Welcome to the J&J Snack Foods Second Quarter Earnings Conference Call. My name is Tilda and I will be your operator today. [Operator Instructions]. And now, I will like to turn the call over to Mr. Gerry Shreiber. Sir, you may begin.

Good morning, everyone and thank you for joining us today for our quarterly conference call. With me today is Robert Radano, who is our Senior Vice President and COO; Dennis Moore, our Senior Vice President and CFO; Gerry Law, our Senior Vice President, my Personal Assistant; and Bob Pape, who is a Senior Vice President in charge of sales. I'll begin -- and also, in a remote location, is Dan Fachner, President of our Beverage Group which includes ICEE, Arctic Blast, Slush Puppie. I'll begin the call with the forward-looking statements. 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 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. Net sales increased 7% for the quarter and 4% for the 6 months, 3% and 2%, respectively without sales of Hill & Valley which was acquired this past January. For the quarter, our net earnings increased by 3% to $16.0 million or $0.85 a share from $15.6 million or $0.83 a share a year ago. For the 6 months, our net earnings were $29.5 million, $1.57 a share, an increase of 3% from $28.6 million or $1.52 a share from a year ago. Our EBITDA, that's earnings before interest, taxes, depreciation and amortization, for the past 12 months was $159.7 million, a new record. Food service. Sales to Food Service customers increased 10% for the quarter. Our sales increase of 4%, without Hill & Valley, was due to increased sales of several products including handhelds,…

[Operator Instructions]. Our first question comes from Akshay Jagdale.

This is actually Matt on for Akshay this morning. Just wondering if you can give us an update on how you see the M&A environment right now?

I'm going to try and turn you up without turning you off. So, can you hear me?

Yes.

Okay. That's better. I'm sorry, could you repeat the pregunta?

Certainly. Can you give us an update on the M&A environment as you see it?

Well, we made a acquisition in the quarter. And as I've mentioned before on previous calls, we continue to look for other acquisitions. And let's just say that we're -- there's nothing to announce yet, but we're active.

The next question comes from Franceso Pellegrino.

Did I catch you speaking some Spanish before? Did I hear you say what was the pregunta?

I know that we have some Latin and Hispanic listeners. So occasionally if they don't understand a word or 2, then there I try and practice my eighth grade Spanish.

But want to talk to you about a couple of things with one of your more impressive segments. So the Frozen Beverage segment, I noticed that the CapEx spending was a little bit elevated during the quarter. Could you just maybe give us a little bit of detail behind that? Preferably in English.

Well, with us on the call is Dan Fachner, who is President of our ICEE group. Basically, we're buying more machines, right and installing more machines, because we continue to grow that business. Rain or shine, summer or winter, that business has been a remarkably strong part of our portfolio. Dan, let me turn it over to you. Dan, if you're listening, you want to add something.

Sure. Just a couple other pieces of color to that. We had a couple of big rollouts during this last quarter as well. We had a theme park that we acquired back of this year over last year that included several machines that we put out. In addition to that, we had one of our large theaters -- acquired another theater that went through a big remodel and we installed a lot of machines in there as well.

Going forward, is your gallon volume sales will be at least better at those places, especially going from no gallon sales to having gallon sales? One of the things though that I wanted sort of tie back to some of the guidance was I think guidance for CapEx spending is $55 million to $65 million for the year?

$55 million to $60 million.

$55 million to $60 million. Okay. I'm sorry. So then if you hit the lower end of that range, we're probably talking about maintenance CapEx. If we assume like $10 million is what you guys spend quarterly for maintenance. And then if you had the higher end of that range, I don't know $8 million to $10 million, what could that be coming from? Additional beverage machine investment or other areas of the business?

Let me answer that. Part of that is additional beverage machine, because we continue to grow the specialty mix business in the beverage group. Gerry Law is here. We're expanding our churro capabilities. And we're putting in on couple of lines. Gerry, why don't you talk about what we're doing and how much we're spending and how late it's going to be?

We have Cap expense in several plants right now. We have churros and funnel cake going into our Pennsauken plant, as well as the modernization in our Bellmawr facility right now. So we have an elevated spend to move those -- that business in and get the efficiencies on point.

This year has a little more spend than previous years. One, because we have an ambitious plan. Two, because Gerry has taken charge of all of this and he has -- that we're moving forward quickly and we're looking to get this done in fiscal 2017. And -- but it will certainly will be long term benefit for the company and its manufacturing expertise.

Is there any way to sort of dig in a little bit more to that CapEx guidance and see what's being appropriated to maybe new beverage machine investment? Just because that's really what the attractive part of that segment is. It's the way to razor blade model. You get more machines out there. You get more razor blade sales via more on volume gallon sales. So can you just dig in a little bit?

Yes. A little bit. There's going to be roughly and Dan, correct me if I'm wrong, roughly 800 to 900 more machines purchased by us. And then they're going to be either load or sold to other people within the resale vertex that will be selling our products.

But just remember that -- you're correct, Gerry. In addition to what we talked about earlier, a couple of really nice 2 big pieces of business that we've installed early in the year for us that we should be able to get strong gallons during the summer months.

Okay. And just -- yes?

I mean, we're up early like the barnyard rooster doing these things all over in here. And a lot of the -- a lot of this optimism without guidance, we expect, will come forth in rest of the year and into 2018.

I'm sorry, Gerry. Did you say 700 to 800 beverage machine sales for the second half?

For the year.

For the year. Okay. And I would think probably 75% to 80% of that would be sales as compared to what you're owning and putting out there?

Dan, is that correct?

Yes, owning and what we've put out there will be somewhere in that 500 to 600 range.

The next question comes from Jonathan Feeney.

I got a barnyard rooster man. That was tremendous. 2 questions for you. Everything I read about the convenience store channel is tons of new store openings and tons of new fresh product introductions inside the store. I'm wondering -- I know you've done a great job with your -- you've been -- we're on to this a long time ago. But are you getting crowded out anyplace inside convenience stores? Is it getting more competitive? Or is it just that all this growth is equivalent to you and increasing your opportunities? That will be my first question about the convenience store channel, its growth and competitor products. And secondly, you look at the Hill & Valley deal which I hope involves a lot more hills & valleys, does that tell us about -- does that overlap completely with your existing distribution? Or does that bring you into new points of distribution? Does that tell us, when you say, your pipeline -- you're working on a lot of things in acquisition space. Is that more or less the models or the kind of acquisition you're looking for?

So the first part of your question, first. C stores have been on our radar screen for some time. We're [indiscernible] business now. A little while ago, we've kind of reorganized our sales efforts. I'm putting a team behind that. And -- keep in mind, Jonathan, our niche products in there. So in a convenience store, generally when you go in there, you'll see one pretzel kind, you'll see one churro or a churro. You'll see one frozen beverages. And we're not only participating in that, we have taken a strong, if not dominating, leadership position. So that's going to continue to grow. We've made some changes, adjustments, within our sales and our marketing team which will further seek to propel that growth. With respect to Hill & Valley, we're in the bakery business. Many years ago, 2003 to be exact, we bought a bankrupt company out of Connecticut with plant and -- the plants in Atlanta, called Country Home Bakers. We've continued to modify the way they were doing business, changed their production to go-to-store operation. And the Hill & Valley gives us an excellent vehicle there in the business. They're highly respected. They make a sugar-free cookie. They were part of a turnaround prior to us acquiring it. We don't have to turn it around. We got good management in there that we expect them to have improved performances for 2017 and beyond. And it's a niche.

[Operator Instructions]. The next question comes from Jon Andersen.

I just have a couple of quick questions. One, on Hill & Valley. If you could talk a little bit more about, perhaps the seasonality of that business? And/or any kind of costs that you incurred in the current quarter that may not repeat going forward? Because in the -- the reason for my question is, whether you're looking at revenue for the quarter or the operating income that was generated by Hill & Valley, it looks a little shy of our expectations. But I'm just trying to understand if we're missing something there in terms of seasonality and any kind of profitability?

Well, in seasonality, it probably flows with the same way that the grocery channel. As you know, it's biggest season will come from -- when baking season starts in the fall through Christmas. This quarter, although, was -- again, it was reasonable. We think that'll improve the rest of the year. The second part of your question...

Are you still comfortable with kind of a -- I think the -- you previously talked about maybe $0.10 of total accretion from Hill & Valley in year 1. Is that still a level that you're comfortable with, given the results in the March quarter?

Let me turn it over to my financial wizard, Dennis Moore, who's sitting right across to me. Dennis?

Well, we're comfortable to the extent that we believe we're going to improve on the sales performance which Gerry mentioned, has some seasonality. So if we do get the sale that we're anticipating to get, then yes, we should be in that $0.09 to $0.10 range for full year.

And we're -- our team is ready. And again, that is a nice plant with good people. They've been integrated within our overall group. Our horses are ready, our people are managed and we're going to have a good year.

But just to clarify, that $0.09 to $0.10 was not in this fiscal year.

It was annualized.

Full year, it was the full year rate.

Okay. That's helpful. The second one for me is the -- the organic growth rate in the quarter was solid and really better than we've seen from the company in the past few quarters. Is this kind of 3% level, something that you see as sustainable? Or can it be improved upon? And the second part of that question is, if you can give us an update on kind of the general pricing environment? Because the growth this quarter came from volume not price. But I'm wondering if you're seeing any potential signs of maybe price improvement opportunities going forward?

Jon, let me comment on that. And I'll handle the second part of your question first, then I'll handle the first part of your question second. But the second part of your question, it was all growth which is good. The pricing is not easy right now. I'm not withstanding our strong positions and our shares. There is a great appetite for price increases at the present time. As far as continuing at 3% to 4% growth organically, we have some internal goals and that is one of them. And we're going to continue to drive these products and our people to attain this. Sometimes it gets a little more difficult than others, particularly when you see some of the elimination of favorite names that used to be out there that the market is closing some sore stores. Kmart and Sears have been slipping for a number of years, but we've had these challenges before and we'll continue to wrestle these challenges. And we believe that we will overcome them and get on our 3% to 4% or more growth.

Okay. If I can squeeze one more in. I wanted to come back to the M&A question that's been asked a couple of times but could you talk a little bit about -- you said you're active and clearly, you've accomplished one this quarter, Hill & Valley. But could you talk a little bit more about what you're looking for? What would define a good strategic fit? I -- taking -- putting price aside, what is it that can -- that you would be interested in because it would help you kind of supplement or augment even the growth or the profitability of the company, given your strengths?

Well, we're good producers. We're in a couple of key niche areas. And I say active, we continue to look at the books, discuss opportunities with the acquiree and we can react really -- very, very quickly when something fits. But even more than that, when we do make an acquisition, we don't have to go a year or 2 years into integrating it, we kind of like pounce on it like a cat in there and get it through our system as quickly as possible.

[Operator Instructions]. We have a question from Robert Costello.

Can you just repeat the tax rate you think going forward?

I'm sorry, the tax rate?

Yes. What do you -- what your expectations are?

Depends on -- we've estimated, I think, 35%, 36% going forward. I keep seeing these early morning TV programs talking about how it's going to be reduced in there. We'll see what happens. Dennis, what is our tax rate?

We're roughly estimating that at 35.5% which is a little bit higher than what it was last year for this full year.

Right. The Bavarian Pretzels introduction, how's that going?

Well. It's going well. That's been part of our -- as part of our plan organic growth for the rest of the year. We got a little bit of boost of that in the second quarter but we're going to get more and more.

So it's -- it obviously -- I saw it when I was at the baseball game, so it's basically introduced now currently to all the customers that are available to them?

Essentially. Keep in mind that we have a couple of brands, SUPERPRETZEL and others that are there, solidly entrenched, they have a following in there. Part of these other products are a way to get the product price range from popular to higher.

Right. Your comparisons were very good with the handheld. Can you talk specifically what was the reasons for that?

Well, we have an R&D group which is under Gerry Law. And there are R&D centers in multiple plant locations. And it's like we have introduced a couple of products to a couple of key customers, Nutrisystems.

We're just having a good range of the new products on the handhelds and [indiscernible]

Now the market is a little bit lower. They're not pretzel or ICEE margins, but they are business and they develop our wings and our shoulders even further, both geographically and with customer base.

When you talk about handhelds and the new products, what specifically are you talking about product wise?

Gerry?

Well, [indiscernible] sandwiches into Nutrisystems and that program has been expanding.

And you've probably seen that on TV, where Nutrisystem talks about, get on this diet in there and you'll go from -- you'll lose 40 lbs in 60 days and what not in there. We're in that space as a copilot.

So this is in the same category along with the ConAgra acquisition, correct?

Exactly right. And the ConAgra acquisition which is now 5-plus years old, we struggled with that in the beginning, because despite the fact that we had 2 USDA nice plants in there, that business was sliding quickly and it took us about almost 2 years to halt the slides. And now in Food Service, it's beginning to grow again. Not in retail.

Great. Last question. You did really well with the school programs with the sales there, so what was that attributed to? You're not having the pressure on the menu as much, so you basically have stabilized things and been able to grow it?

That's a good point, Bob. They change the rules and regulations with sugar out and trans fats out and what not. And it became a little bit overbearing for the school food service system. They almost didn't know what to do. It's because they didn't know what to do. What you do when you don't know what to do? You do nothing in here and there was a pause in our growth there for perhaps as much as 2 years. That's back on track now. And we have a dedicated team for school food service under Mimi Ford, they've been doing it for years. And we've added to that team the past year. So we're both pleased and we're confident that, that will continue.

[Operator Instructions]. This moment we show no further questions in queue.

I want to thank everybody for listening, speaking on our second quarter conference call. And I look forward to all of you joining us again for quarter 3. Thank you and goodbye.

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