SunOpta: Announces Q4 Fiscal 2019 Financial Results

Toronto / CA. (so) SunOpta Inc., a leading global company focused on plant-based foods and beverages, fruit-based foods and beverages, and organic ingredient sourcing and production, announced financial results for the fourth quarter ended December 28, 2019.

«I am pleased to report that SunOpta doubled adjusted Ebitda, excluding disposed operations, in the fourth quarter versus the prior year. The adjusted Ebitda results were primarily driven by strong revenue growth and margin expansion in our plant-based beverages business unit, supported by sequential improvement in frozen fruit profitability. We are confident in the outlook for continued Ebitda growth in 2020 as we expect to benefit from strong industry tailwinds and further capitalize on our industry-leading capabilities in key product categories,» said Joe Ennen, Chief Executive Officer at SunOpta.

«Within our plant-based food and beverage business unit, we grew revenue 25 percent, reflecting strong growth in both existing and new customers. We also saw improved gross margins as a result of higher plant utilization and significant contributions from our productivity initiatives. Our capital investments to expand our extraction capabilities are well timed, given the growing consumer demand for plant-based foods and beverages and the scarcity of capacity capable of meeting this demand. Within our fruit-based food and beverage platform, results were consistent with our expectations. Encouragingly, we had both sequential and year-over-year gross margin improvement in all product segments of our fruit business and we were able to make pricing changes with key customers to reflect higher costs and in some cases move to indexed based pricing. As we gear up for the 2020 fruit season, we remain focused on executing our fruit margin optimization activities, which include further automation to lower variable labor costs; more direct bagging; shifting to customer pricing structures that reduce risk, and completing our enhancements to business planning and leadership. We still have considerable work to do to achieve acceptable margin levels in this business, but we are tracking in line with our turnaround plan. Within Tradin Organic, which is part of our Global Ingredients segment, our margin rate remains relatively consistent in spite of the inherent volatility in a commodity-based business and production inefficiencies in our cocoa business.»

Ennen continued, «As we look ahead to 2020, we expect to see continued improvement in adjusted Ebitda performance as we capitalize on our strong plant-based food and beverage momentum, execute our margin optimization strategy in our fruit business, and leverage Tradin’s unique positioning in the organic ingredient supply chain. The recent extension of our USD 360 million revolving asset-based credit facility reflects the support and confidence of our banking partners as we execute our turnaround plan, while providing enhanced flexibility and liquidity to support our growth plans.»

All amounts are expressed in U.S. Dollars and results are reported in accordance with U.S. GAAP, except where specifically noted.

Fourth Quarter 2019 Highlights:

• Revenues of USD 295.8 million for the fourth quarter of 2019, compared to USD 320.5 million in the fourth quarter of 2018, a decrease of 7.7 percent. Adjusted for disposed operations, foreign exchange, commodity prices, a new contract manufacturing arrangement and the acquisition of Sanmark, revenues grew 0.8 percent during the fourth quarter.
• Loss attributable to common shareholders of USD 7.6 million or USD 0.09 per common share in the fourth quarter of 2019, compared to a loss attributable to common shareholders of USD 99.0 million or USD 1.13 per common share in the fourth quarter of 2018.
• Adjusted loss of USD 5.6 million or USD 0.06 per common share during the fourth quarter of 2019, compared to an adjusted loss of USD 9.3 million or USD 0.11 per common share during the fourth quarter of 2018.
• Adjusted Ebitda excluding disposed operations of USD 16.4 million or 5.5 percent of revenues for the fourth quarter of 2019, versus USD 8.2 million or 2.5 percent of adjusted revenues in the fourth quarter of 2018.

Fourth Quarter 2019 Results

Revenues for the fourth quarter of 2019 were USD 295.8 million, a decrease of 7.7 percent compared to USD 320.5 million in the fourth quarter of 2018. Excluding the impact on reported revenues of disposed business, including the soy and corn business sold in February 2019, changes in commodity-related pricing and foreign exchange rates, a profit-neutral change to a co-manufacturing agreement, and excluding the impact of the acquisition of Sanmark in April 2019, revenues in the fourth quarter of 2019 increased by 0.8 percent compared with the fourth quarter of 2018.

As a result of the Company’s restructuring efforts in 2019, the Company has realigned its reporting structure to better align with its operational and strategic objectives. As a result, the Company established two new segments: a Plant-Based Foods and Beverages segment and a Fruit-Based Foods and Beverages segment, based on the synergistic nature of the underlying principal product ingredients and the reporting structure within each segment. The Plant-Based Foods and Beverages segment includes aseptic beverages, ingredient extraction and sunflower operations. The Fruit-Based Foods and Beverages segment includes: Sunrise frozen fruit, fruit ingredients and fruit snacks. In addition, the Company realigned the Global Ingredients segment to combine its Tradin Organic operations and its premium juice program, based on shared raw material sourcing.

The Global Ingredients segment generated revenues of USD 109.7 million, a decrease of 24.4 percent compared to USD 145.1 million in the fourth quarter of 2018. Excluding the impact of the disposed soy and corn business, and changes in commodity-related pricing and foreign exchange rates, Global Ingredients revenue in the fourth quarter decreased 5.7 percent compared to the prior year period, which reflected lower volumes in certain organic ingredient product categories. The Plant-Based Foods and Beverages segment generated revenues of USD 106.4 million during the fourth quarter of 2019, an increase of 25.0 percent compared to USD 85.1 million in the fourth quarter of 2018. Excluding sunflower price variances and a profit-neutral change to a co-manufacturing agreement, Plant-Based segment revenues in the fourth quarter increased 26.8 percent compared to the prior year period, reflecting higher volumes of aseptic beverages, broth offerings, and ingredient extraction. This growth came on top of a very strong prior year which was up 18.7 percent from 2017. The Fruit-Based Foods and Beverages segment generated revenues of USD 79.7 million during the fourth quarter of 2019, a decrease of 11.7 percent compared to USD 90.3 million in the fourth quarter of 2018. Excluding the impact of commodity price fluctuations, Fruit-Based segment revenues in the fourth quarter decreased 14.9 percent compared to the prior year period, primarily reflecting lower volumes with one large food service customer, partially offset by higher pricing.

Gross profit was USD 33.4 million for the quarter ended December 28, 2019, an increase of USD 12.1 million compared to USD 21.3 million for the quarter ended December 29, 2018. The Plant-Based Foods and Beverages segment accounted for USD 10.5 million of the increase in gross profit primarily due to revenue growth, increased gross margin as a result of increased capacity utilization and productivity programs, and strong margin performance in extraction operations. The Fruit-Based Foods and Beverages segment increased gross profit by USD 4.1 million in the quarter due to increased gross margin, reflecting pricing actions and efficiency efforts to optimize margins across the segment. These favorable impacts were partially offset by a USD 2.5 million decline in gross profit in the Global Ingredients segment primarily due to the sale of the soy and corn business, along with lower volumes and pricing spreads for certain organic ingredients.

As a percentage of revenues, gross profit for the quarter ended December 28, 2019 was 11.3 percent compared to 6.6 percent for the quarter ended December 29, 2018, an increase of 4.7 percent. On an adjusted basis, the gross profit percentage in the fourth quarter of 2019 would have been 11.4 percent excluding start-up costs of USD 0.3 million related to the Company’s new organic avocado oil facility in Ethiopia. The gross profit percentage for the fourth quarter of 2018 would have been approximately 8.5 percent, excluding inventory write-downs in frozen fruit, costs related to the commercialization of new beverage products, and equipment start-up costs.

Segment operating income was USD 3.0 million, or 1.0 percent of revenues in the fourth quarter of 2019, compared to an operating loss of USD 6.9 million, or 2.2 percent of revenues in the fourth quarter of 2018. The increase in operating income year-over-year was primarily attributable to the USD 12.1 million increase in gross profit, offset by an increase in SG+A due to higher employee-related variable and stock-based compensation costs, non-structural costs in SG+A related to the Value Creation Plan, and an increase in foreign exchange losses within our Tradin Organic international operations. Excluding the impact of non-structural SG+A and items above impacting gross profit, segment operating income would have been USD 4.1 million for the fourth quarter of 2019, compared with an operating loss of USD 0.9 million for the fourth quarter of 2018.

Other income for the fourth quarter of 2019 reflected legal settlement gains of USD 1.2 million, offset by employee termination costs and post-closing adjustments related to the sale of the soy and corn business.

In the fourth quarter of 2018, the Company recognized a non-cash goodwill impairment charge of USD 81.2 million to write-off the remaining goodwill balance related to the Sunrise frozen fruit business.

Adjusted Ebitda was USD 16.4 million or 5.5 percent of revenues in the fourth quarter of 2019, compared to USD 9.1 million or 2.8 percent of revenues in the fourth quarter of 2018. Excluding disposed operations, adjusted Ebitda for the quarter ended December 29, 2018 was USD 8.2 million.

The Company reported a loss attributable to common shareholders for the fourth quarter of 2019 of USD 7.6 million, or USD 0.09 per diluted common share, compared to a loss of USD 99.0 million, or USD 1.13 per diluted common share during the fourth quarter of 2018. Adjusted loss in the fourth quarter of 2019 was USD 5.6 million or USD 0.06 per common share, compared to USD 9.3 million or USD 0.11 per common share in the fourth quarter of 2018. Please refer to the discussion and table below under «Non-GAAP Measures – Adjusted Earnings/Loss».

Balance Sheet and Cash Flow

At December 28, 2019, SunOpta’s balance sheet reflected total assets of USD 923.4 million and total debt of USD 490.7 million. During the fourth quarter of 2019, cash provided by operating activities was USD 36.2 million, compared to USD 5.1 million during the fourth quarter of 2018. The USD 31.1 million increase in cash provided by operating activities primarily reflects the improved year-over-year operating results, along with more efficient working capital management. Cash used in investing activities was USD 9.2 million in the fourth quarter of 2019, compared with USD 6.7 million in the fourth quarter of 2018, an increase in cash used of USD 2.5 million, including a higher level of capital expenditures related to the expansion of our ingredient extraction capabilities.