Premium Brands Holdings Corporation

Hello, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation Third Quarter 2023 Earnings Conference for Question and Answer Session. At this time, all lines are in listen-only mode. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Tuesday, November 14, 2023. I would now like to turn the conference over to George Palgioloco. Please go ahead.

Welcome, everyone, to our third quarter conference call. Hopefully, you have had a chance to listen to the prerecorded call and have looked at the third quarter deck posted on our website this morning. With me here today is our CFO, Will Kaludich. We will now move to the Q&A part of the call. Lester, back to you.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. If you have a question, please press star 1 on your touchtone phone. If you wish to cancel your request, please press star 2. One moment for your first question. Your first question comes from Martin Landry from Stifel. Your line is now open.

Hi. Good morning, guys. Good morning, Martin. My first question is with regard to the specialty food segment. You mentioned that the organic volume growth was 7.6% when we exclude the two non-recurring factors. I was wondering if you can discuss some of your program wins which contributed to the growth of the segment this quarter.

Yeah, again, Martin, there's a lot of positives going on with regards to the specialty food group. You know, I'd say outside of some challenges with regards to capacity, you know, this was an exceptional quarter from the point of view of the specialty food group. Some of our wins, for example, with us having added capacity with regards to our sandwich group, we've secured another very large QSR as a customer. The initial launch with that customer went exceptionally well. In addition, during the quarter, we've made tremendous traction with regards to our Italian meats market. initiatives, particularly in the U.S., lots of growth there, even though we've shorted a lot of product due to capacity challenges, again, which we're addressing. And also in the areas of raw and cook skewers. As you know, we're by far the leader in North America in this area, and we had tremendous growth in those two programs during the quarter. So those are some sort of specific wins with regards to the traction we're making in our specialty food group, particularly in the U.S. I will also want to add that for the first time in a long time, we've gained new listings in Asia as well. We've got listings with certain retailers now in Asia, so we're shipping into that market once again. We see tremendous potential with regards to growing in that market as well. We've probably got about 50 SKUs that I think we should be able to list in the Asian markets, particularly in Japan, South Korea, and China. So there's lots of traction in our specialty food group, and again, in some cases, subject to solving some capacity issues and concerns. And as we've announced more recently, a lot of capacity has come now on stream and will be coming on stream shortly.

The only thing I'd add to that, Martin, and it was a positive and a negative in the quarter, was cooked protein continues to be a category that we are doing extremely well in in the U.S. So it was definitely one of the drivers of our growth. However, it was one of the categories that were behind expectations for the quarter because of delays in getting our King's Command capacity expansion online. And that's one of those two factors you refer to at the beginning of the call. But cooked protein continues to be a really exciting category for us.

Okay, that's super helpful. I just want to talk about your other segment, the distribution segment. Trying to see what the outlook is for that segment for 24. You know, could you talk about what... Are you operating at full capacity right now with that segment? Or do you have room to add more clients to offset the decline in volumes related to customer trading down? Just a little bit of visibility on that segment would be super helpful.

Yeah, there really are. There's lots of room in that segment to support that 4% to 6% organic volume growth over the next couple of years. We've got a few little projects like Our VNX facility expansion is coming online in Quebec, and we may do a little bit of an expansion in Western Canada for our centennial business. But in general terms, not a lot of capital expenditures expected to support that 4% to 6% organic volume growth over the next number of years.

And is there an order of magnitude that you can give us in terms of the capacity utilization for that segment?

Well, the thing is a large part of the business is distribution related. And so it's really adding trucks, adding distribution to the network. And in terms of the capacity utilizations, again, we've talked about this in the past, Lauren. It's really hard for us to give a number because, you know, it's not one business with a set number of plants doing the same thing. It's a variety of businesses with a variety of plants. doing a variety of different things?

It's basically a national distribution network, Martin. It has facilities across the country. You know, I would say overall, depending on where we're at in terms of capacity and focus in terms of that market is probably 50 to 80% capacity utilization across the network, but it depends really on the regional kind of aspects of the market opportunity. It's very tough to say. But as Will said, there's plenty of capacity for us to meet our 4% to 6% growth targets.

Okay. And have you been able to, you know, sign new clients in that segment to offset, you know, the general industry volume decline?

We are making a lot of progress in regards to accessing new channels and new clients, Martin. We call it our distribution group. It's not just distribution into food service. It also does distribution into specialty retail and retail as well. Again, it's a very good platform for us. It's well positioned in the marketplace. Unfortunately, it does kind of face the same economic headwinds that the rest of the industry is facing, particularly in Canada.

Okay. That's it for me. Thank you.

Thanks, Martin. Thank you, Martin.

Your next question comes from there, from . Your line is now open.

Yeah, thanks. Good morning, guys. Good morning. You guys seem pretty confident that the initiatives set in part by your major clients are pretty much done. Can you maybe just help us square away? I think it's a multi-year project for them, so just maybe square away how you guys are feeling about it just being sort of one quarter impact versus multi-year.

Yeah, so Derek, are you referring to the the challenge we call out on our specialty foods in the sandwich category?

Exactly. Yeah.

Yeah. Okay. Yeah. No, it was a very unusual situation. The reality is, you know, that customer, that program is doing incredibly well. You know, the reality is the program should have shown growth in volume terms of 9% to 10% if not for these factors. And I can give you a little more color around those factors. And, you know, we expect that to continue into 2020 forward and forward. You know, that's part of our capital plan for our sandwich group is to support that continued growth. Q3 was really an anomaly, and there was three factors in there, one of which is, you know, that customer is getting much better at managing their inventory, and as a result... They've gotten it down to where it needs to be, and that just impacted us and our fill rate for the quarter into those distribution centers. So really, it was definitely a one-time impact. Another impact, which will continue over for the next couple of quarters, is the customer eliminated displaying our products in their cases, in their cafes. which makes perfect sense because the vast majority of the orders now are coming through mobile apps and drive-thrus. And it's a win in the sense that it's a lot less waste in the system, but it's kind of a one-time hit for us because those are sales for us that were essentially going in the garbage because they were being displayed and at the end of the day thrown out. So it makes a lot of sense in the long term, but it did impact us in the short term. And like I said, that will continue through for the next couple of quarters. And then the third impact was just a one-off with we were filling in a distribution center in a market we didn't normally service. And for freight optimization reasons, the customer gave that to another supplier as their production came online. And we knew that was just a temporary situation in the third quarter of last year. And so that won't be an impact going forward.

Again, Derek, I just want to add that, you know, for us and our sandwich group, we're just having a great year overall, by the way. Any sort of opportunity to leverage more capacity for other customers and other channels is probably a good thing for us long term. So, again, you know, we're not too concerned at all. with the change in sort of the ordering patterns of this customer. We love the fact that they're optimizing their inventory. And to the extent that it gives us more capacity to pursue other customers, that's a good thing overall for our platform.

Okay. I mean, that's a really good color down. So in essence, that means you haven't had to adjust the way that you guys operate the sandwich business in any way.

Absolutely not, Derek. Like I say, the core program continues to do extremely well, and we see no change of that in sort of the near to mid-term for the future.

Okay. Thanks for that. Just maybe switching gears to the free cash flow. It looks like you got a boost. Well, you did get a boost from working capital, more specifically on your payables and receivables. Will, you did call out in the MD&A that you had, I think, five days less, five less days in receivables due to a trade finance program. Just wondering if you can maybe add some color there and then maybe as well on the payable side.

Yeah, so the payables were just purely natural fluctuation. There was nothing unusual going on there. In terms of the receivables, yeah, we put in place a trade program with a couple of our larger customers, and it's kind of a win-win for everyone. The program is based on them having a better credit rating than us, so we get our cash up front, and the borrowing cost of that is less than our borrowing cost. So it's been a great program, very successful, and we're looking at ways to possibly expand it, but probably nothing material in the next couple of quarters.

Okay. And then on the inventories, are you still thinking that there's still about a $70 million opportunity there. I think it was like about $3 million, $4 million in the quarter. So how should we look at that?

Yeah, no, I have to say we were a little disappointed in the progress in the quarter on the inventory. We had expected, you know, that $70 million was sort of over two quarters. We'd expected half of that in this quarter. So we are still pushing for an improvement in the fourth quarter. You know, our days are still about five, six days greater than we feel they should be. So we do expect to make some progress in the fourth quarter, hopefully in that $50 million range, but we'll see how it plays out.

Okay, and maybe just one final one for me and something that stood out in the MD&A as well. You guys were quite forceful in saying that you promised that any acquisitions that you make will not stretch the balance sheet. Could you, you know, maybe can you just talk about why you were so forceful in that one line in particular?

Well, again, I think that, as you know, Derek, over the years we've been acquisitive. I think we've made over 100 acquisitions since we've begun this journey back in 2000, 2001. You know, both Will and I are CPAs. We understand balance sheets. And you know, the balance sheet got a little bit stretched, mainly because of COVID and some of the implications of COVID on our business with regards to challenges with labor and inflation and obviously the impact that some of these kind of black swan events had on our results, right? But, you know, we're very aware of that. I think I made a comment on the last call that We are starting to look at acquisitions, and I got a lot of questions as to whether we're going to go out and basically blow the balance sheet, et cetera. That's not going to happen. We're very cautious. We're involved in many friendly discussions with regards to companies joining premium brands. Again, to the extent that the synergies are there and the opportunities for growth are there, we may do those deals and probably use our shares as a currency, again, if it makes sense from sort of an IRR perspective. But again, you're not going to see us go out and make a large acquisition and overstretch the balance sheet. That's never going to happen. And then our balance sheet overall will continue to improve based on some of the initiatives we have in place as we speak.

Yeah, and just to expand on George's last point there, Derek, you know, we're kind of in a unique part of our history in that Over the last couple of years, what we've identified as our biggest growth opportunities have been on the organic side versus acquisitions. So we've been investing a lot more, particularly in the U.S., in capacity. And unlike when we do an acquisition where we immediately get that EBITDA, unfortunately, CapEx, it takes a year or two to build the facility. Meanwhile, you're spending capital and you're not seeing incremental EBITDA. The reality is we're now at the peak of that cycle and all these plants, we've got five plants coming online over the next three quarters. All of that, we'll start seeing the cash flow in 2024, and really we're just saying, okay, we'll be disciplined around acquisitions while we generate that cash flow from the CapEx, and as that flows in, that's going to give us much more flexibility.

Yeah, and, you know, again, Derek, the 300 basis point improvement in the EBITDA margin of the prepared foods group is an indication of basically... starting to reap the benefits of the investment cycle that Will has just talked about. More good things to come there.

Yeah, great progress, guys. Thanks for taking my questions.

Thanks, Derek. Thanks, Derek.

Your next question comes from George Nume from Scotiabank. Your line is now open.

Hey, George. Good morning. A really strong margin at SF. Just wondering... maybe how sustainable those are or maybe any one-time things to be cognizant of in those margins?

No, very sustainable, George. Like George says, you're starting to see the benefits of the investments we've been making, but you're also seeing a normalization, right? Like it's been two years of incredibly challenging cost inflation. As we've talked about in the past, we're always behind the curve in terms of our pricing relative to where our our cost structure is when we're in an inflationary cycle. That's all catching up now. You're starting to see that. And the fact is, if you go back pre this crazy chaotic three years, you know, especially food's EBITDA margins were in the 12% to 13% range. So we actually see it as there's still more work to be done. There's still more upside in their margins.

The only thing I would add, George, is that, you know, I can't emphasize enough how much focus we've had over the last three or four years in investing in automation, robotics, improved efficiencies, et cetera, et cetera. And as Will said, we are beginning to normalize our business. We're beginning to have plenty of access to labor. Supply chains are normalizing, as we've talked about, on inflation, obviously. is beginning to normalize as well. And you're just basically seeing the benefits of the investments we've made in making our plans way more efficient. You know, as we've talked before, we didn't stop investing even when we've had some dark days and some difficult times. We've continued to believe in the long-term plan, and you're just starting to see the benefits of that investment cycle.

Yeah, and George is absolutely right. In the quarter, George, plant efficiencies from these investments, from continuous improvement, was about $7 million of the growth in specialty foods cash flow. So that's absolutely sustainable.

That's really helpful. I think, Will, in the prepared remarks, you mentioned a contribution of 20% to 45%. Sorry, a contribution margin of 20% to 45% for the new capacity investment. Understanding there could be some issues like we saw at King's Command. You mentioned five plants coming online in the next three quarters. My question is generally how long does it really take for these investments to contribute to those kind of margins? Is it one, two quarters? Could it be sooner? Any comments on that?

Well, the incremental sales contribute that from day one, each sale, right? The way we calculate the contribution margin is sales less direct costs, right? That's labor, materials, any direct marketing, et cetera. So that contribution margin starts on day one. Now in terms of the ramp-up cycle with the different businesses, we'll give you more color around our 2024 projections when we talk about that next quarter. But we're expecting a relatively quick ramp-up just because we have such a clear line of sight to a lot of this demand. We're essentially working with customers that we've had success in regional areas and helping take these initiatives to a national platform in the U.S. So we think it will be a pretty fast ramp up.

The only other comment I have, George, and I mentioned it in my prepared remarks, is that we don't look at growth from the top down. That's not premium brands, right? So in the prepared remarks, Last time I spoke about Global Gourmet, this time I talked about Shaw. And, you know, we've basically invested in that business. We got it to capacity. Now we've built a brand-new facility. We're pretty well sold out with regards to the new capacity coming on stream. It is operating as we speak. It is producing. And, you know what, it'll double and double again in size in the next two or three years. And that's the way we view growth, right? You have to look at it from the bottom-up perspective. And that's why I've started talking more about our different platforms and the type of growth that they're seeing based on more capacity becoming available.

That's helpful. Just one last one, if I may. If you look at your long-term guidance that calls for a smidge below 10% organic top-line growth per annum, if you look to 2024, is there a quarter particularly where you think you can maybe hit that run rate at all? Given all the capacity.

Hey, George, we'll talk more about 2024 next quarter. We're just coming out of our budgeting cycle right now. And, you know, I'd like to have everything hard, you know, nailed down before we start talking specifics about next year.

Okay. Fair enough. I'll pass the line. Thanks.

Your next question comes from Stephen McLeod from BMO Capital. Your line is now open.

Thank you. Good afternoon, guys.

Hey, Stephen.

Just wanted to see if you could give a little bit more color. You mentioned, George, there was a new QSR sandwich program that you secured this quarter, and I'm just wondering if there's an ability to give a little bit more color around that.

Yeah, so this is basically a customer that we've been talking to for probably two years now, Steven, you know, it's a very large QSR in the U.S. We did, for the first time, we did a limited promotion with them for two wraps, a chorizo and a chicken wrap. It was supposed to be a two-and-a-half-month promotion. It did really well. It exceeded expectations. So the customer extended it to the end of the year. So I think that we'll end up doing about 50 to 60 million worth of business with this customer this year, which is all new business. And then we are speaking to them today in regards to making the program permanent and adding another SKU. So anyway, it looks very good for next year. I don't have any more details on it as we speak, but I know the customer is extremely happy. I know that every time I've been in the US and tried to buy this product, a lot of times it's sold out, which is a good thing. You know, it's kind of a new concept for this customer in the sense that it's probably one of the first items that they've ever marketed that is not made in the store. That means that they can have consistent execution across their network. in terms of the program. So we're very pleased with this particular opportunity, and we think there's lots of upside there as well.

Okay, that's great. Just turning to the PFT business, is there any way to quantify what the impact was from the lobster harvesting shortage?

Yeah, you know, in general terms, we estimate the sales impact of about $30 million, a little over $30 million in the quarter, Steve. It was quite dramatic. Again, 20% decrease in the cash is an enormous number.

Yeah. And would you expect the shortfall to be similar in Q4?

It sounds like... Yeah, it will certainly carry forward into Q4. We're hoping it won't be as dramatic. The reality is the harvesting in Q4 is generally disrupted by weather, which was the issue here. I just want to make that very clear. The biomass, the lobsters are very healthy. There's lots of them out there, and it was just that the weather conditions were unusually poor throughout the quarter. Now, that's normally the case in Q4, but if we get a little better weather, maybe the catch is a bit better, we can make up for some of that. But yeah, we do expect for a good portion of that to continue into Q4 because of the lack of inventory there carrying us forward.

Right, okay. Okay, that's helpful. And then just on the small acquisition you did, is there any way to give a little bit of color around sort of sales and margins of material?

Yeah, so a great, great business. It was pretty small. We disclosed, I think it was about $28 million in sales. Its margins are relatively consistent with the premium food distribution group. We're quite excited about it. It was done by our Viendex team, and this is their third acquisition, and they've been acquiring these very complementary businesses that are in rural parts of Quebec, and they bring all these benefits and synergies to them. So they, you know, the first two have been very successful. We're very excited about this third one, menu mare. And yeah, so, you know, we hope to, you know, its current profile is, like I say, similar to premium food distribution. But, you know, if it goes the way the last two have, you know, the margins are much higher than the average for the premium food distribution group once we're done.

Okay. Okay, that's great. And maybe just finally, thinking about Q4 and just sort of going through the puts and takes and your guidance, would it be fair to assume that directionally Q4 would probably look a lot like Q3?

Well, yeah, Q4, when you look out in terms of from our previous discussions last quarter, Especially foods, a lot of the challenges there have gone away in the sandwich group. The capacity challenges will continue into Q4 just because the new Hempler's facility and the new King's Command protein facility, cooked protein facility, we had expected King's Command to come online in Q3 and Hempler's early in Q4. Both of those are now going to be late Q4. So we are a bit toned down from where we were last quarter on especially food sales because of that. And then in terms of premium food distribution group, we already talked about that.

Right.

Okay. Great. Thanks, Will. Appreciate it. Thanks, George.

Thanks, Steve. Thanks, Steve. Your next question comes from John from CIBC. Your line is now open.

Good morning, George and Will.

Hey, John.

Good morning. I wanted to follow up on an earlier question, George, specifically you referenced the milestone in Asia. Just to be clear, that is outside of Clearwater, I assume, and if it is, can you say what platform that's under or what some of those leading SKUs are and I wonder how you think about the materiality of that market or the potential materiality of that market for driving volumes in the next few years?

Yeah, so, you know, we've made a number of presentations and innovation sessions with customers in that market, John. It's across our different platforms. For example, I believe our team from Shaw Bakers are in Japan now. this week, presenting a number of products to potential customers. Yeah, the conversation and the new SKUs are completely outside of the clear water conversation. So these are kind of new opportunities for our sandwich group, our bakery group, and our protein group. I think if you go to Japan today, you will find a number of our products already on the shelves. And So I said, this is a new opportunity. I think at this point, internally, we're looking at it as a probably $100 million opportunity in the shorter term. We think there's more opportunity than that, given, obviously, capacity availability.

Okay, that's good color. Thanks for that. And I wanted to follow up on the the LTO at the large QSR sandwich customer. Can you say, was that a regional contract? And if so, could it become national? And if it is to become national, do you need to finish the Tennessee facility in order to address that? Or could the Edmonton facility help address it?

No, it's definitely a national opportunity, John. This is a national program with this particular customer. And, you know, we have brought on New capacity in our Sanders Group over the last couple of years, including, of course, Edmonton and in our Minnesota operations as well. So, again, definitely a national customer and a national relationship.

And the opportunity there, John, is growing the SKUs, right, expanding the program. Like George said, we've got a third SKU coming out shortly. and hopefully we can continue to expand into both the breakfast and lunch programs.

We think that potentially, and I'm talking more in terms of longer term, John, particularly as Tennessee comes on stream, it could be the size of our biggest customer, right? It's a very large opportunity overall.

Got it. Okay, that's helpful. And then shifting gears, I wanted to ask about your future growth capital projects. In the prepared remarks, Will, I think you said it was around $275 million in project capex that you've identified over the next seven to eight quarters. So if we annualize that, it's about $140 million a year. I'm trying to reconcile that with the five-year guide earlier this year of $800 million in project capex. I think that was over a four-year span. So I'm just trying to get a sense of what the right number is over the terms of your five-year guidance.

Yeah, so that five-year guidance includes 2023. And this year, we're probably going to, as of the end of the third quarter, we were at $234 million for the year. And we'll probably spend another $100 million. So in in the fourth quarter just as we finish these projects and then the balance is the other projects over two years and then some smaller projects that aren't yet approved that then carry us over to get to that that 800 million by year five got it okay and then just one more

You referenced in the press release about some consumers shifting away from conventional grocers towards discount and that having a small impact on your premium seafood and beef sales. You have a significant amount of volume through grocery. I wonder if you could take a shot at quantifying what the split is between what you'd consider discount and conventional.

Yeah, and we've got to be clear here. When we talk about premium seafood and beef sales, Those were products through our distribution networks, i.e. into our premium food distribution group. They're not the branded initiatives, especially foods. And so they tend to be more price sensitive. You know, the premium beef products, premium seafood products generally sold in premium banners. And so there is some exposure there. The reality is it was an impact on the quarter, John, but it wasn't a huge impact. It's just one of those things that's slowing its growth, not putting it into contraction, and really the issue in the quarter was what happened in the lobster business.

Got it. Okay. Thank you very much. I'll leave it there. Thank you, John.

Your next question comes from Chris Lee from Desjardins. Your line is now open.

Hi, good morning or good afternoon, George and Will. Hi, Chris. Hi there. I want to just maybe start with a near-term question just in the specialty food segment. I just maybe want to get a bit more granular. So based on everything you've said so far for Q4 for specialty food, do you think sort of mid-single-digit organic volume growth rate would be reasonable to pencil in for Q4?

Yeah, again, that's probably in the ballpark, Chris. The reality is we were expecting close to double digits in the quarter, but like I say, the delays and the capacity expansion has really sort of taken that down a bit. So that's probably not unfair.

Okay. And maybe a similar question, again, with SF, with respect to EBITDA margin, you did quite well, 11% in Q3. Is 11% reasonable for Q4?

No, there's a natural cycle in our businesses with the seasonality. So, you know, I think you've got to, when you're looking at the quarter, you need to take that into account. There's There should continue to be year-over-year improvement, but then you've got to look at that in the context of the seasonality of the business.

Okay, understood. And then just maybe a question on inflation. I think inflation was largely flat in both SF and PFD. And it looks like we could get into a deflationary period next year. And I know we want to wait until Q4 before talking about 2024 outlook. But just wondering, how should we think about, I guess, the impact on EBITDA next year if we do get into a deflationary period for your business? Should we think about in terms of you know, offsetting with low cost and therefore the impact on EBITDA should be, still be okay?

Even you get into a... Yeah, no, generally a deflationary period is positive to our EBITDA, Chris. You know, again, similar to how we lack or lag behind in price increases as in an inflationary environment, you see the opposite in a deflationary environment or sort of the same thing in a deflationary environment where price decreases lagged. But having said that, we do have in our more differentiated higher margin categories, we do generally emerge from these inflationary periods with permanently higher margins. And then the other comment I would make too is quite often what our businesses will do is instead of passing on price decreases, they'll do a lot more featuring and promotion rather And so, yeah, so now they're featuring and promoting a more historic-like margin, but they're getting incremental volume out of that. So it tends to, again, drive EBITDA. So generally, deflationary cycles are very positive on our specialty foods businesses.

And it is still your view that you will get some volume stimulation from um okay okay that's helpful maybe just a very long-term question i know no one has a crystal ball on this but obviously a lot of media reports around weight loss drugs and the impact that could have on just the food business overall um just wondering if you care to weigh in you know in terms of what you think about that and the impact on your business longer term you know again chris um

Over the years, we've been asked a lot of questions around these type of developments. I remember having conversations with investors about plant-based meats, as you know. And before that, it was about how cannabis consumption and all the promotion around cannabis would impact food consumption. And, you know, before that, it was, you know... margarine versus butter, there always seems to be these new ideas that come out. In general terms, at Premium Brands, one of the motives we use internally that drives a lot of our innovation is that the future of food is in the past. We're basic believers in the fact that at some point... the consumption of ultra-processed foods will probably be made illegal because it's so unhealthy for you and people will begin to return to eating foods with, you know, high quality, less ingredient, less processed, etc., etc. Now, you know, in regards to these drugs, who knows at this point. From our perspective, we support any development that will make people healthier. You know, again, I don't know enough about the side effects or how these drugs work, but I know that they're expensive. And I also know that from my perspective, based on my own experience, I mean, you know, I'm generally a high saturated fat, high protein, low carb consumer, and I've benefited tremendously from From this type of diet, my health is in great shape. And, you know, I think that people ultimately will make the right decisions with regards to the diets they follow to get healthier. We think that a keto type of diet, which is kind of drives a lot of what premium brands does, is probably a lot cheaper way to get to good health, right? So, you know, will people go for these type of drugs that are more expensive and maybe have significant side effects or will they go the natural way, adopt a keto diet, which is, by the way, used by doctors around the world today to get people to lose weight and even reverse diabetes. So anyway, from my perspective, what would you guys choose? Would you choose a natural way or these type of drugs, right? So anyway, that's my response.

Thanks for your thoughts, George. And then maybe my very last question is just in terms of your balance sheet. Other than working capital improvement and EBITDA growth, are there other things you're looking at outside of that to further reduce or leverage, or do you think you're in a decent place right now? Thank you.

We have a number of initiatives underway at this point, Chris, but nothing we can discuss on this call at this time.

Okay. Thanks, guys, and all the best.

Thank you, Chris.

Your next question comes from Derek from TD Cowan. Your line is now open.

Yeah, guys, just one follow-up for me. I was curious if you had a sense as to what your normalized specialty food margin would have been excluding some of those challenges. I mean, it came in at 11%. Do you have an idea of how much higher it could have been?

Yeah, it's a great question, Derek. Yeah, we did a detailed analysis of that and The reality is once you normalize for the sandwich challenges we talked about and the little bit of capacity we had expected to sell from King's Command in the quarter, we would have come out at about 7.6% organic volume growth, which is right in our expected range for the quarter, and about a 11.2% EBITDA margin. Okay. Thanks for that.

Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by the number one. There are no further questions at this time. George, please go ahead.

Yeah, thank you, Lester, and thank you, everybody, for attending today. All the best. Bye-bye.

Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.