High Liner Foods Reports Second Quarter 2014 Operating Results

LUNENBURG, NS, Aug. 12, 2014 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner Foods" or "the Company"), the leading North American value-added frozen seafood company, today reported financial results for the thirteen and twenty-six weeks ended June 28, 2014.  All amounts are reported in U.S. dollars ("USD") unless otherwise noted.

High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars ("CAD"), and closed yesterday at CAD$25.20¹.  The Company reports its financial results in USD and the average USD/CAD exchange rate during the second quarter of 2014 was 1.0911 and 1.0965 for the twenty-six weeks ended June 28, 2014.

Financial and operational highlights for the second quarter of 2014 include (all comparisons are relative to the second quarter of 2013, unless otherwise noted):

• Sales increased in the second quarter of 2014 by $30.6 million, or 14.9%, to $235.5 million compared to $204.9 million (the American Pride Acquisition added $32.1 million in sales);
• Sales in domestic currency increased in the second quarter of 2014 by $36.0 million, or 17.4%, to $242.6 million compared to $206.6 million (excluding $32.1 million in sales from the American Pride Acquisition, sales in domestic currency increased in the second quarter of 2014 by $3.9 million, or 1.9%);
• Adjusted EBITDA decreased in the second quarter of 2014 by $2.6 million, or 13.5%, to $16.7 million compared to $19.3 million (the American Pride Acquisition added $0.3 million in Adjusted EBITDA);
• Reported net income decreased in the second quarter of 2014 by $4.7 million, or 47.5%, to $5.2 million (diluted earnings per share ("EPS") of $0.17) compared to $9.9 million (diluted EPS of $0.32);
• Adjusted Net Income decreased in the second quarter of 2014 by $1.7 million, or 18.5%, to $7.5 million (Adjusted Diluted EPS of $0.24) compared to $9.2 million (Adjusted Diluted EPS of $0.30); and
• Net interest-bearing debt to Adjusted EBITDA, calculated on a rolling fifty-two week basis, improved to 3.8x at the end of the second quarter of 2014 compared to 3.9x at the end of fiscal 2013.

Financial and operational highlights for the twenty-six weeks ended June 28, 2014 or first half of 2014 include (all comparisons are relative to the first half of 2013, unless otherwise noted):

• Sales increased in the first half of 2014 by $58.1 million, or 12.1%, to $538.2 million compared to $480.1 million (the American Pride Acquisition added $73.5 million in sales);
• Sales in domestic currency increased in the first half of 2014 by $70.2 million, or 14.6%, to $552.7 million compared to $482.5 million (excluding $73.5 million in sales from the American Pride Acquisition, sales in domestic currency decreased in the first half of 2014 by $3.3 million, or 0.7%);
• Adjusted EBITDA increased in the first half of 2014 by 3.3 million, or 8.1%, to $43.9 million compared to $40.6 million (the American Pride Acquisition added $2.6 million in Adjusted EBITDA);
• Reported net income increased in the first half of 2014 by $2.0 million, or 13.2%, to $17.1 million (diluted earnings per share ("EPS") of $0.55) compared to $15.1 million (diluted EPS of $0.49); and
• Adjusted Net Income increased in the first half of 2014 increased by $2.3 million, or 12.1%, to $21.3 million (Adjusted Diluted EPS of $0.68) compared to $19.0 million (Adjusted Diluted EPS of $0.61).

"Second quarter earnings in 2014 decreased compared to last year largely as a result of lower margins on certain products in our Canadian business," announced Mr. Demone.  "Raw material costs in our Canadian business have increased in 2014, in part due to a weaker Canadian dollar, and have not been fully recovered through price increases to our customers."

Mr. Demone continued, "Unfortunately, many of our major customers operating in the U.S. foodservice industry are continuing to experience soft sales, creating a challenging environment for this part of our business.  We are focused on working with our customers to develop innovative seafood products to help drive increased sales."

Financial Results

The financial results for the thirteen and twenty-six week periods ended June 28, 2014 are summarized in the following table:

Sales for the second quarter of 2014 were $235.5 million, an increase of $30.6 million, or 14.9%, from $204.9 million for the same period in 2013.  In 2014, 70% of the Company's operations, including sales, were denominated in USD.  The weaker Canadian dollar in the second quarter of 2014 compared to the same quarter in 2013 decreased the value of reported USD sales by approximately $5.2 million relative to the conversion impact last year.

Sales in domestic currency increased by $36.0 million, or 17.4%, to $242.6 million in the second quarter of 2014, compared to $206.6 million in 2013.  American Pride added $32.1 million in sales in 2014, and excluding American Pride, sales in domestic currency increased by $3.9 million in 2014.

Adjusted EBITDA in the second quarter of 2014 was $16.7 million, or 7.1% of sales, compared to $19.3 million, or 9.4% of sales, for the same period in 2013.  American Pride added $0.3 million in Adjusted EBITDA in 2014 and excluding American Pride, Adjusted EBITDA decreased by $3.0 million due to lower overall sales (excluding American Pride) and lower product margins in Canada reflecting cost increases not fully recovered through price increases.  In some instances, price increases on products lagged when the Company began to realize higher associated raw material input costs and in others, due to the magnitude of cost increases and a highly competitive marketplace, the full amount of the increased costs was not passed on to customers.  Also, the Company's gross profit benefited in the second quarter of 2013 from higher product margins in Canada that reflected lower raw material input costs realized on certain products in advance of cost savings being passed on to customers.  Increased SG&A spending in the U.S. operations and an unfavourable change in the USD/CAD exchange rate used to translate our CAD-denominated operations to USD also decreased Adjusted EBITDA in 2014.

Net income in the second quarter of 2014 was $5.2 million (diluted EPS of $0.17) compared to $9.9 million (diluted EPS of $0.32) in the second quarter of 2013.  In addition to the items cited in the preceding paragraph, the $4.7 million decrease in net income also reflects: higher financing costs resulting from higher average debt levels and less favourable changes in the valuation of an embedded derivative and interest rate swaps; a $1.6 million increase in stock-based compensation expense; and a lower effective income tax rate.

Excluding the after-tax impact of certain items, including one-time costs related to acquisition and integration activities, stock-based compensation expense, accelerated amortization of financing costs and other items resulting from debt refinancing and amendment activities, the non-cash expense (income) related to the revaluation of the embedded derivative associated with our long-term debt LIBOR floor, the mark-to-market loss (gain) on the interest rate swap related to the embedded derivative and certain other non-recurring expenses, Adjusted Net Income was $7.5 million (Adjusted Diluted EPS of $0.24) in the second quarter of 2014 compared to $9.2 million (Adjusted Diluted EPS of $0.30) in the second quarter of 2013.

Net cash flows provided by operating activities decreased by $19.9 million in the second quarter of 2014 to $22.7 million compared to $42.6 million in the same period last year, due to increased net non-cash working capital requirements in 2014, less favourable results from operations, higher finance costs and higher income tax payments, partially offset by lower capital expenditures.

The Board of Directors of the Company approved today a quarterly dividend of CAD$0.105 per share on the Company's common shares payable on September 15, 2014 to holders of record on September 2, 2014.

Outlook

"We've previously disclosed our strategic goals for 2014 are profitable growth, supply chain optimization and succession planning, and we are making progress on initiatives related to achieving these goals.  The American Pride integration, which started after Lent, is on track to be completed by the end of this year.  We have engaged outside expertise to assist with the supply chain optimization program and $20 to $25 million in annual cost savings should begin to be realized in 2015, with the full benefit being achieved in 2016," stated Mr. Demone.  "We also continue to believe opportunities exist to further consolidate the frozen seafood industry in North America."

"Certain product margins may continue to be negatively impacted through the remainder of this year as high costs on certain key species continue and sales in the U.S. foodservice sector may remain challenging, particularly as the underlying market dynamics of the U.S. restaurant industry shift for our major U.S. foodservice customers."  Mr. Demone concluded, "However, we are committed to product innovation in our sector and are working with existing and new customers to bring innovative offerings to consumers."

Conference Call

The Company's Unaudited Condensed Interim Consolidated Financial Statements and MD&A as at and for the thirteen and twenty-six weeks ended June 28, 2014 were filed concurrently on SEDAR with this news release and are also available at www.highlinerfoods.com.

The Company will host a conference call on Tuesday, August 12, 2014, at 2:00 p.m. EDT (3:00 p.m. ADT) during which Henry Demone, CEO, Paul Jewer, Executive VP & CFO and Keith Decker, President & COO will discuss the financial results for the second quarter of 2014.  To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191.  Please connect approximately 10 minutes prior to the beginning of the call to ensure participation.  The conference call will be archived for replay by telephone until Tuesday, August 19, 2014 at midnight.  To access the archived conference call, dial 1-855-859-2056 and enter the reservation number 73070588.

A live audio webcast of the conference call will be available at www.highlinerfoods.com.  Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast.  The webcast will be archived at the above website for one year.

About High Liner Foods Incorporated

High Liner Foods Incorporated is the leading North American processor and marketer of value-added frozen seafood.  High Liner Foods' retail branded products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel and Sea Cuisine labels, and are available in most grocery and club stores.  The Company also sells branded products to restaurants and institutions under the High Liner, Icelandic Seafood, FPI, Viking, Mirabel, Samband of Iceland and American Pride Seafood labels and is the major supplier of private label value-added seafood products to North American food retailers and foodservice distributors.  High Liner Foods is a publicly traded Canadian company, trading under the symbol HLF on the Toronto Stock Exchange.

This document contains forward-looking statements. Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "will", believe", "plan", "expect", "goal", "remain" or "continue", or the negative of these terms or variations of them or words and expressions of similar nature.  Specific forward-looking statements in this document include, but are not limited to expectations with respect to: anticipated financial performance; increased operating efficiencies, including maximizing plant throughput rates and reducing operating and distribution costs; changes to sales volume, margins and input costs, including raw material prices; changes to American Pride's operations; achievement of strategic goals, including our ability to increase our market share, acquire and integrate other businesses and reduce our supply chain costs;and our ability to develop new and innovative products that result in increased sales and market share.  These statements are based on a number of factors and assumptions including, but not limited to: seafood availability, demand and pricing; product pricing, including the cost of raw materials, energy and supplies; operating costs; plant performance; the condition of the Canadian and U.S. economies; our ability to attract and retain customers; required level of bank loans and interest rates; income tax rates; and our ability to attract and retain experienced and skilled employees.  The statements are not a guarantee of future performance.  By their nature, forward-looking statements involve uncertainties and risks that could result in the forecasts and targets not being achieved.  Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially from those expressed in such forward-looking statements.  We include in publicly available documents filed from time to time with securities commissions and The Toronto Stock Exchange, a discussion of the risk factors that can cause anticipated outcomes to differ from actual outcomes.  Except as required under applicable securities legislation, we do not undertake to update forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf, whether as a result of new information, future events or otherwise.

The Company reports its financial results in accordance with IFRS.  Included in this media release are certain non-IFRS financial measures as supplemental indicators of operating performance.  These non-IFRS measures are Adjusted Net Income, Adjusted Diluted EPS, Adjusted EBITDA and Adjusted Standardized Free Cash Flow.  Please refer to the Company's MD&A for the thirteen and twenty-six weeks ended June 28, 2014 for definitions of non-IFRS financial measures used by the Company and reconciliation of these non-IFRS measures to measures that are found in our consolidated financial statements.

The Company believes these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company.  These measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.

For further information about the Company, please visit our website at www.highlinerfoods.com or send an e-mail to investor@highlinerfoods.com. 

SOURCE High Liner Foods Incorporated