Supremex Q1 2025 slides reveal packaging profitability surge despite revenue dip

Supremex Inc. (TSX:SXP), North America’s second-largest envelope manufacturer and a growing packaging solutions provider, released its Q1 2025 investor presentation showing mixed results as the company continues its strategic pivot toward the higher-growth packaging segment.

Q1 2025 Performance Highlights

Supremex reported total revenue of $70.2 million for Q1 2025, representing a 4.1% decrease from $73.3 million in the same period last year. Despite the revenue decline, the company maintained solid profitability with adjusted EBITDA of $8.8 million or 12.6% of revenue, though this was lower than the $10.5 million (14.3% of revenue) achieved in Q1 2024.

Net earnings for the quarter stood at $1.9 million ($0.08 per share), down from $3.5 million ($0.14 per share) in the prior year. Adjusted net earnings were $2.2 million ($0.09 per share), compared to $3.5 million ($0.14 per share) in Q1 2024.

As shown in the following comprehensive overview of Q1 2025 results:

The company’s performance reflects the ongoing transition in its business mix, with envelope revenue declining while packaging revenue grows. This shift aligns with Supremex’s strategic focus on expanding its presence in the growing packaging market while maintaining its strong position in the envelope sector.

Segment Analysis

Supremex’s business is divided into two primary segments: Envelope and Packaging (NYSE:PKG). The Q1 2025 results reveal divergent performance between these segments.

The Envelope segment, which accounted for 68.9% of total revenue in Q1 2025, saw revenue decline by 9.4% to $48.4 million from $53.4 million in Q1 2024. This segment’s adjusted EBITDA margin also contracted to 17.2% from 20.4% in the prior year. The decline reflects lower average selling prices from a less favorable product mix, though the company noted better penetration of the U.S. market.

As illustrated in the following envelope segment overview:

In contrast, the Packaging segment showed significant improvement, with revenue increasing by 9.9% to $21.8 million from $19.8 million in Q1 2024. More impressively, the segment’s adjusted EBITDA margin more than doubled to 15.0% from 6.1% in the prior year, demonstrating substantial operational improvements and higher demand from sectors correlated to economic conditions and e-commerce packaging.

The following chart illustrates the packaging segment’s performance:

This divergence in segment performance underscores Supremex’s ongoing transition toward the higher-growth packaging market, which aligns with broader industry trends. The North American envelope market continues to experience secular decline, with transaction mail volumes decreasing at a 5-year CAGR of 5.8% in Canada and 4.2% in the U.S. In contrast, the global folding carton market is expected to grow at a 4.4% CAGR between 2025 and 2030.

Financial Position and Capital Allocation

Supremex maintains a strong financial position with a healthy balance sheet and conservative leverage. As of Q1 2025, the company’s net debt to adjusted EBITDA ratio stood at 0.9x, well below its target level of 2.0x, providing significant financial flexibility for future growth initiatives.

The following chart illustrates the company’s solid financial position:

Supremex has consistently generated strong free cash flow, which has enabled the company to fund its growth strategy while returning value to shareholders through increasing dividends. The company’s dividend per share has grown steadily from $0.135 in 2022 to a projected $0.20 in 2025, representing a yield of approximately 5.2% based on current share prices.

This strong cash flow generation and disciplined capital allocation approach have positioned Supremex well to execute its growth strategy despite challenging market conditions. The company has invested $105.1 million in growth initiatives between 2020 and 2025, while returning $27.4 million to shareholders through dividends and share repurchases during the same period.

Strategic Initiatives and Growth Strategy

Supremex continues to execute its three-pronged growth strategy:

1. Maintaining its leading position in the Canadian envelope market by leveraging its national footprint through capacity allocation and consolidation opportunities

2. Pursuing growth opportunities in the U.S. envelope market both organically and through acquisitions

3. Building packaging capabilities organically and through acquisitions, with a focus on value-added folding carton and e-commerce markets

As illustrated in the company’s strategic overview:

This strategy has enabled Supremex to navigate the secular decline in the envelope market while positioning itself for growth in the expanding packaging sector. The company’s recent acquisition activity, including Forest Envelope in 2024, reflects its commitment to strategic growth and market consolidation.

Outlook

Looking ahead, Supremex remains focused on improving operational efficiency and expanding its reach in both the envelope and packaging segments. The company’s strong financial position, with ample liquidity and low leverage, provides a solid foundation for continued execution of its growth strategy.

However, management acknowledges that current economic volatility creates some unpredictability in the near term. The company is closely monitoring potential impacts from trade tariffs between the U.S. and Canada, as well as continued challenges in the Canadian market due to labor disruptions.

Despite these challenges, Supremex appears well-positioned to continue its strategic transition toward the growing packaging market while maintaining its strong position in the envelope sector. The significant improvement in the packaging segment’s profitability in Q1 2025 suggests that the company’s operational initiatives are gaining traction, which could drive improved overall performance as this segment continues to grow as a proportion of total revenue.

At the close of trading on May 7, 2025, Supremex’s stock (TSX:SXP) was priced at $3.79, up 1.61% for the day, and trading within its 52-week range of $3.40 to $4.53.

Full presentation:

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