PBH Premium Brands Holdings Corporation

VANCOUVER, BC, Aug. 5, 2021 /CNW/ - Premium Brands Holdings Corporation (TSX: PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the second quarter of 2021.

HIGHLIGHTS

• Second quarter record revenue of $1.2 billion representing a 26.4%, or $258.1 million, increase as compared to the second quarter of 2020
• Organic volume growth of 17.8%, or 9.3% after normalizing sales recoveries associated with the easing of pandemic-related restrictions
• Record second quarter adjusted EBITDA¹ of $112.2 million representing a 67.2%, or $45.1 million, increase as compared to the second quarter of 2020
• Second quarter adjusted EPS¹ of $1.23 per share as compared to $0.57 per share in the second quarter of 2020 and $1.10 per share in the second quarter of 2019
• Clearwater Seafood continued to generate significantly improved results posting quarterly sales and EBITDA of $138.9 million and $28.0 million, respectively, as compared to $153.9 million and $26.4 million, respectively in 2019
• During the quarter, the Company completed the acquisition of Mermax, a Quebec based food processing and distribution company and subsequent to the quarter entered into an agreement to acquire Maid-Rite Specialty Foods, a Pennsylvania based cooked protein manufacturer
• Also subsequent to the quarter, the Company issued its 2021 ESG Report – Healthy Planet, Healthy Food, Healthy People, which can be found on its website at www.premiumbrandsholdings.com

CONFERENCE CALL

The Company will hold a conference call to discuss its second quarter 2021 results today at 10:30 a.m. PDT (1:30 p.m. EDT).  An investor presentation that will be referenced on the conference call is available here or on the Company's website at http://www.premiumbrandsholdings.com.

Access to the call may be obtained by calling the operator at (833) 300-9218 / (647) 689-4551 (Conference ID: 8576014) up to ten minutes prior to the scheduled start time. For those who are unable to participate, a recording of the conference call will be available through to 8:59 p.m. PST on August 29, 2021 at (855) 859-2056 / (404) 537-3406 (passcode: 8576014). Alternatively, a recording of the conference call will be available at the Company's website at http://www.premiumbrandsholdings.com.

SUMMARY FINANCIAL INFORMATION
(In millions of dollars except per share amounts and ratios)

Our solid results for the quarter once again demonstrate the strength and resiliency of our business model.  The diversification we have built into our company combined with our decentralized management structure and culture of entrepreneurialism enabled us to continue generating record results even in a very challenging environment," said Mr. George Paleologou, President and CEO.  "During the quarter, we faced unprecedented inflation across a broad range of commodities, labor shortages, supply chain disruptions and sudden shifts in customer and consumer demand patterns.  Our businesses were, however, able to respond decisively and creatively, addressing these issues head-on while capitalizing on new opportunities.

"Our businesses with a foodservice focus rebounded particularly strongly as lockdown restrictions eased and economies reopened.  Their rapid recovery over the course of the quarter was in large part made possible by the long-term perspective taken by their management teams and by being part of a larger eco-system that supported their ability to do this.  By maintaining their workforces and infrastructure through the downturn they were ready and able to meet the sudden and, in many cases unprecedented, increases in demand. 

"Our seafood businesses also made significant progress as recent capital investments and product innovations continued to gain traction, and the management teams of businesses acquired over the last six months increasingly leveraged our ecosystem to capture synergies and develop new sales opportunities.  Clearwater Seafood, in particular, had a very strong quarter with substantial year-over-year increases in its sales and EBITDA despite parts of its business still being impacted by pandemic related factors," said Mr. Paleologou.  "We are in the early stages of executing on our seafood strategies but are already seeing solid results as we position ourselves in the global seafood marketplace with best-in-class management teams and operating assets, and implement our branded and value-added product strategies," added Mr. Paleologou.

"We remain very confident that we will achieve our five-year targets of $6 billion in sales and $600 million in EBITDA by 2023," stated Mr. Paleologou.  "The continued strengthening of the trends that have helped to drive our success over the last decade, combined with the capital projects that we have either recently completed or are underway, as well as our full pipeline of acquisition opportunities, well positions us to meet or exceed our targets," added Mr. Paleologou.

In conjunction with announcing its earnings for the second quarter of 2021, the Company issued its second ESG report titled Healthy Planet, Healthy Foods, Healthy People, which provides a full and thorough update on its various ESG-related initiatives as well as outlines several formal objectives, including achieving net-zero CO2 emissions by 2030.  "We fully understand that solving many of today's complex ESG-related challenges will not be easy but we are determined and committed to be a leader on this front," said Mr. Paleologou.

THIRD QUARTER 2021 DIVIDEND

The Company also announced that its Board of Directors approved a cash dividend of $0.635 per share for the third quarter of 2021, which will be payable on October 15, 2021 to shareholders of record at the close of business on September 30, 2021.

Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the Company in 2021 or a subsequent year is an eligible dividend for the purposes of the Enhanced Dividend Tax Credit System.

ABOUT PREMIUM BRANDS

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations across Canada and the United States.

www.premiumbrandsholdings.com

RESULTS OF OPERATIONS

The Company reports on two reportable segments, Specialty Foods and Premium Food Distribution, as well as investment income and corporate costs (Corporate).  The Specialty Foods segment consists of the Company's specialty food manufacturing businesses while the Premium Food Distribution segment consists of the Company's differentiated distribution and wholesale businesses.  Investment income includes interest and management fees generated from the Company's businesses that are accounted for using the equity method.

Revenue

Specialty Foods' (SF) revenue for the quarter increased by $127.6 million or 19.7% primarily due to: (i) organic volume growth of $150.3 million representing a growth rate of 23.2%.  After adjusting for approximately $69.3 million in sales recoveries associated with the easing of pandemic related restrictions and a corresponding reopening of economies in the U.S. and Canada, SF's normalized organic volume growth rate (OVGR) is 12.5%; (ii) selling price inflation of $15.1 million, which was driven by increases implemented in reaction to inflationary pressures across a broad range of commodity input costs; and (iii) business acquisitions, which accounted for $10.7 million of SF's growth.  These factors were partially offset by a $48.5 million reduction in the translated value of sales generated by SF's U.S. based businesses due to a stronger Canadian dollar – approximately 46.4% of SF's revenue for the quarter was generated by these businesses.

SF's normalized OVGR of 12.5% was driven primarily by its artisan sandwich, meat snack, cooked meats and charcuterie growth initiatives, including the ramping up of its U.S. expansion and the launch of several new product lines.  While this rate is well above SF's long-term targeted range of 4% to 6%, due largely to strategic and capacity investments made in recent years, it would have been higher if not for labor and asset related production capacity constraints experienced by several of its businesses.  Looking forward (see Forward Looking Statements) SF is addressing these constraints with a variety of initiatives including investing in additional production capacity.

SF's revenue for the first two quarters of 2021 increased by $152.5 million or 11.9% primarily due to: (i) organic volume growth of 13.7% or approximately 10.4% after normalizing for the estimated impacts of the pandemic; (ii) net selling price inflation of $21.6 million; and (iii) business acquisitions, which accounted for $25.6 million of the increase; partially offset by a $69.9 million reduction in the translated value of sales generated by the Company's U.S. based businesses.

Premium Food Distribution's (PFD) revenue for the quarter increased by $130.5 million or 39.7% due to: (i) business acquisitions, which accounted for $73.0 million of PFD's growth; (ii) selling price inflation of $43.1 million, which was driven by increases implemented in reaction to inflationary pressures across a broad range of commodity input costs – in general, PFD's businesses were able to implement selling price increases quicker than SF's businesses due to the more dynamic pricing structures that are inherent to their segment of the food industry; and (iii) organic volume growth of $24.0 million representing a growth rate of 7.3%.  After adjusting for approximately $15.3 million in sales recoveries associated with the easing of pandemic related restrictions and a corresponding reopening of economies in the U.S. and Canada, PFD's normalized OVGR is 2.7%.  These factors were partially offset by a $9.6 million reduction in the translated value of sales generated by PFD's U.S. based businesses due to a stronger Canadian dollar.

PFD's normalized OVGR of 2.7% is below its long-term target of 4% to 6% primarily due to a significant decline in live lobster promotions by retailers as a result of record high lobster prices.  Normalizing for this factor, PFD's OVGR is 10.9%, which was driven by new customers and product sales initiatives that leveraged recent capacity investments, including a new lobster processing facility in Saco, Maine, a recently expanded protein and seafood distribution facility in Montreal, and a new distribution and custom cutting operation in the Greater Toronto Area.

PFD's revenue for the first two quarters of 2021 increased by $180.4 million or 28.5% primarily due to: (i) business acquisitions, which accounted for $117.1 million of the increase; (ii) net selling price inflation of $53.2 million; and (iii) organic volume growth of 3.8% or approximately 4.4% after normalizing for the estimated impacts of the pandemic; partially offset by a $13.9 million reduction in the translated value of sales generated by the Company's U.S. based businesses.

Gross Profit

SF's gross profit as a percentage of its revenue (gross margin) for the quarter increased by 60 basis points primarily due to: (i) sales deleveraging benefits associated with SF's organic growth; (ii) selling price increases; (iii) the reversal of transitory pandemic related costs incurred in the second quarter of 2020; and (iv) improved plant efficiencies resulting from investments in automation and a variety of continuous improvement projects.  These factors were partially offset by: (i) significantly higher input costs for a broad range of commodities, which exceeded SF's selling price increases partly due to a portion of the price increases taking effect later in the quarter; and (ii) wage inflation.  SF is in the process of implementing further price increases to bring its gross margin in line with its longer-term targets – due to input cost inflation SF's gross margin for the quarter was 260 basis points below what it was in the second quarter of 2019.

SF's gross margin for the first two quarters of 2021 as compared to the first two quarters of 2020 was flat as the benefits of sales deleveraging, selling price increases, the reversal of transitory pandemic related costs and improved plant efficiencies were offset by significant input commodity cost inflation and, to a lesser extent, wage inflation.

PFD's gross margins for the quarter decreased by 40 basis points primarily due to significantly higher input costs for a broad range of commodities; partially offset by: (i) selling price increases, which exceeded the impact of higher commodity input costs in dollar terms but not percentage terms; (ii) sales deleveraging benefits associated with PFD's organic growth, including a favorable sales mix impact resulting from a partial recovery of PFD's sales to the fine dining segment of the foodservice channel; and (iii) higher margins generated by recently acquired businesses.

PFD's gross margin for the first two quarters of 2021 as compared to the first two quarters of 2020 increased by 30 basis points primarily due to unusually low margins on certain live seafood products in the first quarter of 2020 because of pandemic related demand destruction in China partially offset by the net impact of the factors outlined above.

Selling, General and Administrative Expenses (SG&A)

SF's SG&A for the quarter increased by $8.7 million primarily due to: (i) additional variable selling costs associated with SF's organic growth; (ii) business acquisitions; and (iii) higher incentive-based compensation; partially offset by a lower translated value of the SG&A associated with the Company's U.S. based businesses due to a stronger Canadian dollar.

SF's SG&A for the first two quarters of 2021 as compared to the first two quarters of 2020 increased by $9.6 million primarily due to the factors outlined above partially offset by pandemic related travel cost savings and government wage subsidies in the first quarter of 2021.

SF's SG&A as a percentage of sales (SG&A ratio) for the quarter and for the first two quarters of 2021 decreased by 90 basis points and 70 basis points, respectively, primarily due to sales deleveraging partially offset by higher incentive-based income.

PFD's SG&A for the quarter increased by $8.8 million primarily due to: (i) business acquisitions; and (ii) additional variable and infrastructure costs associated with PFD's organic growth.

PFD's SG&A for first two quarters of 2021 as compared to the first two quarters of 2020 increased by $11.4 million primarily due to: (i) the factors outlined above; and (ii) higher incentive-based compensation; partially offset by pandemic related travel cost savings and government wage subsidies.

PFD's SG&A ratios for the quarter decreased by 90 basis points primarily due to sales deleveraging.  Its SG&A ratio for the first two quarters of 2021 as compared to the first two quarters of 2020 also decreased by 90 basis points primarily due to sales deleveraging as the impact of higher incentive-based compensation was offset by pandemic related travel cost savings and government wage subsidies.

Investment income for the quarter increased by $13.7 million primarily due to $13.3 million in interest and management fees relating to the acquisition of a 50% interest in Clearwater.

Adjusted EBITDA

The Company's adjusted EBITDA for the quarter increased by $45.1 million or 67.2% to $112.2 million.  Normalizing for the impact of the pandemic, which is estimated to be $8.8 million, consisting of $11.1 million in lost margin on approximately $47.9 million of lost sales partially offset by $2.3 million in net cost savings, the Company's adjusted EBITDA and adjusted EBITDA margin for the quarter are approximately $121.0 million and 9.4%, respectively.

During the first two quarters the Company made steady progress towards its 2023 targeted adjusted EBITDA margin of 10%-plus with its margin improving by 180 basis points to 8.7%.  The Company expects (see Forward Looking Statements) to achieve its 2023 targeted adjusted EBITDA margin based on: (i) continued sales deleveraging both in terms of its production and distribution infrastructures; (ii) the reversal of the transitory impacts of the pandemic – normalizing for these, the Company's adjusted EBITDA margin for the first two quarters of 2021 is 9.2% based on a sales impact of $97.4 million, a margin impact of $22.1 million and $2.3 million of offsetting costs savings, mainly associated with reduced travel and discretionary marketing; (iii) the reversal of the transitory impacts of the current very unusual inflationary environment for a broad range of protein and seafood commodities purchased by the Company; and (iv) continued investment in increasing its production efficiencies through automation and continuous improvement processes.

Plant Start-up and Restructuring Costs

Plant start-up and restructuring costs consist of expenses associated with: (i) the start-up of new production capacity; (ii) the reconfiguration of existing capacity to gain efficiencies and/or additional capacity; and/or (iii) the restructuring of a business to improve its profitability. The Company expects (see Forward Looking Statements) these investments to result in improvements in its future earnings and cash flows.

During the quarter and for the first two quarters of 2021, the Company incurred $0.5 million and $1.0 million, respectively, in plant start-up and restructuring costs primarily related to: (i) a 42,000 square foot expansion of the Company's artisan bakery in British Columbia; and (ii) the installation of a new cooking line at the Company's cooked protein plant in Quebec.

Equity Earnings (Loss) in Investment in Associates

Equity earnings (loss) in investment in associates includes the Company's proportionate share of the earnings and losses of its investments in associates.

Clearwater Seafoods Incorporated (Clearwater)

Clearwater's sales for the quarter increased by $32.9 million primarily due to the easing of pandemic related restrictions and a corresponding reopening of economies in North America and Asia (China in particular) which drove higher volumes and prices for most of the species sold by Clearwater including clams, lobsters, crab and scallops.  This was partially offset by: (i) a stronger Canadian dollar relative to the U.S. dollar as a significant portion of Clearwater's sales are denominated in U.S. dollars; and (ii) a decline in whelk sales to certain niche markets in Asia (primarily South Korea) that continue to be impacted by the pandemic.

Clearwater's gross profit for the quarter increased by $17.5 million primarily due to: (i) the selling price inflation and sales volume increases outlined above; (ii) operational efficiencies driven primarily by larger catch sizes, which resulted in less at-sea-days; and (iii) the reversal of pandemic related costs and inefficiencies incurred in the second quarter of 2020.  These factors were partially offset by: (i) the impact of the stronger Canadian dollar; and (ii) higher shore prices for procured products.

Clearwater's gross margin for the quarter increased by 730 basis points to 29.7% primarily due to: (i) abnormally low margins in the second quarter of 2020 resulting from pandemic related demand destruction – Clearwater's gross margin in the second quarter of 2020 as compared to the second quarter of 2019 was down 460 basis points; (ii) the strong pricing environment associated with the reopening of economies in North America and Asia; and (iii) operational efficiencies as outlined above.

Clearwater's SG&A for the quarter increased by $3.8 million primarily due to: (i) higher incentive-based compensation accruals associated with its improved performance as well as a change in the method used to account for its long term incentive plan; (ii) the reversal of pandemic related government subsidies received in the second quarter of 2020; and (iii) a variety of administrative cost increases mainly relating to wage inflation and some additional staff; partially offset by the elimination of costs associated with no longer being a public company.

Sales and Adjusted EBITDA Outlook

See Forward Looking Statements for a discussion of the risks and assumptions associated with forward looking statements.

2021

The Company's sales and adjusted EBITDA outlooks for 2021 do not incorporate any provisions for potential future acquisitions, including announced transactions that are subject to closing conditions such as the Maid-Rite transaction.

For 2021, the Company expects its sales to be between $4.70 billion and $4.85 billion and its adjusted EBITDA margin to be approximately 9%.  This is based on a range of assumptions (see Forward Looking Statements) including: (i) continued easing of pandemic related restrictions in Canada and the U.S. and corresponding demand increases in the foodservice, airline, and cruise line channels; (ii) reduced volatility and inflationary pressures on the cost of a variety of protein and seafood input commodities; and (iii) stabilization of the Canadian dollar relative to the U.S. dollar at current levels.

5 Year Plan

The Company continues to make solid progress on the execution of its growth and value creation strategies and remains confident (see Forward Looking Statements) that it will achieve or exceed the five-year targets set in 2018 of $6 billion in sales and $600 million in adjusted EBITDA.  While pandemic related factors continue to impact some of the businesses, substantially all of these impacts are expected to be temporary.  Furthermore, the pandemic has enabled many of its businesses to develop new sustainable sales opportunities as well as strengthen customer and supply chain relationships, all of which will enhance its ability to achieve its five-year targets.

NON-IFRS FINANCIAL MEASURES

The Company uses certain non-IFRS financial measures including adjusted EBITDA, free cash flow, adjusted earnings and adjusted earnings per share, which are not defined under IFRS and, as a result, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as an alternative to other earnings measures determined in accordance with IFRS.  These non-IFRS measures are calculated as follows:

Adjusted EBITDA

Free Cash Flow

Adjusted Earnings and Adjusted Earnings per Share

FORWARD LOOKING STATEMENTS

This press release contains forward looking statements with respect to the Company, including, without limitation, statements regarding its business operations, strategy and financial performance and condition, cash distributions, proposed acquisitions, budgets, projected costs and plans and objectives of or involving the Company. While management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of August 5, 2021, there can be no assurance that such expectations will prove to be correct as such forward looking 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. 

Forward looking statements generally can be identified by the use of the words "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations.  Forward looking statements in this press release include statements with respect to the Company's expectations and/or projections on its: (i) revenue; (ii) adjusted EBITDA; (iii) plant start-up and restructuring costs; (iv) income tax rates; (v) dividend policy; (vi) capital expenditures and business acquisitions; (vii) senior debt capacity utilization; (viii) convertible debentures; (ix) impacts of the COVID-19 pandemic; * liquidity outlook; (xi) equity earnings or loss in investment in associates; (xii) 5 year plan; and (xiii) ESG-related initiatives.

Some of the factors that could cause actual results to differ materially from the Company's expectations are outlined in the Company's MD&A for the 13 and 26 Weeks Ended June 26, 2021.

Assumptions used by the Company to develop forward looking statements contained or incorporated by reference in this press release are based on information currently available to it and include those outlined below as well as those outlined elsewhere in this document.  Readers are cautioned that this information is not exhaustive.

• The general economic conditions in Canada and the United States will return to pre-pandemic levels in the medium term and will continue to show steady improvement in the short term as pandemic related restrictions are eased.
• The Company's businesses impacted by the pandemic will recover from the resulting disruptions in the medium term and, to the extent there are ongoing changes in their operating costs resulting from the crisis, will be able to recover these through increased selling prices.
• The Company's organic growth initiatives will progress in line with previous expectations post the pandemic.
• The average cost of the basket of food commodities purchased by the Company will stabilize and moderate relative to recent increased volatility and inflationary trends and will remain relatively stable over the medium term and in the short term.
• The value of the Canadian dollar relative to the U.S. dollar will continue to fluctuate in line with recent levels.
• The Company will be able to continue to access sufficient skilled and unskilled labor at reasonable wage levels.
• The Company's major capital projects, plant start-up and restructuring, and business acquisition initiatives will progress in line with its expectations.
• The Company will be able to continue to access sufficient goods and services for its manufacturing and distribution operations.
• The Company will be able to achieve its projected operating efficiency improvements.
• There will not be any material changes in the competitive environment of the markets in which the Company's various businesses compete. 
• There will not be any material changes in the long-term food trends that have been driving growth in many of the Company's businesses.  These include: (i) growing demand for higher quality foods made with simpler more wholesome ingredients and/or with differentiating attributes such as antibiotic free, no added hormones or use of organic ingredients; (ii) increased reliance on convenience oriented foods both for on-the-go snacking as well as easy home meal preparation; (iii) healthier eating including reduced sugar consumption and increased emphasis on protein and seafood; (iv) increased snacking in between and in place of meals; (v) increased interest in understanding the background and stories behind food products being consumed; and (vi) increased social awareness on issues such as sustainability, sourcing products locally, animal welfare and food waste.
• Weather conditions in the Company's core markets will not have a significant impact on any of its businesses.
• There will not be any material changes in the Company's relationships with its larger customers including the loss of a major product listing and/or being forced to give significant product pricing concessions.
• There will not be any material changes in the trade relationship between Canada and the U.S., particularly with respect to certain protein commodities such as beef, pork and chicken products.
• The Company will be able to negotiate new collective agreements with no labor disruptions. 
• The Company will be able to continue to access reasonably priced debt and equity capital.
• The Company's average interest cost on floating rate debt will remain relatively stable in the near to medium future.
• Contractual counterparties will continue to fulfill their obligations to the Company.
• There will be no material changes to the tax and other regulatory requirements governing the Company.

Management has set out the above summary of assumptions related to forward looking statements included in this press release in order to provide a more complete perspective on the Company's future operations.  Readers are cautioned that these statements may not be appropriate for other purposes.

Unless otherwise indicated, the forward looking statements in this press release are made as of August 5, 2021 and, except as required by applicable law, will not be publicly updated or revised.  This cautionary statement expressly qualifies the forward looking statements in this press release.

SOURCE Premium Brands Holdings Corporation