Lassonde Industries Inc. announces its Q4 and fiscal 2022 results
Rougemont, QC, March 31, 2023 – Lassonde Industries Inc. (TSX: LAS.A) (“Lassonde” or the “Corporation”) today announced its financial results for its fourth quarter and year ended December 31, 2022.
Financial Highlights:
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Fourth quarters ended |
Fiscal years ended |
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(in millions of dollars, unless otherwise indicated) | Dec. 31,
2022 |
Dec. 31,
2021 |
∆ | Dec. 31,
2022 |
Dec. 31,
2021 |
∆ | ||||||||
$ | $ | $ | $ | $ | $ | |||||||||
Sales | 556.0 | 487.5 | 68.5 | 2,151.0 | 1,892.9 | 258.1 | ||||||||
Gross profit | 123.6 | 134.1 | (10.5) | 523.3 | 521.9 | 1.4 | ||||||||
Operating profit | 16.7 | 31.6 | (14.9) | 81.3 | 118.4 | (37.1) | ||||||||
Profit | 10.1 | 21.8 | (11.7) | 53.3 | 78.5 | (25.2) | ||||||||
Attributable to: | ||||||||||||||
Corporation’s shareholders | 10.5 | 21.8 | (11.3) | 53.9 | 77.5 | (23.6) | ||||||||
Non-controlling interest | (0.4) | (0.0) | (0.4) | (0.6) | 1.0 | (1.6) | ||||||||
EPS (in $) | 1.53 | 3.15 | (1.62) | 7.85 | 11.18 | (3.33) | ||||||||
Weighted average number of shares outstanding (in thousands) |
6,849 |
6,933 |
(84) |
6,875 | 6,933 | (58) | ||||||||
Adjusted EBITDA[i] | 38.3 | 46.5 | (8.2) | 157.1 | 180.6 | (23.5) | ||||||||
Adjusted EPSi (in $) | 2.09 | 3.22 | (1.13) | 9.37 | 11.48 | (2.11) |
Note: These are financial highlights only. Management’s Discussion and Analysis, the audited consolidated financial statements and notes thereto for the year ended December 31, 2022 are available on the SEDAR website at www.sedar.com and on the Corporation’s website.
“Despite a challenging year impacting our financials, we achieved an important milestone in 2022 with sales exceeding the $2-billion mark for the first time in our history, representing almost 14% growth year-over-year. This achievement reflects the important efforts of our employees in the context of severe macro-economic headwinds and industry-wide challenges. During the past year, our team worked diligently to strengthen our leadership position in the North American food and beverage sector, with a particular focus on improving U.S. operations. We anticipate that tangible results from our operational excellence efforts will gradually become apparent in 2023 and 2024, establishing a clear path towards long-term profitable growth,” said Nathalie Lassonde, Chief Executive Officer and Vice-Chair of the Board of Directors of Lassonde Industries Inc.
“Throughout 2022, we actively engaged resources, including capital expenditures, towards executing our multi-year strategy and delivering on Project Eagle in the U.S. We are pleased with the progress achieved on several operational improvement initiatives to enhance production efficiency and output, that we will benefit from in the years ahead. While we anticipate certain challenges faced in 2022 will likely abate in 2023, we expect inflation to persist, especially regarding commodity prices. However, through further pricing actions, and given current industry demand as well as assuming stable exchange rates, we anticipate the 2023 sales growth rate to be in the mid to high single-digit range and overall profitability to improve,” added Vince Timpano, President and Chief Operating Officer of Lassonde Industries Inc.
Fourth Quarter Highlights:
- Sales of $556.0 million. Excluding a $22.4 million favourable foreign exchange impact, sales were up $46.1 million (9.5%) from the same quarter last year, mainly due to selling price adjustments in both the U.S. and Canada.
- Gross profit of $123.6 million (22.2% of sales), down $10.5 million from the same quarter in 2021. Excluding a $5.2 million favourable foreign exchange impact, gross profit was down $15.7 million from the same quarter last year;
- Higher cost for all inputs, especially apple and orange concentrates and PET resin, including an increase in the cost of transporting them to the Corporation’s plants;
- Increase in the Corporation’s conversion costs; and
- $3.7 million loss in gross profit following a production interruption of the cranberry sauce line at the Corporation’s New Jersey plant.
- Operating profit of $16.7 million, down $14.9 million from the same quarter last year;
- Lower gross profit;
- $5.3 million decrease in performance-related salary expenses;
- $3.4 million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars;
- $2.8 million in expenses related to the multi-year strategy (the “Strategy”); and
- Higher warehousing costs.
- Excluding items impacting comparability, adjusted EBITDAi was $38.3 million, down $8.2 million from the same quarter last year.
- Profit attributable to the Corporation’s shareholders of $10.5 million, resulting in basic and diluted earnings per share (“EPS”) of $1.53, down $11.3 million and $1.62, respectively, from the same quarter in 2021. Excluding items impacting comparability, adjusted EPS i was $2.09 compared to $3.22 in the same quarter last year.
Fiscal 2022 Highlights:
- Sales of $2,151.0 million. Excluding a $44.8 million favourable foreign exchange impact, sales were up $213.3 million (11.3%) from last year, mainly due to a favourable impact of selling price adjustments and by a favourable change in the sales mix of private label sales.
- Gross profit of $523.3 million (24.3% of sales), up $1.4 million from 2021. Excluding a $21.1 million favourable foreign exchange impact, gross profit was down $19.7 million from last year;
- Higher cost for all inputs, especially apple and orange concentrates and PET resin, including an increase in the cost of transporting them to the Corporation’s plants;
- Increase in conversion costs, mainly related to higher raw material warehousing, energy and labour costs; and
- $5.2 million loss in gross profit following a production interruption of the cranberry sauce line at the Corporation’s New Jersey plant.
- Operating profit of $81.3 million, down $37.1 million from last year;
- $32.9 million increase in transportation costs, resulting from higher fuel surcharges and base transportation rates, incurred to deliver products to clients;
- $13.9 million decrease in performance-related salary expenses;
- $11.0 million in expenses related to the Strategy; and
- $7.1 million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars.
- Excluding items impacting comparability, adjusted EBITDAi was $157.1 million, down $23.5 million from last year
- Profit attributable to the Corporation’s shareholders of $53.9 million, resulting in basic and diluted earnings per share of $7.85, down $23.6 million and $3.33, respectively, from 2021. Excluding items impacting comparability, adjusted EPSi was $9.37 compared to $11.48 last year.
- As at December 31, 2022, long-term debt, including the current portion, stood at $249.4 million representing a net debt to adjusted EBITDAi ratio of 1.57:1.
- Total dividends of $2.98 per share, paid in 2022.
Multi-Year Strategy
To provide clarity and orientation on the opportunities to pursue and to optimize capital allocation decisions, in early 2022, the Corporation developed a multi-year strategy. This Strategy aims to accelerate revenue growth, improve overall profitability, and drive long-term value by focussing on three strategic pillars.
- Building a growth-oriented portfolio;
- Driving sustainable performance; and
- Improving capacity to act.
Associated Incremental Operating Expenses
During fiscal 2022, the Corporation began its strategic review, completed the diagnostic step of Project Eagle and began implementing new cloud-based management systems, including demand planning and transportation management systems. In addition, during the second half of the year, the Corporation invested in a project to optimize the current capacity of its specialty food division and to explore the addition of new capacities and growth opportunities. As a result, the Corporation reported additional expenses of $2.8 million and $11.0 million in the fourth quarter and year ended December 31, 2022, respectively.
Associated Capital Expenditures
During fiscal 2022, the Corporation dedicated capital expenditures aligned with its Strategy to support growth, enhance productivity, and invest in innovation and sustainable development. These investments included two projects to improve production efficiency and capacity in Canada, continuing to upgrade the enterprise resource planning (“ERP”) software in Canada along with investments in the U.S. to improve production efficiency and to deploy a new single serve line in the Corporation’s plant based in North Carolina.
Project Eagle
Launched in the second quarter of 2022, Project Eagle is a component of the Strategy specifically aimed at revitalizing its underperforming U.S. operations, with the objective to capture growth, improve margins, and drive long-term sustainable performance. In addition to reviewing the U.S. operations’ products and customers portfolio, Project Eagle also seeks to identify and address key issues hampering performance within its supply chain and manufacturing facilities, including product simplification, process realignment, employee training, capital deployment, plant performance, and supply chain execution.
After completing the diagnostic step of Project Eagle, the Corporation recently took important steps to reduce its stock keeping units (“SKU”) complexity, harmonize packaging formats, consolidate formulas, and rationalize low-margin products and/or customers. The portfolio simplification should allow the Corporation to reduce execution complexity, which would limit downtime related to production changeovers and ultimately increase throughput. The Corporation also completed the first phase of the implementation of an improved cloud-based transportation management system.
The capital designated in support of Project Eagle will be deployed in three areas: (1) updating existing equipment to limit unscheduled downtime; (2) increasing throughput on existing capacity; and (3) investing in new equipment in support of increased capacity in on-trend formats. While the equipment upgrades are expected to result in short-term disruptions, the Corporation expects they will be significantly outweighed by the medium- to long-term benefits.
Finally, some of the initiatives deployed under Project Eagle will ultimately benefit the rest of the organization; for instance the deployment of new transportation management and demand planning systems are first rolled out in the U.S. and then throughout the Corporation
Outlook
Lassonde continues to expect the largest factors impacting its performance in fiscal 2023 will be the financial health of consumers, the inflationary environment, and the frequency and severity of supply chain disruptions. As a result, the Corporation is employing the following assumptions for its fiscal year 2023:
Sales growth rate
- During fiscal 2022, the Corporation has taken pricing action on its branded and private label product offerings, including adjusting contracts with certain customers to recover cost increases it incurred. It expects the effects of such pricing action to be felt in early 2023. The Corporation also expects further pricing action to be implemented over the course of 2023 as inflation persists.
- For 2023, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be in the mid to high single-digit range, mainly driven by selling price adjustments. The Corporation is, however, closely monitoring the evolution of consumer food habits and price elasticity in a context of a contraction in demand.
Productivity and service level
- Labour and operational initiatives, together with fewer supply chain constraints, are expected to improve the Corporation’s ability to supply demand and return to historical order fill rate levels, particularly in the U.S.
Key commodity and input costs
- Lassonde’s input, conversion and transportation costs began to increase significantly in fiscal 2021 given an inflationary environment that extended through fiscal 2022, and it now expects the volatile cost environment to continue throughout fiscal 2023. More recently, the price of orange concentrate remains an area of focus since the price for this key commodity has been at an elevated level over the last six months, reaching a historical peak of US$2.79/lbs sol. in February 2023.
- In addition, during fiscal 2022, the U.S. dollar strengthened compared to most foreign currencies. Given that a large portion of the raw material purchases made by Lassonde’s Canadian operations are in U.S. dollars, a strengthening of this currency against the Canadian dollar could result in a higher cost for products sold in the Canadian market. Furthermore, the Corporation is expecting an unfavourable foreign exchange impact for 2023 when considering its hedged positions. Lassonde plans to continue managing inflation risk, including the impact of foreign currency movements.
Expenses, including expenses related to the Strategy
- The Corporation’s performance-related salary expenses are expected to return to normal levels in 2023.
- During 2023, Lassonde plans to continue deploying its Strategy, revitalizing its U.S. operations, and upgrading its technology infrastructures. It also plans to continue implementing new cloud-based demand planning and transportation management systems, the aim being to improve customer service and lower overall distribution costs. It also intends to start exploring the upgrade of its U.S. ERP. Expected spending in support of its strategic transformation is expected to reach up to $10.0 million in 2023 compared to $11.0 million incurred in 2022.
- Higher interest expense is anticipated given higher rates on floating rate debt as a higher average indebtedness level compared to 2022.
Effective tax rate
- Effective tax rate should be about 26.5% for fiscal 2023.
Working capital
- As supply chain challenges appear to be dissipating, the Corporation has revised its inventory accumulation strategy and expects to progressively reduce its inventory levels. As a result, its Days Operating Working Capitali should trend towards historical levels over the course of 2023. However, this strategy might be impacted by (i) opportunistic decisions to secure inventory ahead of potential additional price increases from suppliers, (ii) the objective of ensuring an adequate service level, or (iii) the identification of new potential supply chain disruptions.
Capital expenditures
- The Corporation’s overall capital expenditures program for 2023 is estimated to reach up to 4.5% of its sales as it continues to deploy capital in support of its Strategy. This estimate depends on the timing of disbursements for certain large capital projects and on the evolution of the macroeconomic environment. As indicated in Section 11 – “Financial Position” of the Corporation’s MD&A for the year ended December 31, 2022, the Corporation’s 2023 commitments, as of December 31, 2022, with regards to capital expenditures, are already more than $23 million with an additional $4 million already earmarked for 2024. The Corporation expects to return this ratio to a range of 2.0% to 3.0% of its sales (including a maintenance component and a certain growth component) by The new capital assets will be financed, to the extent possible, using the Corporation’s operating cash flows, although the Corporation may also turn to borrowing if interest rates and conditions prove advantageous.
The above forward-looking statements have been prepared using the following key assumptions: the currently observed geopolitical situation and macroeconomic trends, including employment, inflation and interest rates; the strength of the U.S. dollar (compared to the Canadian dollar); the continuity of recently observed consumer behaviours and market trends for the Corporation’s products; no material disruption to the Corporation’s operations (including workforce availability) or to its supply chain; the effectiveness of the Corporation’s selling price adjustment initiatives; the limited impact of the Corporation’s selling price adjustment initiatives on product demand; the continuity of observed trends in the competitive environment and the effectiveness of the Corporation’s strategy to position itself competitively in the markets in which it competes; limited additional cost increases from suppliers; adequate availability of key inputs; the continuity of recently observed normalized trends in the throughput capacity of key U.S. plants; expected lead time for new manufacturing equipment; and adequate contractor’ or consultant’ availability to progress the Corporation’s capital expenditures. The Corporation cautions readers that the foregoing list of factors is not exhaustive. It should be noted that some of these key assumptions, including those related to the geopolitical situation and macroeconomic trends, are volatile and rapidly evolving. In preparing its outlook, the Corporation made assumptions that do not consider extraordinary events or circumstances beyond its control. The Corporation believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Refer to Section 2 – “ Forward-Looking Statements” of the Corporation’s MD&A for the year ended December 31, 2022 for additional information.
Conference Call to Discuss Fourth Quarter and Fiscal 2022 Financial Results
Open to: Investors, analysts, and all interested parties
DATE: Friday, March 31, 2023
TIME: 1:30 p.m. ET
CALL: 416-764-8646 (for Toronto and overseas participants)
1-888-396-8049 (for other North American participants)
A live audio broadcast of the conference call will be available on the company’s website, on the Investor relations section’s home page or here: https://www.gowebcasting.com/12497. The replay of the webcast will remain available at the same link until midnight, April 14, 2023.
Financial Measures Not in Accordance With IFRS
The financial measures or ratios described below do not constitute standardized financial measures or ratios in accordance with the financial reporting framework used to prepare the Corporation’s financial statements. Comparing them to similar financial measures or ratios presented by other issuers may not be possible.
Items impacting the comparability between periods
The following table contains a list, description and quantification of items impacting the comparability of the financial performance between the periods:
Fourth quarters ended | Years ended | |||||||||||||||||||||
(in millions of dollars) | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31,
2022 |
Dec. 31,
2021 |
||||||||||||||||||
$ | $ | $ | $ | |||||||||||||||||||
Costs related to the Strategy | 1.0 | – | 7.1 | – | ||||||||||||||||||
Implementation costs of new cloud-based systems | 1.8 | – | 3.9 | – | ||||||||||||||||||
Production interruption of a line in New Jersey | 3.7 | – | 5.2 | – | ||||||||||||||||||
Adjustment related to non-recoverable sales taxes | – | 0.7 | – | 2.8 | ||||||||||||||||||
Sum of items impacting comparability on: | ||||||||||||||||||||||
Operating profit and EBITDA | 6.5 | 0.7 | 16.2 | 2.8 | ||||||||||||||||||
Fiscal impact of previous items | (1.7) | (0.2) | (4.2) | (0.7) | ||||||||||||||||||
Item impacting comparability on income tax expense: | ||||||||||||||||||||||
Deferred tax liabilities adjustment following a reduction to the tax rate of a U.S. state | (0.6) | – | (0.6) | – | ||||||||||||||||||
Impact on profit | 4.2 | 0.5 | 11.4 | 2.1 | ||||||||||||||||||
Attributable to: | ||||||||||||||||||||||
Corporation’s shareholders | 3.8 | 0.5 | 10.5 | 2.1 | ||||||||||||||||||
Non-controlling interest | 0.4 | – | 0.9 | – | ||||||||||||||||||
EBITDA is a financial measure used by the Corporation and investors to assess the Corporation’s capacity to generate future cash flows from operating activities and pay financial expenses. Adjusted EBITDA is a financial measure used by the Corporation to compare EBITDA between periods by excluding items impacting comparability. EBITDA consists of the sum of operating profit, the “depreciation of property, plant and equipment and amortization of intangible assets” item shown in the Consolidated Statement of Cash Flows, and “(Gains) losses on capital assets,” if applicable. Adjusted EBITDA is calculated by adjusting the EBITDA with items considered by the management as impacting the comparability between periods.
Fourth quarters ended | Years ended | |||||||||||||
(in millions of dollars) | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2022 | Dec. 31, 2021 | ||||||||||
$ | $ | $ | $ | |||||||||||
Operating profit | 16.7 | 31.6 | 81.3 | 118.4 | ||||||||||
Depreciation of property, plant and equipment and amortization of intangible assets | 14.9 | 14.2 | 59.5 | 59.5 | ||||||||||
(Gains) losses on capital assets | 0.1 | (0.0) | 0.1 | (0.0) | ||||||||||
EBITDA | 31.8 | 45.8 | 140.9 | 177.8 | ||||||||||
Sum of items impacting comparability | 6.5 | 0.7 | 16.2 | 2.8 | ||||||||||
Adjusted EBITDA | 38.3 | 46.5 | 157.1 | 180.6 | ||||||||||
Adjusted Profit Attributable to Corporation’s Shareholders and Adjusted EPS
Adjusted profit attributable to Corporation’s shareholders and adjusted EPS are financial measures used by the Corporation to compare profit attributable to Corporation’s shareholders and EPS between periods by excluding items impacting comparability. They are calculated by adjusting them with items considered by management as impacting the comparability between periods.
Fourth quarters ended | Years ended | |||||||||||||
(in millions of dollars, unless otherwise indicated) | Dec. 31, 2022 | Dec. 31, 2021 | Dec. 31, 2022 | Dec. 31, 2021 | ||||||||||
$ | $ | $ | $ | |||||||||||
Profit attributable to Corporation’s shareholders | 10.5 | 21.8 | 53.9 | 77.5 | ||||||||||
Sum of items impacting comparability | 3.8 | 0.5 | 10.5 | 2.1 | ||||||||||
Adjusted profit attributable to Corporation’s shareholders | 14.3 | 22.3 | 64.4 | 79.6 | ||||||||||
Weighted average number of shares outstanding (in thousands) | 6,849 | 6,933 | 6,875 | 6,933 | ||||||||||
Adjusted EPS (in $) | 2.09 | 3.22 | 9.37 | 11.48 | ||||||||||
Net Debt to Adjusted EBITDA
Net debt to adjusted EBITDA is a financial measure used by the Corporation to assess its ability to pay off its existing debt and to define its available borrowing capacity. To calculate the net debt to adjusted EBITDA ratio, net debt is divided by the sum of adjusted EBITDA from the last four quarters. Net debt represents long-term debt, including the current portion, less the “Cash and cash equivalents” item, as they are presented in the Corporation’s Consolidated Statement of Financial Position.
(in millions of dollars, except the net debt to adjusted EBITDA ratio) |
As at Dec. 31, 2022 |
As at Dec. 31, 2021 |
|||
$ | $ | ||||
Current portion of long-term debt | 100.8 | 84.4 | |||
Long-term debt | 148.6 | 91.0 | |||
Less: Cash and cash equivalents | (2.7) | (0.3) | |||
Net debt | 246.7 | 175.1 | |||
Sum of adjusted EBITDA from the last four quarters | 157.1 | 180.6 | |||
Net debt to adjusted EBITDA ratio | 1.57:1 | 0.97:1 |
Days Operating Working Capital
Days operating working capital is a financial efficiency measure used by the Corporation to represent the amount of sales tied up as operating working capital. To calculate this financial measure, operating working capital is divided by the last quarter’s sales, as they are presented in this press release, and multiplied by 91 days. Operating working capital is the sum of accounts receivable and inventories, less accounts payable and accrued liabilities, as they are presented in the Corporation’s Consolidated Statement of Financial Position.
[i] This measure does not constitute a standardized financial measure in accordance with the financial reporting framework used to prepare the Corporation’s financial statements. Comparing it to a similar financial measure presented by other issuers may not be possible. Refer to Section “Financial Measures Not in Accordance with IFRS” of this press release for more information, including the definition and composition of the measure or ratio as well as the reconciliation to the most comparable measure in the financial statements, as applicable.