TD commentsPremium Brands Holding Corp. (PBH-T) C$89.71 Q3/23
First Look: Miss But Long-Term Upside Is In Sight Derek J. Lessard Cheryl Zhang, CFA, (Associate) Event Q3/23
Results Impact: NEGATIVE
Looking at these results through a more positive lense, we would highlight that challenging conditions experienced in the higher-margin Specialty Foods (SF) segment are expected to be largely resolved in Q4 and strong underlying demand particularly in the U.S. continues to outstrip capacity. That said, given the 4% top-line/EBITDA miss and challenging lobster market in Premium Food Distribution (PFD), we would expect the shares to react negatively today.
Other key highlights included:
Revenue (~4% below TD/cons)
SF: OVGR of 3.4% < management's 4-6% long-term target due to: 1) lower sandwich sales while one of its major customers optimizes freight costs, reduces food waste and lowers inventories, and 2) delayed cooked protein capacity expansion due to equipment issues. The good news is that both issues are expected to be temporary, with most of the sandwich sales impact specific to Q3, and the cooked protein capacity set to start up in December. Normalized for these issues, OVGR would have been 7.6%, in line with our 8.0% estimate given the strength in the U.S. sales initiatives in cooked protein, fresh skewers, artisan sandwiches, meat snack, and charcuterie.
PFD: OVGR of -4.6% < our -1.0% estimate, due to poor weather preventing lobster harvesting (20% lower Maine catch), softening consumer demand for premium beef/seafood, and traffic shift to discount grocery banners.
Adj. EBITDA of $158.8mm (~4% below TD/cons) given the top line miss. However, margin expansion was strong (~+100bps y/y) driven by SF given moderating input costs and production efficiencies (from its capital investments), partially offset by the challenging lobster market in PFD.
Total leverage declined to 4.1x (from 4.4x last quarter), driven by a meaningful ~$140mm reduction in working capital.
Announced acquisition of Quebec-based foodservice distributor Menu-Mer ($27mm annual sales).
Due to SF issues noted above, management lowered its 2023 guidance:
Revenue: $6,300-6,400mm (from $6,400-6,600mm) < cons $6,488mm
Adj. EBITDA: $575-590mm (from $590-610mm) < cons $590mm