Lunenburg, Nova Scotia, Canada-based High Liner Foods' latest earnings report indicates the company has seen significant impacts on sales volume due to the ongoing COVID-19 pandemic, but has managed to maintain its earnings before interest, taxes, debt, and amortization (EBITDA) and increase its net income in spite of the challenges.
High Liner Foods second-quarter earnings report showed the company sold a volume of 49.3 million pounds in Q2, a decrease of 11.1 million pounds from 60.4 million pounds sold in the same period in 2019. That decrease in volume corresponded with a decrease in overall value: Q2 sales amounted to USD 165.8 million (EUR 140.7 million), down by USD 57.2 million (EUR 48.5 million) from last year’s USD 223 million (EUR 189 million). The weaker Canadian dollar did impact sales figures more heavily this year than last year – sales value was decreased compared to 2019 by approximately USD 1.6 million (EUR 1.35 million).
At the same time, the adjusted EBITDA was USD 17.08 million (EUR 14.49 million), just shy of last year’s USD 17.88 million (EUR 15.16). However, adjusted EBITDA as a percentage of sales increased from 8 percent to 10.3 percent. This too, was impacted by the weaker Canadian dollar, decreasing the reported value by roughly USD 200,000 (EUR 169,000) compared to last year.
Gross profit as a percentage of sales, as well, increased over last year to 22.2 percent from 19.2 percent in Q2 2019. Gross profits in Q2 2020 was USD 36.73 million (EUR 31.19 million), down from USD 42.84 million (EUR 36.38 million) in Q2 2019.
High Liner Foods President and CEO Rod Hepponstall credited the company’s performance during the pandemic to the ongoing efforts the company has been making to return to profitability.
"High Liner Foods' performance in the second quarter of 2020 demonstrates how quickly and effectively we pivoted to meet new customer realities during this unprecedented time," Hepponstall said in a release. "Thanks to our transformative efforts last year we are able to continue improving our business and position the Company for further profitable growth despite the challenges presented by COVID-19."
Those transformative efforts included an increase in manufacturing efficiencies, and a shift in product focus to emphasize the company's value-added products. That focus on value added seems to be paying off, as the amount of value-added product offerings sold as a percentage of total sales increased from 56 percent to 66 percent.
Similar to High Liner’s first quarter of 2020, the company’s foodservice sales have continued to be down, while retail sales have continued to be up – largely due to the ongoing impacts of the COVID-19 pandemic. However, foodservice sales are improving, the company stated.
“In each month of the second quarter of 2020, foodservice demand steadily improved at a faster pace than the company anticipated, particularly for higher margin value-added products,” High Liner stated. “High Liner Foods expects this trend to continue as restrictions are lifted and more of the its foodservice customers re-open for business.”
High Liner Foods CFO Paul Jewer added during an investment call that during the company's worst month, foodservice saw declines of as much as 70 percent. However, by June, that declines was "less than 20 percent."
The company added that its restaurant customers have been “very receptive to its convenience-focused products” due to the labor challenges faced in the foodservice industry, and that it is working to capitalize on the opportunities created by the pandemic.
"We are capitalizing on new opportunities to deliver the value-added products that consumers are hungry for, retailers want in stock, and foodservice customers need in order to operate efficiently in the new normal,” Hepponstall said. “Our foodservice business is recovering more quickly than anticipated and our supply chain continues to be extremely efficient and reliable providing a competitive advantage and further cementing customer loyalty."
So far this year, High Liner Foods’ sales volume and value is trending behind 2019. Last year, the company sold 139 million pounds by June 29 2019, whereas this year it has sold 126.6 million pounds. Value-wise, that translates to a decrease of USD 66 million (EUR 56 million) in value, from USD 500 million to USD 434 million (EUR 424 million to EUR 368 million).
Adjusted EBITDA has seen a slight decrease from USD 50 million to USD 47.7 million (EUR 42.4 million to 40.4 million) in 2019, but adjusted EBITDA as a percentage of sales increased from 10 percent to 11 percent. Gross profit also decreased slightly from USD 98.9 million to USD 95.5 million (EUR 83.9 million to 81.0 million), but like the adjusted EBITDA gross profit as a percentage of sales has increased from 19.8 percent to 22 percent.
Despite the slight decreases in adjusted EBITDA and gross profit, the company’s net income increased from USD 15.7 million to USD 17.6 million (EUR 13.3 million to EUR 14.9 million).
Overall, the company said it is “increasingly confident that it can deliver adjusted EBITDA growth in 2020,” in spite of the ongoing complications caused by the COVID-19 pandemic. It added that current plans will enable it to navigate any further complications.
“High Liner Foods believes that it is fully prepared to navigate a potential second wave of COVID-19 in North America and that its diverse and integrated North American business will continue to satisfy the needs of retail and foodservice customers and consumers through excellent fill rates, product innovation, and creative solutions to help solve challenges facing foodservice operators looking for convenience-focused products,” the company stated.
Hepponstall credited the long-term strategy put in place to reverse declining profitability with the company’s ability to navigate the pandemic.
"Our confidence in the outlook for our business is a direct result of strong and consistent execution against our strategy," Hepponstall said. “We are selling more of the right products to the right customers at the right price.”
Photo courtesy of High Liner Foods
