Beverage and Snack operations continue to
deliver growth and improved margin as Value Creation Plan
transitions into the second phase of the operational
turnaround
SunOpta Inc. (“SunOpta” or the “Company”) (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 June 30, 2018.
“We continued to make progress under each of the four pillars of
the Value Creation Plan and have largely transitioned into the
second phase of our operational turnaround. We are converting our
sales opportunity pipeline and, based on the wins to date,
anticipate delivering meaningful revenue growth during the second
half of 2018,” said David Colo, Chief Executive Officer. “During
the second quarter, our beverage and snack platforms continued to
deliver revenue growth and improved margin, reflecting our
revitalized commercialization efforts over the last 18 months. We
also continued to see demand for organic ingredients grow and we
remain committed to our strategic focus that is designed to
leverage structural advantages in Global Ingredients, despite some
timing-related foreign exchange and commodity items that impacted
gross margin in the quarter. While challenges remain in our Healthy
Fruit business, year-over-year revenue declines moderated during
the second quarter, and we made progress on our improvement plan,
which includes re-balancing our frozen inventories and improving
our productivity. We remain intensely focused on optimizing our
production costs while continuing to make the necessary investments
in food safety, quality, and innovation to return this business to
profitable growth. We are on track to deliver $20 million of
productivity-driven EBITDA improvements this year; however, these
improvements are expected to be offset by pricing investments and
increased operational costs in Healthy Fruit, that we are
addressing as part of the improvement plan.”
All amounts are expressed in U.S. dollars and results are
reported in accordance with U.S. GAAP, except where specifically
noted.
Second Quarter 2018 Highlights:
- Revenues of $319.3 million for the
second quarter of 2018, compared to $336.5 million in the second
quarter of 2017, a decrease of 5.1%. Adjusted for changes in
foreign exchange, commodity prices, and sales of flexible
resealable pouch and nutrition bar products, revenues declined 0.6%
during the second quarter.
- Loss attributable to common
shareholders of $5.1 million or $0.06 per common share in the
second quarter of 2018, compared to a loss attributable to common
shareholders of $2.4 million or $0.03 per common share in the
second quarter of 2017.
- Adjusted loss¹ of $5.0 million or $0.06
per common share during the second quarter of 2018, compared to
adjusted loss¹ of $0.7 million or $0.01 per common share during the
second quarter of 2017.
- Adjusted EBITDA¹ of $14.8 million or
4.6% of revenues for the second quarter of 2018, versus $19.4
million or 5.8% of revenues in the second quarter of 2017.
- Loss attributable to common
shareholders, Adjusted loss¹ and Adjusted EBITDA¹ for the second
quarter of 2018 included a timing-related, pre-tax charge of $2.5
million recognized in cost of goods sold, relating to the net
impact of significant foreign exchange and commodity price
movements in the quarter, on certain contracts within the
European-based operations of the Global Ingredients segment.
¹ See discussion of non-GAAP measures
included at the end of this press release
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 to EBITDA in the first
phase of the plan, to be implemented over 2017 and 2018. For 2017,
these EBITDA benefits were 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. During the second quarter of 2018, the
Company continued to make 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. Since the initiation of the Value
Creation Plan, the Company has implemented actions that are
expected to yield approximately $23 million of annualized EBITDA
benefits.
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:
- Initiated plans to expand aseptic
processing and packaging capacity and capabilities at the
Allentown, Pennsylvania, beverage facility, based on current growth
trends and recent business wins in both the non-dairy and broth
categories. This expansion is expected to cost approximately $22
million and come on-line in mid-2019. The investment is designed to
add enhanced mixing and processing capabilities which will enable
the Company to bring further innovation to the plant-based beverage
market. As part of the expansion, additional processing and filling
capacity will be added, which is expected to provide increased
flexibility and cost advantages across the national network of
aseptic plants, while creating needed capacity to continue to grow
with organic and conventional broth offerings.
- Advanced commercial production on the
second roasting and processing line at the Company’s organic cocoa
facility in the Netherlands. During the quarter, the facility
realized yields in-line with expectation and throughput at 80% of
designed capacity. The expansion is expected to reach its designed
run-rate by the end of the third quarter. This expansion
approximately doubles cocoa processing capacity in addition to
adding new capabilities at the facility.
- Continued commissioning of new roasting
equipment at the Company’s Crookston, Minnesota, facility. The new
equipment is designed to increase production efficiencies and add
incremental capacity and roasting capabilities following the
closure and consolidation of a roasted snack plant in Wahpeton,
North Dakota. Certain roasting capabilities are now on-line, and
full commissioning is expected to be completed in the fourth
quarter. This initiative is expected to support further growth in
the healthy snacks portfolio serving demand for on-trend roasted
grains, seeds and legumes.
- Continued commissioning efforts on a
new oil processing line at the Company’s Bulgarian sunflower
facility, which is expected to drive incremental margins through
growth and production efficiency.
Operational Excellence
The focus of the operational excellence pillar is to ensure food
quality and safety, coupled with improved operational performance
and efficiency. The Company expects these efforts to generate
productivity improvements and cost savings in manufacturing,
procurement and logistics. Recent highlights include:
- Continued strong operational
performance across the network of aseptic facilities. The Company
expects overall capacity utilization to be approximately 85% by the
end of 2018, versus approximately 70% in the second quarter.
- Completed approximately 90% of the 2018
fruit pack season at targeted fruit recovery rates, and recently
implemented sorting and handling enhancements designed to drive
improved fruit quality.
- Continued advancement of food safety
and quality efforts across the entire manufacturing footprint.
Third-party audit scores are trending positively versus the prior
year, and consumer complaints in the Healthy Fruit platform are
almost one-third lower than prior year.
- Continued to identify productivity
opportunities through the SunOpta 360 continuous improvement
initiative in the areas of manufacturing, purchasing and supply
chain management.
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:
- The pipeline of commercial
opportunities in Consumer Products remains strong and the overall
contract book for organic ingredients both in Europe and the U.S.
exceeds prior year levels.
- Recent commercial wins include
additional private label broth into the traditional and specialty
retail channels, expanded distribution and additional SKUs of
frozen fruit into the mass and grocery channels, secured
incremental frozen fruit offerings servicing the foodservice
channel that are expected to ship in the fourth quarter, and
increased sales of co-manufactured fruit snacks that are expected
to ship in the third quarter.
- Further progress on commercialization
of approximately 100 new everyday broth and frozen fruit SKUs with
large mass and traditional retailers.
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:
- Implementation of a new specification
system for ingredients which is designed to drive improved food
safety and quality in addition to improved research and development
efficiencies.
- Enhancements to employee health and
safety processes continued to result in a reduction in recordable
incidents year-to-date in 2018 compared to 2017.
- Advanced aseptic capacity planning
model capabilities in preparation for significant business
expansion expected over the coming 12-18 months.
Second Quarter 2018 Results
Revenues for the second quarter of 2018 were $319.3 million, a
decrease of 5.1% compared to $336.5 million in the second quarter
of 2017. Excluding the impact on revenues for the second quarter of
2018 of changes in commodity-related pricing, foreign exchange
rates and sales of flexible resealable pouch and nutrition bar
products, revenues in the second quarter of 2018 decreased by 0.6%
compared with the second quarter of 2017.
The Global Ingredients segment generated revenues from external
customers of $146.7 million, an increase of 0.4% compared to $146.1
million in the second quarter of 2017. Excluding the impact on
revenues of changes in commodity-related pricing and foreign
exchange rates, Global Ingredients revenue in the second quarter
decreased 0.6%. Strong demand continued for internationally sourced
organic ingredients, which grew 6.8% during the quarter, excluding
the effect of commodity prices and foreign exchange. This growth
was largely offset by a 14.2% decline in domestically sourced
ingredients, reflecting the previously announced exit from certain
domestically-sourced grain varieties in 2017, as well as revenue
declines in the sunflower operations as a result of soft market
conditions.
The Consumer Products segment generated revenues of $172.6
million during the second quarter of 2018, a decrease of 9.3%
compared to $190.3 million in the second quarter of 2017. Excluding
the impact of commodity-related pricing and sales of resealable
pouch and nutrition bar products, which have been exited, Consumer
Products revenue in the second quarter decreased by 0.6%. The
decline primarily reflects a 3.3% decline in sales of frozen fruit
and fruit ingredients, partially offset by 1.6% growth in the
Healthy Beverage platform, consisting of higher sales of aseptic
non-dairy and broth products, partially offset by lower sales of
premium juice during the quarter, and strong sales of fruit snacks
that led to 7.6% growth in the Healthy Snacks platform, excluding
sales of resealable pouch and nutrition bar products.
Gross profit decreased $7.3 million, or 17.6%, to $34.3 million
for the quarter ended June 30, 2018, compared with $41.7 million
for the quarter ended July 1, 2017. Global Ingredients accounted
for $6.8 million of the decrease in gross profit which was largely
due to the impact that foreign exchange and commodity price
movements had on certain contracts within the European-based
operations of the international organic ingredients platform.
During the second quarter of 2018, the Company recognized a
non-cash $4.3 million foreign exchange loss on U.S.
dollar-denominated raw material purchase contracts, compared with a
non-cash foreign exchange gain of $3.7 million in the second
quarter of 2017, which reflected a significant strengthening of the
U.S. dollar versus the euro in the second quarter of 2018, compared
with a significant weakening of the U.S. dollar versus the euro in
the second quarter of 2017. Partially offsetting this, gross profit
for the second quarter of 2018 included a gain of $1.8 million on
commodity futures contracts used to hedge our organic cocoa
position, compared with a gain of $0.2 million in the second
quarter of 2017. To limit economic exposure to fluctuations in the
price of cocoa the Company sells futures contracts to offset its
physical ownership of organic cocoa. The increased gain in the
second quarter of 2018 compared to the prior year reflects a
steeper decline in the price of cocoa, coupled with an increased
ownership position due to the expansion of cocoa processing
operations. Consumer Products accounted for $0.5 million of the
decrease in gross profit reflecting lower sales volume and pricing,
together with higher costs of manufacturing in frozen fruit. These
factors were mostly offset by increased volumes and plant
efficiencies in our beverage and snack operations, as well as
operational savings from the discontinuance of flexible resealable
pouch and nutrition bar production.
As a percentage of revenues, gross profit for the quarter ended
June 30, 2018 was 10.8% compared to 12.4% for the quarter ended
July 1, 2017, a decrease of 1.6%. The gross profit percentage for
the second quarter of 2018 would have been approximately 10.6%,
excluding the recovery of $1.2 million of previously-incurred
product withdrawal costs from a third-party supplier, partially
offset by start-up costs of $0.7 million related to new roasting
equipment for domestically-sourced grains and seeds. The gross
profit percentage for the second quarter of 2017 would have been
approximately 12.5%, excluding the impact of facility closure costs
under the Value Creation Plan of $0.3 million. On an adjusted
basis, the gross profit percentage reflected the net negative
impact of the foreign exchange and commodity hedging results
described above, partially offset by a 90 basis point improvement
in gross profit percentage in the Consumer Products segment driven
by continued growth in aseptic beverages and snacks and the exit
from pouches and nutrition bars.
Operating income¹ was $4.6 million, or 1.5% of revenues,
compared to $2.6 million, or 0.8% of revenues in the second quarter
of 2017. The increase in operating income year-over-year primarily
reflects lower non-structural SG&A costs when compared to the
prior year, which offset the decline in gross profit, as well as a
$1.2 million decrease in foreign exchange losses, which included an
approximately $3.0 million decrease in losses related to forward
currency contracts within the international organic ingredient
operations, which partially offset the foreign exchange movement
within gross profit. Operating income would have been $4.5 million,
or 1.4% of revenues excluding the $1.2 million recovery of product
withdrawal costs, offset by $0.3 million of non-structural costs in
SG&A related to the Value Creation Plan, and $0.7 million of
costs related to equipment start-up, as compared to a normalized
operating income of $9.9 million or 2.9% of revenues in the second
quarter of 2017.
Adjusted EBITDA¹ was $14.8 million or 4.6% of revenues in the
second quarter of 2018, compared to $19.4 million or 5.8% of
revenues in the second quarter of 2017. Excluding flexible
resealable pouch and nutrition bar operations, adjusted EBITDA for
the quarter ended June 30, 2018 was $14.4 million, compared with
$21.5 million for the quarter ended July 1, 2017.
The Company reported a loss attributable to common shareholders
of $5.1 million, or $0.06 per common share, compared to a loss
attributable to common shareholders of $2.4 million, or $0.03 per
common share during the second quarter of 2017. Adjusted loss¹ in
the second quarter of 2018 was $5.0 million or a loss of $0.06 per
common share, compared to $0.7 million or $0.01 per common share in
the second quarter of 2017. Please refer to the discussion and
table below under “Non-GAAP Measures - Adjusted Earnings”.
Balance Sheet and Cash Flow
At June 30, 2018, SunOpta’s balance sheet reflected total assets
of $1,018.8 million and total debt of $509.1 million. During the
second quarter of 2018, cash used in operating activities was $34.2
million, compared to $25.8 million during the second quarter of
2017. The increase in cash used in operations reflects increased
investment into working capital, mainly inventory, to support
growth in the organic ingredient operations and timing of the fruit
harvest compared to 2017. Partially offsetting the increased cash
used to fund working capital, cash provided by operating activities
improved compared to the second quarter of 2017 due to lower
non-structural cash costs incurred in support of the Value Creation
Plan. Cash used in investing activities during the second quarter
of 2018 was $10.0 million, compared to $6.8 million in the prior
year period due mainly to increased capital expenditures.
Conference Call
SunOpta plans to host a conference call at 9:00 A.M. Eastern
time on Wednesday, August 8, 2018, 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, the
anticipated benefits of our efforts to transform our business
operations, including our Value Creation Plan and our anticipated
revenue growth during the second half of 2018; the estimated amount
and timing of EBITDA enhancements attributable to improvements
initiated or implemented to date pursuant to our Value Creation
Plan; the estimated cost and increased capacity as a result of the
expansion of our Allentown beverage facility; the estimated
timeframes for reaching the designed run-rate for our cocoa
facility in the Netherlands, commissioning of our Crookston
facility, achieving overall capacity utilization of 85% for our
aseptic manufacturing facilities, and shipping incremental frozen
fruit offerings; expected productivity and cost improvements as a
result of our food safety and quality and our SunOpta 360
continuous improvement initiatives; and sustainable business
improvements resulting from our enhanced employee health and
safety, advanced aseptic capacity planning model capabilities, and
other process sustainability initiatives.. Generally,
forward-looking statements do not relate strictly to historical or
current facts and are typically accompanied by words such as
“continued”, “anticipate”, “believes”, “expect”, “will”,
“targeting”, "should", "would", "plans", "becoming", "estimated",
"intend", "confident", "can", "may", "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, our planned
expansion initiatives, portfolio optimization and productivity
efforts, our expectations regarding commodity pricing, margins and
hedging results, improved availability and field prices for fruit,
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; 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
June 30, 2018 and July 1, 2017 (Unaudited) (All dollar amounts
expressed in thousands of U.S. dollars, except per share amounts)
Quarter ended Two
quarters ended June 30, 2018 July 1, 2017 June 30, 2018 July 1,
2017 $ $ $
$
Revenues 319,308 336,454 631,960 666,485
Cost of goods sold 284,962 294,792
563,930 586,124
Gross
profit 34,346 41,662 68,030 80,361 Selling, general and
administrative expenses 26,948 35,039 55,236 73,311 Intangible
asset amortization 2,768 2,809 5,539 5,612 Other expense, net 583
607 181 6,050 Foreign exchange loss (gain) (11 ) 1,195
951 1,775
Earnings
(loss) before the following 4,058 2,012 6,123 (6,387 )
Interest expense, net 8,474 7,695
16,694 15,449
Loss before income
taxes (4,416 ) (5,683 ) (10,571 ) (21,836 ) Recovery of
income taxes (1,290 ) (5,581 ) (2,983 )
(10,550 )
Net loss (3,126 ) (102 ) (7,588 ) (11,286 )
Earnings (loss) attributable to non-controlling interests 48
306 (51 ) 520
Loss attributable to SunOpta Inc. (3,174 ) (408 ) (7,537 )
(11,806 ) Dividends and accretion on Series A Preferred
Stock (1,974 ) (1,954 ) (3,941 ) (3,894 )
Loss attributable to common shareholders (5,148 )
(2,362 ) (11,478 ) (15,700 )
Loss
per share Basic (0.06 ) (0.03 ) (0.13 ) (0.18 ) Diluted (0.06 )
(0.03 ) (0.13 ) (0.18 )
Weighted-average common shares outstanding (000s) Basic
86,968 86,213 86,889 86,062 Diluted 86,968 86,213
86,889 86,062
SunOpta Inc. Consolidated Balance Sheets As at June
30, 2018 and December 30, 2017 (Unaudited) (All dollar amounts
expressed in thousands of U.S. dollars)
June 30, 2018
December 30, 2017 $ $
ASSETS Current assets Cash and cash
equivalents 2,087 3,228 Accounts receivable 137,047 125,152
Inventories 382,931 354,978 Prepaid expenses and other current
assets 35,958 33,213 Income taxes recoverable 10,264
12,006
Total current assets 568,287 528,577
Property, plant and equipment 167,208 163,624
Goodwill 109,320 109,533
Intangible assets 166,489
172,059
Deferred income taxes 364 363
Other assets
7,163 8,017
Total assets
1,018,831 982,173
LIABILITIES
Current liabilities Bank indebtedness 281,523 234,090
Accounts payable and accrued liabilities 166,715 161,364 Customer
and other deposits 4,203 4,901 Income taxes payable 1,906 1,351
Other current liabilities 1,499 818 Current portion of long-term
debt 2,086 2,228 Current portion of long-term liabilities 4,505
5,300
Total current liabilities 462,437
410,052
Long-term debt 225,476 225,805
Long-term
liabilities 2,360 8,352
Deferred income taxes 13,580
15,850
Total liabilities 703,853
660,059
Series A Preferred Stock 80,734 80,193
EQUITY SunOpta Inc. shareholders’ equity Common
shares 312,520 308,899 Additional paid-in capital 28,900 28,006
Accumulated deficit (100,515 ) (89,291 ) Accumulated other
comprehensive loss (8,323 ) (7,268 ) 232,582 240,346
Non-controlling interests 1,662 1,575
Total equity 234,244 241,921
Total equity and liabilities 1,018,831 982,173
SunOpta Inc. Consolidated Statements of
Cash Flows For the quarters and two quarters ended June 30, 2018
and July 1, 2017 (Unaudited) (Expressed in thousands of U.S.
dollars)
Quarter
ended Two quarters ended June 30, 2018 July 1, 2017
June 30, 2018 July 1, 2017
$ $ $ $
CASH PROVIDED
BY (USED IN) Operating activities Net loss (3,126
) (102 ) (7,588 ) (11,286 ) Items not affecting cash: Depreciation
and amortization 8,189 8,167 16,330 16,347 Amortization of debt
issuance costs 600 652 1,208 1,138 Deferred income taxes (865 )
(3,823 ) (2,151 ) (9,915 ) Stock-based compensation 2,104 1,286
4,275 2,138 Unrealized gain on derivative contracts (2,764 ) (1,267
) (1,243 ) (1,229 ) Fair value of contingent consideration 43 204
(2,373 ) 204 Impairment of long-lived assets 70 - 409 3,723 Other
(148 ) (244 ) (147 ) (101 ) Changes in non-cash working capital
(38,324 ) (30,648 ) (35,435 ) (7,313 ) Net
cash flows from operations (34,221 ) (25,775 )
(26,715 ) (6,294 )
Investing activities
Purchases of property, plant and equipment (10,428 ) (7,143 )
(17,163 ) (16,167 ) Proceeds from sale of assets 30 51 730 301
Other 389 254 389 364
Net cash flows from investing activities (10,009 )
(6,838 ) (16,044 ) (15,502 )
Financing
activities Increase under line of credit facilities 49,885
36,690 50,194 29,349 Repayment of long-term debt (415 ) (589 ) (937
) (1,116 ) Payment of cash dividends on Series A Preferred Stock
(1,700 ) (1,700 ) (3,400 ) (3,291 )
Proceeds from the exercise of stock
options and employee share purchases, net of withholding taxes
paid
91 2,535 240 3,629 Payment of contingent consideration (4,399 )
(4,330 ) (4,399 ) (4,330 ) Other (5 ) (101 ) (45 )
(303 ) Net cash flows from financing activities 43,457
32,505 41,653 23,938
Foreign exchange gain (loss) on cash held in a
foreign currency (64 ) 54 (35 ) 64
Increase (decrease) in cash and cash equivalents in
the period (837 ) (54 ) (1,141 ) 2,206 Cash and cash
equivalents - beginning of the period 2,924 3,511
3,228 1,251 Cash and cash
equivalents - end of the period 2,087 3,457
2,087 3,457
SunOpta Inc.
Segmented Information For the quarters and two quarters ended June
30, 2018 and July 1, 2017 Unaudited (Expressed in thousands of U.S.
dollars)
Quarter
ended Two quarters ended June 30, 2018 July 1, 2017
June 30, 2018 July 1, 2017
$ $ $ $
Segment revenues from
external customers: Global Ingredients 146,685 146,126 283,016
272,768 Consumer Products 172,623 190,328
348,944 393,717 Total segment revenues
from external customers 319,308 336,454
631,960 666,485
Segment gross
profit: Global Ingredients 13,464 20,284 28,099 35,380 Consumer
Products 20,882 21,378 39,931
44,981 Total segment gross profit 34,346
41,662 68,030 80,361
Segment operating income (loss): Global Ingredients
2,965 7,913 6,067 12,114 Consumer Products 4,762 4,679 8,078 11,177
Corporate Services (3,086 ) (9,973 ) (7,841 )
(23,628 ) Total segment operating income 4,641 2,619
6,304 (337 )
Segment gross
profit percentage: Global Ingredients 9.2 % 13.9 % 9.9 % 13.0 %
Consumer Products 12.1 % 11.2 % 11.4 % 11.4 % Total segment gross
profit percentage 10.8 % 12.4 % 10.8 % 12.1 %
Segment
operating income percentage: Global Ingredients 2.0 % 5.4 % 2.1
% 4.4 % Consumer Products 2.8 % 2.5 % 2.3 % 2.8 % Total segment
operating income 1.5 % 0.8 % 1.0 % -0.1 %
Non-GAAP Measures
In addition to reporting financial results in accordance with
U.S. GAAP, the Company provides additional information about its
operating results regarding segment operating income, adjusted
earnings and adjusted earnings before interest, taxes, depreciation
and amortization (“Adjusted EBITDA”), which are not measures in
accordance with U.S. GAAP. We believe that segment operating
income, adjusted earnings and adjusted EBITDA assist investors in
comparing performance across reporting periods on a consistent
basis by excluding items that are not indicative of the Company’s
operating performance. The non-GAAP measures of segment operating
income, adjusted earnings 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 period-over-period
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 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 attributable to common
shareholders, which the Company believes to be the most directly
comparable U.S. GAAP financial measure. In addition, due to the
exit from flexible resealable pouch and nutrition bar product lines
and operations, we have prepared these tables in a columnar format
to present the effect of these operations on our consolidated
results for the current and comparative periods. We believe this
presentation assists investors in assessing the results of the
operations we have exited and the effect of those operations on our
financial performance.
Excluding flexibleresealable pouchand
nutrition bar
Flexibleresealable pouchand nutrition
bar
Consolidated
Per DilutedShare
Per DilutedShare
Per DilutedShare
For the quarter ended $ $ $ $
$ $
June 30, 2018 Net earnings (loss) (3,413 )
287 (3,126 ) Less: earnings attributable to non-controlling
interests (48 ) - (48 ) Less: dividends and accretion of Series A
Preferred Stock (1,974 ) - (1,974 ) Earnings (loss)
attributable to common shareholders (5,435 ) (0.06 ) 287 - (5,148 )
(0.06 ) Adjusted for: Equipment start-up costs(a) 730 - 730
Costs related to the Value Creation Plan(b) 669 (30 ) 639 Product
withdrawal and recall costs(c) 122 - 122 Other(d) 122 - 122
Recovery of product withdrawal costs(e) (1,200 ) - (1,200 ) Net
income tax effect(f) (258 ) 8 (250 ) Adjusted earnings
(loss) (5,250 ) (0.06 ) 265 -
(4,985 ) (0.06 )
July 1, 2017 Net
earnings (loss) 1,305 (1,407 ) (102 ) Add: earnings attributable to
non-controlling interests (306 ) - (306 ) Less: dividends and
accretion of Series A Preferred Stock (1,954 ) - (1,954 )
Loss attributable to common shareholders (955 ) (0.01 ) (1,407 )
(0.02 ) (2,362 ) (0.03 ) Adjusted for: Costs related to the
Value Creation Plan(g) 7,688 - 7,688 Other(d) 182 - 182 Net income
tax effect(f) (6,254 ) - (6,254 ) Adjusted earnings (loss)
661 0.01 (1,407 ) (0.02 )
(746 ) (0.01 ) (a) Reflects
costs related to the start-up of new roasting equipment, which were
recorded in cost of goods sold. (b) Reflects professional fees of
$0.3 million recorded in SG&A expenses; and asset impairment,
facility closure and employee termination costs of $0.3 million
recorded in other expense, all related to the Value Creation Plan.
(c) Reflects product withdrawal and recall costs not eligible for
reimbursement under our insurance policies, which were recorded in
other expense. (d) Other included the accretion of contingent
consideration obligations and gain/loss on the sale of assets,
which were recorded in other expense/income. (e) Reflects the
recovery from a third-party supplier of $1.2 million of costs we
incurred relating to the withdrawal of certain consumer-packaged
products due to quality-related issues, which was recorded in cost
of goods sold. Costs incurred related to this withdrawal were
recognized in cost of goods sold in the fourth quarter of 2016. (f)
Reflects the tax effect of the preceding adjustments to earnings
and reflects an overall estimated annual effective tax rate of
approximately 26% for the two quarters ended June 30, 2018 (July 1,
2017 – 30%) on adjusted earnings before tax. (g) 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 SG&A expenses;
and employee termination costs of $0.4 million recorded in other
expense, all related to the Value Creation Plan.
Excluding flexibleresealable pouchand
nutrition bar
Flexibleresealable pouchand nutrition
bar
Consolidated
Per DilutedShare
Per DilutedShare
Per DilutedShare
For the two quarters ended $ $ $
$ $ $
June 30, 2018 Net loss (6,891 ) (697 )
(7,588 ) Less: loss attributable to non-controlling interests 51 -
51 Less: dividends and accretion of Series A Preferred Stock (3,941
) - (3,941 ) Loss attributable to common shareholders
(10,781 ) (0.12 ) (697 ) (0.01 ) (11,478 ) (0.13 ) Adjusted
for: Costs related to the Value Creation Plan(a) 1,653 1,181 2,834
Equipment start-up costs(b) 730 - 730 Product withdrawal and recall
costs(c) 445 - 445 Other(d) 115 - 115 Fair value adjustment on
contingent consideration(e) (2,500 ) - (2,500 ) Recovery of product
withdrawal costs(f) (1,200 ) - (1,200 ) Net income tax effect(g)
(37 ) (307 ) (344 ) Adjusted earnings (loss) (11,575 ) (0.13
) 177 - (11,398 ) (0.13 )
July 1, 2017 Net loss (8,665 ) (2,621 ) (11,286 )
Add: earnings attributable to non-controlling interests (520 ) -
(520 ) Less: dividends and accretion of Series A Preferred Stock
(3,894 ) - (3,894 ) Loss attributable to common shareholders
(13,079 ) (0.15 ) (2,621 ) (0.03 ) (15,700 ) (0.18 )
Adjusted for: Costs related to the Value Creation Plan(h) 24,971 -
24,971 Product withdrawal and recall costs(i) 1,008 - 1,008
Other(d) (127 ) - (127 ) Net income tax effect(g) (11,786 ) -
(11,786 ) Adjusted earnings (loss) 987 0.01
(2,621 ) (0.03 ) (1,634 ) (0.02
) (a) Reflects the write-down of
remaining flexible resealable pouch and nutrition bar inventories
of $0.1 million recorded in cost of goods sold; professional and
consulting fees, and employee recruitment and relocation costs of
$0.6 million recorded in SG&A expenses; and asset impairment,
facility closure and employee termination costs of $2.1 million
recorded in other expense, all related to the Value Creation Plan.
(b) Reflects costs related to the start-up of new roasting
equipment, which were recorded in cost of goods sold. (c) Reflects
product withdrawal and recall costs not eligible for reimbursement
under our insurance policies, which were recorded in other expense.
(d) Other included the accretion of contingent consideration
obligations and gain/loss on the sale of assets, which were
recorded in other expense/income. (e) Reflects a fair value
adjustment of $2.5 million to reduce the expected contingent
consideration that may be payable in 2019 under an earn-out
arrangement with the former unitholders of Citrusource LLC (which
we acquired in March 2015), based on the projected results for the
business in fiscal 2018, which was recorded in other income. (f)
Reflects the recovery from a third-party supplier of $1.2 million
of costs we incurred relating to the withdrawal of certain
consumer-packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this
withdrawal were recognized in cost of goods sold in the fourth
quarter of 2016. (g) Reflects the tax effect of the preceding
adjustments to earnings and reflects an overall estimated annual
effective tax rate of approximately 26% for the two quarters ended
June 30, 2018 (July 1, 2017 – 30%) on adjusted earnings before tax.
(h) 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, all
related to the Value Creation Plan. (i) Reflects costs related to
the recall of certain sunflower kernel products initiated in the
second quarter of 2016, including a $0.7 million adjustment for the
estimated lost gross profit caused by the sunflower recall, which
reflected a 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;
and $0.3 million of direct costs recorded in other expense that are
not eligible for reimbursement under our insurance policies.
Segment Operating Income/Loss and Adjusted
EBITDA
The Company defines segment operating income/loss as net
earnings/loss before income taxes, interest expense and other
income/expense items, and adjusted EBITDA as segment operating
income/loss plus depreciation, amortization, non-cash stock-based
compensation, and other unusual items that affect the comparability
of operating performance as identified above in the determination
of adjusted earnings. The following is a tabular presentation of
segment operating income/loss and adjusted EBITDA, including a
reconciliation to net loss, which the Company believes to be the
most directly comparable U.S. GAAP financial measure. In addition,
as with “adjusted earnings/loss” presented above, we have prepared
these tables in a columnar format to present the effect of flexible
resealable pouch and nutrition bar operations on our consolidated
results for the current and comparative periods. We believe this
presentation assists investors in assessing the results of the
operations we have exited and the effect of those operations on our
financial performance.
Excluding flexibleresealable pouchand
nutrition bar
Flexibleresealable pouchand nutrition
bar
Consolidated
For the quarter ended $ $
$
June 30, 2018 Net earnings (loss) (3,413 ) 287 (3,126 )
Recovery of income taxes (1,391 ) 101 (1,290 ) Interest expense,
net 8,474 - 8,474 Other expense (income), net 613 (30
) 583 Total segment operating income 4,283 358 4,641
Depreciation and amortization 8,189 - 8,189 Stock-based
compensation 2,104 - 2,104 Equipment start-up costs(a) 730 - 730
Costs related to Value Creation Plan(b) 300 - 300 Recovery of
product withdrawal costs(c) (1,200 ) - (1,200
) Adjusted EBITDA 14,406 358 14,764
July 1, 2017 Net loss 1,305 (1,407 ) (102 )
Recovery of income taxes (4,681 ) (900 ) (5,581 ) Interest expense,
net 7,695 - 7,695 Other expense, net 607 -
607 Total segment operating income (loss) 4,926
(2,307 ) 2,619 Depreciation and amortization 7,941 226 8,167
Stock-based compensation(d) 1,337 - 1,337 Costs related to Value
Creation Plan(b) 7,263 - 7,263
Adjusted EBITDA 21,467 (2,081 ) 19,386
(a) Reflects costs related to the
start-up of new roasting equipment, which were recorded in cost of
goods sold. (b) For the second quarter of 2018, reflects
professional fees of $0.3 million recorded in SG&A expenses.
For the second quarter of 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. (c) Reflects
the recovery from a third-party supplier of $1.2 million of costs
we incurred relating to the withdrawal of certain consumer-packaged
products due to quality-related issues, which was recorded in cost
of goods sold. Costs incurred related to this withdrawal were
recognized in cost of goods sold in the fourth quarter of 2016. (d)
For the second quarter of 2017, stock-based compensation of $1.3
million was recorded in SG&A expenses. The reversal of $0.1
million of previously recognized stock-based compensation, related
to forfeited awards of employees that were terminated in connection
with the Value Creation Plan, was recognized in other expense.
Excluding flexibleresealable pouchand
nutrition bar
Flexibleresealable pouchand nutrition
bar
Consolidated
For the two quarters ended $ $
$
June 30, 2018 Net loss (6,891 ) (697 ) (7,588 )
Recovery of income taxes (2,738 ) (245 ) (2,983 ) Interest expense,
net 16,694 - 16,694 Other expense (income), net (1,000 )
1,181 181 Total segment operating income 6,065
239 6,304 Depreciation and amortization 16,330 - 16,330 Stock-based
compensation 4,275 - 4,275 Equipment start-up costs(a) 730 - 730
Costs related to Value Creation Plan(b) 713 - 713 Recovery of
product withdrawal costs(c) (1,200 ) - (1,200
) Adjusted EBITDA 26,913 239 27,152
July 1, 2017 Net loss (8,665 ) (2,621 )
(11,286 ) Recovery of income taxes (8,875 ) (1,675 ) (10,550 )
Interest expense, net 15,449 - 15,449 Other expense, net 6,050
- 6,050 Total segment operating
income (loss) 3,959 (4,296 ) (337 ) Depreciation and amortization
15,896 451 16,347 Stock-based compensation(d) 2,465 - 2,465 Costs
related to Value Creation Plan(b) 19,073 - 19,073 Product
withdrawal and recall costs(e) 729 -
729 Adjusted EBITDA 42,122 (3,845 )
38,277 (a) Reflects costs
related to the start-up of new roasting equipment, which were
recorded in cost of goods sold. (b) For the first half of 2018,
reflects the write-down of remaining flexible resealable pouch and
nutrition bar inventories of $0.1 million recorded in cost of goods
sold; and professional and consulting fees, and employee
recruitment and relocation costs of $0.6 million recorded in
SG&A expenses. For the first half of 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) Reflects the recovery from a third-party supplier of $1.2
million of costs we incurred relating to the withdrawal of certain
consumer-packaged products due to quality-related issues, which was
recorded in cost of goods sold. Costs incurred related to this
withdrawal were recognized in cost of goods sold in the fourth
quarter of 2016. (d) For the first half of 2017, stock-based
compensation of $2.5 million was recorded in SG&A expenses. The
reversal of $0.3 million of previously recognized stock-based
compensation, related to forfeited awards of employees that were
terminated in connection with the Value Creation Plan, was
recognized in other expense. (e) 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.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180808005203/en/
for SunOpta Inc.Scott Van Winkle,
617-956-6736ICRscott.vanwinkle@icrinc.com
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