Continued Progress on Value Creation Plan
Initiatives
SunOpta Inc. (“SunOpta”) (Nasdaq:STKL) (TSX:SOY), a leading
global company focused on organic, non-genetically modified and
specialty foods, today announced financial results for the second
quarter ended July 1, 2017.
“This quarter marks another important step in SunOpta’s journey.
Through our Value Creation Plan we have brought intense focus to
the organization on our strategic direction, and our leadership
team has been upgraded and is fully engaged. With these
foundational aspects in place, during the second quarter the
Company was able to become fully engrossed in the actions that
support the Value Creation Plan, which we expect will ultimately
lead to sustainable, profitable results,” said David Colo, Chief
Executive Officer. “This quarter saw us take meaningful action
against all four pillars of our Value Creation Plan, including
sharpening our portfolio focus by announcing the exit from
re-sealable pouch products, improving our operational execution via
the implementation of safety, quality and productivity programs,
enhancing our go-to-market effectiveness via the build-out of a new
food service distribution network, and ensuring the benefit of
these efforts are sustainable via process and systems
improvements.”
All amounts are expressed in U.S. dollars and results are
reported in accordance with U.S. GAAP, except where specifically
noted.
Second Quarter 2017 Highlights:
- Revenues of $336.5 million for the
second quarter of 2017, compared to $348.1 million in the second
quarter of 2016, a decrease of 3.4%.
- Gross profit of $41.7 million or 12.4%
of revenues for the second quarter of 2017, versus $36.0 million or
10.3% of revenues in the second quarter of 2016. Excluding expenses
in cost of goods sold that factor into adjusted earnings¹, the
gross profit percentage in the second quarter of 2017 increased 100
basis points to 12.5% compared to 11.5% in the second quarter of
2016.
- Adjusted EBITDA¹ of $19.4 million or
5.8% of revenues for the second quarter of 2017, versus $23.5
million or 6.7% of revenues in the second quarter of 2016.
- Loss from continuing operations of $0.4
million or $0.03 per diluted common share in the second quarter of
2017, compared to a loss from continuing operations of $4.1 million
or $0.05 per diluted common share in the second quarter of
2016.
- Adjusted loss from continuing
operations¹ of $0.7 million or $0.01 per diluted common share
during the second quarter of 2017, compared to adjusted earnings¹
of $4.1 million or $0.05 per diluted common share during the second
quarter of 2016.
Value Creation Plan Update
As part of the Company’s commitment to deliver long-term value
to its shareholders, in early 2017 it launched its Value Creation
Plan. The Company is targeting implementation of $30 million of
productivity-driven annualized enhancements of EBITDA in the first
phase of the plan, to be implemented over 2017 and 2018. For 2017
these EBITDA benefits will be offset by expenses associated with
the Value Creation Plan, including structural investments made in
the areas of quality, sales, marketing, operations and engineering
resources, as well as non-structural third-party consulting
support, severance and recruiting costs. The plan also calls for
increased investment in capital upgrades at several manufacturing
facilities to enhance food safety and manufacturing efficiencies.
Over time, these investments are expected to yield additional
improvement in EBITDA beyond the $30 million of initial
productivity-driven savings. For the second quarter of 2017, the
Company made progress against each of the four pillars of its Value
Creation Plan and believes it is on track to achieve targeted
productivity enhancements, while continuing to make the necessary
structural investments it believes will accelerate growth and drive
long-term value. Recent progress on each of the four pillars of the
Value Creation Plan is highlighted below.
Portfolio Optimization
The focus of the portfolio optimization pillar is to simplify
the business, investing where structural advantages exist, while
exiting businesses or product lines where the Company is not
effectively positioned. Recent highlights include:
- Announced the discontinuation of
flexible re-sealable pouch products along with an agreement to sell
the associated pouch equipment for $2.0 million, which is expected
to close during the fourth quarter of 2017.
- Initiated a plan to consolidate certain
soy and specialty grain volume and close an under-utilized facility
to enhance facility utilization and reduce operating costs.
- Purchased the remaining 25% minority
interest stake in the Company’s Mexican frozen fruit operations and
broke ground on an expansion project to add incremental freezing
capacity, storage, and retail bagging capabilities to the Mexican
frozen fruit facility.
- Approved plans to increase capabilities
at sunflower operations in both North America and Europe, as well
as a capacity expansion at the speciality cocoa processing facility
in the Netherlands.
Since the initiation of the Value Creation Plan, the Company has
implemented portfolio changes that are expected to yield $4.2
million of annualized EBITDA benefits.
Operational Excellence
The focus of the operational excellence pillar is to ensure food
quality and safety, coupled with improved operational performance
and efficiency. These efforts are expected to generate productivity
improvements and cost savings in manufacturing, procurement and
logistics. Recent highlights include:
- Launched “SunOpta 360”, initially
across the network of aseptic beverage facilities, establishing a
sustainable continuous improvement methodology for the
Company.
- Enhanced food safety and quality across
the manufacturing platform via the roll-out of new processes and
systems.
- Continued to identify and implement
productivity initiatives focusing on manufacturing efficiencies,
purchasing synergies and effective freight management.
- Initiated rapid recovery plans to
resolve performance issues at certain consumer product
manufacturing facilities which, during the first half of 2017, have
partially consumed the benefit driven from other productivity
initiatives.
Since the initiation of the Value Creation Plan, the Company has
implemented process improvements and cost savings that are expected
to yield $3.1 million of annualized EBITDA benefits.
Go-To-Market Effectiveness
The focus of the go-to-market effectiveness pillar is to
optimize customer and product mix in existing sales channels, and
identify and penetrate new high-potential sales channels. The
Company expects efforts under this pillar to improve revenue growth
and profitability over time. Recent highlights include:
- Completed the creation of a new food
service distribution network, leveraging third parties, which will
support the Company’s plan to grow and diversify penetration into
the food service channel.
- Continued to attract and hire new
commercial talent in the areas of sales, marketing and R&D
which has furthered the development of control branded products
that are expected to enhance access to the food service
channel.
- Increased the pipeline of commercial
opportunities across the beverage, fruit and snack categories.
Since the initiation of the Value Creation Plan, the Company has
implemented go-to-market improvements through strategic pricing
actions that are expected to yield $2.0 million of annualized
EBITDA benefits.
Process Sustainability
The focus of the process sustainability pillar is to ensure the
Company has the infrastructure, systems and skills to sustain the
business improvements and value captured from the Value Creation
Plan. Broadening the skillset and experience of SunOpta's
leadership team is a critical component to the process
sustainability pillar of the Value Creation Plan. Recent highlights
include:
- Completed the onboarding of key senior
leaders and continued to add new talent in areas of sales and
marketing, engineering, supply chain and procurement.
- Further maturation of the sales and
operations planning (S&OP) processes which were kicked off in
the first quarter resulting in improved customer service
levels.
- Continued enhancements to ERP systems
in consumer products facilities.
Second Quarter 2017 Results
Revenues for the second quarter of 2017 were $336.5 million, a
decrease of 3.4% compared to $348.1 million in the second quarter
of 2016. Excluding the impact on revenues for the second quarter of
2017 of changes in commodity-related pricing, foreign exchange
rates and the impact on west coast pouch operations as a result of
a fire at a third-party facility, revenues in the second quarter of
2017 decreased by 0.6% compared with the second quarter of
2016.
The Consumer Products segment generated revenues from external
customers of $187.0 million during the second quarter of 2017, a
decrease of 1.4% compared to $189.6 million in the second quarter
of 2016. Excluding the impact of the fire at a third-party
facility, revenues in Consumer Products decreased 0.2% compared to
the second quarter of 2016. The revenue decline was driven by
reduced sales of retail packaged frozen fruit and aseptic beverage
products, partially offset by increased beverage sales into the
food service channel, as well as higher refrigerated juice and
specialty bar sales.
The Global Ingredients segment generated revenues from external
customers of $149.4 million, a decline of 5.7% compared to $158.5
million in the second quarter of 2016. Excluding the impact on
revenues of changes in commodity-related pricing and foreign
exchange rates, Global Ingredients revenue decreased 1.2% in the
second quarter of 2017, compared with the second quarter of 2016.
The revenue decline reflected lower volumes of raw and roasted
sunflower products, lower crop input sales due to a reduction in
contracted acres and lower specialty ingredient sales partially
offset by increased sales of non-GMO soy.
Gross profit was $41.7 million for the second quarter of 2017,
compared to $36.0 million for the second quarter of 2016. As a
percentage of revenues, gross profit for the second quarter of 2017
was 12.4% compared to 10.3% in the second quarter of 2016. The
gross profit percentage for the second quarter of 2017 would have
been approximately 12.5%, excluding $0.3 million of costs related
to plant closure and other transition expenses, as compared to an
adjusted gross profit percentage of 11.5% in the second quarter of
2016. The improvement in gross margin reflected operational savings
from the closure of the San Bernardino juice facility, improved
productivity across the frozen fruit network and favorable foreign
exchange impact on purchase contracts for organic raw materials.
These factors were partially offset by reduced operational
efficiencies in our sunflower and roasting operations due to lower
customer demand following the recall.
Operating income¹ was $2.6 million, or 0.8% of revenues,
compared to operating income of $8.8 million, or 2.5% of revenues
in the second quarter of 2016. The decrease in operating income
year-over-year is primarily attributable to increased structural
and non-structural costs associated with the execution of the Value
Creation Plan. The operating income percentage for the second
quarter of 2017 would have been approximately 3.0%, excluding $7.0
million of non-structural third-party consulting costs, employee
recruitment, relocation and retention costs, and the costs
discussed above that impacted costs of sales, all incurred in
relation to the Value Creation Plan.
Adjusted EBITDA¹ was $19.4 million or 5.8% of revenues in the
second quarter of 2017, compared to $23.5 million or 6.8% of
revenues in the second quarter of 2016.
The Company reported a net loss from continuing operations for
the second quarter of 2017 of $0.4 million, or $0.03 per common
share, compared to a loss from continuing operations of $4.1
million, or $0.05 per diluted common share during the second
quarter of 2016. Adjusted loss¹ from continuing operations in the
second quarter of 2017 was $0.7 million or $0.01 per diluted common
share, compared to adjusted earnings¹ of $4.1 million or $0.01 per
diluted common share in the second quarter of 2016. Please refer to
the discussion and table below under “Non-GAAP Measures - Adjusted
Earnings”.
Balance Sheet and Cash Flow
At July 1, 2017, SunOpta’s balance sheet reflected total assets
of $1,149.8 million and total debt of $467.7 million. Cash used in
operating activities was $6.3 million in the first half of 2017,
compared to cash used in operating activities from continuing
operations of $52.3 million in the first half of 2016. The $46.0
million decrease in cash used in operating activities was driven by
less cash used to fund working capital, due in part to liquidity
optimization efforts undertaken as part of the Value Creation Plan.
Working capital requirements are seasonal, and the Company expects
to see working capital decrease over the second half of 2017. At
July 1, 2017, leverage was approximately 6.1 times Adjusted EBITDA¹
on a trailing four quarter adjusted basis, after eliminating the
negative impact on EBITDA from the San Bernardino juice
facility.
Conference Call
SunOpta plans to host a conference call at 9:00 A.M. Eastern
time on Wednesday, August 9, 2017, to discuss the second quarter
financial results. After opening remarks, there will be a question
and answer period. This conference call can be accessed via a link
on SunOpta’s website at www.sunopta.com under the “Investors”
section. To listen to the live call over the Internet, please go to
SunOpta’s website at least 15 minutes early to register, download
and install any necessary audio software. Additionally, the call
may be accessed with the toll free dial-in number 1 (877) 312-9198
or International dial-in number 1 (631) 291-4622. If you are unable
to listen live, the conference call will be archived and can be
accessed for approximately 90 days on the Company’s website.
¹ See discussion of non-GAAP measures
About SunOpta Inc.
SunOpta Inc. is a leading global company focused on organic,
non-genetically modified ("non-GMO") and specialty foods. SunOpta
specializes in the sourcing, processing and packaging of organic
and non-GMO food products, integrated from seed through packaged
products; with a focus on strategic vertically integrated business
models. SunOpta's organic and non-GMO food operations revolve
around value-added grain, seed, fruit and vegetable based product
offerings, supported by a global sourcing and supply
infrastructure.
Forward-Looking Statements
Certain statements included in this press release may be
considered "forward-looking statements" within the meaning of the
United States Private Securities Litigation Reform Act of 1995 and
applicable Canadian securities legislation, which are based on
information available to us on the date of this release. These
forward-looking statements include, but are not limited to, our
intention to optimize business operations; our ability to implement
the four pillars and achieve the objectives of our strategic Value
Creation Plan, including the anticipated amount and timing of
achieving productivity-driven EBITDA enhancements; the estimated
amounts of annualized EBITDA benefits attributable to improvements
initiated or implemented to date pursuant to each of the four
pillars of our Value Creation Plan; our intention to exit
businesses or product lines where we are not effectively positioned
including the anticipated timing for discontinuing re-sealable
pouch products and the sale of related equipment; and our
expectation for improved revenue growth and profitability over time
and that working capital will decrease over the second half of
2017. Generally, forward-looking statements do not relate strictly
to historical or current facts and are typically accompanied by
words such as "expects", "targeting", "becoming", ‘continue",
"estimated", "would", "should", "intend", "anticipate",
"confident", "can", "may", "plans", "project", "potential",
"intention", "might", "predict" or other similar terms and phrases
intended to identify these forward-looking statements. Forward
looking statements are based on information available to us on the
date of this release and are based on estimates and assumptions
made by the Company in light of its experience and its perception
of historical trends, current conditions and expected future
developments including, but not limited to, anticipated procurement
and logistics savings, freight lane cost reductions, yield and
throughput enhancements, and labor cost reductions, as well as
other factors the Company believes are appropriate in the
circumstances including, but not limited to, general economic
conditions, continued consumer interest in health and wellness,
ability to maintain product pricing levels, current customer
demand, planned facility and operational expansions, closures and
divestitures, competitive intensity, cost rationalization, product
development initiatives, and alternative potential uses for our
capital resources. Whether actual timing and results will agree
with expectations and predications of the Company is subject to
many risks and uncertainties including, but not limited to, issues
or delays in the successful integration of the operations, systems
and personnel of recently acquired businesses with those of the
Company, incurring or experiencing unanticipated costs and/or
delays or difficulties, future levels of revenues being lower than
expected, costs being higher than expected, inability to realize
synergies to the extent anticipated and conditions affecting the
frozen fruit industry generally; failure or inability to implement
portfolio changes, process improvements, go-to-market improvements
and process sustainability strategies in a timely manner; delays or
difficulties in exiting certain businesses and product lines
including the failure of purchasers to satisfy the purchase price
and inability to satisfy the conditions of closing for any such
transactions; changes in the level of capital investment; local and
global political and economic conditions; consumer spending
patterns and changes in market trends; decreases in customer
demand; delayed or unsuccessful product development efforts;
potential product recalls; working capital management and
continuous improvement initiatives; availability and pricing of raw
materials and supplies; potential covenant breaches under our
credit facilities; and other risks described from time to time
under "Risk Factors" in the Company's Annual Report on Form 10-K
and its Quarterly Reports on Form 10-Q (available at www.sec.gov).
Consequently, all forward-looking statements made herein are
qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by
the Company will be realized. The Company undertakes no obligation
to publicly correct or update the forward-looking statements in
this document, in other documents, or on its website to reflect
future events or circumstances, except as may be required under
applicable securities laws.
SunOpta Inc. Consolidated Statements of Operations
For the quarters and two quarters ended July 1, 2017 and July 2,
2016 (Unaudited) (All dollar amounts expressed in thousands of U.S.
dollars) Quarter ended Two quarters ended July
1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
$ $ $ $
Revenues 336,454
348,146 666,485 700,460
Cost of goods sold 294,792
312,168 586,124 632,581
Gross profit 41,662 35,978 80,361 67,879
Selling, general and administrative expenses 35,039 24,489
73,311 48,761 Intangible asset amortization 2,809 2,824 5,612 5,646
Other expense, net 607 8,433 6,050 12,411 Foreign exchange loss
(gain) 1,195 (180 ) 1,775 1,992
Earnings (loss) from continuing
operations before the following
2,012
412
(6,387
)
(931
)
Interest expense, net 7,695 11,548
15,449 22,570
Loss from continuing operations before
income taxes
(5,683
)
(11,136
)
(21,836
)
(23,501
)
Recovery of income taxes (5,581 ) (7,135 ) (10,550 )
(10,221 )
Loss from continuing operations (102
) (4,001 ) (11,286 ) (13,280 )
Discontinued
operations Loss from discontinued operations - - - (1,993 )
Gain on classification as held for sale - - - 560 Recovery of
income taxes - - - 599
Loss from discontinued operations
attributable to non-controlling interests
-
-
-
264
Loss from discontinued operations
attributable to SunOpta Inc.
-
-
-
(570
)
Loss (102 ) (4,001 ) (11,286 ) (13,850 )
Earnings attributable to non-controlling interests 306
123 520 507
Loss attributable to SunOpta Inc. (408 ) (4,124 )
(11,806 ) (14,357 )
SunOpta Inc.
Consolidated Statements of Operations (continued) For the quarters
and two quarters ended July 1, 2017 and July 2, 2016 (Unaudited)
(All dollar amounts expressed in thousands of U.S. dollars, except
per share amounts) Quarter ended Two quarters
ended July 1, 2017 July 2, 2016 July 1, 2017 July 2,
2016 $ $ $ $
Loss per
share(a)
Loss from continuing operations, less
amount attributable to non-controlling interests
(408
)
(4,124
)
(11,806
)
(13,787
)
Less: dividends and accretion on Series A preferred stock
(1,954 ) - (3,894 ) -
Loss from continuing operations available
to common shareholders
(2,362
)
(4,124
)
(15,700
)
(13,787
)
Loss from discontinued operations attributable to SunOpta Inc. -
- - (570 ) Loss available
to common shareholders (2,362 ) (4,124 ) (15,700 )
(14,357 ) Basic loss per share: - from continuing
operations (0.03 ) (0.05 ) (0.18 ) (0.16 ) - from discontinued
operations - - - (0.01 )
(0.03 ) (0.05 ) (0.18 ) (0.17 ) Diluted
loss per share: - from continuing operations (0.03 ) (0.05 ) (0.18
) (0.16 ) - from discontinued operations - -
- (0.01 ) (0.03 ) (0.05 ) (0.18
) (0.17 ) Weighted-average number of shares
outstanding (000s): - Basic 86,213 85,541 86,062 85,483 - Diluted
86,213 85,541 86,062
85,483 (a) Loss per share is computed by dividing
loss available to common shareholders by the weighted-average
number of common shares outstanding during the period. Loss
available to common shareholders is computed by adding dividends
and accretion of Series A preferred stock to loss attributable to
SunOpta Inc.
SunOpta Inc. Consolidated Balance
Sheets As at July 1, 2017 and December 31, 2016 (Unaudited) (All
dollar amounts expressed in thousands of U.S. dollars)
July 1, 2017 December 31, 2016 $
$
ASSETS Current assets Cash and cash
equivalents 3,457 1,251 Accounts receivable 152,406 157,369
Inventories 381,979 368,482 Prepaid expenses and other current
assets 31,193 19,794 Current income taxes recoverable 2,815
2,801
Total current assets 571,850 549,697
Property, plant and equipment 164,131 162,239
Goodwill 224,161 223,611
Intangible assets 178,030
183,524
Deferred income taxes 3,060 1,045
Other
assets 8,563 9,442
Total
assets 1,149,795 1,129,558
LIABILITIES Current liabilities Bank indebtedness
237,107 201,494 Accounts payable and accrued liabilities 182,841
173,745 Customer and other deposits 1,155 2,543 Income taxes
payable 876 5,661 Other current liabilities 433 1,016 Current
portion of long-term debt 2,062 2,079 Current portion of long-term
liabilities 6,300 5,500
Total current
liabilities 430,774 392,038
Long-term debt
228,514 229,008
Long-term liabilities 10,374 15,354
Deferred income taxes 36,751 44,561
Total liabilities 706,413 680,961
Series A
Preferred Stock 79,678 79,184
EQUITY SunOpta
Inc. shareholders’ equity Common shares 306,827 300,426
Additional paid-in capital 24,726 25,522 Retained earnings 38,138
53,838 Accumulated other comprehensive loss (9,527 ) (13,104
) 360,164 366,682
Non-controlling interests 3,540
2,731
Total equity 363,704
369,413
Total equity and liabilities 1,149,795
1,129,558
SunOpta Inc.
Consolidated Statements of Cash Flows For the quarters and two
quarters ended July 1, 2017 and July 2, 2016 (Unaudited) (Expressed
in thousands of U.S. dollars) Quarter ended
Two quarters ended July 1, 2017 July 2, 2016 July 1,
2017 July 2, 2016 $ $ $ $
CASH PROVIDED BY (USED IN) Operating
activities Loss (102 ) (4,001 ) (11,286 ) (13,850 ) Loss from
discontinued operations attributable to SunOpta Inc. -
- - (570 ) Loss from continuing
operations (102 ) (4,001 ) (11,286 ) (13,280 ) Items not
affecting cash: Depreciation and amortization 8,167 8,549 16,347
17,309 Amortization and write-off of debt issuance costs 652 2,854
1,138 6,222 Deferred income taxes (3,823 ) (10,821 ) (9,915 )
(14,508 ) Stock-based compensation 1,286 953 2,138 1,992 Unrealized
gain on derivative instruments (1,267 ) (306 ) (1,229 ) (515 ) Fair
value of contingent consideration 204 (1,603 ) 204 (1,405 )
Impairment of long-lived assets - - 3,723 1,735 Acquisition
accounting adjustment on inventory sold - 3,888 - 11,514 Other (244
) 367 (101 ) 407 Changes in non-cash working capital (30,648 )
(34,294 ) (7,313 ) (61,779 ) Net cash flows
from operations - continuing operations (25,775 ) (34,414 ) (6,294
) (52,308 ) Net cash flows from operations - discontinued
operations - - - 758
(25,775 ) (34,414 ) (6,294 ) (51,550 )
Investing activities Purchases of property, plant and
equipment (7,143 ) (4,793 ) (16,167 ) (9,340 ) Proceeds from sale
of assets 51 - 301 - Other 254 700 364
700 Net cash flows from investing activities -
continuing operations (6,838 ) (4,093 ) (15,502 ) (8,640 ) Net cash
flows from investing activities - discontinued operations -
1,945 - 1,754 (6,838 )
(2,148 ) (15,502 ) (6,886 )
Financing activities Increase under line of credit
facilities 36,690 39,029 29,349 271,572 Repayment of line of credit
facilities - - - (192,677 ) Borrowings under long-term debt - - -
432 Repayment of long-term debt (589 ) (523 ) (1,116 ) (11,009 )
Payment of cash dividends on Series A Preferred Stock (1,700 ) -
(3,291 ) -
Proceeds from the exercise of stock
options and employee share purchases
2,535
575
3,629
687
Payment of contingent consideration (4,330 ) (4,554 ) (4,330 )
(4,554 ) Payment of debt issuance costs - (256 ) - (4,366 ) Other
(101 ) (119 ) (303 ) (134 ) Net cash flows
from financing activities - continuing operations 32,505 34,152
23,938 59,951 Net cash flows from financing activities -
discontinued operations - - -
(1,180 ) 32,505 34,152 23,938
58,771 Foreign exchange gain (loss) on
cash held in a foreign currency 54 (61 ) 64
(24 ) Increase (decrease) in cash and cash
equivalents in the period (54 ) (2,471 ) 2,206 311
Discontinued operations cash activity included above: Add: Balance
included at beginning of period - 1,288 - 1,707 Less: Balance
included at end of period - - - - Cash and cash equivalents
- beginning of the period 3,511 5,475
1,251 2,274 Cash and cash equivalents -
end of the period 3,457 4,292 3,457
4,292
SunOpta Inc.
Segmented Information For the quarters and two quarters ended July
1, 2017 and July 2, 2016 Unaudited (Expressed in thousands of U.S.
dollars) Quarter ended Two quarters ended July
1, 2017 July 2, 2016 July 1, 2017 July 2, 2016
$ $ $ $
Segment revenues from
external customers: Global Ingredients 149,423 158,498 279,714
304,520 Consumer Products 187,031 189,648
386,771 395,940
Total segment revenues from external
customers
336,454 348,146 666,485
700,460
Segment gross profit: Global
Ingredients 20,743 19,828 36,389 37,920 Consumer Products 20,919
16,150 43,972 29,959
Total segment gross profit 41,662 35,978
80,361 67,879
Segment
operating income (loss): Global Ingredients 8,372 10,411 13,123
16,852 Consumer Products 4,220 663 10,168 (1,115 ) Corporate
Services (9,973 ) (2,229 ) (23,628 ) (4,257 )
Total segment operating income (loss) 2,619 8,845
(337 ) 11,480
Segment gross
profit percentage: Global Ingredients 13.9 % 12.5 % 13.0 % 12.5
% Consumer Products 11.2 % 8.5 % 11.4 % 7.6 % Total segment gross
profit percentage 12.4 % 10.3 % 12.1 % 9.7 %
Segment
operating income percentage: Global Ingredients 5.6 % 6.6 % 4.7
% 5.5 % Consumer Products 2.3 % 0.3 % 2.6 % -0.3 %
Total segment operating income
0.8 % 2.5 % -0.1 % 1.6 %
Non-GAAP Measures
In addition to reporting financial results in accordance with
U.S. GAAP, the Company provides information regarding segment
operating income, Adjusted earnings, earnings before interest,
taxes, depreciation and amortization (“EBITDA”), and Adjusted
EBITDA as additional information about its operating results, which
are not measures in accordance with U.S. GAAP. We believe that
segment operating income and Adjusted earnings assist investors in
comparing performance across reporting periods on a consistent
basis by excluding items that are not indicative of the Company’s
core operating performance. We use EBITDA and Adjusted EBITDA when
assessing the performance of the Company’s operations and its
ability to generate cash flows to fund its cash requirements,
including debt service and capital expenditures. The non-GAAP
measures of segment operating income, Adjusted earnings, EBITDA and
Adjusted EBITDA should not be considered in isolation or as a
substitute for performance measures calculated in accordance with
U.S. GAAP.
In order to evaluate the Company’s results of operations, we use
certain other non-GAAP measures that we believe enhance an
investor’s ability to derive meaningful year-over-year comparisons
and trends from the results of operations. In particular, we
evaluate the Company’s revenues on a basis that excludes the
effects of fluctuations in commodity pricing and foreign exchange
rates. In addition, we exclude specific items from the Company’s
reported results that due to their nature or size, we do not expect
to occur as part of our normal business on a regular basis. These
items are identified in the tables below. These non-GAAP measures
are presented solely to allow investors to more fully assess the
Company’s results of operations and should not considered in
isolation of, or as substitutes for an analysis of the Company’s
results as reported under U.S. GAAP.
Adjusted Earnings/Loss
When assessing our financial performance, we use an internal
measure that excludes the results of discontinued operations, as
well as other charges and gains that we believe are not reflective
of normal operations. This information is provided to allow
investors to make meaningful comparisons of the Company’s operating
performance between periods and to view the Company’s business from
the same perspective as Company management. Adjusted earnings/loss
and Adjusted earnings/loss per diluted share should not be
considered in isolation or as a substitute for performance measures
calculated in accordance with U.S. GAAP.
The following is a tabular presentation of Adjusted
earnings/loss and Adjusted earnings/loss per diluted share,
including a reconciliation from loss from continuing operations,
which the Company believes to be the most directly comparable U.S.
GAAP financial measure.
Per Diluted Share
For the quarter ended
$ $
July 1, 2017 Loss from continuing
operations (102 ) Less: earnings attributable to non-controlling
interests (306 ) Less: dividends and accretion of Series A
Preferred Stock (1,954 ) Loss from continuing operations available
to common shareholders (2,362 ) (0.03 ) Adjusted for: Costs
related to the Value Creation Plan(a) 7,688 Other(b) 182 Net income
tax effect(c) (6,254 ) Adjusted loss (746 ) (0.01 )
July 2, 2016 Loss from continuing operations (4,001 ) Less:
earnings attributable to non-controlling interests (123 ) Loss from
continuing operations available to common shareholders (4,124 )
(0.05 ) Adjusted for: Legal settlement and
litigation-related legal fees(d) 9,661 Costs related to business
acquisitions(e) 7,905 Product withdrawal and recall costs(f) 529
Plant start-up costs(g) 278 Other(b) 412 Gain on settlement of
contingent consideration(h) (1,715 ) Net income tax effect(c)
(8,825 ) Adjusted earnings 4,121 0.05
(a) Reflects facility closure costs of $0.3
million recorded in cost of goods sold; consulting fees, temporary
labor, employee recruitment, relocation and retention costs of $7.0
million recorded in selling, general and administrative
(“SG&A”) expenses; and employee termination costs of $0.4
million recorded in other expense. (b) Other included fair value
adjustments related to contingent consideration arrangements and
gain/loss on the sale of assets, which were recorded in other
expense. (c) Reflects the tax effect of the preceding adjustments
to earnings and reflects an overall estimated annual effective tax
rate of approximately 30% on adjusted earnings before tax. (d)
Reflects a charge of $9.0 million for the settlement of a product
recall dispute with a customer, which was recorded in other
expense, and associated litigation-related legal costs, which were
recorded in SG&A expenses. (e) Reflects costs related to the
acquisition of Sunrise Holdings (Delaware), Inc. (“Sunrise”) in
October 2015 (the “Sunrise Acquisition”), including an acquisition
accounting adjustment related to Sunrise’s inventory sold in the
second quarter of 2016 of $3.9 million, which was recorded in cost
of goods sold; the non-cash amortization of debt issuance costs
incurred in connection with the initial financing related to the
Sunrise Acquisition of $2.6 million, as well as $0.9 million of
additional financing costs expensed as incurred in the second
quarter of 2016, which was recorded in interest expense; and $0.5
million of integration costs related to the closure and
consolidation of our frozen fruit processing operations following
the Sunrise Acquisition, which were recorded other expense. (f)
Reflects costs of $0.2 million related to the withdrawal or recall
of products, which were recorded in other expense, and a $0.3
million adjustment for the estimated lost gross profit caused by
the recall of certain sunflower kernel products, which reflected a
shortfall in revenues against anticipated volumes of approximately
$3.5 million, less associated cost of goods sold of approximately
$3.2 million. (g) Plant start-up costs relate to the ramp-up of
production at our Allentown, Pennsylvania, facility following the
completion of the addition of aseptic beverage processing and
filling capabilities in the fourth quarter of 2015, which were
recorded in cost of goods sold. These start-up costs reflected the
negative gross profit reported by the facility as the facility
ramped up to break-even production levels. (h) Reflects a gain of
settlement of the contingent consideration obligation related to
the August 2015 acquisition of Niagara Natural Fruit Snack Company
Inc. (“Niagara Natural”), which was recorded in other income.
Per Diluted Share
For the two quarters
ended $ $
July 1, 2017 Loss from
continuing operations (11,286 ) Less: earnings attributable to
non-controlling interests (520 ) Less: dividends and accretion of
Series A Preferred Stock (3,894 ) Loss from continuing operations
available to common shareholders (15,700 ) (0.18 ) Adjusted
for: Costs related to the Value Creation Plan(a) 24,971 Product
recall costs(b) 1,008 Other(c) (127 ) Net income tax effect(d)
(11,786 ) Adjusted loss (1,634 ) (0.02 )
July 2,
2016 Loss from continuing operations (13,280 ) Less: earnings
attributable to non-controlling interests (507 ) Loss from
continuing operations available to common shareholders (13,787 )
(0.16 ) Adjusted for: Costs related to business
acquisitions(e) 20,416 Legal settlement and litigation-related
legal fees(f) 10,286 Product withdrawal and recall costs(g) 1,997
Plant start-up costs(h) 1,565 Write-off of debt issuance costs(i)
215 Other(j) 1,187 Gain on settlement of contingent contribution(k)
(1,715 ) Net income tax effect(d) (13,356 ) Adjusted earnings 6,808
0.08 (a) Reflects
facility closure costs of $0.6 million recorded in cost of goods
sold; consulting fees, temporary labor, employee recruitment,
relocation and retention costs of $18.4 million recorded in
SG&A expenses; and asset impairment and employee termination
costs of $5.9 million recorded in other expense. (b) Reflects costs
related to the recall of certain sunflower kernel products,
including a $0.7 million adjustment for the estimated lost gross
profit caused by the sunflower recall in the first quarter of 2017,
which reflected a shortfall in revenues against prior year volumes
of approximately $3.3 million, less associated cost of goods sold
of approximately $2.6 million; and $0.3 million of direct costs
recorded in other expense that are not eligible for reimbursement
under our insurance policies. (c) Other included fair value
adjustments related to contingent consideration arrangements and
gain/loss on the sale of assets, which were recorded in other
expense. (d) Reflects the tax effect of the preceding adjustments
to earnings and reflects an overall estimated annual effective tax
rate of approximately 30% on adjusted earnings before tax. (e)
Reflects costs related to the Sunrise Acquisition, including an
acquisition accounting adjustment related to Sunrise’s inventory
sold in the first half of 2016 of $11.5 million, which was recorded
in cost of goods sold; the non-cash amortization of debt issuance
costs incurred in connection with the initial financing related to
the Sunrise Acquisition of $5.6 million, as well as $0.9 million of
additional financing costs expensed as incurred in the second
quarter of 2016, which were recorded in interest expense; and $2.4
million of integration costs related to the closure and
consolidation of our frozen fruit processing operations following
the Sunrise Acquisition, which were recorded in cost of goods sold
and other expense. (f) Reflects a charge of $9.0 million for the
settlement of a product recall dispute with a customer, which was
recorded in other expense, and associated litigation-related legal
costs, which were recorded in SG&A expenses. (g) Reflects costs
of $1.1 million for the withdrawal of a consumer-packaged product
for a quality-related issue and $0.6 million for insurance
deductibles related to the sunflower recall, which were recorded in
other expense. Also reflects a $0.3 million adjustment for the
estimated lost gross profit caused by the sunflower recall, which
reflected a shortfall in revenues against anticipated volumes of
approximately $3.5 million, less associated cost of goods sold of
approximately $3.2 million. (h) Plant start-up costs relate to the
ramp-up of production at our Allentown, Pennsylvania, facility
following the completion of the addition of aseptic beverage
processing and filling capabilities in the fourth quarter of 2015,
which were recorded in cost of goods sold. These start-up costs
reflected the negative gross profit reported by the facility as the
facility ramped up to break-even production levels. (i) Reflects
the write-off to interest expense of $0.2 million of remaining
unamortized debt issuance costs related to our former North
American credit facilities, which were replaced by the Global
Credit Facility. (j) Other includes severance costs of $0.5 million
and fair value adjustments related to contingent consideration
arrangements of $0.4 million, which were recorded in other expense.
(k) Reflects a gain of settlement of the contingent consideration
obligation related to the August 2015 acquisition of Niagara
Natural, which was recorded in other income.
Segment Operating Income, EBITDA, and
Adjusted EBITDA
The Company defines segment operating income/loss as
“earnings/loss from continuing operations before the following”
excluding the impact of other income/expense items; EBITDA as
segment operating income/loss plus depreciation, amortization and
non-cash stock-based compensation; and adjusted EBITDA as EBITDA
excluding other unusual items that affect the comparability of
operating performance as identified in the determination of
Adjusted earnings. The following is a tabular presentation of
segment operating income/loss, EBITDA and Adjusted EBITDA,
including a reconciliation to loss from continuing operations,
which the Company believes to be the most directly comparable U.S.
GAAP financial measure:
Quarter ended Two quarters ended July 1, 2017
July 2, 2016 July 1, 2017 July 2, 2016
$ $ $ $ Loss from continuing operations
(102 ) (4,001 ) (11,286 ) (13,280 ) Recovery of income taxes (5,581
) (7,135 ) (10,550 ) (10,221 ) Interest expense, net 7,695 11,548
15,449 22,570 Other expense, net 607 8,433
6,050 12,411 Total segment operating
income (loss) 2,619 8,845 (337 ) 11,480 Depreciation and
amortization 8,167 8,549 16,347 17,309 Stock-based compensation(a)
1,337 953 2,465 1,992
EBITDA 12,123 18,347 18,475
30,781 Adjusted for: Costs related to Value
Creation Plan(b) 7,263 - 19,073 - Product recall costs(c) - 300 729
300 Costs related to business acquisitions(d) - 3,888 - 11,664
Plant expansion and start-up costs(e) - 278 - 1,565
Litigation-related legal fees(f) - 661
- 1,286 Adjusted EBITDA 19,386
23,474 38,277 45,596
(a) For the quarter and two quarters ended
July 1, 2017, stock-based compensation of $1.3 million and $2.5
million were recorded in SG&A expenses. The reversal of $0.1
million and $0.3 million of previously recognized stock-based
compensation related to forfeited awards previously granted to
terminated employees was recognized in other expense. (b) For the
quarter ended July 1, 2017, reflects facility closure costs of $0.3
million recorded in cost of goods sold, and consulting fees,
temporary labor, employee recruitment, relocation and retention
costs of $7.0 million recorded in SG&A expenses. For the two
quarters ended July 1, 2017, reflects facility closure costs of
$0.6 million recorded in cost of goods sold and consulting fees,
temporary labor, employee recruitment, relocation and retention
costs of $18.4 million recorded in SG&A expenses. (c) For the
two quarters ended July 1, 2017, reflects the estimated lost gross
profit caused by the recall of certain sunflower kernel products of
$0.7 million, which reflected the shortfall in revenues in the
first quarter of 2017 against first quarter 2016 volumes of
approximately $3.3 million, less associated cost of goods sold of
approximately $2.6 million. For the quarter and two quarters ended
July 2, 2016, reflects estimated lost gross profit of $0.3 million,
which reflected a shortfall in revenues in the second quarter of
2016 against anticipated volumes of approximately $3.5 million,
less associated cost of goods sold of approximately $3.2 million.
(d) For the quarter ended July 2, 2016, reflects costs related to
the acquisition accounting adjustment related to Sunrise’s
inventory sold in the second quarter of 2016 of $3.9 million, which
was recorded in cost of goods sold. For the first half of 2016,
$11.5 million relates to the same acquisition accounting
adjustment, as well as $0.2 million of costs related to the closure
and consolidation of a frozen fruit processing operation, all of
which were recorded in cost of goods sold. (e) Reflects the
negative gross profit reported by the Allentown facility as the
facility ramped up to break-even production levels. (f) Reflects
legal costs related to the settlement of a product recall dispute
with a customer, which were recorded in SG&A expenses.
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version on businesswire.com: http://www.businesswire.com/news/home/20170809005491/en/
ICRScott Van Winkle, 617-956-6736scott.vanwinkle@icrinc.com
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