Daily Newsletter

19 March 2024

Daily Newsletter

19 March 2024

Premium Brands Holdings predicts “continued challenges” for seafood

The group's wholesale and distribution unit is most likely to face ongoing pressure as a result of the consumer shift to private label.

Fiona Holland March 18 2024

Premium Brands Holdings is expecting more headwinds from lobster supply and the subdued consumer environment in its home market of Canada this year.

Discussing full-year results with analysts last week, CFO William Kalutycz said the meats to bakery and seafood business anticipates "continued challenges" for the company's Premium Food Distribution division, the wholesale unit that saw sales decline 2.9% in the 12 months to 30 December.

"Premium Food Distribution's sales contraction was primarily the result of two factors. The most significant of these was the challenging consumer environment in Canada that impacted sales of premium beef and seafood products," Kalutycz explained.

"The other was continuing lobster supply challenges, resulting from the poor Maine fishery last quarter, followed by a poor South Nova Scotia fishery this quarter."

The CFO added: "Looking forward, we view all the challenges experienced in the quarter as temporary. In the case of the Canadian consumer environment, we expect the situation to improve as inflation and interest rates normalise over the course of 2024.

"And in the case of lobster supply availability, the poor fisheries were due solely to unusually poor weather that prevented vessels from harvesting. The underlying lobster biomasses remain very healthy."

Private label pressures

Canadian consumers continue to favour private label and the discounters over premium products such as Premium Brands', the CFO said, with those elements expected to take "a little bit longer to turn around".

While revenue in the Premium Food Distribution unit dropped to C$2.16bn ($1.59bn), the Specialty Foods division posted a 7.8% increase to C$4.1bn. For Premium Brands as a whole, group revenue rose 3.8% to C$6.3bn.

Company wide adjusted EBITDA climbed 10.9% to C$559.1m. It increased 9.8% for Specialty Foods to C$399.5m and was up 5.9% for Premium Food Distribution at C$127.1m.

Net income, however, slid for the group, coming in at C$94.2m versus C$160.1m a year earlier.

Premium Brands expects to see “double-digit growth” by Q2 for its Specialty brands, which include the likes of Oberto Specialty Meats, Hempler’s cooked and smoked meats, and artisan breads Island City Baking.

These brands are less likely to be affected by consumer downtrading as they can “pivot easily and sort of work on products and listings and initiatives to get into those discount banners, which historically they've been under-indexed in”, Kalutycz said.

On the other hand, Premium Food Distribution, which owns premium beef and seafood wholesale labels such as Centennial Food Group, Hub City Fisheries, and the Clearwater Seafoods subsidiary, has “a different consumer generally from that discount banner consumer”, making the situation “a little tougher”, the CFO added.

Premium Brands booked a net loss of C$48.1m for Clearwater in 2023, compared to a C$37.5m loss a year earlier. Its revenue was also down 4% at C$580.1m, which the company attributed to “challenging consumer environments” in multiple markets, with Europe having the most notable impact.

Delayed deliveries of replacement shrimp and turbot harvesting vessels, and “the timing of its snow crab sales” were also said to have influenced performance.

Last August, the group indicated plans to add multiple seafood groups to Nova Scotia-based Clearwater.

CEO George Paleologou explained the company's position with private label: "We produce premium products and we sell them to consumers that are willing to pay a little more for quality.

"We are partnering with retailers today and we're making, I would say, premium private-label products for them. We're in a lot of discussions today about leveraging our capacity to produce a premium private label for different retailers in Canada and the US."

He added: "You're not going to see us cheapen our products or change our formulations to enter the low-end of the market. That's simply not what we do, right? We cater to a certain consumer in Canada and the US that is willing to pay premium for clean, high-quality products, and that will always be the case”.

Slower sales in Canada offset growth in the US in Q4, especially in December, where the “US consumer was out there spending and the Canadian consumer was holding back”, Paleologou said.

For 2024, Premium Brands expects to post revenue of C$6.65bn to C$6.85bn and adjusted EBITDA of C$630m-C$650m.

Commenting on the outlook for 2024 in Canada, Kalutycz said the company expected to see “continued weakness” for Q1 and Q2, but “a much more improved consumer environment” in the market towards “the back half of the year”.

Paleologou added that if weakness in Canada were to continue, “we have other strategies that we can pursue in terms of directing capacity…to the US market”.

M&A prospects

Last year, the company indicated it would be moving back into M&A with several “large” acquisitions in the pipeline as economic conditions had previously dictated a “slow down” in the process.

Premium Brands is in the “early discussions” phase for 21 potential deals, according to an accompanying presentation. There are two in the “active” stage for seafood, and one in the “advanced” stage for protein.

While the company didn’t delve deeply into its M&A plans for the year with analysts, Paleologou said the group was still on target to achieve or exceed its goal of hitting C$10bn in sales and $1bn of EBITDA by 2027. Premium Brand first laid out its strategy to become a C$10bn food company last March.

"We have never been more excited and optimistic about our future," Paleologou said.

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