Welcome to the J&J Snack Foods Third Quarter Earnings Call. My name is Yolanda, and I will be your operator for today’s call. 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. I would now like to turn the call over to Mr. Gerry Shreiber. Mr. Shreiber, you may begin.

Thank you, Yolanda, and welcome everybody. Let me start by introducing my team that is with me today. We have Bob Radano, our Senior Vice President and COO; Dennis Moore, our Chief Financial Officer and Senior Vice President; Gerry Law, Senior Vice President and Assistant to me; Robert Pape, who is Senior Vice President of Sales; and Ted Shepherd who is our CED. Let me begin with the obligatory opening comments. 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 the events or circumstances that arise after the date hereof. Results of operations, net sales increased 5% for the quarter and 7% for the nine months. Excluding sales resulting from the acquisition of Kim & Scott’s Gourmet Pretzels in June 2012, sales increased 4% for the quarter and 6% for the nine months. For the quarter, our net earnings increased by 13% to $21.2 million, or $1.12 a share from $18.7 million or $0.99 a share a year ago. For the nine months, our net earnings increased by 27% to $44.1 million, or $2.33 a share from $34.6 million, or $1.83 a share a year ago. Our EBITDA for the past 12 months was $132.7 million also a record. Foodservice, sales to foodservice customers increased 5% for the quarter and 4% without Kim & Scott’s. Soft pretzel sales alone were up 22%, that’s 22% for the quarter and 26% for the nine months, 19% without Kim & Scott’s in the quarter. Italian ICEE and frozen juice…

Thank you. We will now begin the question-and-answer session. (Operator Instructions) We have a question from (Bill Robilio). Please state your question.

Can I have his name again, Bill?

Bill, your line is open. Please state your question.

Didn’t have one.

Okay.

We have a question from Bryan Shea (William Blair & Company, LLC). Please state your question. Bryan Shea - William Blair & Company, LLC: Hi, guys. This is Bryan Shea speaking on behalf of Jon Anderson.

Good morning, Bryan. Bryan Shea - William Blair & Company, LLC: Good morning. Good morning. Just want to congratulate you guys real quickly on a nice quarter.

Thank you. Bryan Shea - William Blair & Company, LLC: And just a few questions, first of all, I saw cash and securities building on the balance sheet. Basically, what do you foresee as the best use to that war chest or rather how and might you put that to work in the future?

Well, to begin with, we are not letting it burn a hole in our pocket, and we will – it will grow until we use it primarily for acquisitions, and we are very carefully studying the landscape. So, even though, it continues to build because as you could tell we are generating excess cash flow for needs. We are using that as a war chest. So, maybe we’ll go on a good measured warpath soon. Bryan Shea - William Blair & Company, LLC: Okay, great. Also another question regarding the contribution from new products, I noticed it was slightly lower in the quarter. Can you give us an update on the new product pipeline?

Well, we have a litany of new products that are, you might say, jockeying and racing for the position for intros. But by the same token, we take measure of the things we have done in the past year, in the past two years to make sure that we learned from some of our rollouts and some of our testing, but we do have some new products, some of our own, some we have been working in conjunction with customers, and we expect to be growing out with this during the first and second quarter in 2014. Bryan Shea - William Blair & Company, LLC: Okay, great. And then my final question is just regarding pretzel sales in foodservice, it looked like it remained pretty strong in the quarter. And I just wanted to know if you guys have added any major new customers or do you foresee adding any new customers in the near term?

How about I answer you? Yes and yes, have been very, very busy developing – if you look back at our soft pretzels and core products over the years, we’ve expanded it, and built it, we put it in boxes, and put it in cages, and made it twisted and made it longer, and filled it and we continue to do these things. And every once in a while a customer will come with us and want to have something that will be entirely different, perhaps – and we’re working on some of these things now. And you may see one or two of these things over the next three to six months throughout the landscape. We’ve done a terrific job by doing business with some of the fast food and restaurant chains. And when I say infiltrating, getting our product, our people accepted and that we expect that we will continue to be hopefully stampeding with these products across the landscape. Bryan Shea - William Blair & Company, LLC: Great. Well, thanks again, guys, and good luck.

Our next question comes from Akshay Jagdale (KeyBanc Capital Markets). Please state your question.

Akshay, how are you?

Good. Good morning. Hopefully, the peanut issues are behind you.

I didn’t eat any breakfast this morning and just as I was running through the (indiscernible) here, I grabbed a few peanuts off of my desk, which are nutritious and which I eat from time-to-time. And I guess one or two of them got caught in my vocal, whatever, so I apologize to people in this room, everybody there for what amounted to was a minute or so without Gerry’s good voice.

No. I was a little bit concerned at one point, which I was...

Don’t sell your stock.

Okay. So, joking aside, I thought it was a good quarter. It’s interesting, to me, the way I saw it was 80% of your business is doing great and perhaps, even better than my bullish expectations, especially churros and pretzels and obviously, those products have a very good margin on them. But unfortunately, some of that is being masked by weather-related issues, frozen juice bars this quarter. And then, more importantly, which is what I wanted to focus on is handheld sales, as well as some of the issues you’ve had with the school lunch program that have sort of stolen the show a little bit from these better performing products. So, help me understand how you are thinking about the handheld business. You’ve had it for a while now. I believe you’re making some managerial changes there. What’s the plan? What’s the timeline? I think when you first acquired it, you had – in fairness, you had said this was going to be a difficult one but you had said in two years it should be significantly accretive. So, relative to those expectations, where are you, what changes are you making, how are you thinking about that business differently if at all?

Okay. Good questions and let me address the second part first. You’re right. When we acquired this business, and you’re familiar with the details, I said it will be at least two years until we would have a better understanding and how well it would be accretive. And quite frankly, it’s been challenged. Initially, we had – we integrated it with our sales force and our marketing team. But we recently, maybe three months ago, added a manager. What is his official title? He’s Director of Handheld Sales. And he comes to us with 20 years experience. As a matter of fact, he worked for ConAgra and another company similar. And he has been on board for three months and his assigned task is to fix and grow. It’s too early to tell, but we like his hands-on style. He lives out in the far Midwest and he’s actively involved not only with our customer base but our people and the plant. We still are or have – we’re still very, very bullish on this category. We think we’re in a good place there. And Akshay, it has been marginally accretive, not as much as any of us would like, alright, but this is a business that is adding contribution. With respect to school foodservice, this is something that we noted probably three years ago, maybe even three and a half years ago. And unfortunately, the signs that we saw and the changes that were being made by USDA are here and it has impacted our business significantly in school foodservice. I think it’s telling and perhaps a tribute to us that we have been able to reformulate our products, sugar out this in whole wheat, 51% grain, 100% juice, we have been able to do this on the run. And comply with all of the state and the federal government standards and I don’t know if we have hit bottom yet with that, but we are looking for a bounce back, and a lot of us believe that we are bottoming out. As a matter of fact, that’s too early to tell, but July seemed to indicate that there is a little bit of bounce, but if that business can stabilize or even better yet bounce a little bit, it will service well for 2014 and beyond.

That’s helpful. And then just focusing on the positive aspects...

There is nothing to throw about yet, but if we could stabilize the school foodservice business and we know we are going to fix the handhelds, that will be two feathers in our cap.

So, just focusing on the part of the business which 80% of it which is doing really well and specifically if I can, I’d like to call out churros and pretzels and just the whole restaurant initiative, if I may. How would you frame the outlook for that in ‘14? I mean, obviously, you have had 20% growth in soft pretzels and churros sales and you are going to lap that next year, but when I think about it, I think about your restaurant opportunity, if I may, and I feel like you are still highly under-penetrated there, despite the significant growth we have seen in that business for you guys this year. So, help me understand that maybe longer term, the restaurant opportunity and then more specifically in 2014?

Well, as you say, both of these have been growing in the double-digit rates, 20%, 22%. We are cautiously optimistic that we can maintain that growth rate or close to it that we have established. So, obviously, we are busy testing, going from Alpha test to McGee test to other tests with these chains and developing new products. The jury is still out, but we think we have a lot of evidence on our side.

And I mean, are you exclusive at that one restaurant chain on churros? I mean, obviously, it’s been a huge success, but are you exclusive with that chain, which is why you are not launching that particular product in other chains, or it’s just taking time to get it into other stores on churros?

But we have – yes, we are exclusive with some of our chains and – but yes, we are also introducing similar products throughout. The particular chain, I think that you are making reference to, there is a special application that we do only for them and that we’ve been able to develop.

Perfect. I will get back in line. Thank you, Gerry.

Thank you, Akshay.

Our next question comes from the Jonathan Feeney (Janney Montgomery Scott). Please state your question.

Hi, Jon

Good morning. This is Mark Williams on for Jonathan.

Hi, Mark.

Hi. So, I wanted to ask about the cost outlook, I know you said that you can’t predict what spot costs are going to do for you guys, going forward, but I believe last quarter you spoke about contract pricing in the foodservice business being slightly behind spot costs? And since then, we continue to see grain cost going down specifically with expectations for this year’s cost and next year’s cost. So, I want to know what the outlook was for that, I guess, cost, pricing, spread and how that’s changed from last quarter and what you believe the price – the cost allocated and how that affects pricing in this channel.

Dennis, let me put that in your Yankee hat.

Well, first of all, we – as many of you know, we buy out six to nine months on a lot of our major commodities, but we’re still looking at higher prices on flour going forward for our own purchases over the next several quarters. Some of the other quantities that we will buy in sugar has been down, so we’ll be seeing the benefit of that. So, overall we’re looking at neutral to probably slightly down, maybe slightly up, but we don’t know what’s going to be happening in some of the other areas where we are seeing increases. So, in terms of pricing, what we passed on, we do that once a year. Last time was earlier in this year, I guess January or so...

January.

And we’ll be looking at it again until next January. And so at this point, we can’t really predict what we’re going to be doing at that point.

Okay. And can you just talk about the, I guess the outside of the new business one is just what kind of – what you’re seeing in food service challenge in terms of simply growth, you’re seeing that pickup at all?

Well we read the same newspapers and listen to the same commentators that you guys do. And I don’t think we’re in an aggressive growth period yet. I think it’s better than it was two years ago. And obviously we’ve been able to move our business along at the mid-single digits and that’s what we’re committed to and if we can get any kind of bumps that would give us a little higher ride, we’ve been aggressively trying to include that and so.

Okay, that’s it for me. Thank you.

Thank you.

Our next question comes from Brian Rafn (Morgan Dempsey Capital Management). Please state your question.

Good morning, Gerry.

Good morning, Brian. How are you?

I’m good. You talked about CapEx, Gerry $35 million, kind of give us a sense how much of that is maintenance and what are any specific projects and any specific factories across your network?

Well, it can range from anything to replacing some mechanical, soft machine in there to ICEE equipment but about half of it, maybe about a third of it is maintenance and the other is just to make what our efficient plans even more efficient?

Okay. And big projects, any special CapEx projects?

Not as of this time.

Yes. Can you talk a little bit across some of your different factories, Gerry? What are you running maybe a capacity utilization or what are you guys running on shifts just in a general comment, labor shifts?

Good question. Obviously, we have 15 factories and I would say that 11 or 12 of them are being utilized very, very efficiently. One or two of them, we’re looking for more products to put in there. And one of the product lines that’s really growing for us, of course, is the soft pretzel, the entire category, and we doubled our Texas plant about a year or so ago, a year and a half ago. We’re also looking for future expansion of our pretzel and pretzel-like products. And we think we have room within our headquarters here in Pennsauken and/or our Bellmawr plant. So, we have some ideas and thoughts on the table but we’re pretty good at building and refreshing on the run.

Okay, got it. The cash reserves, Gerry, what are you guys investing that? You obviously went through the adjustable preferrs2 a few years back. What are you guys investing the cash reserves in?

I’ll give you to Dennis.

Well, over the past year, we’ve invested about $110 million in basically income fund.

Okay. What’s any initiatives in the dollar store channel, the dollar channels?

I’m sorry, the question again?

Yes, Gerry. Any specific new products for the dollar store chains?

Not really. We have our pretzel line in there. We have some of our novelties. And the dollar channel which began for us about four or five years ago and expanded quickly, they have together with cost and with other factors in there, they have been a little bit challenging, because it’s real hard to get sometimes a price increase in there, particularly if it takes you over that magic $0.99 mark.

Okay. I’ll ask one more, Gerry, how is Daddy Ray’s going?

Daddy Ray’s is going well. We have expanded it. We are doing our own line of products under the Daddy Ray’s label. We are doing co-packing for others, but we are pleased with its outlook.

Do you have a sales figure, nine months?

Really don’t, we don’t pull that out.

Okay. I’ll get back in line. Thank you, Gerry.

Thanks.

Our next question comes from Akshay Jagdale.

Thank you for taking the follow-up. Gerry, can you just expand a little bit on the new product commentary that you made initially on somebody else’s question, I thought that was interesting, but if you can give us a little bit more details on that, that would be great?

Well, we have some new pretzel products both in foodservice and in retail. And we have some interesting products that our R&D department are developing for future potential. So, we think that we can build upon the foodservice business, which as you know, showed a 22% increase recently. And we think that it will help expand our retail supermarket business.

So, in other words, maybe see similar type of products that we are seeing in foodservice, churros, pretzels in the retail channel, is that how I should think about that?

You could think about it that way, but I would say the pretzel product expansion is going to come quicker than the churro product expansion in supermarket.

Okay. And so is supermarket going to be a big driver next year you think of sales growth?

I don’t know about a big driver, but it continues to be a driver.

Okay. And just on acquisitions, can you just give us the latest on what you are seeing out there and how you view the environment, obviously, you have been very patient. So, just wondering if things have changed at all or if you are just not finding the right fit?

Well, I think well, thank you for at least acknowledging the people in this room sitting with me, who think I have no patience, but yes, we have been patient. And like I said, I’d rather – we don’t want to make the wrong acquisition. We want something that’s not only going to be a fit with our culture, but a fit with our product lines. We are looking at things – most things for one reason or another failed to pass, what is our crucial J&J test. However, we have made acquisitions in the past. We have probably made five or six acquisitions over the past four, five years, and chances are we will make acquisitions in the future. There are some things we are looking at right now, but there is nothing close enough for me to comment on a timeline for you. But like you said, I am patient. We want you guys to be patient too.

Great, thank you. I’ll past it on.

Akshay.

Our next question comes from Robert Costello (Costello Asset Management). Please state your question.

Hi. Couple of questions regarding spending and your marketing spend dollars in the quarter versus a year ago was actually down, but you had talked about the increased trade spend during the quarter, so what do you anticipate marketing spend going forward to be?

Bob, this is Gerry. One of the reasons that bad weather even though it has a dampening effect on sales, it winds up having a tickling effect on spend, because you got product and inventory. So, we probably expect a little bit more in the March, April, May period or the April, May, June period than what we had anticipated just to boost the sales in the supermarkets. And hopefully with good weather this thing will take on the life that it supposed to have on its own. But I think the number was something 18.5% and what not. We do a pretty good job managing our marketing expenses. And we certainly don’t want to starve the business and I got enough faith and trust in my people for them doing the right thing.

Right. Your tax rate, you mentioned that was down 1.7%, 38% to 36.3%. You’ve always had a high rate, so do you expect this rate to be at this level and if it is, how come it’s lower than it’s been over the last couple of years and its trending lower?

I’m going to give it to Dennis. But I think there are a couple of reasons. One is credits in there, whether it would be labor credits or (indiscernible) credits. But Dennis, why don’t you comment on it?

Yes, I would say the rate will be not as well as it’s been, but lower than it had been over the past couple of years going forward. And as Gerry said, a lot of it has to do with estimates and our liability overall for taxes within the $70 million range when you include deferred taxes. So, if you’re off a couple of million or $7 million, it will affect your tax rate and therefore, just an example. So, I would say, it would be lower than it has been, but not as low probably as it is now.

Next question, Gerry, on the churros, the churros distribution that was asked earlier, could you break out like where the product is being distributed by channel? Like what’s the biggest, what’s the smallest, and talk about retail, like maybe give us an education why it might be slower than people expect in growth relative to the dynamics of what’s going on in retail.

Well, to begin with, churros are being distributed 99% in food service. And in that 99% food service, a big block of that, maybe 30% is fast food restaurants. We expect that group to grow, but then again we expect the overall category to grow too.

Right. So, on the retail end, what is the obstacles or barriers to spill over from the other product categories with the breakfast category?

Are you talking churros now?

Yes, yes. yes. No, churros.

We’ve had a project that we’ve been studying for a while now to introduce churros. One of the things that – where do we put the plant, where do we put the line, what do we call the product, and we’re close to go-system with that.

Okay. Thank you very much.

Thank you, Bob. And I appreciate talking to you on Sunday.

Alright. Good to know.

And we have a question from Brian Rafn (Morgan Dempsey Capital Management). Please state your question.

Yes. I was just wondering, Gerry, what – I’ve missed your your first opening comments? What was kind of your weather comment relative to ICEE and SLUSH PUPPIE, Parrot Ice, you can see across the U.S. and the Great Lakes, we had a very kind of a very cool May and June and then into July before it heated up. What did you see nationally, weather wise?

Well, ICEE had a good quarter, a very good quarter, considering the impact and effect of the weather. And as you – as I noted before, it continues to grow it’s managed service business that had some pretty good rates, but ICEE had a strong June which helped make up for this rain-related and dampness that we experienced particularly in the Midwest and Northeast in there. And hopefully, if we have decent weather, not great, just decent weather for the rest of the summer, ICEE will have contributed another strong selling.

Yeah. On the M&A front Gerry, as you look forward into 2014, have you changed at all? I mean obviously, you have a much larger sales base than when you bought the pretzel bankruptcy back in 1970. Are there any changes, as a strategic buyer, for you where maybe you’re not necessarily looking at the acquisitions that are resuscitating a bankruptcy or is it a minimum sale size? You put a lot of due diligence into a small acquisition, $5 million, $6 million. You can have kind of the same for something of larger sales base. I mean, you changed at all the parameters of what you are looking at on an M&A front?

We are comfortable with making a decent size acquisition whether it be $50 million, $100 million, or a $200 million acquisition. And we have gotten more comfortable in our understanding and abilities to integrate it. We are not comfortable with buying a loser that we can’t fix immediately. Obviously, we want something to be incremental and we look at these things very, very closely, and we will continue to look at them with our conservative experience and wisdom.

Let me ask you, Gerry, on the foodservice, the USDA front. Michelle Obama, the President’s wife like kids to have frozen broccoli on a stick, but they are not going to eat that. All you have to do is look at the cinema movie chain, how much support do you get as you reformulate, you talked about 51% whole grain and taking sugar out and that type of thing? The kids still have to like it. How much benefit do you guys have and maybe the kids rejecting things that just, yes, they may be very, very healthy, but they don’t sell at all in the school?

You make a good point, alright. And even though it doesn’t sell well in the schools, some of the force feeding, which they have to have it on the school lunch program or on the breakfast program, pretty much limits the suppliers and the school partners like ourselves in there for a year or so which can be two years. We think that the trend is hopefully, will be swayed and it will turn. We invest a lot of money in our school foodservice business, both with people and in tradeshows. And we think that we have – we, as a company maybe nearing the bottom of our testing with this, and we can look forward to at things stabilize and returning to a growth entity.

Alright. One more question, Gerry, what is your headcount and kind of discuss a little bit – would you describe yourself as being stable relative to labor headcount? Would you be adding people? Would you be looking for engineers? Is there any areas from a hiring standpoint you hear a lot of that cater, what’s from a J&J Snack Foods’ standpoint, where would you be on labor?

Now, I’ll just throw out a couple of quick things and you could take that up for what it means. Over the past year, we have hired a couple of engineers and they have been located to East Coast, then West Coast, then part of it is to make what is already efficient operations even more efficient. Sometimes, we bring on an engineer to look ahead for projects. It could be six to nine months down the road. Our overall labor has been probably steady or even up a little bit even though we have implemented cost saving practices and efficiencies in the plant through processes and through robotics. But overall, we are a company of 3,300 people. We don’t send ship overseas to – we do everything ourselves and we employ our people here in our country, and it works well for us.

Thanks, Gerry. I appreciate all the good job. Thanks.

Thank you.

(Operator Instructions) There are no further questions at this time.

Thank you, Yolanda. And I thank everybody that participated in this call. We look forward to talking to you again next quarter. Bye now.