J&J; Snack Foods (JJSF) Q1 2023 Earnings Call Transcript

J&J Snack Foods (JJSF 0.16%)
Q1 2023 Earnings Call
Jan 31, 2023, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the J&J Snack Foods fiscal 2023 first quarter conference call. [Operator instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] At this time, I would like to turn the conference over to Mr.

Norberto Aja, investor relations. Sir, please begin.

Norberto Aja -- Investor Relations

Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods fiscal 2023 first quarter conference call. We'll start in just a minute with management's comments then your questions. But before doing so, let me take a minute to read the safe harbor language.

This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to the matters of historical fact should be considered forward-looking statements, including statements regarding management's plan, strategies, goals, and objectives, and our anticipated financial performance, industrywide supply constraint, and the expected impact of COVID-19 on our business. These statements are neither promises nor guarantees that involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report on Form 10-K for the year ended September 24, 2022, and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call today.

Any such forward-looking statements represent management's estimates as of the date of this call, January 31, 2023. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so, even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP metrics on the call today, including adjusted EBITDA, operating income, or earnings per share, all of which are reconciled to the nearest GAAP metric in the company's earnings press release, which can be found in the investor relations section of our website. Joining me on the call today is Dan Fachner, our chief executive officer; as well as Ken Plunk, our chief financial officer.

Following management's prepared remarks, we will go ahead and open the call for a question-and-answer session. With that, I would now like to turn the call over to Mr. Dan Fachner, J&J Snack Foods' chief executive officer. Please go ahead, Dan.

Dan Fachner -- Chief Executive Officer

Thank you, Norberto, and good morning, everyone. We appreciate you joining us this morning to discuss our fiscal 2023 fiscal quarter results. We are pleased to report the seventh consecutive quarter of double-digit top-line growth and remain confident in our plans to continue growing sales. We are investing in our brands, accelerating the cross-selling strategy with our customers and across our channels, expanding our production capacity, and building a strong pipeline of product innovation.

We have hit the ground running with our Dippin' Dots business, having already gained placement at Regal Theaters, the second-largest movie theater chain in the United States. In fact, we increased unit sales in our Dippin' Dots business over 14% in the first quarter. Also, we recently launched Hola! Churros brand and are seeing strong momentum, including over 30% sales growth in the first quarter. This positions us well to grow our churros business, including the introduction of new products and entry into new channels.

These are just a couple of examples of the opportunities ahead of us. In the first quarter, our industry experienced some softness in spending and traffic across retail, restaurants, and food service as consumers adapt to the changing economy. Also, the historic winter storm that hit most of the country during two key selling weeks prior to Christmas did impact volume sales, especially in theaters and outdoor venues. Despite these challenges, many of our strategic categories, including ICEE, Dippin' Dots, and Hola! Churros, grew volume during the quarter.

As it relates to our income performance, ongoing inflationary pressures and the softening consumer environment impacted our year-over-year bottom-line results. Our recent pricing actions helped deliver improved gross margins of approximately 100 basis points above Q1 last year, and we are confident that this will continue throughout the year. However, we continue to manage cost pressures on the expense side when compared to prior year, most noticeably, our distribution expense. We expect to see improvement in distribution expenses as we cycle through these high inflationary periods later in the year.

Also, Dippin' Dots is a seasonal business. And as expected, it negatively impacted our results in the first quarter. This business will drive most of its profitability in the second half of the year. Ken will provide some more insights to our financial performance in just a few moments.

Switching to our three business segments, starting with food service, Q1 revenue was up 13% even as we manage through the challenging winter weather events in December. This, combined with a weaker slate of movie releases, had some impact on our sales. Soft pretzels sales increased 4% this quarter. We see expanded growth opportunity throughout the year as we introduce pimento nuts and pretzel bites, focused on the entertainment, theater, QSR, and convenience channels.

We also saw continued strong momentum in our churros business, with sales increasing 32% as we introduced our new Hola! Churros brand to food service. The sales team expanded placement of churros with major distributors, large regional QSRs, and fast-casual restaurants. We are confident that there are still significant growth opportunities across QSR, fast casual, convenience channels, and with major distributors, including a significant opportunity with a major QSR burger chain going into test in the first half of 2023. Hola! Churros will have a whole selling and marketing support plan throughout the year.

Frozen novelties was relatively flat in Q1, excluding sales from Dippin' Dots. The first quarter is a slow seasonal period for this category and was further impacted by the challenging weather conditions. We have strong incremental sales plans in place starting in the second quarter and remain very confident in growing this category throughout the year in theme parks, healthcare, and convenience channels. We have also added two new production lines to support these growth opportunities.

Transitioning to our bakery business, sales increased 1%, driven by strong growth of handhelds and cookies with a major club customer, and we expanded business with a strategic convenience store customer as well. Looking forward, we see additional growth opportunities for our ICEE cookies and our frozen cookie dough. Our strategy to improve margins in the bakery business is working as we shift the mix to more profitable products and customers and rationalize less productive items in our portfolio. Very pleased with our bakery group.

Lastly, we continue to forecast added gains in key items such as handhelds and funnel fries. Moving to our retail segment, sales increased 1% for the quarter as the industry started to experience softness and macroeconomic spending for consumables. In our soft pretzels segment, we saw continued strength in our flagship SUPERPRETZEL brand, driven by distribution gains and organic growth. However, overall pretzel sales declined 11% in the quarter, primarily in licensed and private brand products as we executed planned SKU rationalization of lower margin items.

As the year progresses, our strong focus on SUPERPRETZEL brand, including new SUPERPRETZEL pretzel bite flavors, the launch of SUPERPRETZEL nuts, and SUPERPRETZEL Bavarian pretzel sticks, is expected to lead a full year revenue growth in the soft pretzel category. In frozen novelties, we saw 1% sales increase for the quarter. As we enter the second quarter, we are planning for incremental growth in this category, including the launch of ICEE and SLUSH PUPPIE pots. Whole Fruit and the Luigi distribution gains and further expansion of our Dogsters brand in grocery.

We are also confident with our plans to bring Hola! Churros to retail later this year. We added capacity. This will be a big growth opportunity for this category. Regarding our third segment, frozen beverages, Q1 revenue was up 9%, driven by a 15% increase in beverage sales and an 8% increase in service sales.

This was partially offset by 11% decline in equipment revenue due to the timing of customer installations between the years. However, we are excited to communicate that we have secured a contract with Checkers to buy approximately 800 machines, and these will be installed over the second half of the year. This business also includes a service contract as well. ICEE branded tests continue with large QSR customers, and we are in the process of rolling out ICEE across most stores nationwide.

In regard to Dippin' Dots business, our pipeline is strong. Not only has it performed very well thus far, including a 14% increase in unit sales in the first quarter, but it holds significant potential for added growth, both in food service, where it's predominantly today, as well as in expanding into the retail sector. As an example, we recently signed a deal with Regal Theaters, which, as some of you know, is the second-largest theater chain in the United States with over 540 locations. The initial placement will cover over 230 locations, with the rest to come thereafter.

The initial sales results are really encouraging. We also recently introduced ICEE Cherry 'n Blue Razz Dippin' Dots flavors, a new product launch with promising Q1 sales, which demonstrates our ability to leverage our strong brand portfolio across business channels. I would now like to spend a few moments reviewing our strategic priorities as we remain focused on transforming the business. We have taken aggressive measures to offset the challenges facing us as we operate under this historic backdrop of inflationary pressures and to position the company for long-term success.

We are aggressively focused on improving operational efficiencies through initiatives like implementing a new ERP system, adding seven new, more automated production lines, outsourcing our shipping logistics, and building a more geographically optimized distribution network. In addition, we have now fully implemented various price increases across our portfolio, which will continue to drive improved gross margins. Let me start with our supply chain strategy priorities. We communicated last quarter that our logistics and distribution management responsibility have now been fully outsourced to NFI, a recognized expert in the industry.

They are now managing 100% of our business, and we expect to generate approximately 4 million annualized benefit as we improve management of carriers, improve truckload efficiencies, and minimize miles through better network management. We are further investing in our supply chain process through the build-out of three geographically located distribution centers across the country. These RDCs will enable better location of inventory and simplify our warehouse network, moving from managing over 30 plants, three PL locations to approximately six. Two of these new RDCs will have a box in a box where we'll be able to store Dippin' Dots products, adding capacity for growing this business and getting product closer to the customer.

Our first RDC will open up in June at a facility just outside of Dallas, and the second RDC should open up later in the fiscal year. The third RDC is still in development and expected to be opened in fiscal 2024. On the operations side, we have committed investments to add seven new production lines that will add capacity and drive efficiency through better automation. To date, we have opened two new frozen novelty lines and one additional churros line.

Over the next six months, we will activate three additional lines focused on expanded pretzel production. As it relates to M&A, we are currently working on integrating Dippin' Dots into the J&J system, processes, customer channels, and operation. At the same time, we continue to evaluate potential M&A opportunities that complement our brand portfolio and our business model. In summary, we will remain focused on building this business for the long-term growth.

Strategically, we are transforming the business, investing in our brands and capacity to grow while implementing initiatives to help us operate more efficiently. Our leadership team is aligned, and the organization is excited about the opportunities ahead of us to continue building on the great history of J&J Snack Foods. I would now like to turn the call over to Ken Plunk, CFO, to review our financial performance. Ken.

Ken Plunk -- Chief Financial Officer

Thank you, Dan, and good morning, everyone. As Dan mentioned earlier, we continue to experience double-digit sales growth across our business. We remain optimistic about the balance of the year given the many initiatives we have underway and their expected impact on our business from the top line to the bottom line. Net sales for the quarter were 351.3 million, growing by 10.3% versus the prior-year period.

Starting with food service, our largest segment, representing approximately 68% of our total sales, revenue of 238.3 million exceeded Q1 2022 by 26.6 million, an increase of 13%. That included approximately 13.4 million in Dippin' Dots sales. The healthy performance in food services was driven by 157% increase in frozen novelties sales, benefiting from our Dippin' Dots business as well; 32% increase in churros sales; and 27% increase in handhelds sales. We also saw growth in soft pretzels and our bakery business of 4% and 1%, respectively.

The retail segment posted sales of 43.1 million or an increase of 1% compared to the same period in fiscal 2022. Handhelds continued their strong performance with 127% increase in sales, while frozen novelties increased 1%. Soft pretzels and biscuits decreased 11% and 4%, respectively, versus the prior year. Frozen beverages sales were 70 million and grew 9% versus Q1 2022, led by beverage sales growth of 15%, as well as repairs and maintenance service revenue growth of 8%.

Equipment sales declined 11% due to the timing of installation between years. Gross profit for the quarter was 9.9 million or an increase of over 14% compared to the previous-year period. Gross margin was 25.9% in the quarter, favorably comparing to 24.9% in Q1 of fiscal 2022. Moving down the income statement, total operating expenses increased 81.5 million, representing 23.2% of sales for the quarter, compared to 20.3% in Q1 of 2022.

These results largely reflect the persistent inflationary pressures across all our expense lines, in particular, distribution expenses. Distribution expenses were 12% of sales, compared to 10.5% in fiscal 2022, but did improve compared to Q3 and Q4 2022 when they were 12.7% and 12.4%, respectively. The 150 basis points higher distribution costs as a percent of sales contributed approximately $5 million additional expense for the quarter on an equivalent basis when compared to a year ago. Marketing and selling expenses represented 6.7% of sales, versus 6.6% in prior-year period; while administrative expenses were 4.7% of sales in Q1 of 2023, compared to 3.3% in Q1 of 2022.

Also, Dippin' Dots is a seasonal business, and as expected, negatively impacts our result in the first quarter. This business will drive most of its profitability in the second half of the year, its higher sales better than the expenses in those quarters. This led to an operating income of 9.3 million, compared to 14.8 million in Q1 2022, or a year-over-year decline of 37%. Adjusted operating income was 11.2 million and adjusted earnings per diluted share was $0.42.

After considering income tax of 2.3 million, compared to 4 million in Q1 of fiscal 2022, net earnings decreased to 6.6 million, resulting in reported diluted earnings per share of $0.34. That compares to $0.58 in the prior period. Adjusted EBITDA decreased 8% to 25.3 million. Our effective tax rate was 26% for the first quarter.

Taking a look at our liquidity position, even with the Dippin' Dots acquisition, we continue to have a healthy balance sheet, an overall strong liquidity position with 61.2 million in cash and marketable securities and approximately 92 million in debt. In addition, we have ample availability under our revolver with approximately 123 million of additional borrowing capacity. In summary, we are excited about the opportunities ahead and remain confident that our portfolio brands, investments, and our business strategic initiatives will continue to fuel growth. Our efforts to gain added efficiencies and effectiveness display J&J in a position of added strength and improved our ability to leverage opportunities ahead of us.

With 55 million cash, ample available liquidity, we have the means to adequately support and invest in the growth drivers of the business. I would now like to open the call to questions. Operator.

Questions & Answers:

Operator

[Operator instructions] Our first question or comment comes from the line of Andrew Wolf from C.L. King. Mr. Wolf, your line is open.

Andrew Wolf -- C.L. King and Associates -- Analyst

Hi. Thank you. Good morning. I want to start --

Dan Fachner -- Chief Executive Officer

Good morning, Andrew.

Andrew Wolf -- C.L. King and Associates -- Analyst

Good morning, gentlemen, on the kind of your volume results and maybe what you saw with consumer behavior, elasticity of demand. You know, I think -- you know, it seemed like you were kind of outperforming most on elasticity, in particular. And then this quarter, you referenced the industry slowing. And it seems like, you know, to some extent, perhaps the business itself kind of caught up to the industry and experienced some negative consumer behavior.

Could you just kind of give us a qualitative sense of that and/or -- and a quantitative sense to like where your volumes are maybe adjusted for the SKU rationalization as well so you don't get penalized by that, that'd be great.

Dan Fachner -- Chief Executive Officer

Right. I'll talk to some of that, Andrew. Thanks for your question. Yeah, it's much like what you said.

You know, when we ended our last quarter, our volumes were strong. And even as we entered into this quarter, they were strong. And then as the quarter went on, they trailed off. And so, we're watching that really closely.

I tend to personally think, and we do as a company, that we were affected pretty greatly in the December months and mainly as we got into the, you know, really, two or three weeks of cold weather. We never like to blame anything on weather. And I won't allow our people to do that. But it does have an effect, especially as you're in the holiday shopping season.

And we experienced that as we got late into the quarter. And so, now, we're watching it really closely as we move into a new quarter and are going to be mindful and watching it with a close eye to see what happens from there on out. I don't personally think that we have hit the issue of elasticity. I think the pricing that we took was well within line of what others in our categories might have taken and maybe even slightly below that.

So, I don't think that that's the issue. I just -- I really believe that we hit into a period of time where, you know, there's threats of a recession and you got cold weather and people aren't out shopping as much as they might have done under different conditions.

Andrew Wolf -- C.L. King and Associates -- Analyst

Thanks. Very helpful. And, Ken, on -- I alluded to the, I think, you know, SKU rationalization where you got out of some unproductive SKUs. I think it's off pretzels.

Is that a pretty significant -- you know, somewhat significant number worth calling out, or just a rounding error?

Ken Plunk -- Chief Financial Officer

I wouldn't call it significant, Andrew. You know, in certain categories, you know, it had a bigger impact than others. Again, some of the trail off of, you know, volume in other places that we didn't expect because of some of the things Dan said, it kind of magnified that a little bit more. But it's not the key driver.

I think as we try to comment, we really were taking that quarter to sharpen the pencil a bit, you know, those places in bakery, you mentioned, places in pretzel where we feel really good about our business model. We focus on the growth. But there were some things from a margin standpoint that we wanted to do to get that kind of recalibrated a little bit. And so, anyway, the answer to your question is, yeah, it had an impact on a couple of categories, but I wouldn't call it significant on the quarter at all.

Andrew Wolf -- C.L. King and Associates -- Analyst

Got it. And just one other question really on capital allocation. First of all, you know, you reported a pretty big increase in cash capital expenditures. Kind of seems to comport with, you know, your pretty aggressive plans for seven new lines.

But can you kind of express to us what your capital budget is for the year and how you -- you know, what you think you might be spending to invest it back in the business? And the other side of the M&A that you alluded to. I guess my question there is more balance sheet-related. You know, how much debt leverage, you know, is the board and the executive committee willing to take on to execute a deal? Thank you.

Ken Plunk -- Chief Financial Officer

Yeah. I mean, I appreciate the question, Andrew. You know, again, we feel really good about where we're at in terms of the ability to continue to invest in the business. But to your point, as it relates to changes in debt, yeah, you saw on the balance sheet, you know, I think almost doubled capital spend for the quarter versus a year ago.

We've been very clear that we're investing close to $100 million in seven new lines and in these new RDCs. So, obviously, that's going to drive, you know, increases in capex versus, you know, two or three years ago. You know, you'll see that, I think, the number was just south of 90 million that we spent in fiscal 2022 capex. As we continue to execute these investments that we're making, you know, the 2023 number is going to be probably in that range, I'd say, 90 million to 105 million, somewhere in there.

And it's really all focused on completing the execution of those key, you know, production lines and RDC investments that we're making. In terms of leverage with the board, you know, I wouldn't say there is an exact number that we've kind of landed on with the board of what we're willing to do. We're evolving as a company. You know, we moved from really no debt to starting to see that we can leverage our balance sheet to go and grow this business and invest.

And I think the board is supportive of that. But I can't say that there's a specific leverage number that we've kind of gotten behind at this point.

Andrew Wolf -- C.L. King and Associates -- Analyst

OK. Thank you. I'll pass it on. Appreciate it.

Dan Fachner -- Chief Executive Officer

Thank you, Andrew.

Operator

Thank you. Our next question or comment comes from the line of Todd Brooks from Benchmark Company. Mr. Brooks, your line is now open.

Dan Fachner -- Chief Executive Officer

Good morning, Todd.

Todd Brooks -- The Benchmark Company -- Analyst

Few quick questions for you. First of all, on Dippin' Dots. Obviously, with the seasonality of the business, is there a way that you can size for us so that we can gauge kind of the operating income trend outside of the Dippin' Dots impact, what the drag on operating income was in the first quarter from Dippin' Dots?

Ken Plunk -- Chief Financial Officer

Yeah. Hey, Todd, this is Ken. I think in the last quarters, we had kind of tried to guide the group that, you know, almost all -- I mean, you could even call it 100% of the profitability of Dippin' Dots is in Q3 and Q4. Again, no surprise given the seasonality of that business.

Q1 is the slowest, and it has a negative impact. You know, I think you'll see this build out in the 10-Q, just south of $1 million negative impact in this quarter from Dippin' Dots. And that's -- Dippin' Dots actually had a great quarter and performed above expectations. But that's the weight of fixed expenses and high SG&A based on all those sales based, creates a de-leveraging in Q1 that was certainly expected on our side.

But that gives you a little bit around the idea of kind of what that impact was in this quarter.

Todd Brooks -- The Benchmark Company -- Analyst

Thanks, Ken. And is that the right type of number to use for the March quarter as well as we're going into the June and September ramp?

Ken Plunk -- Chief Financial Officer

Slightly better than that time. I would probably kind of guide you that, you know, it should be positive, but less than $1 million positive.

Todd Brooks -- The Benchmark Company -- Analyst

OK, that's helpful. Thank you. Secondly, I just wanted to get back to and a little follow-up on Andy's question about volumes. I was wondering two things.

One, did you see any -- and this would be outside of the consumer, did you see destocking of inventories from your retail or obviously at the clubs and mass in the food service business? Were those customers working down inventories at all at the end of the year? Is that part of why the volume may have dipped later in the quarter?

Dan Fachner -- Chief Executive Officer

Yeah, Todd, that's good question and a good observation, and we absolutely believe that. We did feel that a little bit as what I discussed with our own business. I think many of the retailers out there found themselves in the same situation and our smart retailers and started to drive inventories down. And so, yes, I think that was a portion of what came into play in that December month.

Ken Plunk -- Chief Financial Officer

Yeah, and then --

Todd Brooks -- The Benchmark Company -- Analyst

I'm sorry, Ken. Go ahead.

Ken Plunk -- Chief Financial Officer

I was just going to add, there's data out there and there's a lot of data. I'm sure you guys read the same thing. But I did read one that said spending at grocery stores was slightly down. So, I think you're starting to see people be a bit more frugal on the basket.

The other thing that I read was a pretty pronounced increase in traffic in shopping at dollar stores, you know, and a little bit less traffic at some of the bigger retailers, particularly the higher-end grocery stores. So, I think there's something in there where some of that, on the retail side, is impacting, you know, buying of our products. And then to your first question, does start to kind of drive different decisions on inventory. You know, we've got too much for now.

They push back on us. We've slowed our production and all of that. As you're trying to calibrate it, you know, it can create a little bit of inefficiency.

Todd Brooks -- The Benchmark Company -- Analyst

OK. And this is just -- I was wondering if this was part of the volume compare as well. Obviously, the ERP conversion in the March quarter of fiscal '22. Did any of any customers kind of preload inventory in advance of the conversion that would have benefited the December quarter last year but made for a tougher volume compare to this year?

Dan Fachner -- Chief Executive Officer

No, Todd. That's a great question, but that really did not happen. Maybe in 2020 hindsight at this point, you know, we might have encouraged that last year, but I can't say that that's what happened.

Todd Brooks -- The Benchmark Company -- Analyst

OK, great. And the final question, I'll pass it along, the strength in churros, was the Hola! launch at food service, was that in place for the -- was that for the full quarter, or did it roll out over the quarters? So, actually, that strength, when you have a full quarter of selling it into the food service channel, could actually accelerate a bit going forward?

Dan Fachner -- Chief Executive Officer

We believe it can continue to be accelerated. We're putting a lot of push behind it, much like what we've talked about separately over the churros have really come of age. We love the new brand. We love the opportunity sale there, not just with large customers out there, but even through the distribution network.

And we're -- you know, we've got a lot of marketing behind it. We feel really good about it. So, I think it can continue to build momentum throughout the year. Although --

Todd Brooks -- The Benchmark Company -- Analyst

And was it available for the full quarter down or did it roll out over the quarter?

Dan Fachner -- Chief Executive Officer

It really rolled out throughout the quarter, but it would have been started early. And so, you know, it would have been early in the quarter. So, I'm not sure how to guide you on that. You know, it was a good quarter.

We had 32% increase and 30-plus -- 30% increase. So, it's a good quarter. I expect the same thing, if not greater, in the coming quarter.

Ken Plunk -- Chief Financial Officer

Yeah --

Todd Brooks -- The Benchmark Company -- Analyst

OK, great. Thanks.

Ken Plunk -- Chief Financial Officer

There's even stronger promotional plans around that brand. I wouldn't say we've kind of, you know, really hit and executed every part of our marketing plan around that. There's more to come, and we're really excited about it, Todd.

Dan Fachner -- Chief Executive Officer

And we've got some really good things in test as is it as well.

Todd Brooks -- The Benchmark Company -- Analyst

Excellent. Thanks, guys.

Dan Fachner -- Chief Executive Officer

Thank you, Todd.

Operator

Thank you. Our next question or comment comes from the line of Connor Rattigan from Consumer Edge. Mr. Rattigan, your line is now open.

Connor Rattigan -- Consumer Edge Research -- Analyst

Hey, guys. Good morning.

Dan Fachner -- Chief Executive Officer

Good morning, Connor.

Connor Rattigan -- Consumer Edge Research -- Analyst

So, just quickly, on Dippin' Dots, it sounds like that 13.4 million in sales generated were decently ahead of your expectations. So, by my math, that's about 13% of historical sales in the first quarter. That puts the brand on about a $100 million or so run rate or about 10% higher than last quarter. Could you maybe quantify your expectations for the brand over the year? Just trying to get a sense of how big we should expect this thing to be given planned distribution rollouts.

Ken Plunk -- Chief Financial Officer

I think your math is good, Connor. Good job on that.

Connor Rattigan -- Consumer Edge Research -- Analyst

Thank you.

Ken Plunk -- Chief Financial Officer

I'm actually [Inaudible] that number, but I think our expectations are in that ballpark that you just came out with. We feel really, really good about what we're doing with Dippin' Dots, you know, and we just mentioned one example in the release in the script. But operationally, things we're doing, other things in the pipeline. So, yeah, we're aligned with you on kind of what we think we can do with that business this year.

Dan Fachner -- Chief Executive Officer

We are. That's good math on your part and really excited about that team and what they're doing. In fact, the whole sales team is here in the office this week at a sales meeting, and we're just really thrilled with the way that they're responding.

Connor Rattigan -- Consumer Edge Research -- Analyst

Awesome. That's great, guys. And then also, just quickly on some of the efficiency efforts that you mentioned. So, that $4 million figure, is that expected to be fully realized this year, or is that more of a fiscal '24 goal? And also, on the automation efforts.

Just to be clear, are these fully new automated lines replacing manual lines, or are these just purely incremental capacity?

Dan Fachner -- Chief Executive Officer

You wanna go first?

Ken Plunk -- Chief Financial Officer

Yeah. Well, on the lines, it is added capacity. So, this is not replacing current lines. That's new lines, but lines that are obviously more modern and with better automation than, you know, existing.

So, we expect to be more efficient in how we move products to those lines. And I'm sorry, what was your first question?

Connor Rattigan -- Consumer Edge Research -- Analyst

Just on the $4 million in incremental savings from the logistics and distribution outsourcing, is that expected to be fully realized this year, or is that more of a fiscal '24 goal?

Ken Plunk -- Chief Financial Officer

Yeah, I think the way we've spoken about it before, it really took us until around September, October to get all of our business on NFI and kind of the key to managing all of this is for them to be kind of pull the strings on how we manage product and distribution across our entire network. Secondarily, their jobs get even easier as we execute this RDC strategy. So, on an annualized basis, yeah, if I had to make a guess for 2023 given what we've got in motion, yeah, I'd probably say it's going to carry -- some of that 4 million is going to carry to '24, but I think we should realize a good portion of that in this fiscal period.

Dan Fachner -- Chief Executive Officer

And, Connor, let me just touch on the lines question that you had. They are in addition to the lines that we have the day, but it also allows us to do some shifting of where we make some products to become much more efficient in different areas. Our intention is not to shut down the former line but to be able to use that for more capacity.

Connor Rattigan -- Consumer Edge Research -- Analyst

All right. That's great, guys. Thank you so much. I'll go ahead and pass it on.

Dan Fachner -- Chief Executive Officer

Thank you, Connor.

Operator

Thank you. Our next question or comment comes from the line of Jon Andersen from William Blair. Mr. Andersen, your line is now open.

Jon Andersen -- William Blair and Company -- Analyst

Great. Thanks. Hi, everybody. Good morning.

Dan Fachner -- Chief Executive Officer

Good morning, Jon.

Ken Plunk -- Chief Financial Officer

Good morning.

Jon Andersen -- William Blair and Company -- Analyst

Good morning. Maybe just I'll stick with that last question since we're on it. On the new production lines, how much capacity in aggregate will these seven new lines kind of unlock? And are there also, you know, margin benefits associated with it? I guess that's second part of the question, Dan, gets to some of your comments around shift or optimization of production. But again, how much capacity are you unlocking with these seven new lines? And are there productivity benefits as well?

Dan Fachner -- Chief Executive Officer

You know, I don't have the exact number to give you on the capacity, but it does allow us to grow our core products, right? And one of the things we really experienced was outgrowing our core, which is our churros and pretzels and frozen novelties and even our pretzel dog side of the business. And so, we have addressed that to be able to have enough capacity to get our sales team back out there and really selling new lines and new opportunities. It does help on the margin side because we are becoming much more efficient in different areas, even baking products like in our novelties side, making products where they're sold as opposed to maybe making them in one part of the country and shipping them across to another side. So, there are margin improvements that we think that we can realize as we open these up.

Jon Andersen -- William Blair and Company -- Analyst

That's helpful. Thank you. Organic growth in the first quarter was about 6%. Can you help us kind of gauge how much of that 6% organic growth was volume based and how much was price? And then you've kind of laid out a lot of very interesting demand generation initiatives, you know, that are kind of kicking in through the year: the cross-selling opportunities, the new account, new channel opportunities that seem to be kind of lining up.

How should we kind of think about organic growth accelerating through the balance of the year or, you know, kind of maintaining that level in this mid-single-digit range? I know it's a difficult question, but just trying to get a sense of your confidence in some of the initiatives that you have lined up and what that might do to the organic growth profile of the company during the coming quarters.

Dan Fachner -- Chief Executive Officer

I'm going to let Ken talk a little bit about the numbers if he can. But I just want to say this about our sales team. You know, we talked about it for two or three quarters now about cross-selling and getting people engaged in the different companies on selling the products across channels and across customers. And I couldn't be more proud of the way that they're responding to that.

That is happening more and more, and I get to see it firsthand. And that will be helpful. It's certainly helpful as we're starting to look at the Dippin' Dots business, being able to leverage our relationships and our customer contacts that we have to accelerate that growth. And so, just really pleased with the progress that is happening on that side led by our sales team, really happy with that.

Ken, I don't know if you have some numbers you could help him with that.

Ken Plunk -- Chief Financial Officer

Well, I would just add this. Jon, I'm glad you picked up on it. But we were very intentional to really go maybe even a little bit deeper on highlighting what we see as a lot of growth opportunity. And we sprinkled in examples, but it was from Dippin' Dots to SUPERPRETZEL, to frozen novelties, to churros.

So, you know, yes, we still remain very, very confident in our ability, you know, in the next three quarters to grow the organic side of our business, if you just take out Dippin' Dots for a second. You know, like every other company out there, I mean, we're watching things like GDP and, you know, data on consumption and, you know, you see a little bit that being dialed back. You see savings rates going up. So, there are some consumer things that we're watching which, you know, obviously impacts our business if consumers pull back.

But aside from that, I don't know a time at J&J where we haven't felt more confident about what we're doing in innovation and with our brands and cross-selling. And so, we remain very confident in what we're going to be able to do for the rest of the year.

Jon Andersen -- William Blair and Company -- Analyst

OK. That's helpful. One more. It's kind of a similar question, but more from an earnings perspective.

When I look at EBITDA or adjusted EBITDA in the first quarter and even adjust, I guess, for a bit of the impact of Dippin' Dots, the deleverage, it looks like EBITDA came in around 15% or so of what the Street anticipates full year EBITDA to be. And then if I kind of look back pre-pandemic to some more typical years, it looks like first quarter EBITDA might have trended more in 20% to 22% of the year range. So, just kind of optically, it would look like maybe you're starting the year a little bit slower this year from an EBITDA perspective, at least relative to what the Street is modeling for the full year. But again, there are so many great cross-selling things going on.

There are a lot of good things happening on the operational efficiency front, margin catch-ups from pricing, etc. Are you kind of -- am I thinking about it right, that, hey, you know, we're in a pretty good position, you know, exiting Q1 and entering Q2 despite those metrics I mentioned to kind of, you know, deliver on a full year expectation?

Ken Plunk -- Chief Financial Officer

Yeah. Yeah. Again, we try to explain this a little bit. Two headwinds, you know, right off the bat in terms of comparing, you know, a year-ago EBITDA or even if you went back to '19.

I don't have this number in my head, but I think the number would be even bigger. But you've got roughly 5 million of impact on distribution expenses. If you just -- on an equal basis, that would be -- that would impact profitability this year versus a year ago. Then I mentioned the impact when you bring on Dippin' Dots business that has loss in the quarter and, again, expected.

Then that starts to create, you know, a $6 million kind of bogey right there just from two things. And then I do think as we ended the quarter, we expected to do a little bit better than that because we weren't expecting volumes to tail off in December with some of the weather challenges that we talked about. And it's in a quarter where if you don't create the sales, then you deleverage pretty quickly. You know, keep in mind that even for total J&J, 75% of the sales and, really, profitability for J&J is going to be in Q3 and Q4.

And, you know, that should play out if you go years back. That's just kind of the seasonality of the business.

Jon Andersen -- William Blair and Company -- Analyst

OK. Thanks so much, guys. Appreciate it.

Dan Fachner -- Chief Executive Officer

Thank you, Jon.

Operator

Thank you. Our next question or comment comes from the line of Robert Dickerson from Jefferies. Mr. Dickerson, your line is now open.

Rob Dickerson -- Jefferies -- Analyst

Great. Thanks so much. Can you hear me OK?

Dan Fachner -- Chief Executive Officer

We can. Good morning, Rob.

Ken Plunk -- Chief Financial Officer

Hey, Rob.

Rob Dickerson -- Jefferies -- Analyst

All right. Great. Thanks a lot. Yeah, I guess, you know, just kind of follow-up to the last question that was asked.

I'm just going to ask a little differently. You know, Ken, to your point, right, there's a little volume deleverage that comes through input cost inflation still a bit high. On the COGS side, it sounds like there could be other pricing offsets. And then, yeah, as you keep mentioning, good innovation, distribution opportunities as you get through the back half.

You know, Q1, I understand kind of the drivers behind what happened, not just an EBITDA margin, but, you know, I'm speaking more specifically to the growth side. Then you go back a couple of quarters, right? And kind of feel was, yeah, as we kind of got into Q2 this year, maybe more back half-ish, we could kind of get back a little bit more of those pre-pandemic margins. And it seems like you're making pretty decent progress on that goal in the back half of last year, right? And then, you know, December kind of had maybe a little softer volume, maybe some consumer behavior shifts, to some extent. I guess, as you sit here now, right, if we're thinking about Q2 1, right, just point one, just because as you think you're kind of lapping, right, that ERP issue you had last year, I would think there'd be some nice margin progression.

And then when we're thinking about the back half of this year, it kind of the -- kind of what I'm hearing I feel like is like it's still a little bit of a moving target, right? Some of this is going to be contingent, obviously, on consumer behavior as we get into the summer, right, which is still kind of a far way away. Sounds like some pricing might come through to offset some of the cost inflation. And then maybe there's also some incremental distribution innovation that could help offset maybe some consumer weakness. So, a lot in there.

I'm just trying to gauge kind of where -- how you want the market to be thinking about kind of that margin recovery potential this year? Or is it something that, you know, maybe we're kind of -- we're just pushing forward a little bit kind of because maybe there's a little less clarity? That's all I have. That's a lot. Thank you.

Dan Fachner -- Chief Executive Officer

Thank you, Rob.

Ken Plunk -- Chief Financial Officer

Rob, you just did my job for me.

Dan Fachner -- Chief Executive Officer

Yeah, you did it pretty well, though. Yeah.

Ken Plunk -- Chief Financial Officer

[Inaudible] I don't blow. Yeah, you know, we've, I think, been clear. You know, as you had meetings even going back to last quarter, we think we're on a trajectory to get this business, you know, up to those 30% margins. As I sit here now, yeah, I still feel confident in our ability to do that, particularly as we get to Q3 and Q4, because I believe the things we're doing, the initiatives, the getting all this inflationary stuff behind us, you know, getting into peak season when I think we'll start to see volumes really kick back in and some of these, you know, new products and new ideas and new innovations are going to drive growth.

So, I still sit here seeing that as, you know, a pretty good benchmark, Rob. You know, we managed this business long term. And if I can emphasize anything, as we come together each quarter, our jobs are to continue to demonstrate from an investment standpoint, from where we're driving growth, the long-term aspects of what we're doing are going to pay dividends for us. We then occasionally get into a quarter like this, you know, where you get into some economic challenges and weather and that pulls back on volume and then you have to kind of recalibrate, you know, inventory and production a little bit.

And so, that can hit a quarter but still feel really good about the back half of the year.

Dan Fachner -- Chief Executive Officer

Yeah, Rob, I would echo that as well. And I would just also add to it that we still have some pricing coming on the ICEE side. We talked about that in other quarters. ICEE takes pricing once a year.

And so, there's a pricing that was taken on January 1 on the ICEE side. And so, yeah, I think we're still feeling pretty confident about getting back to those pre-COVID percentages. And that's part of the conversation that we have among all of our groups in all of our conversation.

Rob Dickerson -- Jefferies -- Analyst

Perfect. Super. Thank you so much.

Dan Fachner -- Chief Executive Officer

Thank you.

Ken Plunk -- Chief Financial Officer

Thanks, Rob.

Operator

Thank you. Our next question or comment is a follow-up from Mr. Andrew Wolf from C.L. King.

Mr. Wolf, your line is now open.

Andrew Wolf -- C.L. King and Associates -- Analyst

Hello. My first is on your outlook for commodity cost inflation slowing, which I think you said in the release. You might have talked about this, but if I didn't hear it well if you did. But could you be a little more specific on what kind of -- what you're thinking the cadence is going to be? Maybe what percent of your costs are locked in through forward contracts and things like that? I think a lot of, you know, folks in the supply chain, manufacturers, and others are looking to the June quarter to really -- you know, when the relief really comes in on the year-over-year comparisons, where pricing is unambiguously a lot better than cost and, you know, COGS inflation.

Just your sense of that from the business. And then the other -- the second follow-up is very straightforward. It's just like, you know, there's been five, four weeks and, you know, a couple more days since the quarter ended. Have you seen any changes either way in the volume trends pretty much in January? Thank you.

Dan Fachner -- Chief Executive Officer

You're going to handle the commodity cost?

Ken Plunk -- Chief Financial Officer

Yeah, on the commodities, I look at so much data on that, you know, Andrew, and, you know, I think we said those trends are getting better. Sometimes, they seem too gradual, but, you know, they are getting better. Just give you a couple of examples. You know, we -- you know, while it's 16% higher than it was a year ago, quarter over quarter, it went up just 40 basis points.

So, it did go up, but it only went up 40 basis points. And the outlook on wheat is that we do expect that to continue to decline. I think as we look at the second quarter and this -- I picked on wheat because it's our biggest commodity. We think it may go down, you know, 3% to 4% is kind of our best guess right now as we look at Q2.

But you kind of go across the eggs. Obviously, we use a lot of eggs. Eggs is up triple digit year over year. It went up 43% quarter versus quarter.

So, eggs continue to go up. So, you know, it's kind of depending on what commodity you're talking about, it's a different answer. Collectively, we do expect them to continue to go down. I don't have a crystal ball.

I think our best guess next quarter is maybe somewhere in that, you know, 3% to 5% range. And then as we look further out, you know, hopefully, better than that. I think wheat, diesel are two big ones that are supposed to continue to go down quite a bit. Sugar, you know, it's not as high as it was, but it's still not showing signs of heavy decline at this point.

Dan Fachner -- Chief Executive Officer

And then, Andrew, on the weeks ahead, we're watching that cautiously, being careful about what's happening out in the industry. We do have some really bright spots, though. One of those bright spots would be where the theater business was really off in the December month. They've come back pretty strong in the January month.

And so, we're encouraged by what we're seeing so far.

Andrew Wolf -- C.L. King and Associates -- Analyst

Great. Thank you, guys.

Dan Fachner -- Chief Executive Officer

Thank you, Andrew.

Operator

Thank you. I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to Mr. Dan Fachner for any closing remarks.

Dan Fachner -- Chief Executive Officer

Great. Thank you, operator. In closing, we want to assure you that more than ever, our teams are focused on effectively managing through these dynamic market conditions while serving our customers and partners. As we have outlined on the call today, we've taken aggressive measures to offset these various challenges and to position the company for long-term success.

Our momentum remains strong with our core brands, and new products continue to resonate with customers. And we are -- and as we progress through 2023, we are confident that our strategy will have a marked and positive impact on our business and our results. We want to also take this opportunity to acknowledge the hard work and dedication of our talented teams across the entire business unit. And thank you, everyone, for joining us today on the call.

We appreciate your interest and your continued support. So, if you have any questions or wish to speak to us, please contact our investor relations firm JCIR at 212-835-8500. Thank you very much.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Norberto Aja -- Investor Relations

Dan Fachner -- Chief Executive Officer

Ken Plunk -- Chief Financial Officer

Andrew Wolf -- C.L. King and Associates -- Analyst

Todd Brooks -- The Benchmark Company -- Analyst

Connor Rattigan -- Consumer Edge Research -- Analyst

Jon Andersen -- William Blair and Company -- Analyst

Rob Dickerson -- Jefferies -- Analyst

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