Demand for snacks has increased over the last five years as there has been a change in food consumption preferences. Also, there has been a shift from fattening products such as potato and tortilla chips to healthy nuts and seeds. This has enabled snack food retailers to offer healthier products with reduced fats. Despite being expensive, these products are loved by customers, filling retailers' coffers.
One of the leading beneficiaries of this change is J&J Snack Foods (JJSF, Financial), which registered great results as well as stock price appreciation of almost 200% during the last five years. This was proved yet again when the company posted its first-quarter results recently, which sent its shares soaring.
Another tale of success
Revenue jumped 6% to $203.5 million, over last year, as demand for its products increased. Also, earnings surged 22% to $0.66 per share during the same period. The gain in the bottom line was mainly due to higher sales and wider margins. Margins increased because of increase in product prices, higher volumes, and lower input costs.
Growing demand for soft pretzels and products such as sticks and rolls drove sales higher. This led to an increase of 21% and 7% in soft pretzel and food service sales. Another important driver was the acquisition of New York Pretzel, made in October, which added to the retailer's top line. However, sales for both categories increased even if we remove the effects of acquisition. Excluding the new addition, revenue from soft pretzels and food service customers moved north by 19% and 6%, respectively.
J&J Snack Foods' frozen beverages also performed well with demand for Parrot Ice, Slush Puppie, ICEE Arctic Blast, and other beverages growing by 10% during the period. This is in sharp contrast to the previous quarter where the company declared that the beverage segment was a drag on its performance, mainly because of cooler weather conditions.
When compared to its peers such as Kellogg, J&J Snack Foods has been an outperformer. This is mainly because Kellogg is dependent on sale of cereals, demand for which has been decreasing. Because of new and innovative breakfast offerings provided by many food companies, volumes have dropped at Kellogg. On the other hand, J&J Snack Foods has been enjoying its diverse portfolio and acquisition-led growth. Nonetheless, Kellogg too has brought in new products such as breakfast smoothies and sandwiches in order to attract customers.
Few hiccups
Both handheld sales as well as sales from retail supermarkets fell by 16% and 3%, respectively. However, retail sales have actually improved from a drop of 24% in the fourth quarter. Hence, the retail segment has been showing signs of improvement.
Key takeaway
Although Kellogg is taking efforts to boost its results, J&J Snack Foods has outperformed it. The company has also been expanding its margins. Its strategy of acquiring new businesses in order to expand its offerings has been working well, as evident from its recent buyout of New York Pretzel. This acquisition is expected to be beneficial in future. Moreover, J&J Snack Foods has been successfully growing its top line as well as expanding its margins. Hence, buying this company is a good investment proposition.
