Good morning, and welcome to the J&J Snack Foods’ Third Quarter Earnings Conference Call. My name is Brandon, and I will 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. And I will now turn it over to Mr. Gerry Shreiber. You may begin sir. Mr. Shreiber, you may begin sir.

Good morning. This is Gerry Shreiber with J&J Snack Foods and welcome to our third quarter conference call. With me today participating in the conference call is Dennis Moore, our Senior Vice President and CFO; Bob Radano, our Senior Vice President; Ted Shepherd, our CED; Jerry Law, our Senior Vice President in-charge of Marketing and R&D; and Bob Pape, our Senior Vice President of Sales. I’d like to begin with the obligatory forward-looking statement. The forward-looking statements contained herein are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. You are 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, a very good quarter. Net sales increased 8%, that’s up from 2% in the last quarter for the quarter and 6% for the nine months. Without the benefit of sales from the acquisitions of New York Pretzel in October 2013 and Philly Swirl in May 2014, sales were up 5% for the quarter and 4% for the nine months. For the quarter, our net earnings increased by 12% to $23.7 million or $1.26 a share from $21.2 million or $1.12 a share a year ago. Again, sales increased 8% but our net earnings comp 12%. For the nine months, our net earnings increased by 13% to $49.6 million or $2.64 a share from $44.1 million or $2.33 a share last year. Our EBITDA, earnings before interest taxes depreciation and amortization for the past 12 months was $145.2 million, a new record. Food Service. Sales to food…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And we have Jonathan Feeney on the line. Please go ahead. Jonathan Feeney – Janney Montgomery Scott: Hi Gerry, how are you?

Good morning, Jonathan. How are you? Jonathan Feeney – Janney Montgomery Scott: I couldn’t be better. So could you give us a volume number on organic basis? I think you told us organic sales were up 3%. Can you give us an idea how that’s going in pricing?

Jonathan, this is Dennis here. Organic sales were up about 5% and roughly [indiscernible] more than 1% of the time we got then attributable to pricing. Jonathan Feeney – Janney Montgomery Scott: Okay.

So we had some strong organic sales for the periods that we discussed. Jonathan Feeney – Janney Montgomery Scott: Can you give us a little bit more detail from your commentary, Gerry, about the school business. So you mentioned new regulations coming. Can you tell us what you expect from those and what impact that should have on the business, what changes you’re making?

Well, as we know our school business has kind of suffered the last three or four years because of few regulations and the reformulations. However, we think we’re ahead of the curve with our product offerings. We have – our soft pretzels are now being made with whole grain and 50% grain. We’ve taken out the sugars. We’ve taken out the trans fats. So we are at the top of the list for products to be included and be improved, and we’re starting to see, although last year we stabilized which was down couple of years. School food service sales had a nice bump this year, and it’s like it’s not the top of the hat yet, but we’re starting to recover and we think we’re going to see some significant growth in this coming year. So overall, we had a good quarter. We think we had something to crow about but not letting the roosters out. Jonathan Feeney – Janney Montgomery Scott: There we go. Waiting for it. Last question for you. You talked about rolls, twist and buns leading this growth in food service. It’s very impressive. But is there also a new customer factor here or is all this growth coming from existing customers?

No. Its new customers, new channels. And I’d like to make this statement before, when about five years ago – four or five years ago, we were rightly representing, if at all, as a fast food and casual dining restaurant. Now all of a sudden we’re growing on an annualized basis somewhere between $50 million and $60 million worth of business. And all of this is organic growth. All of these are products that we have developed in our R&D channels and moved into production. We’re making these products as several of our pretzel plans and its all new growing business. Jonathan Feeney – Janney Montgomery Scott: Great. That’s great piece. Thank you very much.

You’re welcome.

We have Akshay Jagdale on line with a question. Please go ahead.

Good morning, Akshay. Akshay Jagdale – KeyBanc Capital Markets: Good morning. How are you?

Good. How are you? Akshay Jagdale – KeyBanc Capital Markets: Good. So wanting to ask about Churros. You mentioned the one – so question on the quarter, the growth is pretty solid despite declining sales in that one customer. Can you talk about how your growth plans for that particular product segment has changed as a result of this change in expectations for this large customer? It’s my understanding that the reason they are discontinuing is more related to the recent breakfast initiative which is causing some space issues, but nonetheless are Churros sales going to grow next year, and if so, at what rate despite this decline in sales from this one customer?

Well, just one customer sales decline a million bucks in this quarter, and nevertheless we were up 6% for the quarter. And although it’s true that we are in a little bit of a squeeze competing to our space with new breakfast items. And you’ve seen some up in the advertisements, not much we can about it, although we’ve offering up two taco bells which is the customer, but it appears that our regular churros business still has strong signs of growth and expansion. As a matter of fact, we’re going to have a new product addition to churros which are going to hit in a couple of weeks. And Jerry Law, why don’t you tell us about what the new product is?

We have a new churros product coming out. We’ve signed a licensing agreement with Mondelez for Oreo Churros. So the favorite cookie of everybody Oreo is now going to be included and featured as Oreo Churros. And your next question is why did we show that two taco bell before this? Akshay Jagdale – KeyBanc Capital Markets: Well, yes.

I would say that’s ongoing. Akshay Jagdale – KeyBanc Capital Markets: So where will this Oreo Churros be sold? What customers? Is this the current customer base?

We’re going to be offering out in about a week, all right, to all food service customers. We just signed a licensing agreement and I keep saying [indiscernible] it’s actually Mondelez, but we have been continually pushing this product line and our licenses and all of our products. So we’re not giving up and we’re not horsing around. Akshay Jagdale – KeyBanc Capital Markets: So at the end of the day net-net, you now know compared to three months ago that we are not going to have taco bell sales for the next year, but you also know you are launching this product and your current – your sales other than taco bell for churros are doing really well. So net-net, I mean should we – if your expectation for churros sales growth higher or lower than what you had three months ago?

Well, we hope they are going to be higher and we have always been able to meet the challenges, whether it be a small food service challenge or the multiple closing major chain stores like A-Mart. We’ve always been able to meet those challenges, and exceed our performance year-to-year. This is not a one year wonder here. This is now what we’re coming up what, 43 straight years in a row of profitability and of sales growth, and 172 straight quarters soon to be. So we are cautiously confident that we will continue to grow our sales. Akshay Jagdale – KeyBanc Capital Markets: Okay. And just on another – so this is another statement that I guess hasn’t really performed that well, retail supermarket overall. I know you’d bet that because big sales meeting not too long ago and since then you’re performance sales growth aggregate has accelerated quite a bit. Are you making any major strategic changes in the retail supermarket segment? Do we need to have a better or different product portfolio? Is that why you made this Philly Swirl acquisition I guess? Can you help me understand where you stand in your thought process on retail supermarket, given organic sales growth trends there have deteriorated quite a bit, especially in the most recent quarter? So is this something like of a long-term concern to you or you think it’s short-term and you’ll fix it with some initiatives that are in your control?

Well, thank you for answering my question, because you not only hit on the problem but you are helpful at least the evaluation on what’s going on here. The sales meeting that we had – and I think it’s about two years ago, it was – not only was it a working sales meeting, but it was a celebration of our 40 years in business. And we were able to tackle on assignments and follow that. In the Philly Swirl acquisition, we thought that was a – we know it was a niche product. It fit in with our novelty group. We think that the management team that came along with Philly Swirl is a good one, and we will benefit from them, not only in the near-term this year but for the long-term. The operation is efficient. They are running at the rate of $24 million to $25 million a year. So that’s a nice fit within our novelty section. And it is a niche. In everything we do over the years has been driven by big – having a niche product, been the low cost producer and dominating the marketing and distribution channels. That’s another example of it. Why our retail sales to supermarkets down so much in this quarter? We don’t have all the answers to that, but we do know we haven’t lost market share. If anything, our market share is a little bit up. There is a few competitors, very, very small ones in there. So we’re not losing to competitors. There seems to be some analysis that perhaps the pricing end of it and the movement of the promotions at retail have problem [ph] that might have hurt us. But I want to turn it over to Bob Pape who is sitting here who is responsible for retail, and we’ve had several discussions with regard to strategy and what we could do to change it to get back on to track. Bob, say hello to Akshay.

Hello. Akshay Jagdale – KeyBanc Capital Markets: Hi Bob.

With the retail business, the thing that we’ve been trying to do is we try to look at our efficiency against our trade spent for this quarter, and put some changes to our price point to some of our promotions which doesn’t seem to play as well as we would have like. So we’re making some modifications to that. And again as Gerry mentioned in his opening statement, there have been some items that were flanker [ph] items that we had put in the distributions that weren’t performing as well as we would have liked. And I think that obviously drove some of the decline. So we will be adjusting our promotional plan for the remainder of the year and make whatever necessary modifications. Akshay Jagdale – KeyBanc Capital Markets: Just one last one, Gerry, and I realize that all my questions are critical, I think it was a good quarter, but just in terms of acquisitions in light of this recent acquisition you made on Philly Swirl, your most recent track record hasn’t been as stellar as your previous 10 years if I may. And I am referring to the handheld business specifically. So can you just talk about, what do you expect out of this Philly Swirl acquisition? I know it’s not huge but it’s only sizable. It seems like one where you can lower the cost and that’s where perhaps you would be focused, but help us understand the Philly Swirl acquisition and maybe compare and contrast it to handheld, and then give us a status report on where handheld is relative to your long-term targets for it, which I think you had said accretive by double-digits, right, $0.10 or so. So where are we on that timeline? Thank you.

Well, let me take the first point of the question last. All the acquisitions we have made have been accretive. The acquisition of the product line from ConAgra and the two plants, even though we have, let’s say been challenged by maintaining growing the sale, there were two big customer losses that were in play almost prior to our acquisition. So those customer sales are really essentially being filtered out. We have improved the product margins, we have improved the product quality and we have strategy in mind to grow it. We still believe that that product and that product line is accretive to our business and will continue to be so. One of the other benefits that we’re getting at is we have added pretzel production and capability to these plants, which gives us some benefits with respect to logistics. Philly Swirl had developed a niche. They were found in various supermarkets as well as the club stores and major accounts like Wal-Mart. And they seem to have a good following. It’s a kid’s item. The production process was very, very good. We looked at that very cautiously and very carefully. And with the liberation, we were satisfied with not only the plant efficiencies but particularly the plant management to kick in with it, Jan Grywczynski is there. And we decided to operate it as a separate autonomous subsidiary and we believe it’s going to do very, very well. So we’re still looking for acquisitions. Some of them are little small pieces of the puzzle that fill out something like a New York Pretzel. Others are like some of the acquisitions we made on the beverage side with ICEE and the [indiscernible] Group which has been a big part of our growing business over the past many years. So we’re still continuing to look for acquisitions, but we’re growing organically. I think that’s an important point that we don’t want to lose sight of. We started in business 42 years ago making a little soft pretzel product. And now that product has expanded into multiple, multiple kinds of soft pretzels sold everywhere from a street corner with the a guy with a hat to on a casual fine dining restaurant, they put out there as a bread alternative or an appetizer substitute. We’re still looking to continue to grow that business together with the other products. Akshay Jagdale – KeyBanc Capital Markets: Thank you so much. I’ll pass it on.

We have Jon Andersen on the line with a question. Please go ahead. Jon Andersen – William Blair & Co: Good morning everybody. Hi, how are you?

Good. Jon Andersen – William Blair & Co: I wanted to ask about bakery business, which performed, looks like extremely well in the quarter, sales up 6% in food service. I think that added pretty meaningful to the organic sales growth in the quarter. Could you talk a little bit about what you’re seeing in that business, and whether the growth, can we experience this quarter as sustainable going forward?

Some of its timing Jon. Some of it is, there is a couple of new products and new customers. Jerry Law, you want to comment on the bakery business?

We have a couple of new customers that we’ve been dealing with some co-pack business that were packing for and primarily from the drivers in St. Louis. And as Gerry said, some of it is timing with Frozen Cookie Dough coming in a little bit earlier than last year. Jon Andersen – William Blair & Co: Okay. The soft pretzel businesses in retail, in the supermarket channel. That’s been a business which I guess has performed a bit better than some of the other product lines in retail. This quarter, that wasn’t the case. You talked a little bit about some of the innovation I guess a year ago that may or may not kind of carry forward. Could you talk about kind of your plans in that part of the business going forward? I think at some point you had mentioned that you would be launching some restaurant style pretzel sticks and buns into the supermarket channel. Is that something that you’ve already done, that you’ve planned to do in the future, and how should we think about that business kind of going forward?

Jon, this is good question, good point. We’ve launched it right now. It was launched in June. It includes a pretzel stick and a pretzel roll. And they are going to be going into two segments in the retail supermarket. One, in the Frozen Bread Doughs and the other as a complementary flanker to our pretzels. So we’ll have more to report on that probably from October, but they were just launched. Jon Andersen – William Blair & Co: Okay, great. One thing, I wanted to come back to the licensing agreement with Mondelez. Could you – I wasn’t quite clear on what the licensing agreement offers. Is this going to be a different product altogether? Is it just kind of the brand name bringing a certain degree of kind of I guess credibility or appeal that you think can help you with food service customers? If you can talk a little bit about what you expect this licensing agreement to kind of bring in terms of improving the value proposition of offering in food service?

I might give that to Jerry Law in a second, but if you go back and you look at some of our licensing agreements that we’ve been able to establish and maintain over the years, one that comes to mind is ICEE. ICEE is now has annual revenue of probably close to $0.5 million. Most of it falling to the bottom line or close to it just on the licensing of its name for other products. In this particular case, with the Oreo Churros, we needed something to have a kick start sales on a recognizable level to best food restaurants and casual dining restaurants. And I don’t know if you – I wasn’t as familiar with the Oreo products growth for last couple of years, but it appears to be strong, like double digits 12%, 14% in the last couple of years. And we’ve noticed that restaurants are really interested in licensing to complement the product. So our marketing group – Jerry Law and our marketing group met with Mondelez. So we have a business relationship with. We’ve been running some of their products in our cookie plants and our fig bar plant in Moscow Mills, Missouri, so one thing less than the other. And this took about a year nearly. They visit us. We visited them. We finally put together a licensing agreement. We hope we pay a lot of money, because the upfront fees are very, very minimal, there are none. So this is going to be a win-win situation for us. All we have to do is sell and growth of sales. Jon Andersen – William Blair & Co: Terrific. That’s helpful. Just one more clarification on the schools business. You did mentioned new regulations, Gerry. I just want to make sure I understand that kind of through your reformulation efforts over the past couple of years, you feel like that work is now complete and because you’re kind of ahead of the curve that puts you in advantage as schools are evaluating those programs, or do these new regulations, will they have implications in terms of further product reformulation for you in the future?

We think we’re there. We believe we’re there. We haven’t seen nor studied all of the new regs. We have people on our step that have that responsibility. And Mimi Ford, our Vice President for School Food Service attends these meeting and gauges with these people. And we have gone through the tough process or reformulating over the last 24 months, over the last two years. We think we’re there. We’ve seen a trickle up, a climbing up in our School Food Service business in the past couple of quarters or so, and we think we’re ready for some significant increase. Now keep in mind that this is a solid part of our sales, and for about three or four years, it was declining roughly at 10% rate in there, and now it appears to bottomed out and we’re looking forward to it growing again. All of our pretzel products are – all of our new pretzel products are essentially improved. We’ve taken all the sugars out of our juice bar products. And we believe that we’re there, and the new regulations will not [Technical Difficulty] for the business. Jon Andersen – William Blair & Co: That’s helpful. Thanks guys and congratulations on a good quarter. You have something to carve out.

Thank you. Jon Andersen – William Blair & Co: Hear the sound effects.

Yes. We’ll [Technical Difficulty] Jon, and thanks for your insights too.

We have Robert Costello on line. Please go ahead. Robert Costello – Costello Asset Management: Hello Gerry.

Good morning, Bob. How are you? Robert Costello – Costello Asset Management: Good. A couple of questions. The advertised products that Dunkin has put out. Is that your products or you supplying them or…

Dunkin Donuts? Robert Costello – Costello Asset Management: Right.

In their 1,500 stores? Robert Costello – Costello Asset Management: Right. That the billboards with the [indiscernible].

Yes, that’s our product that I got to really give kudos to couple of our people because when we heard that Dunkin’s was looking for a pretzel they had then talking to others about developing in, we jumped in and we made some product. And I mentioned that our R&D capabilities has gone from being there to being like really significant, like that is our business, we secured that business and it went from a small test to an expanded test in 1,500 stores. And I think right now it’s even been expanded into 5,000. Steve, is that right?

Within approximately 5,000.

Top end of the answer. So but yes, that’s ours. Thank you, Bob. Robert Costello – Costello Asset Management: A year or two ago, you mentioned your biggest growth opportunity was the food service category, the different divisions of your company. You still think that to be the case with the size of the division relative in the opportunities?

Still growing and it’s growing at a rate ahead of our other businesses and hopefully it will continue to grow. Robert Costello – Costello Asset Management: Good. The Philly Swirl product. You mentioned the marketing efforts and the changes you might consider in retail. That product seems to be priced on the lower end. Is that an opportunity for you where you weren’t selling a frozen retail novelty of that end, or is that just discounting in the summer at the retail?

Now if you look at it, it’s priced on the lower end, but if you look at the price per ounce, it’s kind of unique. So we’re satisfied with the overall margins there, and the package size gives it a little bit of a benefit. We’ve decided – we were pleased with how it was being run and managed, and we made no significant changes to that since we acquired it in May. If anything what we will want with that we’ll do, we’ll take a look at the business and how it performed this summer, and we’ll take a look at in from October, November to see what we can do to further their growth and expansion and provide other resources there. Robert Costello – Costello Asset Management: But retail is their chief market point?

Yes. Robert Costello – Costello Asset Management: Supermarket.

Retail and clubs. Robert Costello – Costello Asset Management: Yes, all right. A question on the dividend. You spend about 8% or 9% of your cash on hand or however you want to look at it, $20 million-some on the dividend. A year ago you doubled the dividend. How you look at raising the dividend or use of cash relative to the cash on hand or your earnings. What’s the philosophy internally that you use with – you said you have about $130 million invested in the mutual funds and you have $199 million. So that leaves you maybe an extra $40 million a year aside from the dividend, give or take, that you still available.

So is that a question? Robert Costello – Costello Asset Management: Yes. What are you doing – how do you decide in the next three months, how much to raise the dividend with regards to the cash on hand, because I was trying to get an analysis of what the trend line is?

We started paying a dividend seven years ago, I think eight years ago. Robert Costello – Costello Asset Management: Right.

And we’ve raised it every year since. Robert Costello – Costello Asset Management: Right.

And we were raising – we pay a modest dividend today, it’s slightly under 1.25% [ph] but as we grow cash, and keep in mind, we’re running positive $8 million to $10 million worth of cash and money for everything. We’re looking for ways to use this cash. It’s nice to have it, but we’re looking for ways to use this cash via acquisitions. In the meantime, I will defer to my partners on the board and to Dennis Moore, we look at dividends on a quarterly basis, and last year we decided to double the dividend. I don’t know necessarily if that will be a similar trend going forward, but we’re comfortable with the payout and we’ll continue to look for ways to use our cash. We’re not going to waste it. And in lieu of that, we will look to be dividend. Robert Costello – Costello Asset Management: One last question, commodity costs. They’ve obviously been trending down on the corn and wheat versus the last couple of years. Whether you anticipate any net savings versus what you paid, say a year ago this year versus going forward?

Well commodity costs are favorable. And we’re probably booked at the current levels probably through January. And if this trend continues, it may be more favorable over the next year. Robert Costello – Costello Asset Management: Thanks very much.

The only commodity that we’re, like a little bit cautious with is sugar because sugar reached nearly an all-time low or close to an all-time low and it’s starting to bounce back. Robert Costello – Costello Asset Management: Right. Is there case where unlike the past you would go out and buy a year or two out unlike your historic pattern of only six months?

Probably not. I mean six months out is, we’re reasonably comfortable with that, and we try – and when everybody is buying [ph] from the market, we’ll buy when we think it’s a decent market for us. And if the market goes lower, we’ll buy more. And we just don’t want to be clubbed in the squeeze that we were about five years ago, six years ago when I think flour ran from $16, $17 up to over $40. Robert Costello – Costello Asset Management: You got a good memory, 2008, yes. Thanks again.

Thank you Bob. Take care.

We have Brian Rafn on the line. Please go ahead. Brian Rafn – Morgan Dempsey Capital Management: Good morning, Gerry.

Good morning, Brian. How are you? Brian Rafn – Morgan Dempsey Capital Management: Yes, it sounds like I hear animal noises in the background. You must be running a farm operation.

When you hear animal noises then these are part of my carnival of fun that we do here during conference calls. Brian Rafn – Morgan Dempsey Capital Management: That’s all right. Let me ask you Gerry, specifically on the handheld and some of the novelty side. Hot weather is a big driver. We’ve had kind of a very cool summer unless you had something different out east. And also the Hollywood cinema movie side. It’s been kind of a mixed bag. Have those two issues had any drag on any specific sales whether it be ICEE or some of the frozen novelties?

Movies have not been like stellar this summer. And our actual movie business on the pretzel side is slightly up because of an expansion with Regal that came along because of the Kim & Scott’s acquisition. And our ICEE business – Dennis is our ICEE business in movies flat, up?

It’s generally been up this past year.

But as long as they get some attendance and whether that it is – as long as there is an attendance in there, we’re going to sell our products, but the weather has not been stellar yet for us, but there is only so much more going to complain about weather and offer up excuses. We’re going to hopefully do our business no matter what the weather is and we always seem to find a way. Brian Rafn – Morgan Dempsey Capital Management: No, I appreciate that. I was [Technical Difficulty] pitch on that one. So I know you’re not complaining but you certainly could use some hot weather. So I hear you on that. Let me ask you, obviously the reformulations relative to the school channel and I’ve said in the past Michelle Obama would like to sell frozen broccoli on a stick, the kids won’t eat it. I’ve got a teenager who lives on pizza and donuts. So I’ve been there. Give me a sense Gerry in some of these, where you’ve taken the sugar out. You’ve taken the trans fat out. Are you seeing any – from an early adopter standpoint, are these reformulated projects? Are they more captivating to a younger school children or are you seeing it up into the high school range? And the second part of the question would be, once you’ve had these reformulations. Are they able to sell those products beyond just the school channel? Is it something where you can go up to the grocery channels, hey, we’ve got this product because there are other people that are looking certainly for healthy viable things that you certainly put a lot of effort on the school side?

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