J&J Snack Foods Corp. (JJSF) Earnings

Management highlights

- Overall Financial Performance * Consolidated net sales hit $426 million, down 6.2% year-over-year, with over half the decline from anticipated bakery sales reductions. * Gross profit improved ~$1 million to $151 million, with gross margin expanding 240 basis points to 35.5% year-over-year. * Adjusted EBITDA was $67.4 million (-6.4% YoY), and adjusted earnings per share was $1.96, compared to $2.00 YoY. The $4.6 million EBITDA decline was primarily due to $4.7 million in incremental net fuel and freight cost pressures. * The balance sheet remains strong, with $35 million in net cash (cash net of debt) and $182 million in available revolving credit capacity. The company returned $25 million to shareholders in the quarter ($15 million in dividends, $10 million in share repurchases), with $120 million returned year-to-date. - Transformation & Cost Savings (Project Apollo) * The more efficient cost structure from Project Apollo underpinned gross margin expansion despite cost headwinds. Plant consolidation savings are tracking ahead of original target. * Management increased the annualized plant consolidation savings target from $15 million to at least $20 million, raising the full program annualized run rate savings to at least $25 million. * G&A savings initiatives were implemented this quarter, keeping administrative expenses materially flat despite a $0.6 million non-recurring legal charge. Distribution cost savings from Apollo were also realized in the quarter. - Innovation & Growth Initiatives * New product innovation continues to gain traction: the new Better For You product lineup (including 10g protein Super Pretzels and hydrating/antioxidant Luigi's Mini Pops) is delivering strong retail velocities. * Dogsters, the top performing new brand, is expanding into the pet retail channel, which launched in August 2026. Dogsters retail sales grew over 30% in tracked channels this quarter. * The company is actively testing and expanding its footprint with new and existing partners across convenience, theaters, and entertainment venues, with an ongoing West Coast QSR frozen beverage test expected to conclude positively soon.

Guidance

- The peak impact of planned bakery sales reductions occurred in Q3 FY26, with the headwind diminishing to ~2.5% of prior year sales in Q4 FY26. - Management expects the overall sales environment to improve in Q4 FY26, with the toughest year-over-year top line comparison now complete. The company expects to return to full-year organic sales growth in FY27, with inflection most likely to occur in Q1 FY27 rather than Q4 FY26. - Fuel and freight cost pressures are expected to persist through Q4 FY26, though diesel prices have moderated from earlier summer 2026 highs. - The service revenue gap from customer insourcing is expected to begin closing in Q4 FY26, with most of the gap closed by Q1 FY27. - Gross margin expansion is expected to continue in Q4 FY26, driven by Project Apollo savings and favorable sales mix. - Management confirmed there is sufficient existing production capacity to support projected core business growth in FY27, with no additional major capacity investments required for currently projected growth.

Segment performance

1. Food Service: Net sales were $254.3 million, a decline of $22.9 million (-8.3%) year-over-year. $16 million of this decline came from anticipated bakery segment reductions, and overall segment revenue accounts for ~59.7% of consolidated net sales. Modest growth in pretzels and churros was offset by softness in cookies and handhelds. Segment operating income was $28.1 million, slightly above the prior year, as higher distribution costs offset gross profit improvements. 2. Retail: Net sales were $64.9 million, an increase of $1.1 million (+1.7%) year-over-year, accounting for ~15.2% of consolidated net sales. Excluding $2 million in incremental slotting fees for new product innovation, underlying sales grew 4.8%. Segment operating income declined $3.5 million year-over-year, driven by higher slotting and distribution costs. Strong growth was recorded for Dogsters (retail sales up over 30%), Luigi's (up over 20%), and Dippin' Dots (up over 100%) in measured retail channels for the 13 weeks ending July 12. 3. Frozen Beverage: Net sales were $106.7 million, a decline of $6.5 million (-5.8%) year-over-year, accounting for ~25.1% of consolidated net sales. A 5.9% increase in beverage volume (driven by theater and mass merchandising channels) was more than offset by lower service and machine sales, with lower service sales stemming from customer insourcing. Segment operating income decreased $0.9 million to $22.8 million, as sales declines and higher distribution costs were partially offset by favorable foreign exchange and cost containment initiatives.

Risks & headwinds

- Persistent elevated oil prices and tightening freight capacity (driven by recent regulatory and legislative changes) have created material headwinds for fuel and freight costs, which pressured operating results in Q3 FY26 and are expected to continue impacting results in Q4 FY26. - Soft demand for cookies from a major south-of-the-border customer and increased competition in the handhelds segment continues to pressure food service results in these lower-margin categories. - Softness in the convenience channel for frozen beverage and continued headwinds from service and machine sales (due to customer insourcing and machine business cyclicality) are expected to partially offset beverage volume growth in the near term. - Forward-looking statements around sales growth, cost savings, and innovation success are subject to known and unknown risks that could cause actual results to differ materially, as outlined in the company's SEC filings.

Analyst Q&A

• Q: What specific headwinds will ease in Q4 FY26, and what visibility does management have for this improvement? /

  A: The peak impact of planned bakery SKU rationalization (which created a 3.5% sales headwind in Q3) will diminish to a 2.5% headwind in Q4. The service revenue gap from prior customer insourcing will begin closing after a new large service contract was signed, and incremental slotting fees for new innovation will also decline. Theater demand is strengthening sharply, led by a strong upcoming film lineup including the recently released record-breaking Spider-Man movie, and new core business wins for pretzels, churros, and frozen novelties are already shipping in Q4.

• Q: What is the organic growth outlook for FY27, and what are the key drivers? /

  A: Management confirmed organic growth will return in FY27, driven by core category growth in pretzels, churros, and frozen novelties, continued strengthening of theatrical demand for frozen beverages, and expected positive results from ongoing new partner tests including the West Coast QSR frozen beverage pilot. The company has not released a specific full-year growth target, but notes its sales pipeline is the strongest it has been in years.

• Q: Why are plant consolidation savings from Project Apollo coming in ahead of plan, and what is the outlook for other Apollo components? /

  A: Management raised the annualized plant consolidation savings target from $15 million to at least $20 million (taking total program savings to at least $25 million) because transition costs for moving production have stabilized lower than originally projected, and the original target included conservative buffers. The Q3 run rate of savings is already consistent with the new higher target, so management is comfortable raising the guidance.

• Q: Is there a second phase of Project Apollo planned, and when will additional savings be realized? /

  A: Management confirmed it is developing an additional savings phase (Apollo 27), which already delivered flat administrative expenses in Q3. The company is continuing to evaluate additional production optimization opportunities, including locating production closer to distribution points, and will share more details on the new phase in coming quarters.