Lassonde Industries Inc. announces its Q1-2023 results

ROUGEMONT, QC, May 12, 2023 /CNW/ - Lassonde Industries Inc. (TSX: LAS.A) ("Lassonde" or the "Corporation") today announced its financial results for its first quarter ended April 1, 2023.

Financial Highlights:

"Lassonde Industries enjoyed a strong performance during the first quarter and we will continue to invest in our operations to become a more efficient organization. We are confident that progress on our multi-year strategy will continue through the remainder of 2023, with more significant benefits to be achieved in 2024. Over the next few quarters, we will maintain focus on macro-economic conditions to ensure we are responding to the needs of our customers and consumer trends as we execute our multi-year strategy to drive long-term value," said Nathalie Lassonde, Chief Executive Officer and Vice-Chair of the Board of Directors of Lassonde Industries Inc.

"Each of our divisions delivered solid performance in the quarter, with our U.S. business demonstrating increased tangible benefits from project Eagle. Sales increased as our price adjustments and an optimized sales mix more than offset a volume contraction, which partially resulted from actions taken to rationalize our product portfolio. Additionally, through Project Eagle, we are seeing improved efficiencies in our U.S. facilities and lower transportation costs realized in part through the implementation of a new transportation management system," added Vince Timpano, President and Chief Operating Officer of Lassonde Industries Inc.

First Quarter Highlights:

• Sales of $547.3 million. Excluding a $19.5 million favourable foreign exchange impact, sales were up $18.8 million (3.7%) from the same quarter last year, mainly due to selling price adjustments and to a favourable change in the sales mix of U.S. private label products, partly offset by a decrease in sales volume, mainly in the U.S.
• Gross profit of $136.6 million (25.0% of sales), up $1.0 million from the same quarter in 2022. Excluding a $2.4 million favourable foreign exchange impact, gross profit was down $1.4 million from the same quarter last year;
• Higher cost for all inputs, especially apple and orange concentrates; and
• Increase in the Corporation's conversion costs.
• Operating profit of $26.2 million, up $3.8 million from the same quarter last year;
• $10.3 million decrease in transportation costs incurred to deliver products to clients, resulting from decreases in fuel surcharges and in base transportation rates and from savings related to the use of the new transportation management system in the U.S.;
• $2.9 million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars;
• Increase of certain administrative expenses;
• Higher selling and marketing expenses; and
• $1.3 million decrease in expenses related to the multi-year strategy (the "Strategy").
• Excluding items impacting comparability, adjusted EBITDA1 was $43.1 million, up $3.4 million from the same quarter last year.
• Profit attributable to the Corporation's shareholders of $17.1 million, resulting in basic and diluted earnings per share ("EPS") of $2.51, up $2.3 million and $0.37, respectively, from the same quarter in 2022. Excluding items impacting comparability, adjusted EPS1 was $2.48 compared to $2.37 in the same quarter last year.
• As at April 1, 2023, long-term debt, including the current portion, stood at $268.4 million, representing a net debt to adjusted EBITDA ratio1 of 1.67:1.
• Dividend of $0.70 per share, paid on March 15, 2023.

Multi-Year Strategy

To provide clarity and orientation on the opportunities to pursue and to optimize capital allocation decisions, in early 2022, the Corporation developed a multi-year strategy. This Strategy aims to accelerate revenue growth, improve overall profitability, and drive long-term value by focusing on three strategic pillars.

• Building a growth-oriented portfolio;
• Driving sustainable performance; and
• Improving capacity to act.

Associated Incremental Operating Expenses

During fiscal 2022, the Corporation began its strategic review, completed the diagnostic step of Project Eagle, invested in a project to optimize the current capacity of its specialty food division, and began implementing new cloud-based management systems, including demand planning and transportation management systems. During the first quarter of 2023, the Corporation has mainly continued its implementation of new cloud-based management systems and made various investments in support of the three pillars of its Strategy. The Corporation reported expenses of $11.0 million in fiscal 2022 and additional expenses of $1.1 million in the first quarter of 2023.

Associated Capital Expenditures

The Corporation is dedicating capital expenditures aligned with its Strategy to support growth, enhance productivity, and invest in innovation and sustainable development. These investments included two projects in 2022 to improve production efficiency and capacity in Canada with a third project authorized in the first quarter of 2023, continuing to upgrade the enterprise resource planning ("ERP") software in Canada along with investments in the U.S. to improve production efficiency and to deploy a new single serve line in the Corporation's plant based in North Carolina.

Project Eagle

Launched in the second quarter of 2022, Project Eagle is a component of the Corporation's Strategy specifically aimed at revitalizing its underperforming U.S. operations, with the objective to capture growth, improve margins, and drive long-term sustainable performance. In addition to reviewing the U.S. operations' products and customers portfolio, Project Eagle also seeks to identify and address key issues hampering performance within its supply chain and manufacturing facilities, including product simplification, process realignment, employee training, and capital deployment.

After completing the diagnostic step of Project Eagle, the Corporation recently took important steps to reduce its stock keeping units ("SKU") complexity, harmonize packaging formats, consolidate formulas, and rationalize low-margin products and/or customers. The portfolio simplification should allow the Corporation to reduce execution complexity, which would limit downtime related to production changeovers and ultimately increase throughput. The Corporation also completed the first phase of the implementation of a cloud-based transportation management system. Early benefits from both initiatives began materializing in the first-quarter performance.

The capital designated in support of Project Eagle will be deployed in three areas: (1) updating existing equipment to limit unscheduled downtime; (2) increasing throughput on existing equipment; and (3) investing in new equipment in support of increased capacity in on-trend formats. While the equipment upgrades are expected to result in short-term disruptions, the Corporation expects they will be significantly outweighed by the medium- to long-term benefits.

Finally, some of the initiatives deployed under Project Eagle will ultimately benefit the rest of the organization; for instance the deployment of new transportation management and demand planning systems are first rolled out in the U.S. and then throughout the Corporation.

Outlook

Lassonde continues to expect the largest factors impacting its performance in fiscal 2023 will be the financial health of consumers, the inflationary environment, and the frequency and severity of supply chain disruptions. As a result, the Corporation is making the following forward-looking statements for fiscal 2023:

Sales growth rate

• During the first quarter of 2023, the Corporation has taken additional pricing action on its branded and private label product offerings, including adjusting contracts with certain customers to recover cost increases it incurred. It expects the run rate effects of such pricing action to be felt during the balance of the year. The Corporation also expects further pricing action to be implemented over the course of 2023 as inflation persists.
• For 2023, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be in the mid to high single-digit range, mainly driven by selling price adjustments. The Corporation is, however, closely monitoring the evolution of consumer food habits and demand elasticity in a context of price increases.

Productivity and service level

• Labour and operational initiatives, together with fewer supply chain constraints, are expected to improve the Corporation's ability to supply demand and return to historical order fill rate levels, particularly in the U.S.

Key commodity and input costs

• The Corporation has recently noticed some stabilization in the inflation trend of most of its input costs and is expecting this trend to continue until the end of fiscal 2023. However, the Corporation is still closely monitoring the price of orange concentrate since the price for this key commodity has been at an elevated level over the last 12 months, even reaching a new historical peak of US$2.86/lbs sol. in April 2023.
• Given that a large portion of the raw material purchases made by Lassonde's Canadian operations are in U.S. dollars, a strengthening of this currency against the Canadian dollar could result in a higher cost for products sold in the Canadian market. Furthermore, the Corporation is expecting an unfavourable foreign exchange impact for 2023 when considering its hedged positions.

Expenses, including expenses related to the Strategy

• The Corporation's performance-related salary expenses are expected to return to normal levels in 2023.
• During 2023, Lassonde plans to continue deploying its Strategy, revitalizing its U.S. operations, and upgrading its technology infrastructures. It also plans to continue implementing new cloud-based demand planning and transportation management systems, the aim being to improve customer service and lower overall distribution costs. It also intends to explore the potential impact of upgrading its U.S. ERP. Spending in support of its Strategy is expected to reach up to $10.0 million in 2023.
• Higher interest expense is anticipated given higher rates on floating rate debt as well as a higher average indebtedness level compared to 2022.

Effective tax rate

• Effective tax rate should be about 26.5% for fiscal 2023.

Working capital

• As supply chain challenges appear to be dissipating, the Corporation has revised its inventory accumulation strategy and, although noticing an increase at the end of the first quarter, it expects to progressively reduce its inventory levels. As a result, its Days Operating Working Capital1 should trend towards the upper end of its historical levels (pre-COVID-19) during 2023 and within its historical range by the end of fiscal 2024. However, this strategy might be impacted by (i) opportunistic decisions to secure inventory ahead of potential additional price increases from suppliers, (ii) the objective of ensuring an adequate service level, or (iii) the identification of new potential supply chain disruptions.

Capital expenditures

• The Corporation's overall capital expenditures program for 2023 is estimated to reach up to 4.5% of its sales as it continues to deploy capital in support of its Strategy. This estimate depends on the timing of disbursements for certain large capital projects and on the evolution of the macroeconomic environment. The Corporation expects to return this ratio to a range of 2.0% to 3.0% of its sales (including a maintenance component and a certain growth component) by 2025. The new capital assets will be financed, to the extent possible, using the Corporation's operating cash flows, although the Corporation may also turn to borrowing if interest rates and conditions prove advantageous.

The above forward-looking statements have been prepared using the following key assumptions: the currently observed geopolitical situation and macroeconomic trends, including employment, inflation, and interest rates; the strength of the U.S. dollar (compared to the Canadian dollar); the continuity of recently observed consumer behaviours and market trends for the Corporation's products; no material disruption to the Corporation's operations (including workforce availability) or to its supply chain; the effectiveness of the Corporation's selling price adjustment initiatives; the limited impact of the Corporation's selling price adjustment initiatives on product demand; the continuity of observed trends in the competitive environment and the effectiveness of the Corporation's strategy to position itself competitively in the markets in which it competes; limited additional cost increases from suppliers; adequate availability of key inputs; the continuity of recently observed normalized trends in the throughput capacity of key U.S. plants; expected lead time for new manufacturing equipment; and adequate contractor or consultant availability to progress the Corporation's capital expenditures. The Corporation cautions readers that the foregoing list of factors is not exhaustive. It should be noted that some of these key assumptions, including those related to the geopolitical situation and macroeconomic trends, are volatile and rapidly evolving. In preparing its outlook, the Corporation made assumptions that do not consider extraordinary events or circumstances beyond its control. The Corporation believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. Refer to Section 2 – " Forward-Looking Statements" of the Corporation's MD&A for the first quarter ended April 1, 2023 for additional information.

Dividend

In accordance with the Corporation's dividend policy, the Board of Directors declared today a quarterly dividend of $0.50 per share, payable on June 15, 2023 to all registered holders of Class A and Class B shares on May 25, 2023. This dividend is an eligible dividend.

Conference Call to Discuss First Quarter 2023 Financial Results

Open to: Investors, analysts, and all interested parties

DATE:Friday, May 12, 2023

TIME:1:30 p.m. ET

CALL: 416-764-8658 (for Toronto and overseas participants)

1-888-886-7786 (for other North American participants)

A live audio broadcast of the conference call will be available on the Corporation's website, on the Investors page or here: https://www.gowebcasting.com/12535. A replay of the webcast will remain available at the same link until midnight, May 19, 2023.

Financial Measures Not in Accordance With IFRS

The financial measures or ratios, further described below, do not constitute standardized financial measures or ratios in accordance with the financial reporting framework used to prepare the Corporation's financial statements. These non-IFRS measures should not be considered in isolation or as a substitute for financial measures prepared in accordance with IFRS. Comparing them to similar financial measures or ratios presented by other issuers may not be possible.

Items impacting the comparability between periods

The following table contains a list, description and quantification of items impacting the comparability of the financial performance between the periods:

EBITDA and Adjusted EBITDA

EBITDA is a financial measure used by the Corporation and investors to assess the Corporation's capacity to generate future cash flows from operating activities and pay financial expenses. Adjusted EBITDA is a financial measure used by the Corporation to compare EBITDA between periods by excluding items impacting comparability. EBITDA consists of the sum of operating profit and the "depreciation of property, plant and equipment and amortization of intangible assets" item shown in the Consolidated Statement of Cash Flows. Adjusted EBITDA is calculated by adjusting the EBITDA with items considered by the management as impacting the comparability between periods.

Adjusted Profit Attributable to the Corporation's Shareholders and Adjusted EPS

Adjusted profit attributable to the Corporation's shareholders and adjusted EPS are financial measures used by the Corporation to compare profit attributable to the Corporation's shareholders and EPS between periods by excluding items impacting comparability. They are calculated by adjusting them with items considered by management as impacting the comparability between periods.

Net Debt to Adjusted EBITDA

Net debt to adjusted EBITDA is a financial measure used by the Corporation to assess its ability to pay off its existing debt and to define its available borrowing capacity. To calculate the net debt to adjusted EBITDA ratio, net debt is divided by the sum of adjusted EBITDA from the last four quarters. Net debt represents long-term debt, including the current portion, less the "Cash and cash equivalents" item, as they are presented in the Corporation's Consolidated Statement of Financial Position.

Days Operating Working Capital

Days operating working capital is a financial efficiency measure used by the Corporation to represent the amount of sales tied up as operating working capital. To calculate this financial measure, operating working capital is divided by the last quarter's sales, as they are presented in this press release, and multiplied by 91 days. Operating working capital is the sum of accounts receivable and inventories, less accounts payable and accrued liabilities, as they are presented in the Corporation's Consolidated Statement of Financial Position.

About Lassonde

Lassonde Industries Inc. is a leader in the food and beverage industry in North America. The Corporation develops, manufactures, and markets a wide range of private label and national brand products, including ready-to-drink beverages, fruit-based snacks as well as frozen juice concentrates. It is also a leading producer of cranberry sauces and specialty food products such as pasta sauces, soups and fondue broths and sauces. The Corporation also imports and markets selected wines from several countries of origin and produces apple cider and cider-based drinks.

The Company operates 17 plants located in Canada and the United States and produces its superior quality products through the expertise of over 2,700 employees. To learn more, visit www.lassonde.com

The Corporation is active in two market segments:

• Retail sales consist of (i) sales to food retailers and wholesalers such as supermarket chains, independent grocers, superstores, warehouse clubs, major pharmacy chains and (ii) online sales; and
• Food service sales consist of sales to restaurants, hotels, hospitals, schools, and wholesalers serving these institutions.

Caution Concerning Forward-Looking Statements

This document contains "forward-looking information" and the Corporation's oral and written public communications that do not constitute historical fact may be deemed to be "forward-looking information" within the meaning of applicable securities law. These forward-looking statements are based on current expectations, estimates, projections, beliefs, judgments, and assumptions on the basis of information available at the time the applicable forward–looking statement was made and considering the Corporation's experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to the Corporation's objectives and goals, in addition to statements with respect to its beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "endeavour", "expect", "may", "will", "project", "should", "could", "would", "believe", "plan", "intend", "design", "target", "undertake", "view", "indicate", "maintain", "explore", "entail", "schedule", "objective", "strategy", "likely", "potential", "outlook", "aim", "propose", "goal", and similar expressions suggesting future events or future performance in addition to the negative forms of these terms or any variations thereof. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Various factors or assumptions are typically applied by the Corporation in drawing conclusions or making the forecasts, projections, predictions, or estimations set out in the forward–looking statements. These factors and assumptions are based on information currently available to the Corporation, including information obtained by the Corporation from third-party sources. In this document, forward-looking statements include, but are not limited to, those set forth in above "Outlook" section, which also presents some (but not all) of the key assumptions used in determining the forward-looking statements.

Such forward-looking statements relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated. Readers are cautioned that the assumptions considered by the Corporation to support these statements may prove to be incorrect in whole or in part. Factors that could cause actual results to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following: the availability of raw materials (including as a result of climate change, extreme weather, global or local supply chain disruptions, loss of key suppliers or supplier concentration, impact of pandemics, geopolitical developments, military conflicts, and trade sanctions) and related price variations; fluctuations in the prices of inbound and outbound freight, the impact of oil prices (and derivatives thereof) on the Corporation's direct and indirect costs along with the Corporation's ability to transfer those increases through higher prices or other means, if any, to its clients in competitive market conditions; failure to maintain strong sourcing and manufacturing platforms and efficient distribution channels; disruptions in or failures of the Corporation's information technology systems, including the ability to access and implement technology necessary to achieve the Corporation's targets, commitments and goals, as well as the development and performance of technology; cyber threats and other information-technology-related risks relating to business disruptions, confidentiality, data integrity, and business email compromise-related fraud; the scarcity of labour in North America and the related impact on the hiring, training, developing, retaining and reliance of qualified and/or key personnel together with their productivity, employment matters (including compensation), compliance with employment laws across multiple jurisdictions, and the potential for work stoppages due to non-renewal of collective bargaining agreements or other reasons; the successful deployment of the Corporation's health and safety programs in compliance with applicable laws and regulations; serious injuries or fatalities, which could have a material impact on the Corporation's business continuity and reputation and lead to compliance-related costs; the successful deployment of the Corporation's Strategy (defined in above "Multi-Year Strategy" section), including components such as Project Eagle; climate change and disasters causing higher operating costs and capital expenditures and reduced production output, and impacting the availability, quality or price volatility of key commodities sourced by the Corporation; disputes with significant suppliers; the increasing concentration of clients in the food industry, providing them with significant bargaining power that could limit the Corporation's ability to raise its prices to offset inflationary pressures; major events, such as systems and equipment failure, pandemics and natural disasters, or increased frequency or intensity of extreme weather conditions (including as a result of climate change), leading to unanticipated business disruptions at the Corporation's facilities or those of certain suppliers; the implementation, cost and impact of environmental sustainability initiatives, as well as the cost of remediating environmental liabilities; changes made to laws (including tax and tariffs), regulations, rules and policies that affect the Corporation's activities as well as the interpretation thereof, and new positions adopted by relevant authorities; failure to adapt to changes and developments affecting the Corporation's industry, including customer preferences, tastes, concerns or perceptions and buying patterns, market conditions and the activities of competitors and clients; crisis management and the execution of the business continuity plan; failure to maintain the quality and safety of the Corporation's products, which could result in product recalls and product liability claims for misbranded, adulterated, contaminated, or spoiled food products, along with reputational damage; damage to the reputation of the Corporation and its brands, including as a result of its inability to meet stakeholders' ESG expectations or to realize expected benefits in that respect; risks related to fluctuations in interest rates, currency exchange rates, liquidity and credit, stock price and pension obligations; deterioration of general macroeconomic conditions, including international conflicts, which can lead to negative impacts on the Corporation's suppliers, customers and operating costs; the incurrence of restructuring, disposal, or other related charges together with the recognition of impairment charges on goodwill or long-lived assets, particularly in a context of challenging performance and rising cost of capital; the sufficiency of insurance coverage; expected future cash flows and the sufficiency thereof, sources of capital at attractive rates, future contractual obligations, future financing options, renewal of credit facilities, and availability of capital to fund growth plans, operating obligations and dividends; pension plan performance, including the adequacy of pension contributions, assets, and potential pension liabilities; the implications and outcome of potential legal actions, litigation and regulatory proceedings to which the Corporation may be a party; and innovation and the future use and deployment of technology and associated expected future outcome, ability of the Corporation to protect its intellectual property and the costs incurred to do so.

The Corporation cautions readers that the foregoing list of factors is not exhaustive. Readers are further cautioned that some of the forward-looking statements in this document, such as statements concerning sales growth rate, productivity and service level, key commodity and input costs, expenses (including Strategy-related expenses), effective tax rate, working capital and capital expenditures, may be considered to be financial outlooks for the purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will materialize.

More information about risk factors can be found in Section 19 - "Uncertainties and Principal Risk Factors" of the Corporation's MD&A for the year ended December 31, 2022. Readers should review this section in detail.

All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Corporation does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.

SOURCE Lassonde Industries Inc.

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