Q3 2024 Premium Brands Holdings Corp Earnings Call - Pre Recorded
Will <unk>.
Our presentation will follow the deck that was posted on our website. This morning.
We're now on slide four which outlines certain key highlights for the quarter.
Results for the third quarter were generally in line with our expectations with the exception of immaterial sales shortfall in our Sandwich group due to an unanticipated decline in sales to a key customer.
We believe that this decline is transitory and that sales to this customer will recover and will eventually return to their historical growth rates, excluding sales to this customer our specialty food group's organic volume growth.
Major U S initiatives was eight 1%.
Our premium food distribution business improved sequentially during the quarter and has returned to modest growth in dollar terms as the consumer backdrop in Canada continues to show signs of improvement driven by lower interest.
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And lower inflation.
Demand for our products in the U S remained strong for the quarter with the exception of our Sandwich group, which reported a 5% decline for the reason I mentioned earlier. Despite this material, but transitory decline I am very pleased to report that the new opportunities and sales initiatives pipeline in our Sandwich group has never been more.
Our robust and that we look forward to leveraging our new capacity coming on stream to return to our historical levels of growth in 2025 and beyond.
Our CFO will alluded to we'll give you more color on our U S sales pipeline later on in the presentation.
Our state of the art food Safe and center of excellent centric plants and the new capacity coming on stream in our U S based the businesses currently <unk>.
Gives us a unique point of difference considering the number of food related recalls that have been in the news over the past few months.
The recalls validate our plans to invest in new modern efficient and food safe capacity to service the U S market as opposed to purchasing older legacy facilities.
Our strategy is front end loaded and takes longer to execute and does not deliver immediate results, but we're certain that it is the right strategy in terms of delivering higher IRR in the long term, while taking on less risk as we strive to continue to create long term share for shareholder value.
Our bakery in protein groups continued their growth momentum during the quarter as they leverage new U S based capacity achieving growth rates of 25, 3% and seven 8% respectively.
In regards to our Sandwich group, we're confident that our key customer will return to sustainable growth, while we stand ready to support its new innovation initiatives promotions and new growth strategies. Overall, we remain very confident that despite the temporary challenges in our sandwich group, we remain on course to achieve our five year plan.
And to achieve $10 billion in revenue and 10% to 12% EBITDA margins by the end of 2027.
We're now on slide five although we did not close any acquisitions during the quarter. We were pleased to report that we're making progress on several transactions and that we fully expect to close them prior to the end of the year.
We're now on slide six to eight where we would like to give you a little more color on our North American sandwich business over the past several years, we have invested in new capacity and new food safe and efficient processing technologies and we're now clearly an industry leader in the assembly of frozen.
<unk> and charcuterie trays.
As we added capacity automation and expertise in this space, we have diversified the business to serve multiple sales channels and as shown on slide eight are currently servicing seven channels, including coffeehouse club grocery retail co manufacturing airlines hospitality and foodservice.
In 2025, we're hoping to add overseas international sales to this mix from 2010 through the end of 2023. The business has grown at a compounded rate of over 21% and we're confident that it will continue to grow in double digits for many years to come.
We are now on slide nine and 10, showing our recently expanded Columbus, Ohio facility, and our Cleveland, Tennessee facility when the Tennessee facility comes on board in mid 2025, our Sandwich group will operate nearly one 5 million square feet of production and sandwich storage space with.
Speaker Change: 10 facilities across North America nine located in the U S and one in Canada I will now pass it to will we'll.
Speaker Change: George 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 future results may differ materially from what we discuss.
Speaker Change: These refer to our MD&A for the 13 and 52 weeks ended December 30, <unk> 2023, as well as other information on our web site, where a broader description of the risk factors that could affect our performance.
Turning to slide 12, our.
Our sales for the quarter were a record $1 $67 billion.
Speaker Change: $22 million or one 3% as compared to the third quarter of 2023.
Speaker Change: This increase was driven by three factors, namely $29 $8 million and selling price increases, which were primarily in response to higher lobster and to a lesser extent chicken and egg costs.
Currency translation gains of $7 8 million.
Speaker Change: And business acquisitions net of shutdowns, which contributed $5 $5 million.
These factors were partially offset by sales volume contractions in both our segments with specialty foods volumes dropping by 0.4%.
Speaker Change: And premium food distributions volumes dropping by two 9%.
Speaker Change: As George discussed earlier, the reduction in specialty foods volumes was due to a decline in sales to a major foodservice customer, resulting from reduced consumer spending and the customer stores in general and food in particular <unk>.
Speaker Change: Excluding the impact of this customer specialty foods organic volume growth rate was two 3%, which was driven by one.
It's other core U S growth initiatives, and sandwiches protein and baked goods, which generated our organic volume growth rate of eight 1%.
And to the stabilization of its Canadian sales, which grew at an organic volume growth rate of 0.6% versus a contraction of one 4% in the previous quarter.
Speaker Change: These factors were partially offset by reduced jerky sales due to a weaker consumer environment and a change by a customer in the seasonal rotation of a relatively high volume product.
Speaker Change: A temporary pullback in specialty foods growth in the U S market due to several new major project launches being delayed because of longer than expected customer onboarding timelines.
And weaker consumer spending in the foodservice and convenience store channels.
Speaker Change: The reduction in premium food distributions volumes was due to lower lobster sales caused by an unusually high pricing environment and weaker consumer demand in the Chinese and European markets.
Speaker Change: Slide 13 shows the organic volume growth rates of our major protein sandwich and bakery sales initiatives in the U S.
Speaker Change: As George mentioned earlier, our protein and bakery initiatives generated organic volume growth rates of seven 8% and 25, 3% respectively.
Speaker Change: And our Sandwich group after normalizing for the impact of the major foodservice customer mentioned earlier generated organic volume growth of five 4%.
Speaker Change: While we are pleased with the growth rate generated by our bakery initiatives the growth rates generated by our protein and sandwich initiatives are well below potential and we strongly expect them to accelerate in the coming quarters.
Speaker Change: Slide 14 gives some insight into why we are so confident that the growth rates of our U S focused protein and sandwich initiatives will accelerate.
Speaker Change: As George referred to earlier this slide shows a snapshot of the U S market focused initiatives being actively worked on by our protein sandwich and bakery groups.
Speaker Change: In total we have almost $1 $5 billion of opportunities being pursued with it being highly probable that $700 million of these will launch in 2025 or sooner and another $300 million will likely launch in 2025.
Speaker Change: Okay.
Speaker Change: Turning to slide 15, our adjusted EBITDA for the quarter was $159 4 million representing.
Speaker Change: Representing an increase of zero point $6 million or 0.3% as compared to the third quarter of 2023.
Speaker Change: Positive factors in tapping our adjusted EBITDA included improved production efficiencies, mainly in our protein and sandwich operations and reduced discretionary compensation accruals.
Speaker Change: These are mostly offset by the impacts of raw material cost inflation, mainly for chicken and beef inputs and wage inflation.
Speaker Change: Turning to slide 16, our adjusted earnings and earnings per share for the quarter were $49 4 million and $1 11 per share respectively down from $56 $3 million and $1 27 per share respectively. In the third quarter of 2023.
Speaker Change: The declines were due to higher depreciation lease costs and interest associated with the major capacity expansion projects, we have completed over the last year.
Speaker Change: Looking forward, we expect to generate significant momentum and improving our adjusted EBITDA and correspondingly our adjusted earnings and EPS as we leverage our recent capital events investments to execute on our $1 $5 billion pipeline sales opportunities.
Speaker Change: Turning to slide 17.
Speaker Change: For the quarter, we spent $82 1 million on capital expenditures consisting of $64 million on major project Capex.
Speaker Change: $11 million in smaller project, Capex and $10 $7 million on maintenance Capex.
Speaker Change: We just we defined project Capex is investments that are expected to generate an unlevered after tax internal rate of return of 15% or greater.
Speaker Change: All other capital expenditures are classified as maintenance Capex.
Speaker Change: Primarily all of our major project Capex expenditures in the quarter were investments to increase the capacities and in many cases operating efficiencies of our protein sandwich and bakery businesses to support their U S focused growth initiatives.
Speaker Change: Looking forward based on our approved major project Capex pipeline, we expect to invest another $163 million over the next five quarters on these projects.
Speaker Change: Subsequent to the quarter, we entered into two asset sale transactions.
Speaker Change: One involves the sale of a vacant piece of land for $26 million, which we expect to complete in early December.
Speaker Change: The other involves a non binding letter of intent to sell and lease back a recently expanded production facility located in the state of Washington for approximately $92 million.
Speaker Change: The transaction involves a REIT type structure in which we will have a 40% ownership stake chorus.
Speaker Change: Correspondingly the net proceeds of the transaction after accounting for transaction cost taxes, and our investment in the REIT are expected to be approximately $80 million. We plan to complete this transaction in mid December.
Speaker Change: Slide 18 shows some of the key metrics, we use to assess our financial position our debt leverage levels were relatively stable as compared to last quarter with our senior debt to EBITDA ratio remaining at three four to one.
Speaker Change: And our total debt to EBITDA ratio, which includes our subordinate convertible debentures, increasing slightly to four four to one <unk>.
Speaker Change: Both these metrics are above the long term targeted ranges, we have set for them, but well within our shorter term operating parameters.
Speaker Change: In terms of liquidity, we finished the quarter in a strong position with over $700 million of unused credit capacity.
Speaker Change: The next and final slide shows a variety of our free cash flow and dividend metrics over the last 18 years for.
Speaker Change: For 2024 in the first quarter of the year, we increased our quarterly dividend by 10, 4% to 85 per share.
Speaker Change: That concludes our presentation. Please join us on our Q&A Conference call. Later today at 10, 30, a M Vancouver time or $1 30 PM Toronto time. Thank.
Speaker Change: Thank you.