Lassonde Industries Inc.

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Lassonde Industries 2024 First Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Following the presentation, we will conduct a question and answer session open to research analysts only. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. Before turning to management's prerecorded remarks, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded today, Friday, May 10th, 2024. I would now like to turn the call over to Vince Timpano, President and Chief Operating Officer. Please go ahead.

Good morning, ladies and gentlemen. I am here with Eric Gemm, Chief Financial Officer of Lassonde Industries. Thank you for joining us for this discussion of the financial and operating results for our first quarter, ended March 30th, 2024. Our press release reporting these results was published yesterday after markets closed. It can be found on our website at lassonde.com, along with our MD&A and financial statements. These documents are available on CDAR Plus as well. We also posted a presentation supporting this conference call on our website. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. Now, let's turn to slide four. Lausanne sustained its sales and profit growth momentum in the first quarter. Sales increased 4.1%, mainly reflecting pricing adjustments in Canada and the consolidation of Diamond Estate sales. This solid execution combined with efficient cost management and a more favorable sales mix led to a 32% improvement in operating profit. As anticipated, our volume was down slightly compared to the same period a year ago, with the decline essentially occurring in the Canadian market. Now let's turn to slide five for a review of our divisions. In the US, we are happy with the progress after the first quarter. Our US divisions are performing according to our plan, both financially and from an execution roadmap perspective. And we are confident that this trend will continue throughout the year. Of note, we recorded a slightly higher sales volume this quarter, up about 3% compared to the same period last year. This favorable variation came from both sides of our US business. For the branded operations, volume momentum was driven by key growth areas such as in the single serve format. Meanwhile, for private label volume, quarter one represents a complete lap of our portfolio simplification process and the start of our rebuild phase. When we look at our operations, we are realizing improvements from where we were at the same period last year on many fronts, starting with our leadership and our people. Having the right talent in the right seat enabled us to re-examine how we operate. From our processes to our system, many modifications were made, including the deployment of our TMS and the demand planning system during 2023. Also, learning from the challenges experienced with our supply chain, more specifically around the reliability of our co-packers, we are investing in our own capability. Starting in January, we started to insource the production of a significant volume of aseptic juice boxes, reducing the dependency on an important external supplier, while at the same time improving our profitability. All these efforts, some of which are still ongoing, are yielding the intended benefits so far, including improving our operating efficiency, reducing our operating cost structure, and increasing our manufacturing capacity. These elements are essential to build back our U.S. volume, and we are now at a point where we can comfortably integrate new volume. On the demand side, we are also progressing well with our various initiatives to secure this new volume. As we said in the past, it's a lengthy process that requires some patience. It requires the right balance between getting the volume to absorb our fixed cost, but at the same time, not securing volume at any condition. we remain confident that the incremental volume will begin to materialize in the second half of the year. In fact, we have good visibility to that effect with confirmation of new business and production already planned for later in this quarter. More importantly, this volume should generate better margins as it will leverage our improved cost structure and further absorb fixed costs. Looking at our North Carolina single serve expansion project on slide six, we are moving closer to the start of production expected in the third quarter. Following a ramp-up phase in the second half of this year, full production is expected to begin in early 2025. As witnessed by our sales mix this quarter, single serve formats continue to show strength, and this new line will play a pivotal role in providing further growth opportunities in new markets, across both our branded and private label businesses. Leveraging the success of Project Eagle and reflecting on the future of our U.S. business, we are in the process of evaluating various investment scenarios to ensure the competitiveness of our manufacturing network. In addition to improving efficiency, our scenarios also consider the possibility of adding capacity and new capabilities to meet market opportunities over the longer term. the outcome could lead to an additional important CapEx program. Turning to our Canadian activities on slide seven, our focus was on executing certain pricing adjustments to reflect higher input cost as our Canadian business has a higher exposure to orange juice and concentrate. As always, we considered potential changes in consumer behavior in a context of ongoing inflation to find the sweet spot. between growth and margin expansion. Although these pricing adjustments were accompanied by volume erosion that affected the entire category, the net effect for Lausanne was an increase in sales as the volume decline for our branded business was somewhat offset by increased private label volume. During the first quarter, the market rate of decline did not worsen, and we continue to see a slight shift in consumer preferences in favor of private label products. we will continue to closely monitor the market evolution. During the quarter, we further progressed on achieving the key objectives of our Canadian beverage division to fortify its industry leadership. In regard to channel expansion, I am pleased to report volume growth in our food service business. As for productivity improvements, we are currently in the process of implementing the TMS in our Canadian beverage business. With respect to innovation, certain new products will hit the market by the end of the second quarter, mainly under the Pruite and Del Monte brands. These products have been crafted with the goal of appealing to consumers' taste and market trends while reducing our commodity exposure. Finally, on slide eight, our specialty food division had a solid quarter. We had good success in leveraging our Canton brand, well-recognized in Quebec by extending its reach into the premium glass jar soup category. We also made further inroads to optimize productivity and efficiency by implementing the TMS at our specialty food division during the quarter. We remain confident about the specialty food business, and this division represents an important platform in building a growth-oriented portfolio. I now turn the call over to Eric for a review of our results. Eric.

Thank you, Vince. Good morning, everyone. Before I begin, Please note that most amounts have been rounded to ease the presentation. Also note that I will refer to non-IFRS measures or ratios in my remarks, mostly to ease the comparability between periods. Reconciliation to IFRS measures are provided in the appendix to our presentation. Let's move on to slide nine. First quarter sales amounted to $570 million they were up 4.1% from last year. If we exclude an $8 million contribution from Diamond and a slight unfavorable foreign exchange impact, sales increased by 2.8%. This increase mainly reflects selling price adjustments in Canada, which were partially offset by a lower volume of sales also in Canada. Moving on to slide 10. Cost of sales increased by 2.3%, resulting from higher costs of certain input, mainly orange juice and orange juice concentrates, and the consolidation of diamonds cost of sales. These were offset by the impact of lower sales volume and improved operating efficiency. As a result, gross profit reached $150 million, representing a gross margin of 26.2%. up from $137 million a year ago, or a 25% margin for that quarter. Excluding the contribution from Diamond, gross profit rose 7.2%. SG&A expenses were $115 million. Excluding $4 million in expenses from the consolidation of Diamond's SG&A, the SG&A increased by 0.5%. resulting from increases in certain administrative expenses and warehousing expenses, a portion of which is in support of our North Carolina construction project. These increases were partly upset by lower performance-related compensation expenses and lower transportation expenses. Excluding items that impact comparability, adjusted EBITDA increased 22% to $52 million. or 9.2% of sales. This marked an improvement from the 7.9% EBITDA margin generated last year. Adjusted profit attributable to the corporation shareholder came in at $25 million, or $3.68 per share, compared to $17 million, or $2.48 per share, last year. Turning over to our balance sheet on slide 11. Days of operating working capital increased slightly in the first quarter, reaching 48 days, up four days compared to the previous quarter, but down significantly from 57 days a year ago. The sequential variation reflects higher DIO, the yellow bar, due to higher raw material inventory, mainly resulting from the advanced purchase of apple and apple concentrate to temporarily secure supply. This decision also had the counter effect of increasing DPO, the gray bar. Our objective remains for days of operating working cattle to settle within our pre-COVID range by the end of 2024. However, this target does not reflect consideration of punctual events, such as when we are required to secure price and or availability of certain commodities, as we just did in this first quarter. Turning to cash flow on slide 12. Operating activities generated $11 million this quarter compared to $5 million used last year. The improvement reflects mainly better profitability and lower working capital requirements compared to the same quarter last year. Capital expenditures amounted to $26 million in this first quarter. It's twice the amount we've invested during the same quarter last year. Looking ahead at 2024, we continue to expect CapEx to reach up to 5% of sales. Now on slide 13, our net debt increased by $27 million versus year end, reaching $218 million at the end of March. You can see on the left side of this slide the key components of such variation. Despite the increase during the quarter, the current net debt level compares very favorably versus the $268 million level a year ago. Our net debt-to-adjustability ratio stood at 1 to 1 at the end of the first quarter of 2024, slightly up versus the end of the previous quarter, but down significantly from 1.7 to 1 a year ago. Finally, the Board of Directors declared a quarterly dividend of $1 per share payable on June 14th to shareholder of records on May 22nd. I turn the call back to Vince for the outlook.