Premium Brands Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 14, 2023

There are 10 speakers on the call.

Operator

Hello, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation Third Quarter 2023 Earnings Conference Call Question and Answer Session. At this time, all lines are in a listen only mode. This call is being recorded on Tuesday, November 14, 2023. I would now like to turn the conference over to George Paglioglu, please go ahead.

Speaker 1

Welcome everyone to our Q3 conference call. Hopefully, You have had a chance to listen to the pre recorded call and have looked at the Q3 deck posted on our website this morning. With me here today is our CFO, Will Kalutycz. We will now move to the Q and A part of the call. Lester, back to you.

Operator

Thank you. Ladies and gentlemen, we will now conduct the question and answer Your first question comes from Martin Landry from Stifel. Your line is now open.

Speaker 2

Hi, good morning guys.

Speaker 1

Good morning, Martin.

Speaker 2

My first question, it's with regards to the Specialty Foods segment. You mentioned that the organic volume growth was 7.6% when we exclude Two nonrecurring factors. I was wondering if you can discuss some of your program wins, which You know contributed to the growth of the segment this quarter?

Speaker 1

Yes. Again, Martin, There's a lot of positives going on with regards to the Specialty Foods Group. I'd say outside of some challenges with regards to capacity, This was an exceptional quarter from the point of view of the Specialty Foods Group. Some of our wins, for example, with us having added capacity with regards to our We've secured another very large QSR as a customer. The initial launch with that customer went exceptionally well.

Speaker 1

In addition, during the quarter, we've made tremendous Traction with regards to our Italian meat initiatives, particularly in the U. S, Lots of growth there, even though we've shorted a lot of product due to capacity challenges again, which we're addressing. And also in the areas of raw and cooked skewers, as you know, we're By far the leader in North America in this area and we had tremendous growth in those two programs during the quarter. So those are some sort of specific wins with regards to the traction we're making in our Specialty Food Group, Particularly in the U. S.

Speaker 1

I will also want to add that for the first time in a long time, we've gained new listings In Asia as well, we've got listings with certain retailers now in Asia. So we're shipping into that market once again. We see tremendous potential with regards to growing in that market as well. We probably got about 50 SKUs that I think we should be able to list in the Asian markets, particularly in Japan, South Korea and China. So, there is a lots of traction in our specialty food group and again, in some cases, subject to solving some capacity issues and concerns.

Speaker 1

And as we've announced more recently, a lot of capacity has Come now on stream and will be coming on stream shortly.

Speaker 3

Yes. The only thing I'd add to that, Martin, is And it was a positive and a negative in the quarter was cooked protein continues to be a category that we are doing extremely well in, in the U. So it was definitely one of the drivers of our growth. However, it was one of the categories that were behind expectations for the quarter Because of delays in getting our Kings Command capacity expansion online and that's one of those Two factors you referred to at the beginning of the call, but cooked protein continues to be a really exciting category for us.

Speaker 2

Okay. That's super helpful. I just want to talk about your other segment, the distribution segment. Trying to see what the outlook is for that segment for 2024. Could you talk about like are you operating at full capacity right now with that segment?

Speaker 2

Or do you have room to add more clients To offset the decline in volumes related to customer trading down, just a little bit of visibility on that segment would be super helpful.

Speaker 3

Yes, there really are there's lots of room in that segment to support that 4% to 6 organic volume growth over the next couple of years. We've got a few little projects like our Vindex facility expansion is coming online in Quebec and We may do a little bit of an expansion in Western Canada for our Centennial business. But in general terms, not a lot of capital expenditures expected to

Speaker 2

And Is there an order of magnitude that you can give us in terms of the capacity utilization for that segment?

Speaker 3

Well, the thing is a large part of the business is distribution related and so it's really adding Trucks adding distribution to the network and in terms of the capacity utilizations, again we've talked about this in It's really hard for us to give a number because it's not one business with a set number of plants doing the same thing, it's a variety of businesses with a variety of This is with a variety of plants doing a variety of different things.

Speaker 1

It's basically a national distribution network, Martin. It has facilities across the country. I would say overall, depending on where we're at in terms of Capacity and focus in terms of that market is probably 50% to 80% utilization across the network, but it depends really on the regional kind of aspects of the market opportunity. But it's very tough to say. But as Will said, plenty of capacity for us to meet our 4% to 6% growth targets.

Speaker 2

Okay. And have you been able to sign new clients in that segment to offset The general industry volume decline?

Speaker 1

We are making a lot of progress in regards To accessing new channels and new clients, Martin, we call it our distribution group. It's not just distribution into foodservice, it also does Distribution into specialty retail and retail as well. Again, it's a very good platform for us. Well positioned in the marketplace. Unfortunately, it does kind of face some the same economic headwinds that the rest of the industry is facing, particularly in Canada.

Speaker 2

Okay. That's it for me. Thank you.

Speaker 1

Thanks, Martin. Thank you, Martin.

Operator

Your next question comes from Veres Verre from TD Cowen. Your line is now open.

Speaker 4

Yes, thanks. Good morning, guys. Good morning, there. Good morning. Well, you guys seem pretty confident that your initiatives set in part by your major clients are pretty much John, could you maybe just help us square away?

Speaker 4

I think it's a multiyear project for them. So just maybe square away How you guys are feeling about it just being sort of 1 quarter impact versus multiyear?

Speaker 3

Yes. So, Derek, are you referring to The challenge we call out on our specialty foods in the sandwich category? Exactly, yes. Yes, okay. Yes, no, it It was a very unusual situation.

Speaker 3

The reality is that customer, that program is doing incredibly well. The reality is the program Should have shown growth in volume terms of 9% to 10% if not for these factors. And I can give you a little more color around those factors. And we expect that to continue into 2024 and forward. That's part of our capital plan for our Sandwich Group is to support That continued growth.

Speaker 3

Q3 was really an anomaly and there was 3 factors in there, one of which is that customer is Getting much better at managing their inventory and as a result, they've gotten it down to where it needs And that just impacted us and our fill rate for the quarter into those distribution centers. So really it was sort of it was definitely a one time impact. Another impact which will continue over for the next couple of quarters is the customer eliminated displaying Our products in their cases, in their cafes, which makes Perfect sense because the vast majority of the orders now are coming through mobile apps and drive thrus. And it's a win In the sense that it's a lot less waste in the system, but it's kind of a one time hit for us because those are sales for us that were essentially going in the garbage because they were being So it makes a lot of sense in the long term, but it did impact us in the short term. And like I said, That will continue through for next couple of quarters.

Speaker 3

And then the third impact was just a one off with we were filling in a distribution center In a market we didn't normally service and for freight optimization reasons, the customer Gave that to another supplier as their production came online and we knew that was just a temporary situation in the Q3 of last year. And so that won't be an impact going forward. Again, Derek, I just want to

Speaker 1

add to that. For us and our sandwich group, we're just having a great year overall by the way. Any sort of opportunity to leverage more capacity for other customers and other Annals, it's probably a good thing for us long term. So again, we're not too concerned at all With the change in sort of the ordering patterns of this customer, we love the fact that they're optimizing their inventory. And to the extent that it gives us more capacity to pursue other customers, that's a good thing overall for our platform.

Speaker 4

Okay. I mean, That's really good color, Domin. So in essence, that means you haven't had to adjust the way that you guys operate The sandwich business in any way?

Speaker 3

Absolutely not, Derek. Like I say, the core program Continues to do extremely well and we see no change of that in sort of the near to mid term for the future.

Speaker 4

Okay. Thanks for that. Just maybe switching gears to the free cash flow, got it. It looks like you got a boost while you did get a boost from working capital, More specifically on your payables and receivables. Will, you did call out in the MD and A That you have, I think, 5 days less the 5 less days in receivables due to a trade finance program.

Speaker 4

Just wondering if you can maybe Add some color there and then maybe as well on the payable side?

Speaker 3

Yes. So the payables were just purely natural fluctuation, Derek, nothing unusual going on there. In terms of the receivables, yes, we put in place a trade program with a couple of our larger And it's kind of a win win for everyone. The program is based on them having a great Better credit rating than us, so it actually reduced we get our cash upfront and the borrowing cost of that is less Then our borrowing cost, so it's been a great program, very successful and we're looking at ways to possibly expand it, But probably nothing material in the next couple of quarters.

Speaker 4

Okay. And then on the inventories, Are you still thinking that there's still about a $70,000,000 opportunity there? I think it was only about $3,000,000 $4,000,000 in the quarter. So how should we look at that?

Speaker 3

Yes. No, I have to say we were a little disappointed in the progress in the quarter on the inventory. We had That $70,000,000 was sort of over 2 quarters. We'd expected half of that in this quarter. So we are still pushing for an improvement in the 4th Our days are still about 5, 6 days greater than we feel they should be.

Speaker 3

So we do expect to make some progress in the 4th quarter. Hopefully, in that $50,000,000 range, but we'll see how it plays out.

Speaker 4

Okay. And maybe just one final one for me and something that stood out in the MD and A as well. You guys were quite forceful in saying that you promised Any acquisitions will that you make will not stretch the balance sheet. Maybe can you just talk about why you were so forceful in that one mine in particular?

Speaker 1

Well, again, I think that as you know, Derek, over the years, we've been acquisitive. I think we've made over 100 acquisitions since we've begun This is Jorny back in 2000, 2001, both Will and I are CPAs. We understand balance sheets. And The balance sheet got a little bit stretched mainly because of COVID and some of of COVID on our business with regards to challenges with labor and inflation and obviously the impact that Some of these kind of Black Swan events had on our results, right? But we're very aware of that.

Speaker 1

I I think I made a comment on the last call that we are starting to look at acquisitions and I got a lot of questions as to whether we're going to go out and Basically, blow the balance sheet, etcetera. That's not going to happen. We're very cautious. We're involved in many discussion Friendly discussions with regards to companies joining Premium Brands. Again, to the extent that the synergies are there And the opportunities for growth are there.

Speaker 1

We may do those deals and probably use our shares as a currency, again, if it makes sense from a sort of an IRR perspective. But again, you're not going to see us go out and make a large acquisition And overstretch the balance sheet. That's never going to happen. And then our balance sheet overall will continue to improve based on some of the initiatives we have

Speaker 3

in place as we And just to expand on George's last point there, Derek, we're kind of in a unique part of our history in that. Over the last couple of years, what we've identified as our biggest growth opportunities have been on the organic side versus acquisitions. So we've been investing a lot more, particularly in the U. S. In capacity.

Speaker 3

And unlike when we do an Acquisition where we immediately get that EBITDA. Unfortunately, CapEx, it takes a year or 2 to build the facility. Yes, and meanwhile you're spending capital and you're not seeing incremental EBITDA. The reality is we're now at the peak of that cycle and All these plants, we got 5 plants coming online over the next three quarters. All of that will start seeing the cash flow in 2024 And really we're just saying, okay, we'll be disciplined around acquisitions while we generate that cash flow from the CapEx and as that flows in, that's going to give us More flexibility.

Speaker 1

Yes. And again, Derek, the 300 basis point improvement in the EBITDA margin of the Prepared Foods Group is an indication of basically starting to reap the benefits of The investment cycle that Will has just talked about. More good things to come there.

Speaker 4

Yes, great progress guys. Thanks for taking my questions.

Speaker 3

Thanks, Derek. Thanks, Derek.

Speaker 5

Your

Operator

next question comes from George Doumet from Scotiabank. Your line is now open.

Speaker 1

Hey, George. Yes.

Speaker 6

Hi, George. Good morning. A really strong margins at SS. Just wondering maybe how sustainable those are or maybe any one time Thanks to be cognizant of in those margins?

Speaker 3

No, very sustainable, George. Like George says, you're starting to see the benefits of the investments we've been making, but you're also seeing a normalization, right? Like it's been 2 years of incredibly challenging cost Inflation, as we've talked about in the past, we're always behind the curve in terms of our pricing relative to where Our cost structure is when we're in an inflationary cycle, that's all catching up now. You're starting to see that. And the fact is if you go back pre this crazy chaotic 3 years, specialty foods EBITDA margins were in the 12% to 13% range.

Speaker 3

So We actually see there's still more work to be done. There's still more upside in their margins.

Speaker 1

The only thing I would add, George, is that I can't emphasize enough how much focus we've had over the last 3 or 4 years in Investing in automation, robotics, improved efficiencies, etcetera, etcetera. And as Will said, We are beginning to normalize our business. We're beginning to have plenty of access to labor. Supply chains are normalizing as we've talked about. Inflation obviously is beginning to normalize as well, And you're just basically seeing the benefits of the investments we've made in making our plants way more efficient.

Speaker 1

As we've talked before, we didn't stop investing even when we've had some dark days and some difficult times. We've continued to Believe in the long term plan and you're just starting to see the benefits of that investment cycle. Yes, and George

Speaker 3

is absolutely right. In the quarter, George, plant efficiencies from these investments from continuous improvement was about $7,000,000 of the growth in Specialty Foods cash flow. So that's absolutely sustainable.

Speaker 6

That's really helpful. I think Will in the prepared remarks you mentioned contribution of 20% to 45% sorry contribution margin of 20% to 45% for the new capacity. Understanding there could be some issues like we saw at Kings Command. You mentioned 5 plants Coming online in the next three quarters. My question is generally how long does it really take for these investments to contribute to those kind of margins?

Speaker 6

Is it 1, 2 quarters?

Speaker 3

Well, the incremental sales contribute that from day 1, each sale, right? Like that The way we calculate the contribution margin is sales less direct costs, right? That's labor, materials, any direct marketing, etcetera. So That contribution margin starts on day 1. Now in terms of the ramp up cycle with the different businesses, we'll give you more color around our 20 That's a clear line of sight to a lot of this demand.

Speaker 3

We're essentially working with customers that we've had success in regional areas And helping take these initiatives to a national platform in the U. S. So we think it will be a pretty fast ramp up.

Speaker 1

The only other comment I have, George, and I mentioned it in my prepared remarks is that We don't look at growth from the top down. That's not premium brands, right? So in the prepared remarks, Last time I spoke about Global Gourmet, this time I talked about Shaw. And we've Basically invested in that business. We got it to capacity.

Speaker 1

Now we've built a brand new facility. We're pretty well sold out with regards to the new capacity coming on stream. It is operating as we speak. It is producing. And you know what, it will double and double again in size in the next 2 or 3 years.

Speaker 1

And that's the way we view growth, right? You have to look at it from the bottom up perspective. And that's why I've started talking more about our different platforms and the type of growth that they're seeing based on more capacity becoming available.

Operator

That's helpful. Just one last one, if

Speaker 6

I may. If you look at your long term guidance that calls for a smidge below 10% organic top line growth per annum.

Speaker 4

If If you look at 2024, is there a quarter particularly where you think

Speaker 6

you can maybe hit that run rate at all given all the capacity

Speaker 3

Hey, George, we'll talk more about We're just coming out of our budgeting cycle right now and I'd like to have everything hard It will nail down before we start talking specifics about next year.

Speaker 6

Okay, fair enough. I'll pass the line. Thanks.

Operator

Your next question comes from Stephen Makluca from BMO Capital, your line is now open.

Speaker 7

Just wanted to see if you could give a little bit more color. You mentioned, George, there was a new QSR sandwich program that you This quarter, and I'm just wondering if there's an ability to give a little

Speaker 6

bit more color around that.

Speaker 1

Yes. So this is basically That we've been talking to for probably 2 years, Stephen. It's a very large QSR in For the first time, we did a limited promotion with them for 2 wraps at chorizo and a chicken wrap. It was supposed to be a 2.5 month promotion. It did really well.

Speaker 1

It exceeded So the customer extended it to the end of the year. So I think that we'll end up doing about $50,000,000 to $60,000,000 With this customer this year, which is all new business. And then we are speaking to them today In regards to making the program permanent and adding another SKU. So anyway, it looks very good for next year. I don't have any more Details on it as we speak, but I know the customers are extremely happy.

Speaker 1

I know that every time I've been in the U. S. And tried to buy this product, a lot of times it's sold out, It's kind of a new concept for this customer in the sense that it's Probably one of the first items that they've ever marketed that is not made in the store. That means that they can have consistent execution across their network In terms of the program, so we're very pleased with Kind of the this particular opportunity and we think there's lots of upside there as well.

Speaker 7

Okay. That's great. Just turning to the PFT business, Is there any way to quantify what the impact was from the lobster harvesting shortage?

Speaker 3

Yes. In general terms, we estimate the sales impact of about $30,000,000 a little over $30,000,000 The quarter, Steve? It was quite dramatic. Again, 20% decrease in the cash is an enormous number.

Speaker 7

Yes. And would you expect the shortfall to be similar in Q4? It sounds like

Speaker 3

Yes, it will certainly carry forward into Q4. We're hoping it won't be as dramatic. The reality is the harvesting in Q4 is generally disrupted by weather, which was the issue here. I Want to make that very clear. The biomass, the lobsters are very healthy.

Speaker 3

There's lots of them out there and it was just that the Weather conditions were unusually poor throughout the quarter. Now that's normally the case in Q4, but if we get a little better weather, maybe the catch is A bit better, we can make up for some of that. But yes, we do expect for a good portion of that to continue into Q4 because of the lack of Inventory there carrying us forward.

Speaker 7

Right. Okay. Okay, that's helpful. And then just on the small acquisition you did, Is there any way to give a little bit color around sort of sales and margins if material?

Speaker 3

Yes, so great business. It was pretty small. Like we disclosed, I think it was about $28,000,000 in sales. Its margins are relatively consistent with the premium food distribution group. It's we're quite excited about It was done by our V Andex team, and this is their 3rd acquisition, and they've been acquiring these Very complementary businesses that are in rural parts of Quebec and they bring all these benefits and synergies to them.

Speaker 3

So they The first two have been very successful. We're very excited about this third one, Menyum there. And yes, so we hope to Its current profile is like I say similar to premium food distribution, but if it goes the way the last two have, The margins are much higher than the average for the premium food distribution group once we're done.

Speaker 8

Okay. Okay, that's great. And then maybe

Speaker 7

just finally, thinking about Q4 And just sort of going through the puts and takes in your guidance, would it be fair to assume that like directionally Q4 would probably look a lot like Q3?

Speaker 3

Well, yes, Q4, when you look out In terms of from our previous discussions last quarter, specialty foods Like a lot of the challenges there have gone away in the sandwich group. The capacity challenges will continue To Q4 just because the new Hemplers facility and the new King's Command protein facility, cooked protein facility, We had expected Kings Command to come online in Q3 and Hempler's early in Q4. Both of those are now going to be late Q4. So, we are a bit toned down from where we were last quarter on our specialty food sales because of that. In terms of the and then in Our premium food distribution group, we already talked about that.

Speaker 7

Right. Okay.

Operator

Your next question comes from John Zamparo from CIBC. Your line is now open.

Speaker 1

Hey, Jordan.

Speaker 9

Good morning. I wanted to follow-up on an earlier question. George, specifically, you referenced a milestone in Asia. Just to be clear, that is outside of Clearwater, I assume. And if it is, can you say what platform that's under or what some

Speaker 2

of those leading SKUs are?

Speaker 9

And I wonder how you think about the materiality of that market or the potential materiality of that market for driving volumes in the next few years?

Speaker 1

Yes. So, we've made a number of presentations and innovation sessions With customers in that market, John, it's across our different platforms. For example, I believe our team from Shaw Baker is in Japan this week presenting a number of products to potential customers. Yes, the conversation and the new SKUs are completely outside of the Clearwater conversation. So these are kind of new Our sandwich group, our bakery group and our protein group.

Speaker 1

I think if you go to Japan today, you will find a number of our products already on the shelves. And so I said, this is a new opportunity. I think at this point, Internally, we're looking at it as a probably $100,000,000 opportunity in the shorter term. We think there's more opportunity than that given Obviously, capacity availability.

Speaker 9

Okay. That's good color. Thanks for that. And I wanted to follow-up on the LTO at the large QSR sandwich customer. Can you say, was that a regional Contracts and if so, could it become national?

Speaker 9

And if it is to become national, do you need to finish the Tennessee facility in order to address that or could

Speaker 1

No, it's definitely national opportunity John. This is A national program with this particular customer. And we have brought on New capacity in our Sandoz Group over the last couple of years, including of course Edmonton and

Speaker 3

In our Minnesota operations as well. So again, definitely a national customer and a national relationship. And the opportunity there John is growing the SKUs, right, expanding the program like George said, We've got a new a 3rd SKU coming out shortly, and hopefully we can continue to expand into both the breakfast and lunch programs.

Speaker 1

We think that potentially and I'm talking more in terms of longer term, John, is particularly as Tennessee come on stream, it could be the size of our biggest Right. It's a very large opportunity overall.

Speaker 9

Got it. Okay. That's helpful. And then shifting gears, I wanted to ask about your future growth capital projects. In the prepared remarks, Well, I think you said it was around $275,000,000 in project CapEx that you've identified over the next 7 to 8 quarters.

Speaker 9

So if we annualize that, it's about $140,000,000 a year. I'm trying to reconcile that with the 5 year guide earlier this year of $800,000,000 In project CapEx, I think that was over a 5 year pardon me, over a 4 year span. So I'm just trying to get a sense of what the right number is Over the terms of your 5 year guidance?

Speaker 3

Yes, so that 5 year guidance includes 20 for or sorry, 2023. And this year, we're probably going to as of the end of the 3rd quarter we were at $234,000,000 for the year and we'll probably spend another $100,000,000 so In the Q4, just as we finish these projects and then the balance is the other projects over 2 years and then Some smaller projects that are yet approved that then carry us over to get to that $800,000,000 by year 5.

Speaker 9

Got it. Okay. And then just one more. You referenced in the press release about some consumers Shifting away from conventional grocers towards discount and that having a small impact in your premium seafood and beef sales. You have a significant amount of volume through grocery.

Speaker 9

I wonder if you could take a shot at quantifying what the split is between what you'd consider discount and conventional.

Speaker 3

Yes, and we got to be clear here. When we talk about premium seafood and beef Products, those are products through our distribution networks, I. E, into our premium food distribution group. They're not the branded initiatives in And so they tend to be more price the premium beef products, premium seafood products Generally sold in premium banners. And so there is some exposure there.

Speaker 3

The reality is it was an impact on the quarter, John, but it wasn't a huge impact. And we don't it's just one of those things that's slowing its growth, not putting it into contraction. And really the issue in the quarter was what happened in the lobster business.

Speaker 9

Got it. Okay.

Operator

Your next question comes from Chris Lee from Desjardins. Your line is now open.

Speaker 5

Hi, good morning or good afternoon, George and Will. Hi,

Speaker 1

Chris. Hi, Chris.

Speaker 5

Hi, Chris. Hi, there. I wanted to just maybe start with a near term question just in the Specialty Foods segment. I just maybe want to get a bit more granular. So based on everything you've said so far for Q4 for Specialty Foods, do you think sort of mid single digit organic volume growth rate would be reasonable to pencil in for Q4?

Speaker 3

Yes. Again, That's probably in the ballpark, Chris. The reality is we were expecting close Double digits in the quarter, but like I say, the delays in the capacity expansion has really sort of Taken that down a bit. So that's probably not unfair.

Speaker 5

Okay. And maybe a similar question again with SF With respect to EBITDA margin, you did quite well, 11% in Q3. Is 11% reasonable for Q4? What do you think?

Speaker 3

No, there's a natural cycle in our businesses with the seasonality. I think you got to when you're looking at the quarter, you need to take that into account. There should continue to be year over year improvement, But then you got to look at that in the context of the seasonality of the business.

Speaker 5

Okay, understood. And then just Maybe a question on inflation. I think inflation was largely flat in both SF and PFD. And it looks like we could get into a deflationary period next here. And I know you want to wait until Q4 before talking about 2024 outlook.

Speaker 5

But just wondering, how should we think about, I guess the impact on EBITDA next year, if we do get into a deflationary period for your business, should we think about in terms of offsetting with lower costs and therefore the impact on EBITDA should be still be okay, even you get into Yes.

Speaker 3

No, Generally, a deflationary period is positive to our EBITDA, Chris. Again, similar to how we Lack or lag behind in price increases as in an inflationary environment. You see the opposite in a deflationary environment or In a deflationary environment or sorry the same thing in a deflationary environment where price decreases lag. But having said that, we do have in our More differentiated higher margin categories, we do generally emerge from these inflationary periods with Permanently higher margins. Now and then the other comment I would make too is quite often what our businesses will do is instead of passing on price decreases.

Speaker 3

They'll do a lot more featuring and promotion. And so yes, so now they're featuring and Promoting a more historic like margin, but they're getting incremental volume out of that. So it tends to again drive EBITDA. So generally deflationary cycles are very positive on our specialty foods businesses.

Speaker 5

And it is still your view that you will get some volume stimulation in the past? It's not. Okay. Okay. That's helpful.

Speaker 5

Maybe just a very long term question. I know no one has a crystal ball on this, but obviously a lot of media reports around weight loss drugs and the impact that could have on Just a full business overall, just wondering if you care to weigh in in terms of what you think about that and the impact on your business longer term?

Speaker 1

Again, Chris, over the years, we've We've been asked a lot of questions around these type of developments. I remember having conversations with investors about plant based needs, as you know. And Before that, it was about how cannabis consumption and all the Promotion around cannabis would impact food consumption and before that, it was Margering versus butter, there always seems to be these new ideas that come out. In general terms, at Premium Brands, one of the modems we use internally that drives a lot of Our innovation is that the future of food is in the past. We are basic believers in the fact that At some point, the consumption of ultra processed foods will probably be made illegal because It's so unhealthy for you and people will begin to return to eating foods with high quality, Less ingredient, less processed, etcetera, etcetera.

Speaker 1

Now, in regards to these drugs, who knows at this point? From our perspective, we support any development that will make people healthier. Again, I don't know enough about The side effects or how these drugs work, but I know that they are expensive. And I also know that From my perspective, based on my own experience, I mean, I'm generally a high Saturated fat, high protein, low carb consumer and I've benefited tremendously From this type of diet, my health is in great shape. And I think that people ultimately We'll make the right decisions with regards to the diets they follow to get healthier.

Speaker 1

We think that a keto type of diet, which is Kind of drives a lot of what Premium Brands does is probably a lot cheaper way to get to good health, Right. So, will people go for these type of drugs that are more expensive and maybe have Significant side effects or will they go the natural way adopt the keto diet, which is by the way used by doctors around the world today to get people to lose weight and even reverse diabetes. So anyway, from my perspective, what would you guys choose? Would you choose In natural way or these type of drugs, right? So anyway, that's my response.

Speaker 5

Thanks for your thoughts, George. And then maybe my very last question is just in terms of your balance sheet. Other than working capital improvement and EBITDA growth, Are there other things you're looking at outside of that to further reduce the leverage? Or do you think you're in a decent place right now? Thank you.

Speaker 3

We have a number of initiatives underway at this point, Chris, but nothing we can discuss with on this call at this time.

Operator

Your next question comes from Derek B. Riley from TD Cowen. Your line is now open.

Speaker 4

Yes, guys, just one follow-up for me. I was curious if you had a sense as to what your normalized Specialty food margin would have been excluding some of those challenges. I mean, it came in at 11%. Can you have an idea of how much higher it could have been?

Speaker 3

Yes, it's a great question, Derek. Yes, we did a detailed analysis of that. And the reality is once you normalize for the The sandwich challenges we talked about and the little bit of capacity we had expected to sell from King's Command in the quarter, We would have come out at about 7.6 percent organic volume growth, which is right in our expected range for the quarter And about a 10.2% sorry, 11.2% EBITDA margin.

Speaker 5

Okay.

Operator

There are no further questions at this time. George, please go ahead.

Speaker 1

Yes. Thank you, Lester, and thank you everybody for attending today. All the best. Bye bye.

Operator

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.

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Earnings Conference Call
Premium Brands Q3 2023
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