J&J Snack Foods reported its annual results yesterday. Over twelve years, revenue has doubled, but operating profit has merely stagnated; adjusted for inflation, it faces a critical erosion of profitability.
The group is dealing with a severe margin compression, hit by inflation on one side and a chronic inability to raise selling prices on the other. Fortunately, the capital intensity of its business remains well under control.
The other structural weakness has been the poor return on its external growth initiatives. Between 2013 and 2025, $350m was invested in acquisitions, so far without delivering any value creation.
The absence of profit growth has not prevented dividend payments from tripling over the period - a payout that remains well covered by free cash flow. But the current dividend yield of only 2.7% will not be enough to make this single characteristic attractive.
Enterprise value of $1.7bn represents a multiple of 17x the free cash flow realized this year, a multiple still relatively high given the weak economic performance, even after the stock price decline.
In terms of EV/EBITDA, valuation moves in line with private market deal activity. Nothing particularly tempting on that side either. In this respect, this earnings report follows the same pattern as the previous year at the same time.
Fortunately, J&J Snack Foods still boasts a solid balance sheet, with net debt representing less than a year of earnings before interest, taxes, depreciation, and amortization.
