Beverage, Snack and Organic Ingredient
Platforms Drive Growth
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 third quarter ended September 29,
2018.
“We generated 2.0% adjusted revenue growth during the third
quarter, led by our beverage, snack and organic ingredient
platforms. Success in our go-to-market effectiveness pillar
positions us for continued revenue growth in the fourth quarter,”
said David Colo, Chief Executive Officer. “We successfully
commercialized approximately 100 private label broth and frozen
fruit SKUs during the quarter, and our sales opportunity pipeline
remains robust. The expansion project in our aseptic beverage
platform remains on track, and during the quarter we completed
final commissioning of our organic cocoa processing facility. These
projects will enable us to capitalize on our sales opportunity
pipeline, while also providing needed capacity to support our
current growth trajectory. While we remain on track to deliver $20
million of productivity savings this year, plant start-up costs and
inefficiencies in our domestic ingredients business, combined with
our continued investment to return the frozen fruit platform to
profitable growth, offset these productivity improvements during
the quarter. We are committed to making the necessary investments
to sustainably improve profitability in 2019 and beyond.”
All amounts are expressed in U.S. dollars and results are
reported in accordance with U.S. GAAP, except where specifically
noted.
Third Quarter 2018 Highlights:
- Revenues of $308.4 million for the
third quarter of 2018, compared to $320.7 million in the third
quarter of 2017, a decrease of 3.8%. Adjusted for changes in
foreign exchange, commodity prices, and sales of flexible
resealable pouch and nutrition bar products, revenues grew 2.0%
during the third quarter.
- Loss attributable to common
shareholders of $6.6 million or $0.08 per common share in the third
quarter of 2018, compared to a loss attributable to common
shareholders of $8.0 million or $0.09 per common share in the third
quarter of 2017.
- Adjusted loss of $3.8 million or $0.04
per common share during the third quarter of 2018, compared to
adjusted loss of $1.9 million or $0.02 per common share during the
third quarter of 2017.
- Adjusted EBITDA¹ of $16.7 million or
5.4% of revenues for the third quarter of 2018, versus $19.1
million or 6.0% of revenues in the third quarter of 2017.
- Loss attributable to common
shareholders, Adjusted loss¹ and Adjusted EBITDA¹ for the third
quarter of 2018 included a timing-related, pre-tax gain of $1.9
million recognized in cost of goods sold, relating to the net
impact of foreign exchange and commodity price movements in the
quarter, on certain contracts within the European-based operations
of the Global Ingredients segment, compared to a pre-tax gain of
$0.6 million in the third quarter of 2017.
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. For 2018, these EBITDA
benefits are expected to be offset by a decline in profitability in
the frozen fruit platform as a result of sales price reductions and
higher costs. The plan also calls for increased investment in
capital upgrades at several manufacturing facilities to continue 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 third 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 drive growth and deliver
long-term value. Since the initiation of the Value Creation Plan,
the Company has implemented actions that are expected to yield
approximately $28 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. The Company has exited three lines of
business and closed or consolidated five facilities since the
launch of the Value Creation Plan, and is continually evaluating
its portfolio to ensure all businesses are strategically positioned
to drive long-term value. Recent highlights include:
- Completed commissioning of the second
roasting and processing line at the Company’s organic cocoa
facility in the Netherlands, contributing to strong sales growth
and increased gross margins in the quarter. This expansion
approximately doubled cocoa processing capacity in addition to
adding new capabilities at the facility.
- Continued to make progress with an
aseptic expansion project to add processing and packaging capacity
and capabilities to the Company’s Allentown, Pennsylvania, beverage
facility. This 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. The
additional processing and filling capacity is expected to provide
increased flexibility and cost advantages across the network of
aseptic plants, while creating needed capacity to continue to grow
the Company’s organic and conventional aseptic beverage offerings.
The project is expected to cost approximately $22 million and is on
track to come online in mid-2019.
- Continued the commissioning of new
roasting equipment at the Company’s Crookston, Minnesota, facility,
which is expected to be completed during the fourth quarter. The
new equipment is designed to increase production efficiencies and
add incremental capacity and roasting capabilities in support of
demand for on-trend healthy snacks including roasted grains, seeds
and legumes.
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:
- Completed the 2018 fruit pack season
with high scores for fruit quality as a result of enhanced sorting
and handling processes. During the quarter, the Company approved a
significant capital enhancement project to bring new automation and
technology to its California frozen fruit processing facilities and
also negotiated a new long-term lease at the Santa Maria,
California, location, which will include the construction of a new
cold storage facility. These enhancements are an important step in
the margin optimization plan designed to lower cost and increase
productivity in the Healthy Fruit platform.
- 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.
- 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:
- Successfully commercialized
approximately 100 new everyday broth and frozen fruit SKUs with
large mass and traditional retailers during the third quarter, with
volume building late in the quarter and additional SKUs on track
for delivery in the fourth quarter.
- 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
innovative oat-based, non-dairy beverage into retail and industrial
channels, traditional non-dairy SKUs into retail and broadline
foodservice channels, expanded distribution of everyday broth with
a large mass retailer, private label frozen fruit for a specialty
retailer, and increased orders for private label frozen fruit items
following a category reset.
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:
- Significant advancement made with a new
demand planning system that is expected to enhance the Company’s
sales and operations planning processes. The new tool is expected
to go live during the fourth quarter of 2018.
- Improved capacity planning capabilities
across the frozen fruit network.
- New product commercialization
capabilities were enhanced and demonstrated success during the
third quarter, as evidenced by the approximately 100 new SKUs
commercialized across the beverage and fruit platforms. Combined
with the Company’s R&D capabilities, the enhanced
commercialization processes are expected to aid in successfully
bringing new innovation to market in the categories they
serve.
- Enhancements to employee health and
safety processes continued to result in a reduction in recordable
incidents year-to-date in 2018 compared to 2017.
Third Quarter 2018 Results
Revenues for the third quarter of 2018 were $308.4 million, a
decrease of 3.8% compared to $320.7 million in the third quarter of
2017. Excluding the impact on revenues for the third 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 third quarter of 2018 increased by 2.0%
compared with the third quarter of 2017.
The Global Ingredients segment generated revenues from external
customers of $136.8 million, a decrease of 0.4% compared to $137.3
million in the third quarter of 2017. Excluding the impact on
revenues of changes in commodity-related pricing and foreign
exchange rates, Global Ingredients revenue in the third quarter
increased 0.9%. Sales of internationally-sourced organic
ingredients grew 5.4% during the quarter, excluding the effect of
commodity prices and foreign exchange, driven by increased demand
in the U.S. market, offset by continued pressure in Europe due in
part to the impact of drought as well as a slowdown in certain dry
categories including nuts and seeds. This growth was largely offset
by a 9.6% decline in domestically-sourced ingredients, excluding
the effects of commodity prices, reflecting lower sales of organic
feed due to volatility caused by the import market, continued soft
market conditions for sunflower, and the previously announced exit
from certain domestically-sourced grain varieties in 2017.
The Consumer Products segment generated revenues of $171.6
million during the third quarter of 2018, a decrease of 6.5%
compared to $183.5 million in the third 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 third quarter increased by 3.0%. The growth
primarily reflects a 53.9% increase in the Healthy Snacks platform
driven by strong sales in fruit snacks, and 6.8% increase in the
Healthy Beverage platform consisting of higher sales of aseptic
non-dairy and the introduction of everyday broth products,
partially offset by a 5.5% decline in the Healthy Fruit platform
due to mainly to sales price decreases and a product mix shift
towards lower priced items.
Gross profit decreased $2.3 million, or 6.4%, to $34.1 million
for the quarter ended September 29, 2018, compared with $36.5
million for the quarter ended September 30, 2017. Global
Ingredients accounted for $1.2 million of the decrease in gross
profit, which was largely due to start-up costs associated with new
roasting equipment at the Crookston facility, and the impact of
foreign exchange on certain contracts within the European-based
operations of the international organic ingredient platform. During
the third quarter of 2018, the Company recognized a non-cash $0.7
million foreign exchange loss on U.S. dollar-denominated raw
material purchase contracts, compared with a non-cash foreign
exchange gain of $0.7 million in the third quarter of 2017. These
factors were partially offset by increased volumes and pricing
spreads for certain organic ingredients, as well as a $2.6 million
gain in the third quarter of 2018 on commodity futures contracts
used to hedge organic cocoa, compared to a $0.1 million loss in the
third quarter of 2017. Consumer Products accounted for $1.2 million
of the decrease in gross profit due mainly to lower sales pricing
coupled with increased manufacturing and supply chain costs for
frozen fruit. These factors were partially offset by increased
sales and production volumes, and productivity-driven cost savings
in the beverage and snacks platforms, 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
September 29, 2018 was 11.1% compared to 11.4% for the quarter
ended September 30, 2017, a decrease of 0.3%. The gross profit
percentage for the third quarter of 2018 would have been
approximately 11.7%, excluding start-up costs of $1.5 million
related to the new roasting equipment and $0.4 million of costs
associated with the commercialization of new beverage and frozen
fruit SKUs. The gross profit percentage for the third quarter of
2017 would have been approximately 11.8%, excluding the impact of a
$1.3 million write-down of flexible resealable pouch and nutrition
bar inventories.
Segment operating income¹ for the quarter ended September 29,
2018 decreased $0.5 million to $4.5 million, compared to $5.0
million for the quarter ended September 30, 2017. The decrease in
segment operating income reflected lower overall gross profit, as
described above, and a $1.1 million increase in SG&A expenses,
partially offset by a $2.9 million reduction in foreign exchange
losses, which included a $1.2 million favorable result related to
forward currency contracts within the international organic
ingredient operations, which mostly offset the foreign exchange
movement within gross profit. Excluding SG&A costs related to
the Value Creation Plan, as well as those items identified above
affecting gross profit, segment operating income as a percentage of
revenues on an adjusted basis would have been 2.1% for the third
quarter of 2018, compared with 2.7% for the third quarter of
2017.
Adjusted EBITDA¹ was $16.7 million or 5.4% of revenues in the
third quarter of 2018, compared to $19.1 million or 6.0% of
revenues in the third quarter of 2017. Excluding flexible
resealable pouch and nutrition bar operations, adjusted EBITDA for
the quarter ended September 29, 2018 was $16.7 million, compared
with $20.3 million for the quarter ended September 30, 2017.
The Company reported a loss attributable to common shareholders
of $6.6 million, or $0.08 per common share, compared to a loss
attributable to common shareholders of $8.0 million, or $0.09 per
common share during the third quarter of 2017. Adjusted loss¹ in
the third quarter of 2018 was $3.8 million or a loss of $0.04 per
common share, compared to $1.9 million or $0.02 per common share in
the third quarter of 2017. Please refer to the discussion and table
below under “Non-GAAP Measures - Adjusted Earnings/Loss”.
Balance Sheet and Cash Flow
At September 29, 2018, SunOpta’s balance sheet reflected total
assets of $999.2 million and total debt of $505.7 million. During
the third quarter of 2018 cash provided by operating activities was
$10.5 million, compared to cash used of $11.1 million during the
third quarter of 2017. The increase in cash provided by operations
reflects improved cash flows from working capital as compared to
the third quarter of 2017, due mainly to timing of payments made
for purchases of fruit, and services associated with the Value
Creation Plan. Cash used in investing activities during the third
quarter of 2018 was $6.0 million, compared to $7.8 million in the
prior year period as the current quarter benefited from cash
received against an outstanding note receivable from the sale of a
legacy business.
Conference Call
SunOpta plans to host a conference call at 9:00 A.M. Eastern
time on Wednesday, November 7, 2018, to discuss the third 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 the Company’s Value Creation Plan,
including the estimated amount and timing of EBITDA enhancements;
the Company’s intention to exit businesses or product lines where
it is not effectively positioned; the expected increased capacity
resulting from the Company’s aseptic capacity expansion plan and
the associated cost and timing; the expected completion date of
commissioning and increased capacity from the Company’s new
roasting equipment at Crookston, MN; proposed construction of new
cold storage facility at Santa Maria, CA; improved revenue growth
and profitability as a result of the Company’s customer and product
mix optimization efforts; and expected enhancements resulting from
and timing of implementation of the Company’s new demand planning
system. Generally, forward-looking statements do not relate
strictly to historical or current facts and are typically
accompanied by words such as “expect”, “will”. "continue",
“believe”, “targeting”, “anticipates”, "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 the Company 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, the Company’s planned expansion initiatives,
portfolio optimization and productivity efforts, the Company’s
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 the
Company’s 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,
failure or inability to implement portfolio changes, process
improvements, go-to-market improvements and process sustainability
strategies in a timely manner; 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 the Company’s 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 three quarters ended September 29, 2018 and
September 30, 2017 (Unaudited) (All dollar amounts expressed in
thousands of U.S. dollars, except per share amounts)
Quarter ended Three quarters ended September
29, September 30, September 29,
September 30, 2018 2017 2018 2017 $
$ $ $
Revenues 308,371 320,713 940,331 987,198
Cost of
goods sold 274,243 284,258
838,173 870,382
Gross
profit 34,128 36,455 102,158 116,816 Selling, general
and administrative expenses 27,220 26,102 82,456 99,413 Intangible
asset amortization 2,754 2,817 8,293 8,429 Other expense, net 1,136
5,972 1,317 12,022 Foreign exchange loss (gain) (368 )
2,575 583 4,350
Earnings (loss) before the following 3,386
(1,011 ) 9,509 (7,398 ) Interest expense, net 8,792
8,371 25,486
23,820
Loss before income taxes (5,406
) (9,382 ) (15,977 ) (31,218 ) Recovery of income taxes (870
) (3,499 ) (3,853 )
(14,049 )
Net loss (4,536 ) (5,883 ) (12,124 )
(17,169 ) Earnings attributable to non-controlling interests
70 144 19
664
Loss attributable to SunOpta Inc.
(4,606 ) (6,027 ) (12,143 ) (17,833 ) Dividends and
accretion on Series A Preferred Stock (1,981 ) (1,954
) (5,922 ) (5,848 )
Loss
attributable to common shareholders (6,587 )
(7,981 ) (18,065 ) (23,681 )
Loss per share Basic (0.08 ) (0.09 ) (0.21 ) (0.27 ) Diluted
(0.08 ) (0.09 ) (0.21 )
(0.27 )
Weighted-average common shares outstanding
(000s) Basic 87,168 86,541 86,982 86,232 Diluted 87,168
86,541 86,982
86,232
SunOpta Inc. Consolidated
Balance Sheets As at September 29, 2018 and December 30, 2017
(Unaudited) (All dollar amounts expressed in thousands of U.S.
dollars) September 29, 2018
December 30, 2017 $ $
ASSETS Current assets Cash and cash equivalents 1,857
3,228 Accounts receivable 131,924 125,152 Inventories 378,758
354,978 Prepaid expenses and other current assets 27,026 33,213
Income taxes recoverable 11,545 12,006
Total current assets 551,110 528,577
Property,
plant and equipment 168,889 163,624
Goodwill 109,281
109,533
Intangible assets 163,731 172,059
Deferred income
taxes 362 363
Other assets 5,786
8,017
Total assets 999,159
982,173
LIABILITIES Current
liabilities Bank indebtedness 278,688 234,090 Accounts payable
and accrued liabilities 158,918 161,364 Customer and other deposits
789 4,901 Income taxes payable 3,093 1,351 Other current
liabilities 1,485 818 Current portion of long-term debt 2,003 2,228
Current portion of long-term liabilities 4,505
5,300
Total current liabilities 449,481 410,052
Long-term debt 225,007 225,805
Long-term
liabilities 2,202 8,352
Deferred income taxes 11,862
15,850
Total liabilities 688,552
660,059
Series A Preferred Stock 81,015 80,193
EQUITY SunOpta Inc. shareholders’ equity Common
shares 312,970 308,899 Additional paid-in capital 30,929 28,006
Accumulated deficit (107,102 ) (89,291 ) Accumulated other
comprehensive loss (8,939 ) (7,268 ) 227,858 240,346
Non-controlling interests 1,734 1,575
Total equity 229,592 241,921
Total equity and liabilities 999,159
982,173
SunOpta Inc.
Consolidated Statements of Cash Flows For the quarters and three
quarters ended September 29, 2018 and September 30, 2017
(Unaudited) (Expressed in thousands of U.S. dollars)
Quarter ended Three quarters ended September
29, September 30, September 29,
September 30, 2018 2017 2018 2017 $
$ $ $
CASH
PROVIDED BY (USED IN) Operating activities Net
loss (4,536 ) (5,883 ) (12,124 ) (17,169 ) Items not affecting
cash: Depreciation and amortization 8,171 8,254 24,501 24,601
Amortization of debt issuance costs 598 613 1,806 1,751 Deferred
income taxes (1,706 ) (3,425 ) (3,857 ) (13,340 ) Stock-based
compensation 2,120 1,995 6,395 4,133 Unrealized loss (gain) on
derivative contracts 2,110 754 867 (475 ) Fair value of contingent
consideration 25 83 (2,348 ) 287 Impairment of long-lived assets -
4,467 409 8,190 Other 36 55 (111 ) (46 ) Changes in non-cash
working capital 3,664 (18,006 )
(31,771 ) (25,319 ) Net cash flows from operations
10,482 (11,093 ) (16,233 )
(17,387 )
Investing activities
Purchases of property, plant and equipment (7,758 ) (6,527 )
(24,921 ) (22,694 ) Proceeds from sale of assets 707 475 1,437 776
Payments received on note from sale of business 1,006 39 1,236 39
Acquisition of non-controlling interests - (1,737 ) - (1,737 )
Other - (34 ) 159
330 Net cash flows from investing activities (6,045 )
(7,784 ) (22,089 )
(23,286 )
Financing activities Increase (decrease)
under line of credit facilities (2,716 ) 19,222 47,478 48,571
Borrowings under long-term debt - 417 - 417 Repayment of long-term
debt (557 ) (564 ) (1,494 ) (1,680 ) Payment of cash dividends on
Series A Preferred Stock (1,700 ) (1,700 ) (5,100 ) (4,991 )
Proceeds from the exercise of stock
options and employee share purchases, net of withholding taxes
paid
359 1,052 599 4,681 Payment of debt issuance costs - (206 ) - (206
) Payment of contingent consideration - - (4,399 ) (4,330 ) Other
(44 ) 13 (89 )
(290 ) Net cash flows from financing activities (4,658 )
18,234 36,995
42,172 Foreign exchange gain (loss) on cash held in a
foreign currency (9 ) 41 (44 )
105 Increase (decrease) in cash and
cash equivalents in the period (230 ) (602 ) (1,371 ) 1,604
Cash and cash equivalents - beginning of the period 2,087
3,457 3,228
1,251 Cash and cash equivalents - end of the period
1,857 2,855 1,857
2,855
SunOpta Inc. Segmented
Information For the quarters and three quarters ended September 29,
2018 and September 30, 2017 Unaudited (Expressed in thousands of
U.S. dollars) Quarter ended
Three quarters ended September 29, September 30,
September 29, September 30, 2018 2017
2018 2017 $ $ $
$
Segment revenues from external customers:
Global Ingredients 136,754 137,254 419,770 410,022 Consumer
Products 171,617 183,459
520,561 577,176 Total segment revenues
from external customers 308,371 320,713
940,331 987,198
Segment gross profit: Global Ingredients 14,477 15,645
42,576 51,025 Consumer Products 19,651 20,810
59,582 65,791
Total segment gross profit 34,128 36,455
102,158 116,816
Segment operating income (loss): Global Ingredients
5,304 4,846 11,371 16,960 Consumer Products 3,319 4,947 11,397
16,124 Corporate Services (4,101 ) (4,832 )
(11,942 ) (28,460 ) Total segment operating
income 4,522 4,961 10,826
4,624
Segment gross profit
percentage: Global Ingredients 10.6 % 11.4 % 10.1 % 12.4 %
Consumer Products 11.5 % 11.3 % 11.4 % 11.4 % Total segment gross
profit percentage 11.1 % 11.4 % 10.9 % 11.8 %
Segment
operating income percentage: Global Ingredients 3.9 % 3.5 % 2.7
% 4.1 % Consumer Products 1.9 % 2.7 % 2.2 % 2.8 % Total segment
operating income 1.5 % 1.5 % 1.2 % 0.5 %
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. The Company believes 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 its
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 its results of operations, the Company uses
certain other non-GAAP measures that it believes enhance an
investor’s ability to derive meaningful period-over-period
comparisons and trends from the results of operations. In
particular, the Company evaluates its revenues on a basis that
excludes the effects of fluctuations in commodity pricing and
foreign exchange rates. In addition, the Company excludes specific
items from its reported results that due to their nature or size,
it does not expect to occur as part of its 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 be 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 its financial performance, the Company uses an
internal measure that excludes charges and gains that it believes
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 the Company’s
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 net loss, 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, the Company
has prepared these tables in a columnar format to present the
effect of these operations on the Company’s consolidated results
for the current and comparative periods. The Company believes this
presentation assists investors in assessing the results of the
operations the Company has exited and the effect of those
operations on its financial performance.
Excluding flexible Flexible
resealable pouch resealable pouch and
nutrition bar and nutrition bar
Consolidated
Per Diluted
Per Diluted
Per Diluted
Share Share Share
For the quarter ended $
$ $ $ $
$
September 29, 2018 Net loss (4,500 ) (36 )
(4,536 ) Less: earnings attributable to non-controlling interests
(70 ) - (70 ) Less: dividends and accretion of Series A Preferred
Stock (1,981 ) - (1,981 ) Loss attributable to common
shareholders (6,551 ) (0.08 ) (36 ) - (6,587 ) (0.08 )
Adjusted for: Equipment start-up costs(a) 1,500 - 1,500 Product
withdrawal and recall costs(b) 1,011 - 1,011 New product
commercialization costs(c) 360 - 360 Costs related to the Value
Creation Plan(d) 43 - 43 Other(e) 83 - 83 Net income tax effect(f)
(243 ) - (243 ) Adjusted loss (3,797 ) (0.04 )
(36 ) - (3,833 )
(0.04 )
September 30, 2017 Net loss
(639 ) (5,244 ) (5,883 ) Less: earnings attributable to
non-controlling interests (144 ) - (144 ) Less: dividends and
accretion of Series A Preferred Stock (1,954 ) - (1,954 )
Loss attributable to common shareholders (2,737 ) (0.03 ) (5,244 )
(0.06 ) (7,981 ) (0.09 ) Adjusted for: Costs related to the
Value Creation Plan(g) 3,050 7,206 10,256 Product withdrawal and
recall costs(b) 134 - 134 Recovery of legal settlement(h) (1,024 )
- (1,024 ) Other(e) 293 - 293 Net income tax effect(f) (774 )
(2,810 ) (3,584 ) Adjusted loss (1,058 ) (0.01 )
(848 ) (0.01 ) (1,906 )
(0.02 ) (a) Reflects costs related to
the start-up of new roasting equipment at the Crookston facility,
which were recorded in cost of goods sold.
(b)
Reflects product withdrawal and recall
costs that were not eligible for reimbursement under the Company’s
insurance policies or exceeded the limits of those policies,
including costs related to the recall of certain sunflower kernel
products initiated in the second quarter of 2016, which were
recorded in other expense.
(c)
Reflects costs of production trials and
employee training related to the commercialization of new consumer
products, which were recorded in cost of goods sold.
(d)
Reflects employee termination costs
recorded in other expense, related to the Value Creation Plan.
(e)
Other included the accretion of contingent
consideration obligations, gain/loss on the sale of assets, and
settlement of a legal matter in the third quarter of 2018, which
were recorded in other expense/income.
(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 three quarters
ended September 29, 2018 (September 30, 2017 – 30%) on adjusted
earnings before tax.
(g)
Reflects inventory write-downs of $1.3
million recorded in cost of goods sold; and consulting fees,
temporary labor, employee recruitment, relocation and retention
costs of $2.4 million recorded in SG&A expenses; and asset
impairment charges and employee termination costs of $6.6 million
recorded in other expense, all related to the Value Creation
Plan.
(h)
Reflects the recovery on the early
extinguishment of a rebate obligation that arose from the
settlement in fiscal 2016 of a flexible resealable pouch product
recall dispute with a customer, which was recorded in other
income.
Excluding flexible Flexible
resealable pouch resealable pouch and
nutrition bar and nutrition bar
Consolidated
Per Diluted
Per Diluted
Per Diluted
Share Share Share
For the three quarters ended
$ $ $ $ $
$
September 29, 2018 Net loss (11,391 ) (733 )
(12,124 ) Less: earnings attributable to non-controlling interests
(19 ) - (19 ) Less: dividends and accretion of Series A Preferred
Stock (5,922 ) - (5,922 ) Loss attributable to common
shareholders (17,332 ) (0.20 ) (733 ) (0.01 ) (18,065 ) (0.21 )
Adjusted for: Costs related to the Value Creation Plan(a)
1,696 1,181 2,877 Equipment start-up costs(b) 2,230 - 2,230 Product
withdrawal and recall costs(c) 1,456 - 1,456 New product
commercialization costs(d) 360 - 360 Other(e) 198 - 198 Fair value
adjustment on contingent consideration(f) (2,500 ) - (2,500 )
Recovery of product withdrawal costs(g) (1,200 ) - (1,200 ) Net
income tax effect(h) (280 ) (307 ) (587 ) Adjusted earnings (loss)
(15,372 ) (0.18 ) 141
- (15,231 ) (0.18 )
September 30, 2017 Net loss (9,304 ) (7,865 ) (17,169
) Less: earnings attributable to non-controlling interests (664 ) -
(664 ) Less: dividends and accretion of Series A Preferred Stock
(5,848 ) - (5,848 ) Loss attributable to common shareholders
(15,816 ) (0.18 ) (7,865 ) (0.09 ) (23,681 ) (0.27 )
Adjusted for: Costs related to the Value Creation Plan(i) 28,021
7,206 35,227 Product withdrawal and recall costs(j) 1,142 - 1,142
Recovery of legal settlement(k) (1,024 ) - (1,024 ) Other(d) 166 -
166 Net income tax effect(h) (12,560 ) (2,810 ) (15,370 ) Adjusted
loss (71 ) - (3,469 )
(0.04 ) (3,540 ) (0.04 )
(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 $2.2 million recorded in other
expense, all related to the Value Creation Plan.
(b)
Reflects costs related to the start-up of
new roasting equipment at the Crookston facility, which were
recorded in cost of goods sold.
(c)
Reflects product withdrawal and recall
costs that were not eligible for reimbursement under the Company’s
insurance policies or exceeded the limits of those policies,
including costs related to the recall of certain sunflower kernel
products initiated in the second quarter of 2016, which were
recorded in other expense.
(d)
Reflects costs of production trials and
employee training related to the commercialization of new consumer
products, which were recorded in cost of goods sold.
(e)
Other included the accretion of contingent
consideration obligations, gain/loss on the sale of assets,
severance costs unrelated to the Value Creation Plan, and
settlement of a legal matter in the third quarter of 2018, which
were recorded in other expense/income.
(f)
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, based on the projected results for
the business in fiscal 2018, which was recorded in other
income.
(g)
Reflects the recovery from a third-party
supplier of $1.2 million of costs 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.
(h)
Reflects the tax effect of the preceding
adjustments to earnings and reflects an overall estimated annual
effective tax rate of approximately 26% for the three quarters
ended September 29, 2018 (September 30, 2017 – 30%) on adjusted
earnings before tax.
(i)
Reflects inventory write-downs and
facility closure costs of $1.9 million recorded in cost of goods
sold; consulting fees, temporary labor, employee recruitment,
relocation and retention costs of $20.8 million recorded in
SG&A expenses; and asset impairment charges and employee
termination costs of $12.5 million recorded in other expense, all
related to the Value Creation Plan.
(j)
Reflects costs related to sunflower
recall, including a $0.7 million adjustment for the estimated lost
gross profit caused by the 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 $0.4 million of
direct costs recorded in other expense that are not eligible for
reimbursement under the Company’s insurance policies.
(k)
Reflects the recovery on the early
extinguishment of a rebate obligation that arose from the
settlement in fiscal 2016 of a flexible resealable pouch product
recall dispute with a customer, which was recorded in other
income.
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/loss. 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, the Company has
prepared these tables in a columnar format to present the effect of
flexible resealable pouch and nutrition bar operations on the
Company’s consolidated results for the current and comparative
periods. The Company believes this presentation assists investors
in assessing the results of the operations the Company has exited
and the effect of those operations on its financial
performance.
Excluding flexible Flexible
resealable pouch resealable pouch and nutrition bar and
nutrition bar Consolidated
For the quarter ended
$ $ $
September 29, 2018
Net loss (4,500 ) (36 ) (4,536 ) Recovery of income taxes (858 )
(12 ) (870 ) Interest expense, net 8,792 - 8,792 Other expense, net
1,136 - 1,136
Total segment operating income (loss) 4,570 (48 ) 4,522
Depreciation and amortization 8,171 - 8,171 Stock-based
compensation 2,120 - 2,120 Equipment start-up costs(a) 1,500 -
1,500 New product commercialization costs(b) 360
- 360 Adjusted EBITDA 16,721
(48 ) 16,673
September 30, 2017 Net loss (639 ) (5,244 ) (5,883 )
Recovery of income taxes (146 ) (3,353 ) (3,499 ) Interest expense,
net 8,371 - 8,371 Other expense, net 53 5,919
5,972 Total segment operating income
(loss) 7,639 (2,678 ) 4,961 Depreciation and amortization 8,055 199
8,254 Stock-based compensation(c) 2,235 - 2,235 Costs related to
Value Creation Plan(d) 2,400 1,287
3,687 Adjusted EBITDA 20,329
(1,192 ) 19,137 (a)
Reflects costs related to the start-up of new roasting equipment at
the Crookston facility, which were recorded in cost of goods sold.
(b)
Reflects costs of production trials and
employee training related to the commercialization of new consumer
products, which were recorded in cost of goods sold.
(c)
For the third quarter of 2017, stock-based
compensation of $2.2 million was recorded in SG&A expenses, and
the reversal of $0.2 million of previously recognized stock-based
compensation related to forfeited awards previously granted to
terminated employees was recognized in other expense.
(d)
Reflects inventory write-downs of $1.3
million recorded in cost of goods sold and consulting fees,
temporary labor, employee recruitment, relocation and retention
costs of $2.4 million recorded in SG&A expenses.
Excluding flexible Flexible
resealable pouch resealable pouch and nutrition bar
and nutrition bar Consolidated
For the three quarters ended
$ $ $
September 29,
2018 Net loss (11,391 ) (733 ) (12,124 ) Recovery of income
taxes (3,596 ) (257 ) (3,853 ) Interest expense, net 25,486 -
25,486 Other expense (income), net 136 1,181
1,317 Total segment operating income
10,635 191 10,826 Depreciation and amortization 24,501 - 24,501
Stock-based compensation 6,395 - 6,395 Equipment start-up costs(a)
2,230 - 2,230 Costs related to Value Creation Plan(b) 713 - 713 New
product commercialization costs(c) 360 - 360 Recovery of product
withdrawal costs(d) (1,200 ) -
(1,200 ) Adjusted EBITDA 43,634 191
43,825
September 30, 2017 Net
loss (9,304 ) (7,865 ) (17,169 ) Recovery of income taxes (9,021 )
(5,028 ) (14,049 ) Interest expense, net 23,820 - 23,820 Other
expense, net 6,103 5,919
12,022 Total segment operating income (loss) 11,598 (6,974 )
4,624 Depreciation and amortization 23,951 650 24,601 Stock-based
compensation(e) 4,700 - 4,700 Costs related to Value Creation
Plan(b) 21,473 1,287 22,760 Product withdrawal and recall costs(f)
729 - 729 Adjusted
EBITDA 62,451 (5,037 ) 57,414
(a) Reflects costs related to the start-up of
new roasting equipment at the Crookston facility, which were
recorded in cost of goods sold.
(b)
For the first three quarters 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 three quarters of 2017, reflects
inventory write-downs and facility closure costs of $1.9 million
recorded in cost of goods sold, and consulting fees, temporary
labor, employee recruitment, relocation and retention costs of
$20.8 million recorded in SG&A expenses.
(c)
Reflects costs of production trials and
employee training related to the commercialization of new consumer
products, which were recorded in cost of goods sold.
(d)
Reflects the recovery from a third-party
supplier of $1.2 million of costs the Company 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.
(e)
For the first three quarters of 2017,
stock-based compensation of $4.7 million was recorded in SG&A
expenses, and the reversal of $0.6 million of previously recognized
stock-based compensation related to forfeited awards previously
granted to terminated employees was recognized in other
expense.
(f)
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/20181107005260/en/
For SunOpta Inc.Scott Van Winkle,
617-956-6736ICRscott.vanwinkle@icrinc.com
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