Toronto / CA. (so) SunOpta Inc., a leading global company focused on organic, non-genetically modified and specialty foods, announced financial results for the first quarter ended March 30, 2019.
«We delivered adjusted revenue growth of 6.2 percent during the first quarter of 2019, with strong commercial results across the Healthy Beverage, Healthy Snacks and international organic sourcing operations. On an adjusted basis, these businesses generated revenue growth versus prior year of 6.0 percent, 13.6 percent and 12.2 percent respectively in the quarter reflecting strong execution in on-trend categories,» said Joe Ennen, Chief Executive Officer at SunOpta. «We have made progress on our fruit margin optimization plan and are on track with our automation investments to reduce production costs. We continue to expect the benefits of the first phase of our margin optimization plan to be realized by the fourth quarter of 2019. However, as anticipated, fruit margins continued to weigh on consolidated Ebitda margins during the first quarter, offsetting gains in the Healthy Beverage, Healthy Snacks and international organic sourcing operations. With a robust sales pipeline, strong positioning in on-trend, healthy food categories, and the right team to drive execution of our margin optimization plan, I am confident we can deliver improving results as the year progresses. In 2019, we remain focused on strengthening our product portfolio, accelerating customer-centric innovation, and improving profitability in frozen fruit through pricing and productivity, with the objective to create sustainable, long-term shareholder value.»
All amounts are expressed in U.S. Dollars and results are reported in accordance with U.S. GAAP, except where specifically noted.
First Quarter 2019 Highlights
- Revenues of USD 305.3 million for the first quarter of 2019, compared to USD 312.7 million in the first quarter of 2018, a decrease of 2.4 percent. Adjusted for divested and disposed operations, foreign exchange, commodity prices, and a new contract manufacturing arrangement, revenues grew 6.2 percent during the first quarter.
- Net income attributable to common shareholders of USD 23.7 million or USD 0.27 per common share in the first quarter of 2019, compared to a loss attributable to common shareholders of USD 6.3 million or USD 0.07 per common share in the first quarter of 2018. Net income in the first quarter of 2019 included a pre-tax gain on the sale of the specialty and organic soy and corn business of USD 45.6 million.
- Adjusted loss of USD 7.9 million or USD 0.09 per common share during the first quarter of 2019, compared to an adjusted loss of USD 6.4 million or USD 0.07 per common share during the first quarter of 2018.
- Adjusted Ebitda excluding disposed operations of USD 11.1 million or 3.6 percent of revenues for the first quarter of 2019, versus USD 11.0 million or 3.5 percent of revenues in the first quarter of 2018.
- Completed sale of specialty and organic soy and corn business for gross proceeds of USD 66.5 million, subject to certain post-closing adjustments.
First Quarter 2019 Results
Revenues for the first quarter of 2019 were USD 305.3 million, a decrease of 2.4 percent compared to USD 312.7 million in the first quarter of 2018. Excluding the impact on reported revenues of disposed business including the soy and corn business (sold in February 2019) and exit from flexible resealable pouch and nutrition bar product lines (exited in fiscal 2018), changes in commodity-related pricing and foreign exchange rates, and a profit-neutral change to a co-manufacturing agreement with one of our customers, revenues in the first quarter of 2019 increased by 6.2 percent compared with the first quarter of 2018.
The Global Ingredients segment generated revenues of USD 128.0 million, a decrease of 6.1 percent compared to USD 136.3 million in the first quarter of 2018. Excluding the impact on revenues from the divested soy and corn business, and changes in commodity-related pricing and foreign exchange rates, Global Ingredients revenue in the first quarter increased 9.7 percent. Adjusting for the items noted above, sales of internationally-sourced organic ingredients grew 12.2 percent during the quarter, mainly driven by increased demand for cocoa, fruits, oils and coffee, partially offset by lower volumes of nuts, seeds and sugars. Sales of domestically-sourced ingredients declined 9.8 percent during the quarter, primarily reflecting lower inshell and kernel sunflower volumes, partially offset by higher roasted snack and ingredient volumes.
The Consumer Products segment generated revenues of USD 177.2 million during the first quarter of 2019, an increase of 0.5 percent compared to USD 176.3 million in the first quarter of 2018. Excluding the impact of commodity-related pricing, sales of resealable pouch and nutrition bar products in the first quarter of 2018, and a profit-neutral change to a co-manufacturing agreement with one of our customers, Consumer Products revenue in the first quarter increased by 3.9 percent. The growth primarily reflects a 6.0 percent increase in the Healthy Beverage platform consisting of higher sales of aseptic plant-based beverages and the expansion of broth products combined with a 13.6 percent revenue increase in the Healthy Snack platform driven by in part by increased customer promotions, and to a lesser extent a 0.2 percent increase in the Healthy Fruit platform as higher volume offset lower realized pricing.
Gross profit was USD 28.2 million for the quarter ended March 30, 2019, a decrease of USD 5.5 million compared to USD 33.7 million for the quarter ended March 31, 2018. Consumer Products accounted for USD 3.7 million of the decrease in gross profit, reflecting the impact of the weather-related delay to the fruit season in central Mexico and continued margin pressure in frozen fruit. The delay resulted in commodity price inflation due to a short supply of frozen fruit from Mexico, unfavorable production variances due to lower yields related to crop quality, rework of bulk inventories and substitution of higher-cost U.S.-grown product, and lower plant utilization at our Mexican frozen fruit facility. The negative impact to gross profit from the weather-related delay is estimated to be USD 1.6 million in the first quarter of 2019. In addition, the decrease in gross profit reflected lower volumes and plant utilization for fruit ingredients due to reduced demand. These factors were partially offset by increased sales volume and productivity-driven cost savings for aseptic beverages and snacks. Global Ingredients accounted for USD 1.8 million of the decrease in gross profit primarily due to the sale of the soy and corn business, and a modest decline in gross profit from sunflower and international manufacturing facilities, which more than offset improved gross profit in international organic ingredients driven by a gain on commodity futures contracts used to hedge the Company’s organic cocoa position and higher sales volumes.
As a percentage of revenues, gross profit for the quarter ended March 30, 2019 was 9.2 percent compared to 10.8 percent for the quarter ended March 31, 2018, a decrease of 1.6 percent. On a pro forma basis that excludes the gross profit from disposed businesses, as well as costs of USD 0.1 million to transition certain production activities to a new contract manufacturer in the first quarter of 2019, the gross profit percentage for the first quarter of 2019 would have been approximately 9.5 percent, compared with 10.7 percent for the first quarter of 2018.
Segment operating income was USD 0.3 million, or 0.1 percent of revenues in the first quarter of 2019, compared to USD 1.7 million, or 0.5 percent of revenues in the first quarter of 2018. The decrease in operating income year-over-year was primarily attributable to USD 5.5 million lower gross profit, partially offset by a USD 2.0 million reduction in SG+A due to the sale of the soy and corn business and rationalized overhead, lower employee-related benefit costs, professional fees, and other cost reduction measures, and a USD 2.1 million decrease in foreign exchange losses. Excluding the operating results of disposed businesses, as well as SG+A expenses related to employee retention and transition costs, our segment operating income would have been USD 1.0 million for the first quarter of 2019, compared with USD 0.9 million for the first quarter of 2018.
Other income for the first quarter of 2019 includes the pre-tax gain on sale of the soy and corn business of USD 45.6 million along with the reversal of USD 2.1 million of previously recognized stock-based compensation expense. These other income amounts were offset mainly by employee termination and recruitment costs of USD 3.5 million.
Adjusted Ebitda was USD 10.9 million or 3.6 percent of revenues in the first quarter of 2019, compared to USD 12.4 million or 4.0 percent of revenues in the first quarter of 2018. Excluding disposed operations, adjusted Ebitda for the quarter ended March 30, 2019 was USD 11.1 million, compared with USD 11.0 million for the quarter ended March 31, 2018.
The Company reported income attributable to common shareholders for the first quarter of 2019 of USD 23.7 million, or USD 0.26 per diluted common share, compared to a loss of USD 6.3 million, or USD 0.07 per diluted common share during the first quarter of 2018. Adjusted loss in the first quarter of 2019 was USD 7.9 million or USD 0.09 per common share, compared to USD 6.4 million or USD 0.07 per common share in the first quarter of 2018. Please refer to the discussion and table below under «Non-GAAP Measures – Adjusted Earnings/Loss».
Balance Sheet and Cash Flow
At March 30, 2019, SunOpta’s balance sheet reflected total assets of USD 921.7 million and total debt of USD 454.2 million. During the first quarter of 2019, cash provided by operating activities was USD 1.0 million, compared to USD 7.5 million during the first quarter of 2018. The USD 6.5 million decrease in cash provided by operating activities reflects the receipt of income tax refunds in the first quarter of 2018 and lower quarter-over-quarter operating results. Excluding net proceeds from the sale of the soy and corn business of USD 64.9 million, cash used in investing activities was USD 8.0 million in the first quarter of 2019, compared with USD 6.0 million in the first quarter of 2018, an increase in cash used of USD 2.0 million. The increase in cash used reflected a higher net level of capital expenditures during the first quarter of 2019, mainly related to the expansion of aseptic beverage capacity and addition of automation equipment in the Company’s frozen fruit and cocoa processing facilities.
