HIGH LINER REPORTS OPERATING RESULTS FOR THE THIRD QUARTER OF 2024
Margin Improvements Lead to EBITDA Growth Over Prior Year
Announces Dividend Increase of $0.02, or 13.3%
LUNENBURG, NS, Nov. 8, 2024 /CNW/ - High Liner Foods Incorporated (TSX:HLF) ("High Liner Foods" or the "Company"), a leading North American value-added frozen seafood company, today announced financial results for the thirteen and thirty-nine weeks ended September 28, 2024. The Company also announced a dividend increase of CAD $0.02 per share, representing 13.3% increase.
"During the third quarter we delivered another quarter of Adjusted EBITDA growth as well as sequential improvement to sales and volume," said Paul Jewer, President, and Chief Executive Officer of High Liner Foods. "We are executing well to meet the evolving needs of our customers and consumers across both retail and foodservice. Our promotional strategies are driving expanded distribution and supporting top line recovery. While market conditions remain challenging, I am encouraged by our gains this quarter and believe we are well positioned to continue this positive trajectory."
Key financial results, reported in U.S. dollars ("USD"), for the thirteen weeks ended September 28, 2024, or the third quarter of 2024, are as follows (unless otherwise noted, all comparisons are relative to the third quarter of 2023):
Adjusted EBITDA(1) increased by $1.5 million, or 7.5%, to $21.5 million compared to $20.0 million, and Adjusted EBITDA as a percentage of sales increased to 9.4% compared to 7.7%;
Net income(2) increased by $12.8 million, or 232.7%, to $18.3 million compared to $5.5 million and diluted earnings per share ("EPS") increased to $0.61 per share, compared to $0.16 per share;
Adjusted Net Income(1) increased by $0.7 million, or 14.3%, to $5.6 million compared to $4.9 million and Adjusted Diluted EPS(1) increased to $0.20 per share compared to $0.14 per share;
Gross profit decreased by $1.3 million, or 2.6%, to $48.3 million compared to $49.6 million, however gross profit as a percentage of sales increased to 21.1% compared to 19.1%;
Sales volume decreased by 4.2 million pounds, or 6.9%, to 56.8 million pounds compared to 61.0 million pounds and sales decreased by $30.8 million, or 11.9%, to $228.9 million compared to $259.7 million;
Cash Flows from Operations decreased by $40.6 million, or 75.2%, to an inflow of $13.4 million compared to an inflow of $54.0 million; and
Net Debt(1) to Rolling Twelve-Month Adjusted EBITDA(1) was 2.4x at September 28, 2024 compared to 2.6x at the end of Fiscal 2023 and 3.7x at end of Fiscal 2022.
Key financial results, reported in U.S. dollars ("USD"), for the thirty-nine weeks ended September 28, 2024, or Fiscal 2024, are as follows (unless otherwise noted, all comparisons are relative to the thirty-nine weeks ended September 30, 2023, or "Fiscal 2023"):
Adjusted EBITDA(1) increased by $6.4 million, or 8.7%, to $79.6 million compared to $73.2 million, and Adjusted EBITDA as a percentage of sales(1) increased to 11.0% compared to 8.7%;
Net income(2) increased by $28.9 million, or 114.2%, to $54.2 million compared to $25.3 million and diluted earnings per share ("EPS") increased to $1.69 per share compared to $0.73 per share;
Adjusted Net Income(1) increased by $4.0 million, or 12.7%, to $35.4 million compared to $31.4 million and Adjusted Diluted EPS(1) increased to $1.10 per share compared to $0.91 per share.
Gross profit decreased by $3.7 million, or 2.2%, to $166.3 million compared to $170.0 million, while gross profit as a percentage of sales increased to 23.0% compared to 20.2%;
Sales volume decreased by 22.0 million pounds, or 11.1%, to 175.4 million pounds compared to 197.4 million pounds and sales decreased by $119.0 million, or 14.1%, to $724.2 million compared to $843.2 million; and
Cash Flows from Operations decreased by $42.4 million, or 37.7%, to an inflow of $70.0 million compared to an inflow of $112.4 million.
(1) This is a non-IFRS financial measure. For more information on non-IFRS financial measures, see "Non-IFRS Measures" below and see "Non-IFRS Financial Measures" in our Third Quarter 2024 Management's Discussion and Analysis ("3Q2024 MD&A").
(2) For the thirty-nine weeks ended September 28, 2024, this amount includes a gain of $9.8M relating to the shares reacquired in result of the litigation settlement reached between High Liner Foods and the former shareholders of Rubicon. For the thirteen and thirty-nine weeks ended September 28, 2024, this amount includes a gain of $12.7 million on the modification of debt related to the debt refinancing completed in July 2024.
Financial Results and Operational Update
For the purpose of presenting the Consolidated Financial Statements in USD, CAD-denominated assets and liabilities in the Company's operations are converted using the exchange rate at the reporting date, and revenue and expenses are converted at the average exchange rate of the month in which the transaction occurs. As such, foreign currency fluctuations affect the reported values of individual lines on our balance sheet and income statement. When the USD strengthens (weakening CAD), the reported USD values of the Parent's CAD-denominated items decrease in the Consolidated Financial Statements, and the opposite occurs when the USD weakens (strengthening CAD).
Investors are reminded for purposes of calculating financial ratios, including dividend payout and share price-to-earnings ratios, to take into consideration that the Company's share price and dividend rate are reported in CAD and its earnings, EPS and financial statements are reported in USD.
The financial results in USD for the thirteen and thirty-nine weeks ended September 28, 2024 and September 30, 2023 are summarized in the following table:
Thirteen weeks ended
Thirty-nine weeks ended
(Amounts in 000s, except per share amounts, unless otherwise noted)
September 28,2024
September 30,2023
September 28,2024
September 30,2023
Sales volume (millions of lbs)
56.8
61.0
175.4
197.4
Average foreign exchange rate (USD/CAD)
1.3641
1.3414
1.3604
1.3456
Sales
$ 228,884
$ 259,699
$ 724,179
$ 843,212
Gross profit
$ 48,346
$ 49,644
$ 166,306
$ 170,032
Gross profit as a percentage of sales
21.1 %
19.1 %
23.0 %
20.2 %
Adjusted EBITDA
$ 21,493
$ 19,974
$ 79,557
$ 73,205
Adjusted EBITDA as a percentage of sales
9.4 %
7.7 %
11.0 %
8.7 %
Net income
$ 18,347
$ 5,486
$ 54,236
$ 25,261
Diluted EPS
$ 0.61
$ 0.16
$ 1.69
$ 0.73
Adjusted Net Income
$ 5,601
$ 4,906
$ 35,430
$ 31,387
Adjusted Diluted EPS
$ 0.20
$ 0.14
$ 1.10
$ 0.91
Diluted weighted average number of shares outstanding
30,509
34,001
32,180
34,092
Sales volume for the thirteen weeks ended September 28, 2024, or the third quarter of 2024, decreased by 4.2 million pounds, or 6.9%, to 56.8 million pounds compared to 61.0 million pounds in the thirteen weeks ended September 30, 2023, due to customer and consumer pull back and the continued impact of a decline in contract manufacturing business and exiting of low margin business. In the Company's retail business, while High Liner Foods experienced year over year decline in volumes, the Company once again expanded distribution in strategic areas including club and premium offerings. In the Company's foodservice business, High Liner Foods saw continued success of new value-added innovations in terms of volume and expanded distribution, and saw continued growth in alternative species despite the overall year-over-year decline in volume.
Sales in the third quarter of 2024 decreased by $30.8 million, or 11.9%, to $228.9 million compared to $259.7 million in the same period in 2023, driven by volume declines amid challenging market conditions and reduced pricing reflecting deflationary markets. Given the highly promotional and price sensitive retail and foodservice markets, the Company continues to take actions on promotions, innovation and distribution to strengthen its competitive positioning and mitigate the impact of external pressures while preserving profitability. The weaker Canadian dollar in the first three quarters of 2024 compared to the same period in 2023 decreased the value of reported USD sales from our CAD-denominated operations by approximately $1.0 million relative to the conversion impact last year.
Gross profit in the third quarter of 2024 decreased by $1.3 million to $48.3 million compared to $49.6 million in the same period in 2023 and gross profit as a percentage of sales increased by 200 basis points to 21.1% compared to 19.1%. The decrease in gross profit reflects the decline in sales volume previously mentioned. This was partially mitigated by the benefit of lower inventory levels, lower raw material costs and the favourable changes in the product mix reflected in the improved gross profit as a percentage of sales. In addition, the weaker Canadian dollar decreased the value of reported USD gross profit from our CAD-denominated operations by $0.2 million relative to the conversion impact last year.
Adjusted EBITDA in the third quarter of 2024 increased by $1.5 million to $21.5 million compared to $20.0 million in the same period in 2023 and Adjusted EBITDA as a percentage of sales increased to 9.4% compared to 7.7%. The increase in Adjusted EBITDA reflects favourable distribution expenses and lower net SG&A expenses, partially offset by lower gross profit.
Reported net income in the third quarter of 2024 increased by $12.8 million to net income of $18.3 million (diluted EPS of $0.61) compared to $5.5 million (diluted EPS of $0.16) in the same period in 2023. The increase in net income reflects the increase in Adjusted EBITDA discussed previously, a $13.0 million gain on the modification of long term debt recorded in finance costs (income), lower depreciation and amortization costs and an increase in business acquisition, integration and other (income) expense, partially offset by higher income taxes.
Reported net income in the third quarter of 2024 and 2023 included certain non-routine expenses classified as "business acquisition, integration and other expense (income)." Excluding the impact of these non-routine items or other non-cash expenses, and share-based compensation, Adjusted Net Income in the third quarter of 2024 increased by $0.7 million, or 14.3% to $5.6 million compared to $4.9 million in the same period in the prior year and Adjusted Diluted EPS increased $0.06 in the third quarter of 2024 to $0.20 as compared to $0.14 in the same period in the prior year.
Net cash flows provided by operating activities in the third quarter of 2024 decreased by $40.6 million to an inflow of $13.4 million compared to an inflow of $54.0 million in the same period in 2023 despite higher net income and lower interest paid. This is due to net changes in non-cash working capital balances. Capital expenditures were $17.2 million in the first three quarters of 2024 compared to $13.1 million in the prior year reflecting the continued significant investment in the business.
Net Debt decreased by $10.3 million to $239.6 million at September 28, 2024 compared to $249.9 million at December 30, 2023, reflecting lower bank loans, long-term debt, lease liabilities, and a higher cash balance as at September 28, 2024.
Net Debt to Rolling Twelve-Month Adjusted EBITDA was 2.4x at September 28, 2024 compared to 2.6x at the end of Fiscal 2023 and 3.7x at December 31, 2022. The ratio has continued to improve in 2024 due to lower net debt and higher Rolling Twelve-Month Adjusted EBITDA compared to Fiscal 2023. In the absence of any major acquisitions or unplanned capital expenditures in 2024, we expect this ratio to continue to be lower than the Company's long-term target of 3.0x at the end of Fiscal 2024.
Refinancing of term loan facility
As previously disclosed, during the third quarter, the Company also completed a refinancing of its Term Loan B. The $240 million Term Loan B was refinanced to bear interest at SOFR plus 3.25% with a SOFR floor of 0.50%, which represents a 60-basis point reduction that replaces the prior interest rate of SOFR plus 3.75% and the 0.10% credit spread adjustment with a SOFR floor of 0.75%. The maturity was also extended from October 2026 to July 2031. The Company anticipates saving approximately $1.4 million in annual cash interest expenses based on current borrowings and SOFR rates.
"As noted last quarter, the early refinancing of our Term Loan B was oversubscribed, demonstrating the confidence of our lender community in our business," said Darryl Bergman, Chief Financial Officer of High Liner Foods. "The refinancing provides High Liner Foods with continued financial stability and a platform to execute on our organic and accelerated growth strategies."
Outlook
"Our solid third quarter performance, in addition to strong performance in the first half of the year, reinforces my confidence in the outlook for our business," said Mr. Jewer. "With a strong balance sheet, low debt ratio and strong free cash flow generation, we remain well positioned to navigate short-term market challenges, support the continued improvement in the topline of our business and deliver year over year Adjusted EBITDA growth, while continuing to advance our strategy to support long-term value creation for our business."
The Company is focused on executing against its branded and value-added strategy and ongoing supply chain diversification and innovation within the frozen seafood category as the means to reinforce its competitive positioning ...
