Canadian seafood firm High Liner Foods has announced an organizational restructuring amidst falling sales volumes, higher material prices, and the looming threat of costly tariffs.
High Liner President and CEO Rod Hepponstall announced the company is realigning its executive structure by core function instead of geography. The move is expected to save the company an estimated USD 10 million (EUR 8.8 million) and be completed by the end of 2018. As part of the restructuring, Hepponstall announced the elimination of the position of president and COO of U.S. operations, a position previously held by Peter Brown, who recently became the company’s chief supply chain officer.
“Significant opportunities exist for both seafood and High Liner Foods,” Hepponstall said. “But after my first quarter as CEO, it is apparent to me that before we can fully take advantage of these opportunities, we need to operate more efficiently."
Sales and profits have fallen at the Lunenburg, Nova Scotia, Canada-based processor and marketer of value-added frozen seafood, with High Liner experiencing a 10 percent decline in earnings before taxes, depreciation, and amortization (EBITDA) in the second quarter of 2018. In its Q2 2018 conference call on 14 August, the company said its adjusted EBITDA decreased by USD 1.4 million (EUR 1.2 million) to USD 12 million (EUR 10.6 million), compared to USD 13.4 million (EUR 11.9 million) in the second quarter of 2017.
High Liner’s sales, gross profit, and net income all actually increased in the second quarter of 2018 compared to the same quarter in 2017, but that was primarily due to the impact of a product recall announced in April 2017, when various High Liner, High Liner Captain’s Crew, and Portico Bounty brands in Canada were recalled due to the inclusion of a milk allergen that was not properly represented on the ingredient label and allergen statement.
In the second quarter of 2018, High Liner’s total sales increased by USD 12.9 million (EUR 11.4 million) to USD 245.3 million (EUR 216.7 million); its gross profit increased by USD 5.5 million (EUR 4.9 million) to USD 43.3 million (EUR 38.3 million); and its net income increased by USD 2.2 million (EUR 1.9 million) to USD 2.8 million (EUR 2.5 million). However, its adjusted net income decreased by USD 2.3 million (EUR 2 million) to USD 3.8 million (EUR 3.4 million).
High Liner’ s sales volume for the second quarter of 2018 increased by 2.1 million pounds to 65.5 million pounds, compared to 63.4 million pounds in same period in 2017. This was primarily due to higher sales volume from Rubicon Resources, a shrimp importer High Liner acquired in May 2017. Excluding Rubicon’s added sales, High Liner’s total sales volume for the second quarter of 2018 decreased by 3.9 million pounds, reflecting lower sales volume in the U.S. retail and foodservice businesses and Canadian retail business, the company said.
"The company's financial results for the second quarter of 2018 reflect continued challenges in the business related to soft sales volume, a shift in product mix from higher margin value-added products to lower margin commodity products, raw material cost increases not fully passed along to customers and inefficiencies in our supply chain," Hepponstall said. "The impact of these challenges in the second quarter was most acute in our U.S. business."
Sales value in the second quarter of 2018 increased by USD 12.9 million (EUR 11.4 million) to USD 245.3 million (EUR 216.7 million), but excluding the impacts of a stronger Canadian dollar, the product recall, and the additional sales from Rubicon, the total value of High Liner’s sales decreased by USD 16.9 million (EUR 15 million).
This was “mainly due to the decreased volume mentioned previously and changes in product mix, partially offset by price increases to recover raw material cost increases,” the company said.
High Liner Chief Financial Officer Paul Jewer said on the conference call that higher prices for cod and haddock had also had some impact on the company’s bottom line, though he said he “wouldn’t identify it as a significant item.”
A larger potential impact may result from tariffs on seafood announced by the United States and China. Hepponstall said High Liner currently purchases its seafood raw materials from more than 20 countries around the world, and ships portion of its raw material into China for primary processing and then re-exports it to the U.S. for sale and secondary processing. That portion of High Liner’s business could become more expensive if the tariffs on those items proposed by the administration of U.S. President Donald Trump are enacted, he said.
“High Liner Foods does not support tariffs that increase cost of seafood for U.S. consumers,” Hepponstall said. “We are monitoring developments very closely, particularly as further information becomes available as to what products will be impacted and how the tariffs will be implemented. Until we have further information, we are not in position to determine the impact to our business. However, we are actively looking for opportunities to mitigate the impact of the tariffs in the event they are enacted and applied to a portion of our raw material purchases.”
Jewer also noted the company’s loss of its Sam’s Club business – the Walmart subsidiary shifted to sourcing most its own seafood in 2017 – had hurt its sales of both shrimp and salmon. Most of the impact of Rubicon’s loss of its shrimp sales to Sam’s Club has been felt over the past 18 to 24 months, Jewer said, and Rubicon’s sales volume is now reflective of what its base business will be moving forward.
High Liner Foods' common shares trade on the Toronto Stock Exchange under the symbol HLF. Its shares closed on 14 August at CAD 8.78 (USD 6.67, EUR 5.90). Hepponstall said the company’s results “are disappointing” and have resulted in a decrease in the firm’s stock price that is “concerning for our shareholders.”
“It shows we need to change how we operate,” he said.
