J&J Snack Foods Corp. Q2 FY2026 earnings call

Good morning, everyone, and thank you for joining us today. We're excited to discuss our second quarter fiscal 2026 results. We delivered positive earnings and margin expansion despite a quarter that was impacted by demand softness amid rising fuel costs. Adjusted EBITDA increased 9.5% year-over-year to $28.7 million. And adjusted EPS increased 14.3% to $0.40, while sales declined 3.2% to $344.8 million. Food service sales declined 5%, with most of the decline attributed to the anticipated sales reductions in our bakery business, consistent with Q1. And while retail sales declined 4.1%, The decline was due to higher slotting fees and trade investments to support our innovation pipeline and brand share growth objectives. Frozen beverage results improved due to an increase in beverage volume and cost control. Apollo initiatives and mixed improvements helped to drive gross margin expansion in the quarter. Our plant consolidations have created significant plant efficiencies, and we're on track to deliver at least 20 million of annualized Apollo savings once all initiatives are implemented. We are now focused on driving administrative and distribution cost reductions. To that end, we executed several of the administrative initiatives later in the second quarter as we reduced corporate expenses. And we expect to achieve the remaining initiatives in the third quarter. Overall, given the implementation later in the quarter, we realized just a modest level of administrative savings in the second quarter, and our distribution efficiencies initiatives will ramp up in Q3. I want to share a few other highlights from the quarter. First, an update on our innovation pipeline. It's important to note that we are still early in the process as several products begin shipping later in the quarter. However, the sell-in process has been progressing very well and we're securing distribution across multiple retail and food service channels. In the quarter, We shipped over 2 million in new products, including about $900,000 of Dippin' Dots for retail, 900,000 of new Dogsters ice cream products, and 200,000 of Luigi's Mini Pops. Our pretzel innovation shipments are ramping up now, and we expect that these new products will deliver exceptional consumer experiences and sales growth. we had another quarter of standout performance in food service pretzels. Sales were up $6.7 million and dollar share increased 4.3%. As in prior quarters, the primary growth driver was Bavarian-style pretzels. In retail, our Dogsters products continue to perform well. We shipped volumes up over 20% versus the prior year. Again, we're encouraged that the new Dogsters sandwich will be well received by our four-legged consumers. We have entered into a new licensing partnership with the Peanuts character Snoopy to be used in conjunction with our Dogsters brand. We're now also introducing the Dogsters product lineup to pet stores. In frozen beverage, Our themed brand activation around some solid movie releases supported segment performance. Looking ahead, we're encouraged by the slight of releases for our fiscal second half. We're optimistic that movies like Super Mario Galaxy, Star Wars Mandalorian, and Toy Story 5 will support theater performance in the second half of 26. Additionally, The ongoing IC test with a West Coast QSR has expanded to additional markets. We are encouraged by the progress and believe that we're nearing completion of the test phase. I'm also proud to share that in honor of our nation's 250th anniversary, we are rolling out several themed products, including a star-shaped super pretzel, red and blue IC squeeze tubes, and red, white, and blue cups for our Luigi's Real Italian Ice.

Food service segment net sales declined 11.4 million or 5% to 214.7 million. The largest driver of the decline was the anticipated reductions in the lower margin bakery business of about 8 million. Additionally, cookie sales to a large customer declined about 4 million. Churro sales declined about 3 million, while handheld sales declined 3.4 million. Partially offsetting these headwinds was continued strength in pretzels, which increased 6.7 million. Food service operating income increased 3.4 million to 10.9 million. Retail segment net sales decreased 2.2 million or 4.1% to 51.6 million. The decline was due to higher slotting fees and trade investments to support innovation. Retail segment operating income declined $3.9 million. Frozen beverage segment net sales increased $2.3 million, or 3.1%. Beverage sales grew 13% driven by an increase in theater sales and favorable foreign exchange. Frozen beverage operating income increased 2.1 million to 4.6 million. Consolidated gross margin improved 190 basis points to 28.8%

Planned volume reductions in Q3 (3.5%) and Q4 (2.5%) consistent with year's 3%. Apollo savings: plant savings materially complete, G&A administrative savings full run rate at least $2 million annualized by end of second quarter, distribution cost savings ramping up in Q3 and Q4, aiming for full run rate by end of Q4

Demand softness amid rising fuel costs. Potential impact of fuel costs on distribution, with expected $3.5 million increase in second half if not mitigated. Weather impact on business, especially in certain products and locations. Volatile consumer sentiment due to higher oil prices

Q: Dan, you mentioned demand softness on rising fuel costs. Where experienced most and outlook for back half?

A: Fuel costs hit convenience stores and food service most. Q3 environment expected to be similar to Q2.

Q: Apollo benefits, run rate annualized savings?

A: Plant savings above estimate, G&A savings full run rate at least $2 million annualized, distribution savings ramping up in Q3 and Q4, full run rate by end of Q4.

Q: Stock buybacks and cash return priorities?

A: Continue buybacks, considering potential M&A activity.

Q: Oil impact on distribution and packaging?

A: Lion's share in direct fuel costs, some packaging risk later, steps to mitigate.

Q: Weather impact on revenue/margin?

A: Weather impacts business but no specific number.

Q: West Coast QSR test and Taco Bell LTO?

A: West Coast QSR test expanding, Taco Bell volume not as expected but relationship strong.

Q: Retail innovation demand and food service trajectory?

A: Retail innovation early, trade spend in Q2 benefits Q3/Q4. Food service pretzels strong, cookies volume picking up.

Q: OpEx distribution costs?

A: Fuel, dry ice, and cost shift impacted distribution as percent of sales