Premium Brands Holdings Corporation Announces Record Third Quarter 2016 Results and Declares Fourth Quarter 2016 Dividend

VANCOUVER, Nov. 3, 2016 /CNW/ - Premium Brands Holdings Corporation (TSX: PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the third quarter of 2016.

HIGHLIGHTS FOR THE QUARTER

• Record third quarter revenue of $481.0 million representing a 22.5% increase as compared to the third quarter of 2015
  
  
• Record third quarter adjusted EBITDA of $44.0 million representing a 34.6% increase as compared to the third quarter of 2015
  
  
• Record third quarter earnings and earnings per share of $21.2 million and $0.72 per share, respectively
  
  
• Record rolling four quarters free cash flow of $106.9 million resulting in a dividend to free cash flow ratio of 39.9%
  
  
• Acquired Seattle, WA based Fletcher's U.S. for US$5.0 million
  
  
• Commenced construction of a 212,000 square foot sandwich production facility in Phoenix, AZ and a 105,000 square foot distribution and custom processing facility in Toronto, ON
  
  
• Subsequent to the quarter, acquired Toronto, ON based Belmont Meats for $50.0 million
  
  
• Also subsequent to the quarter declared a quarterly dividend of $0.38 per share

SUMMARY FINANCIAL INFORMATION
(In millions of dollars except per share amounts and ratios)

"We are pleased to announce another quarter of record sales, earnings and free cash flow with our sales increasing by 22.5%, our earnings per share increasing by 84.6% and our free cash flow increasing by 31.8%," said Mr. George Paleologou, President and CEO.  "While the improvement in our results was generated broadly across our portfolio of businesses, a key driver was the investments we have made internally and in acquisitions over the last three years.  These initiatives, many of which were based on ten year plus investment horizons, are now generating their expected returns.

"We are also pleased and excited about a number of new projects we launched over the past four months that will be future drivers of our performance, including the introduction of a number of new and very innovative products in a variety of high growth categories such as seafood, meat snacks and artisan breads.  We also commenced construction of two new plants that will come on line in mid-2017, namely a 212,000 square foot sandwich plant in Phoenix and a 105,000 square foot distribution and custom processing facility in Toronto.  The Phoenix plant will complement our two other U.S. sandwich plants, both of which are operating at capacity, while the Toronto facility will not only provide our Ocean Miracle seafood business with much needed capacity but will also allow our western Canada based Centennial Foodservice business to expand into Ontario. 

"Over the past couple of months we also completed two acquisitions.  We purchased Seattle based Fletcher's U.S. at the end of the third quarter and more recently Toronto based Belmont Meats.  Fletcher's is a marketer and distributor of branded premium processed meats in the U.S. Pacific Northwest market while Belmont Meats is a leading supplier of premium and customized burger patties to retailers and foodservice customers across Canada.  Both of these companies fit perfectly with our business model," said Mr. Paleologou.  "Looking forward, we expect to complete more accretive transactions in the relatively near future based on a robust acquisition pipeline and leveraging our strong financial position," added Mr. Paleologou.

"The quarter was not without its challenges.  Several of our businesses continued to face strong headwinds in Alberta and Saskatchewan due to difficult economic conditions caused by the fall in oil prices, and our Columbus sandwich plant, while generating improved results on a year over year basis, continued to operate at below its expected efficiency levels," stated Mr. Paleologou.  "We are, however, very satisfied with our overall progress as we drive towards our goal of being one of North America's leading specialty food companies," said Mr. Paleologou.

FOURTH QUARTER 2016 DIVIDEND

The Company's Board of Directors approved a cash dividend of $0.38 per share for the fourth quarter of 2016, which will be payable on January 16, 2017 to shareholders of record at the close of business on December 30, 2016.

Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the Company in 2016 or a subsequent year is an eligible dividend for the purposes of the Enhanced Dividend Tax Credit System.

ABOUT PREMIUM BRANDS

Premium Brands owns a broad range of leading specialty food manufacturing and differentiated food distribution businesses with operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nevada, Ohio, Arizona and Washington State.  The Company services a diverse base of customers located across North America and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Piller's, Freybe, Expresco, Belmont Meats, Hempler's, Isernio's, Fletcher's U.S., Direct Plus, Audrey's, SK Food Group, OvenPride, Bread Garden Go, Hygaard, Quality Fast Foods, Deli Chef, Creekside Bakehouse, Stuyver's Bakestudio, Gourmet Chef, Duso's, Centennial Foodservice, B&C Food Distributors, Shahir, Wescadia, Harlan Fairbanks, Maximum Seafood, Ocean Miracle, Hub City Fisheries, C&C Packing and Premier Meats.

RESULTS OF OPERATIONS

Revenue

Specialty Foods' revenue for the third quarter of 2016 as compared to the third quarter of 2015 increased by $17.6 million or 6.9% primarily due to: (i) the acquisition of Expresco Foods in the third quarter of 2015 which accounted for $11.5 million of the increase; and (ii) $8.2 million of organic volume growth, representing a growth rate of 3.2%, across a range of products with a significant portion coming from the segment's sandwich initiatives.  These increases were partially offset by: (i) a $1.2 million decrease in the translated value of its U.S. based businesses' sales; and (ii) a $0.9 million decrease in its net selling prices resulting from lower commodity raw material costs. 

For the first three quarters of 2016 as compared to the first three quarters of 2015 Specialty Foods' revenue increased by $105.1 million or 14.9% primarily due to: (i) the acquisitions of Isernio's Sausage and Expresco Foods in 2015 which accounted for $51.0 million of the increase; (ii) $37.5 million of organic volume growth, representing a growth rate of 5.3%; and (iii) a $16.8 million increase in the translated value of its U.S. based businesses' sales. These increases were partially offset by approximately $0.2 million in net selling price decreases. 

Specialty Foods' organic volume growth rate for the third quarter of 3.2% was below its year to date rate of 5.3% and the Company's long-term targeted range of 4% to 6% primarily due to: (i) customer product promotions and limited time offerings that were either delayed to the fourth quarter of 2016 or not repeated; (ii) general volatility in the timing of certain larger customers' orders; and (iii) rationalization of lower margin products.  Looking forward (see Forward Looking Statements), the Company expects Specialty Foods to recapture a significant portion of the sales not achieved in the third quarter in the fourth quarter and correspondingly is maintaining its 2016 revenue guidance for this segment, i.e. its organic volume growth being at the top end or above the Company's long-term targeted range of 4% to 6% (6% to 8% after inflation).

Premium Food Distribution's revenue for the third quarter of 2016 as compared to the third quarter of 2015 increased by $70.8 million or 52.2% primarily due to: (i) the acquisition of C&C Foods in the second quarter of 2016 which accounted for $67.5 million of the increase; (ii) approximately $1.1 million in net selling price increases that were implemented in response to higher raw material costs, namely a variety of seafood products; and (iii) net organic volume growth of $2.2 million representing an organic volume growth rate of 1.6%.

For the first three quarters of 2016 as compared to the first three quarters of 2015 Premium Food Distribution's revenue increased by $135.6 million or 35.7% primarily due to: (i) the acquisition of C&C Foods which accounted for $120.1 million of the increase; (ii) approximately $10.8 million in net selling price increases; and (iii) net organic volume growth of $4.7 million representing an organic volume growth rate of 1.2%.

Premium Food Distribution's low organic volume growth rate in 2016 is due to the impact on its Alberta and Saskatchewan foodservice operations from the economic slowdowns in these regions.  Excluding this factor, Premium Food Distribution's organic volume growth rate would have been near to or at the bottom end of the Company's long-term targeted range of 4% to 6%.

Looking forward (see Forward Looking Statements), for 2016 the Company is maintaining its revenue guidance for Premium Food Distribution's organic volume growth to be below the Company's long-term targeted range of 4% to 6% (6% to 8% after inflation) as the impact of the weakness in the Alberta and Saskatchewan economies continues to largely offset the solid growth being generated from a variety of new product initiatives as well as stronger foodservice sales in southern British Columbia.

Gross Profit

Specialty Foods' gross profit as a percentage of its revenue (gross margin) for the third quarter of 2016 as compared to the third quarter of 2015 and for the first three quarters of 2016 as compared to the first three quarters of 2015 decreased slightly due to a variety of factors including changes in the its sales mix, namely higher sandwich sales, and lower than normal margins on certain turkey and chicken based products resulting from raw material cost increases.  In addition, Specialty Foods' sandwich operation's gross margins were impacted by temporary operating inefficiencies at its new sandwich plant in Columbus, Ohio.  These totaled approximately $1.3 million for the third quarter and $5.1 million for the first three quarters of 2016.

Premium Food Distribution's gross margin for the third quarter of 2016 as compared to the third quarter of 2015 and for the first three quarters of 2016 as compared to the first three quarters of 2015 was relatively stable as improved margins on beef based products, resulting from a decline in raw material costs from record highs earlier in the year, were largely offset by the lower average gross margins, on a relative basis, of its recently acquired C&C Foods business. 

Selling, General and Administrative Expenses (SG&A)

Specialty Foods' SG&A as a percentage of sales (SG&A ratio) for the third quarter of 2016 as compared to the third quarter of 2015 and for the first three quarters of 2016 as compared to the first three quarters of 2015 decreased primarily due to: (i) reduced discretionary employee compensation associated with growth in the free cash flow of certain businesses; (ii) the fixed nature of a variety of costs relative to its organic revenue growth; and (iii) changes in its sales mix, namely higher sandwich sales.

Premium Food Distribution's SG&A ratio for the third quarter of 2016 as compared to the third quarter of 2015 and for the first three quarters of 2016 as compared to the first three quarters of 2015 decreased primarily due to: (i) the acquisition of C&C Foods, which has a lower SG&A ratio relative to Premium Food Distribution's other businesses; and (ii) the fixed nature of a variety of costs relative to its organic revenue growth.

Adjusted EBITDA

The Company's targeted adjusted EBITDA as a percentage of sales (EBITDA margin) for 2016 is to be within a range of 8.0% to 8.5%.  This objective was set several years ago when its EBITDA margin was approximately 6.5% and since then the Company has made steady progress with its adjusted EBITDA margin improving to 8.2% for the rolling four quarters ended September 24, 2016.

Looking forward (see Forward Looking Statements) the Company is maintaining its adjusted EBITDA margin guidance for 2016 of being at the lower end of its 8.0% to 8.5% targeted range.  This guidance is based on the following key assumptions:

• The impact of its recent acquisitions of C&C Foods and Belmont as both businesses have adjusted EBITDA margins that are below the Company's 2016 targeted range.  Furthermore, due to the seasonality of Belmont's business, which mirrors the Company's but is much more dramatic, Belmont is expected to generate only nominal adjusted EBITDA in the fourth quarter of 2016;
  
  
• Continued improvement in the Columbus sandwich plant's operating efficiencies;
  
  
• A general improvement in operating efficiencies in many of the Company's businesses resulting from projected organic sales volume growth; and
  
  
• Continued improvement in the gross margins of certain beef and poultry based products due to falling commodity raw material costs.

Interest and other financing costs

The Company's interest and other financing costs for the third quarter of 2016 as compared to the third quarter of 2015 increased by $0.8 million due to $1.4 million in additional accretion associated with convertible debentures converted or redeemed during the quarter.  This increase was partially offset by the impact of: (i) lower total funded debt levels; and (ii) lower average interest rates on the Company's outstanding convertible debentures.

The Company's interest and other financing costs for the first three quarters of 2016 as compared to the first three quarters of 2015 decreased by $0.9 million primarily due to the impact of (i) lower total funded debt levels; and (ii) lower average interest rates on the Company's outstanding convertible debentures.  The impact of these items was partially mitigated by $0.5 million of additional accretion associated with convertible debentures converted or redeemed during the year.

NON-IFRS FINANCIAL MEASURES

The Company uses certain non-IFRS financial measures including adjusted EBITDA, free cash flow, adjusted earnings and adjusted earnings per share, which are not defined under IFRS and, as a result, may not be comparable to similarly titled measures presented by other publicly traded entities, nor should they be construed as an alternative to other earnings measures determined in accordance with IFRS.  These non-IFRS measures are calculated as follows:

Adjusted EBITDA

Free Cash Flow

Adjusted Earnings and Adjusted Earnings per Share

FORWARD LOOKING STATEMENTS

This press release contains forward looking statements with respect to the Company, including its business operations, strategy and financial performance and condition. These statements generally can be identified by the use of forward looking words such as "may", "could", "should", "would", "will", "expect", "intend", "plan", "estimate", "project", "anticipate", "believe" or "continue", or the negative thereof or similar variations.

Although management believes that the expectations reflected in such forward looking statements are reasonable and represent the Company's internal expectations and belief as of November 2, 2016, such statements involve unknown risks and uncertainties beyond the Company's control which may cause its actual performance and results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by such forward looking statements.

Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward-looking statements contained herein include: (i) changes in the cost of raw materials used in the production of the Company's products; (ii) seasonal and/or weather related fluctuations in the Company's sales; (iii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iv) changes in the cost of finished products sourced from third party manufacturers; (v) changes in the Company's relationships with its larger customers; (vi) access to commodity raw materials; (vii) potential liabilities and expenses resulting from defects in the Company's products; (viii) changes in consumer food product preferences; (ix) competition from other food manufacturers and distributors; * execution risk associated with the Company's growth and business restructuring initiatives; (xi) risks associated with the Company's business acquisition strategies; (xii) changes in the value of the Canadian dollar relative to the U.S. dollar; (xiii) new government regulations affecting the Company's business and operations; (xiv) the Company's ability to raise the capital needed to fund its growth initiatives; (xv) labor related issues including potential disputes with employees represented by labor unions and labor shortages; (xvi) the loss and/or inability to attract key senior personnel; (xvii) fluctuations in the interest rates associated with the Company's funded debt; (xviii) failure or breach of the Company's information systems; (xix) financial exposure resulting from credit extended to the Company's customers; (xx) the malfunction of critical equipment used in the Company's operations; (xxi) livestock health issues; (xxii) international trade issues; and (xxiii) changes in environmental, health and safety standards. Details on these risk factors as well as other factors can be found in the Company's 2015 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.

Unless otherwise indicated, the forward looking statements in this document are made as of November 2, 2016 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking statements in this press release.

SOURCE Premium Brands Holdings Corporation