The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from Marketwire

Premium Brands Holdings Corporation Announces Record 2012 First Quarter Sales and Earnings from Operations

Thursday, May 10, 2012

Premium Brands Holdings Corporation Announces Record 2012 First Quarter Sales and Earnings from Operations07:00 EDT Thursday, May 10, 2012VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 10, 2012) - Premium Brands Holdings Corporation (TSX:PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2012.HIGHLIGHTSDespite the first quarter historically being the Company's weakest quarter due to seasonal factors, revenue increased by 41.9% or $64.6 million to a record $218.7 million as compared to $154.1 million in the first quarter of 2011.EBITDA for the quarter increased by 30.5% to $12.0 million as compared to $9.2 million in the first quarter of 2011.Earnings attributable to shareholders and earnings per share for the quarter were $1.1 million and $0.06 per share, respectively, as compared to $0.9 million and $0.05 per share, respectively, in the first quarter of 2011.Dividends declared during the quarter were $6.0 million or $0.294 per share.Rolling twelve months free cash flow was $40.0 million resulting in a dividend to free cash flow ratio of 58.3%.The Company maintained its 2012 guidance of organic sales growth of 6% to 8% and EBITDA of $75.0 million to $80.0 million.The Company's Stuyver's Bakestudio business commenced commercial operations of its new $18.8 million artisan bakery subsequent to the quarter in April 2012. SUMMARY FINANCIAL INFORMATION(In thousands of dollars except per share amounts)13 Weeks13 WeeksEndedEndedMar 31,Mar 26,20122011Revenue218,724154,098EBITDA12,0249,216Earnings attributable to shareholders1,115922Earnings per share0.060.05Rolling Four Quarters EndedMar 31,Dec 31,20122011Free cash flow39,97738,225Declared dividends23,29722,672Declared dividend per share1.1761.176Payout ratio58.3%59.3%"Once again we are pleased to announce record sales and EBITDA for the quarter. While the first quarter of the year is historically our weakest due to seasonal factors and, correspondingly does not show the full potential of our company, our results do demonstrate the impact that a number of favourable consumer trends are having on our specialty food businesses. These trends include rapidly growing consumer demand for higher quality products, healthier-for-you products and convenience oriented products. These are all product categories that Premium Brands has, over the last several years, positioned itself to capitalize on through a combination of acquisitions and capital projects," said Mr. George Paleologou, President and CEO."Most recently, we are pleased to report that last month we commissioned our new state-of-the-art artisan bakery in Langley, BC. This facility uses a unique blend of tradition and modern technology to produce old world style high quality breads in a very efficient manner. We expect this facility to replicate the success of the new specialty burger patty facility we built last year, which is already two years ahead of our original sales growth expectations. It is clear to us that more and more consumers are demanding an improved food experience and we are well positioned to cater to this demand," added Mr. Paleologou."Overall our results for the quarter were in line with our expectations. Based on this and the declining trends we are seeing in the cost of a number of the input commodities used by our businesses, we are confident that we will meet or exceed our 2012 organic sales growth guidance of 6% to 8% and EBITDA guidance of $75 million to $80 million," stated Mr. Paleologou.The Company also announced the release of its 2011 Annual Report which is available online at www.premiumbrandsholdings.com.About Premium BrandsPremium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Washington State and Nevada. The Company services over 26,000 customers and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Go, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan Fairbanks, Creekside Bakehouse, Centennial Foodservice, B&C Foods, Shahir, Duso's, Maximum Seafood, SK Food Group, OvenPride, Hub City Fisheries, Audrey's, Deli Chef and Piller's.RESULTS OF OPERATIONSRevenue(in thousands of dollars except percentages)13 weeks%13 weeks%endedendedMar 31,Mar 31,20122011Revenue by segment:Retail134,90861.7%78,70151.1%Foodservice83,81638.3%75,39748.9%Consolidated218,724100.0%154,098100.0%Retail's revenue for the first quarter of 2012 as compared to the first quarter of 2011 increased by $56.2 million or 71.4% due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 which resulted in $49.1 million in incremental sales; (ii) organic growth of $6.3 million representing an organic growth rate of approximately 8.0%; and (iii) $0.8 million in increased sales due to an early Easter that resulted in most of Retail's 2012 Easter sales occurring in the first quarter as compared to the second quarter in 2011.Retail's strong organic growth for the quarter, which was at the top of the Company's targeted range of 6% to 8%, was due to a range of factors including: (i) a variety of new product and customer sales initiatives; (ii) price increases across a broad range of products; and (iii) relatively mild weather as compared to unusually poor weather in the first quarter of 2011.Looking forward (see Forward Looking Statements), the Company is maintaining its guidance for Retail's organic growth at 6% to 8% despite Retail exceeding this range in the quarter.Foodservice's revenue for the first quarter of 2012 as compared to the first quarter of 2011 increased by $8.4 million or 11.2% due to: (i) organic growth of $6.4 million representing an organic growth rate of 9.1%; (ii) $1.1 million in unusual trading volume in its Hub City Fisheries business resulting from the sale of excess inventory relating to the 2011 salmon fishery; and (iii) increased sales in its Worldsource food brokerage business of $0.9 million due to improved trading opportunities.Foodservice's strong organic growth, which was also above the Company's targeted range of 6% to 8%, was driven by a range of factors including: (i) higher sales to its core hotel, restaurant and institutional customers as a result of several factors including overall improved consumer spending in this channel, mild weather conditions relative to the first quarter of 2011, and the success of its recently completed fresh burger patty production facility; (ii) increased wholesale seafood sales resulting partially from a competitor in the Greater Toronto Area shutting down its business in 2011; and (iii) improved concessionary product sales due to the relatively mild weather in the quarter.Looking forward (see Forward Looking Statements), the Company is also maintaining its guidance for Foodservice's organic growth at 6% to 8%, despite the fact that Foodservice exceeded this range in the quarter. This is based on the first quarter being Foodservice's weakest and not necessarily indicative of how Foodservice's businesses will perform in the busier summer months.Gross Profit(in thousands of dollars except percentages)13 weeks%13 weeks%endedendedMar 31,Mar 26,20122011Gross profit by segment:Retail29,22821.7%21,11326.8%Foodservice15,05818.0%13,95518.5%Consolidated44,28620.2%35,06822.8%Retail's gross profit as a percentage of its revenue (gross margin) for the first quarter of 2012 as compared to the first quarter of 2011 decreased primarily due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 as these businesses generated lower average gross margins as compared to Retail's other businesses. In particular Deli Chef's gross margin was impacted by promotion related product selling discounts and costs as well as inefficiencies associated with the restructuring of the Company's DSD networks; (ii) a change in selling terms whereby certain customers now receive their products FOB the Company's plant versus FOB the customers' warehouses. This resulted in the elimination of freight being billed to these customers and corresponding decreases in gross profit and selling expenses; and (iii) lower gross margins on certain products sold on a cost-plus basis due to a combination of customer volume related discounts and price increases put through over the course of 2011.Normalizing for the above factors Retail's margin for the quarter was 26.3% as compared to 26.8% in the first quarter of 2011. The balance of the decrease in Retail's gross margin was due to a variety of factors including: (i) changes in sales mix relating to lower margin Easter related sales; (ii) general sales mix changes; and (iii) continued historically high costs for certain input commodities, particularly at the beginning of the quarter.Foodservice's gross margin for the first quarter of 2012 as compared to the first quarter of 2011 was down slightly due to: (i) continued record high costs for input commodities, in general, and beef products, in particular; and (ii) normal fluctuations in Foodservice's gross margin.Looking forward (see Forward Looking Statements), for 2012 the Company is maintaining its guidance for Foodservice's gross margins to be the same or slightly higher than the 18.8% gross margin it generated in 2011.Selling, General and Administrative Expenses (SG&A)(in thousands of dollars except percentages)13 weeks%13 weeks%endedendedMar 31,Mar 26,20122011SG&A by segment:Retail19,22814.3%13,58717.3%Foodservice11,59413.8%10,81114.3%Corporate1,4401,454Consolidated32,26214.8%25,85216.8%Retail's SG&A in the first quarter of 2012 as compared to the first quarter of 2011 increased by $5.6 million primarily due to: (i) the acquisitions of Piller's, SJ and Deli Chef in 2011 which resulted in an increase of $5.9 million; and (ii) a variety of items consisting primarily of variable selling costs associated with Retail's organic sales growth. These increases were partially offset by a decrease in freight costs of approximately $0.8 million due to a change in selling terms whereby certain customers now receive their products FOB the Company's plant versus FOB the customers' warehouses. Thisresulted in the elimination of freight being billed to these customers and corresponding decreases in gross profit and selling expenses.Normalizing for acquisitions and the impact of the change in selling terms for certain customers, Retail's SG&A as a percentage of revenue for the quarter was approximately 16.5% as compared to 17.3% for the first quarter of 2011.Foodservice's SG&A in the first quarter of 2012 as compared to the first quarter of 2011 increased by $0.8 million due to a variety of items consisting primarily of variable selling costs associated with Foodservices organic sales growth. Foodservice's SG&A as a percentage of revenue for the quarter was 13.8% as compared to 14.3% for the first quarter of 2011.EBITDA(in thousands of dollars except percentages)13 weeks%13 weeks%endedendedMar 31,Mar 26,20122011EBITDA by segment:Retail10,0007.4%7,5269.6%Foodservice3,4644.1%3,1444.2%Corporate(1,440)(1,454)Consolidated12,0245.5%9,2166.0%The Company's EBITDA for the first quarter of 2012 as compared to the first quarter of 2011 increased by $2.8 million or 30.5% primarily due to: (i) acquisitions; and (ii) organic growth in a number of the Company's legacy businesses. These increases were partially offset by a variety of factors including continued historically high costs for certain input commodities, particularly at the beginning of the quarter.The Company's EBITDA as a percentage of revenue (EBITDA margin) decreased to 5.5% primarily due to the acquisitions of Piller's, SJ and Deli Chef in 2011 as these businesses as a whole generated a lower average EBITDA margin as compared to the Company's legacy businesses. In particular Deli Chef generated an EBITDA loss of approximately $0.9 million primarily due to: (i) the impact of seasonal factors on its sales and, in turn, its ability to achieve critical mass in its plant and distribution network; (ii) promotion related product selling discounts and costs; and (iii) inefficiencies associated with the restructuring of the Company's DSD network.Normalizing for acquisitions, the Company's EBITDA margin for the quarter was 6.1% as compared to 6.0% in the first quarter of 2011.Looking forward (see Forward Looking Statements), for 2012 the Company is maintaining its EBITDA guidance of $75.0 million to $80.0 million based on its EBITDA for the first quarter being in line with its expectations.InterestThe Company's interest and other financing costs for the first quarter of 2012 as compared to the first quarter of 2011 increased by $0.9 million primarily due to an increase in the Company's net funded debt partially offset by lower interest rates on the Company's senior credit facilities due to negotiating a lower credit spread on these facilities late in the third quarter of 2011.Restructuring CostsRestructuring costs consist of costs associated with the significant restructuring of one or more of the Company's businesses. In the first quarter of 2012, the Company incurred $0.7 million in restructuring costs consisting of:$0.3 million in charges relating to the Company's restructuring of its direct-to-store distribution network (DSD network) for the convenience store channel. This restructuring involves the merging and rationalization of the following three DSD networks:The Company's Direct Plus DSD network, which operates primarily in western Canada; The DSD network acquired as part of the Deli Chef acquisition in 2011. This network operates in Ontario and Quebec; and The independent distributor network controlled by the Company's recently acquired Pridcorp business. This network operates in various markets across Canada, including the Maritimes. Once complete, this initiative will: (i) create Canada's only national convenience store DSD network in the sandwich, meat snack and pastry categories; (ii) gain efficiencies by eliminating overlaps where two of the above three DSD networks are servicing the same customer sites; and (iii) further improve the profitability of the DSD delivery routes serviced by the Company's own fleet by adding products to these routes that were previously distributed exclusively by the Pridcorp Network.$0.2 million in costs associated with the restructuring of Deli Chef's sandwich operations. As previously announced the Company expects to incur $6 million to $7 million in capital and restructuring costs relating to this restructuring project. As at the end of the first quarter these costs totaled $2.7 million consisting of $2.3 million in restructuring costs and $0.4 million in capital expenditures. As part of the restructuring of Deli Chef's sandwich operations, in the first quarter of 2012 the Company initiated construction of a new 20,000 square foot sandwich plant in Laval, Quebec. The new plant is budgeted (see Forward Looking Statements) to cost $3.4 million and is expected to be completed in the third quarter of 2012.$0.2 million in redundant lease costs associated with the Company's new artisan bread facility. FREE CASH FLOWThe following table provides a reconciliation of free cash flow to cash flow from operating activities:(in thousands of dollars)52 weeks13 weeks13 weeksRollingendedendedendedFourDec 31, 2011Mar 26, 2011Mar 31, 2012QuartersCash flow from operating activities29,524(3,086)9,64142,251Changes in non-cash working capital6,0508,209(2,737)(4,896)Deferred revenue1,118--1,118Acquisition transaction costs1,594191481,451Restructuring costs2,8192717393,287Capital maintenance expenditures(2,880)(398)(752)(3,234)Free cash flow38,2255,1876,93939,977FORWARD LOOKING STATEMENTSThis discussion and analysis contains forward looking statements with respect to the Company, including its business operations, strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations.Although management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of May 9, 2012, such statements involve unknown risks and uncertainties beyond the Company's control which may cause its actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements.Factors that could cause actual results to differ materially from the Company's expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Company's sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used in the production of the Company's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Company's proprietary distribution networks; (v) risks associated with the Company's conversion from a publicly traded income trust to a publicly traded corporation, including related changes in Canada's income tax laws; (vi) changes in the Company's relationships with its larger customers; (vii) potential liabilities and expenses resulting from defects in the Company's products; (viii) changes in consumer food product preferences; (ix) competition from other food manufacturers and distributors; and (x) new government regulations affecting the Company's business and operations. Details on these risk factors as well as other factors can be found in the Company's 2011 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.Unless otherwise indicated, the forward looking information in this document is made as of May 9, 2012 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.Premium Brands Holdings CorporationConsolidated Balance Sheets(Unaudited and in thousands of dollars)March 31,December 31,March 26,201220112011Current assets:Cash and cash equivalents4,7554,8602,410Accounts receivable72,31378,83055,240Other assets103103192Inventories92,15879,97767,800Prepaid expenses6,19513,4557,830175,524177,225133,472Capital assets175,226167,98281,821Intangible assets75,62877,08755,209Goodwill154,577150,417139,139Other assets2,7332,2503,111Investment in associate--233Deferred income taxes35,22739,95244,701618,915614,913457,686Current liabilities:Cheques outstanding2,2362,5043,656Bank indebtedness14,51318,0614,269Dividend payable6,0015,9585,376Accounts payable and accrued liabilities81,09580,16263,196Puttable interest in subsidiaries--2,084Current portion of long-term debt20,60820,53619,352Provisions for contingent consideration2,9242,924-Other300-490127,677130,14598,423Puttable interest in subsidiaries15,24415,21010,883Deferred revenue1,8141,9431,318Pension obligation1,3771,345827Provisions for contingent consideration8,5698,360-Long-term debt173,922162,66179,434Convertible unsecured subordinated debentures87,66589,39690,770Other-100-416,268409,160281,655Equity attributable to shareholders:Accumulated earnings134,485133,370122,174Accumulated dividends declared(136,498)(130,497)(114,134)Retained earnings (deficit)(2,013)2,8738,040Share capital200,150198,057163,880Equity component of convertible debentures1,9161,9161,916Reserves1,0831,442845Non-controlling interest1,5111,4651,350202,647205,753176,031618,915614,913457,686Premium Brands Holdings CorporationConsolidated Statements of Operations(Unaudited and in thousands of dollars except per share amounts)13 weeks13 weeksendedendedMarch 31,March 26,20122011Revenue218,724154,098Cost of goods sold174,438119,030Gross profit before depreciation and amortization44,28635,068Selling, general and administrative expenses before depreciation and amortization32,26225,85212,0249,216Depreciation of capital assets3,6192,384Amortization of intangible assets1,242755Amortization of other assets31Interest and other financing costs4,0763,166Amortization of financing costs11050Acquisition transaction costs48191Change in value of puttable interest in subsidiaries180515Accretion of provisions for contingent consideration209-Unrealized loss on foreign currency contracts300270Unrealized gain on interest rate swap contracts(500)-Restructuring costs739271Equity loss in associate-182Earnings before income taxes1,9981,431Provision for (recovery of) income taxesCurrent628957Deferred209(529)837428Earnings1,1611,003Earnings for the period attributable to:Shareholders1,115922Non-controlling interest46811,1611,003Earnings per shareBasic0.060.05Diluted0.050.05Weighted average shares outstanding (in 000's)Basic20,22618,102Diluted20,32318,146Premium Brands Holdings CorporationConsolidated Statements of Cash Flows(Unaudited and in thousands of dollars)13 weeks13 weeksendedendedMarch 31,March 26,20122011Cash flows from operating activities:Earnings1,1611,003Items not involving cash:Depreciation of capital assets3,6192,384Amortization of intangible assets1,242755Amortization of other assets31Amortization of financing costs11050Change in value of puttable interest in subsidiaries180515Gain on disposal of capital assets(32)-Accrued interest income(7)(24)Unrealized loss on foreign currency contracts300270Unrealized gain on interest rate swaps(500)-Equity loss in associate-182Deferred revenue(129)(24)Accretion of convertible debentures362337Accretion of long-term debt177203Accretion of provisions for contingent consideration209-Deferred income taxes209(529)6,9045,123Change in non-cash working capital2,737(8,209)9,641(3,086)Cash flows from financing activities:Long-term debt - net11,285(33,114)Bank indebtedness and cheques outstanding(3,816)(572)Convertible debentures - net of issuance costs-54,600Dividends paid to shareholders(5,958)(5,368)Other-(18)1,51115,528Cash flows from investing activities:Capital asset additions(11,232)(3,314)Business acquisitions-(7,000)Repayment of share purchase loans and notes receivable6926Promissory note from associate-(300)Net proceeds from sales of assets88-Payments to shareholders of non-wholly owned subsidiaries(146)(191)Other-(107)(11,221)(10,886)(Decrease) increase in cash and cash equivalents(69)1,556Effects of exchange on cash and cash equivalents(36)(14)Cash and cash equivalents - beginning of period4,860868Cash and cash equivalents - end of period4,7552,410FOR FURTHER INFORMATION PLEASE CONTACT: George PaleologouPremium Brands Holdings CorporationPresident and CEO(604) 656-3100ORWill KalutyczPremium Brands Holdings CorporationCFO(604) 656-3100www.premiumbrandsholdings.com