Toronto / CA. (so) SunOpta Inc., a leading global company focused on organic, non-genetically modified and specialty foods, announced financial results for the third quarter ended September 28, 2019.
«In the third quarter, we delivered consolidated revenue growth, adjusted for changes in our business of 6.6 percent and adjusted Ebitda¹ of USD 9.9 million. This was led by outstanding performance in our plant-based beverage and broth business, as a direct result of the investments we have made and our enhanced focus on optimizing our product portfolio,» said Joe Ennen, Chief Executive Officer at SunOpta. «Our Healthy Beverage platform reported 31 percent adjusted revenue growth and a 390 basis-point increase in margins, supported by the addition of new capacity to the aseptic network in 2019. We continue to see strong demand across channels and product categories within Healthy Beverage, supporting the capacity expansion that was brought online this summer. Heading into the fourth quarter, our beverage capacity and capabilities are meaningfully improved when compared to last year, which should allow us to more efficiently meet higher demand for broth during this seasonally strong period.»
«Revenue and margins in our Healthy Fruit platform were consistent with our expectations. While Healthy Fruit was unprofitable in the third quarter, the impact of this year’s weather-related strawberry crop shortfall was in-line with our second quarter outlook. We believe the third quarter will represent the low point for frozen fruit margins, and we anticipate sequential improvement in the fourth quarter and into 2020. We are making progress on the fruit margin optimization plan, including the installation of further automation to lower variable labor costs, building rational customer pricing structures, and enhancing business planning and leadership. We remain flexible and nimble in our response to the crop shortfalls in Mexico and California, leveraging our global sourcing capabilities to service our customers through the procurement of additional supply from South America. While progress against our fruit margin optimization plan will continue to be masked in the near-term by the 2019 crop shortfall, we remain confident that the structural improvements we have made to date are building a strong foundation for future profitability.»
«In the third quarter, we also completed a reorganization of our corporate and CPG organizational structure. The goal of this action was to delayer the top of the organization, create more direct accountability by fully aligning all commercial functions under general managers, and to increase our speed and decisiveness. While these changes resulted in minimal savings for the quarter, the annualized benefit of these changes is expected to be USD 8 to USD 10 million. This reorganization has the dual benefit of both improving SunOpta’s profitability and accelerating SunOpta’s transformation to a more nimble and entrepreneurial company,» concluded Ennen.
All amounts are expressed in U.S. Dollars and results are reported in accordance with U.S. GAAP, except where specifically noted.
Third Quarter 2019 Highlights
- Revenues of USD 295.9 million for the third quarter of 2019, compared to USD 308.4 million in the third quarter of 2018, a decrease of 4.0 percent. Adjusted for disposed operations, foreign exchange, commodity prices, a new contract manufacturing arrangement and the acquisition of Sanmark, revenues grew 6.6 percent during the third quarter.
- Loss attributable to common shareholders of USD 13.8 million or USD 0.16 per common share in the third quarter of 2019, compared to a loss attributable to common shareholders of USD 6.6 million or USD 0.08 per common share in the third quarter of 2018.
- Adjusted loss¹ of USD 9.9 million or USD 0.11 per common share during the third quarter of 2019, compared to an adjusted loss of USD 3.8 million or USD 0.04 per common share during the third quarter of 2018.
- Adjusted Ebitda¹ excluding disposed operations of USD 9.9 million or 3.4 percent of revenues for the third quarter of 2019, versus USD 16.3 million or 5.3 percent of adjusted revenues in the third quarter of 2018.
Third Quarter 2019 Results
Revenues for the third quarter of 2019 were USD 295.9 million, a decrease of 4.0 percent compared to USD 308.4 million in the third 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 product lines (exited in fiscal 2018), changes in commodity-related pricing and foreign exchange rates, a profit-neutral change to a co-manufacturing agreement, and excluding the impact of the acquisition of Sanmark in April 2019, revenues in the third quarter of 2019 increased by 6.6 percent compared with the third quarter of 2018.
The Consumer Products segment generated revenues of USD 188.1 million during the third quarter of 2019, an increase of 9.6 percent compared to USD 171.6 million in the third quarter of 2018. Excluding the impact of commodity-related pricing, sales of resealable pouch products in the third quarter of 2018, and a profit-neutral change to a co-manufacturing agreement, Consumer Products revenue in the third quarter increased by 10.7 percent. The growth primarily reflects a 31.0 percent increase in the Healthy Beverage platform due to higher sales of plant-based beverages, broth and plant-based ingredients, partially offset by a 23.4 percent revenue decrease in the Healthy Snack platform which levels off the 21.2 percent increase in the second quarter of 2019, and a 2.4 percent decline in the Healthy Fruit platform as a result of modest declines in volumes, slightly offset by increased pricing for frozen fruit.
The Global Ingredients segment generated revenues of USD 107.9 million, a decrease of 21.1 percent compared to USD 136.8 million in the third quarter of 2018. Excluding the impact on revenues from the divested soy and corn business, changes in commodity-related pricing and foreign exchange rates, and the acquisition of Sanmark, Global Ingredients revenue in the third quarter increased 0.3 percent. Adjusting for the items noted above, sales of internationally sourced organic ingredients grew 1.0 percent during the quarter, driven mainly by increased volumes of sugars, grains and cocoa, offset by the timing of sales of organic fruits and vegetables, coffee and nuts, together with lower volumes of sunflower inshell and kernel. Sales of domestically sourced ingredients declined 5.3 percent during the quarter, reflecting lower sunflower volumes.
Gross profit was USD 26.3 million for the quarter ended September 28, 2019, a decrease of USD 7.8 million compared to USD 34.1 million for the quarter ended September 29, 2018. Consumer Products accounted for USD 3.4 million of the decrease in gross profit, mainly reflecting the impact of a significant shortfall in strawberries from central Mexico and California due to poor weather conditions, which resulted in commodity price inflation and unfavorable production variances within the frozen fruit operations due to lower plant utilization and rework of bulk inventories to meet customer demand. The negative impact to gross profit from the strawberry shortage during the third quarter of 2019 was approximately USD 8.1 million. The unfavorability in Healthy Fruit was partially offset by favorable impacts within the Healthy Beverage platform from higher beverage volumes and productivity-driven cost savings for aseptic beverages and fruit snacks. Global Ingredients accounted for USD 4.4 million of the decrease in gross profit mainly due to the sale of the soy and corn business and lower commodity hedging gains within the international organic ingredients operations.
As a percentage of revenues, gross profit for the quarter ended September 28, 2019 was 8.9 percent compared to 11.1 percent for the quarter ended September 29, 2018, a decrease of 2.2 percent. On a pro forma basis, which excludes the gross profit from disposed businesses and equipment start-up and product introduction costs of USD 1.9 million, the gross profit percentage for the third quarter of 2018 would have been approximately 12.4 percent.
Segment operating loss¹ was USD 3.5 million, or 1.2 percent of revenues in the third quarter of 2019, compared to operating income of USD 4.5 million, or 1.5 percent of revenues in the third quarter of 2018. The decrease in operating income year-over-year was primarily attributable to USD 7.8 million lower gross profit and a USD 0.5 million increase in SG+A due to higher employee-related compensation costs, partially offset by to the sale of the soy and corn business and rationalized overhead, together with other cost reduction measures. Excluding the operating results of disposed businesses, as well as non-structural SG+A expenses related to the quarter, segment operating loss would have been USD 1.9 million for the third quarter of 2019, compared with income of USD 6.2 million for the third quarter of 2018.
Other expense for the third quarter of 2019 reflected employee termination and recruitment costs of USD 4.0 million, including costs related to the transition of the Company’s Chief Financial Officer in the third quarter of 2019, and post-closing adjustments of USD 1.1 million related to the sale of the soy and corn business, offset by a legal settlement gain of USD 1.3 million and the reversal of USD 0.8 million of previously recognized stock-based compensation related to forfeited awards previously granted to terminated employees.
Adjusted Ebitda was USD 9.9 million or 3.4 percent of revenues in the third quarter of 2019, compared to USD 16.7 million or 5.4 percent of revenues in the third quarter of 2018. Excluding disposed operations, adjusted Ebitda for the quarter ended September 29, 2018 was USD 16.3 million.
The Company reported a loss attributable to common shareholders for the third quarter of 2019 of USD 13.8 million, or USD 0.16 per common share, compared to a loss of USD 6.6 million, or USD 0.08 per common share during the third quarter of 2018. Adjusted loss¹ in the third quarter of 2019 was USD 9.9 million or USD 0.11 per common share, compared to USD 3.8 million or USD 0.04 per common share in the third quarter of 2018.
Balance Sheet and Cash Flow
At September 28, 2019, SunOpta’s balance sheet reflected total assets of USD 958.6 million and total debt of USD 514.9 million. During the third quarter of 2019, cash provided by operating activities was USD 4.3 million, compared to USD 10.5 million during the third quarter of 2018. The USD 6.2 million decrease in cash provided by operating activities primarily reflects a year over year increase in consolidated net loss due primarily to lower profitability in the Company’s Healthy Fruit platform. Cash used in investing activities was USD 7.6 million in the third quarter of 2019, compared with USD 6.0 million in the third quarter of 2018, an increase in cash used of USD 1.6 million due mainly to lower proceeds from sales of businesses and assets.