J&J Snack Foods Corp. (JJSF) reported record second-quarter earnings that came in 25.0% ahead of the Zacks Consensus Estimate, sending shares of this nutrition food company higher by almost 14% the day after the announcement on April 23, 2012. Earnings estimates have been moving higher since then, making this Zacks #1 Rank (Strong Buy) stock a solid momentum pick.
Solid Second Quarter Results
J&J Snack Foods' fiscal second quarter 2012 adjusted earnings of 55 cents per share surpassed the Zacks Consensus Estimate of 44 cents. Earnings also jumped 19.5% on a year-over-year basis driven by solid top-line growth.
Total net sales grew 16.0% year over year to $189.6 million, which beat the Zacks Consensus Estimate of $182.0 million. Organically, excluding sales derived from last year's acquisition of the frozen handheld business of ConAgra Foods (CAG), the top line grew 8%. Strong performances from foodservice, soft pretzels, frozen juices and ices, churros and bakery products boosted the top line.
Despite the top-line growth, gross margins contracted 160 basis points to 28.5% as sales growth was offset by higher input costs and lower margins on the acquired handheld sales. Operating income, nonetheless, increased 17% to $16.3 million as gross margin headwinds were mitigated by lower operating expenses.
J&J Snack Foods' strong second quarter resulted in an uptrend in estimate revisions. The Zacks Consensus Estimate has risen by 6.4% to $2.81 for fiscal 2012 and by 5.6% to $3.01 for fiscal 2013 over the last 60 days.
J&J Snack Foods' valuation looks a bit expensive. The stock currently trades at a forward price-to-earnings (P/E) of 20.55x, reflecting a 68% premium to the peer group average of 12.4x. On a price-to-book basis, the shares trade at 2.42x, a 24% premium to the peer group average of 1.95. Also, the stock has a trailing 12-month return on equity (:ROE) of 11.2%, which is in line with its peer group average.
Shares of J&J Snack Foods traded in the $55-$55 range after rising sharply on solid second quarter results. The stock reached a 52-week high of $58.09 on June 20, a few days after the announcement of the synergistic acquisition of Kim & Scott's Gourmet Pretzels, a Chicago based small soft pretzel company. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $54.50 and $51.36, respectively. In fact, the stock has been consistently trading above its 50-day and 200-day moving averages since mid-April 2012.
Volume is fairly strong, averaging roughly 49K daily. The year-to-date return for the stock is 8.27% compared with the S&P 500's return of 5.40%.
Based in Pennsauken, New Jersey, J&J Snack Foods manufactures nutritional snack foods and distributes frozen beverages to the food service and retail supermarket industry in the US, Canada and Mexico. Its products include soft pretzels, frozen juice treats and desserts, churros, dough enrobed handheld products and baked goods, Italian ice and frozen fruit bars. The market cap of the company is $1.09 billion.
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