegmans or Roundy's.

I think -- they are all very intelligent smart people or customers and they see a value in the services they provide by having them stock our products, and we negotiate with all these customers in and want to shape or form to be able to get our products available to our consumers.

We have no further questions at this time.

I want to thank everybody for participating, and we look forward to talking to you again on our next quarter. I will disengage.

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