J&J Snack Foods Corp. (JJSF) Q4 2012 Earnings Report, Transcript and Summary

Welcome to the J&J Snack Foods Fourth Quarter Earnings Conference Call. My name is John and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Gerry Shreiber. Mr. Shreiber, you may begin.

Thank you, John and welcome all participants to our fourth quarter and year-end conference call. I'm Gerry Shreiber, and with me today is Dennis Moore, our Senior Vice President and CFO, Bob Radano, our Senior Vice President in charge of Operations, Bob Pape, who is in charge of Food Service and Retail Sales also a Senior Vice President and Jerry Law, our Senior Vice President and Special Assistant to me and also Teddy Shepherd, our CED. I will begin with the beginning obligatory 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 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 and a good year. Our net sales increased 10% for the quarter and 12% for the year. Excluding sales post 12 months resulting from the acquisitions of the frozen handheld business of ConAgra Foods in May of 2011 and more recently Kim & Scott’s Gourmet Pretzels in June 2012, sales nevertheless increased 10% for the quarter and 7% for the year. This year’s fourth quarter had 14 weeks compared to 13 last year and the year had 53 weeks this year compared to 52 last year. This is something that happens I believe every 7 years. The additional week added about 7% to sales for the quarter and 2% for the year. For the quarter, our net earnings increased by 22% to $19.5 million or $1.03 a share from $16 million or $0.85 a share a year ago. For the year, after adjusting out the positive effect of the bargain-gain on last year’s earnings, our net earnings increased by 12% to $54.2 million or $2.86 a share from $48.5 million a year ago and that's something that we are very proud and we can crow about. Our EBITDA, for the past 12 months was a record high of $117.3 million. Food service. Sales to food-service customers increased 13% for the quarter and 12% for the year. Adjusting for the handheld business and Kim & Scott’s acquisition as noted above sales increased 12% for the quarter and 8% for the year. Soft pretzel sales were up 28% for the quarter and 14% for the year. Even without Kim & Scott’s soft pretzels acquisitions, sales were up 24% for the quarter. Italian ice and frozen juice bar and desert sales increased 6% for the quarter and 8% for the year. Churros sales were up 13% in the quarter and 11% for the year. Bakery sales were up 9% for the quarter and 10% for the year. A drop in funnel cake product sales to 2 customers in the quarter and 3 customers in the year caused the sales decline in funnel cake products sales of $626,000 in the quarter and $8.6 million for the year. Handheld sales were up 9% in the quarter. Retail supermarkets. Sales of products to grocery and retail supermarkets were up 12% for the quarter and 21% for the year. Adjusting for handhelds and Kim & Scott’s, sales were up 11% for the quarter and 4% for the year. Soft pretzel sales were up 19% for the quarter and 6% for the year on higher case volume of 15% for the quarter and 2% for the year. Kim & Scott’s sales accounted for approximately 25% of the increase in sales for the quarter and 22% for the year. Sales of our frozen juice bars and Italian ices were up 5% in the quarter and up 3% in the year on a slight case-volume decrease of 1% for the quarter and a slight increase of 0.3% for the year. Handheld sales in the quarter increased to $7.5 million from $6.6 million a year ago. ICEE and frozen beverages. ICEE frozen beverage and related product sales were up 5% in the quarter and 5% for the year. Beverage-related sales alone were up by about 0.5% in the quarter and up 2% in the year. Domestic gallon sales were essentially flat in our base ICEE business in the quarter and for the year. Service revenue for others was up 12% in the quarter and 15% for the year as we continued to grow this niche part of our overall ICEE business and organization. Consolidated. Gross profit as a percentage of sales in the quarter increased to 31.9% from 30.6% last year and for the year decreased to 30.1% from 30.9% a year ago. The gross profit percentage decrease in the year resulted from the lower margins of the handheld business and by comparison last year we did not own handheld for the entire year. We are impacted marginally by higher ingredient and packaging costs in the quarter and by about $10 million for the year. We cannot project the impact or benefit of changes in ingredient and packaging cost going forward. Total operating expense as a percentage of sales was exactly 19.38% in both years' quarter and 0.7% lower in the year that is 0.7, mainly because of sales increases. Capital spending and cash flow. Our cash and investment securities balance increased $16 million in the quarter to $180.4 million. We continue to look for acquisitions as a proper use of our cash. Our capital spending increased to $12.7 million in the quarter and $42.8 million for the year as we continue to invest in plant efficiencies and expansion in connection in growing our business. During the year, during the last 12 months we completed the expansion of our St. Louis Bakery Building essentially doubling its size and added pretzel lines at our Carrollton, Texas, plant near Dallas; and Belmar, New Jersey, facilities. We are presently estimating capital spending for next year to be $30 million or so. A cash dividend of $0.13 a share was declared by our Board of Directors and paid on October 3, 2012. Stock buyback. We bought and retired 187,649 shares of our common stock at an aggregate cost of $10.8 million over the period from July 25 to October 31. More recently, on November 8, our board authorized the purchase of an additional 500,000 shares. Commentary. Our sales growth of 2% this quarter before benefit of acquisitions and adjusting for the extra week was not up to our standards to say the least. Sales of soft pretzels and food service were very strong and include new pretzel products such as rolls, sticks and soft pretzel buns to casual dining restaurants and club stores. Frozen juice bar and ice sales and food service on an adjusted weekly basis were flat as we were impacted by changes in the USDA school service program. Churros did reasonably well with an adjusted sales increase of 6% and adjusted bakery sales increase less than 2%. The decline in funnel cake sales and funnel cake products has just about run its course. Unit sales of soft pretzels in our retail supermarket segment were significantly higher in the quarter, but frozen juice bars and ices continued to be relatively flat. In ICEE and frozen beverages, gallons sales were flat and service as revenue to others was up an adjusted 5% in the quarter, as this area of our business continues to perform well. Although, frozen beverages had a strong year operating income in the fourth quarter was down about $1 million. Regarding the acquired handheld business, sales have improved to roughly $53 million annual rate in the quarter and this business has begun to contribute to operating income. In short, we are somewhat ahead of our schedule. We are working diligently to get the top line increasing further. Our estimated income tax rate was 36% for the quarter both this year and last year. We're estimating a rate of about 37% in fiscal 2013, perhaps slightly lower than this year’s full year rate. Again, this marked the 41st straight year of increased sales, the 41st straight year of profitability and the 164th straight quarter of quarter-after-quarter increase sales. And also I might note that this company, your company J&J Snack Food has never had a quarter in its entire history that it was not profitable. I thank you for your continued interest and I will turn it back over to the listeners for their comments and questions.

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

My first question and hopefully let me ask a couple, but my first question is regarding the ConAgra handheld business. I heard your comments, can you remind me again where given where you are today which is ahead of your initial expectations, when can we -- how much accretion should we expect from that acquisition this year and is the $0.10 accretion still in play and if so is that sort of 2013 or 2014 phenomenon?

Okay, Akshay. When we made that acquisition, we looked at the opportunity, the risk and the value and we projected out 2 years. We are slightly ahead of our projections. We have a lot of opportunities before us, some of them in the middle stages of development. I think 2013 might be a watershed year, but I think it is going to be probably sometime a little bit down the road until we could expect the significant earnings. What has been accomplished, the operations are a part of our team, our culture. We have even moved the pretzel product into the far west plan. So, it's gone overall very well and we need to just build on volume and mark sales force and people who are dedicated to it. We think we have got a wonderful opportunity there. We are happy, it was a horse that we had to catch while it was running and now we are doing a good job with.

That is helpful. Moving on to what I thought was the continuing sort of bright spot amongst other bright spots is pretzels. Again, a really outstanding quarter. I believe, a lot of that has to do with some of your products showing up on the restaurant menu, but help me understand the growth prospects for that business in fiscal ’13 should we continue to expect double-digit organic growth on the pretzel side. I think there is potential for that to accelerate, but I just like to get your view.

Okay, Akshay and we have had -- you have been following us for several years and we have been talking about breaking through some of the barriers that we have with casual dining and fast food restaurants and it goes back to 3 and 4 years ago. Some of the presentations were made in New York where we have gained traction. The product is now being sold in several fast food restaurants, Applebee's, TGIF Friday's, Clemson and on. There’s a bunch of people that are putting it. We expect to have another good year, will it be in the high double digits? We don’t give guidance, but we are working very, very hard to maintain that type of sales growth. And we are cautiously optimistic we are going to have another strong year in our core products which include pretzels and churros. How about we give somebody else a chance, Akshay, and then we will come back to you.

Our next question comes from Brian Rafn.

Give us a little sense of where ingredient commodities are, would you see them continuing to escalate Gerry or they plateauing? What's kind of as you enter your next fiscal year? What is the delta change?

Let me turn to Dennis, to comment on that, but we are always fearful of commodities starting to run out of hand like a wild horse, but if we take a look at where we were a couple of years ago -- let me turn it to Dennis in there.

Brian, as I am sure you are aware of the cost of wheat has gone up considerably over the last 6 months, and actually it has gone up 6 months ago for about over 2 month period and has pretty much remained at that high level. Additionally, packaging cost of corrugated and paper, manufacturers are trying to put through significant cost increases. So we would expect to have some additional costs this year and how much they’re going to be we cannot quantify at this point, but we don’t expect cost to be dropping.

Okay. You talked about wheat, Dennis. How about like eggs and sugar shortening, is there anything else that sticks out or they all kind of incrementally up?

If you look at all of the others it's probably a combination of ups and downs, at this point, perhaps neutral, perhaps a little bit down, perhaps a little bit up, it is hard to say.

Okay. Okay. Give me a sense we have had across the U.S. of drought, there was a heat wave this summer, how did that affect at all your frozen juice bars or ICEE sale, does that have a bearing at all?

Warm weather helps our ICEE and juice bar sales. When it is too hot and there are people that aren’t out as much so therefore it would have a more of a moderate to negative impact, but we have plenty of it, it is not like we are running out of supply. There is plenty of supply and we we’ll continue to have plenty of supply. It is just what we watch are the costs, we do book out perhaps as far as 6 months at a time and so we watch it, we watch it on a certainly on a weekly to daily basis and we have plenty of supplies, not like suddenly that we are going to be out of a critical ingredient.

Okay, now it is just one to Gerry. When you look at your pretzel sales. How much of the incremental growth year-over-year in the pretzel category across the entire Company would be the sticks and the rolls and some of the new product iterations versus your core box of pretzel sales.

Well obviously, as we expand into some of these new channels and new segments of these channels, it is a product that although pretzel liking character's a little bit different. A Bavarian stick, a pretzel bun, a pretzel roll, so a big part of that growth and I can’t quantify the percentages, but it would probably be certainly be 60% or more is these new products. When you think about it we have been able to get the market go to its alpha test, go through its beta test, get into, take advantage of some of these opportunities and now we are there. I understand that one of our new customer is going to start advertising Monday night on football showing our Bavarian stick being sold in there. So, we are pleased with the progress that we’ve made so far in the past year. So, with these new products and new opportunities and we are cautiously optimistic, we will continue that growth.

Our next question comes from Bob Costello.

Your Capital Ex you mentioned what you did this year and what you expect to do next year. If I remember hearing correctly that number is up significantly, could you give us some clarity to where the money you expect to spend?

Well, in the past year what we did is, we doubled our Moscow Mills, Missouri, plan operations, that is near St. Louis, and we doubled that in anticipation of some growth, we are getting that growth, we are going to be very, very pleased with what were our numbers are going to look like coming out of Daddy Ray’s. We also doubled our pretzel facility in Carrollton, which is near Dallas and we needed to do that, we were probably a little even late in getting it done and we expect to get the benefits of that production capacity. Here in Belmar, New Jersey, we put in a new line of churros, and as you can churros have been growing in double digits for the past several years, and we put in an additional specialty pretzel line for these Bavarian sticks. So, we probably did a little more in the past year than we had been, because we have been spending $30 to $35 million a year, and I think we spent close to $43 million in the past year, and we’re looking at $30 million in the coming year, which would include plant efficiencies, ICEE beverage dispensers and just some ongoing capital improvements throughout our system that we need to either refresh our lines in order to make ourself as more efficient.

Question on the frozen juice business. At the local club store you are now selling the Whole Fruit push pops and you didn’t sell them, I don’t believe before and I noticed the price per quarter, whatever it is, is almost double what some of the other items are. Is that going to benefit your juice business on a margin basis, if you pick up incremental volume?

Well, any incremental volume that we do pick up, hopefully has some benefits hanging on to it. And Bob, you make an interesting comment. Our juice bar business has been a little bit softened by because of USDA requirements because our school business has been impacted by that. So, we are continually looking for new and perhaps, different opportunities, whether they be at club stores, grocery channel, other specialty stores, value stores in there and we are real good at producing a product that is nutritional, contains juice in a cup, in a stick, in a tube, so our people are out there and they are riding real hard everywhere on their horses to get their products in there, so you have.

So how much business do you do with the U.S. school program overall?

I guess that business, if we take it, if we go across all product lines could be $60 million or so.

So what do you anticipate with the continuation of this administration, is there any more changes, that you anticipate with the school program?

Well, as lot that changes have been put in over the past couple of years. None of them quite frankly, well let me just put aside my personal comments. Most of them are designed to provide a healthier product choices for the children, whether it be carrot sticks, alright or whole wheat pretzel. And we have had to reformulate nearly our entire product line for the school systems, and we’ve done that. Sometimes it’s hard to keep up with it and we have to satisfy not only the USDA, but the directors of the school in there and ultimately gets down to the student there who they have to like the pretzel or the product on there. We still have some challenges left for us, we’re real good at reformulating, we’re real good at keeping with the standards, we have dedicated sales team that is on top of that and we’re hopeful that this will improve over the next couple of years. But quite frankly the last couple of years, because of the nutritional changes, the school systems have had a negative impact on our sales and profitability. You wouldn’t know it on our overall numbers, because we’re still running like hard charging horses everywhere else, but we’ve had to make up the difference.

Last question, if you add up all the acquisitions you did since 2010, I think you spent like $35 million give or take. What kind of sales from like the California Churros, the pretzel business, the ConAgra. What’s the incremental at new business sales in 2013, you think that would do?

Well, let’s see. Now you’re adding up California Churro which would be in the 20’s, ConAgra, 10: 30, how much did you say we spent?

You had then 30 some million, 35, 37 million, you spent in last 3 years for acquisitions?

Roughly 78, 80 million sales.

Our next question comes from Mitch Pinheiro.

So in this quarter, packing out the extra weekend pack and you may have said this and I may have missed this. What was your volume performance in the quarter?

Up 2%. Dennis?

I’m Dennis. It was flat volume.

When you look at next year, fiscal ’13, which are the segments that you think are going to provide the strongest performance if you had a rank them. Or which ones are the ones that are likely to be the meaningful drivers of the top line?

Pretzel and churros, there are good things happening, I don’t want to say big things in there, but we’re not exactly the cat's meow with that yet, but we’re going there.

Okay that’s helpful. And then in the handheld businesses, Akshay was asking about it. It sounds like you’ve a pretty nice run rate you had scheduled, the key there remains revenue growth and that drives ultimate margin?

Sales. We need sales.

Okay, and obviously you're optimistic and you work hard at these acquisitions, how do you feel even now, with almost a year under your belt with this, how do you feel about the prospects for gaining new customers?

Feels good, Mitch, alright. I liked it, my team has gotten their arms around it, I like that they have converted quickly. The other people, the other staff I like that we’re finding other opportunities at these plants I feel good about it. I'd feel great in a couple of years, but right now I feel good.

Good. When you look at -- couple other odds and ends questions. Will the lack of an NHL season have an impact on your food service soft pretzel business?

Any time we lose, how many teams are there, Mitch, 30 teams, 31?

32, yes.

And you lose all those dates and all that, perhaps some impact. Hopefully we’re able to as we expand our channels and our customer base, that we'll maybe be able to pick up some, or if not all that business elsewhere. But I would be, hockey season is nice in the winter and they are pretzel eaters. If I had my druthers, I would order them to start playing tomorrow and but we have survived baseball strikes, not just survived, we have thrived. We survived baseball strikes, the NFL, hockey season before, basketball season and this too will be like a little pimple on the dot.

Sure, no I realize it’s a temporary situation but I was wondering if it would have, whether we would actually see any impact from it, in the next quarter or so, and it sounds like maybe a little bit.

Yes, I am more concerned with the overall economy and some of the overall issues that are going to be affecting the people and our governments, and what not.

Okay, and then finally, how would you characterize your acquisition pipeline, are you seeing good flow of ideas or that you're working on anything, how could you characterize that?

This question comes up often, and I don’t mean to be furtive or secretive, but we’re always working on things and sometimes, things hang on and we bring -- if you look at our acquisitions made over the past few years, some of them we had a 5- or 6-year history of discussions and negotiations, like with California Churro. Others, happened relatively quickly like ConAgra, which got us into a different variety of products that we were looking to develop on our own. So, we have a reasonable amount of these opportunities, but there is, we don’t give guidance and we certainly don’t talk about acquisition of things before they are going to happen, but you stayed with us for a long time, I would stay on that horse.

Let me ask you one more question around acquisitions. Almost all of your acquisitions have been in your core competencies and certainly complementing either on the retail side frozen, like your handhelds or -- and the handhelds being a little different, but certainly fits into your channels. How are you still focused on acquisitions within your core competencies and the focus in your core channels or, is it, should we not be surprised by something new, new channel, new type of capability, things like that.

We’re not going to run out and do something that’s going to be transformational, alright. But to the extent that we’ve stayed within, we’ve expanded our playing fields over the years. We’ve gone from pretzels to beverages to juice bars, but we’re going to, it would take something significant and/or dramatic that we would have -- that we would do something that would be too far outside of our core competencies.

Our next question comes from Bryan Rafn.

Yes, Gerry. Give me your sense, if you look at your CapEx budget for the last year, $42,800,000, what was your budget for CapEx going into the year and how much, and you gave us a %30 million bogie next year. How much on an in-season when you’re in the year, can you either reduce or expand that CapEx budget or is that pretty static from going in year 1.

Good question, Brian. Last year I believe we were projecting about $35 million, we had an opportunity that came up deep into the year, midpoint and we had to put another line for pretzels and churros, and we did it in a hurry and we completed in the fourth quarter or in the beginning of this year’s first quarter October. So we're able to -- I used to say we could stop on a dime and turn it and change direction, now maybe we can’t stop on a dime, but we can stop on a quarter so to speak, and we can move and change direction. So we had opportunities that came up during the year and we seized on them and now we’re going to be able to take advantage of them, this year in 2013, because the sales are going to be, we’re projecting significant increase in sales from these lines.

Yes well, you did above $63 million in CapEx, the DNA, and that’s outstanding. I mean, that’s for a company your size, your guys do a superb job. Gerry, you’ve done, you had a great track record in finding these little orphan, kind of niche brands, taking them from a local brand to a regional, to a national putting some CapEx in. Go back to your Daddy Rays, I think when you said you’re doubling the size at Moscow Mills, that’s kind of Daddy Ray’s fig bar. Where was that when you started in sales and what do kind of see that product today?

Well, when we started that, we’ve made that acquisition, I think its 6 years ago. It will be 6 years this February, and that was about a $15 million annualized sales making fig and fruit bars. The year we bought it all hell broke loose with the commodities. And Jerry Law who is sitting right here next to me had a tough year controlling expenses and building that business, but right. Jerry, what are we expecting to do this year out of there, $60 million?

$50 million.

We’ll go $50 million to $55 million this year out of that facility and at selling fig and fruit bars and now another cookie line in there, what Daddy Ray’s is, it is like every, all of our product lines. Daddy Ray’s may be the best producer of fig and fruit bars in the country and just like we are the best producer of soft pretzels and of juice bars and of frozen beverages, where they have real efficiencies that we have dedicated ourselves to, since the beginning. And it continues to be our mantra to have a niche product be the low-cost producer with barriers to entry and dominate the marketing and distribution channels and my team, it's "imbreaded" in them, that that’s where their thought process and their execution process is on a daily basis.

If you double that line, you said capacity of 100%. What might be the capacity and does that get you for another couple of years, or would you be right at, 50 or 60 million in capacity with the second line?

Well, they’ve already made an over choice which I’m making them justify, they want to talk about how they can expand that facility one more time. But we’ll see. Good problems to have Brian.

Yes, that’s outstanding. Where are you guys on ICEE and Slush Puppie and Parrot Ice. What’s your infield machine count as far as dispensers? You got an idea, just a ballpark, I’m just curious.

Roughly there is about 40,000 that we own and there is about 80,000 that we touch service for others. And it’s only been about, maybe 8 or 9 years that we started doing service for others. So that was a business that we’ve really grown from a bare field at a zero base level and now we’re doing about $50ish million, Dennis, in service? So that business continues to grow and our beverage business, we find a way to continue to grow it too, the combined ICEE group. And this was a company that we’ve owned since 1987, it was doing about $13 million a year then, but it’s about $200 million right now.

That’s outstanding, Gerry. How much, when you look at ICEE, Slush Puppie, Parrot Ice, how much on an annualized basis do you guys play around with flavors, ingredients. And I guess I’m looking for kind of the end user demand having a bunch of little kids here on my side. Is that a fairly, were you driven, you got to constantly be upgrading flavors, or is that something where you can kind of be somewhat static for a few years.

We do and we’re constantly rotating flavors and we have a variety of flavors, still it gets down to a core few, Cherry, Blue Raz, Coca-Cola. We now have a mix it up variety but the Vanilla and Chocolate are still probably the 2 most popular flavors of ice cream, and similarly there is 2 or 3 base flavors of ICEE. And even though we may have switched out and promote different flavors throughout year. In the fall we will do a pumpkin and we’ll do a mixed berry, but we have all of these varieties and it will help keep the customers happy and the guest happy. But the majority of our sales are still, the core flavors.

Right, yes, that’s understandable. You made a comment Gerry. Go back to this, obviously the encroachment from the government on nutrition standards in that. We know that’s been an ongoing, and you kind of talked a little of about of reception of students to new flavors, you got to reformulate, make it healthier. What’s your sense of the reception, if you put, obviously you have a Slurpee on one side and frozen broccoli stick on the other side, the kids like in the cinema chain, they are going to go for the Slurpee, or anything sweet and sugary. But, you kind of reformulate, how has been the reception in demand from students?

Well to begin with, you can’t have like, you said Slurpee, I will switch it to Slush Puppie or an ICEE next to a broccoli or a carrot, because they don’t even allow it schools anymore. The reception by students has been mixed. When I say mixed, we get field reports and then we’ll get USDA comments and it appears like the USDA and the school systems still has challenges, as they attempt to influence the feeding patterns of children. And you know what, it has to taste good. Alright, now we make great-tasting soft pretzels, but when they become a grain or a multi-grain or a different product in there, they are not, some of the taste flavor impact changes.

Okay, you mean in sense, you talked a little bit Gerald about acquisitions which you have been superb at. When you look at the pipeline would you see that the acquisitions have any more sourcing from say, maybe a restructure bankruptcy deals versus things that may be good brands, they just might be small little orphan brands and it’s more of a size in scale, it’s not really a restructuring. Go back to when you started with J&J the Pretzel, if I remember right since 1970 that was a bankrupt deal. What do you kind of seeing in the quality of the pipeline?

A mix, we’re looking. When you take a company or a product line and you have to fix it up from plant operation level all the way through the culture in there, it’s a tremendous amount of effort. And there is a lot smaller things out there like that, unless they are a nice jigsaw fit with us, we’re going to probably be refrain from just putting them into our mosaic. So we’re looking for things that maybe are operating well already, and that maybe we could add what we do well, which is selling and producing the logistics in there. Perhaps even provide management and funding in there, so we are a little bit more diligent and there is enough of the fixer-uppers around there that, and sometimes it takes the same amount of energy and time to fix something that is not good, as to grow something that is good.

Yes, okay. And one more question Gerald, give me a sense to comment a little bit on sales and products, introductions maybe new products into the dollar chain stores.

Bob Pape is sitting here, talking about dollar.

In the area of pretzels and also frozen novelties, those are the 2 areas that we are continuing to expand on. And across accounts like Dollar General, Dollar Tree and so on, we continue to add new products in those 2 areas specifically.

Are you guys seeing any new, how would measure your penetration from shelf space? Is that about the same or are you able to push a little more shelf space in the dollar chain?

We’ve been very pleased with our share of shelf, specifically in that channel.

Our next question comes from Akshay Jagdale.

You must love to hear from me first and last. But thanks for taking the follow-up. First question, sales drag on from, you mentioned funnel cake $8.6 million drag this year. Obviously it won’t have that next year, I’m assuming, so confirm that. And secondly how much the school lunch program, what kind of negative impact has it had this year, and how many more quarters of that should we expect next year?

Let me answer your first question, first. Most of all of that funnel cake product sales decline comes from, I think 2 maybe 3 customers, Burger King, Jack-in-the-Box and IHOP. So we probably will not have these comparables going forward for this year. With respect to the school of food service program, I don’t know if we’ve really had an impact yet on our sales overall on an annualized basis, but we saw a slowdown in the, in what was our fourth quarter during the periods, July, August, September and we were off roughly about a million dollars from the comparable year-ago period. It has however, even accelerated a little bit in this year of first quarter. We’re into November and we’re already past that million dollars, it’s off $1 million dollars after 2 months. Part of that is the uncertainty that the administrative school food service system is getting from the USDA. We think that will shake out between now and the new year, and hopefully it will stabilize then.

Okay, on similar lines. But on the margin side, so this year the handheld business, how much of a drag was it on gross margins?

Dennis, do we have an exact number on that, it was a couple of ...

Well what I would say is that if we had backed out the handheld business in both years, our margin overall would have been roughly the same gross margin to same both years, as a percentage.

Okay, and that equation should only get better next year, correct?

Hopefully.

And with pretzel sales outpacing other products we should expect a margin benefit from that, roughly, just directionally, correct? I am assuming that’s a yes. Anyway the last question I have is on buyback so, nobody asked about it, I mean I thought it was a significant issue, you haven’t bought back shares in 2 years, roughly and you’ve bought back quite a bit and you’ve got authorization to do a lot more, obviously you have been building a lot of cash and your basically telling in that sense that you’re not just going to sit on the cash. So, help me understand that, does that decision to buy back shares in any way signal that you’re not seeing enough in the pipeline or from a timing perspective, you don’t see anything on the acquisition side that is going to happen or you just basically all you’re saying is, we’re not going to sit on cash, we have enough cash and other fire part to do the deals that we might be pursuing, but this is just a prudent use of capital. Can you just help me that, there was a chain, so I am trying to understand what you were thinking?

I think you analyzed it pretty good if not perfectly. Our cash reserves continue to grow, we had some expansion requirements and opportunities and we did that all from within our coffers [ph] , our cash flow. And perhaps, we felt the timing was right and it was beneficial to buy back, and retire these shares, which provides some ultimate EPS value. But it’s not because we don’t -- we are not planning a massive buyback, we bought back shares before at different times. So the real question, was it a good use for some of our cash and I would not expect that very quarter, but we felt the metrics were right.

We have no further questions at this time.

I want to thank everybody for joining in and participating in the conversation and we look forward to all of you here, in the next quarter too. Thank you very much.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating, you may now disconnect.