Q2 2021 Premium Brands Holdings Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the premium brands Holdings Corporation second quarter 2021earnings conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press star.
1 on your telephone please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, George probably all legal CEO and president of premium brands and will kind of Lucas CFO of premium brands. Thank you. Mr. <unk> you may begin.
Thank you Christie.
Welcome everyone to our 2021 second quarter conference call.
With me today here is our CFO will polluted.
Our presentation today, we will follow the debt that was posted on our website. This morning.
You can also access it by clicking on the link off our press release issued this morning.
We've had some technical difficulties. This morning, I will give it 60 seconds to allow you to download the presentation, which is on our website dated August 'twenty 'twenty 1.
Okay.
Yes.
Okay.
Okay.
We're now on slide 5 which outlines key.
Highlights for the quarter.
Despite the many challenges facing us we reported excellent results for the quarter and year to date.
In general Foodservice demand came back strongly during the quarter and is now running at or slightly ahead of pre pandemic levels also our meat snacks charcuterie cooked protein and sandwich platform are performing well and are ahead of plan.
Our seafood platform, which includes pier 1 as Keith with had an excellent quarter and delivered record results for the quarter and year to date.
We are very well positioned to capitalize on favorable consumer trends in both retail and foodservice we.
We have invested heavily in seafood over the past few years and our asset people and products are best in class.
Very much look forward to reporting back to you on our various growth initiatives and seafood as we go forward.
We're now on slide 6.
As you can see our acquisition pipeline remains very active and robust and we expect to complete many more transactions in the months and years to come.
Now on slide 7.
We're very pleased to issue our second comprehensive ESG report titled South Deep Panic healthy food coffee people, we're committed to meeting or exceeding our various growth objectives stated in the report, including achieving net zero carbon emissions.
By 2030.
Our full ESG report can be found on our website at www Dot premium brands holdings Dot com.
We're now on slide 8.9 and 10.
Our organic growth is driven by our passion to innovate and disrupt the traditional food chain, we're bringing great quality, new and innovative products to market and customers and consumers.
Bonnie very favorably meet.
Meat snacks charcuterie cooked protein value added foods and sandwiches are shown on slide 8.9 and 10 are driving our organic growth and have a long runway to continue to grow for many years to come.
I will now pass the presentation to our CFO will polluted who will update you on our financial results for the quarter well.
Thanks, George and welcome everyone.
Before I begin I would like to remind you that some of the statements made on today's call may constitute forward looking information and our actual results may differ materially from what we discussed please refer to our MD&A for fiscal 2020 and for the second quarter of 2021 as well as other information on our <unk>.
Web site for a broader description of the risk factors that could affect our performance.
I will now turn to slide 12 of the presentation, starting with our sales for the quarter.
We generated 1 point to 3.4 billion in sales.
Which was an increase of 258 million or 26% from our sales in the second quarter of 2020 the.
The main drivers of this were our general organic growth across a range of products and I'll talk a bit more about that later.
Recovery from the impacts of Covid in the second quarter of 2020, which was roughly $85 million.
Acquisition, which accounted for about $84 million of our growth and selling price inflation of roughly $58 million most of which was in our premium food distribution group, which has very dynamic pricing models and cost plus structures that allow them to pass on.
On the current inflationary.
Environment in terms of commodity costs very quickly.
The challenges in the quarter for our sales consisted mainly of the appreciation of the Canadian dollar and the impact of that on the translation of our U S. Based businesses the impact of that was roughly $58 million on our sales for the quarter.
On a COVID-19 normalized basis, our sales for the quarter would have been close to $1.3 billion, representing an increase of about $177 million over our Q2.2020 normalized for Covid sales of $1.1 billion.
Again, the key drivers of that being the organic growth I talked about I'll talk about shortly in terms of organic growth rates.
On a year over year basis for the quarter, we generated total organic growth of close to 18%, but once you exclude the impacts of the Covid recovery. Our overall gornick organic growth was about 9.3%.
And that consisted up very strong growth in our specialty foods segment, which generated about 12, 5% organic growth and then a much lower growth rate in our premium food distribution group of about 2.7% as that group continues to get impacted by the Covid.
Covid related impacts on the foodservice segment.
Turning to the next slide which outlines all of our major growth initiatives across our 6 platforms.
We've highlighted in yellow the key initiatives that contributed to the organic growth in the second quarter you can see in our seafood segment. It was 2 key initiatives, our new Shaco facility lobster per our processing facility in Maine, and Covid recovery, our distributions do distribution group is primarily Covid Rick.
Covering.
In our protein group.
By far the single single biggest driver, where our U S meat snack initiatives, which are going incredibly well, but also Italian chicoutimi cooked protein, mainly our Concord chicken bites program and Covid recovery also contributed to the platform for growth organic growth.
And in terms of our sandwich platform. It was firing on all cylinders with its various sandwich initiatives in U S. Our retail and C store as well as its chicoutimi slicing initiatives, all having stellar organic growth.
The last point on this slide is really the fact that a lot of the growth initiatives in play that we're working on I E. The ones that are not highlighted in yellow will be future drivers of our growth. So we see a lot of runway ahead in in terms of future growth.
Turning to slide 14.
Just a little bit on the Covid recovery in the quarter, which was about $85 million. You can see it was consisted of 90 of roughly $91 million of recovery of foodservice related sales.
Offset by a loss of some of the retail bump sales we saw in the second quarter of last year looking at our individual segments. You can see most of the recovery was in our specialty foods segment and in particularly the <unk> segment, which you see is that that strong foodservice recovery.
And we saw some recovery in our perfect premium foods distribution group as the foodservice.
The economies start reopening through the quarter and we saw a return to in demand in the foodservice segment.
Turning to slide 15, the continuing Covid impact debt was reflected in our normalized sales numbers I discussed earlier.
Looking at the chart on the left you can see in Q2.2020, the dramatic impact Covid had on our business of $132 million in sales.
For the second quarter of 2021, we estimate the continuing impact of roughly $48 million.
Turning to the charts on the right hand side of the slide you can see most of that impact that continuing impact is in our premium food distribution group with the still returning or recovery of the foodservice segment to come.
Being the big Big component of that and then a little bit of cruise line business, we're expecting to come back in the later part of the year.
And then down below in the specialty Foods segment, you can see the ongoing impact is relatively small a.
Little over $16 million and most of that is associated with the airline industry.
Turning to slide 16.
Our weekly sales trends the gold bar being our weekly sales for 2019, the Blue Bar, our weekly sales from 2020, and the Green Bar. Our weekly sales for 2021, you can see the momentum of the second quarter has continued strongly into the third quarter.
And you know as.
As the Foodservice segment continues to open up hopefully with the reopening of the economy.
That should be a even a further driver of that that momentum in our sales growth.
Turning to slide 17.
Showing our for the last 11 years, plus our TTM sales annual sales you can see our 2021 trailing 12 month sales of $4.4 billion nicely exceeded our 'twenty 'twenty normalized for Covid sales of 4.269 billion.
And then looking at our 2021 trailing 12 month sales normalized for Covid, we would've been close to $4.6 billion in sales.
With the release of our second quarter results. We also reinstated our annual sales and adjusted EBITDA guidance for 2021, we are projecting total sales of between $4.7 billion and $4.85 billion we've.
We've made the range relatively a wide to allow for the uncertainty associated with the specific timing of the launch of a right variety of new sales initiatives.
Mainly the items I showed earlier on the slide of all our growth initiatives.
Turning to slide 18, and looking at our EBITDA performance for the quarter, we generated $112.2 million in EBITDA, an increase of $45 million or roughly 67% over second quarter of 2020.
The key drivers of that where our sales growth Act.
Acquisitions, including about $13.3 million in investment income from Clearwater.
The reversal of Covid related costs from the second quarter of <unk>.
2020, which was approximately $11 million, mainly consisting of supply disruptions. Thank you bonuses and plant inefficiencies in the second quarter of 2020, and then finally also production efficiency improvements through automation and continuous improvement across mainly.
Our protein group, but also our sandwich group.
Offsetting those positive factors were 6 negative factors first off was our continued investment in plant sales and administration infrastructure to support both our current and future growth.
The biggest challenge in the quarter by far was commodity cost inflation net of selling price increases.
For our premium food distribution group it was <unk>.
A slightly positive factor as they have very dynamic pricing as I mentioned earlier as well as cost plus pricing models. So they were able to pass on a lot of the commodity cost inflation experienced over the quarter very quickly.
But it was a major impact on our specialty foods segment and in particular, our protein group, which because of the nature of their business and dealing with a number of retailers. There's generally a time lag associated with putting through the price increases needed to address the rising commodity cost environment.
Also wait there was some wage inflation in the quarter, particularly in our U S sandwich businesses as they're addressing some of the tightness labor tightness in that market and then also the translation of our U S businesses into Canadian dollars.
Impacted by the stronger Canadian dollar and rounding out the list was a bit of incentive based compensation accrual increases and some general cost inflation.
Normalizing for the impacts of Covid, our EBITDA adjusted EBITDA for the quarter was $121 million, representing about a $14 million or 13% increase over our 2020 normalized EBITDA of about $107 million.
In terms of EBITDA margins for the quarter It was 9.1%.
Which was below our expectations, primarily due to the commodity cost impacts.
Normalizing for those we would have been closer or even above our 10% target for the quarter and.
And similarly for the Covid normalized number our EBITDA margin was roughly 9.4% and certainly would have been in excess of 10% normalizing for the commodity cost impacts in our protein group.
Turning over to the next 3 our next 4 slides just give you a sense of the trend and in a number of key commodities purchased by our companies the first slide on.
Slide 19 is shows a basket of pork products purchased by our company's pork is the largest component for our protein platform you can see the inflationary trend in there we've listed the demand and supply factors on the right hand side, but really the key driver of the inflation has re.
Ben the reopening of the economy with the foodservice segment in particular.
The next slide shows the basket of beef products beef is the largest component for our distribution platform.
Again, a very inflationary environment going into Q3.
Q2, there was that unusual spike, but overall certainly a continued inflationary environment for beef.
Next slide is lobster, which is a significant cost or input for our seafood group and lobster certainly at absolute record highs right. Now is as you can see from this chart.
And then finally the final charges for salmon again, another key input for our seafood group.
2019, there was some noise in the numbers from supply disruption in the Green line, which is 2021 has really been driven by demand and reopening of the economy. So overall again, what made this quarter unique from a commodity perspective was.
Any 1 particular commodity.
Was inflationary, but never we seen a situation where everything was was so inflationary.
Turning to slide 23, a trend in our annual EBITDA again for the last 11 years and the trailing 12 months similar to our sales you can see our trailing 12 months 2021 EBITDA is now in excess of our 2020 EBITDA normalized.
<unk> for the impact of Covid.
And if you normalize our 2021 trailing 12 months EBITDA for Covid, we would have been in excess of $400 million in trailing 12 months EBITDA.
For 2021, we are projecting an adjusted EBITDA margin of approximately 9% we.
We have been a bit bearish on this number on the basis that we expect to see some continued margin pressure on our protein platform businesses again due to the time lag associated with them putting through price increases to a desk cost inflation as I mentioned earlier.
Turning to slide 24, our earnings for the quarter.
Were $53.5 million, an increase of $32.3 million or a 152% from the second quarter of 2020 key driver of that was our EBITDA growth offset with some associated incremental taxes, and some amortization associated with the sale and leaseback transaction we did in.
In the quarter.
Normalizing for Covid, our earnings would have been $61 million for the quarter, representing a $14 million increase or roughly 31% over the 2020 Covid normalized number.
In terms of EPS for the quarter, we generated $1.23 per share and earnings per share of <unk> 66 cents per share or 116% increase over the second quarter of 2020.
On a normalized basis, our EPS was $1.38, representing a <unk> 15 per share a 12% increase from the normalized Q2.2020 number.
Turning to slide 25, a little bit about clear water.
Certainly our most significant capital allocation we've made yet.
Water continues to generate very strong momentum in their business can see their sales from nicely up roughly 33 million or 31% from the second quarter of $2000.20 million to $139 million.
Key drivers of that who are the key driver of that really was the reopening of the economies, particularly in North America and in China, and that was offset a little bit by some.
The deflationary impact of the stronger Canadian dollar is a lot of their sales are in U S dollars as well as some continuing impact on their wealth business due to some COVID-19 related inventory issues in their key markets.
From an EBITDA perspective.
Clearwater generated $28 million for the quarter up roughly $14 million or 96% from the second quarter of last year.
And certainly comparing it to 2019 also strongly up from about $26 million in that year. So very solid performance by by clear water driven by their organic growth and in particularly the selling price inflation being driven by the reopening of the economy because unlike.
Many of our other business because Clearwater is a harvester of many of its species and has a relatively fixed cost that inflationary impact pretty well flows directly to their EBITDA. So a very positive contributor to the quarter and then also some good strong operation efficiencies.
Generally relating to less at sea days, resulting from better catch rates.
Offsetting that was the negative Canadian dollar similarity to the selling price inflation.
Impact of the dollar flow straight down into their EBITDA and so the translation of the U S. Dollar sales obviously it was a negative also for their products. They do procure those were higher driven by the commodity cost inflation and then also some increased incentive accruals.
In terms of net earnings for the quarter Clearwater channel $2.5 million or 50% equity interest and that was roughly $1.2 million, which is well ahead of our expected plan we expected negative.
Equity earnings for the quarter and our original business plan, So clearwater doing very well and nicely exceeding the plan built into our IRR modeling.
Turning to page 26 in terms of capital allocation for the quarter, we allocated.
Just a little over $100 million in capital <unk>.
$16.5 million of that was to our 35% to 40% owned REIT structures, which are associated with the sale and leaseback I mentioned earlier and then we spent about $82 million on our allocated $82 million to new capital projects, namely the expansion of our hemp.
<unk> facility too.
To add additional meat snack and premium processed meats capacity.
Fashion at our <unk> operations to increase their meat snack capacity.
The addition of 2 automated lines in our sandwich plants, both for capacity and production efficiency improvements and then finally the expansion of our bodies.
<unk> plant in Minnesota.
In terms of actual expenditures for the quarter, we spent roughly $44 million.
On IRR, 15% based projects against $16.5 million for the REIT and roughly $25 million per project Capex and again. These are all projects that we expect to generate at least a 15% internal rate of return after tax on later on.
Unlevered and usually using a 10 year plus business model.
Substitute subsequent to the quarter, we allocated another $110 million for 2 acquisitions, 1 which closed subsequent to the quarter Miramax, a Quebec based food manufacturing and distribution business.
And then made rate, which we have a signed agreement and we're just going through the conditioner. He could closing conditions before it can be completed.
For the year to date, so far we have allocated roughly $931 million in capital and spent $725 million of that.
Turning to slide 12.
2007, our liquidity our balance sheet continues to remain strong with our senior debt to EBITDA ratio at 2.1 to 1 which is below our long term targeted range of 2 and a half to 3 to 1 and our total debt to EBITDA ratio of 3.4 to 1 again well below our long term target.
Mid range of 4 to 4 and a half to 1.
Our unused credit capacity at the end of the quarter was roughly $470 million, giving us great flexibility to continue on with our various capital allocation strategies.
And turning to the final slide of the financial update our free cash flow, we generated record free cash flow of the quarter, a $238 million is roughly a $50 million increase over our 2020 free cash flow.
Driven a lot by the drop off of the second quarter of 2020, which was severely impacted by Covid from a free cash flow per <unk> per share we generated $5.79 for the trailing 12 months a record again, a record level up 92 per share or roughly.
19% from 2020.
Our payout ratio for the trailing 12 months was 43, 6%. If you normalize this for total shares outstanding versus weighted shares outstanding at our current dividend new dividend rate, our payout ratio would have been 46, 5%.
With that that concludes the financial update and I will now turn the call over to Christine.
Christine.
At this time, ladies and gentlemen, if you would like to ask an audio question. Please press Star then the number 1 once again that is star then the number 1 for any audio questions.
Our first question comes from the line of Derek Lazard.
Hi, there.
Yeah.
Mr. <unk> your line is open.
Oh, sorry about that or whatever you guys.
It seems like you guys did a great job.
Or at least you were pretty successful in pushing through some price.
Just wondering number 1 if you experienced.
Any customer pushback and number 2.
I'm wondering do you think the additional pricing actions that you've taken are going to cover most of the inflation in the system right now.
Yes, Derrick you have to remember a couple of things as we set up debt due.
During the last conference call.
Majority of our business is either cost plus.
For example, our sandwich business is generally cost plus.
And.
The foodservice the premium distribution side of our business tends to be.
Dynamic pricing tends to be very dynamic right. So so again, a big part of our business generally is not impacted by come.
Commodity inflation that much.
As will mentioned the 1 area, where we face challenges was the protein.
Group.
Generally speaking, we faced inflationary trends in the past in.
In the case of our protein.
We demonstrated that we can move prices up we just have to abide by.
The day notice period.
To give a different customers generally from 30 to 90 days.
And so in general terms, we feel comfortable that <unk>.
Rice increases are sticky and that our margin in the protein division will will normalize.
Okay. That's helpful.
And how do you guys feel.
Or what's your view on the.
On the on the current outlook of the inflationary pressure.
Well.
Our sense again, it depends on the different commodities Derrick.
You know what.
There's a number of factors that drive the commodity pricing.
To tell you the truth, we don't spend a lot of time trying to predict the market.
In General terms, we were disciplined we follow.
Commodity pricing and.
We are.
At the premium end of the spectrum, we would like to think that consumers buy our products for reasons other than price and <unk>.
Generally speaking, we try to run our business.
In a dynamic environment as possible when it comes to pricing. So we tend to push price is that when commodities go up and then bring it down some.
Volume has come down.
Okay, and 1 last 1 from me.
Just maybe if you can comment on.
Good labor labor situation, how youre dealing with it in your various facilities throughout North America.
Yes, so labor is.
A challenge for.
A lot of our facilities a lot of our businesses.
Challenge for a lot of industries today.
In North America.
Again.
We are dealing with these issues.
Sure.
Effectively this.
Non a lot of labor around willing to work these days.
In some cases, we're working diligently to encourage the different governments to allow more integration into into North America.
We are.
Different businesses have different initiatives.
Community engagement in certain communities that we rely on for labor against various initiatives in place.
He said earlier very dynamic.
It's a challenge for everybody and and we're managing it.
Yes.
During the quarter, we turn away business opportunity because ultimately we have to make sure that we don't over work and we don't overstress our existing labor.
Hopefully that is tasked with.
With with coffee as I guess.
The label at the Labor challenges will will diminish.
Okay. Thanks, gentlemen.
Thanks.
Your next question comes from the line of Martin Landry.
Hi, good morning.
Good morning, Larry.
My first question is on your distribution business.
You do mention in your press release debt.
It's been impacted by.
Decline in live lobster sales that are at retailers.
I'm wondering.
I'm wondering if you can discuss this a little bit more this dynamic and.
And more importantly, as discontinued post quarter end.
Yes, so so what the impact was on what we call featuring Martin where the retailer takes the product and it's a bit of a loss leader for them.
And but drives volume our people into their stores and because the as I mentioned earlier lobster prices were at such record highs retailers cut back on a lot of that type of featuring so it really is a temporary or transitory impact, but the interesting part in the upside and it is.
Ready, which is the primary business that was impacted continues their procurement. The lobsters don't go away and so they've actually position themselves quite nicely for the back half of the year by putting away a lot of high quality product, which hopefully will generate some nice sales opportunities with the <unk>.
This analogy that product, particularly in China. So yes, it was a negative in the quarter, but we're optimistic and hope for the year, it's going to be a positive factor.
Okay.
Thank you and then overall.
You know what.
Wondering what you've seen so far in Canada, Ontario was shut down for most of Q.
Q2.
But now it's fully reopened so have you have you seen a similar uptick.
And onto your or in Canada than what you've seen from the reopening in the U S.
Definitely particularly in the latter part of the second quarter that was part of.
What drove our sales growth of course.
Generally speaking.
Economies open up.
In Ontario, and Quebec in BC, Alberta, et cetera, we tend to see that.
Most immediately with regards to.
Our foodservice focused businesses. So June for US was very very strong when you came to the foodservice channel.
And would you say debt.
For this summer are things returned to near normal level 4 for 4 business.
Based on the June trends that we saw in some of the current traffic trends that we see yes.
Okay.
The Big question, the Big question, Mark There, though Martin will be.
Foodservice has different elements to it and a key driver of foodservice in the fourth quarter, our large events.
And.
That's still a big uncertainty uncertainty unknown right and how that's going to play out. So that's that's the part debt is a big question Mark still.
Yeah understood. Okay. Thank you.
Thank you Mark.
Your next question comes from the line of.
Stephen Macleod.
Thank you and good afternoon guys.
Hey, David Hi.
Hi.
I just had a couple of questions that I wanted to follow up on.
On the organic growth drivers well on that on the chart on Slide 13, you have all those all those growth initiatives that are yet to yet to play out I'm. Just curious if you could give a little bit of color that might be.
It's a difficult question, but just a little bit of color around like the timing of those growth initiatives and even if there's a way to quantify to quantify what it might all mean in terms of revenues.
Yes, we're not giving specific a lot of this stuff is 2022 stuff.
And we're not talking about guidance for 'twenty 2 but.
Again, it's a broad range, Steven all the different things or different timing. Some of them are COVID-19 related impacts that have delayed things. Some are just it takes time to develop these new concepts and brands and products. So it's a real wide gamut of factors.
Generally.
Even driving towards meeting our our goal into 2023.
We've stated.
Yes.
Okay.
Again, the real the point, we just wanted to say like theirs.
Meat snacks sandwiches secretory.
Some of our seafood initiatives that have been driving our growth are just a part of the formula of what's going to get us to that $6 billion number there is a lot of other stuff in the pipeline.
Lots of lots of levers to pull on.
Exactly okay.
Yes, that's great.
And then Oh.
With respect to the margin outlook for 2021.
Just given the inflationary backdrop.
I'm just wondering like do you have a point estimate for a 9% margin, but can you just talk little bit about what the what the potential goalposts would be around.
Exceeding that number potentially falling short of that number.
Again.
Outside of that number really our focus is 2023 and exceeding that 10% target we set for ourselves.
And as we showed last quarter.
Well well into the plan and are very bullish on meeting or exceeding that target.
Okay.
Sales sales deleveraging is a key part of that in the short term as I mentioned for the quarter the impact of the commodities, which for US is completely transitory, we would've exceeded that 10% number for the quarter and then.
Just a question of sales deleveraging from there.
Okay.
Okay, that's great.
And then maybe just finally.
Just a couple of acquisitions in the quarter.
Just curious is it safe to assume that we assume margins of those deals are in line with the segments that they're going to fall into.
And are you able to provide any color around that.
It's more specific color on the timing of closing.
Yes in terms of closing, it's really an unknown because it's a process of going through getting consents and things like that involve third party city, you really can't control that we're optimistic it's going to be this quarter, the third quarter, but.
You can never say for sure but in terms of margins, yes, Thats, a very fair comment theyre very reflective of the segments they're in.
Okay. Okay, that's great thanks, guys and congratulations.
Thanks, Steve.
Your next question comes from the line of David Neumann.
Hey, guys.
Hey, David.
So about 30000 foot question. When you think about when you went into Covid I think George you made the comment that you have food at home and it's a bit of a trade off between the 2 but we're living this strange.
Hybrid World, where people are obviously saved a lot of money through the pandemic.
Is it going to be a period that you think there could be above normal growth for a couple of years because of the hybrid world that we live in where people are obviously food away from home they want to enjoy going out for dinner, but at the same time, because they do work from home.
4 more days that they're going to have.
Larger baskets more premium quality products and things like that.
Yeah, My view again, good observation David.
My view and that's been my view for the last 20 years is that premium premium position is here to stay consumers are getting a lot smarter.
Reading the ingredient index.
The demand better quality in manned better eating experience just in general.
And that's the trend that we've benefited from.
As you know and you've followed us from.
So and we've been talking about premium nation, I think that carve it.
Has accelerated the premium position of the foods space and I think Thats 1 of the reasons why we're seeing such robust demand for a lot of our premium products, including <unk>.
Premium seafood as well.
In regards to.
Consumer patterns. It just depends on cognizant and whether COVID-19 is going to be to be.
Leaving us.
Who knows.
I think that we are.
We're seeing it.
A tremendous amount of pent up demand by consumers to go out and consume food outside of home.
Today, as we speak and.
Assuming the consumer feels confident to go out I think that that trend will continue so we are predicting a very robust demand.
Demand and we are seeing very robust demand in.
2 it's our white table cloth and.
Casual dining are all of these channels today are doing extremely well.
Consumers get more confident in terms of going out. So as you go towards your target of $6.600 billion, EBITDA, which now looks like very achievable do you think for the next couple of years and you could be over indexing on that sort of 4% to 6% or <unk> that you guys forecast.
Absolutely David.
Again, our expectation in the short term being sort of the 1 to 2 years out is certainly built into our projections that we shared with the market to be at.
Above that 4% to 6% range and then we sort of concern.
Modeled out for 2023, 6%, but again, we're certainly well positioned to exceed it yes, my comment that David is that.
As I've mentioned on previous calls in the past that we're not that concerned about demand in general.
Sure.
We have great innovation consumers are looking for these wonderful innovative.
Convenient to consume product, then and so and there is a lot of demand from our customers and consumers for our product and youre seeing that in our our organic growth rate.
We are concerned of course with.
Supply chain disruptions and labor shortage issues in all of those things.
But but demand for our products is robust.
Yes, if I look out.
Foodservice is coming back, but I think you guys flagged like $70 million to $80 million, just on airlines and cruise lines, which I know the forward bookings for both airlines.
Transfer transit traffic of the airports has picked up you've got cruise line bookings that look very strong according to carnival and Royal Caribbean as I look at that business that could be.
2022 is that kind of how youre thinking about it.
Yes, I think those are valid observation, David again, depending on what happens with the pandemic of course, but but absolutely we're starting to see.
No.
Some movement with regards to those channels and with Airlines, David We're actually a little more bullish cruise line is at 2022 story for us but.
Because theres a lot of inventory in the system from when the ships have to shut down a lot of frozen inventory, but for the airline industry, where we're slightly bullish on Q3, we're seeing a real strong interest there and revamping programs.
And Guinea.
Getting back to the way things used to be at least in sort of the business and first class sections debt that we service.
Perfect and last 1 from me guys. How much do you think you may have left.
Is either deferred or lost on the table are off the table I should say.
Given the labor bottlenecks, a pinch point.
How material.
It's a material number.
It's a tough 1.
We try to actually estimated David but the problem is.
Our Sandwich group was in the strange situations, they were sitting down with their customers and having to negotiate.
How much they could provide the customer and the customer just said, we'll take what you can make.
So it was an environment, where we know we could have sold a lot more product. If we didn't have the labor bottlenecks, but what that number is it just too hard to put a specific 2 I'll give you a number David again.
We all said that it's not based on anything hard by now.
We've said no to a few customers I know, we've put some customers on allocation et cetera, but probably between 25% and $50 million okay very good.
Excellent onward and upward.
Thank you David.
Your next question comes from the line of George demand.
Yeah. Good morning, guys, congrats on managing a pretty tough backdrop.
And my question was around around the labor day, so the constraint there so thanks for providing.
That's $150 million number, but maybe following in on there just wondering George what gives you confidence that I guess some of this could be structural and and we can get those $20 million to $30 million plus revenues kind of in the back half of the year, maybe youre seeing there.
Well you have to sort of remember George that we've got a lot of.
Automation.
And robotics types of initiatives, particularly in the sandwich platform.
And those who are.
These initiatives are going really well.
Yeah.
We've talked about some of the competitive advantages so far.
Sandwich platform and part of that advantage is the fact that they provide labor savings solutions for their customers right and so if you if you assume that that a lot of the <unk> and a lot of the <unk>.
The restaurant.
Restaurants out there are having labor issues and they do.
They're looking for.
Labor solutions, which our sandwich platform is well positioned to provide to net.
So so.
It shouldnt surprise anybody that they're getting lots of opportunities.
Ultimately mid to longer term, we feel that automation will give us those type of solutions right and we are heavily investing in automation and robotics and those type of things together to get us there.
Generation 2 lines the generation 3 lines.
We're actually in the process of.
Looking at.
Another sandwich facility.
Fully.
Automated facility 2 to.
To help us keep up with.
With with the growth so so automation would give us those solutions.
And then GA, Ed I would add in the shorter term 2 we are cautiously optimistic that both in Canada and the U S. As the subsidies go away immigration opens up that should help in the more near term with with some of the labor issues, but like I say being cautiously optimistic there.
Okay, Great and just a follow up on your comment George on maybe another sandwich plant.
Can you talk a little bit about where what end markets or what geography.
Channel.
To see that fund servicing.
Well again.
Its preliminary at this point George but it does reflect the fact that.
We're seeing a lot of a lot of demand and a lot of opportunities in the in the segment and our thinking is that it would be near.
1 of our plants in the U S to make sure that.
The share resources and management team, so probably will be.
No.
Maybe in Columbus, maybe in Phoenix.
Okay. Thanks, Thanks for that.
It looks like pork and we're in kind of our biggest.
Exposure and the ability to possibly will give him notes.
In the protein segment.
I had a really strong move quarter end. So I know theres long cycles is that Microsoft margin guidance, but can you maybe talk to our ability to maybe start off in terms of inventory pre buying or maybe pass through price before the move any.
Any color you can give us on kind of a big moving its way.
Got it.
Yes.
A tough 1 George because it's pretty hard to go to our customers and put price increase it.
Through an anticipation of something so you are generally always going to see a lag and like George says we are confident we have no <unk>.
<unk> that we won't get the margins back to where they are but you're always going to have that short term short term impact and again I mentioned earlier, when we talked about our guidance for the year and being a bit bearish on that 9%.
That's partly what's baked into it is our concern with the trends we're seeing in pork.
And the fact that there is.
It does continue on there will be some lag there.
Okay, and just 1 last 1 from me.
Kind of a medium size acquisition.
Seafood area and your exhibit.
You bet you are kind of it's.
It's been there for a bit I think it's in the past.
Just wanted to get your thoughts George what's the <unk>.
Acquisitions is.
Is it Groundfish the company differently.
Would you double down on shellfish just wondering your views in terms of what what would you like to add to the PB ecosystem.
Yeah again, as I mentioned before George for US, it's really about.
Improving our market share in terms of some of the species were in.
Both in terms of clear water and and premium brands.
I think you know that.
We've invested a lot in the lobster.
Loss per space and.
And in the value added lobster space, as well and doing well there and.
Again, it's just just that.
In terms of.
You have to look at the spaces we're in.
And.
Hopefully finding opportunities where we.
We increased our market share in those segments.
We also have plans for the west coast here.
We have a couple of.
Seafood businesses on the West coast benefiting from.
West Coast Fisheries and we've got some initiatives in place.
We are in some discussions to to to grow that business by acquisition.
Okay got it thanks for asking it.
Thank you George.
Your next question comes from the line of John <unk>.
Thank you good morning, I wanted to ask about the.
Hey, I wanted to ask about the ESG report and the net zero emissions goal and I appreciate the additional color on the topic, but I wanted to hone in on the financial implications of this and I'm wondering if you can talk about how you plan to communicate these.
These improvements of these changes to customers and can you give some broad goalposts on what the implementation costs might be or what the cadence of that might be and ultimately is that baked into your 2023 look as well.
Yeah. So in terms of 2023 certainly the next 2 years, we set as our target is developing a very specific plan to get to our 2030.
In terms of just like.
If we took the easy way and just bought carbon credits or something like that say, John Youre looking at an impact of $2 million to $3 million. So so not materially.
That's kind of a worst case scenario. Our objective is continuous improvement working with our businesses on how to reduce their energy usage and we've seen some great ideas.
And that will be a key factor, which will bring that cost down over time, but we don't see it as something that's going to materially impact our 2023 targets at all if anything like I say a lot of these initiatives ultimately result in cost savings there just.
And if you have a chance to read the ESG report.
<unk> come through several times debt. So much of this stuff just makes good business sense and Thats, how were approaching a lot of our energy efficiency savings initiatives.
Okay. Thank you for that.
The press release referenced.
Turning to the sudden shifts in demand I'm just wondering if you can elaborate on what categories. This was then in particular and how that impacted the quarter.
Yes, John It is generally.
The.
The change of demand from from 1 channel to the other for example, if the economies open up and.
The restrictions go away all of a sudden you're seeing.
And that's true.
Changes in demand towards the <unk>.
Why are you facing class C store.
So.
The times, we live in usually we're used to gradual changes in demand based on seasonality.
And today as we speak are changes in demand happened because of.
The removal of Covid related restrictions right. So so when that happens demand comes back extremely strongly.
Got it okay. Thank you and then a couple of housekeeping questions first on the cash flow statement.
You spent about $22 million in the quarter in advance of the 2 associates is that going to Clearwater or is that something else.
Yeah, a portion of that is clear water absolutely in the.
The accrued interest.
Okay. Thank you and then.
Lastly, working capital.
It's a relatively material drag in the quarter I know that bounces around a year to year and I assume a good portion of that was the fact that you're not collecting on the Clearwater interest but is there any other color you can you can provide on this.
Yes, so so.
You can't compare it to 2000.22020 was a bit of an anomaly. So if you go back to 2019 and you look at the year to date.
It sort of follows the same trend that you see year to date and again year to date is a better indicator because things can easily shift from quarter to quarter.
And the difference between the trend between 2019 and 2021 year to date is really 2 factors 1 its exactly what you mentioned the Clearwater accrual on the interest and then the second is just general growth in the business.
Okay understood. That's helpful. That's it from me thank you.
Thanks, Jeff Thanks, John.
We do have a question that just came into queue from Tibet Con.
Alright, Thanks, and good afternoon, I just wanted to quickly chat up on the margin.
Just want to quickly chat on the margin guide for the year, which is at 9% net.
Comparing I guess through 2019 pre Clearwater times it.
It looks like the operating margin or the operating segment margins are probably a bit lower than 2019, I just want to understand is that really just the commodity headwind or is it just because it's a bit of a transitional year with COVID-19.
I just want to understand kind of bridging the gap or just what the impacts were.
Yes, it's commodity Saba.
Again sales deleveraging has been helping to offset some of the commodity impact otherwise.
We've been at the same sales levels as 2019.
You would've seen a much more negative impact in the margins, but it is definitely commodities.
Okay, and then so I guess, the 10% guide sort of them by 'twenty 3 implies that the commodity that probably a more normalized level.
Or would there be a need for some additional operating leverage in there as well.
In terms of the 2023 objective.
Again, we are nor.
Normalized commodity environment based on the expectations. The modeling we've shared with the market in the past, we expect to exceed that I'll, let that 10% quite nicely.
Giving us some flexibility that if if there is sort of some sort of commodity issues, we should be able to absorb that and still hit our 10% target.
Okay, and then just 1 quick 1 I think when the <unk> came in the quarterly impact was about I think $8 million just wanted to check what that might be today, given the sale leaseback with any other changes in the business.
Sorry can you you cut out there towards the end sub but can you say that again, yes, just the <unk> 16 impact on the EBITDA line I think when the impact started in 2019 day was about $8 million a quarter would you have the current number where that might be today.
Again, you can pull that out of the statement of cash flow I don't have the number off the top of my head, but I would guess, it's probably today in the $13 million to $14 million range, but again that falls out of the cash flow statement and I can walk through with that with you. If you want after the call.
Every day alright, thanks, very much for that that's it for me.
Okay. Thank you.
Your next question comes from the line of Kyle Mcphee.
Hi, guys. Just 1 quick 1 so specific to the Clearwater lobster business I know the integration is well under way with your left your business I'm just looking for an update on when you will start flowing the entire Clearwater business through your P&L full consolidation.
The equity method from the rest of the Clearwater business I know that was on the come from just looking for a timing update when we'll see that yes.
Yes, sure and cough, so in terms of the Clearwater lobster business.
The commitment or the structuring is we will be getting $10 million of EBITDA out of out of clear water to compensate us for that business in terms of the specific structure of that.
We're still modeling out what the best way of seeing our ready seafood team and our Clearwater teams have been working together on what parts make the most sense what parts should stay what parts should be moved over so that process is ongoing and it kind of got delayed a little bit by the chaos in the industry.
Free over the last 3 or 4 months so.
We still want to have that issue dealt with before the end of the year, but unfortunately I don't have much more of an update for you on it than that but the coordination of the lobster business between the 2 groups.
<unk> going really well very well.
Got it Okay, and I guess, it's fair to say your guidance for the year would not include that 10 million of EBITDA.
There's not another backend.
No no you are correct.
Okay, Alright, that's it thanks guys.
Thanks, Scott Thanks, Scott.
It's about a legal or do you have any closing remarks.
I'd like to thank everybody for attending and have a great summer.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect at this time.
[music].
Yes.
Yes.
[music].