Earnings Call Transcript - JJSF Q2 2021

Operator, Operator

Welcome to the J&J Snack Foods Second Quarter Earnings Conference Call. My name is James, and I will be your operator for today's call. This conference is being recorded. I would now like to turn the call over to Daniel Fachner. Dan, you may begin.

Daniel Fachner, President

Thank you very much. Good morning, everyone. I'm Daniel Fachner, President of J&J Snack Foods, and we're just so excited to talk to you today about our Q2 performance. While we all are continuing to see the impacts of COVID-19 on our business and personal lives, we are starting to see some real positive momentum in the business. The environment is changing as more venues are opening, capacity restraints are being lifted, more people are getting the vaccine, and overall consumer confidence is improving every month. Our J&J associates have worked so hard, and I'm really proud of them over the past year to manage through this unprecedented year, and we are in a great position to bounce back as traffic in our customers' venues and retail outlets recover. Despite the challenges of this past year, our financial position remains strong, and we continue to improve our liquidity, even as profits are challenged. Joining me today in the room are Gerry Shreiber, Founder, Chairman and CEO; Ken Plunk, Senior Vice President and CFO; Marjorie Roshkoff, Vice President and General Counsel; Bob Radano; and Bob Pape, Senior Vice President of Sales. Let me take a few minutes to review our results. 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. We are really excited about our results of operations. Net sales were $256.2 million for the quarter, a decrease of 6%. Sales improved throughout the quarter, led by venue openings, accessibility to the COVID-19 vaccine, improving consumer confidence, and the spring season. Both our Food Service and Frozen Beverages businesses improved substantially during the quarter due to these improving consumer trends. Our retail business again continued to hold strong, growing by 17% in the quarter. Operating income was $7.2 million for the quarter, a decrease of $3.8 million compared to last year. Improved sales volume and a strong focus on cost efficiencies helped drive improved gross margins and profitability when compared to last year. Now I'd like to review the results of each of our business segments. In Food Service, sales of Food Service customers decreased only by 1% for the quarter, an improving trend when compared to Q1 2021, which had declined by 13% versus the prior year. Traffic continues to improve as theaters are reopening, entertainment and venues increase capacity, and we see strong growth across QSR and casual dining restaurants. Soft Pretzel sales decreased by 19%, while frozen juices and ICEE increased by 12%. Churros sales were relatively flat for the quarter, and sales of bakery products declined by 7%. Our handheld business had a strong sales quarter, exceeding last year by $12.5 million or 168%. That was driven by a new product developed for one of our wholesale club customers, as we previously discussed. Operating income in our Food Service segment decreased by $1.9 million in the quarter, driven by lower sales and product mix. Gross margins improved progressively over the quarter, driving a much improved profitability versus Q1. Retail supermarkets continue to do really well for us. Our retail business continues to perform well as sales increased by 17% for the quarter. Those sales were led by our SUPERPRETZEL brand with an increase of 28% in the quarter. Frozen juice and ICEEs sales were up 22%, while sales of biscuits declined by 2%. Handheld sales declined by 28% for the quarter. Operating income increased by $2 million or 47% in the quarter, driven by higher sales and operating income margins near 15%, over 300 basis points better than last year. In the Frozen Beverage segment, sales were down by 32% in the quarter. Beverage-related sales were down by 42%, driven primarily by a 40% decline in gallons as traffic in theaters, amusement parks, and retailers faced continued impacts from COVID-19. These trends are improving, though, compared to a 56% decline in gallons during our first quarter as consumers returned to our customer venues. Service revenue declined by 16%, almost entirely from a cancellation of one of our key customers' preventative maintenance programs. Machine revenues decreased by 36% due mainly to slower customer expansion and replacement during this COVID-19 impacted period. Our Frozen Beverage segment incurred an operating loss for the quarter of $5.2 million as COVID-19 restrictions continued to pressure sales. While these sales challenges continue to impact gross margin mix and efficiency, margins improved steadily across the quarter, and operating profits improved by over $5 million when compared to Q1. Consolidated gross profit as a percentage of sales was 23.8% this quarter, down from 25.5% last year. Gross profit percentage decreased because of the previously mentioned COVID-19 sales pressure on our Food Service and Frozen Beverage segments. Total operating expenses as a percentage of sales were 20.9% in the quarter, leveraging 60 basis points compared to last year's 21.5%. Total expenses were $4.8 million, below last year, through diligent management of some variable expenses in our operations. I'm really proud of that accomplishment and what we were able to do. Net earnings for the quarter were $6.1 million, down from $7.3 million last year. Our capital spending and cash flow position were strong; our cash and investment securities balance was $280 million as of March 27, 2021, an increase of $2 million from our September year-end. We continue to drive positive cash flow, and our balance sheet and liquidity remain strong in this challenging COVID-19 environment. We continue to look for acquisitions and remain focused on the long-term growth and opportunities for our business. We spent $19 million in capital expenditures through the six months ended March 27, 2021, as we continue to invest in our plant efficiency and growing our business. We estimate our spending for the year to be about consistent with prior years. A cash dividend of $0.575 a share was declared by our Board of Directors and paid on April 13, 2021. We didn't buy back any shares of our stock during the quarter. Our investment income this year was $0.6 million, which is $1 million greater than last year's second quarter due to improved market conditions. We are really encouraged by this quarter and look forward with great anticipation to the rest of the year. We want to thank you for your continued interest in J&J Snack Foods, and I will now open it up for any questions and answers. Thank you very much.

Operator, Operator

Our first question comes from Ryan Bell.

Ryan Bell, Analyst

Could you provide some details about the trajectory of the improvements throughout the quarter? You've highlighted that in some of your comments. And then maybe give an indication of where performance stands for Food Service and the Frozen Beverage Business in the current month?

Daniel Fachner, President

Sure. Ryan, I'll take a crack at that, and then I'll let Ken Plunk answer some of the questions as well. But the quarter continued to grow as we went throughout the quarter. January and February were pretty much the same, but March really started to take off, and we're starting to see that continue through the next quarter. On the Frozen Beverage business side, we saw a great increase from quarter 1 to quarter 2. As we ended Q2 with the Frozen Beverage business, we even saw a profit in that business, which was really encouraging as we look forward through the rest of the year.

Ken Plunk, CFO

Ryan, Ken Plunk here. I would just add, I think your question kind of is how did things progress through the months of the quarter. I would say February quarter-to-date, particularly if you look at Food Service, it was still considerably better than Q1. I think we ended quarter-to-date through February probably at a 50% improvement over Q1. You add in March, when things opened back up, when we got into the spring season, March certainly helped that number as well, ultimately driving to Food Service being down just 1%. So it wasn't just March. It was a healthy gain throughout the month, but March certainly played a bigger impact on that. For Frozen, March was really when we saw the business turn around; theaters started announcing that they're opening up; New York is open; California is open; capacities are increasing; amusement parks are expanding capacity.

Robert Pape, Senior Vice President of Sales

And I think essentially, we had thousands of venues that opened up during that period of January through March that we didn't have a year ago.

Daniel Fachner, President

We did really peak during the March month.

Ken Plunk, CFO

So the Frozen business really benefited from spring, and we really leave the quarter with a lot of confidence regarding what we're going to do in April and into Q2 as we see that business rebound.

Ryan Bell, Analyst

Great. That's very helpful. Regarding the timing of shipments, is there anything we should expect for Food Service and Frozen Beverages? Will we be selling in more to help rebuild inventories as part of the economic recovery or openings? Or is that not as relevant?

Ken Plunk, CFO

Can you elaborate a little bit more, Ryan, on your question to make sure we answer that?

Ryan Bell, Analyst

Sure. I just wanted to see if some of the improvements, say that we were seeing in the Food Service business and the Frozen Beverage business, was that due to shipments, the timing of shipments rather than the demand on the other side. As I would imagine, some businesses are going from being fully closed to reopening or opening up more locations, and they need to build up their inventories.

Daniel Fachner, President

Well, we're seeing demand remain high at this time, Ryan. And we are encouraged by March, and while there was some backlog of some supplies that were left, we're seeing a continued demand as we enter into April here.

Ken Plunk, CFO

I don't have a number for you, Ryan, but I think you're asking was there sales pulled forward as demand peaked, all of a sudden. I would say that would be marginal. I mean it's steadily picked up throughout the quarter, but I certainly don't see anything material in terms of sales being pulled into March, and you should expect much of the same improvement, I think, as we go into the second quarter.

Ryan Bell, Analyst

Okay. Perfect. That's helpful. And then I think the last question for me. Retail business continues to perform well. Is there any way that we should frame that as we lost some of the tougher compares and some of the demand shifts towards away from home? Is there anything potentially incremental about that business that will stay after the pandemic?

Daniel Fachner, President

Well, we're continuing to see good momentum in that business. We're certainly going to start to cycle through 2 of the biggest months that retail had last year in that April and May time. But we are continuing to see good sales increases in that area. Bob, do you want to elaborate on that a little bit?

Bob Pape, Senior Vice President of Sales

Yes. I think that you'll continue to see the business be strong by virtue of our promotional planning with our customers and also new product distribution that we've secured, which will start to bear some fruit as we get into Q3 and Q4.

Operator, Operator

Next question from Jon Anderson.

Jon Andersen, Analyst

Congratulations on some of the good news in the quarter.

Daniel Fachner, President

Thank you very much. We're excited about it. We're excited about the momentum.

Jon Andersen, Analyst

I just wanted to revisit one of Ryan's questions, if I could, and maybe it's for Ken. On the Frozen Beverage business, still trying to understand, if we think about March or how you exited March in the Frozen Beverage business, what kind of performance were you seeing on a year-over-year basis? Were you kind of back to level? Were you still down? At what kind of rate? I know there's been real trend improvement sequentially, and it sounded like it really accelerated in March, but it would be helpful to have some sense of the exit trend in that portion of the business.

Ken Plunk, CFO

Yes. Thank you, Jon, and good question. Yes, March, for example, in the Frozen business, it was our first month in many months of profitability. So as you look at March by itself, it was a profitable month for Frozen, where we've struggled with sales and margin. Proud of the month of March. Sales, I think, were probably roughly 90% of FY '19. So you're starting to see that back to our baseline. And then even gross margin, while not entirely back, was within 200 or 300 basis points of what I would consider a bit more of the run rate for the Frozen business at probably around 30%.

Jon Andersen, Analyst

That's super helpful. I do appreciate that additional color. Okay. So let's see. Maybe for Dan, in your new role, you've had several months now, not to put you on the spot. But I'm kind of curious as you've surveyed the business. If there are any changes, whether there are things that you think the organization can do from a structural perspective, maybe an emphasis in certain areas that could benefit the business in aggregate going forward? So anything maybe a little bit new or different, even if it's on the margin or on the periphery that you think we could look forward to going forward with some new eyes on the business?

Daniel Fachner, President

Yes. Thank you, Jon. Well, as you know, this has been a great business for a long time. So coming into it with some fresh eyes, we are doing some new and exciting things as well. I think I mentioned this to you once before. We have now hired a new CMO, who has 22 years of experience with Coca-Cola, and he's come in with some fresh ideas around marketing. We're looking at ways to kind of stretch our brand with both our ICEE and SUPERPRETZEL brands, finding ways to expand those strong brands out and increase sales. On the operations side, we're doing some exciting things. We're looking at distribution centers, and we're examining transportation and ways to do that differently. We have organized the procurement group and the R&D in alignment in ways that we think might present some cost savings there, but also some efficiencies. We've got some really great growth momentum on the sales side and some tremendous energy surrounding that. You mentioned on ICEE, and I think on our last call with ICEE we discussed some diversification outside of the theater groups, and we've had some really good success. We have a couple of rollouts happening in that group right now, both in a QSR chain down in the Southeast. We're picking up every rock. I think I said that to you before. We're picking up every rock and looking to improve what we believe will enhance margins in the future. I think that will continue to show. It showed a little bit this quarter, and I think it will continue to show next quarter and the quarter after that. I feel like we are hitting on all cylinders, quite frankly. I believe we have a solid leadership team in place and have uncovered many different areas to make this company even better than it has been, and it's been a great company all along. I think it's a great question, and I'm just really encouraged, Jon.

Jon Andersen, Analyst

That's great to hear, and I agree. It's been a wonderful company for many years, and I look forward to its continued success. My last question is about the demand returning in your away-from-home business. You're already seeing improvements in both the Food Service and Frozen Beverages segments, while retail continues to grow. Is supply able to meet this demand? This seems like the opposite of what you've dealt with over the past year. How do you feel about your capacity to meet demand with high service levels as things continue to normalize?

Daniel Fachner, President

Yes. I think that is a great question, and it’s one of the areas that we're heavily focused on. Just like you said, it started off with the role really picking up every rock and looking at ways that we can improve margin and grow sales. I think we're well on our way to doing that. Now we have this labor shortage nationwide that we're working to address. We're looking at each plant closely and evaluating ways to ensure that we get the labor in place so that we can keep up with this peak demand that we're going through.

Jon Andersen, Analyst

Maybe I'll tag one on to that, because you may be thinking about it. So talk broadly, and this could be for any countermeasure. Talk about cost inflation and pricing: your ability to price or desire to price. Just how should we think about that going forward because it's becoming a significant talking point for many different companies?

Daniel Fachner, President

Yes, it really is. We are seeing some cost pressures where inputs are increasing, such as oil, flour, chocolates, and plastic cups, things like that. We have passed on pricing in the Frozen Beverage business, and we are currently evaluating that on the snack food side of the business as well. We hope to see some impact from that probably by the time we implement it in the fourth quarter.

Operator, Operator

Our next question is from Todd Brooks.

Todd Brooks, Analyst

Congratulations on just the positive start of the recovery year.

Daniel Fachner, President

Yes, it really is exciting. It's a good time to be on the call, for sure.

Todd Brooks, Analyst

Absolutely. Just a few questions. Ryan and Jon covered a lot of mine. If you look at your Food Service customer base, can you maybe quantify how much of that base is fully reopened with capacity restrictions or still closed and the reopening still to come?

Daniel Fachner, President

Bob, could you quantify that anyway? What I would tell you is it's continuing to open piece by piece. Some of them are advanced. Certainly, the QSR side is doing really, really well for us, and the restaurant side is coming back. The theaters are coming back slowly; they're at about a 30% opening through the first or the second quarter. We expect that to jump to the 50% or 60% range during Q3 and then as high as 80% or 85% in Q4. The school business is still somewhat slow to open, but we're really encouraged about what might happen there in the fall. Everything that we're reading and hearing indicates that many of the schools, college campuses, K-12 will be back in action in the fall. Bob, do you have anything more to add?

Bob Pape, Senior Vice President of Sales

Yes. Also, on the sports and entertainment side, we've been very encouraged by the results we've seen there against S&E, and we anticipate that's going to continue as capacities are increased.

Daniel Fachner, President

Yes. And one more thing made me think of as he was talking. The amusement sector, we expect to have a really, really strong year in the amusement parks. In March, we were up to that 90%, 95%, or even 100% range in the amusement parks, and we feel like that will continue throughout the year.

Ken Plunk, CFO

Yes. I would just want to add this morning, they were talking about basically relieving requirements on masks outside. So as vaccines are rolled out and as you’re seeing experts say you can be outside without a mask, particularly if you’ve had the vaccine, we expect that to be another positive indicator, as particularly the sports and entertainment types of our channel recover.

Todd Brooks, Analyst

That's great. And then we had spoken earlier on in the pandemic, and I'm wondering how it's benefiting J&J now. A lot of the restaurants, theaters, and amusement parks have condensed their menus. As they're reopening, especially in theaters, might they have a more streamlined menu, but that may be a higher percentage of J&J products that you guys didn't lose any of your slots, so to speak? Is that still a reality in a lot of the foodservice channels that are opening up?

Daniel Fachner, President

Very much so. They have implemented that, and it's really played in our favor, Todd, in almost all cases that I can think of currently, where they have limited the SKUs, both on J&J and the Frozen Beverage side. In both sides, our products have remained present. When you think about the theaters, the information I'm receiving indicates they measure the cents-per-head spend; the customers coming in the snack bar are spending up about 20%. Both the pretzel and the ICEE side have remained. When you think about some of the other locations, like maybe a wholesale club, where we're continuing to see significant success, it's a smaller menu, but our products are still there. So while they have limited it, it's kind of played into our favor.

Todd Brooks, Analyst

Okay. Great. And then a final one. Just looking forward to the summertime and what I and others are expecting will be kind of an explosion in travel by car as people get back out to vacation. Again, they just start living again. Update on your c-store channel, kind of penetration, additional products, and categories that you're bringing to that channel? And any sort of distribution gains with new partners on that front?

Daniel Fachner, President

Yes. C-stores have continued to do really, really well for us. J&J had put together a team a couple of years back to actively pursue the C-store sector, and that has yielded significant benefits for us. We continue to see strong opportunities on the Frozen Beverage side. As we speak right now, we're in discussions with a couple of the large C-stores, and I believe we'll see some excellent expansion in before the end of this year. We view that as a key area for growth for us and expect that to be a growth market on all sides of the business.

Marjorie Roshkoff, General Counsel

Hello?

Operator, Operator

Yes, I'm sorry. I thought he was finished, so I let him go.

Daniel Fachner, President

Yes. Is this James?

Operator, Operator

Yes, it is.

Daniel Fachner, President

Let's just make sure he was finished real quick. Let's ask him.

Todd Brooks, Analyst

I was finished. No worries. Congrats, congrats to everybody on the momentum.

Daniel Fachner, President

Thank you very much. I really appreciate it. Look forward to following up with you.

Operator, Operator

Here, we're. Go ahead, Todd.

Todd Brooks, Analyst

I was finished. No worries. Congrats, congrats to everybody on the momentum.

Daniel Fachner, President

So thank you very much. I really appreciate it. Look forward to following up with you.

Operator, Operator

Our next question is from Rob.

Daniel Fachner, President

Is this Rob Dickerson?

Rob Dickerson, Analyst

This is Rob Dickerson from Jefferies. I have a couple of questions on the Food Service line. So Dan, I thought I heard you say or kind of alluded to maybe last quarter, the hope, at least, right? Hope and prayer was, as you got through the year, that you might be able to get back to pre-pandemic levels, and I'm speaking regarding revenue now. In Q2, your revenue in Food Service was approximately $6 million lower relative to Q2 fiscal '19, right? And even though some parts of the business still declined a bit or less so than we saw last quarter, obviously, that handheld business has really helped support, which is great, right? That's incremental. The first question I just have is, if I look at Q2 and say, well, you're only $6 million lower in Q2 relative to Q2 '19. But then, given the seasonality side of your business, usually, you're putting up higher revenue levels in the back half of the year. I'm assuming that progression sequentially from Q2 relative to the back half of '19 would continue, right? And I kind of asked because, frankly, I think consensus is still under forecasting what that potential could be in the back half of this year. So if you could just clarify what happened in Q2 versus prior comments as you move through the year? Would you expect maybe we can get back to those pre-pandemic levels as you get through this fiscal year?

Daniel Fachner, President

Well, we were really encouraged with Q2. We said we really love the way that it finished, right? March was strong, January and February were up from Q1, and March was strong. I'm increasingly confident that we'll be able to get up to those levels again. Now the mix is still a little different than what it once was. So we have some growth that needs to happen on the Frozen Beverage side still. Whether it will get up to pre-pandemic levels by the end of the year, I'm not sure. We believe that we'll continue to grow on the retail side, although we're facing a couple of tough months, but still believe that we'll be able to grow on retail and love what we're seeing on the Food Service side. While I might have hoped and prayed a quarter ago, I'm feeling more and more confident that we can reach those levels by the time we end the year. The mix might be different slightly, but I do believe we can get back to those levels.

Rob Dickerson, Analyst

Got it. Okay. Great. Good answer. Regarding the margin situation, this is more about the Food Service business. As I mentioned, we saw $6 million less in revenue in Food Service during Q2, but operating profit was nearly $13 million lower. This indicates that revenues are improving faster than profits. Given the seasonal nature of the business, historically, your margin tends to be better in the latter half of the year. I'm curious if there are specific COVID-related costs that might decrease in the second half of the year. Alternatively, could it be that pricing will align more closely with cost inflation as we move forward? Lastly, profitability may have been stronger in March compared to January and February, as you noted regarding the top line. I'm trying to understand the potential timing for margin recovery as we advance through the year. Hopefully, that's clear.

Daniel Fachner, President

Yes. Ken, do you want to take this one?

Ken Plunk, CFO

Yes. Rob, great question. From what I'm saying about Frozen, gross margin steadily improved in Food Service over the months of the quarter. If you look at just the quarter, it was 100 basis points better than Q1. And if you look at each of the months in the quarter, each month the gross margin improved. March gross margin was 40 basis points better than February gross margin. So as we mix in more sales of higher-margin products like pretzels and churros, and we need to get the engine going with volumes to better leverage expenses, we start to see those margins creep back up. You can expect to see improvements continue as we see more sales. We think we'll get back to somewhere in kind of our base level, if you consider FY '19 a base. The question is, will we get there all the way by the end of the year? Not sure, but I expect us to approach that. The mix of new products will also be significant in that regard. We have to see how that plays out. Regarding COVID-related expenses, we’re still spending about $720,000 a quarter on COVID and probably expect to maintain that number, perhaps a little less in Q3. So we will be comparing against when we started incurring COVID-related costs last year. I don't expect to see a material impact either way, as we're going to continue to do what we need to do to keep our people in the plant safe.

Rob Dickerson, Analyst

Got it. So unless there's some material change on the COVID front, whatever that means, that will likely hold steady for a bit and then, hopefully over time, when it gets lower. Is that a broad fair assumption?

Daniel Fachner, President

Yes, this is Dan. I believe that's a reasonable statement, Rob. We are closely monitoring the situation. Our team meets monthly to discuss how to ensure the safety of our employees. We are considering new methods, like mandatory testing stations for employees and looking into scanning machines to help reduce some costs. Our top priority remains to keep our employees safe and comfortable while they come to work every day.

Rob Dickerson, Analyst

Yes, fair. Okay, cool. And then just the last question. Just on the cash side, I mean, again, you got through the pandemic quite well from a cash standpoint. Congrats for doing that. Your cash position is now strong. Two quick questions. I think you had said before, there might be some CapEx needs in some of the plants. I don't think there's a CapEx guidance for the year, long term. The last few years, you're spending about $60 million in CapEx. Is that about right, maybe a little bit higher? Then just a second quick follow-up: What kind of acquisition would you like to make in an ideal world?

Daniel Fachner, President

Yes. I think what we've said around CapEx is that we'll be spending around the same amount as in previous years. That mix in CapEx might be a bit different. We could be spending a little heavier on the J&J side and somewhat lighter on the ICEE side, although that might change in the next months as we roll out a couple of new programs on the ICEE side. We're closely monitoring that. We put together a good CapEx team with cross-functional people on it, looking at our plants and ensuring we are making the right choices to be leaders not only today but in the future. If I had to guess, the CapEx might stretch a little higher than what we've stated. However, we plan on being near that amount. On the M&A front, Ken and I are reviewing options weekly. We're continuing to look but want to be cautious and find the right fit. Ideally, that would be an acquisition in the range of $50 million to $60 million, but I'm not limiting our scope to just that range either. We are being active yet careful, ensuring we are making the right choices.

Ken Plunk, CFO

I would just add to that. Rob, most of that CapEx spend focuses on structural improvements—driving efficiencies in our plants, innovation, etc. So consider that the majority of our CapEx is concentrated on strategic areas aimed at return.

Rob Dickerson, Analyst

Yes, fair enough. I mean, the question wasn't posed because I think it's a bad thing. I just want to make sure my model is accurate. That's all.

Daniel Fachner, President

Thank you.

Operator, Operator

Our next question is from Ryan Hamilton.

Ryan Hamilton, Analyst

Congrats on the rebound. Being last in line, I think most of my questions have already been answered. You talked about labor and cost inflation. Anything on the logistical side that could slow down this momentum potentially?

Daniel Fachner, President

Well, certainly, freight has increased, right? We are continuing to hit those headwinds. But as we've discussed, we're evaluating increases on the Food Service and Retail sides right now, and we'll consider that. We're doing some things. I think I mentioned earlier regarding transportation, which may help us save some money there, too, even though transportation costs have gone up. So we are diligently working to maintain and grow our margins.

Ryan Hamilton, Analyst

Sounds good. I don't think anyone can argue that J&J didn't survive the last 12 months in really good shape. Any early indications that you guys are taking market share from companies that were less fortunate?

Daniel Fachner, President

Well, we always think we are, right? That might just be because we're bold like that, but we always think we are and want to believe that. I don't know if we have hard facts on that, but our competitive nature leads us to believe that we are and would like to ensure that moving forward.

Ryan Hamilton, Analyst

So it's good. Are there any indicators you guys are seeing that display that, or no? Not that you can share.

Daniel Fachner, President

Yes. Nothing that we have, Ryan, that we can share with you.

Operator, Operator

A question from Robert Costello. Yes. Nothing that we have, Ryan, that we can share with you.

Robert Costello, Analyst

Just one question on the Food Service. Historically, that's been an area for growth. With the recovery in the restaurant industry, is there anything new that you're going to do differently regarding the products, technology, or selling to the customer than, say, the last three years with the recovery in the industry right now?

Daniel Fachner, President

Yes. Honestly, Robert, I don't know that there's anything new or different except a greater focus on doing what we do today really well. We've had a lot of conversations, just had a leadership call last week. Lot of discussions focused on being more proficient in our current operations. I don’t have new methods, but we're emphasizing refining what we excel at today. Bob, would you?

Bob Pape, Senior Vice President of Sales

Yes. I think we have a strategic idea of where we want to go with our products, who our customer partners are, and our core products will continue to help us grow the company.

Robert Costello, Analyst

So the end-market customer in the Food Service sector used to include restaurants, and you previously worked with Burger King on waffle fries. Are you planning to keep innovating in that area with new products, or are you looking to branch out beyond that?

Daniel Fachner, President

Yes. We will continue to do that. Just as a side note, the QSR channel is doing really, really well for us. We're continuing to see strong growth there right now and have some tests in place that we are optimistic about for the future as well. So we will continue to innovate and develop specialty items for those kinds of places.

Operator, Operator

It seems we have addressed all our questions.

Daniel Fachner, President

Great. Well, thank you very much for being on the call today. We truly appreciate it. We're really excited about the initiatives we're pursuing inside the business and the momentum we observe as we close out the second quarter. We look forward to the opportunity to reconnect with you 3 months from now and are hopeful about the continuing momentum. Thank you very much for spending time with us today. We look forward to talking with you soon. Have a great day. Bye-bye.

Operator, Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.