Q1 2024 Premium Brands Holdings Corp Earnings Call - Q&A
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Operator: Good morning, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation first quarter 2024 earnings conference call questioning and answer session. At this time, all lines are ending to listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Monday, May 13, 2024. Our speakers today are George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CSO of Premium Brands. I would now like to turn the conference over to George. Please go ahead.
Good morning, ladies and gentlemen, and welcome.
Premium brands Holdings Corporation first quarter 2024 earnings Conference call question and answer session. At this time all lines are in a listen only mode.
But any time driven just call me required immediate assistance. Please press star zero budget later.
This call is being recorded on Monday May 13, 2024, our speakers today are George colony, Lat Galen G L and precedent in new brands.
Well it is.
Yes.
I would now like to try to conference over to George. Please go ahead.
George Paleologou: Good morning and welcome everyone to our 2024 first quarter conference call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to the prerecorded call posted on our website this morning. We will now move to the Q&A portion of the call. Jenny.
George Colony: Good morning, and welcome everyone to our 2024 first quarter conference call.
George Colony: With me here today is our CFO Wil <unk>.
Hopefully you've had a chance to listen to the prerecorded call.
George Colony: Hosted on our website this morning.
Speaker Change: We will now move to the Q&A portion of the call Jennie.
Speaker Change: Jenny.
Operator: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press the star followed by the number on your touchtone phone. You will hear a prompt that your hand has been raised. Questions will be taken in the order received. Should you wish to cancel your request, please press the star followed by 2. If you are using a speakerphone, please lift the handset before pressing any key.
Jennie: Thank you ladies and gentlemen, we will now begin the question and answer session did you have a question. Please press the star followed by the one that you touched on filing.
Is that your hand have been raised questions will be taken in the order received should you wish to cancel your request. Please press the star followed by the two if you're using a speaker phone. Please lift the handset before pressing any case once again that is star one should you wish to ask a question.
Operator: Once again, that is star number one. Should you wish to ask a question, your first question is from Martin Landry from CFO. Please ask your question.
Jennie: Our first question is from Martin Landry from Stifel. Please ask your question.
Martin Landry: Hi, and good morning, guys. Hey Martin. Good morning, Martin.
Martin Landry: Hi, good morning, guys.
Martin Landry: Hey, Martin Good morning Martin.
Martin Landry: Congratulations on your results. They're above our expectations. I'd like to try to understand a little bit where we go from here. Obviously, you are expecting EBITDA growth to accelerate on a year-over-year basis for the remainder of the year. I'd like to understand if you could list maybe three factors that you're watching that could prevent you from reaching your guidance this year. Is it the delay in new capacity coming online? Is it weak consumer demand? Is it labor? Tell us a little bit about how you look at your risks for the remainder of the year. It'd be helpful.
Martin Landry: Congrats on your results.
Martin Landry: You know they are there they are above our expectations and I'd like to to try to understand that a little bit.
Where we go from here, obviously, you're all or you are expecting EBITDA growth to accelerate on a year over year basis for the remainder of the year. So I'd like to understand you know if you could at least maybe three factors that you're watching that could prevent you from that.
Martin Landry: Reaching your guidance this year as it.
Martin Landry: Is it delay in end and new capacity coming online is it the weak consumer demand is it labor if you could.
Martin Landry: Tell us a little bit how you look at your risks for the remainder of the year would be helpful.
Martin Landry: Okay.
George Paleologou: Well, again, Martin... We're very pleased to, of course, show progress in the first quarter. Um, as we've said in our prepared remarks and in the press release, over the last two or three years we've... invested a lot of capital in building capacity.
Speaker Change: Well again Martin.
We're very pleased to of course show progress in the first quarter.
Speaker Change: As we've said in our prepared remarks and <unk>.
Speaker Change: In the press release over the last two or three years, we've invested a lot of capital in building capacity.
George Paleologou: We focus mainly on the U.S. market, and it's great that we're showing progress, of course, in terms of the U.S. market. In terms of your comments in regard to the remainder of the year or the quarters ahead, of course, you know, we're always dealing with risks, and we're managing risks. It's part of our business. But overall, you know, we're very pleased with where we are today. For the first time in a long time, we have a very food safe, efficient capacity.
Speaker Change: Focus mainly on the U S market.
Speaker Change: It's great that we're showing progress of course in terms of the U S market.
In terms of your comments in regards to the remainder of the year or the quarters ahead.
Of course, you know what.
Speaker Change: Dealing with with risks and we're managing risks, it's part of our business.
Speaker Change: But overall.
Speaker Change: Yeah, we're very pleased with where we're at today.
Speaker Change: You know for the first time in a long time.
Speaker Change: Very food safe.
Speaker Change: <unk> capacity.
Speaker Change: Hum.
Speaker Change: Hum.
Speaker Change: Great.
George Paleologou: We have great innovation in our pipeline, and we're very busy presenting solutions to customers, to retail and food service customers that are trying to deal with inflation. We're in a very good position, we're very pleased with what we see, we're happy to be bringing very efficient capacity on stream, and I think we're in pretty good shape for the remainder of the year. It's not to say that there are no risks in our business, but again, I think over the last 20 years, we've shown that the business model is very conducive to managing risks. We don't manage quarter by quarter; we manage for the long term, and I think that the wisdom of our business model continues to prove itself.
Speaker Change: We have great innovation.
Speaker Change: In our pipeline and we're very busy presenting.
Solutions to customers to retail and foodservice customers that are trying to deal with.
Speaker Change: Inflation so.
Speaker Change: You know we had a very good position, we're very pleased with with what we see.
Speaker Change: We're happy to be bringing.
Speaker Change: Very efficient capacity on stream and.
Speaker Change: I think we're in pretty good shape for the remainder of the year.
Speaker Change: That's not to say that there are tools business, but but again I think over the last 20 years, we've shown that the business model is very conducive to.
Speaker Change: Managing risks, we don't manage quarter by quarter, we manage for the long term and I think that.
Speaker Change: That their wisdom of our business model continues to prove itself.
William Dion Kalutycz: And Martin, I would just add from a capacity perspective, all of the facilities that we need to execute on our 2024 growth strategy. All those capacities are now in place, so that should not be an issue, and really, just like George says, execution at this point.
Speaker Change: And Martin I would just add from a capacity perspective.
All of the facilities that are are we need to execute on our 2024 growth strategy.
Speaker Change: All of those capacities are now in place so that should not be an issue and really it's just like George says executing at this point.
Martin Landry: Okay, maybe just to follow up on the capacity, is it fair to say that there are limited to no delays versus your original budget at the beginning of the year in terms of time to come online?
Martin Landry: Okay, maybe just a follow up on the capacity is it fair to say that there is limited to no delays.
Martin Landry: Versus your original budget at the beginning of the year in terms of.
Martin Landry: Turning to come online.
Martin Landry: Sorry, can you say that again? Martin, that wasn't clear, or it didn't make sense. Sorry, I didn't understand your question.
Speaker Change: Sorry can you say that again Martin I wasn't clear did sorry, I didn't understand your question.
Martin Landry: I'm just trying to understand if there's a delay in your capacity coming online versus your original plan when you set up your budget.
I'm just trying to understand if there's a delay in your capacity coming online versus your original plan. When you set up your budget.
William Dion Kalutycz: No, that was my point earlier. All the capacity we need now to execute on our 2024 business plan is in place.
Speaker Change: No that was my point earlier, all the capacity, we need now to execute on our 2024 business plan is in place today.
Speaker Change: Yeah the only.
Speaker Change: Good.
Operator: [inaudible] Yeah, sorry, Martin. Go ahead, go ahead.
Speaker Change: Yes, sorry, Mark go.
Martin Landry: So, there will be no delays in your capacity going online versus your original budget.
Speaker Change: Go ahead.
Mark: So no delays in your in your capacity coming online versus your original budget.
George Paleologou: No, not on the capacity front, Martin. The only other comment I have is that, you know, in the U.S., in particular, we're generally dealing with larger customers. I think that the onboarding of new customers sometimes takes longer than we would or may have anticipated. There are big chunks of business there, but, you know, the process of onboarding may be lumpy at times. So, again, we're not in control of the exact timing, but we are very, very optimistic in terms of what we have in the pipeline and what we see.
Mark: No not on the capacity front Martin the only other comment I have is that.
In the U S. In particular, we're generally dealing with larger customers.
Mark: I think that the onboarding of new customers.
Mark: Sometimes take longer than what we.
You may have anticipated.
There is big chunks of business.
Mark: There.
Mark: But the process of Onboarding may be lumpy at times. So again, we're not in control of the exact timing, but we are very very optimistic in terms of what we have in the pipeline and what we see.
Martin Landry: Great. That's it for me. Best of luck.
Great. That's it for me best of luck.
Speaker Change: Thank you Martin.
Operator: Thank you. Your next question is from George Doumet from Scotiabank. Please ask your question.
Speaker Change: Thank you. Our next question is from George Tonight from Scotia Bank. Please ask your question.
George Doumet: Yeah, congrats on a good quarter, George and Will. I just want to understand a little bit what happened in Canada.
George Doumet: Hi, Congrats on a good quarter, Georgia World I, just wonder sounded a little bit what happened in Canada.
George Paleologou: There was a pretty material improvement quarter over quarter. Was it like a stronger exit in March? Was the quarter performance different? Anything you want to maybe call out there? It's a pretty quick improvement there.
George Doumet: There was a pretty material improvement quarter over quarter was it like a stronger exited March.
George Doumet: Quarter performance before and I'm, giving you want maybe call out there.
Speaker Change: It's pretty pretty quick improvement there.
George Paleologou: Yeah, um, again, George, the slowdown in December surprised us, surprised many of our businesses. I think, in general terms, recognizing this slowdown, a lot of our businesses did a lot of promotions and also pivoted some of their capacity to the U.S. So between the two, you know, we've sort of reacted to what happened in December.
Speaker Change: Yeah.
Speaker Change: Again.
Speaker Change: As we've said on in regards to the fourth quarter call George.
Speaker Change: The slowdown in December surprised us surprised many of our businesses.
Speaker Change: I think in general terms.
Speaker Change: Recognizing this slow down a lot of our businesses did a lot of promotions.
And and also pivoted some of their capacity to.
Speaker Change: The U S, but so between the two.
Speaker Change: We've sort of reacted to the.
Speaker Change: To what happened in December.
Speaker Change: Can you give some examples of some of the capacity side or maybe just follow up on that point.
George Paleologou: Well, again, our bakery business, for example, has secured a lot of business in the U.S. more recently. And again, it's a good example of pivoting capacity instead of... You know, facing issues in the domestic market.
Speaker Change: But.
Speaker Change: Again.
Speaker Change: Our bakery business. For example has has secured a lot of business in the U S more recently and.
Again, it's a good example of.
Speaker Change: Pivoting capacity instead of.
Speaker Change: Facing issues in the domestic market.
William Dion Kalutycz: George, just a little more color there. What George talked about were certainly specialty foods, and it was nice to see. I think we called it out that we actually saw growth in our Canadian business in the first quarter versus a contraction last quarter in specialty foods. Premium food distribution, it's a little more subtle understanding there. We continue to struggle with consumers trading down to discount banners, or we just don't sell our premium beef and seafood programs, but we were helped this quarter by a really strong Atlantic salmon fishery that positioned them well to do a lot of promotion with retailers.
Okay understood.
And George just a little more color there.
Speaker Change: What George talked about is certainly specialty foods and it was nice to see I think we called it out that we actually saw growth in our Canadian business in the first quarter versus a contraction.
Speaker Change: Last quarter in specialty foods premium food distribution, it's a little more subtle understanding there we continue to struggle with consumers trading down to discount banners or are we just don't sell our premium beef and seafood programs.
Speaker Change: We were helped this quarter by a really strong.
Speaker Change: Atlantic Salmon.
Speaker Change: Salmon fishery that push it position them well to do a lot of featuring with retailers. So that helped offset some of that weakness, but that's something we don't expect to continue into Q2.
William Dion Kalutycz: So that helped offset some of that weakness, but that's something we don't expect to continue into Q2. When you guys said the guidance, it seemed that Canadian business was under a little bit of pressure. All things equal, it seems like it's a little bit better. If Canada delivers flat to positive organic growth this year, do you think that could be a source of upside to your guidance?
Speaker Change: Got you.
Speaker Change: I guess when you guys said the guidance it seems that.
Speaker Change: The Canadian business was under a little bit of pressure.
Speaker Change: All things equal it seems like it's a little bit better. So we can see kind of delivers flat to positive organic growth. This year do you think that could be a source of upside to your guidance.
George Paleologou: Yeah, we are... I...
Speaker Change: Yeah.
Speaker Change: Sure.
Yeah.
William Dion Kalutycz: The current state of the market is kind of unfolding as we expect it. Again, we didn't expect that large contraction in Q4 to be sustained, and so it's really playing out as we expect it. And then again, from last quarter, what we talked about was, you know, sort of stable for the first half of the year, maybe a slight contraction on the premium foods distribution side of things, and then improvement showing in the back half of the year as we start lapping some of those more challenging numbers, and hopefully, we start seeing some relief on interest rates and the consumer, the consumer being able to spend a little bit more on their food bill.
Speaker Change: The current state of the market is kind of unfolding as we expected again, we didn't expect that large contraction in Q4 to be sustainable or to be sustained and so it's really playing out how we expected and then again from last quarter, what we talked about was sort of stable.
Speaker Change: For the first half of the year, maybe a slight contraction on this on the premium food distribution side of thing and then improvement showing in the back half of the year as we start lapping some of those more challenging numbers.
Speaker Change: And hopefully we start seeing some relief on interest rates and the consumer.
Speaker Change: Consumer being able to spend a little bit more on their food Bill.
George Doumet: In your prepared remarks, you mentioned a mid-term EBITDA target of 10%. Do you think that level is attainable in the second year for the entirety of the business, assuming we can achieve double-digit growth in organic at SF and assuming stable commodity markets?
Speaker Change: Okay and my last one on your prepared remarks, you mentioned the mid midterm EBITDA target of 10%.
Speaker Change: Do you think that level of attainable.
Speaker Change: In the second year.
Speaker Change: For the entirety of the business, assuming you can do double digit growth in organic <unk>.
Speaker Change: And assuming.
Speaker Change: Stable commodity markets.
William Dion Kalutycz: Yeah, we're cautiously optimistic that we should hit that number in 2025.
Speaker Change: Yes.
Speaker Change: We're cautiously optimistic we should hit that number in 2025.
George Doumet: Okay, as an annual number.
Speaker Change: Okay.
George Doumet: As an annual number, yes. [inaudible]
Speaker Change: You'll number.
Speaker Change: As an annual number yes.
Speaker Change: Gotcha Alright.
George Doumet: I appreciate it. Thanks for your comments.
Speaker Change: Alright, I appreciate it thanks for your comments.
Speaker Change: Thanks George.
Yeah.
Operator: Thank you. Your next question is from Derek Lessard on behalf of Judy Cohen. Please ask your question. Yeah, good afternoon. And I actually
Thank you. Our next question is from Derek Lessard from TD Cowen. Please ask your question.
Derek J. Lessard: Yeah, good afternoon, and I echo the congratulations on the quarter. I'm curious if you've seen any sort of cracks in the U.S. consumer.
Derek J. Lessard: Yes, good afternoon, and I echo the congratulations on the quarter.
Derek J. Lessard: Curious if you've seen.
Derek J. Lessard: Any sort of cracks in the U S consumer.
Derek J. Lessard: Yeah.
George Paleologou: I think that it depends on the channel, Derek. As I said in my prepared remarks, there's evidence that manual inflation in both Canada and, to a lesser extent, in the U.S. is an issue. And, you know, consumers obviously have to buy food; consumers love to eat food outside of the home.
Derek J. Lessard: I think that it depends on the channel.
Derek J. Lessard: Derek.
Derek J. Lessard: As I said in my prepared remarks, this evidenced that.
Derek J. Lessard: Menu inflation in both Canada and to a lesser extent in the U S is an issue.
Derek J. Lessard: And.
Derek J. Lessard: Consumers.
Obviously, you have to buy food consumers love to eat food.
Derek J. Lessard: Outside of the home, but there is no question that.
George Paleologou: But there's no question that inflation is a big issue for a lot of the operators, and this bodes really well for us in the sense that we're able to give them solutions to that issue. It's part of the reason why we're very optimistic about where we are given that, for the first time in a long time, we have capacity to sell. But yes, in certain channels, there is absolutely some evidence of slowing demand in the U.S.
Derek J. Lessard: Many inflation is a big issue for a lot of the operators and this bodes really well for us in the sense that we're able to give them.
Solutions to that issue.
Derek J. Lessard: It's part of the reason why we're very optimistic about where we're at given that for the first time in a long time, we have capacity to sell.
Speaker Change: But yes.
Speaker Change: Certain in certain channels absolutely. There is there is some evidence of Av.
Slowing demand in the U S as well.
Derek J. Lessard: Okay. And maybe just switching gears to the sandwich business in particular, when should we expect you guys to start feeling the impact from the new product display strategy from your large client?
Speaker Change: Okay, and maybe just switching gears to the sandwich business in particular.
What should we expect you guys to start lapping the impact from the new product display strategy from from your large client.
William Dion Kalutycz: One more quarter, Derek. That started in the third quarter of last year.
Speaker Change: One more quarter Derek that started in the third quarter of last year.
Derek J. Lessard: Okay, perfect. And I think you guys a few quarters ago also highlighted the real nice progress with sandwiches, in particular, going into the club channel. Just wondering if you could maybe update us on the progress there and on any incremental or new potential customers.
Speaker Change: Okay, perfect and I think you guys a few quarters ago I also highlighted the real nice progress with sandwiches in particular going into the club channel. Just wondering if you could maybe update us on the progress there and on any.
Speaker Change: Incremental or new potential customers.
George Paleologou: You know, all I could say, Derek, is that there's a lot of activity going on. As I mentioned earlier, every major C-store operator, every major QSR in the U.S. today is looking for innovation and solutions with regard to their menu inflation issues. A lot of it is caused by the increased cost of labor. So, we're able to offer them solutions with regard to innovation and cost savings as well. So, you know, every channel. I think that, in a few quarters, in a few years, we will be doing a lot more business in Seaster and in QSR in the U.S.
Speaker Change: All I could say that Derek is that there is a lot of activity going on.
You know as I mentioned earlier.
Speaker Change: Every major C store, operator every major <unk> in the U S. Today.
Speaker Change: He is looking for innovation.
Speaker Change: <unk> solutions with regards to their menu inflation issues.
Speaker Change: A lot of it caused by.
Speaker Change: Yes.
Speaker Change: The increased cost of labor, So we're able to offer them solutions with regards to innovation and.
Speaker Change: Cost savings as well so.
Speaker Change: Every channel I think that Oh.
Over the next.
A few quarters and few years, we will be doing a lot more business in C store in <unk> in the U S.
Derek J. Lessard: Okay. And maybe one last one for me before I break you. And I know you must be thinking, you know, one thing at a time, but how do you feel about where your leverage stands and maybe your expectations for the remainder of the year?
Speaker Change: Okay, and maybe one last one for me before I break QA and I know you must be thinking one thing at a time, but how do you feel about where your leverage stands and maybe expectations for the remainder of the year.
William Dion Kalutycz: Yeah, so our leverage was a little higher than we expected in the quarter, at the end of the quarter, primarily due to inventory-related issues. We planned an increase in our inventory seasonality and we have three major new product launches coming on stream in the second quarter, but there was an unplanned component in terms of we had a major customer who saw some soft sales towards the end of the quarter, and that ended up with a bit of a ramp-up And also then, we had some timing issues with some containers coming from offshore.
Speaker Change: Yes, so our leverage was a little higher than we expected in the quarter at the end of the quarter.
Speaker Change: Primarily due to inventory related issues.
Speaker Change: We did have.
Speaker Change: Significant most of it was <unk>.
Speaker Change: Planned the increase in our inventory seasonality and we have three major new product launches coming on stream in the second quarter, but there was an unplanned component in terms of we had a major customer who who saw some soft sales towards the end of the quarter and that ended up in a bit of a ramp up of our inventories.
Speaker Change: And also then.
Speaker Change: We had some timing issues around with some containers coming from offshore.
William Dion Kalutycz: But those should normalize over the course of the year. Our outlook for the balance sheet hasn't changed. We still expect to be within our long-term guidance ranges by the end of the year. But in the short term, there will be a bit of noise. It will be subject to the timing of the sale and leaseback transactions that we've been discussing. Those could happen in the third or the fourth quarter, and they'll certainly have a material impact on our balance sheet. But overall, you shouldn't see anything. It should be stable or coming down over the course of the year.
Speaker Change: But those should normalize over the course of the year our outlook for the balance sheet Hasnt changed we still expect to be within our long term guidance ranges by the end of the year, but in the short term.
We'll be a bit of noise it will be subject to the timing of the sale and leaseback transactions that we've been discussing.
Speaker Change: Those could happen in the third or the fourth quarter and that they will certainly have a material impact on our balance sheet, but.
Overall, you Shouldnt see anything it should be stable to coming down over the course of the year.
Derek J. Lessard: Okay, that's helpful. Thanks, Will. Yeah, no, thank you, Derek.
Speaker Change: Okay. That's helpful. Thanks will.
Derek J. Lessard: Thank you, Derek.
Speaker Change: Yes, Thank you Sir.
Operator: Thank you. Your next question is from Stephen MacLeod from Yammel Capital Market. Please ask your question.
Speaker Change: Thank you. Our next question is from Stephen Macleod from BMO capital markets. Please ask your question.
Stephen MacLeod: Thank you. Good afternoon, guys. Morning, morning.
Stephen MacLeod: Thank you good afternoon, guys. Good morning, I'm wondering if you could.
Stephen MacLeod: Good morning.
Stephen MacLeod: Just a just a couple of questions you mentioned.
Stephen MacLeod: Just a couple of questions. You mentioned, I just wanted to dig in a little bit on some of the product launches. Just wondering if you can give some examples of things that hit the market in Q1. And then, Will, you just alluded to kind of three major product launches coming out in Q2. So just curious if you could give a little bit of color around those if you're able to.
Stephen MacLeod: Wanted to dig in a little bit on some of the product launches I was wondering if you can give some examples of things that hit the market in Q1, and then will you just alluded to kind of three major product launches coming on stream in Q2. So just curious if you can give a little bit of color around those.
Stephen MacLeod: If you were able to.
William Dion Kalutycz: Yes, so there were no new launches in Q1. There was the continuation of launches we did in 2023, and we continue to see the benefit because we're not lapping them yet.
Speaker Change: Yes. So there was there was no new launches in Q1, there was the continuation of launches we did in 2023 and continue to see the benefit because we're not lapping them yet.
William Dion Kalutycz: In terms of going forward, the three major launches, there's one in retail. Actually, sorry, two in retail, one in the sandwich group and one in the protein. They're with a major national customer, a North American customer, so we're excited about those. One is in protein, one is in sandwiches, and then we also have another product launch coming with a major QSR chain in the U.S. So all exciting opportunities, and again, mainly U.S.-driven, and will help to continue to drive that growth we're seeing from our U.S. sales initiatives, and largely the result of these capacity expansions we've been investing in over the last couple of years.
Speaker Change: In terms of going forward the three major launches there's one in retail.
Speaker Change: Actually sorry, two in retail one in the Sandwich group went into protein.
A major national customer north.
North American customer so we're excited about those.
Speaker Change: <unk> sorry, one is the protein one as sandwiches and then we also have another product launch coming with a major <unk> chain in the U S. So all exciting opportunities and again, mainly U S driven and will help to continue to drive that growth, we're seeing from our U S sales initiatives and largely the.
Speaker Change: A result of this these capacity expansions we've been investing in over the last couple of years.
Stephen MacLeod: Okay, that's great color. Thank you. And then just thinking about the margins through the balance of the year, I mean, relative to our estimates, gross margin was better than expected, but SG&A was a little bit higher. So is that kind of how you expect things to unfold through the balance of the year?
Speaker Change: Okay.
Speaker Change: Great color. Thank you.
Speaker Change: And then just thinking about the margin margins through through the balance of the year.
Speaker Change: Relative to our estimates.
Speaker Change: Gross margin was better than expected, but SG&A was a little bit higher so is that kind of how you expect things to unfold through the balance of the year.
William Dion Kalutycz: I think you'll see less impact from the SG&A factor, just because Q1 is a more seasonal quarter, a slower quarter, and so SG&A can have a higher impact as a percentage. So it should have less, and then as the year unfolds and we see that sales leveraging from our growth, you should see some improvement in the gross margin. So it really should be gross margin driven, the increase or the improvement year over year in our EBITDA margin.
Speaker Change: Okay.
I think youll see less impact from the SG&A factor, just because Q1 is a more seasonal quarter slower quarter, and so SG&A can have a higher impact as a percentage.
Speaker Change: So it should have less and then as the year unfolds and we see that that sales leveraging from our growth you should see some improvement in the gross margin. So it's really should be gross margin driven the increase or the improvement year over year and our EBITDA margin.
Stephen MacLeod: Okay. Okay, great. And I guess that's also coming back to the strong contribution margins of those new products coming online.
Speaker Change: Okay, Okay, great and I guess, that's also coming back to the strong contribution margins of those new products coming online.
Stephen MacLeod: Sorry, sorry, I'll repeat that again, Steve.
Speaker Change: Sorry, sorry repeat that again, Steven I was just saying that that also points to the strong contribution margins of those new products as they come into the market.
Stephen MacLeod: I was just saying that that also points to the high contribution margins of those new products as they come into the market.
William Dion Kalutycz: Exactly, exactly. We've talked about that in the past; these, you know, our sandwich protein and bakery goods have contributions anywhere from 25 to 45 percent.
Steven: Exactly exactly we've talked about that in the past these.
Steven: Our sandwich and protein and bakery goods have contributions anywhere from 25% to 45%.
Stephen MacLeod: Yeah, okay. Okay, that's great. And then just one final one for me. Corporate costs were just running a touch higher in Q1, and I'm just curious what you expect for that for the full year 2024.
Yeah, Okay. Okay. That's great and then and then just one final one for me.
Steven: Corporate costs were just running a touch higher in Q1 and I'm just curious.
Steven: What you expect for that for the full year 'twenty 'twenty four.
William Dion Kalutycz: Yeah, Q1 should be a fairly good example of the run rate for the year. Most of that was variable compensation related, and again, assuming we hit our. Last year was a tough year, and correspondingly, our bonus accruals were much, much reduced, and this year we're much more optimistic, and you're seeing that reflected in the accruals.
Steven: Yes, Q1 should be a fairly.
Steven: A good example is the run rate for the year most of that was exit.
Steven: Variable compensation related and again, assuming we hit our yes last year was a tough year and correspondingly our bonus accruals were much much reduced and this year, we are much more opportunity.
Steven: Im optimistic and Youre seeing that reflected in the accruals.
Stephen MacLeod: Yeah. Okay. That's great. Thanks, Will. Thanks, George.
Stephen MacLeod: Yeah. Okay. That's great.
Speaker Change: Okay. That's great. Thanks, Ralph insurer I appreciate it.
Thank you David.
Okay.
Operator: Thank you. Your next question is from Vishal Shreedhar from National Bank. Please ask your question. Hi, thanks.
Speaker Change: Thank you. Our next question is from Vishal <unk> from National Bank. Please ask your question.
Vishal Shreedhar: Hi, thanks for taking my question. Thank you, Vishal. Good afternoon.
Speaker Change: Hi, Thanks for taking my questions Hi, Vishal.
Vishal: Good afternoon.
Vishal Shreedhar: Just on the selling price deflations in specialty foods, it happened this quarter, it happened last quarter, and you gave us some explanation for that. In the past. PBH talked about the ability for specialty foods to hold prices following periods of heightened inflation. I was just wondering if you could reflect on that comment and put it in context of the deflation that we're seeing right now and put that in perspective of how we should think about it going forward.
Vishal: Just on the selling price Deflations and specialty foods.
Vishal: It's been it happened this quarter happened last quarter and you gave us some explanation for that in the past.
Vishal: PVH talked about the ability for specialty foods to hold pricing solid periods of heightened inflation I was just wondering if you could reflect on that comment.
Vishal: Putting in context of the deflation that we're seeing right now.
Vishal: <unk> perspective, how we should think about it going forward.
William Dion Kalutycz: Yeah, the vast majority of that deflation, Vishal, is related to our sandwich business and a cost-plus contract. So, again, we don't take any margin risk there because, again, it's cost plus. But correspondingly, as raw material prices increase and decrease, we pass those on to our customers, whether they're savings or cost increases.
Vishal: Yes.
Vishal: Vast majority of that deflation vishal related to our sandwich business in a cost plus contract. So again, we don't take any margin risk there because again, it's cost plus but correspondingly.
Vishal: As raw material prices increase and decrease we pass those on to our customer whether they are savings or cost increases.
William Dion Kalutycz: And this is not new; that's always been the case with regard to that business.
Vishal: This is not new Thats always been the case with regards to that business.
William Dion Kalutycz: So, ex that business, did that phenomenon about holding price increases hold? Yeah, absolutely.
Vishal: So ex that business did that.
Vishal: That phenomenon about holding the price increases hold.
William Dion Kalutycz: Yeah, absolutely. The only exception to that, and we've talked about this in Vishal, is one, George mentioned earlier, we're doing a lot more promotion, and so we reflect that promotion cost to the extent it's an off-invoice price given to our customers, deflation. So there was a little bit of that in there. And also, the one area we have given a bit of pricing back to our customers is in poultry. You know, a year ago, poultry prices were at absolute record highs, and they've come down significantly.
Speaker Change: Yeah, absolutely the only the only exceptions to that and we've talked about the sort of shell is one George mentioned earlier, we're doing a lot more promotion and so we reflect that promotion cost to the extent, it's off invoice price given to our customers deflation. So so there was a little bit.
Speaker Change: That in there and then also.
Speaker Change: The one area, we have given a bit pricing back to our customers is in poultry.
Speaker Change: A year ago poultry prices were absolute record highs and they've come down significantly and we talked a bit about this last year, we did see a little bit of demand destruction and so we have been passing on some of those savings to our customer to get those volumes back and we're seeing that success of that strategy.
William Dion Kalutycz: And we talked a bit about this last year; we did see a little bit of demand destruction, and so we have been passing on some of those savings to our customers to get those volumes back, and we're seeing the success of that strategy.
Speaker Change: Okay.
Vishal Shreedhar: Changing topics here, there is a seemingly increasing weakness in the QSR channel. You referenced it somewhat with that comment on inventories, and some QSRs have reported weaker-than-expected results, in some cases meaningfully so. Wondering, as you reflect on that, is that in consideration with your guidance, and considering that, does that still feel comfortable for you as you look to expand?
Speaker Change: Changing topics here there is an <unk>.
The increasing weakness in the Q, it's our channel you referenced it.
Speaker Change: Somewhat with that comment on inventories.
Speaker Change: <unk>.
Speaker Change: Some some.
Speaker Change: <unk> reported weaker than expected results in some cases meaningfully so wondering as you reflect on that is that in consideration with your guidance.
Speaker Change: Considering that does that still does that still feel comfortable.
Speaker Change: For you as you look to expand.
George Paleologou: Yeah, again Vishal, I think that's actually a positive for Premium Brands because I think a lot of the QSRs are talking about the menu inflation challenge and the fact that they're looking to innovate by introducing products into the market that are lower priced. So, we're in a very good position to give them that. Innovative solutions that address the main inflation issue. So one of the reasons why we're so busy today making all kinds of presentations to many, many QSRs, particularly in the U.S., is because of that.
Yeah, again, Vishal I think that's actually a positive for premium brands because.
Speaker Change: I think a lot of the <unk> are talking about the menu inflation challenges and the fact that theyre looking to.
Speaker Change: Innovate by.
Introducing products into the market that are lower priced.
Speaker Change: So so we're in a very good position to give them.
Innovative solutions.
Speaker Change: <unk> addressed dominion inflation issue.
Speaker Change: So one of the reasons why we're so busy today, making all kinds of presentations to many many qasr's, particularly in the U S is because of that.
William Dion Kalutycz: And Vishal, what George is saying is definitely the case over sort of the mid to long term in the course of the year. We did internally pull back our expectations because of some weakness with one specific customer, but we're still well within our guidance range for the year.
Speaker Change: But and Michelle.
Speaker Change: We're just seeing is definitely the case over sort of the.
Speaker Change: The mid to long term in the course of the year, we did internally pulled back our expectations because of some weakness with one specific customer, but we're still well within our guidance range for the year.
Vishal Shreedhar: Okay, thank you for that. And if Lobster recovers as PBH anticipates, how quickly should the PFD segment return to growth? Is it reasonable to expect growth in Q2 or is it more likely to be in Q3 or Q4?
Okay. Thank you for that.
And if lobster recovers as PTH anticipates, how quickly should the PMT segment returned to growth is it reasonable to expect growth in Q2 or is it more of a Q3 or Q4.
William Dion Kalutycz: Yeah, our expectation is... You know, Q2 is hopefully, again, sort of similar to this quarter, or, sorry, better than this quarter. It should hopefully be flat year-over-year in organic volume growth rate terms, and then, as the lobster continues to help and we see some stability in the Canadian consumer in our beef and seafood programs, we should see a return to growth in Q3, Q4. That's our general expectation.
Operator: ERR. RS. RS.
Speaker Change: Yeah R R.
Speaker Change: Expectations is.
Speaker Change: Q2 is is hopefully.
Speaker Change: Again sort of similar to this quarter are better than this quarter should hopefully be.
Speaker Change: Flat year over year, and organic volume growth rate terms and then as the lobster continues to help and we see some stability in the Canadian consumer beef and seafood programs, we should see a return to growth in Q3 Q4.
Speaker Change: That's our general expectation.
Speaker Change: I see.
Vishal Shreedhar: And you talked about it a bit last quarter, but the sale and lease back, you know, there was some expectation that you could get some of that early in Q2. I think you referenced Q3, Q4. Wondering if you can give us some thoughts on the magnitude and the associated rent expense and how we should think about that. Yeah, so we're looking at several transactions.
Speaker Change: And you talked about it a bit last quarter, but the sale and leaseback. There was some expectation that you could get some of that early Q2, I think you referenced Q3 Q4 I'm wondering if you can give us some thoughts on the magnitude and the associated rent expense and how we should think about modeling that.
William Dion Kalutycz: Yes, so we're looking at several transactions. Nothing will happen in the second quarter. We're pushing for one transaction in the third quarter and possibly a second one in the fourth quarter. You know, again, we talked in the past. They're probably around two and a half to three hundred million dollars in total real estate value. In terms of least impact, I can't comment at all on that at this point.
Speaker Change: Yes, so we're looking at several transactions.
Nothing will happen in the second quarter.
Our.
Speaker Change: Pushing for one transaction in the third quarter and possibly a second one in the fourth quarter.
Speaker Change: Again, we talk in the past, they're probably around two $5 million to $300 million in total real estate value.
Speaker Change: In terms of least impacted.
Speaker Change: I can't comment on that at this point.
Speaker Change: Thank you.
Speaker Change: Okay. Thanks, Michelle.
Speaker Change: Yeah.
Speaker Change: Yes.
Operator: Thank you. Your next question is from John Zamparo from CIBC. Please ask your question.
Speaker Change: Thank you. Your next question is from Johnson <unk> from CIBC. Please ask your question.
John Zamparo: Thanks. Good morning, George and Will. Hey, John.
Johnson: Thanks, Good morning, Georgia Mill.
Johnson: Hey, John.
John Zamparo: A couple of follow-ups and then to a broader question. I wanted to come back to the commodities environment. I appreciate the comments on poultry. I wonder what you're seeing in your other major commodities. Where are you seeing inflation versus deflation, and where have you hedged your position?
Johnson: A couple of follow ups, and then to a broader question I wanted to come back to the commodities environment I. Appreciate the comments on poultry I wonder what youre seeing in your other major commodities, where are you seeing inflation versus deflation where have you hedged your position.
William Dion Kalutycz: Well, sort of, probably the most critical commodities to our business today are pork and poultry, just because beef is largely used in our premium foods distribution group, which has a much more dynamic pricing model. And so, in terms of our greatest concern around inflation, it would be the beef category, but again, we have dynamic pricing there and the least amount of exposure to sort of short-term fluctuations or increases in that commodity.
Johnson: Well sort of.
Johnson: The most critical commodities to our business today.
Johnson: Our pork and poultry just because beef is largely used in our premium food distribution group, which is a.
Johnson: Much more dynamic pricing model.
Johnson: And so in terms of our most concern around inflation it would be the beef category, but again, we have dynamic pricing there and at the least amount of exposure to sort of short term fluctuations or increases in that commodity.
Johnson: So if we look at the specialty foods segment.
William Dion Kalutycz: Pork, you know, in general terms, we expect a relatively stable environment, production is slightly up in the U.S. globally, production is better, feed prices are coming down, so we're expecting relatively stable prices there. Chicken is a little bit more uncertain.
Johnson: Work in general terms, we expect relatively stable environment.
Johnson: Production is slightly up in the U S globally production is better feed prices are coming down. So we're expecting relatively stable prices their chicken is a little bit more uncertain.
William Dion Kalutycz: We do expect, you know, there's been a bit of a spike most recently in chicken poultry prices in the U.S. It has stabilized, and there are some expectations of maybe a bit of softening towards the end of the year. So, again, overall, we're expecting a relatively stable environment. But again, John, I always go back to our pricing power. You know, in 2022-2023, we put through over three-quarters of a billion dollars of price increases, and most of that was in our specialty foods group.
We do expect there's been a bit of spike most recently in chicken poultry prices in the U S.
Johnson: It has stabilized there is some expectations that may be.
Eight of softening towards the end of the year. So again overall, we're expecting a relatively stable environment, but again John.
Speaker Change: Please go back to.
Speaker Change: Our pricing power over 'twenty, 'twenty, 2022, 2023, and we put through over three quarters of $1 billion of price increases and most of that was in our specialty foods group they have tremendous ability to pricing and really its one in managing the short term pricing delays.
William Dion Kalutycz: They have tremendous pricing ability, and really it's one of managing the short-term pricing delays as we give our customers notice. But again, in general terms, we're expecting commodities for a specialty foods group to be relatively stable for the year.
As we give our customers notice.
Speaker Change: But again in general terms, we're expecting commodities for specialty foods group to be relatively stable for the year.
John Zamparo: Okay, thanks for that. A quick one on the quick service business and your customers in that space. Whether sandwich or not, are those contracts typically structured as cost plus, and is there potential for volatility from some of those in the coming quarters? Beyond what you'd announced in Q1.
Speaker Change: Okay. Thanks for that.
One on on the quick service business and your customers in that space.
Speaker Change: Whether sandwich or not are those contracts typically structured as cost claussen is there potential for volatility from some of those in the coming quarters.
Beyond what you announced in Q1.
William Dion Kalutycz: They're generally cost-plus, not always, but generally cost-plus. That's the way I would describe it. There are partnerships, and there's a lot of transparency with the customer. And, again, we're very happy to have them cosponsor us.
Speaker Change: They're generally cost plus not always bad.
Speaker Change: Generally cost plus.
Speaker Change: The way I would describe them.
Speaker Change: There are partnerships, there's a lot of transparency with the customer.
Speaker Change: And again, we're very happy to have them.
Speaker Change: Cost plus.
John Zamparo: Right, okay, understood. And then I wanted to get to capacity. And I wonder if we take the scenario of, let's fast forward to, say, the end of 2025, when all your primary project CapEx is complete. I wonder if you can try to quantify what percent of your capacity would be spoken for once those facilities are open within your three key US core sales growth initiatives.
Speaker Change: Right Okay understood.
Speaker Change: And then I wanted to get to capacity and I Wonder if we take the scenario of let's fast forward to see the end of 2025 when all your primary project Capex is complete I Wonder if you can try to quantify what percent of your capacity would be spoken for once those facilities are open within your three key U S core.
Speaker Change: Our sales growth initiatives.
William Dion Kalutycz: Yeah, so, you know, by the end, when we finish the Tennessee facility... At that point, we should have about $8 to $8.5 billion of capacity in place. There are some other projects coming along over the next couple of years that will take us to that $9.5 billion target we've talked about in our five-year plan. In terms of 2025, though, John, we haven't given any guidance on that year at this point.
Speaker Change: Yes so.
Speaker Change: By the end when we finish the Tennessee facility.
Speaker Change: At that point.
Speaker Change: We should have about $8 to $8 $5 billion of capacity in place again.
Speaker Change: Some other projects coming on line over the next couple of years that will take us to that $90 5 billion target we've talked about in our five year plan in terms of 2025, though John we haven't given any guidance on that at this point.
Speaker Change: In terms of sales.
William Dion Kalutycz: And that comment, John, assumes no acquisition of money.
Speaker Change: And that comment John assumes no acquisitions of more capacity in the meantime.
John Zamparo: Okay, just so I make sure I understand that the Tennessee facility is the current phase that you're referring to. So I think the final phase isn't set for...
Speaker Change: Okay, just want to make sure I understand that the Tennessee facility. That's the current phase you're referring to so I think that kind of line of lasers and set for 2008 or 2009.
William Dion Kalutycz: Yeah, the final phase isn't even in our current five-year business plan in terms of the sales coming from that.
Speaker Change: The final phases and even in our current five year business plan in terms of the sales coming from that.
John Zamparo: Right, okay. And then just one last one, coming back to the earlier question on EBITDA margin commentary, that you're cautiously optimistic you can get to 10% next year. That was previously expected in 2027. I wonder what the biggest driver of change was? I mean, everything's kind of moving in the right direction in terms of the commodities environment, your gross margins, growth from your core drivers, but that is a meaningful change to potentially hit that target two years early. I wonder what the biggest driver that you saw that made you think that that was achievable next year?
Speaker Change: Alright, okay.
Speaker Change: And then just one last one coming back to the earlier question on an EBITDA margin commentary that you're cautiously optimistic you can get to the 10% next year that was previously expected in 2007 I Wonder what was the biggest driver of change I mean, everything's kind of moving in the right direction in terms of commodities environment. Your gross margins growth from your core.
For drivers, but that is a meaningful change to potentially hit that target two years early I wonder what what was the biggest driver that you saw that made you think that that's achievable next year.
William Dion Kalutycz: Really, it's quite a simple answer, John, is that we set a very conservative target when we set our five-year plan because in our last five-year plan, we exceeded our sales one year early, which we had done in the previous two five-year plans, but we didn't hit our EBDOT target. And we just wanted to make sure we set a plan and expectations that the risk of not achieving them was incredibly low. So we've been conservative in that five-year plan. The planning has worked out, and the execution is going well, and as a result, we expect to exceed that.
Speaker Change: Really it's quite as simple.
Speaker Change: Answer John is we set a very conservative target.
Speaker Change: When we set our five year plan because our last five our last five year plan, we exceeded our sales one year early which we have done in the previous two five year plans, but we didn't hit our EBITDA target.
Speaker Change: And we just wanted to make sure we set a plan set an expectation that the risk of not achieving it was incredibly low so we've been conservative in that five year plan and.
Speaker Change: The planning has worked out and the execution is going well and as a result, we're going to we expect to exceed that.
John Zamparo: Okay, that's helpful. I'll pass it on. Thank you. Thanks, John.
Speaker Change: Okay. That's helpful I'll pass it on thank you. Thanks.
William Dion Kalutycz: Thanks, John. Thanks, John.
Speaker Change: Thanks, Sean.
Operator: Thank you. And your next question is from Derek Lessard from TD Cohen. Please ask your question.
Speaker Change: Thank you and your next question is from Derek Lessard from TD Cowen. Please ask your question.
Derek J. Lessard: Yes, just a few follow-ups for me. You noted that you expect, let's call it, another $300 million in Project CapEx over the next six quarters. Just based on, I guess, your current timeline, are you able to give us sort of a rough timing for that spend? Or do you expect it to be more front-end or back-end loaded?
Just a few follow ups for me you noted that you expect.
Derek J. Lessard: Let's call it another $300 billion in.
Derek J. Lessard: Project Capex over the next six quarters, just based on I guess your current timeline are you able to give us some sort of a rough timing of that spend is it.
Or do you expect it to be more front end or backend loaded.
William Dion Kalutycz: Yeah, so if everything goes according to plan... In terms of timing of expenditures, it's roughly $200 million this year, $100 million next year in the first two quarters of next year. But again, generally, we find that that's just the timing our businesses have given us. We generally find it takes a little longer. So I suspect it's probably closer to $60 million this year, $40 million next year, percentage-wise. But right now, if everything goes according to plan, it's about two-thirds this year, one-third next year.
Speaker Change: Yes, so if everything goes according to plan.
Speaker Change: That timing of the expenditures, it's roughly $200 million this year $100 million next year in the first two quarters of next year, but again generally we find that the that's just the timing our businesses have given us we generally find it takes a little longer so I suspect, it's probably close.
Speaker Change: Or to 60. This year 40 next year percentage wise, but right now today like I say, if everything goes according to plan its about two thirds. This year one third next year.
Derek J. Lessard: Okay, that's helpful, Will. And one last one for me on M&A. It looks like you have one deal on the protein side moving to the advanced stage. Just maybe add some color to the M&A pipeline.
Speaker Change: Okay. That's helpful well and one last one for me on M&A. It looks like you have another you already have one deal on the protein side moving to the advanced stage, just maybe add some shed some some color to the.
Speaker Change: To the M&A.
Speaker Change: Pipeline.
George Paleologou: It's basically much, much needed capacity based in the U.S. to service the U.S. market, which is very under capacity. So, it's a capacity solution for us. Thanks, George. Thanks, everybody.
Speaker Change: It's it's basically much much needed capacity.
Speaker Change: Based in the U S to service the U S market.
Speaker Change: In.
Speaker Change: Areas, where we are.
Speaker Change: Very under capacity. So so it's a capacity solution for us.
Okay.
Speaker Change: Thanks, George and thanks, everybody. Thanks.
Thanks Darren.
Speaker Change: Okay.
Speaker Change: Thank you.
Operator: There are no further questions. Oh, sorry. We have another one from George Doumet from Scotiabank. Please ask your question. Yeah, thanks for asking.
Speaker Change: There are no further questions Oh, sorry.
Speaker Change: We have another one from George <unk> from Scotiabank. Please ask your question.
George Doumet: Yeah, thanks for sneaking me in here. Can we talk a little bit about seafood? So, maybe just clear water, the outlook for the rest of the year. And I did notice an M&A target in seafood. So, can you maybe talk a little bit about what's on the wish list for M&A there? Thanks.
George: Yeah. Thanks for sneaking me in here, how can we talk a little bit about seafood. So maybe just the clearwater.
George: Outlook for the rest of the year than I did.
George: It noticed an M&A targeting seafood. So can you maybe talk a little bit about what's on the wish list for M&A there. Thanks.
George: Yeah.
George Paleologou: In terms of... Clearwater, it's... They're looking at several transactions at this point, George, but there's nothing imminent. Again, you know, we've talked in the past, the core strategy for them is to continue to value-add the wonderful species they harvest, and that plan is proceeding, and a core part of that plan is through acquiring certain customers, but at this point, there's nothing specific to comment on.
George: In terms of.
George: Clearwater, it's it's.
Speaker Change: Theyre looking at several transactions at this point, George but Theres nothing eminent again, we've talked in the past.
Speaker Change: The core strategy for them is to continue to value add the wonderful species they harvest.
Speaker Change: And that plan is proceeding and a core part of that plan is through acquiring certain customers. So but at this point there is nothing specific to comment on.
William Dion Kalutycz: I should also say, George, that we're also working on a number of projects to improve the capital efficiency of that business, and hopefully, we'll be able to talk about those in the next few quarters. Great. Thanks again, guys.
Speaker Change: I should also say George that we're also working on a number of projects to improve the capital efficiency of that business.
Hopefully, we'll be able to talk about those.
Speaker Change: In the next few quarters.
Speaker Change: Okay, great. Thanks again guys.
Speaker Change: Thanks George.
George Paleologou: Thank you. There are no further questions at this time. I will now hand the call back to George for the closing remarks. Yeah, I'd just like to thank everybody for attending.
Speaker Change: Thank you there are no further questions at this time I will now hand, the call back to George for closing remarks, just like to thank everybody for attending today. Thanks a lot.
George Paleologou: Yeah, I just want to thank everybody for attending today. Thanks a lot.
Okay.
George: Back to you.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining us. You may all disconnect.
George: Thank you ladies and gentlemen, the conference has now ended thank you all for joining you may all disconnect.