Premium Brands Holdings’ operating earnings were lifted in the first nine months of the year, as rising input costs were offset by higher sales and efficiency projects.
The Canadian investment platform owns an array of speciality businesses including Harvest, Grimm’s and Freybe, as well as food distribution and foodservice interests.
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Management said margins at its retail business were pressured by “significant increases in the cost of a variety of raw materials that resulted in lower gross margins on products sold on a cost plus basis” and a rise of 40%-50% in the price of protein commodities. Higher SG&A costs were also noted in the nine months, although the company trimmed marketing expenses resulting in lower third-quarter costs.
These headwinds were offset by pricing increases contributing to a 15.6% increase in sales which rose to C$919.6m (US$804.7m).
“Improved operating efficiencies” also underpinned higher operating earnings. EBITDA rose to C$61.6m from $55.5m in the first nine months of last year.
Net earnings, however, were dented by restructuring and plant start up costs falling to C$10.3m from C$11.7m last year. Premium Brands stressed it expects these investments to position it for future profitable growth. “The company expects these projects to result in significant improvements in its future earnings and cash flows.”
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By GlobalDataCanaccord Genuity analyst Derek Dley concurred he expects investments to boost margins in the long term. However, he also sounded a note of caution on input price pressure.
“The company has recently completed a number of capital projects, which we expect to support margin growth over the long term. However, the rapid rise in commodity costs is likely to lead to some continued margin pressure over the next couple quarters. And while the company intends to implement further price increases, we believe there may be a slight impact on volumes as consumers adjust to the new higher price point levels,” he wrote in an investor note.
