J & J Snack Foods Q3 Earnings Call Highlights

Key Points

• Fiscal Q3 results weakened: Net sales fell 6.2% to $426 million, adjusted EBITDA declined 6.4% to $67.4 million, and adjusted EPS slipped to $1.96. Higher freight and fuel costs increased distribution expenses by roughly $5 million, although gross margin improved to 35.5% through Project Apollo savings and favorable sales mix.
• Segment performance was mixed: Foodservice sales dropped 8.3%, largely due to planned bakery SKU reductions and weakness in cookies and handheld products, while retail sales rose 1.7% on brand momentum and product launches. Frozen beverage sales fell 5.8% as beverage growth was offset by declines in service and machine sales.
• Management raised its cost-savings target and expects growth to resume: Annualized Project Apollo savings are now expected to reach at least $25 million, including $20 million from plant consolidation. Management expects bakery headwinds to ease in Q4 but is more likely to return to organic growth in fiscal Q1 2027.

J & J Snack Foods NASDAQ: JJSF reported lower fiscal third-quarter sales and adjusted earnings as freight and fuel costs rose, though the company said margin gains from its transformation program helped offset some of those pressures.

Net sales for the quarter totaled $426 million, down 6.2% from a year earlier. Adjusted EBITDA fell 6.4% to $67.4 million, while adjusted earnings per share were $1.96, compared with $2.00 in the prior-year period. Reported diluted earnings per share were $1.88, versus $2.26 a year ago; the earlier period included a $9.1 million non-recurring net gain primarily related to insurance proceeds.

Chief Executive Officer Dan Fachner said the company improved gross profit by about $1 million to $151 million, while gross margin expanded 240 basis points to 35.5%. He attributed the improvement to Project Apollo cost-saving initiatives and sales mix changes.

“Project Apollo is doing exactly what we designed it to do,” Fachner said during the call, describing the program as helping protect margins despite higher logistics costs.

Freight and Fuel Pressures Weighed on Earnings

Higher freight and fuel costs were the main factor behind the year-over-year decline in EBITDA. Fachner said those costs increased about $4.7 million net of surcharge collections, while Chief Financial Officer Shawn Munsell said distribution expenses rose $4.9 million and represented 11.6% of sales, compared with 9.8% a year earlier.

Munsell said higher freight and fuel costs accounted for roughly $5 million of increased distribution expense before fuel-surcharge offsets. Freight rates accelerated during the quarter as available capacity tightened, according to Fachner, who cited regulatory and legislative changes as contributing factors.

The company expanded fuel surcharges during the quarter and increased minimum order quantities to help mitigate the cost impact. Management expects freight and fuel pressures to continue in the fourth quarter, although diesel prices have moderated from earlier summer highs.

Total operating expenses increased 17.1%, or $15.3 million, compared with the prior-year quarter. Administrative expenses were approximately flat, despite about $600,000 in non-recurring legal charges, as newly implemented general and administrative savings initiatives helped offset costs.

Foodservice Declines Driven by Bakery Reductions

Foodservice sales declined $22.9 million, or 8.3%, to $254.3 million. About $16 million of that decline was tied to anticipated bakery sales reductions associated with SKU rationalization, Munsell said.

The company recorded modest sales growth in pretzels and churros, but that was more than offset by continued weakness in cookies and handheld products. Fachner said cookie demand was softer at a major customer “south of the border,” while handheld sales were affected by other products introduced in customer locations.

Foodservice operating income rose modestly to $28.1 million as gross-profit improvement helped counter increased distribution costs.

Management expects the bakery-related sales reduction to lessen in the fiscal fourth quarter. Fachner said the impact peaked at about 3.5% of prior-year sales in the third quarter and is expected to decline to roughly 2.5% in the fourth quarter. The company does not currently anticipate additional SKU rationalization, though it will continue assessing its portfolio.

Retail Growth Supported by Promotions and Innovation

Retail net sales increased 1.7% to $64.9 million. The segment incurred an additional $2 million in slotting fees related to recent product launches; excluding that increase, retail sales would have risen 4.8%, Munsell said.

Retail operating income declined $3.5 million, primarily because of higher slotting fees and distribution costs. Still, management highlighted several brands showing strong momentum:

• Dogsters retail sales rose more than 30% in tracked channels, while unit sales increased about 40% during the quarter.
• Luigi’s sales increased more than 20% in syndicated data for the 13 weeks ended July 12, aided by end-cap placements with a major customer.
• Dippin’ Dots retail sales more than doubled in tracked channels, supported by the high-temperature Dippin’ Dots product and additional sundae flavors.
• Retail pretzel sales increased about 2%, while novelty sales rose 3% in syndicated data for the 13-week period.

Fachner said the company is seeing encouraging results from its Better For You lineup, including a SuperPretzel product with 10 grams of protein and Luigi’s Mini Pops featuring hydration and antioxidant benefits. Dogsters also began rolling out to pet retailers in August.

Frozen Beverage Sales Mixed as Beverage Growth Offset by Machines and Service

Frozen beverage segment sales declined 5.8% to $106.7 million. Beverage sales increased 5.9%, led by theaters and mass-merchandise customers, but the growth was more than offset by lower service and machine sales.

Management said service revenue was affected by customer insourcing decisions, while machine sales reflected the cyclical nature of that business. Convenience-channel sales were soft during the quarter.

Frozen beverage operating income fell $900,000 to $22.8 million. The sales decline and higher distribution costs were partly offset by favorable foreign exchange and cost-control actions.

Fachner said the company expects beverage volumes to partly offset continued headwinds in service and machine sales during the fourth quarter. He added that J&J Snack Foods has signed a new agreement with a large service organization that should begin closing the service-revenue gap in the fourth quarter, with most of the gap expected to be addressed by the first quarter of fiscal 2027.

The company also cited an improving theater slate, including the newly released Spider-Man movie, and said it remains optimistic about a test with a West Coast quick-service restaurant operator.

Project Apollo Savings Target Raised

J&J Snack Foods raised its projected annualized savings from the plant-consolidation component of Project Apollo to at least $20 million, from $15 million previously. That increases the full program’s annualized run-rate target to at least $25 million.

Munsell said product-transition costs have stabilized and that the $20 million annualized plant-consolidation target is consistent with savings achieved in the third quarter. Management also said it is evaluating “Apollo ’27” initiatives, including further opportunities involving manufacturing locations, distribution proximity and general and administrative costs.

The company generated approximately $48.8 million in operating cash flow during the quarter and spent about $18.1 million on capital expenditures. Cash net of debt was approximately $35 million, and J&J Snack Foods had about $182 million of borrowing capacity under its revolving credit facility.

During the quarter, the company returned $25 million to shareholders through $15 million in dividends and $10 million in share repurchases. It repurchased approximately 136,000 shares, and said it had returned roughly $120 million to shareholders through dividends and buybacks during the first nine months of fiscal 2026. The company also expects to collect about $17 million in August from the final insurance settlement related to the former Holly Ridge plant.

Looking ahead, Fachner said sales momentum is building behind new business in churros, pretzels and frozen novelties. However, he indicated the company is more likely to return to organic growth in the first quarter of fiscal 2027 than in the fiscal fourth quarter, given the remaining bakery-related sales reduction.

About J & J Snack Foods (NASDAQ:JJSF)

J & J Snack Foods NASDAQ: JJSF is a U.S.-based manufacturer and distributor of branded snack foods and frozen beverages. Headquartered in Pennsauken, New Jersey, the company develops, produces and markets a broad array of proprietary and licensed products for retail, concession and foodservice customers. Its offerings span soft pretzels, frozen novelties, real Italian ice, churros and packaged beverages under well-known names such as ICEE, SuperPretzel, Luigi's and ChurroMan.

Founded in 1971 by Gerald B.

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