Lassonde Industries Inc.

Good morning, ladies and gentlemen. I am here with Eric Shem, Chief Financial Officer of Lassonde Industries. Thank you for joining us for this discussion of the financial and operating results for our third quarter, ended September 28, 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. Now let me remind you that all figures are expressed on today's call are in Canadian dollars unless otherwise stated. Now let's turn to slide four. Lassonde delivered strong operating results in the third quarter, driven by solid top and bottom line growth in all divisions. Our results also included the contribution of Summer Garden Food Manufacturing since August 8th. Excluding acquired entities and foreign exchange, sales increased 8.2% fueled by volume gains in our U.S. private label and branded businesses, as well as pricing adjustments for our Canadian beverage activities, partly offset by an unfavorable change in our U.S. private label product sales mix. With all divisions generating higher gross profit, Lausanne's consolidated operating profit improved 32% from last year. Now let's turn to slide five for a closer look at our operations. First, our U.S. beverage activities enjoyed further volume gains driven by our Build Back Plan and the start of our North Carolina single-serve line in late July. Despite a slight disruption from Hurricane Eileen, Its ramp up is generally progressing well, and we continue to feel confident that we will reach full production rates in early 2025. Single serve remains the main volume driver of our branded operations, and these formats are also an important tool in capturing market opportunities in the private label business as we pursue our rebuild plan. Single serve formats will also allow us to achieve one of our priorities about expanding our reach in the away from home channel both within food service and in convenience stores. On the efficiency side, conversion costs and margins have improved, reflecting our decision to insource greater volume of aseptic juice boxes, as well as other initiatives to improve efficiency and increase production volume, leading to a better absorption of fixed costs. Now moving to slide six for a discussion of our U.S. capital expenditure program. Mindful of enhancing the competitiveness of our beverage manufacturing network, we announced in early October a $200 million investment to build a new facility on a site adjacent to our existing New Jersey plant. The new state-of-the-art 200,000 square foot facility will replace the current plant. Construction should begin in early 2025 with existing production activities progressively transferred beginning in 2026. The transition is expected to be completed in 2027. It will play a key role in fortifying our competitive position in the U.S. Northeast market through a lower cost structure stemming from a more efficient production flow and improved yields. New equipment will also improve output through higher line speed and reduce downtime. Over the longer term, The facility will also offer the potential to add further capacity and new capabilities to meet market opportunities. In parallel, we will invest an additional $20 million from North Carolina to strengthen its role as a strategic hub. The investment consists in bringing in-house certain owned production assets that are presently deployed at a Copacker facility. The insourcing is expected to be completed in late 2025 and will allow us to enhance network efficiency and reliability, while providing more flexibility to meet incremental demand. Turning over to Canadian beverage activities on slide 7, our focus remains on fortifying our leading position through innovation, channel expansion, and through productivity improvements. In a context of input cost inflation, mainly for orange juice and concentrates, Our ability to find the sweet spot between margin and volume is bearing fruit. Our extensive product portfolio also enables us to target value-conscious consumers with affordable solutions across various packages and channels. We continue to have success with products that reduce our commodity exposure while addressing on-trend consumer preferences. Let me call out fruit nectars sold under the Del Monte brand with exotic flavors such as guava, mango, and passion fruit. These products, catering to an international consumer profile, have enjoyed good sales velocity in markets with greater international diversity, such as large urban centers. Other successful products worth calling out are lower sugar content orange beverage and Del Monte and Ice, which last week won the Grocery Innovations Canada Award as best beverage for its strawberry dragon fruit flavor. As for productivity improvements, we deployed a second high-speed juice box line in Rougemont in the quarter. This highly efficient line will gradually replace five smaller ones that have been operating for several decades. Now let's turn to specialty food on slide eight. Our division, made up of legacy Lausanne specialties and recently acquired Summer Garden, had a strong quarter. Legacy operations achieved solid sales growth in retort products mainly in the premium glass jar soup and in the broth categories. Meanwhile, Summer Garden generated sales of $26.7 million over approximately seven weeks since closing on August 8th. Recall that we assembled a dedicated team to facilitate the onboarding of Summer Garden's personnel and the integration of its operating activities. For instance, we put forward initiatives to secure continued engagement by key personnel. and developed a comprehensive communication plan for the leadership team and all employees. Additionally, we make every effort to have a member of the Lausanne executive team present in employee engagement activities. We are proud that Lausanne's values and culture are closely aligned with those of Summer Garden with an entrepreneurial spirit and strong commitment to employees, consumers, business partners, and the community. The team also continues its assessment of best practices and various initiatives to unlock potential synergies. We look forward to updating you on our progress over the next few quarters. I now turn the call over to Eric for a review of our quarter three 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 comparability between periods. Reconciliation to IFRS measures are provided in the appendix to our presentation. Finally, these results reflect the inclusion of Summer Garden since August 8th and all effects related to the purchase price allocation. Let's turn to slide nine for our third quarter sales, which amounted to $668 million, up 14.5% versus last year. Excluding acquired entities and a favorable foreign exchange impact, sales increased by 8.2%, reflecting a higher sales volume in the U.S. for both branded and private label products and selling price adjustments in Canada. These factors were partly offset by slightly less favorable sales mix in our U.S. private label business. Moving to slide 10, gross profits reached $180 million representing 26.9% of sales, up from $146 million a year ago, or 25.1% of sales. Excluding acquired entities, gross profit rose 16.9%, driven by higher volume, the run rate effect of pricing adjustments, lower conversion costs from efficiency improvements, including in sourcing production of aseptic juice boxes for our U.S.-branded beverage divisions. partly offset by higher input costs, mainly orange juice and concentrate, and a slightly less favorable U.S. sales mix. It should be noted that the reported gross profit reflects a one-time expense of $4.3 million related to the required step-up of Summer Garden's finished goods inventory to its net realizable value. Excluding this expense, the gross profit margin would have been 27.5%. SG&A expenses were $133 million, up from $111 million last year. Excluding expenses from acquired entities, SG&As increased by $9 million, or 8%, reflecting higher outbound transportation and finished goods warehousing costs, a portion of which due to volume, as well as an increase in other selling and administrative expenses, partly upset by lower performance-related compensation expenses. Excluding items that impact comparability, adjusted EBITDA increased 31% to $69 million or 10.4% of sales from 53 million or 9.1% of sales last year. Here again, excluding the impact of the finished goods inventory step-up, adjusted EBITDA margin would have been 11%. Adjusted profit attributable to the corporation shareholder came in at $31 million. or $4.53 per share, compared to $25 million, or $3.67 per share last year. Looking briefly at the nine-month results on slide 11, sales rose 8.9% from last year, excluding acquired entities and IFIX and PAC. The increase was 5.8%. If the Summer Garden acquisition had been completed on January 1, 2024, sales for the first nine months would have been almost $2 billion. Adjusted EBITDA amounted to $196 million, or 10.5% of sales, up from $155 million, or 9% of sales in the first nine months of 2023. If the Summer Garden acquisition had been completed on January 1, 2024, and excluding the inventory step-up effect, adjusted EBITDA for the first nine months would have been about $228 million, or 11.5% of sales. Adjusted profit attributable to the corporation shareholder reached $95 million, or $13.93 per share, compared to $68 million, or $10.03 per share last year. Turning to cash flow on slide 12. Operating activities generated $88 million third quarter of 2024, up from $76 million last year. The variation is mainly explained by higher EBITDA partly upset by an increase in net income tax paid. With stabilizing working capital, the days of operating working capital ratio was relatively unchanged at 46 days in Q3 despite some distortion caused by the inclusion of Summer Garden's balance sheet at the end of the period versus only seven weeks of operating results. After nine months, operating activities generated $158 million, up from $147 million last year. Capital expenditure amounted to $28 million in Q3, and $83 million after nine months. For the year, we expect CapEx to reach up to 5% of sales. As for the timing of our U.S. capital expenditure program announced on October 1st, how about $10 million will be spent in 2024, $120 million in 2025, and the balance in 2026. Turning over to our balance sheet on slide 13. Reflecting $309 million in borrowing to finance the acquisition of Summer Garden, Lausanne's net debt totaled $456 million at the end of the third quarter. versus $201 million three months earlier. Excluding these borrowings, the total long-term debt would have decreased by approximately $54 million this quarter. The net debt to adjust the ZBDA ratio was 1.8 to 1 at the end of Q3 2024, which includes only seven weeks of Summer Garden ZBDA and the finished good inventory step-up, but the entire debt. Considering the U.S. multi-year capital expenditure program And all things being equal, we anticipate the leverage ratio to range between 2 and 2.5 to 1 starting in the first half of 2025 and until the end of 2026. Before turning the call back to Vince, let me provide more detail on the Summer Garden purchase price allocation and its implication to our financial statements on slide 14. First, the inventory step-up. to bring acquired finished goods to net realizable value resulting in a $3.2 million U.S. of adjustment. As mentioned previously, this amount was expense in the cost of sales during this third quarter. Second, the fair value of property, plant, and equipment acquired will entail an annual depreciation expense currently estimated at $3.9 million U.S. Third, intangible assets, such as trademark, trade name, and client relationship will be amortized, resulting in an annual amortization expense currently estimated at $14 million. Fourth, contingent consideration or earn-out, currently recorded at $32.9 million, are mainly related to the expected sales volume of certain products over the two-year period following the acquisition and whether a customer agreement is renewed upon expiry. The amount could be revised based on evolving assumption about reaching thresholds, and it will be adjusted on a quarterly basis to reflect the passage of time. All changes will be recorded in the P&L under utter gains or losses. Moreover, given our U.S. capital investment program, certain existing assets from the current facility will be depreciated at an accelerated rate over a period of 10 quarters beginning in Q4 2024. representing additional quarterly expenses of approximately 1.5 million US dollars. Ladies and gentlemen, I turn the call back to Vince for the outlook.

Thank you, Eric. Please turn to slide 15. Before discussing our outlook, let me take a moment to address the impact of Hurricane Helene, which struck North Carolina in late September. As you may have read in our MD&A, our Hendersonville facility had little direct impact. but more significant damage in the area forced us to close the plant for 15 days. The hurricane also affected road infrastructure, disrupting product deliveries. At this stage, we do not expect any significant impact on our fourth quarter results as we were able to rapidly deploy mitigation plans. However, it prevented us from following our original schedule on certain build-back initiatives, mainly for single-serve formats, resulting in some missed opportunities at the beginning of the fourth quarter. Importantly, we made sure that our employees and local communities had all the support needed by organizing a large donation campaign for non-perishable goods across our U.S. network. We also organized a fundraising campaign with the Red Cross, and every dollar collected from our employees was matched by LaSonde. On behalf of the executive team, I want to commend all affected employees for their resilience and thank the entire LaSonde organization for the strong support and kindness expressed towards them. Now let's turn to slide 16. As we look ahead to close 2024, our focus is unchanged. For U.S. beverage activities, our priorities are to continue executing our private label volume build back plan and ramping up our North Carolina single serve expansion. For Canadian beverage activities, we will pursue initiatives to fortify our leadership through innovation, channel expansion, targeted marketing initiatives, and through productivity improvements. For specialty food, priorities are onboarding and integrating Summer Garden as well as executing our North American growth strategy in the context of our expanded presence. This strategy will be centered on growing our reach in adjacent markets and optimizing market penetration of acquired brands. We will also finalize the identification of synergies through sharing of best practices and know-how to capture manufacturing efficiencies and lower our costs, while pinpointing reinvestment needs to increase capacity and to support our brands. Moving to slide 17. We expect to conclude 2024 with a sales growth rate in the mid to high single digit range, excluding acquired entities and currency fluctuations. This growth will reflect the run rate effect of selling price adjustments, sequential sales volume improvements in the fourth quarter, driven by the pace of our U.S. Build Back Plan, incremental volume available from our new single-serve line, and demand normalization. We remain committed to supporting initiatives that foster growth by fortifying our innovation pipeline, expanding our distribution or investing in strategic trade spending, sustained cost inflation for certain commodities, such as orange juice, as well as orange and apple concentrates, is expected to remain a factor for the quarters ahead. With this in mind, improving efficiency and productivity will be keys to sustaining profit growth. In closing, we anticipate our momentum to carry into the final quarter of 2024. Over the longer term, we will maintain our focus on executing our strategy to meet our sales growth, improve profitability, and long-term value creation objectives. This concludes our prepared remarks, and we are now pleased to answer your questions.