Premium Brands Holdings Corp
Q2/24 Preview: Trimming Q2 outlook, full year estimates unchanged
Our View: Premium Brands Holdings Corporation will report Q2/24 results in early August (precise timing TBA). We have fine-tuned our Q2 Adjusted EBITDA forecasts lower to reflect a more conservative i) ramp-up of Specialty Food growth initiatives into the second-half of 2024, and ii) cadence of recovery within the Premium Food Distribution segment. Nonetheless, on a full year basis our estimates remain broadly intact.Maintain Sector Perform and $101 price target.
Key points:
• Q2 outlook. We forecast Adjusted EBITDA of $160.1 million (+5% YoY) which sits below consensus at $165.0 million (+8% YoY). Underpinning our outlook is Specialty Food division Adjusted EBITDA of $119.7 million (+9% YoY), with Premium Food Distribution Adjusted EBITDA of $35.5 million flat on a YoY basis (Exhibit 1). As noted above, our updated Q2 estimates reflect a somewhat more conservative ramp with respect to revenue growth within the Specialty Foods business in Q2 before accelerating in the second-half of the year. At Q1, management noted that all capacity required to meet 2024 guidance is now in place, but customer onboarding can be lumpy. We have also tempered Q2 margins within the Premium Food Distribution segment as the lobster business continues to work through supply challenges from 2H/23. On balance we forecast a recovery into the 2H as comps ease.
• 2024 estimates intact. On a full year basis our estimates remain broadly unchanged with revenues of $6.7 billion and Adjusted EBITDA of $633 million. PBH’s 2024 guidance calls for revenues of $6.65 - $6.85 billion with Adj. EBITDA of $630 - $650 million (implied 9.5% margin).
• Q2 focus items. We expect investor attention at Q2 to center on: 1) Sales trends/outlook and progression of the ramp-up of capacity additions within Specialty Foods—which is expected to be the primary driver of growth in 2024. Recall, Q1/24 organic volume growth of +5.6% was bifurcated between the U.S. at +9.7% and Canada at +1.1% (which was up from Q4/23 levels of -4.3%). 2) The pace of recovery of the lobster business within the Premium Food distribution segment following supply constraints in 2H/23. As of Q1, management did point towards a solid start to the first Canadian fishery of 2024. 3) The outlook for margins and related input costs. Given the challenging operating environment over the past few years, we believe delivery of Adjusted EBITDA and margin targets can serve as a catalyst for shares. 4) Balance sheet leverage (total net debt/EBITDA was approx. 4.0x exiting Q1 vs. a targeted range of 3.5– 4.0x).
• Relative valuation. Premium Brands currently trades at 10.0x our 2024E EBITDA outlook, and 9.3x in 2025E. This sits below the company’s trailing 5-year average trading multiple of 12.6x. In our view, the discount reflects current macro uncertainty, along with balance sheet leverage which sits at the top end of the company’s targeted range.