J&J Snack Foods Corp (JJSF) Q1 2021 Earnings Call Transcript

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J&J Snack Foods Corp (JJSF -1.11%)
Q1 2021 Earnings Call
Jan 26, 2021, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to the J&J Snack Foods First Quarter Earnings Call. My name is Richard and I'll be your operator for today's call. [Operator Instructions]

I will now turn the call over to Gerry Shreiber. Mr. Shreiber, you may begin.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Thank you, Richard. Good morning, everybody, and welcome to our first quarter conference call with J&J Snack Foods. I am Gerry Shreiber, I should be familiar with -- you should be familiar with my name and whatnot as I've been in the same position now close to 50 years much to my pleasure privilege. We have two new attendees here, Dan Fachner who has been running our ICEE business, and I'd say it very, very well, has not been in the formal shareholders meeting. He recently located from the West Coast and is now living in Tennessee. And as you may know, Dennis Moore, who was our CFO for 30 some odd years has retired and Ken Plunk, who was certainly well qualified, he had a stellar career with Kmart -- I'm sorry with Walmart and Ken has been with us now, is it Ken four months?

Ken Plunk -- Chief Financial Officer

Roughly, yeah.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Okay. Let me begin with some commentary for the first quarter and I'll begin with our forward-looking statements. 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 were $241 million for the quarter, a decrease of 15%. Sales continue to be challenged by the impacts of COVID-19 especially in our Food Service and Frozen Beverage business segments. Despite this environment, we are seeing gradual improvements in sales trends since quarter four 2020, where sales were 19% worse than last year. Our retail business responded well driving 33% growth this quarter. Operating income was $578,000 for the quarter, a decrease of $21.1 million as declining sales pressured production efficiency and expense leverage.

Now I'd like to review the results of each of our business segments. And let me add just one comment, our Food Service business, which represents about 70% of our total sales, was significantly impacted during the past year because of the sports and leisure cancellations and sales reductions, movie theaters and to a lesser extent schools.

Food Service: sales to food service customers decreased 13% for the quarter, an improving trend when compared to quarter four 2020 that declined 21% versus the prior year. Key customer venues and channels like theme parks, schools restaurants, sports and leisure and theaters continue to operate at limited capacity impacting food service sales. Soft pretzel sales decreased 35% and frozen juices and ices decreased 11%.

Churros and funnel cake sales were down 30% and 49% respectively. Sales of bakery products declined 8% as the virus impacted traffic, purchase choices and frequency in this part of our business.

Our handheld business had a strong sales quarter exceeding last year by $10.4 million or 145% and was driven by a new product developed for one of our wholesale club customers.

Operating income in our Food Service segment decreased $11.9 million in the quarter due to the sales shortfall and lower growth.

Retail Supermarkets: our retail grocery business continues to perform well as sales increased 33% for the quarter. Sales were led by our SUPERPRETZEL brands with an increase of 41% in the quarter. Frozen juice and ices sales were up 52% and sales of biscuits increased 10%.

Handheld sales were up 1% for the quarter. Operating income increased $2.5 million or 113% in the quarter driven by higher sales and operating income margins of 12%, over 400 points better than last year. Sales for the Frozen Beverage business segment were down 41% in the quarter. Beverage related sales were down 55%, driven entirely by a 56% decline in gallons as traffic in theaters, amusement park and retailers faced continued impacts from COVID-19. These venues rely on incremental seasonal sales in December, which were significantly affected by reduced operating capacity and consumers staying home. Service revenue declined 16% almost entirely from cancellation of a key customer's maintenance program. Machine revenue decreased 46% due mainly from lapping a $5 million non-recurring sales from last year.

Our Frozen Beverage segment incurred an operating loss for the quarter of $10.3 million as the COVID-19 restrictions continued to pressure sales. These sales challenges impacted gross margin mix and efficiency.

Consolidated: Gross profit as a percentage of sales was 20.8% this quarter, down from 27.5% last year. Gross profit percentages decreased because of the previously mentioned COVID-19 sales pressure on our Food Service and Frozen Beverages customers. Total operating expense as a percentage of sales was 20.6% in the quarter, up from last year's 19.9%. Total expenses were $6.6 million below last year but still deleveraged against the significant drop in sales. Net earnings for the quarter was $1.8 million, down from $17.1 million last year.

Our cash and investment securities balance was $285 million as of December 26, 2020, an increase of $7 million from our September year-end. We continue to drive positive cash flow and our balance sheet and liquidity remained strong in this challenging environment. We continue to look for acquisition opportunities and remain focused on the long-term growth opportunities of our business. Our capital spending was $9.7 million in the quarter as we continue to invest in plant efficiencies and growing our business. We estimate our spendings for the year to be about consistent with prior years.

A cash dividend of $0.575 per share was declared by our Board of Directors and paid on January 12, 2021. We did not buy back any shares of our stock during the quarter. Our investment income this year was $416,000 less than last year due to decreases in the amount of investments and lower interest rates. I want to thank you again for your continued interest.

I will now turn the meeting over to Dan Fachner, who was named President of the J&J Snack Foods total group about six months ago and Dan will have a few additional comments before we open up the meeting for Q&A.

Dan Fachner -- President

Great, thank you. Good morning and thank you for joining us on our first quarter conference call. We are thrilled to have you listening in and we thank you for your interest in J&J Snack Foods. With us today in the room, in addition to myself and Ken Plunk, who were announced earlier, we also have Marjorie Roshkoff, our Vice President and General Counsel; we have Bob Pape on the line, our Senior Vice President of Sales and we have Bob Radano, our Senior Vice President and COO.

I'd like to make just a few more additional comments before we open it up for questions. But as many of you know, we are living in some unprecedented times. Our lives have been impacted not to mention our business this past year. How we work, how we communicate, our shopping habits, how we entertain ourselves and just simply how we stay connected with one another such as the Zoom calls we're all going through. I believe our company has done an excellent job working through the challenges; it's been a consistent daily focus on the basics of our operating and our business.

I have to tell you I'm so proud of our employees and their unwavering commitment to serve our customers each and every day. We continue to make progress despite the challenges of COVID-19. In this first quarter, traffic and in key Food Service revenues that comprised of two-thirds of our sales continue to operate at substantially reduced or limited capacity. This was even more pronounced during the holiday season where many of these venues rely on seasonally higher traffic and sales. Consumers just simply stayed at home during this time.

Our retail business though continues to thrive with another 33% growth this quarter. Unfortunately, that wasn't quite enough to overcome the impact on our food service and frozen beverages but we're just delighted with the way that group is performing. As Gerry mentioned, we still improved our sales relative to prior year, we were down 19% in the fourth quarter, down 15% the prior year in the first quarter. I'm extremely proud again of what we are doing considering the environment we are in. Even with the COVID-19 sales headwinds, our balance sheet is strong and we have the funds and resources to invest in growing this business. We will remain aggressive in making strategic capital investments and driving innovation and efficiencies. We appreciate your interest in our company and I'll now turn it over to any questions that you might have. Thank you very much.

Questions and Answers:

Operator

And thank you. [Operator Instructions] And our first question online comes from Rob Dickerson. Please go ahead, your line is open.

Rob Dickerson -- Jefferies -- Analyst

Hi. Great, thank you. Good morning.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Good morning, Rob.

Rob Dickerson -- Jefferies -- Analyst

Thanks, good morning. So I guess my first question is, I guess, around sort of cadence of the quarter. I think last quarter you had said maybe in the, kind of, let's say first four weeks, it looks like sales were down approximately 25%. Well, maybe they improved a little bit in November-December given the total Q4 results. However, you are saying there is some pressure in the holidays -- during the holidays. I'm just curious if you could just provide some color, if you saw things maybe improve a little bit or maybe improved less than you had thought and kind of like where things stand now versus kind of where you thought they could have stood just a few months ago?

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Right. Rob, your statement was really accurate. We did see a continual improvement as we came into the quarter and October and November held up pretty strong. And then we got into the holiday season and some of our key customers that we have that really count on that holiday times such as theaters or some of the mass merchandisers just did not perform as well as we anticipated during that particular time. And, of course, as you know, we also had another spike in COVID during these times as well and that didn't help in any way. But we're confident that that shopper will come back as those locations open back up and we think that this quarter will continue to improve again.

Rob Dickerson -- Jefferies -- Analyst

All right. Great, thanks. And then I guess secondly, I will admit, I was actually in a movie theater this past weekend with the family.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Thank you. Rob, did you buy an ICEE and a pretzel? That's all I want to know.

Rob Dickerson -- Jefferies -- Analyst

Yeah, actually -- well, that was my question, is there a big beverage kind of top up that's in the store now, so it's easier to actually order and you can buy these massive ICEE frozen drink and I was just thinking, OK, well, obviously we've seen the news coming out of AMC the past couple days in terms of financing. There is still demand for movie theaters overall kind of longer term but then I think is there any way that you can adjust the strategy in terms of your offering, not just in some of these higher traffic areas, but just kind of overall, right, like hopefully movie theaters come back, hopefully traffic picks back up again, that's the expectation kind of across the board, but, yes, we've been in the cell long enough that I would assume as you sit down and think about kind of go-forward strategy and what some of your product offerings could be, you have to ask yourself a question, is there a way to adjust the offering somehow or just the strategy somehow? I don't know, maybe not. So I'm just curious as you think about that, are there ways that you can either adjust the strategy, maybe you can do bolt-on acquisition to kind of position in a more diverse way or maybe it's just a -- just sit it out, and basically wait for the traffic to come back. [Speech Overlap]

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

No, you're kind of reading from our playbook, Rob. You're absolutely right. We are adjusting to look at other avenues outside of the theaters and are having some success with that. That's not a -- it's not a particularly quick fix because there is a period of time where you got to sell and then install and test. But we have some really good tests going on in the ICEE business right now. And that group and that sales group are really focused on other channels to grow our business within. And we think that we'll have success doing that, and along the way we believe these theaters will continue to open. But you're right, we can't sit back and wait for that, we have to go do something about it and that's exactly what we're doing.

Rob Dickerson -- Jefferies -- Analyst

All right. Great, thank you so much. I'll pass it on.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Thank you.

Operator

And thank you. [Operator Instructions] Our next question online comes from Ryan Bell. Please go ahead.

Ryan Bell -- Consumer Edge Research -- Analyst

Hi.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Good morning. Ryan.

Ryan Bell -- Consumer Edge Research -- Analyst

Hi, everyone. Good morning. Could you provide maybe a little bit more color about your assumptions and thoughts with the cadence of the improvement for the food service as we see the vaccines being distributed more? And then also, is there any way you could give a quarter-to-date sense for the performance improvement?

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

No, Ryan, I didn't quite understand the last section of your question, it faded out a little bit, can you repeat that?

Ryan Bell -- Consumer Edge Research -- Analyst

Sure. The last part that I was asking was, quarter-to-date, how are the parts of your business doing? Is there maybe any number you could provide about the actual size of the improvement or how the decline is going quarter-to-date for the food service and the ICEE business?

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Quarter-to-date meaning quarter two?

Ryan Bell -- Consumer Edge Research -- Analyst

Yeah, through January?

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Ken, you want to touch on it?

Ken Plunk -- Chief Financial Officer

Interesting question. I think probably the right answer to that, Ryan, is, yeah, it's about the same. Think about food service was about 13% less than last year, that was an improvement versus Q4 where Q4 was 21% below last year. It's so early in Q2. I think in terms of your -- the way to think about it, your modeling, I'd probably still think around that 13% to 15% below the base year until we start to see more widespread access to the vaccine and a recovery of that. But it's still a bit early to say kind of gauge the entire quarter right now.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

This is Gerry. I'd like to comment, I assume a lot of you are -- may be most of you are sports fans but you remember the year 1994 when suddenly all of baseball went on strike and it did not recover until two years later, we're not having quite that impact in there. But basically so many of our venues were completely shut down and now they're opening up. Now we fully expect they will be back to last year's level in the next year or so.

Ryan Bell -- Consumer Edge Research -- Analyst

Okay, that's helpful. Would you maybe be able to provide some broad guidance or insights about the expectations for cost management throughout the balance of the year? I know that we're going to be lapping some significant declines last year, where the closures are being felt more poignantly. So is there any way we can think about the trajectory of gross margins throughout the year?

Ken Plunk -- Chief Financial Officer

Yeah. I mean, we point this out I think in the press release, particularly around gross margin. Those margins get challenged when the biggest contributors to your sales declines are soft pretzels, and ICEE beverages, both of which have some of the healthier gross margins. So when that mix changes, that has an impact on gross margin and until we see those businesses turnaround or continue to have a similar mix impact. The other thing, particularly as you look at Q1, Ryan, is, again, as we think about the magnitude or the impact of COVID, obviously, the more that heightens, the more that impacts our labor force. And when it does that -- and people are concerned about coming to work, we have to often look at ways to manage that labor in a different way and sometimes that's a little bit more expensive, whether that's temp labor over time just because of the concerns of ours is creating.

Dan Fachner -- President

Ryan, that certainly had an impact in our first quarter and it's something that we're working really hard at the remainder of the year to get a better handle on. But just as Ken has said, the labor shortage as we're all aware of out there, and then when COVID spikes again that increases. We're still certainly dealing with that issue and hope that some of those issues will go away as the vaccine gets more and more in place.

Ken Plunk -- Chief Financial Officer

Yeah. And then I'll also add, I mean, we spent $730,000 roughly on various health and safety matters around COVID that actually heightened from mid-November to the end of December with the virus getting worse. So that's what, $0.035 a share impact on expenses. And if you were to take that $730,000 out of our expenses compared to last year, we're much closer to leveraging. So I'm actually quite proud of the way we've pulled back on expenses as sales have come back, we actually took $6.6 million of expenses out in Q1, needed to take roughly $7 million out to stay leveraged with the prior year. And so you look at that as kind of a COVID impact. I think a way to think forward is as long as the virus is in the state as that, we're going to continue to spend probably roughly $150,000 to $200,000 a month on all the health and safety matters.

So that will be kind of a lingering impact on expenses until we kind of move past that. Otherwise, we're always sharpening our pencil, Ryan. When you look at the way business comes in, the way margins come in, Dan and I and the team are talking about kind of every rock that we can blow open to continue to get precise on where we can dial expenses back a bit more. But it gets complicated, when you have sales loss of that magnitude to calibrate down sales, still stay true to our long-term vision for the company and the unknown with the virus, dialing that perfectly is a challenge. But -- so I'd say short term for Q2, I expect us to get better expenses but it's going to be marginal I think as we continue to figure out how to manage through this COVID period.

Ryan Bell -- Consumer Edge Research -- Analyst

Thanks for all the color. And I think one last one from me, when you're thinking about capital allocation now, has anything changed maybe thoughts about acquisitions in food service versus in retail? And then maybe just a broader thought process about the M&A, it's landscape now versus prior to COVID?

Dan Fachner -- President

That's a great question, Ryan. We are working really hard at understanding capital allocation probably I think better than we ever have. And we've put together a good group that is evaluating each one of our plans and where we can best invest in ourselves to get the right kind of return and the right kind of savings from it. And so we're going to continue to do that and have done some things this past quarter that, again, I am really, really pleased with and I'm pleased with this group that we have put together and the way that we go about looking at it.

In regards to M&A, we're going to continue looking, we're looking today. We've had several conversations with different people, we're going to be careful about how we do it, but when we find the right one we're going to be ready and prepared, that's part of the advantage we have with the strong balance sheet and cash that we have is that we can be in a position to do that, and yet we want to do it wisely. And so we're doing that. And there's been some opportunities brought to us and we're going to continue to look until we find the right one. It may cause us -- to the second half of your question, it may cause us to take another look at retail where in the past, maybe, we didn't look at that as strong and we might look at that even closer now with some of the opportunities that are being brought to us. But, yeah, we're going to continue to be aggressive there.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

What I might add is part of the retail surge was due to the closures across the board in the Food Service group when you consider there was no sports, there was no leisure, the amusement parks basically shut or slimmed down, movie theaters. So that was a major, major impact. Fortunately, some of that spilled over because our franchises with SUPERPRETZEL and ICEE and whatnot are not only the leading brands but the leading brands with significant barriers to entry against anything that may be considered competing. We're going to continue to emphasize that and build on it.

Ryan Bell -- Consumer Edge Research -- Analyst

Great. Thanks for the question. That's it from me.

Dan Fachner -- President

Thank you, Ryan.

Ken Plunk -- Chief Financial Officer

Thanks, Ryan.

Operator

Thank you. Our next question online comes from Jon Andersen. Please go ahead, your line is open.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Hey, Jon.

Dan Fachner -- President

Good morning, Jon.

Jon Andersen -- William Blair & Company -- Analyst

Hey, good morning everybody. Gerry, and congratulations. Dan and Ken. It's good to hear your voices on the call.

Ken Plunk -- Chief Financial Officer

Thanks, Jon.

Dan Fachner -- President

Likewise, yours too.

Jon Andersen -- William Blair & Company -- Analyst

A few questions. I'll start with just the sales cadence, I know it's been asked a couple of times, but I'll come at it from a different angle, I guess. As you look to the balance of fiscal 2021, we've had two quarters now both the fourth quarter of 2020 and the first quarter of 2021, where we've seen some sequential improvement in the -- the down trend has gotten more moderate. As you look forward through the balance of the year, do you expect that trend to kind of continue at the same kind of pace, kind of where do you or where do you expect maybe to kind of end the fiscal year coming out of the year? Any kind of color you can help us with there? And I know it's a very difficult question, in some ways an unfair question, but just looking for your impressions right now of how the next two or three quarters go with respect to sales trends?

Dan Fachner -- President

Jon, it's a great question and I'm glad you asked it. Our sales have continued to grow even during this COVID time as a percentage against prior year and we did that during this quarter as well and I would expect at this point that you'll see similar to where we're at right now on a go-forward basis. We have a lot of really good things going on underneath that I believe will continue to grow and boost up those sales. And then if we can get a lift from COVID, which is that great crystal ball, but if we can get a lift from that, the vaccination and some of the locations of food service both on the ICEE and the J&J side to open back up, we might even beat where we're at today. But we feel good about -- I mean, we also feel good about where we're at right now and what we think the rest of the year could look like.

Jon Andersen -- William Blair & Company -- Analyst

Okay.

Ken Plunk -- Chief Financial Officer

I'm sorry, Jon, I would second that. I think we're very optimistic on improvements and I think part of it, Jon, is you know customers and consumers are figuring out the best they can how to survive and manage and entertain themselves in this environment. So I think part of what we all see is people figuring out whether it's the mask wearing or the shields or whatever and people fighting for business, you see people gradually getting better and better and better at managing within that environment. So even if the virus doesn't respond quickly, I still think that people are going to continue to do that because I think they are tired of sitting at home and they're trying to figure out ways to do that and you've still got schools that -- a little over 50% who are still studying from home, but that is better than it was a few weeks ago. So more kids are going to school, but still a number relative is still not even 50%.

Dan Fachner -- President

And there really is that pent-up demand for people to get out and they're learning how to do that and we saw that even down at Universal Studios over the holidays where they had to shut the doors down because they maxed out their people three or four different days during that time of the year. So there is a pent-up demand and people are learning how to do it and we think that will get better throughout the year.

Jon Andersen -- William Blair & Company -- Analyst

Makes sense. You mentioned Dan earlier some of the things you're doing to maybe reorient the portfolio and take advantage of some opportunities given the kind of the backdrop, ICEE being one of them and finding new use occasions for ICEE, can you talk a little bit more about that specifically? What you're doing there and then also more broadly some of the new product activity that you're seeing and excited about? There is the handheld product, which sounds like it's performing quite well is one example, but just talk a little bit about some of the repositioning you're doing and maybe some new product activity or white space that you're going after in channels like healthcare or other areas you might be focused on?

Dan Fachner -- President

Yeah, I'd be happy to do that. So a few different angles there. First, I just want to reiterate how proud we are of the retail group that again had sales increase of 33% and one of the really promising things about that as you kind of recalibrate a little bit, is that our SUPERPRETZEL brand increased 41% in the quarter in the retail side. So that was just good to see, as well as our frozen juice and ice is up 52%. So we're doing some things within those areas that are growing to continue to see that growth continue to grow I guess. And then on the ICEE side when you ask about that, so certainly we have concerns about how long would this take for the theater group to open back up. We've had lots of conversations with them. We believe that it will open back up, but it's going to be slow and we believe there is a pent-up demand just like Ryan was saying earlier that he went this week. And I think there's people who want to get out there and see the movies. We just don't know how quickly that will happen. And so we really have tried to shift and put our focus on new sales and new channels. One of the areas that we believe is a natural for ICEE that is, in my opinion, a little bit underdeveloped is the whole fast casual or QSR side and so our guys are out there knocking on doors each and every day. And we have some tests in place that we hope that will come through. We have a lot of really good things going on on that side, we're making sure that we're redeploying any equipment that we have, trying to keep our capital down there so that we can use that capital to gain efficiencies on the J&J side, and so those are just some of the things when you ask about how we're pivoting. Those are some of the things that we're doing to pivot there. We also are working extra hardware, you've seen our service on the ICEE side grow quarter-after-quarter for a long, long time and much of that is just through word of mouth and reputation. And so we're actively now going out knocking on doors and trying to grow that business. We have a couple of really good things in the hopper there too. So it will be a long haul with that, but we're going to get there.

Product activity, as you mentioned, we're really happy with some of the new things that we have going on, we have that growth with the handheld, that was $10.4 million or 145% growth in the quarter. We see that continuing and in fact that's exceeding our expectations. We have a couple of other products that are going to be coming out in a couple places. We've seen good activity around the ICEE brand in our frozen novelty piece, we had talked about that before, where we now have the ICEE brand nationwide. And so how can we leverage that we're able to now leverage that in the frozen novelties and we think that will continue to grow. We've had some good interest in our core brand like CHURROS that we think might continue to have a boost throughout this year and so we're seeing some really good things. Jon. I look forward to it.

And then you asked, your final question was on the health side, and our food service in J&J is heavily focused on that. I think we had mentioned that we've shifted from several brokers to one broker on the food service side of the J&J business and in a call that I was in just two weeks ago getting a recap., that's the area that we identified as a potential hot growth in the J&J food service side and so we're working really hard on that health.

Bob Pape, you're on the line? Do you want to touch on that for a minute?

Bob Pape -- Senior Vice President, Sales

Yeah, I think really, I mean, we've been working on the data that we're now receiving to be able to pinpoint where our biggest opportunities are and as a result in the healthcare segment, for instance, we are now targeting the places that we know through our new information that we have the highest degree of success or volume that we can secure. And we've already had products that are tailored to that business and also our healthcare setting depending on what it is, are hospital. There are multiple opportunities within those hospitals to sell our products. So we feel very comfortable about that. Our healthcare business grew by 10% last year and we think that that could continue to grow.

Jon Andersen -- William Blair & Company -- Analyst

Great. That's terrific color. Thanks both of you. A last question I have is with the COVID impacting earnings over the last year or so, your dividend has gone flat after a long history of growth. So I'm just wondering, do you think -- is the Board -- is management and the Board at a point where they'll feel comfortable raising the dividend again? Will it be a year, will it be sooner? Do you have any thoughts on the dividend and when we could see hikes again?

Dan Fachner -- President

Yeah, Jon, I think that's a fair question. We had lots of conversation about it when we kept it at $0.575 and in a lot of ways we are proud to even keep it at that number as opposed to lowering it in some ways. There was discussion about whether we should continue to increase it, and I am sure that there'll be more discussion around that. I don't know that we have drawn any line in the sand that that's where it's going to stay. Is the potential for that to happen and increase? Yes. Can I predict exactly what the Board will think on that? No, but I do know there'll be lots of discussion around it and if we end up thinking that's the right thing for us to do as a company, that's what we'll do. We're continuing to build cash. And so that's certainly a way to use some of that.

Jon Andersen -- William Blair & Company -- Analyst

But would it be fair to say, and I don't know if Gerry might have a thought on this too, that as your business recovers from COVID, as earnings recover that your dividend policy, which has been to increase the dividend consistently year-to-year that that policy is still intact?

Dan Fachner -- President

Yeah, I'll let Gerry comment on that.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Nothing is certain, of course, but we first started our dividends about 10 or 11 years ago, and we increased it every year for nine straight years, and I would use that as a benchmark for the future. We believe we're going to recapture the sales loss and we believe that in accordance with that, our earnings will grow. So you guys are smart. You guys have been following us, you know that we generally do what we say we're going to do. So I would put that in your models. It's not a for certain, but it's something that you can relax with.

Jon Andersen -- William Blair & Company -- Analyst

Okay and I kind of lied. I have one more question if I could squeeze it in, Gerry. I think there has been some inflation in certain input costs, maybe certain Ag inputs, maybe distribution, what are you seeing and how are you thinking about that and is pricing going to be necessary? If so, are you in a position to get pricing that kind of thing?

Dan Fachner -- President

I'll touch on the pricing and then I'll let Ken touch on the, the commodity pricing. In regards to the pricing, we're watching it really closely and what we can and can't do with the customers and, of course, we're in this COVID environment. So in some cases, you can take some price, in some cases it's really difficult. It's never an easy thing. We are taking some pricing on the ICEE side of our business and feel that we can do that. We are evaluating it really closely on the J&J side and we'll continue to work on it. And then, again, we are watching commodities closely. We've put together a group to do that and I know Ken just reviewed that. And Ken, I'll let you just touch on that.

Ken Plunk -- Chief Financial Officer

Yeah. I mean, I am sure you are seeing the same thing, Jon. And to Dan's point, it's something you have to monitor very closely and really look at kind of, I would say, consistency and is it up for a month and then back down. So it's something we monitor over time, and, yeah, there's areas where we are seeing those increases. We are also trying to look forward out even the next quarter. And depending on kind of the trend of how that plays out, we'll have to step back and decide what's the right thing to do in terms of passing that on. But we have got teams and resources, that's what they do every day. So I would just say, yeah, there's some increases, we are monitoring it closely and I think we are going to have to kind of make a call on it based on what we think is going to be the more longer term trends in some of that.

Jon Andersen -- William Blair & Company -- Analyst

Okay. Thanks so much for all the time and we'll talk soon. Good luck, guys.

Dan Fachner -- President

Thank you, Jon.

Ken Plunk -- Chief Financial Officer

Thanks, Jon.

Operator

Thank you. Our next question online comes from Todd Brooks. Please go ahead.

Dan Fachner -- President

Good morning, Todd.

Todd Brooks -- CL King & Associates -- Analyst

Hey. Good morning, everybody. Great to talk to you. Appreciate it.

Dan Fachner -- President

Likewise.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Todd, this is Gerry. You are currently with?

Todd Brooks -- CL King & Associates -- Analyst

I am with CL King & Associates. Yes.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

You are researching so much closely and I want to congratulate you on not only understanding our business but developing some of the story lines too.

Todd Brooks -- CL King & Associates -- Analyst

Well, Gerry, I appreciate that. Thank you for that. Few questions this morning if I could. One, I was pleasantly surprised by the sequential improvement in the Food Service segment. And you did speak about some of the food service end customers in what's traditionally a strong holiday period seeing a drop off in December as COVID flared. And I am wondering if we can look at food service and talk about the growth or the sequential improvement that you saw, is this a sign that you are gaining market share with your existing customers or is it more a function of what Bob was kind of highlighting as far as new verticals, new customer doors being opened or a combination of both?

Dan Fachner -- President

Yeah. I think it's a good combination of both, Todd, and I think we are seeing -- I know we are seeing some good new customers come on and you highlighted it. It was encouraging to see us at 13% as opposed to 21% before. And so we're hopeful with that piece of the business that it's coming back maybe quicker than what might the ICEE side be coming back because it's not as heavily related into the theater group. And so, yeah, we are seeing an uptick in the business that we are doing business in and we are also gaining some ground in other areas.

Todd Brooks -- CL King & Associates -- Analyst

And Dan just to follow up there, where you are seeing market share gains with existing customers, is there any function of survivor bias that you are seeing in your industry or maybe smaller players are falling by the wayside or couldn't keep the service levels as high as they've traditionally seen and you guys are swooping in and grabbing that share?

Dan Fachner -- President

You know, what I think that's keeping up with the demand as the mix change is a challenge for everybody. I do like to think that our company might be stronger on that than others. We were fortunate -- and I am just going to highlight this one more time, we are fortunate that the business has been run so carefully in the past that we have a strong balance sheet that we didn't have to cut so deep that we are not able to keep up with the demands that are out there. And so I think that does play to our advantage, Todd.

Todd Brooks -- CL King & Associates -- Analyst

Okay. Great. Second question I had is, since we've all last gotten together on an earnings call, we've, obviously, had the announcement and approval to vaccines, the pace that they are giving in arms, we can all debate that. But once you got some color and your customers got some color around the certainty of vaccines and the approval, was there any change in your discussions with your customers as far as, OK, we don't know if this is going to be six months or eight months but this is what we want you to be ready to do. Did you see a change in kind of customer behavior and their ability to look forward planning-wise once the vaccines were released?

Dan Fachner -- President

Yeah. Sure, we did. And, again, fortunate that we didn't have to cut so deep that we couldn't have these sales people out in front of customers and they have been really good at doing that and getting in front of the customers and having strong conversations. And, sure, as the vaccine starts to get announced and people start to see some hope, that gives everybody some encouragement, which is exactly why we are where we are at today. We want to be careful that we don't make steps that prevent us from being able to gain that market share that we are doing today and in the future, and so, yeah, we are encouraged by it.

Todd Brooks -- CL King & Associates -- Analyst

Okay. Great. And then two questions on ICEE to wrap up my queries for the day. One, if we can talk about the -- you called out the loss of a service customer in the quarter and that that was the majority of the decline in revenues year-over-year on the repair and maintenance side. Is it just a periodic loss where you lost a business for this one quarter or was this a customer where that loss will carry forward now and we need to account for it for the next -- go ahead, sorry.

Dan Fachner -- President

No. I am sorry. I interrupted you. But I'll just repeat it. I'll just go forward anyhow. We probably didn't define that well enough. It was really the loss of a preventative maintenance program with a customer. So as we go through this COVID time in our service side of the ICEE business, some of our service is preventative maintenance contracts that we have. And one of the ways that customers have saved some costs during this time is to cut back on that preventative maintenance. Now at some point, I think that will tick back up and I also think that at some point they'll potentially get more service work because of the non-service business or PM maintenance.

Todd Brooks -- CL King & Associates -- Analyst

And Dan, just to follow up there. Sorry. Go ahead, Ken.

Ken Plunk -- Chief Financial Officer

I was just -- Todd, just to add, and the predominant impact of that was in the Florida region for this customer. So it's not nationwide. It's really in the Florida region they have made those decisions, and not a national impact.

Todd Brooks -- CL King & Associates -- Analyst

And these preventive maintenance contracts, are they annual contracts so all that impact hit here in the December quarter?

Dan Fachner -- President

They are typically a quarterly preventative maintenance program, right? And one of our major customers have shifted to a biannual preventative maintenance program.

Todd Brooks -- CL King & Associates -- Analyst

Okay.

Dan Fachner -- President

We have some preventative maintenance that we do through the theater groups and one of the larger theater groups are shut down at this point.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Yeah. This is Gerry. And that might fall out, if we are providing service to a customer on a non-contractual basis, they are going to pay an hourly rate plus the time. Basically when we enter into a service agreement, it's to meet their needs so that they can project with their cash flows and whatnot.

Todd Brooks -- CL King & Associates -- Analyst

Okay. Great. And then the final question on ICEE and thanks for letting me get four in here. As you have been obviously COVID impacted in that business and running it in a tough volume environment, I guess have you found efficiencies or ways to run the business where as you think about what it takes from a revenue base to rebound back to kind of break even? Is it still in that kind of mid-$60 million range or what are you thinking for break even in the Frozen Beverage business?

Dan Fachner -- President

Yeah. I don't know if we have it defined quite like that. I will tell you we are continuing to find efficiencies and create reductions wherever we can in that piece of business. We are heavily focused on it. Ken and I sat down with that group last week and went through the numbers with a fine-toothed comb, and we are going to continue to do that. We -- our operational people, I would just say this, I am really proud of our operational people because they are working hard at reducing every spot that they can and I think they are doing a nice job with it. It's hard to keep up with the sales decline on that side and so we are continuing to watch that very, very closely. I don't know if we've defined the exact dollar amount though, and which it is to break even and when we do I hope that I can lower it, right?

Ken Plunk -- Chief Financial Officer

Yeah. And we really look at that from a P&L standpoint across the business. I mean, it's not just a ICEE isolated thing. I mean, we've got to look at the way our business model is structured. How do we kind of leverage expenses and manage those to an efficient level across the board. And I would just go back to the point I made, while we are continuing to kind of dig into everything we can. We did bring expenses down just under $7 million and that included an incremental $730,000 of COVID expenses. So, the team responded and as long as sales stay where they are at, we got to continue to work that muscle but I am actually quite proud of some of the responses I have seen.

Todd Brooks -- CL King & Associates -- Analyst

Okay. Great. Thank you all and I look forward to getting to the backside of this pandemic.

Dan Fachner -- President

Yeah. As do we, Todd. Thank you.

Operator

And thank you. Our last question online comes from Robert Costello. Please go ahead. Your line is open.

Robert Costello -- Asset Management Inc. -- Analyst

Hello.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Hi, Bob. This is Gerry. How you been?

Robert Costello -- Asset Management Inc. -- Analyst

Good. Good. I have a couple of questions on the manufacturing facilities. One of your big C-store customers is building down in Florida, are we any closer to servicing them with on the bakery side?

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

We are not. We are servicing them up here in the Northeast for all their bakery needs plus pretzels, plus frozen beverages. We are in constant communication with the group in that southeast region in here and we are looking forward to continuing those discussions. And basically what do we do, we grow our sales. We have been growing across [Technical Issues]. So we expect that area to fall in line over the next few years.

Robert Costello -- Asset Management Inc. -- Analyst

Right. On the number of facilities, you talked about rationalizing your costs and you got 18 warehouse in your annual report and 177 on the frozen foods -- to the frozen beverage side. Going forward, is that number expected to go down as you do this evaluation or do you think it's going to stay pretty much the same?

Dan Fachner -- President

I think it's pretty much the same as it is today, Bob. You know that we shutdown a plant up in the Chicago area earlier in 2020 and we have consolidated much of that into the plants that we are making today. So we are still making the same product that we were making before, but in the plants that we have now. I would not see that changing much in the near future.

Robert Costello -- Asset Management Inc. -- Analyst

Right. One other question. On your retail customers, is there any closures or any that you can highlight or you -- just not the name, but in general with the -- I was driving to work today and one pizza chain announced bankruptcy. Is there anything out there that we have to be aware of with regards to the customers' financial situation?

Dan Fachner -- President

Nothing than other what you would be aware of already. We feel pretty comfortable with our customers and who we've talked to. And if there was one channel that we have our biggest concern about that would be the theaters. And you are probably reading the same thing I am. AMC got some additional funding and I know their CEO was announcing last night that they believe that they are good through 2021. And so that would have been our biggest concern and it feels like that's cleaning up.

Robert Costello -- Asset Management Inc. -- Analyst

Right. Last question, on the bakery side I saw the pricing went up like on the doughnuts about 11%, 10% in the last three months to six months. Is that something you feel comfortable going for with higher commodity costs, you still have flexibility if the costs go up?

Dan Fachner -- President

Yeah. As Gerry's saying and I agree with him, yeah, that's typically the retailer who makes that decision not us, and so I can't really speak for them. We talked to commodities earlier and we are watching that really closely and we will continue to do that. But what you are referring to there was not our decision that was the retailers'.

Robert Costello -- Asset Management Inc. -- Analyst

All right. Thanks again.

Dan Fachner -- President

Thank you.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

You are welcome.

Operator

And we have no further questions at this time.

Dan Fachner -- President

Thank you very much, Richard. And thank you, everybody, for joining our call today. We really appreciate your interest in our company and look forward to getting back together with you in another three months.

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Take care, everybody.

Duration: 54 minutes

Call participants:

Gerald B. Shreiber -- Chairman of the Board, Chief Executive Officer and Director

Ken Plunk -- Chief Financial Officer

Dan Fachner -- President

Bob Pape -- Senior Vice President, Sales

Rob Dickerson -- Jefferies -- Analyst

Ryan Bell -- Consumer Edge Research -- Analyst

Jon Andersen -- William Blair & Company -- Analyst

Todd Brooks -- CL King & Associates -- Analyst

Robert Costello -- Asset Management Inc. -- Analyst

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