Minneapolis / MN. (so) SunOpta Inc., a leading global company focused on plant-based foods and beverages and fruit-based foods and beverages, announced financial results for the second quarter ended July 01, 2023. Second quarter 2023 highlights:
- Revenues of USD 207.8 million compared to USD 222.2 million (excluding the divested sunflower business) in the year earlier period, or USD 243.5 million including sunflower. Excluding the impact of the sunflower business, which was divested in October 2022, total revenues were down 6.5 percent reflecting an 8.1 percent decline in Plant-Based and a 4.4 percent decline in Fruit-Based.
- Gross profit margin was 7.9 percent on a reported basis. Excluding start-up and product recall costs, gross margin was 12.1 percent, down 230 basis points from 14.4 percent as 90 basis points of margin expansion in Plant-Based was more than offset by a decline in Fruit-Based margin, including a 320-basis decline for direct costs related to the frozen fruit recall.
- Loss from continuing operations, including tax expense of USD 8.8 million mainly due to the recognition of a full valuation allowance for deferred tax assets and USD 2.5 million of net expense related to the frozen fruit recall, was USD 18.8 million compared to earnings from continuing operations of USD 2.3 million in the prior year period.
- Adjusted loss attributable to common shareholders was USD 3.0 million or USD 0.03 per diluted common share, compared to adjusted earnings of USD 3.3 million or USD 0.03 per diluted common share in the prior year period.
- Adjusted Ebitda of USD 20.2 million, or 9.7 percent of revenues, compared to USD 22.3 million and 9.2 percent of revenues in the prior year period. The prior year period included a USD 2.4 million contribution from the divested Sunflower business.
«While we were certainly not pleased with the quarter, the resiliency of our model to deliver high rates of profitability despite a more challenging environment was a key takeaway from our latest results,» said Joe Ennen, Chief Executive Officer. «Due to frozen fruit customer losses, slower ramp-up of new business, and current category softness, we are tempering our outlook for 2023. Demand for our oat-based offerings remains exceptionally strong, as volume growth drove a 59 percent increase in oat milk sales during the second quarter. Our fruit snack business also delivered another quarter of double-digit increases. In addition, we continue to make steady progress on our strategic growth initiatives including starting up our new ready-to-drink protein shake line in Midlothian, Texas and our capacity expansion project in Omak, Washington. Despite the short-term results, we remain committed to our long-term growth algorithm, and are well positioned for significant growth in our plant-based segment as we leverage our operational expertise and innovation across our expanding capabilities and production capacity to Fuel the Future of Food.»
Second Quarter 2023 Results
Revenues of USD 207.8 million for the second quarter of 2023 decreased 6.5 percent excluding the divested sunflower business. This was driven by an 8.1 percent decline in Plant-Based Foods and Beverages, excluding sunflower, and a 4.4 percent decline in Fruit-Based Foods and Beverages. The decline, including sunflower, was 14.7 percent compared to the second quarter of 2022.
The Plant-Based Foods and Beverages segment generated revenues of USD 114.5 million, a decrease of 8.1 percent excluding the impact of our sunflower business, which was divested in October 2022. Including the sunflower business, the decline was 21.5 percent compared with the second quarter of 2022. Pricing increased 3.2 percent, reflecting the wrap-around benefit of actions in 2022, partially offset by an unfavorable volume/mix, which was down 10.2 percent. Volume/mix reflected lower external sales of plant-based ingredients due to increased internal demand for oat base, lower demand for almond beverages, lower sales volumes of everyday broths, and lower tea volumes due to a customer’s inability to supply us with their raw material. Partially offsetting these factors was volume growth from oat milks and creamers as well as our newly introduced 330-milliliter protein shakes.
The Fruit-Based Foods and Beverages segment generated revenues of USD 93.3 million, a decrease of 4.4 percent compared to USD 97.6 million in the second quarter of 2022, reflecting an unfavorable volume/mix impact of 4.5 percent partially offset by a 0.3 percent increase in pricing. The volume/mix impact was driven by lower volumes of frozen fruit, due to decreased retail consumption trends, constraints on certain fruit varieties impacting blends, and lost foodservice volumes, partially offset by increased volumes of fruit snacks and smoothie bowls.
Gross profit was USD 16.4 million for the second quarter, compared to USD 34.9 million in the prior year period, as reported. As a percentage of revenues, gross profit margin was 7.9 percent compared to 14.3 percent in the second quarter of 2022, a decrease of 640 basis points, as reported.
Gross profit in the Plant-Based Foods and Beverages segment decreased 39.8 percent to USD 14.4 million, while gross margin decreased 380 basis points to 12.6 percent. Excluding the impact of start-up costs related to the new plant in Midlothian, Texas, adjusted gross margin for the Plant-Based Foods and Beverages segment was 17.5 percent in the second quarter of 2023, compared to 16.6 percent in the second quarter of 2022. The 90-basis point increase in adjusted gross margin reflected the benefit of pricing actions taken in 2022 to combat inflationary pressures, positive margin impacts resulting from the divestiture of the lower-margin sunflower commodity business, and a mix shift in the Company’s plant-based ingredient operations. These factors were partially offset by incremental depreciation of new production equipment for capital expansion projects, together with the negative impacts of higher input costs and lower production volumes and plant utilization within our plant-based operations.
Gross profit in the Fruit-Based Foods and Beverages segment was USD 2.0 million, compared with USD 11.0 million in the prior year period, and gross margin decreased 910 basis points to 2.1 percent. In the second quarter of 2023, we recorded a reserve for unsaleable inventory associated with the frozen fruit product recall of USD 3.0 million (3.2 percent gross margin impact) and USD 0.2 million of start-up costs related to a new high-speed fruit snacks packaging line. Excluding the impact of these costs, adjusted gross margin for the Fruit-Based Foods and Beverages segment was 5.6 percent in the second quarter of 2023, compared to 11.2 percent in the second quarter of 2022, a decrease of 560 basis points. The decrease reflected higher manufacturing costs, unfavorable plant utilization driven by reduced volumes, a higher mix of lower margin bulk fruit sales to right-size inventories and improve working capital efficiency, and a higher cost of inventory from Mexico due to the impact of a strengthening Mexican peso (approximately USD 2.4 million or 2.6 percent gross margin impact).
Segment operating loss was USD 3.3 million, or 1.6 percent of revenues in the second quarter of 2023, compared to segment operating income of USD 8.1 million, or 3.3 percent of revenues in the second quarter of 2022. The decrease in segment operating income was driven by lower gross profit, partially offset by a favorable USD 2.3 million foreign exchange impact and a USD 4.7 million decrease in SG+A as a result of lower employee incentive compensation accruals and lower stock-based compensation expense related to timing, partially offset by higher business development costs.
Loss attributable to common shareholders for the second quarter of 2023 was USD 19.3 million, or USD 0.17 per diluted common share, compared to income of USD 0.7 million, or USD 0.01 per diluted common share, during the second quarter of 2022. Loss attributable to common shareholders included tax expense of USD 8.8 million mainly due to the recognition of a full valuation allowance for deferred tax assets and USD 2.5 million of net expense related to the frozen fruit recall.
Adjusted loss in the second quarter of 2023 was USD 3.0 million or USD 0.03 per common share, compared to adjusted earnings of USD 3.3 million or USD 0.03 per common share in the second quarter of 2022.
Adjusted Ebitda was USD 20.2 million or 9.7 percent of revenue in the second quarter of 2023, compared to USD 22.3 million or 9.2 percent of revenue in the second quarter of 2022.
Balance Sheet and Cash Flow
As of July 1, 2023, SunOpta had total assets of USD 887.1 million and total debt of USD 316.1 million compared to total assets of USD 855.9 million and total debt of USD 308.5 million at year end fiscal 2022. During the second quarter of 2023, cash provided by operating activities was USD 15.9 million compared to cash used in operating activities of USD 2.5 million during the second quarter of 2022. Investing activities of continuing operations consumed USD 8.1 million of cash during the second quarter of 2023 versus USD 34.1 million in the prior year. The year-over-year decrease reflected the completion of certain major capital projects, including the construction of our new plant-based beverage facility in Midlothian, Texas.
Frozen Fruit Recall
On June 21, 2023, we announced that our subsidiary, Sunrise Growers Inc., had issued a voluntary recall of specific frozen fruit products linked to pineapple provided by a third-party supplier due to possible contamination by Listeria monocytogenes. In July 2023, we began restocking each of the affected retail customers with replacement products produced with fruit sourced from a different supplier.
For the quarter ended July 1, 2023, we recognized net expenses of USD 2.5 million related to this recall, equal to the self-insured retention amount under our insurance policies, which included a reduction to revenues of USD 0.2 million for customer returns and a USD 3.0 million charge to cost of goods sold for unsaleable inventory, partially offset by estimated insurance recoveries of USD 0.7 million, recorded in other income. We expect to incur additional recall-related costs during the second half of 2023, which we expect will be generally covered under our insurance policies.
For fiscal 2023, the Company revised its outlook:
|(USD in millions)||Previous 2023 Outlook||Growth|
|Revenue||USD||1,000 to 1,050||7% to 12%|
|Adjusted Ebitda||USD||97 to 103||16% to 23%|
|(USD in millions)||Revised 2023 Outlook||Growth|
|Revenue||USD||880 to 900||(6%) to (4%)|
|Adjusted Ebitda||USD||87 to 91||4% to 9%|
Excluding USD 57.9 million of revenue in 2022 related to the divested Sunflower business, expected revenue growth rates in 2023 are between 0 to 3 percent.