STKL - Earnings call transcript Q1 2020

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Operator

Good morning, and welcome to SunOpta's First Quarter Fiscal 2020 Earnings Conference Call. By now, everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations page on SunOpta's website at www.sunopta.com.

This call is being webcast and its transcription will also be available on the company's website.

As a reminder, please note that the prepared remarks which will follow contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore, undue reliance should not be placed upon them.

with all morning, contained filed detailed the XX-K those other any to release SunOpta's on and discussion you Exchange projections to and this and differ that issued company's filings actual of refer the risk a statements. could in factors press Form Commission factors We for Securities cause more results the forward-looking annual from report materially

presentation forward-looking no required undertakes correct to reflect statements circumstances, made or obligation the laws. under be the company The or except during publicly to securities may events future update as applicable

we Finally, measures may during remind that financial refer teleconference. the would company to like this non-GAAP to certain listeners

Also, measures included occasionally otherwise non-GAAP reconciliation unless company's today please stated, these all A figures today. the in to with are note was and of U.S. dollars discussed that press financial million. the nearest are rounded earlier release issued

turn Joe over I'd conference to like now, CEO, to SunOpta's And the Ennen.

Joe Ennen

for improved over EBITDA than from put into up revenue a us revenue With ago an We million, Officer. Good XXX year-over-year. $XX.X million, Adjusted more represent adjusted and year. we the the have morning, doubled was in the adjusted prior last key traction plan company's history, and our million first Scott joining The of nearly Financial for represents $XX.X EBITDA year. quarter the results margin points XX% EBITDA. today. place gross which the our the initiatives the in second-highest basis $XXX.X turnaround and quarterly in generated delivering me quarter, call We versus outstanding Chief had growth Huckins, is of you improvement adjusted thank on year

and our each cash on and we are our more equity year-end. $XX-million operating productivity with in flow in over three are the improved We evident costs. $XX we from execution our by preferred before, reduced while controlling of million raise, significantly also ever liquidity flow improved $XX quarter debt our we of customers than our focused and million Progress plans segments. profile. Combined position and cash profit generated are is the we have We executing recent total improving

a a our with continued support of This reflection announced outlook in the to investors. weeks the $XX completed our is equity the of capital that in from discretion, over of two access months. have we few business total and a our ago, these provides million is plant-based the option, raise There largest coming unit. their preferred investment a we $XX-million As at investors to confidence we commitment business us

our We opportunities business. segments continue most our while lower-return-on-capital deemphasizing to behind invest high-return promising of and lower-margin,

our We through adapted touch are will the run and the but on current day-to-day first, the performance business pandemic. first quarter moment, let well during to successfully and our me COVID-XX this have I a of in initiatives. challenges executing

revenue the Our Food our each XX.X% strength of performance growth in with adjusted product strong category. quarter primary growth Plant-Based delivered across was unit, business and revenue continued which led by Beverage

pricing our X.X% as Food drove Beverage growth. along strong the growth efforts, produced Fruit-Based also our business revenue adjusted in and We with unit volume,

us improvements focus gross delivering that importantly, we margin evident revenue plant-based Similarly, positioned improvement. Ingredients is in More for saw further growth well while investments continued in we X.X% gross our Global also generated has beverages in It adjusted margin. and growth.

optimizing the In in are fruit the success. categories, most seeing for our business in our margins further Global driving focusing plan we turnaround the executing and promising and Ingredients, results on we are operations margin unit, enhancement. our product improved are We

in we Holland. cocoa efficiency marked in our Additionally, and see improvement of the plant output processing

our and margin with growth pleased business across of are each units. We improved the

our on cost-savings our execute improvements, initiatives. to In gross continue to addition margin we

basis. million delivering to reduction an SG&A We our $X of target million on are annualized $XX on

improvement this offsets moment. quarter. quarter, which last will occurred a more does noted Scott details we this have in provide some As

talk we would our people, impact summarize like the to our I on performance, plant COVID-XX's business individual P&L. the Before unit about operations and

First, employees their adapt ability respond environment. health their following and sincere to and global of the on rapidly for offer laser-focused to to of our all advice quickly let as our dedication responded all safety a are me changing we government and it We evolved, rapidly, and thanks the employees.

with our to get fully operational. the avocado As phrase the oil applies. Ethiopian going" tough, plant, our tough SunOpta exception the gets team, the it All most going of "when certainly the are relates facilities,

downtime have Beyond not result COVID-XX. as plant that, we any of encountered significant disruptions a or line material closures,

up levels spikes kept from maintaining have while customers our demand with We high the service. of

fruit-based plant- offset grocery most of on X/X COVID-XX impact a in our EBITDA, to units, incremental QX, the approximately X/X retail in but Similar is in gain in channel gross and are CPG to estimate Within approximately the material offset somewhat by the and saw in financial to of on million our service. surge we we summarize, in $X-million $X million, unpack $XX half food companies, will was currency modest March reserves devaluation a and sales profit of service. in debt revenue detail bad demand impact no and performance profit. our Scott of as second gain food the that business in gross declines for

which outlets reopening we more on of been coming pronounced thousands the that has are customer largest slowdown we declines early our by are service food of service still and the retail offset I the our after encouraged The of QX, impact will food moderated at service in announcement QX. saw of the it gains, BU, share in end plant-based by the While that food have is being weeks. they can pantry-loading be

includes milks, sunflower broth milk oat business where soy these Plant-Based segment. crown Food business. the all Now the jewel The through it concentrated walk our making as and almond let beverages, such our contains also extraction milk, of me our and business, the of company, and we unit This for our you segment, Beverage composed is plus milk, plant-based each business. of sell base plant-based

plant-based first We both from unit beverage new quarter, accelerated the existing XX% customers The the gross volume basis a almost and of strong is delivered business new This step XX%, growth delivered of and efforts points. in first the of a significant function entire from growth up saw quarter products. increase revenue of margin plant-based our XXX network. and fourth profit execution change and the unit existing margin growth in across During productivity quarter.

record-setting throughput achieving efficiencies. is team production operations Our and

broth, We in including plant-based growth sunflower, milks, extraction generating all extraction. XX% and growth, double-digit in growth are over seeing and year-over-year broad-based plant-based milks

other favorable growth our capabilities capital on capital track We progressing innovation and tailwinds. and and will to investment the and portfolio remain plant-based two our on our consumer to We by fourfold, expand deliver the our with capabilities increase our projects national across to project given with focus are strong continue capacity category footprint. we the extraction

online quarter. continue three capital the projects We come to late expect fourth in these of all to

Turning to X.X%, growth fruit The benefited growth expanded the we fruit. gross by and points Frozen both with XXX from year-over-year with in pricing is ingredients, basis fourth strong which frozen fruit XXX from our last action comprised strong quarter, our fruit, basis snacks. expanded unit, revenue major points margin, delivered fruit which fruit-based improved growth and Consistent of quarter. business customers. and of frozen fruit driven snacks posted and fruit

and are discussed have Our the quarters. with results tracking expectations over in plan we last line to improve is fruit several margins the progressing in frozen

significant are are we strawberry discipline initiatives, productivity plan investment pricing as around was turn our with associated overall we Mexican California season fruit this and our Beyond gains with our season. business. stronger the our plants harvest day. and in each automation seeing fruit our execute prepared manufacturing to The expectations XXXX line is of are the in The to and ready we supply gaining looks good, execute momentum

channel Therefore, are mix very of food the pandemic, as we unit retail purchases high strong seeing during has Our consumer retail shifting see and demand. mix. COVID-XX service we away customer fruit a toward from the

lower demand of a strong fruit inventory resulting our harvest, higher-priced poor last Given from the XXXX year's we inventory. off sold level our of portion have significant and

and Global X.X% growth adjusted in XXX-basis-point Organic also quarter, segment, which a revenue includes delivered the and strong with gross Tradin premium juice Ingredients Finally, a business, ingredients margin. our improvement

growth improvements revenue saw Tradin We processing strong premium of offerings. cocoa a Holland The driven gross Organic ingredients and production Crown had both were quarter overall. improvement our by and juice margin in operation good our and

on have already focus we the process, return-on-capital to our to begun margin strategy and of Our profile in as in is animal our exposure segment an reduce example. ingredients as feed,

in lower inventory. quarter, first Global the we segment higher on During a on generated Ingredients margin improvement in return with significant capital the

our to gains will our the improve further on right-size pleased to across XXXX Organic capital. conclusion, I'm three performance, inventory of levels through first and segments. In portfolio work quarter rebalance the We continue to return with each with Tradin

on further capitalize are are our turnaround we opportunities. executing and positioned to We growth

rest Now Scott? I'll to through Scott turn of take financials. call the us the to over the

Scott Huckins

you much, morning, good Joe, very Thank and everyone.

the through given statement, of during I walk flow balance gross will the me also and results. Let revenue quarter. profit discussion rest the the our income cover and commercial sheet activities of cash and Joe's

compared for million prior line came revenue an XXXX. revenue the performance estimate puts the of higher first $X.X for the reflecting Gross Joe profit the improvement, added accounted give revenue. million that contributed Global estimated takes million increase reflecting Fruit-based growth. COVID-XX, We million fairly $X segment had some profit estimates increased our we responsible $XX.X through will item $X.X profit million on quarter. revenue quarter impacts to or XXXX, was for to utilization. consistent our a range. we million approximately you gross segment plant-based that walk and and the of the as $XX plant $XX.X strong estimate Ingredients productivity in and million during productivity with $X of million double-digit million of COVID-XX as The gross profit, initiatives, First, XX%, efforts with improvement. of of $XX.X of in the COVID-XX mentioned, P&L. increase We our pricing significant improvements from the and saw gross remaining mainly from of the first We of quarter, in was capacity each growth, quarter I $XX.X

sales impact anticipate our margin additional The $X-million recognized million $X the gross in our during $X.X-million fruit-based gain in profit to second the position hedge business a expectation. was commodity segment. $X previous the a with quarter and in from We loss modest prior a hedging to first to approximately quarter. million weather-related in impact That The the COVID. roughly negative and Ingredients on was shortfall XXXX in came line the March Global commodity from in

compared quarter, plant-based percentage As of XX.X%.Operating last year, X.X% expansion a margin $X.X was saw the growth to income margin XXX-basis-point of or to quarter gross this points was which to largest last the of contributor margin X.X% a million, increase. in was XX%, XXX first compared revenues to year. segment, million revenues, first The basis $XX.X

Excluding These our quarter terms $X during approximately work compensation million consistent $X nonrecurring with the $X savings of costs, higher bad quarter. year associated approximately prior $X.X SG&A of savings reorganization and of We of last million with year. realized was $X million expense, dollars. this nonstructural in offset million stock the debt million were by approximately of costs of

impact attributable was Earnings climate. The compared income debt sale quarter the of Again, on of during shareholders prior bad SG&A gain provisioned COVID-XX first one-time economic the and $XX.X to diluted first the per the to for million, given diluted potential million, $X $X.XX were or as $X.XX year's the for to $X.X corn we the million, share, business. or per common approximately from quarter the share, soy benefited XXXX. current

$X.XX basis, diluted in $X.X adjusted were prior share, an million, loss $X.XX share, compared year. or to of $X.X the a common per per million, On earnings or

adjusted impact this and to compared adjusted As of of to offset the in of $X EBITDA including measures, March. month million $X for million increased back was Joe peso in year, the profit, SG&A of March, measures for $XX.X devaluation in adjusted $X of that to FX disposed on earlier, GAAP $XX the toward earnings release of press adjusted was remind these the can earlier from prior gross $XX.X of million, like are listeners million loss flat, the commodity I'd The non-GAAP to COVID-XX excluding found by a a EBITDA the $X-million a the XXXX, reconciliation of EBITDA first and bad issued morning. $X-million mentioned million gain be operations. million hedging debt; with revenue; quarter and

million, with $XXX.X facility, the generated balance total Turning secured issuance XXXX, down Total from of balance perspective, compared million, credit the March flow. on during $XX cash from during XXXX. reflects XXXX. XX, representing December cash costs $XX.X quarter, At and of senior and notes activities operating to in the global XXXX, million a of drawn million was sheet first-lien financing arrangements. debt lease $XXX.X smaller to second-lien million other million was cash XX, debt generated due net $XXX.X of our our asset-based the quarter credit flow facilities, $X From first cash approximately

annual The more million in inventory our sales, efficient primarily QX $XX.X-million activities strong by reduction inventories during improved segments $XX declined working as normal inventory The included decline capital quarter performance efficiencies reflects sequential season. due in to and and management harvest ahead from provided $XX operating in Global cash QX Ingredient in the increase greater and of first operating the the million fruit XXXX. seasonal fruits

QX on we to reminder, QX inventory based particularly in purchases, increase a capital working fruit. seasonal As generally from see

to working to we would XXXX, be flat XXXX. relatively year the For expect full capital

activities automation the sale for investing corn was for facilities. expansion proceeds frozen our The the investments primarily from XXXX, well our of of in business. quarter investment under as adjusted currently compared million, relates way, million $X.X and capabilities with the to that increase as new first in $X in of fruit capital the in are used the soy Cash extraction

touch preferred Finally, financing. the equity on let me recent

received from Capital. Oaktree we in commitment shareholders, mentioned, Engaged million $XX of largest Series shares preferred our Joe of a As B and two

in discretion, capital continue of $XX Plant-Based XX, and provides provides to At up second we or July invest to XX. million to liquidity. our Beverages This on on before $XX tranche million Foods require investors XXXX. platform April our first us the to purchase and the The investment for additional closed can a

with pleased successful very are transaction. We this

Now turning outlook. to our

Let going forward. expectations me address our

we for plant-based are short-term We did provide in right our This experience from uncertain of don't is we second the quarter. but While service total of mid-single times, The revenue food reduced some seeing give guidance, to let leaves likely impact to this food the given QX. service the material we growth into you down orders last feeling the COVID these result for not customers, me now. from digits quarter. XXs what QX in moderating a the insight segment's are the flat roughly second year impact

and be speculation too quarter, Beyond comment would second the to it pure early now.

adjusted EBITDA for a year. However, materially be basis we greater expect do to the remainder the on of year-over-year

the call With open to ask that, I'd the questions. please operator to up

Operator

[Operator Instructions].

Jon from William Blair. first Andersen Your question with comes

Jon Andersen

guys. hi, Yes, morning good

Joe Ennen

Good morning, John.

Scott Huckins

Good morning, John.

Jon Andersen

the the I'll start with plant-based to business. year. Congratulations maybe on the I guess start

that the And You couple bit you've strength? wondering components quarters, particular of probably and of do the capacity I fruition XXXX categories quarter; the opportunity but saw you're I growth in fill the what's that? that late terrific XXXX, the quickly product you around where plant-based seen a the or the on extraction to second for around know you're that capacity us frankly, give more question think think how how until can growth, you market pockets there the is, that I'm you given terrific the capacity comes opportunity of will bringing past a online business, seeing then that extraction little really around come that color about quarters. can And online, few in various that? if not

Joe Ennen

Sure.

a customer, In in good similar new business we're terms from certainly and front. of see plant-based growth question, every the from And of products new business, quarter, came seeing seeing Roughly first part the we products. the X/X the growth we're so and development across growth of job balance X/X customers. it importantly, existing and between first of the doing where strength came a existing the X/X customers, customers is new, existing of the in both on where your we're

board. the time across plant-based board. we strength unpacking so quarter, quarter, underlying summary, drivers considerable continued Last and business the consumer spent tailwinds we certainly really, really, in across strength the those just the experience the to in of and first So see

significant package There done the it and that are gable-top-carton-style bottle, in of I that their like of packaged of On add concentrated you products a this a manufacturers form and way. then ourselves. base, out aisle is plant-based refrigerated side it the pour sell it the it from. they etc. the concentrated which produce water We you business the base. mean, as add that if you aseptically a be we outside then it milks water on We water carton is I'll side, in two it add in would the obviously think package There's business, will that format, extraction to packaging, explain carton, we to, one the then aseptically; to of opportunities concentrated or base producers a produce about put which think make it and a

So monetized, to that as is think sale. that's be an business how is ingredients it going of

Jon Andersen

And sell Does is capacity interesting. you much to or into How how arrangements Okay, have do out online into have is kind come timeline? online. XXXX? that visibility sell coming it of place, your business it that quickly it work? You ability have because in capacity does you longer in of a kind or development

Joe Ennen

good It's efforts have experiencing were the our with experiencing small for now were could where business we we extraction about we capability was really against in and produce, development of we and investment a customer Part of that premise that. and certainly excess demands, that the we was, right capital right are now, underlying the feel what investment. significant for we making demands thesis interest

Day do us feel plant commitments and facility that to So ability certainly start up allow to our full customer good it be that and that'll expect running. up one, open we on have to we we about wouldn't stand but

Jon Andersen

It customer beverages? away the the business? case? looking if mean, your about skews your it, in you that here that happening Terrific. what's of food expectation food Again like for should side? service. like return the the then, the more to on yes, that talk how we it's next are piece service how several Is going I And plant-based home And or larger thinking about you that of so, that from sounds plant-based, mix over Is weeks? food of could be service around it

Joe Ennen

Yes.

is some So start chains. about aggressively chains wade how bigger so weeks XX% We return? outlets, our with food optimistic. be, business customers, a in But individual for ready question been by won't supply. to plant-based the business significant speaking week coffee service. public consumers/customers it to mark announcements call recent do channel large their from their the in food and will reopen coffee into we're in that encouraged over I retail, coming to the plans some this and XX% of service roughly there's but Obviously quickly big we're their and announcements we're total do

Jon Andersen

Great.

Okay.

cadence for food demand both you is in that context light of over and fact that into primarily just in the and of I and/or but you've margin market, may to about less I and very the understand which availability year-to-date can would broadly? which fruit more respect California, also there Mexico early fruit business, guess me, with the the fruit, is going you it's very in the play, fresh quarter freezer sounds fruit in anything progression. I there's believe. service, Is have what for maybe seen now. probably time on the impact, there shifting availability an some less to and talk with line for It excuse fruit described in in where strong sales pricing kind guess, like of the much early, So you've I in the

Joe Ennen

question. Good Yes.

to historical the pretty far again, service ranges. as at that we and is fresh the we impacted that about market point And would You're the food forecasted be absolutely year. pricing to as correct of contraction in in be within goes, is where so ranges, supply fruit have pricing this historical it going the significantly, optimistic remain in has

we're front real California the front fruit as supply relates the it on concerns to no or So it's not pricing either there's season. the

Jon Andersen

acceleration area also to have take could structuring what color better Okay. customers, stock-up And some both with of been And you some make maybe, from how came demand arrangements COVID think been little there this when pricing out. now that that but know to pricing. given happen. customers perhaps was more about fruit an Maybe to situation? I there of around on that progress from that to you your really there's provide a of you're that volatility whether in is existing this bit some nice in, much extent it you sounds kind happened, that's the commentary, the was at-home the emphasized seeing, you've able like, demand a probably right or been way

Joe Ennen

Yes.

So service. than food the fruit retail, business it XX% is food more XX% Call retail-oriented service.

strong some we COVID benefited end XX having March the So the slamming that, and started into before system. really the of we definitely weeks orders with quarter toward quarter, but the stock-up-type saw purchases a were

of side so didn't through pretty inventory it's in us all expensive our we've work put pull quarter, it last season. this into helped us orders the going of the come seen So, back weeks position strong that on have XXXX XXXX some in two growth. kind with inventories a these really of And and strong strong

Jon Andersen

do Global the more bit I Sanmark avocado the for Ingredients, we don't Great. oil around All running. plant I out was about just might the Ethiopia, but of maybe that last not that ask know better because that, is Crown of there from many I facility? coming people progress us will could in how and there a have Holland facility, the year then and overcome. acquisition think the that that, been the I and to you in in productivity quarter, solid made give of think And kind cocoa that's you've have did one too, better some in how you expectations headwinds there have general. color this I your couple plant, you much processing want Maybe little experienced you've mention right, up more here. of queue, a performance,

Joe Ennen

Yes.

done gross team job getting our Holland in by the into output, business, percentage progress and of great And sizable a result of in running margin Crown and in the nice Holland, and a have throughput pickup being the up that continued operations plant zone and was that's in the encouraged quarter a very productivity we're a made. that. for the So of

massive in but something As spoke of revenue, that The it's about touch public it decision our until a resumes to closing made Ethiopia, of wanted to transportation our in not we to on calls, workers relates Ethiopia. as has for portion our it. close the transportation, our avocado and previous of facility, difficult so on and production transportation get it availability the such, public we to made facility, to public

Jon Andersen

Okay. the The some of clearly. comments, this that the forward-looking wanted just provided sure to from of really, you last one make at I end commentary I me the prepared is understood

of rationale line flatter for kind understand a QX. top So year-over-year the in

that? the increase comment, you year, that EBITDA do rest mean year-over-year interpreting or of we How for that basis On the dollars increase EBITDA am the does a on EBITDA in sequentially? interpret I right you dollars that do

Scott Huckins

I'll Hey, Jon. It's that one. Scott. take

I think but EBITDA some on see improvement. would still year-over-year to dollar So of growth, we'd that the as just levels a produce muted talked expect notwithstanding about, that, meaningful basis, year-over-year Joe we comment was

Jon Andersen

Again, you, year. Terrific guys. great super start Congrats helpful. the to Thank

Operator

Your Capital. with Smith from Lake next Mark question comes Street

Mark Smith

Can kind but guys you supply the But to in see issues of have in so about? long fruit guys. risks been Hi you wanted talk the talked big certainly chain especially potential in any mine talk more of is Food A meats. you've news, dairy, picture. answered, term lot term. and of you about things of that some out see outside that opportunities short there the potential that seeing

Joe Ennen

Yes.

touched any disruptions. fruit. I anticipate don't chain supply we So on

U.S. pretty far as oats. as things, and side in whey this the On the goes, year, far crop the had planting for of plant-based decent we've weather so

no So material there. disruption expected

continue As are Again, it dairy there that of and we that up with to front the for a plant-based. products have over some we've consumer trend plant-based. in opportunities, decade the plant-based shortages about that about us really we experience toward to seeing of with the recently the meat were know part with to slow relates and demand, better been migration consumers articles shift keeping I substituting news I opportunities think and a on

it's saw, it, and And pantry-load, as We stock quarter from so representing obviously that translates that into around the people going in aseptic got concerns the wanting consumers trial first us and which we hope opportunity we shelf-stable, to with is that new great a up. the side loyal consumer for people behavior, trial benefited of forward.

Mark Smith

back from we're times, of if ball shift a this food And as can we've Okay. consumer kind look to forced away shift but of you unprecedented into kind at food service, home-based can in how crystal migration home-based you them versus sticky food your consumers seen bit behavior, food to of onto and you do and how hold service think once much these can a grocery be kind it reopens? little

Joe Ennen

the of crystal of a when think, service a think little great could pattern The food mean, wish but I my I we kind ball is will this answer the $XX-trillion that's question to, to, between is I return pre-COVID-XX and cloudy Yes, I retail. morning. question give you I that unfortunately

Mark Smith

and if I sorry during year? last the FX, we rest of it me, from insight any into maybe from what you commentary, the expect give but even the look can currency impact QX then here, And of through as problem. you one missed but kind maybe near-term No in

Scott Huckins

peso. but realized a the else, I'm did a morning. call currency Good forecaster the $X-million We decline of we than step It's peso. impact anybody of take a better It's no oh, the from Sure. it Scott. of or a unrealized costs, lock a for lot a from benefit, ourselves peso-denominated we that, meaning, production you protect in in would weak to Mexico will, trying bit that and if because actually root facilities we have

has for euro to balance steps make, some that's in the taken guess try weak area, consistent. year. of the the probably, would other vintage, down I least today we've be, the to only so been the that recent to more X.XX%-type comment of relationship So comparatively preserve at been

So, those be thoughts. my

Mark Smith

Okay, you. Thank great.

Operator

this further back no closing hand now questions. Ennen the remarks. call Joe are I will At for there to time,

Joe Ennen

for appreciate interest all SunOpta. participating in Great, support thank and call. in forward a the quarter look to thank and I our in with you future and conference you great day. your you, operator, speaking first Have

Operator

conference. participation. you today’s concludes That for Thank your

now disconnect. may You

SunOpta (STKL) 9 May 202020 Q1 Earnings call transcript