J&J Snack Foods' (JJSF) CEO Gerry Shreiber on Q1 2016 Results - Earnings Call Transcript

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J & J Snack Foods Corp. (NASDAQ:JJSF)

Q1 2016 Earnings Conference Call

January 26, 2016 10:00 AM ET

Executives

Gerry Shreiber - President and CEO

Dennis Moore - CFO

Bob Radano - SVP and COO

Jerry Law - SVP of Marketing

Bob Pape - SVP of Sales

Analysts

Francesco Pellegrino - Sidoti & Company L.L.C.

Akshay Jagdale - Jefferies L.L.C.

Mark Williams - Athlos Research

Brian Rafn - Morgan Dempsey Capital Management

Operator

Welcome to the J&J Snack Foods First Quarter Earnings Conference Call. My name is Gilda and I’ll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

Now I’ll like to turn the meeting over to Mr. Gerry Shreiber. You may begin.

Gerry Shreiber

Good morning everyone and welcome to J&J Snack Foods second quarter conference call. I’m Gerry Shreiber, and with me today is Dennis Moore, our Chief Financial Officer; Bob Radano, our Senior Vice President and COO; Jerry Law, our Senior Vice President of Marketing and Personal Assistant to me; and Bob Pape, Senior Vice President of Sales.

Let me begin with the obligatory statement. The forward-looking statements contained herein are subject to certain risk and uncertainties that could cause results to differ materially from those projected in the forward-looking statements. You're cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date hereof.

Results of operations, we had a good quarter. Net sales increased 5% for the quarter. For the quarter our net earnings increased by 11% to $12.5 million or $0.66 a share from a $11.3 million or $0.60 a share from a year-ago.

Our EBITDA, earnings before interest, taxes, depreciation and amortization for the past 12 months was $152.1 million, another record.

Food service. Sales to food service customers increased 2% for the quarter, large part -- due in large part to increased sales of in-house of 19%, Churros up 7%, Bakery up 3%, and Funnel Cakes up an amazing 58%. Soft Pretzel sales were down 5% for the quarter, with sales down primarily to warehouse club stores and restaurant chains as they battle through issues of menu fatigue.

Retail super markets. Sales of products to retail supermarkets were down 5% for the quarter. Soft Pretzel sales were down 5% for the quarter and sales of frozen juice bars and Italian ices were down 1% in the quarter. Handheld sales in the quarter decreased to $3.9 million. ICEE and frozen beverages, ICEE which includes ARTIC BLAST, SLUSH PUPPIE, and frozen beverages and related products sales were up 17% in the quarter.

Beverage related sales alone were up 10%, with gallon sales up 11% in our base ICEE business in the quarter. Service revenue, which continues to perform well -- this is service for others was up a strong 16%.

Consolidated, gross profit as a percentage of sales in the quarter decreased nominally to 28.6% from 28.7% last year. Essentially the same within margin of error. Total operating expense as a percentage of sales decreased to 20.4% from 20.9% in last year’s quarter, primarily because of higher sales in our frozen beverage business and lower marketing expenses in food service.

Capital spending and cash flow. Our cash and investment securities balance decreased slightly $2.8 million in the quarter to $237.2 million. We continue to look patiently, but diligently for acquisitions as a use of our cash. Over the past year, we’ve reduced our investments in mutual funds from a $140 million to $90 million and have invested most of the proceeds into corporate bonds, $88 million at the end of December.

Our capital spending was $13.3 million in the quarter as we continue to invest in plant efficiencies and growing our business. We are presently estimating capital spending for the year to be in the range of $35 to $40 million or so.

A cash dividend of $0.39 a share and 0.08% increase was declared by our Board of Directors and paid on January 7, 2016. We bought back 27,083 shares of our stock during the quarter at a cost of $3.1 million.

Commentary, sales of soft pretzels and food service declined and sales to restaurant chains declined for the quarter. This is nothing specific, but probably due to changing of menus and some menu fatigue. We have a lot of targets in the fire and we’re expecting that to improve over the near-term.

Frozen juice and ice sales and food service were relatively flat. In-house sales and food service were up, led by sales to one customer. Churros sales were up a strong 7%, as this product line continues to demonstrate strong growth with a good portion of the increase coming from our newly introduced OREO churros.

Our whole-grain funnel cake product has been well received in schools and contributed significantly to our sales growth in this quarter. Sales of soft pretzels in our retail supermarket segment were weak in the quarter as our SuperPretzel, Bavarian soft pretzel bread and sticks was continued. These products were launched a year-ago.

Frozen juice and ICEE’s were down 1% in this, the slow season. Handheld sales in retail super market were down 21% mainly due to lower sales to one customer and to increase trade spending for the introduction of new products.

In frozen beverages, gallon sales were up 11% and service revenue to others was up 16% in the quarter as this business continues to perform very well. Operating income increased $1.8 million from a year-ago.

Our estimated income tax was 36% this year and 37% last year for the quarter. We are estimating a rate of about 36% in fiscal year 2016.

Other stuff, we renewed our representation agreement with Mike Trout, baseball superstar, for several more years, and we’ve lots of good opportunities and targets in our sales, both food service and retail.

In closing, let me just say that most of the problem in connection with the plant expansion in Belmar is behind us. We are and remain a good Company with terrific people, terrific products. Our business has grown steadily over four plus decades. We appear to be hitting on most of our cylinders. Our best days are yet to come. Stay with us; thank you for your continued interest.

I turn it back to the audience for any questions.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] We have a question from Francesco Pellegrino.

Francesco Pellegrino

Hey, good morning guys.

Gerry Shreiber

Good morning, Francesco.

Francesco Pellegrino

How is everything?

Gerry Shreiber

Everything is good and getting good.

Francesco Pellegrino

Talking about things that could potentially be getting better, one of the things I want to ask you about is -- you talked about the performance of soft serve pretzels in food service. You attributed it to menu fatigue. I know you’ve reformulated your soft serve pretzels to be whole-grain. Just playing devil’s advocate, here, you say menu fatigue, maybe you can give me your definition of menu fatigue? And maybe you could also convince me how this might not be a structural change in menus, and maybe consumers demanding a healthier type of product? Especially when I see the struggles of soft serve pretzels in regards to your sale to the food service segment for schools.

Gerry Shreiber

Well, let me take the last part first. Schools we were under pressure to change the formulation to comply with a new standard of nutrition. Those changes left a gap in sales and we had to change -- we had to meet different regulations that probably caused some disruption in feeding. Now we’re pleased to say that we meet all these regulations and we’re the preferred soft pretzel product in schools by far. With respect to fast food restaurants and it’s just a matter of -- we all remember three years ago, when everybody was putting a hamburger roll or a pretzel roll on the menu. And as we -- and we all enjoyed the benefit of this emphasis in sales. Well, sometimes it wears out. And then sometimes it comes back. And then sometimes we take those products in there and we change them a little bit to just make them a little bit more appealing to the restaurants whether its whoever it is and they put them back on there again. We think we’re in that intermediate place right now and we’re going to benefit the rest of this year. Steve you’re here. There is half a dozen …

Francesco Pellegrino

Given though the intermediary days that you are in right now, does it necessarily make sense for this quarter to be the quarter that you cut marketing expenses? I would have thought maybe you would have tried to push that a little bit more to sort of get through this intermediary stage and its menu fatigue.

Gerry Shreiber

Sometimes you hit intermediary and there is not a big eye telling you that. So we’re looking at our marketing spend for the rest of the year, because we’re not going to starve any of our products, particularly our core products.

Francesco Pellegrino

Okay. The lost customer in the handheld business for retail supermarket, could you just give us a little bit of color for that? Are they going to a competitor, is this business that you could potentially win back?

Gerry Shreiber

Well, let’s not say who it is, but let me turn this over to Bob -- the Bob Pape who is responsible for that. Bob?

Bob Pape

Yes, I mean, we had some softness in the first quarter …

Gerry Shreiber

Customer -- who is …

Bob Pape

The customer who is one that we manufacture a corporate brand or private label for and had some softness in their promotional support. We anticipate that we will start to regain some of that as the year moves on.

Francesco Pellegrino

Gerry, you got to be happy with how the handheld business is doing in food service. Obviously, it looks like mixed results, given what happened in retail. Are you ready to call a bottom yet in the frozen handheld business?

Gerry Shreiber

One quarter, right. Behind that one quarter is one year to two years of effort. We are certainly not ready to relax. We are on -- we finally got something that we could move with water scooter. We want to turn that scooter into a bicycle, that bicycle into a horse, that horse into a car, so a year from now, if this thing is growing like that, we will feel that we had bottomed out.

Francesco Pellegrino

When I just look at the performance of the segment, like in the fourth quarter of 2014, handheld sales were flat. Looks like you could have called a bottom there and then, I mean, it was just quarter after quarter, sales down 14%, then 8%, 3%, and then 15%, and now we are flat again. I don’t really hear much conviction on your part in saying this is the bottom; could there still be some particular weakness for the product line?

Gerry Shreiber

We hope not. And as a matter of fact, there is some reasons for us to have some enthusiasm, perhaps subdued. We’ve a major customer now that we’ve been dealing with for almost two years and we’ve a backlog of products that we’re making for them out of one of our handheld plants, its going to last in the early spring. And we’re thinking, we’re cautiously optimistic that we will be able to use this as a platform for others in the industry.

Francesco Pellegrino

Okay. Just two more questions. Could you give us a little bit of color or maybe about your penetration into the breakfast category? How Mary B’S has done? Any updates on that?

Gerry Shreiber

Not yet. It’s still early. We got one customer. We got several hundred stores. They love the product, all right. But now we’ve got a pull against a consumer and of course you know who the one customer is in there, they’re going through some issues of their own, so we got to work a little bit harder, and maybe do a little bit more marketing in there, so we don’t get crossed -- I don’t mean crossed, so that we don’t get squeezed in any kind of store resizing.

Francesco Pellegrino

And then the last question for you, and I know you guys don’t really have a rhyme or reason to explain it, but the performance of the frozen beverage segment, I know it’s something that’s lumpy. It’s something that can be considered cyclical. Gallons have been up as your sales of beverage machines have been up, quite significantly. And I know in Q2 2015 -- hey Gerry, why are sales of beverage machines up 70%? Hey, we can’t explain it. Q3, hey it’s up 40%. Hey, we can’t explain it. Q4, up 20%. Hey we can’t explain it. Q1, it just seems that if it’s the type of thing that -- are we just in this really good stretch and at any point in time you can fall off or is there a little bit more insight into your end customer, and how much longer you could sort of ride this beverage machine turnover, going forward? Any read throughs you’re getting from end-market customers, anything new with these machines? Why have sales been so impressive?

Gerry Shreiber

Well, to begin with the buyers or the lesser use [ph] of these machines are in our fast growing c-store businesses, which we remarked on a couple of occasions that we’ve targeted that for growth. In addition, that ICEE continues to perform well. Dan Faster has put together a terrific group of people there and they’re, I mean, they bleed ICEE red and blue everyday and they’re putting these machines sometimes selling them, sometimes loaning them, sometimes leasing them, and if anybody ever been to the movies in the past year or so, you’re going to see multiple ICEE or beverage machines at all of the movies and same thing in a c-store. I don’t think it follows any particular rhyme or reason when sales machines have increased, but obviously when you get machine out there and these are new locations in there, we’ve a more than a good chance to increase beverage sales. But along the way, there is also the possibility that some of these stores merchandises will be cutting back. We’ve seen that with Sears. We are hearing another one minor with Kmart. So, I mean, things look have been terrific for ICEE for the past couple of years. We are hopeful they will continue, but again there are challenges out there too that we’re wary of, because we’re wary of, we’re working real hard to deal with them or circumvent them.

Francesco Pellegrino

Everything you said makes sense. I really appreciate the time, guys. Thanks again.

Operator

The next question comes from Akshay Jagdale. Please go ahead.

Akshay Jagdale

Good morning.

Gerry Shreiber

Good morning, Akshay.

Akshay Jagdale

How are you?

Gerry Shreiber

I’m good. How are you?

Akshay Jagdale

I’m doing well. I’m doing well. Thanks for asking. So, can we start with M&A? I know you’re very patient, maybe investors and myself not as much. But you’ve, obviously, have a good situation with your balance sheet and the cash that you’re building up. But can you just help us understand the environment out there, what you’re seeing, why perhaps it’s taking some time for you to maybe pull the trigger on another deal?

Gerry Shreiber

We are very risk [technical difficulty]. We’ve looked at some things out there that have ranged from okay to really good. I might have mentioned before, there is a couple of things that certainly passed our spittle in there, that we’re looking at and for one reason or the other they changed. We continue to look, but I’m not going to make an acquisition just for acquisition sake, particularly if it’s something that might be a little bit more transformational than what we’d like. But in saying that, we’ve made multiple acquisitions in the past. Sometimes they’re very small, but a lot more meaningful than the size of the company, such as New York Pretzel, such as California Churro. So we have a variety of these things. We work on them. People like Jerry Law, and myself and Dennis, there is not a week goes by that we’re not planting some seeds. Sometimes the seeds grow quickly, sometimes they die in the ground, but we’re not going to take $200 million or $300 million in there and send it out there and hopeful like some people will do just looking at financial spreads.

Akshay Jagdale

Okay. And …

Gerry Shreiber

Be patient. Rome wasn’t, and for that matter was India, it wasn’t built in a day.

Akshay Jagdale

They are still building India.

Gerry Shreiber

I know they’re. Unbelievable. You’re going to be, if you’re not already, the third largest economy in the world. Is that right?

Akshay Jagdale

That sounds right. I’ll take that any day. So anyway, moving on to just your organic growth prospects, you’ve had some success on licensing deals with the OREO Churro and now with Pillsbury. You probably are incurring some slotting fees on the retail side this quarter. What should we -- I mean, can you just give us a ballpark estimate of what these licensing products -- licensed products, specifically, Pillsbury and OREO Churros, what’s the opportunity this year and over the next couple of years? Are we talking, you know, $1 million to $5 million, $5 million to $10 million? I mean, just give us some sense of what you think the opportunity for those products is?

Gerry Shreiber

There is two aspects of licensing. First of all, we’ve been licensing our ICEE name and SLUSH PUPPIE, and that has performed very, very well. This past year it was close to a $1 million. Another part of licensing, we’ve a Minute Maid license in that relationship which we were able to pull out of the tree some 15 years ago now continues on every year. We just renewed that for a long-term. We hope that we pay OREO, Mont Elise, and Pillsbury a lot of money. Right now we’re estimating sales on an annualized basis of about $7 million.

Akshay Jagdale

Okay. And $7 million would be for both those products in retail grocery?

Gerry Shreiber

First year.

Akshay Jagdale

First year. And then you’ve started today, now or this quarter?

Gerry Shreiber

January, once.

Akshay Jagdale

Okay, perfect. That’s useful. And obviously we will be able to track those in the AC Nielsen there. So that’s helpful. And can you just take a step back here on soft pretzels, you had a really good run on restaurants, went from 0 to 50 million sort of run rate business started to decline a little bit I think last year.

Gerry Shreiber

It wasn’t just soft pretzels. It was sales to fast food restaurants and dining establishments. Most of that was soft pretzel, but it also included some of the other products including Churros and others, funnel cake.

Akshay Jagdale

Thanks for correcting me on that. So you’ve take -- sort of the growth rate has taken a step back and I remember, a year-ago or some time prior to that when we were having a conversation, you had mentioned there is still plenty of room in the long-term you could see that channel being at least a $100 million opportunity, right. Have your view there changed and what do we have to do to get that channel back to growing?

Gerry Shreiber

As my view changed? Yes, my view has changed, because one, the industry has changed a bit and every time you see any of them promoting a wheat sesame roll or something other than a pretzel roll, it takes its toll. My view has changed, I think when we built a nice platform of business and we’re going to have to massage this and change this, we’ve increased our R&D efforts and our people in there and we make regular visits to our customers in there, so that we can see what they need or what they think they need, so that we can work with them from inception up to head.

Akshay Jagdale

Okay. And just what do you -- what is it going to take to get the pretzel business overall growing again? I mean, you’ve got some weakness, obviously on the retail side, you’re lapping the discontinuation of a product in 2Q, but the food service soft pretzel weakness that was probably the most disappointing number this quarter for me. So can you just give us a sense as to what maybe new products or distribution opportunities there are that you see near-term?

Gerry Shreiber

Well, we think there’s opportunities near-term, we haven’t exactly lost share, however and I’ve said this before, and our people agree with me, we got to move the category. And we’re doing that as we fill varieties of pretzels and make them into stick shapes and get them being used in restaurants. Steve has a customer. I won't mention the name, but all of a sudden they’re going to be dipping it -- what do you call the customer that dips it in the melting pot and that’s going to be a test coming up in the spring, and that’s a couple of 100 stores. We have a product that I guess we could talk about it officially. If somebody in Minneapolis that’s going to be putting our funnel cake and pretzels, it’s a restaurant chain. And it will be putting it into some couple of 1000 stores in the spring. So these things were not suddenly coming in with the tide. Our people, Steve Taylor, Joe Wilk, Robyn Shreiber have been working the cycle is long and we’ve been working with some of these things for three years.

Akshay Jagdale

That sounds exciting, and -- but that’s a funnel cake product, not pretzels?

Gerry Shreiber

Yes, but it started with that because we are the pretzel people, and they get -- and well they don’t want to sell pretzels because everybody else is. But what can you do here? And so, it became a funnel cake and now we have some projections from them that are going right through the spring, as a matter of fact we’re looking at our resources to make sure we can. And then all of a sudden they want, hey the pretzel you were selling to A, B, C or you were selling to Jughead’s Café. Can we have that too in a different size in there, and now we’ve got a commitment from pretzels.

Akshay Jagdale

Perfect. And just one last one, I know you talked about handhelds a bit. I mean your sales were still down every so slightly when you include both the retail and food service together. What -- instead of talking about whether it’s bottom or not, you’ve made -- you had made some changes there. Can you just give us a recap of where we stand in terms of, who’s managing the business or what is -- what are you -- what actions are you talking to grow the sales base. I mean the big struggle was that the branded player had been really focused way too much on promotions, which is making that hard for you guys. So the way to get out of that obviously is to innovate yourself. So can you just …

Gerry Shreiber

[Indiscernible] Jerry Law is sitting right here and we knew -- we knew that we had to spend some money on marketing, and we knew that we had to create or lease a brand or license a brand, and that’s what we’re doing. The Pillsbury is the start of it, and here’s a joke. I gave Jerry Law a blank check to create some products and he spent it all, but not really. We have some new products coming out. We are cautiously optimistic. We don’t like to look at the shade of failure. I won't call this failure yet, but obviously it’s clear it hasn’t done as well as I had hoped or everybody in this room had hoped. We think they were gaining some traction. And the Mary B’s sandwiches which were in Walmart, it’s still early yet, but we think that that will create at least some substance of success that we can build on.

Akshay Jagdale

Okay. I’ll pass it on. Thank you.

Gerry Shreiber

Thank you.

Operator

Your next question comes from Brian Rafn. Please go ahead.

Brian Rafn

Good morning, Gerry.

Gerry Shreiber

Good morning, Brian. How are you?

Brian Rafn

I’m good, and snowy in Milwaukee. So we’re good. Let me ask you Gerry, you talked about kind of a solid profit quarter. What -- it maybe more of a question for, Dennis. What are you guys seeing in a world of commodity deflation? What are you guys seeing on some of your different ingredients, flour and sugar and coco and shortening and butter in that. What's the trend? What's kind of the trajectory?

Dennis Moore

This is Dennis. We obviously have a varied bunch of commodities that we buy and there are ups and there are downs. And there are areas where there are specific issues that cause some commodities to go up which may offset a lot of what is generally down. So, we’re not looking at anything right now with any significance one way or the other.

Brian Rafn

Okay. Dennis, you guys doing -- do you do any stock piling or forward buying at all or are you just pretty much spot buyers?

Dennis Moore

Now we forward buy on a number of our ingredients, flour, sugars, coco, chocolate and it tends to be from six months to a year depending on what we see and what we send into market.

Brian Rafn

Okay, okay. Let me ask you, Gerry. You mentioned a little bit, you called it gap in sales, the Obama’s came in and everybody wanted to sell broccoli on a stick, the kids don’t like it. As you move now into the kind of the end of that administration, you guys have reformulated more healthy snacks. Have you recovered say over five to eight years? Have you recovered your sales or you’re still trying to get back to neutral?

Gerry Shreiber

Pape, you want to?

Bob Pape

Yes, our sales in school food service have been growing and …

Gerry Shreiber

But we’re still not back to where we were some five or six years ago.

Bob Pape

Yes. We are.

Dennis Moore

Yes. We are.

Bob Pape

And really it revolved around modifying the products to comply and making them taste good, so kids come back and buy them again.

Brian Rafn

Okay. Maybe talk a little bit about, you’re talking about CapEx guidance is $35 million to $40 million. Maybe talk a little bit about Belmar, where do you see that CapEx flowing?

Dennis Moore

Well, Belmar is essentially done although we may have to put in a line for some of the new products that we’re getting commitments on. But we said $40 million in CapEx should be more than adequate.

Brian Rafn

Okay. Yes, you talked -- certainly some competitive pressures in the grocery chain and the frozen juice bars in that, many years ago, Gerry you said that there was a threshold with mom, that if you get over $3 or so in unit -- in retail price it really limits units. Is it a sense of just competitive offerings? Is it an issue of flavor reformulations? What's kinds of been the headwind there?

Gerry Shreiber

It’s a combination of all of that Brian. It’s the pricing. There was a magic, the number that you didn’t want to go over. Moms were reading labels and even though the children want this item and that item, and there’s a lot of competition in the frozen anomalies. Even though Luigi's is the number on seller and that, number one in Italian ice throughout the country with a huge share. There are Nestle, there’s Unilever everybody else has something similar.

Brian Rafn

Okay. Again fabulous job on the ICEE, the SLUSH PUPPIE, PARADISE you guys have been absolutely superb. Is that primarily just driven by more penetration, you talked about the cinemas, a lot of the cinemas have gone from a central kiosk to more self service and so, there’s probably some more ability to do that; or is it just innovative flavor reformulations? Is it just specifically primarily on new infield unit machine installations?

Gerry Shreiber

It’s a combination of both, Brian. We have more locations in more theaters where they have these counters spread out mean, but also few years back, we developed a process where we call it mix it up, where somebody can go to a station and picture the colors of the rainbow, and they used to get a cherry ICEE, they used to get a rasp -- a blue rasp or another kind of ICEE, now they can push a button and get a mix and not be getting red, white, blue, green, and its fun for the kids. And if they do it enough, it’s going to be fun for us.

Brian Rafn

Yes. Now on something like that you see that certainly with the sodas too where you get kids blending 10 different soda flavors together. On those mix up machines; are you seeing those -- the penetration of those displaced some of your old single serve flavors?

Gerry Shreiber

We’re seeing some of that, but we’re also putting in little placements of machines that so that they can use our offerings to mix it up.

Brian Rafn

Okay.

Gerry Shreiber

Coke has come out with a new freestyle that’s been around I guess three or four years now that they’re getting -- they’re putting these out more and more in both fast food restaurants and now I notice convenient stores.

Brian Rafn

Okay. Talk a bit about the -- obviously ICEE is the 800 pound gorilla there. Paradise, SLUSH PUPPIE, I think in the past SLUSH PUPPIE was a little more of a kind of a cart that you bring to baseball games and football games and stuff, is that still gets niche or is, there are free standing machines for SLUSH PUPPIE too?

Gerry Shreiber

And still its niche. Although we are developing or Dan is in the process of developing some interesting international opportunities that would include SLUSH PUPPIE. And of course SLUSH PUPPIE has been one our hero’s in licensing, putting it in pouches and getting them into retail stores. We have a supplier in the south that has been producing this product, and we’re earning a nice royalty on it.

Brian Rafn

Yes. Super. Let me ask you on mergers and acquisitions, Gerry. You’ve been just the master in package food. As you look out for J&J Snack Foods here in 2016, have you made any philosophical changes? You started J&J from a bankrupt pretzel company. Are bankruptcies and restructurings different from say just buying a company that maybe undercapitalized, limited size, local kind of regional that just doesn’t have your distribution channel. Is there a different mix that you looked for going forward or are you still open to both kind of acquisition targets?

Gerry Shreiber

Open to both. But keep in mind if I buy something small that has a lot of other little gaps, it needs a lot of fixing ups in there, but I’d much rather today buy something in there that is well oiled and running that we could apply our resources too and we can benefit from them as well as both.

Brian Rafn

Okay. Then how are you seeing pricing multiples of EBITDA, its still …

Gerry Shreiber

High -- it’s high.

Brian Rafn

Yes. From your experience Gerry, if we with this anemic or bomb economy, if this airliner goes down and we are in a recession; does that open up more opportunities for you or you see sellers hesitant to sell in a trough?

Gerry Shreiber

From your mouth to Gods ears.

Brian Rafn

Okay. All right, Gerry. Thank you much.

Gerry Shreiber

Respect our president and I think everybody should too, but perhaps there’ll be more opportunities coming along.

Brian Rafn

All right. Thank you.

Operator

Your next question comes from Wayne Archibald [ph]. Please go ahead.

Unidentified Analyst

Yes. Good morning. Just from funnel cake is up 56%, could you elaborate on that how sustainable is that? How penetrated are you in the market? Pretty significant increase.

Gerry Shreiber

Well we’re not -- this is Gerry, and Wayne I don’t know if I’ve met you or whatnot, but funnel cakes has been in our portfolio product for a number of years. And like Churros where in the early 80s nobody knew what it was? Where it was? How it [indiscernible] whatnot, and now its growing at a rapid clip. Maybe, just maybe funnel cakes will be the Churros of the 20s if you know what I mean.

Unidentified Analyst

So you’ve got low visibility into that, its like catching lightening in a bottle here?

Gerry Shreiber

Well, its not exactly lightening in a bottle, but maybe its catching lightening in a barrel, because we do have -- we do have a major chain that is going to be rolling out funnel cake, different size, but we can do different sizes. This major chain we’ll be running out, we’ll be rolling out funnel cake and we can be the beneficiary of that six months from now.

Unidentified Analyst

So that will be -- you’ll see some that this year in calendar ’16?

Gerry Shreiber

Probably third quarter, certainly fourth quarter for us.

Unidentified Analyst

And just on the balance sheet, I mean if you can't continue -- if you can't find acquisitions you’ll just continue to hoard cash and just build up your cash balance basically?

Gerry Shreiber

That’s the worst thing in the world though, as if -- and we have been increasing the dividend every year.

Unidentified Analyst

Well, I mean you’re earnings next to zero on the cash, that’s the only -- only concern I have as a shareholder.

Gerry Shreiber

Unfortunately you’re right.

Unidentified Analyst

But clearly you don’t want to overpay for other entities as well.

Gerry Shreiber

I agree.

Unidentified Analyst

Great. Thank you.

Gerry Shreiber

Thank you.

Operator

We have one last question, it comes from Mark Williams.

Gerry Shreiber

Hello, Mark.

Mark Williams

Good morning. This is Mark Williams with Athlos Research. How are you guys?

Gerry Shreiber

Okay. Good. I know the company, and I guess, I don’t know if we met but good morning to you.

Mark Williams

I don’t think -- yes. I don’t think we have and good morning. My question is, sort of related to the cost outlook. And just more broadly as it relates to gross margin, I mean all food companies really are having this trouble with gross margin. But given the benign cost environment, you guys had some pretty solid price in food service, some really strong sales leverage nicely this quarter. You’re kind of -- you’re exposed to more macro sensitive channels. I would have expected a better quarter on gross margin. So, by my estimate the declines are for two-thirds over the last five years, and it seems like retail supermarkets have underperformed at the same time. So is it -- do you think it’s a mix issue within that segment? Is it a category traffic [indiscernible] or is it something else related to the retail supermarkets that I haven’t touched on yet that you see is fixable?

Gerry Shreiber

We see retail supermarkets the traffic in in-store has been often in the same store [ph] for several years now, and it’s an uphill battle trying to bring any new product in here and get growth in that category.

Mark Williams

But being, would you see it as a new risk. Has that had an impact on gross margin in that segment or is it more of a mix issues. How would you diagnose the gross margin?

Dennis Moore

This is Dennis. In terms of first quarter of gross profit margin, a lot of it, it’s been relatively the same compared to last year, had to do primarily with mix.

Mark Williams

Okay. And can you turnaround the retail supermarket margin without -- or gross margin without handhelds or [multiple speakers].

Dennis Moore

Yes, this is Dennis. I’m not sure what you’re comparing the retail gross margin to in terms if you’re thinking that it is deteriorated. I mean, down if you look at it compared to couple of years ago it is down significantly in the quarter while few years ago we did not own Philly Swirl which is a very seasonal product with sales in the third and fourth quarter and moves the significant amount of money in the first quarter.

Mark Williams

Okay. That’s helpful. Okay, I appreciate it. Thanks very much.

Gerry Shreiber

Are there anymore question from the listening audience?

Operator

We have one other question, it’s from Brian Rafn.

Brian Rafn

Yes, Gerry. Talk a little bit about some of the dollar chain store. I think you talked a little bit about getting some penetration for some ICEE. How is actually that the different products, the bakery and all the assortments, that was a fairly strong category several years back. Kind of where are you on that c-store and dollar store area?

Gerry Shreiber

Well we made some progress there, and of course the dollar stores themselves there were some hits of consolidation in there, and that kind of slowed us down too. One of the other issues with dollar stores apart from ICEE is that, some of our packaged products whether it be, fig bars or cookies in there, its hard to ever get a price initiative without reducing the pack size, so there is more than the regular obstacles there in selling through the dollar stores.

Brian Rafn

Yes, you guys have always maintained your value. Everybody is shrinking product except you guys. So you guys provide a really good price quality value, so quantity value. So hats off to you. Let me ask you in the supermarket chain, how -- is there a future with all of the development of the Whole Foods and Wild Oats and some of these organic. Is there a market or penetration for your products into that area like you up change the ingredients for the school service, is there a market there or you’re already in those?

Gerry Shreiber

Bob, you want to answer that?

Bob Pape

Yes, I think we’re approaching it cautiously. Organics obviously you’re still in a growth pattern and we’re trying to figure what product spent, and we’ll put them into play in the Whole Foods in the world. We do have few products in Whole Foods under their brand, and we’ll continue to look at what opportunities we have.

Gerry Shreiber

And isn’t the fig bars going into [indiscernible] the Trader Joe's?

Bob Pape

Trader Joe's

Gerry Shreiber

Trader Joe's, okay.

Brian Rafn

Is that -- you guys have -- is that a little bit more of a private label deal versus your own brand?

Gerry Shreiber

Yes.

Bob Pape

Yes.

Brian Rafn

Okay. All right, guys. Thanks.

Gerry Shreiber

Thank you. Take care.

Operator

And we’re showing no further questions at this moment.

Gerry Shreiber

I want to thank everybody for joining us on the call, and we look forward to talking to you again and having another successful year. Thank you.

Operator

Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.

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