J&J Snack Foods plunges 13% on earnings miss amid bakery weakness
Portfolio rationalization drives sales decline as operating income falls 90%
J&J Snack Foods shares tumbled more than 13% on Tuesday after the snack-food manufacturer reported fiscal first-quarter results that missed analyst expectations, with net sales declining more than 5% and operating income plummeting 90% year-over-year.
The Pennsauken, New Jersey-based company posted net sales of $343.8 million for the quarter ended December 27, down 5.2% from $362.6 million in the prior year period. Adjusted earnings per share of 33 cents remained flat compared with the previous year but fell short of Wall Street projections, sending the stock down 13.4% to $82.43 and erasing roughly $285 million in market value.
The sharp decline in profitability reflected the company's ongoing strategic transition. Net earnings dropped 82.8% to $900,000, while operating income fell 89.8% to $600,000. However, the company highlighted that adjusted EBITDA actually increased 7% to $27 million, and gross margin expanded by 200 basis points to 27.9%, signaling progress in its profitability-focused restructuring.
"Our first quarter results reflect disciplined execution of our key priorities to drive profitability," said Dan Fachner, chairman, president and CEO of J&J Snack Foods. "We are pleased to deliver 7% year-over-year growth in adjusted EBITDA and a 200 basis point expansion in gross margin despite a 5.2% decline in sales and a $1 million expense for product disposal."
The sales decline was concentrated in the food service segment, which dropped 8.3% to $219.2 million due primarily to a 17% decline in the bakery business. The company described this as the result of "strategic portfolio rationalization of lower margin products within our bakery business"—part of its Project Apollo business transformation initiative.
Notably, pretzel sales bucked the downward trend, increasing approximately 6.9% as momentum from Bavarian formula pretzels continued. The retail supermarket segment provided a bright spot, growing 2.6% to $45.9 million, driven by a 35% surge in handheld sales. The frozen beverage segment remained essentially flat at $78.7 million.
Project Apollo, which the company says is on track to deliver $20 million in annualized savings, represents a broader strategic shift away from lower-margin products toward higher-margin offerings. The company incurred $1 million in product disposal expenses during the quarter related to these portfolio adjustments.
Despite the disappointing quarterly results, management sought to reassure investors about the company's trajectory. The company announced a new $50 million share repurchase authorization, having already repurchased $42 million of stock during the first quarter under its previous program.
"Underscoring our confidence in the future and our focus on driving long-term value, we repurchased $42 million of stock during the first quarter and today are announcing a new $50 million repurchase authorization," Fachner said.
Looking ahead, J&J Snack Foods highlighted several upcoming product launches planned for the second quarter, including Dippin' Dots products for retail and new pretzel and frozen novelty products featuring "better-for-you attributes." The company also noted that momentum in its pretzel business has continued into the new fiscal year.
The steep share price decline pushed the stock toward its 52-week low of $79.99, a significant retreat from its 52-week high of $140.24. Before Tuesday's drop, the stock was already trading well below its analyst target price of $112.50, according to market data. The company's P/E ratio now stands at 28.27, with a market capitalization of approximately $1.84 billion.
J&J Snack Foods' portfolio rationalization strategy mirrors broader trends in the consumer packaged goods industry, where companies have been pruning underperforming product lines to focus on higher-margin offerings and improve operational efficiency. However, the aggressive nature of the bakery business decline highlights the execution risks associated with such transformation efforts, particularly when they involve exiting established revenue streams.
Investors will be watching closely to see whether the promised $20 million in annualized savings from Project Apollo materialize and whether the company's strategic pivot toward higher-margin products can restore growth trajectories in subsequent quarters.