Premium Brands Holdings Corporation
TSX : PBH

Premium Brands Holdings Corporation

May 05, 2011 06:00 ET

Premium Brands Holdings Corporation Announces Record 2011 First Quarter Sales, EBITDA and Free Cash Flow

VANCOUVER, BRITISH COLUMBIA--(Marketwire - May 5, 2011) -Premium Brands Holdings Corporation (TSX:PBH), a leading producer, marketer and distributor of branded specialty food products, announced today its results for the first quarter of 2011.

HIGHLIGHTS

  • Revenue for the quarter increased by 40.5% or $44.4 million to a record $154.1 million as compared to $109.7 million in the first quarter of 2010.
  • Record EBITDA for the quarter of $9.2 million as compared to $7.2 million in the first quarter of 2010.
  • Adjusted earnings for the quarter of $1.5 million as compared to $1.2 million in the first quarter of 2010.
  • Adjusted earnings per share attributable to shareholders for the quarter $0.08 per share as compared to $0.06 per share in the first quarter of 2010.
  • Declared quarterly dividend of $5.4 million or $0.294 per share.
  • Record rolling twelve months free cash flow of $32.9 million resulting in a dividend to free cash flow ratio of 64.4%.
  • Record Retail segment sales and earnings for the quarter of $78.7 million and $5.5 million, respectively, as compared to $51.9 million and $4.3 million, respectively, in the first quarter of 2010.
  • Record Foodservice segment sales and earnings for the quarter of $75.4 million and $2.2 million, respectively, as compared to $57.8 million and $2.0 million, respectively, in the first quarter of 2010.
  • The acquisition of Les Aliments Deli Chef, a Quebec based sandwich manufacturer and direct-to-store distributor of a range of convenience products to convenience stores across Quebec and Ontario.
  • The issuance of $57.5 million of convertible unsecured subordinated debentures bearing interest at 5.75% and due in December 2015.

SUMMARY FINANCIAL INFORMATION

(In thousands of dollars except per share amounts)Quarter Ended
Mar 26,Mar 27,
20112010
Revenue154,098109,677
EBITDA9,2167,165
Adjusted earnings (1)1,5371,159
Adjusted earnings per share attributable to shareholders0.080.06
Earnings1,003987
Earnings per share attributable to shareholders0.050.05
(1) Excludes acquisition transaction costs, unrealized gains and losses on foreign currency contracts, Deli Chef restructuring costs and resulting income tax provision adjustments.
Rolling Four Quarters Ended
Mar 26,Dec 25,
20112010
Free cash flow32,89532,215
Declared distributions and dividends21,19121,019
Declared distributions and dividends per share1.1761.176
Free cash flow ratio64.4%65.2%

"We continue to generate record sales and free cash flow despite a persistently weak economy and sharply rising commodity input costs," said Mr. George Paleologou, President and CEO. "Our solid first quarter results are a testament to the strength of our business model in general, and our focus on building a diverse portfolio of specialty food manufacturing and differentiated food distribution businesses in particular.

"Looking forward, our disciplined acquisition and capital allocation strategies, combined with our diversified portfolio of businesses, position us very well to continue to generate industry leading results as the North American economy strengthens.

"We are also pleased to report that our restructuring initiatives at our recently acquired Deli Chef business are progressing according to plan. Since purchasing Deli Chef two months ago we have successfully secured new meat snack, pastry and sandwich listings with several national convenience store and retail grocery chains; and have made significant progress in rationalizing its operations. We remain on target for Deli Chef to achieve profitability in fiscal 2012.

"In terms of future business acquisitions, we are continuing to pursue a number of promising opportunities and fully expect to add to the six transactions we have completed since the beginning of 2010," stated Mr. Paleologou.

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, Washington State and Nevada. The Company services over 26,000 customers and its family of brands and businesses include Grimm's, Harvest, McSweeney's, Bread Garden Express, Hygaard, Hempler's, Quality Fast Foods, Gloria's Best of Fresh, Harlan Fairbanks, Creekside Bakehouse, Centennial Foodservice, B&C Foods, Duso's Fine Foods, Maximum Seafood, SK Food Group, Hub City Fisheries, Audrey's, Deli Chef and Hamish & Enzo.

RESULTS OF OPERATIONS

Revenue

(in thousands of dollars except percentages)
13 weeks%13 weeks%
endedended
Mar 26,Mar 27,
20112010
Revenue by segment:
Retail78,70151.1%51,92547.3%
Foodservice75,39748.9%57,75252.7%
Consolidated154,098100.0%109,677100.0%

Retail's revenue for the first quarter of 2011 as compared to the first quarter of 2010 increased by $26.8 million or 51.6% primarily due to the acquisitions of Duso's and SK Food Group in 2010 and the acquisition of Deli Chef part way through the quarter. Acquisitions resulted in an increase in Retail's revenue of $32.4 million.

This increase was partially offset by: (i) a decrease in revenue of approximately $2.7 million due to a late Easter that resulted in most of Retail's 2011 Easter sales occurring in the second quarter as compared to the first quarter in 2010; (ii) a $1.9 million decrease in revenue due to one-time sales in 2010 resulting from the Company's involvement with the 2010 Vancouver Winter Olympics; and (iii) a $1.0 million decrease in sales to the convenience store channel due to a variety of factors, including unusually poor weather in the later part of the quarter, that resulted in reduced consumer traffic through many of Retail's customers' stores.

Foodservice's revenue for the first quarter of 2011 as compared to the first quarter of 2010 increased by $17.6 million or 30.6% due to: (i) the acquisitions of Maximum Seafood and Hub City Fisheries in 2010 which resulted in $15.9 million in incremental sales; (ii) increased sales to Foodservice's core hotel, restaurant and institutional customers of $2.1 million representing an organic growth rate of approximately 4%; and (iii) increased sales in Foodservice's Worldsource food brokerage business of $0.3 million. These increases were partially offset by a $0.7 million decrease in revenue due to one-time sales in 2010 resulting from the Company's involvement with the 2010 Vancouver Winter Olympics.

The organic growth rate for sales to Foodservice's core hotel, restaurant and institutional customers was lower than expected primarily due to unusually poor weather in the later part of the quarter that resulted in a decrease in concession products sales of approximately $0.9 million.

Gross Profit

(in thousands of dollars except percentages)
13 weeks%13 weeks%
ended(1)ended(1)
Mar 26,Mar 27,
20112010
Gross profit by segment:
Retail21,11326.8%16,51631.8%
Foodservice13,95518.5%11,86920.6%
Consolidated35,06822.8%28,38525.9%
(1) Expressed as a percentage of the corresponding segment's revenue

Retail's gross profit as a percentage of its revenue (gross margin) for the first quarter of 2011 as compared to the first quarter of 2010 decreased primarily due to: (i) the acquisition of SK Food Group in 2010 as this business generates lower average gross margins as compared to Retail's other businesses; and (ii) a number of Retail's businesses being impacted by rising costs for a variety of food and non-food input commodities. Excluding SK Food Group, Retail's gross margin for the first quarter was 30.1%.

Looking forward (see Forward Looking Statements), Retail expects the cost of the input commodities impacting its gross margins to remain at historically high levels for the foreseeable future and has implemented a number of product selling price increases which will start to take effect in the second quarter of 2011. In addition, Retail is assessing a variety of other alternatives to improve its margins including new product development, packaging changes, and improving plant efficiencies.

Foodservice's gross margin for the first quarter of 2011 as compared to the first quarter of 2010 decreased primarily due to: (i) rising input costs for a variety of food and non-food commodities; and (ii) the acquisitions of Maximum Seafood and Hub City Fisheries as both of these businesses generate lower average gross margins as compared to Foodservice's other businesses. Excluding Maximum Seafood and Hub City Fisheries, Foodservice's gross margin for the first quarter was 19.2%.

Looking forward (see Forward Looking Statements), Foodservice expects the cost of the input commodities impacting its gross margins to remain at historically high levels for the foreseeable future. It does, however, expect to see improvement in its margins starting in the second quarter of 2011 and running through to the end of the year due to: (i) the steady implementation of product selling price increases; (ii) improved operating efficiencies resulting from sales growth expected in 2011; and (iii) the introduction of a new hamburger pattie program that utilizes the recently completed capacity expansion at its Calgary facility.

Selling, General and Administrative Expenses (SG&A)

(in thousands of dollars except percentages)
13 weeks%13 weeks%
ended(1)ended(1)
Mar 26,Mar 27,
20112010
SG&A by segment:
Retail13,58717.3%10,63420.5%
Foodservice10,81114.3%9,00215.6%
Corporate1,4541,584
Consolidated25,85216.8%21,22019.3%
(1) Expressed as a percentage of the corresponding segment's revenue

Retail's SG&A in the first quarter of 2011 as compared to the first quarter of 2010 increased by $3.0 million primarily due to: (i) the acquisitions of Duso's and SK Food Group in 2010 and the acquisition of Deli Chef in 2011, which resulted in an increase in Retail's SG&A of $3.6 million; and (ii) higher freight and fuel costs resulting from fuel price increases.

These increases were partially offset by: (i) a decrease in one-time costs associated with the Company's involvement in the 2010 Vancouver Winter Olympics in 2010; and (ii) lower variable selling costs, such as sales commissions, resulting from Retail's reduced Easter and convenience store channel sales.

Excluding acquisitions, Retail's SG&A as a percentage of revenue increased to 21.5% in the first quarter of 2011 from 20.5% in the first quarter of 2010 primarily due to (i) lower sales levels relative to a variety of fixed SG&A costs such as administrative overhead and certain fleet operating costs; and (ii) higher freight and fuel costs.

Foodservice's SG&A in the first quarter of 2011 as compared to the first quarter of 2010 increased by $1.8 million primarily due to the acquisitions of Maximum Seafood and Hub City Fisheries in 2010 which accounted for $1.6 million of the increase.

Excluding acquisitions, Foodservice's SG&A as a percentage of revenue decreased to 15.4% in the first quarter of 2011 from 15.6% in the first quarter of 2010 primarily due to higher sales levels relative to a variety of fixed SG&A costs partially offset by increases in freight and fuel costs.

Adjusted EBITDA

(in thousands of dollars except percentages)
13 weeks%13 weeks%
ended(1)ended(1)
Mar 26,Mar 27,
20112010
Adjusted EBITDA by segment:
Retail7,5269.6%5,88211.3%
Foodservice3,1444.2%2,8675.0%
Corporate(1,454)(1,584)
Consolidated9,2166.0%7,1656.5%
(1) Expressed as a percentage of the corresponding segment's revenue

The Company's adjusted EBITDA for the first quarter of 2011 as compared to the first quarter of 2010 increased primarily due to acquisitions partially offset by (i) the impact of a late Easter in 2011 as compared to 2010; (ii) the one-time benefits of the 2010 Vancouver Olympics on the Company's 2010 adjusted EBITDA; (iii) the impact of rising commodity costs on the selling margins of several of the Company's businesses; and (iv) approximately $0.2 million in lost adjusted EBITDA associated with the recently acquired Deli Chef business.

Depreciation and Amortization

(in thousands of dollars except percentages)
13 weeks13 weeks
endedended
Mar 26,Mar 27,
20112010
Depreciation and amortization of intangible and other assets (D&A) by segment:
Retail2,0611,533
Foodservice947856
Corporate132150
Consolidated3,1402,539

The Company's D&A expense increased by $0.6 million in the first quarter of 2011 as compared to the first quarter of 2010 primarily due to business acquisitions made in 2010 and 2011 by both its Retail and Foodservice segments.

Interest

Interest and other financing costs for the first quarter of 2011 as compared to the first quarter of 2010 increased by $0.8 million primarily due to: (i) an increase in the Company's net funded debt in the first quarter of 2011 as compared to the first quarter of 2010 which, in turn, was primarily the result of acquisitions made in 2010 and 2011; and (ii) the repayment of lower cost senior debt through the issuance of convertible unsecured subordinated debentures at the beginning of the quarter.

Change in Value of Puttable Interest in Subsidiaries

Change in value of puttable interest for the first quarter of 2011 as compared to the first quarter of 2010 increased by $0.5 million primarily due to (i) increased accretion resulting from changes in the assumptions used to value the put options that were made in the latter half of 2010; and (ii) incremental accretion relating to new put options resulting from business acquisitions made in the last three quarters of 2010.

Deli Chef Restructuring Costs

The Company is in the process of restructuring its recently acquired Deli Chef business and expects to incur $6 million to $7 million in capital and other charges relating to this initiative. During the 13 weeks ended March 26, 2011 the Company incurred $0.3 million in non-recurring costs associated with the Deli Chef restructuring.

FREE CASH FLOW

The following table provides a reconciliation of free cash flow to cash flow from operating activities:

(in thousands of dollars)52 weeks13 weeks13 weeksRolling
endedendedendedFour
Dec 25, 2010Mar 27, 2010Mar 26, 2011Quarters
Cash flow from operating activities32,79610,591(3,086)19,119
Changes in non-cash working capital(2,837)(5,724)8,20911,096
Sale of redundant property1,747--1,747
Government grant income1,207--1,207
Acquisition transaction costs1,015801911,126
Deli Chef restructuring costs--271271
Capital maintenance expenditures(1,713)(440)(398)(1,671)
Free cash flow32,2154,5075,18732,895

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 May 4, 2011, 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.

Factors that could cause actual results to differ materially from the Company`s expectations include, among other things: (i) seasonal and/or weather related fluctuations in the Company's sales; (ii) changes in consumer discretionary spending resulting from changes in economic conditions and/or general consumer confidence levels; (iii) changes in the cost of raw materials used in the production of the Company's products; (iv) changes in the cost of products sourced from third party manufacturers and sold through the Company's proprietary distribution networks; (v) risks associated with the Company's conversion from a publicly traded income trust to a publicly traded corporation, including related changes in Canada's income tax laws; (vi) changes in the Company's relationships with its larger customers; (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; and (x) new government regulations affecting the Company's business and operations. Details on these risk factors as well as other factors can be found in the Company's 2010 MD&A, which is filed electronically through SEDAR and is available online at www.sedar.com.

Unless otherwise indicated, the forward looking information in this document is made as of May 4, 2011 and, except as required by applicable law, will not be publicly updated or revised. This cautionary statement expressly qualifies the forward looking information in this document.

Premium Brands Holdings Corporation
CONSOLIDATED BALANCE SHEETS
(Unaudited and in thousands)
Mar 26,Dec 25,Mar 27,
201120102010
Current assets:
Cash and cash equivalents$2,410$868$588
Accounts receivable55,24052,80733,721
Other assets192194187
Inventories67,80057,36649,093
Prepaid expenses7,8303,4212,708
133,472114,65686,297
Capital assets81,82176,18365,062
Intangible assets55,20953,98638,102
Goodwill139,142141,094110,901
Other assets3,1112,7052,244
Investment in associate233415744
Deferred income taxes44,70142,81747,556
$457,689$431,856$350,906
Current liabilities:
Cheques outstanding$3,656$1,670$1,586
Bank indebtedness4,2696,8272,455
Dividend payable5,3765,3685,204
Accounts payable and accrued liabilities63,19753,70043,336
Puttable interest in subsidiaries2,0842,0861,877
Current portion of long-term debt19,35219,8228,293
Other financial liabilities490220972
98,42489,69363,723
Puttable interest in subsidiaries10,88310,5661,977
Deferred revenue1,3181,369-
Pension obligation827827849
Long-term debt79,434112,00473,229
Convertible unsecured subordinated debentures90,77037,30636,910
281,656251,765176,688
Shareholders' equity:
Accumulated earnings122,176121,254108,210
Accumulated dividends declared(114,134)(108,758)(92,943)
Retained earnings8,04212,49615,267
Share capital163,880163,754156,051
Equity portion of convertible debentures1,916919919
Reserves8451,653834
Non-controlling interest1,3501,2691,147
176,033180,091174,218
$457,689$431,856$350,906
Premium Brands Holdings Corporation
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in thousands except per share amounts)
13 weeks13 weeks
endedended
Mar 26,Mar 27,
20112010
Revenue$154,098$109,677
Cost of goods sold119,03081,292
Gross profit35,06828,385
Selling, general and administrative expenses25,85221,220
9,2167,165
Depreciation of capital assets2,3841,924
Interest and other financing costs3,1662,340
Amortization of intangible and other assets756615
Amortization of financing costs50113
Acquisition transaction costs19180
Change in value of puttable interest in subsidiaries515-
Unrealized loss on foreign currency contracts270156
Deli Chef restructuring costs271-
Equity loss in associate182147
Earnings before income taxes1,4311,790
Provision for income taxes
Current95711
Deferred(529)792
428803
Earnings$1,003$987
Earnings for the period attributable to:
Shareholders$922$939
Non-controlling interest8148
$1,003$987
Earnings per share
Basic and diluted$0.05$0.05
Weighted average shares outstanding (in 000's)
Basic18,10217,558
Diluted18,14617,628
Premium Brands Holdings Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in thousands)
13 weeks13 weeks
endedended
Mar 26,Mar 27,
20112010
Cash flows from operating activities:
Earnings$1,003$987
Items not involving cash:
Depreciation of capital assets2,3841,924
Amortization of intangible assets755614
Amortization of other assets11
Amortization of financing costs50113
Change in value of puttable interest in subsidiaries515-
Loss on sale of assets-3
Accrued interest income(24)(11)
Unrealized loss on foreign currency contracts270156
Equity loss in associate182147
Deferred revenue(24)-
Accretion of convertible debentures337141
Accretion of long-term debt203-
Deferred income taxes(529)792
5,1234,867
Change in non-cash working capital(8,209)5,724
(3,086)10,591
Cash flows from financing activities:
Long-term debt - net(33,114)(1,869)
Bank indebtedness and cheques outstanding(572)(840)
Convertible debentures – net of issuance costs54,600-
Dividends paid to shareholders(5,368)(5,180)
Other(18)(8)
15,528(7,897)
Cash flows from investing activities:
Collection of notes receivable53
Net proceeds from sales of assets-165
Capital asset additions(3,314)(1,069)
Business acquisitions(7,000)(1,590)
Repayment of share purchase loans2121
Payments to shareholders of non-wholly owned subsidiaries(191)(115)
Promissory note from associate(300)-
Other(107)(5)
(10,886)(2,590)
Increase in cash and cash equivalents1,556104
Effects of exchange on cash and cash equivalents(14)15
Cash and cash equivalents - beginning of period868469
Cash and cash equivalents - end of period$2,410$588
Interest and other financing costs paid$1,251$1,516
Net income taxes paid$-$-

Contact Information

  • Premium Brands Holdings Corporation
    George Paleologou
    President and CEO
    (604) 656-3100

    Premium Brands Holdings Corporation-
    Will Kalutycz
    CFO
    (604) 656-3100
    www.premiumbrandsholdings.com