Operating income within the Hill & Valley baking business acquired in January was “significantly off what was projected” during the third quarter of fiscal 2017, said Gerald B. Shreiber, president and chief executive officer of J&J Snack Foods Corp. As a result, net income in the third quarter ended June 24 fell more than 5% to $25,304,000, equal to $1.35 per share on the common stock, down from $26,791,000, or $1.44 per share, in the same period a year ago. Net sales increased 6% to $295,415,000 from $277,981,000.

For the nine months ended June 24, net income was $54,831,000, or $2.91 per share, down from $55,357,000, or $2.95 per share, in the same period a year ago. Net sales for the nine months totaled $767,498,000, up 5% from $730,541,000.

In a July 25 conference call with analysts, Mr. Shreiber was peppered with questions about the performance of Rock Island, Ill.-based Hill & Valley. On the one hand, he said J&J Snack is “extremely confident” in the management group of the business and believes the fourth quarter is going to be better, with even better performance expected in the first quarter of fiscal 2018.

Gerald Schreiber, J&J Snack Foods Corp.
Gerald Shreiber, president and c.e.o. of J&J Snack Foods

“It is not anywhere as near panic time, and we are extremely confident,” he said.

But just a few moments later in the call, Gerard G. Law, senior vice-president and assistant to the president, acknowledged that the Hill & Valley business has had its challenges.

“Overall, we’ve been disappointed with the sales and the mix coming out of the business,” Mr. Law said. “So the sugar-free mix has been a little bit lower, and it’s contributed a little bit less than we had planned. We’re working on spinning that around, and we’re confident in the future of Hill & Valley.” 

 

Hill & Valley angel food cake, J&J Snack Foods
Hill & Valley sugar-free products have not performed as well as hoped, J&J Snack Foods said.
 

 

Asked to elaborate on where the confidence in a potential turnaround is coming from, Mr. Shreiber said, “One of (the reasons), I guess it’s commitments — it’s not contracts on hand — which go all the way out until September, October and through Christmas. So that we can visually see, and knowing what our costs are and what our production has been, and we have some products in storage, so that’s helping us add visibility to determine the profitability. Beyond that, we’re just relying, at this point, on the talent of our management there and their budgeting factor. And certainly, they have performed well in the two years leading up to our acquisition. So we had a natural comfort level with them.”

Hill & Valley makes a variety of pre-baked cakes, cookies, pies, muffins and other desserts for retail in-store bakeries. The company, which is one of the top producers of sugar-free and no-sugar-added pre-baked in-store bakery products, also is part of several strategic private labeling partnerships with retailers nationwide.

 

Hill & Valley cupcakes, J&J Snack Foods
Hill & Valley makes a variety of pre-baked cakes, cookies, pies, muffins and other desserts for retail in-store bakeries.
 

 

Overall, total food service operating income at J&J Snack Foods decreased 11% in the third quarter to $22,005,000 from $24,619,000 in the same period a year ago. Within the food service division, sales of bakery products totaled $89,712,000, up 20% from $74,475,000 in the same period a year ago, while soft pretzel sales increased to $45,069,000 from $44,410,000, and churros increased to $17,536,000 from $15,819,000.

In the retail supermarket segment, total operating income totaled $4,890,000, up from $4,266,000. Within the retail supermarket division, sales of soft pretzels increased narrowly to $7,496,000 from $7,136,000, handhelds dipped to $3,548,000 from $3,8133,000, and frozen juices and teas increased to $27,317,000 from $26,038,000.