ewsba.se
Chief Executive Officer — Daniel J. Fachner
Chief Financial Officer — Shawn C. Munsell
Vice President, Investor Relations — Reed Anderson
Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Corp. Fiscal 2026 Second Quarter Conference Call. Before getting started, let me take a minute to read the Safe Harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives, as well as our anticipated financial performance. This includes, without limitation, our expectations with respect to the success of our cost savings initiatives, customer demand improvements, and the sales channels in which we operate.
These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our Annual Report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 05/06/2026.
While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure in the company's press release, which can be found in the Investor Relations section of our website. Joining me on the call today is Daniel J. Fachner, our Chief Executive Officer, along with Shawn C. Munsell, our Chief Financial Officer. Following management's prepared remarks, we will hold the call for a question and answer session.
With that, I would now like to turn the call over to Mr. Fachner. Please go ahead, Dan.
Daniel J. Fachner: Good morning, everyone, and thank you for joining us today. We are excited to discuss our second quarter fiscal 2026 results. I am pleased to share continued progress this quarter on our strategic priorities. 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. Foodservice 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 mix improvements helped to drive gross margin expansion in the quarter. Our ability to improve earnings and margins as we reshape the portfolio demonstrates that our transformation initiatives are working. Our plant consolidations have created significant plant efficiencies, and we are 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 is 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 are securing distribution across multiple retail and foodservice channels. In the quarter, we shipped over $2 million in new products, including about $0.9 million of Dippin’ Dots for retail, $0.9 million of new Dogsters ice cream products, and $0.2 million of Luigi’s Mini Pups. 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 foodservice 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 are encouraged that the new Dogster 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 are 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 are encouraged by the slate of releases for our fiscal second half. We are optimistic that movies like Super Mario Galaxy, Star Wars Mandalorian, and Toy Story 5 will support theater performance in 2026.
Additionally, the ongoing ICEE test with a West Coast QSR has expanded to additional markets. We are encouraged by the progress and believe that we are nearing completion of the test phase. I am also proud to share that in honor of our nation's 250th anniversary, we are rolling out several themed products including a star-shaped SUPERPRETZEL, red and blue ICEE squeeze tubes, and red, white, and blue cups for our Luigi’s Real Italian Ice. Our financial position remains strong with a clean balance sheet. During the quarter, we repurchased $22 million of shares at an average price of $84.56, along with dividends of $15.2 million, returning over $37 million to shareholders in the quarter.
With that, I will now turn the call over to Shawn to walk through the financial details. Shawn?
Overall, our foodservice segment demonstrated resilience with notable bright spots and a significant improvement in profitability. Foodservice operating income increased $3.4 million to $10.9 million, largely reflecting gross margin improvements from plant consolidation and mix improvements. Retail segment net sales decreased $2.2 million, or 4.1%, to $51.6 million. Frozen novelty sales declined about $3.9 million during the quarter, which was partly offset by an increase in handheld sales. Retail sales were impacted by an increase in slotting fees of approximately $2 million to support new product innovation, along with increased trade investment primarily in frozen novelties. Retail segment operating income declined $3.9 million due to slotting fees, trade, and mix shift.
Looking ahead, we intend to continue investing in trade and promotion to support our retail business in the second half. 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. A decline in service sales of $3.2 million is expected to persist due to a customer decision to insource maintenance. Despite this decision, we do not expect a meaningful margin impact as we temporarily downsize our tech network until we onboard prospective replacement business. Frozen Beverage operating income increased $2.1 million to $4.6 million. Consolidated gross margin improved 190 basis points to 28.8%, primarily reflecting Apollo initiatives and favorable mix in foodservice and frozen beverage.
Operating expenses increased $7.8 million to $97.5 million, which included $6.5 million in nonrecurring items related to plant closures and other restructuring costs, of which $4.1 million was noncash. Selling and marketing expenses increased 5.5%, or $1.6 million, compared to the prior year, representing 8.7% of sales compared to 8% last year. The increase includes investments in marketing equipment and brands. Distribution expenses increased and represented 12.1% of sales compared to 11.7% in the prior-year period. Distribution costs included a $0.4 million headwind from higher fuel costs. If fuel remains at current rates, fuel costs would be expected to increase approximately $3.5 million in the second half versus the prior year if not mitigated.
Administrative expenses were $21.2 million, an increase of $1.4 million, or 7.2% from the prior year, primarily due to an increase in nonrecurring charges in the quarter. The charges, which totaled $1.7 million, are primarily associated with legal expenses and other restructuring charges, including severance. Adjusted operating income was $9.6 million compared to $8.9 million in the prior year. Adjusted EBITDA increased 9.5% to $28.7 million versus $20.2 million last year. The effective tax rate was 28.1%. On a reported basis, earnings per diluted share were $0.09 compared to $0.25 last year, primarily reflecting the impact of one-time charges. On an adjusted basis, earnings per share were $0.40, a 14.3% increase from last year.
Our balance sheet remains strong with approximately $31 million of cash, net of debt. We had approximately $181 million of borrowing capacity under our revolving credit agreement. During the second quarter, we generated approximately $16 million in operating cash flow and invested $16 million in capital expenditures. Over the past twelve months, we have repurchased approximately 0.705 million shares for an aggregate of $72 million. In 2026, we have returned $95 million in cash to shareholders through share buybacks and dividends. That concludes our prepared remarks, and we are now ready to take your questions.
Operator: We will now open the call for questions. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. Our first question today is from Jon Andersen with William Blair. Please go ahead.
Jon Andersen: Hi, good morning everybody. Thanks for the questions. Daniel, you mentioned at the top of your prepared comments that in the quarter you experienced some demand softness amid rising fuel costs. I am wondering if you could talk a little bit more about maybe where you experienced that the most, and when I say where, maybe if you could discuss it in the context of categories and maybe channels, and then how you expect that to play out in the back half of the year based on what you know right now?
Daniel J. Fachner: Good morning, Jon. Right. Yes. Thanks, Jon. Thanks for the question. Where you get hit the most right off the bat with fuel costs rising is in your convenience store business. That is where you feel it the most at the gas pump. The price is high when they are filling up the tank, and they decide not to go in and purchase something more. We also see that in our foodservice side of our business too. That is an area that gets hit quicker than some of the other spots. We are seeing a consumer that already has a sentiment around worries about costs rising, and then the fuel uncertainty makes it that much more live to them.
Jon Andersen: Okay. Fair enough. I know you do not offer guidance per se, but if we look to the back half of the fiscal year, given that you also have quite a bit of good innovation coming or in the works or in flight right now, and it sounds like some tests may be coming to some kind of resolution—hopefully resolution—how are you thinking about growth in the back half of the year? And then I guess part of that question is also whether we need to consider the ongoing impact of SKU rationalization in bakery or just the business rationalization you are doing in the low-margin part of bakery.
Does that continue at the levels you have experienced in the first half? Any thinking around that would be helpful from a modeling perspective. Thanks.
Daniel J. Fachner: Yes, good question, Jon. And you are right. We do not really give specific guidance in that space. What we do know is we have some planned volume reductions like what we have talked about in both Q3 and Q4. In Q3, I think that is about 3.5%; in Q4, about 2.5%, consistent with the 3% that we have talked about for the year. We also know, like I just talked about with you, we have that wary consumer sentiment with the higher oil prices, and that is bouncing around even as we speak this morning. And we also know we have some really strong benefits coming from Apollo in the second half.
We saw that in the first half of the year. We saw that this quarter. I am proud of the way the teams are working towards that, and so we see that benefit. As I sit today, I would see the environment in Q3 being pretty much the same as the environment we saw in Q2.
Jon Andersen: Makes sense. Maybe pivoting to Apollo and the benefits from that, could you just bring us up to speed on what the run-rate benefits are as we exited the first half—run-rate annualized benefits from Apollo—and then it sounds like you are making good progress on the next phase of benefits, administration and distribution. Where might that mean for run-rate annualized savings exiting fiscal 2026?
Shawn C. Munsell: Yes, sure. I will take that. The plant savings, or the plant consolidation work, is materially complete. And if you recall, that was about $15 million worth of annualized benefits at our estimate. In the quarter, we actually achieved above $4 million in plant savings, so a bit above that run rate. The balance, that $5 million, is coming from a combination of G&A administrative savings as well as the distribution savings. On the administrative savings front, we implemented a number of initiatives later in the second quarter, so you did not really see a lot of the benefit show up in the second quarter.
The remaining initiatives were actually completed in April, so we will be at the full run rate on the G&A savings, which is at least $2 million annualized. And of the $3 million of distribution cost savings, we will be ramping that up in Q3 and Q4. By the time we get to the end of Q4, we should be on the full run rate for all the initiatives. We feel good about where we are.
Jon Andersen: Great. Maybe I will get one more in. It seems like you have been buying back stock a little bit more regularly. As you look ahead, and obviously supporting the dividend, as you think about returning cash to shareholders going forward, could you talk a little bit about the priorities there? Would you continue the approach you have taken over the last twelve months? Thanks.
Shawn C. Munsell: Yes, sure. We continue to see compelling value in the shares. We bought back $22 million in the quarter, and I can tell you that we will continue to buy back stock. We have seen an increase, I would say, in potential M&A activity, and so that is probably going to factor into the calculus here in the back half. But our stock buyback does reflect our conviction.
Operator: The next question is from Todd Morrison Brooks with The Benchmark Company. Please go ahead.
Todd Morrison Brooks: Hey, thanks for taking my questions, I appreciate it. Good morning, Dan. Shawn, can we lead off on oil? Because I think it touches you in multiple places, right? It is at the consumer level, it is at the raw distribution level, it is also in the packaging. So I think you gave some color on what the incremental pressure from fuel would be, the $3.5 million in the second half if we stay at current levels. But is that just on the distribution side? And then I know there is no way to really gauge the consumer demand, but how about on the packaging side?
Shawn C. Munsell: Yes, it is a great question. That is just the direct fuel piece. There is some potential risk around packaging as we get later into Q3 and Q4. But the lion's share of the impact is going to be on those direct fuel costs. We have not attempted to quantify what it means from the consumer outside of the comments that Dan made earlier. But that $3.5 million is representative of the second half within distribution. Now I will say that we are taking steps to try to mitigate some of that exposure, and hopefully we get a little bit more relief than what is modeled there.
Todd Morrison Brooks: That is where I wanted to go next. Is this something that you can fuel-surcharge immediately to customers? Is it something that has to be negotiated price increases at least in retail? And given the volatile nature of what we are living through now and how the markets are spiking up and down, do people want to try to price to offset this pressure yet, or do we need to have more of a permanent resolution before you try to take those actions?
Daniel J. Fachner: I will take that, Todd. It is one of those things you have to watch really closely. We have some disciplines in the business on both the ICEE and Dippin’ Dots side that allow us to be able to almost take those immediately. On the foodservice side of the business and retail, it is a little bit more difficult than that. But we are meeting and talking about it, and we will take price action if need be.
Todd Morrison Brooks: Perfect. If I can pivot, and you are one of the few calls I have been on this cycle that did not call out the impact from the winter weather reality that we lived within January and February in a good-sized footprint of the country. Have you sized either lost revenue from weather disruption or margin pressure or anything that you would want to share with us as we are evaluating the results?
Daniel J. Fachner: There is no way in our business that weather does not impact you. We do not have a number that we have been able to put to that, Todd, but it certainly has an impact on our business, especially in some of our products that are in locations that are outside in foodservice and areas that people just cannot get to. But it certainly has an impact. We have not put a number to that, though.
Todd Morrison Brooks: Great. And then if I could squeeze one more in. You talked about the West Coast ICEE test progressing, which is great to hear. Can you update us on how the Taco Bell limited time offer performed, and their thoughts on the performance and maybe where that relationship could go from here? Thanks.
Daniel J. Fachner: Two questions there, I think. Let me talk about the West Coast QSR test with ICEE. We are excited about that one. It is continuing to expand. We are actually rolling out into another market right now, which is claimed to be the last test phase of this, with a potential decision to be made before we even exit summer. So we are really excited about where that one is going. The Taco Bell volume in the quarter was not as great as we originally had anticipated. There is some volume from it that will still come through in this next quarter.
The relationship is strong, and we think there is an opportunity to be able to come back and do some more with that customer.
Todd Morrison Brooks: Great. Thanks, Dan.
Operator: The next question is from Scott Michael Marks with Jefferies. Please go ahead.
Scott Michael Marks: Hey, good morning, Dan, Shawn. Thanks for taking our questions. I wanted to ask a little bit about the retail business, if I could. I know you called out some of the innovation initiatives and some of the higher trade and slotting fees associated with getting those in store. Wondering if you can help us understand demand for some of those products where they are in market, just in terms of volumes and consumer response, even beyond the trade and slotting fees that you called out.
Daniel J. Fachner: It is early still. They just started to roll out in the back half of the quarter. But we are really excited about the opportunities that we have in retail. One of the things we learned last year as you get into the second quarter is you do need to up your trade spend to get your frozen novelties in place as you get into the third and fourth quarter. That was a mistake we called out last year. And so some of that trade spend that is in Q2 will benefit us now in Q3 and Q4. The slotting fees associated with some of our new products appear to be paying off.
Those new products appear to be kicking off really well. We have the Dogsters brand that is doing really good. Luigi’s is rolling out Mini Pups really nicely. The Soft Sticks are doing pretty good. And then the one that we keep touting more than anything is the high-temp Dippin’ Dots, and we expect that to do really well for us as we get into the back half of the year.
And I can tell you too that even though we unfortunately did not quite realize the benefits from that LTO that we were hoping, we do have a couple of initiatives in the pipeline around churros for the back half of the year that could have some promise. I will not get into any more detail on it now, but hoping that maybe with the next call, we will be able to update you.
Scott Michael Marks: I appreciate the thoughts there. And maybe if I turn over to the OpEx side, you made some comments about the distribution cost and not having realized the efficiencies from Apollo in that yet. Can you help us understand, is that the main driver of distribution as a percent of sales being up on a year-over-year basis? Was there some other dynamic in the quarter that had an impact on that part of the P&L?
Shawn C. Munsell: Great question. You have got about $0.4 million in fuel that we flagged. That was really all coming from the exposure in March when diesel prices started to rise. The other piece of that is we had about $0.2 million worth of higher dry ice costs, and that was weather-related, so we do not expect that to be recurring. The other piece is we did have some cost shift around between distribution and cost of sales, and so that led to about a $0.5 million increase in distribution relative to cost of sales.
Scott Michael Marks: Understood. Appreciate it. I will leave it there and pass it on.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Daniel J. Fachner for any closing remarks.
Daniel J. Fachner: Thank you, operator. In closing, I want to emphasize that our Q2 results demonstrate that our transformation project is taking hold and we can drive earnings growth despite some top-line softness. We are building momentum for sustainable growth. Our strong balance sheet provides flexibility to invest in growth opportunities while returning capital to shareholders. We remain confident in our ability to deliver the full benefits of Project Apollo and drive long-term value creation. Thank you again for your continued support, and we look forward to updating you on our progress throughout fiscal 2026. Thank you.
Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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