Maple Leaf Foods Inc . (TSX:MFI) reported a positive financial trajectory in its third-quarter earnings call for 2024, with total sales reaching $1.3 billion, marking a near 2% increase year-over-year. The company's adjusted EBITDA rose by over 9% to $141 million, thanks to favorable pork markets and contributions from capital projects, despite challenges such as higher SG&A costs and inflation. Maple Leaf Foods is also making headway in the U.S. market, with a 50% sales growth in sustainable meat products and a strong focus on consumer demand shifts.
Key Takeaways
- Total (EPA:TTEF) sales reached approximately $1.3 billion, a nearly 2% increase year-over-year.
- Adjusted EBITDA rose over 9% to $141 million.
- Sales growth in the U.S. market for sustainable meat products exceeded 50%.
- A significant improvement in free cash flow to $255 million.
- Net debt reduced to approximately $1.6 billion.
- The company is progressing with a tax-efficient spin-off of its pork business, Canada Packers.
Company Outlook
- Continued margin improvement anticipated.
- Strategic focus on leveraging growth opportunities in the U.S. market.
- Adjusted EBITDA margin target of 14% to 16% through five key initiatives.
- Full operational capacity expected at Winnipeg Bacon facility in Q4.
Bearish Highlights
- A slight decline in year-over-year poultry sales.
- Capital expenditures decreased to $26 million from $51 million in Q3 last year.
Bullish Highlights
- Favorable pork market conditions, particularly in Japan.
- Operational improvements in processing efficiency and utilization.
- Strong potential for growth in the U.S. market due to increased distribution and product velocity.
Misses
- Lower byproduct prices impacted pork sales despite a 1.1% growth.
- Higher SG&A costs and inflation impacts presented challenges.
Q&A Highlights
- Company's strategy addresses value-seeking consumer behavior with new product launches.
- Spin-off process of Canada Packers could take up to nine months, with a mid-2025 completion timeline.
- Three main drivers for increased manufacturing efficiency: improved Brandon facility utilization, strategic hog acquisition, and automation investments.
In summary, Maple Leaf Foods is navigating market shifts and consumer demand effectively, with a strategic focus on operational excellence and growth in the U.S. market. The company's financial health is on an upward trend, as evidenced by improved sales, margins, and a stronger balance sheet. With plans for further capital investments and potential share buybacks in 2025, Maple Leaf Foods remains optimistic about its future performance and profitability.
Full transcript - Maple Leaf Foods (MLF) Q3 2024:
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Maple Leaf's Third Quarter 2024 Financial Results Conference Call. As a reminder, this conference call is being broadcast live on the Internet and recorded. All lines have been placed on mute to prevent any background noise. Please note that there will be a question and answer session following the formal remarks. We will go over the instructions for the Q&A following the conclusion of the formal presentation. I would now like to turn the conference call over to Janet Craig, Investor Relations at Maple Leaf Foods. Please go ahead, Ms. Craig.
Janet Craig: Thank you, Jenny, and good morning, everyone. Speaking on the call this morning will be Curtis Frank, President and Chief Executive Officer Dave Smales, Chief Financial Officer and Dennis Organ, President, Port Complex and Incoming CEO of, Canada Packers. Before I begin, I'd like to remind you that some statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discuss. Please refer to our Q3 2024 MD and A and other information on our website for a broader description of operations and risk factors that could affect the company's performance. I've uploaded our Q3 Investor Day to our website, which includes support material for the quarter. As always, the Investor Relations team will be available after the call for any follow-up questions you may have. And with that, I'll turn the call over to Curtis.
Curtis Frank: Okay. Thank you, Janet, and good morning, everyone. It's great to be with you here again today. In my comments this morning, I will begin by discussing the progress we are making in executing our strategic priorities and summarizing my thoughts on our Q3 financial and operating performance. I will then turn the call over to Dennis Organ, the President of our Pork Complex and our incoming CEO of Canada Packers, who will touch on the performance of the pork business. Following Dennis, you'll hear from Maple Leaf's Chief Financial Officer, David Smales, who will provide a more detailed financial update. I will then step back in to close the call, offering a clear picture of what lies between us and our 14% to 16% strategic margin target, along with an update on the spin-off of our pork business as we have some materially good news to share. And of course, we will reserve time to open up the line to your questions. First and foremost, our top priority continues to be driving adjusted EBITDA growth and expanding our adjusted EBITDA margin towards our 14% to 16% strategic target. In this pursuit, I'm pleased to report that our Q3 sales of approximately $1.3 billion were up nearly 2% year over year, fueled by over 3% growth in our CPG-prepared meats business. Adjusted EBITDA also grew by over 9% to $141 million in the quarter and has grown by nearly 30% year-to-date. Additionally, we delivered another quarter of improvement in our adjusted EBITDA margin, which increased by 80 basis points in Q3 to 11.2%, driven by improved pork markets and contributions from our capital projects. This progress was partially offset by higher SG&A year-over-year and the impacts of an inflation-stressed consumer. Our large-scale capital projects at London Poultry and our Bacon Centre of Excellence continued to ramp up successfully this quarter. As we mentioned on our last call, we remain confident that we are fully on track to realize the remaining benefits of these projects in Q4 of this year. And as a result, we do expect some level of sequential margin improvement in the fourth quarter of 2024. As many of you know, the entire North American consumer packaged goods industry continues to face the challenge of navigating an inflation-stressed consumer environment. This environment has a particularly significant impact on a premium portfolio like ours. And I want you to know that we are not sitting still waiting for the macro environment to recover on its own. Instead, our commercial teams are doing incredible work to adapt our brand strategies to the evolving consumer demand environment, leveraging the depth of our CPG capabilities. Through this playbook, we are investing in our portfolio of leading brands to drive consumer demand. A great example is our Maple Leaf Natural Negotiators advertising campaign, which this quarter focused on our prime raised without antibiotics and bacon portfolios. We also completed our most successful season as the official hotdog and sausage partner of the Toronto Blue Jays, selling a record-breaking number of hot dogs this season, including over 725,000 of them on Loonie Dog Nights alone. We are accelerating the pace of impactful innovation, highlighted by the launch of 22 new SKUs into the market in Q3. This is the most items we have launched at one time dating back to 2020. We are already seeing great success with these new innovations, particularly with our new Schneider's brand line of breakfast sandwiches and breakfast egg bites, which cater to the growing market for savory, convenient, and protein-packed breakfasts. We are leveraging our leadership in sustainable meats, which grew at a double-digit pace in Q3, supported by breakthrough advertising campaigns for the Greenfield Natural Meat Company and expanded distribution with customers such as Costco (NASDAQ:COST) USA where in September, we partnered to launch a Greenfield brand club pack lunch kit item. We are expanding our reach into the U.S. market as a source of incremental growth. Here too, we achieved double-digit sales growth in prepared meats, winning business with new partners and expanding distribution for our sustainable meats brand, a greenfield, which saw over 50% sales growth in the U.S. as compared to last year. We are plugging our unique capabilities into our customer strategies by leveraging new assets like our vacant center of excellence and the investments we have made at our Walker Drive facility. And we are executing in-store and at point of sale where our field sales team executed displays in over 4,000 Canadian grocery stores in Q3 alone. Underpinned by the strength of these brand plans and our robust customer partnerships, our prepared meats business demonstrated outstanding resilience this quarter. We achieved our third consecutive quarter of sales growth of 3% or greater and delivered a slight gain in retail market share. In poultry, while overall sales declined slightly year over year due to the repatriation of tray pack volume into the London plant, which as of the start of Q4 is now fully lapped, we delivered 10% growth in the retail channel and grew our retail branded market share of the fresh poultry category. Our focus for our plant protein category remains no different than our other businesses and that we expect to generate profits. In the Q3, we continued to make strides toward that goal. Our US dollar sales were relatively flat. Our performance outpaced the overall US refrigerated category and our sustained focus on driving our cost led to a quarter of year over year improvement in profitability. Early within Q4, we implemented our plans to integrate the plant protein business as a category within our Prepared Foods business, marking a very important milestone to set us up for success in 2025 and beyond. To be clear, while we are very encouraged by our overall Prepared Foods performance, the higher levels of SG&A and the steps that we have taken to invest in our brands to support volume growth and protect market share are resulting in a short-term margin and slight adjusted EBITDA decline when viewing Prepared Foods on a standalone basis. However, with inflation easing, interest rates declining and our brand plans taking hold, we are fully confident that this impact will prove to be transitory. In the pork complex, we are thrilled to report that after many quarters of unprecedented market conditions, markets appear to be normalized. As a result, our financial performance has continued to improve, both sequentially and on a year over year basis. And in our supporting materials, we estimate a negative market impact of about $14,000,000 or approximately 110 basis points in the Q3 as compared to normal market conditions, most of which is now attributed to Japan margins being below pre-pandemic levels. Restoring these margins, while executing other value-creating levers as it moves forward as a standalone organization is the top priority for our Pork team, which Dennis will discuss momentarily. So overall, I think it would be reasonable to say that the quarter unfolded as expected. The financial performance of our business is strengthening year over year. We saw a substantial increase in free cash flow generation in the quarter and we accelerated the deleveraging of our balance sheet with net debt to adjusted EBITDA reduced to 3.1 times by the end of the quarter. With that as strategic context, I will now pass the call over to Dennis to review the port complex performance in the quarter. Dennis?
Dennis Organ: Thank you, Curtis, and good morning, everyone. In the pork complex, the most important takeaway is that our financial results are improving, feed costs have stabilized, and we are focused on driving profitable growth and operational excellence in the business. While revenue is not a key metric for the pork complex, as we are more focused on EBITDA and optimizing spreads, sales did grow 1.1% as compared to Q3 last year. This was primarily due to increased number of hogs we processed and improved product mix.
David Smales: Thanks, Dennis, and good morning, everyone. Turning to our results this quarter, I'll comment on the company's consolidated results before addressing balance sheet items and discussing the overall outlook for 2024.The key takeaway from our financial performance is how the improving profitability of our business in 2024, including in the third quarter has generated a substantial increase in free cash flow, and delivered a significant improvement to our balance sheet consistent with our priorities and outlook for 2024 coming into the year.Total sales in the third quarter were $1.26 billion an increase of 1.8% compared to last year. Adjusted EBITDA increased by 59.1% to $141 million with an adjusted EBITDA margin of 11.2% compared to 10.4% last year. Earnings for the quarter were $18 million or $0.14 per basic share compared to a loss of $4 million or $0.04 per basic share last year. After removing the impact of the non-cash fair value changes in biological assets and derivative contracts, startup costs, and restructuring costs, adjusted earnings were $0.18 per share for the quarter compared to $0.13 per share last year. The 1.8% sales growth year over year was driven by Prepared Foods, where sales were up 2% year over year. We saw an increase in sales in prepared meats of 3.1% and plant protein of 1.1%, which was partially offset by a slight decline in poultry of 0.9%. Within prepared meats, we saw both higher volumes and improved category mix and in plant protein our sales performance was stronger than the overall US refrigerated category performance. In poultry, as we've seen all year, London has allowed us to improve our mix by increasing our tray pack capacity, replacing third party sourced tray packs, allowing us to reduce lower value and volatile industrial channel volume, resulting in a slight decline in poultry sales in the quarter year over year, but improved mix and margin performance. Pork sales were also slightly higher at 1.1% growth year over year on improved product mix and favorable movements in FX, partially offset by lower market prices for byproducts. As I just mentioned, adjusted EBITDA continued to improve growing to $141 million a 9.1% increase compared to the Q3 of last year. In Prepared Foods, profitability was primarily driven by positive contributions from poultry and plant protein results. Poultry saw better mix and contributions from the London facility and plant proteins improved performance reflects efforts to right-size the business and drive cost out. As Curtis noted, we did see some offsetting pressure on margins in our prepared meats business this year, as we continue to invest to support volumes and protect market share in a more dynamic consumer environment. Pork markets were also a tailwind to our year-over-year results as market conditions have improved, but continue to operate below what we define as normal. Q3 adjusted EBITDA was negatively impacted by $14 million or 110 basis points relative to what we view as normal market conditions. SG&A was up $14 million compared to last year, which created a headwind to our adjusted EBITDA performance this quarter. Also, the increase here was due to variable compensation, including adjustments in Q3 of last year to reduce the comparable period significantly. Our SG&A rate is typically between 8.5% and 9% of sales, and we are operating within that range. Adjusted EBITDA margin came in at 11.2%, up 80 basis points from the previous year and in line with our Q2 result. In total, during the quarter, we invested $26 million in capital expenditures, compared to $51 million in Q3 last year. The decrease is largely due to the completion of our large capital projects. We've updated our outlook for capital expenditures for the full year of 2024 to approximately $100 million based on our current spending levels. We've continued to recalibrate our current year maintenance capital requirements, primarily related to completion of major capital projects and related closure of legacy poultry plants. We've also introduced our outlook for capital expenditures for 2025, which we expect to be between $175 million to $200 million primarily focused on maintenance capital, as well as growth capital related to capacity optimization and cost efficiency initiatives. Free cash flow improved year over year to $255 million up $65 million as we continue to see the year-over-year benefit of improved earnings and lower maintenance capital requirements. This quarterly improvement contributed to a year-to-date increase in free cash flow of $230 million. On the balance sheet, net debt was down $126 million during the quarter to just under $1.6 billion.In line with our stated priorities, we have seen a significant improvement in leverage ratios over the past year with a net debt to trailing 12 months adjusted EBITDA ratio of 3.1 times at the end of the third quarter of 2024. Compared to 4.9 times at the end of the third quarter last year and 3.4 times at the end of last quarter.As the profitability of the business continues to improve and our capital requirements have receded following completion of our large capital projects, we expect this deleveraging trend to continue through the end of 2024. With the exception of calling down our capital spend for 2024 and introducing a 2025 capital forecast.
Curtis Frank: Okay. Thank you, David. I'd like to summarize our collective comments today by reaffirming our commitments to achieving our 14% to 16% adjusted EBITDA strategic margin target for our consolidated business. This is not merely an aspirational goal, it is an imperative one, given the capital that we have deployed.We are clearly making progress as evidenced by an adjusted EBITDA margin that has improved by 240 basis points year-to-date, a $230 million improvement in our free cash flow year-to-date, and a rapidly deleveraging balance sheet. At the very same time, we recognize and fully embrace that there are still more work yet to be done. Delivering on this commitment remains our most pressing short-term priority and we fully accept your desire to hold us accountable.To achieve our strategic goals, we are focused on the execution of five key leaders that will drive us forward toward our 14% to 16% target. The first, finishing our capital playbook, where we are expecting to deliver the full operational benefits of our projects in Q4 this year. A second, as I outlined earlier we are adapting our brand strategies to the inflation-stressed consumer. Although consumers remain under pressure today, we expect that the conditions will progressively improve as inflation stabilizes, interest rates decline and our brand plans continue to take hold. A third includes the recovery of pork markets, where integrated margins have significantly improved and are approaching pre-pandemic levels, while Japan remains an area of opportunity. A fourth, we are committed to consistently delivering a profit in the plant protein business with plans in place to achieve profitability in 2025. And finally, we are continuing to evolve our cost focus and competitive edge. This includes the recent completion of a procurement project aimed at leveraging our purchasing scale. And this month, we made a series of organizational changes that will sharpen our cost competitiveness, enhance our operational effectiveness, and increase our customer alignment. These changes include simplifying the business, improving our execution focus, creating clear lines of sight to accountabilities with KPIs assigned to each role and accelerating the speed of decision making by removing layers within the organization. Before I wrap up the call, I just wanted to touch on the next steps for the spin-off of our pork business where our transaction team is working diligently on all the work required to separate the businesses and successfully launch Canada Packers as a new public company. As I mentioned at the beginning of the call, we have some good news to share. We have been making great strides at preparing for the separation and at the same time, we've continued to advance the work on the transaction structure to see if we could achieve a more tax efficient outcome. And I'm happy to share that we have indeed found that path. Specifically, we are now working to advance a tax-free butterfly reorganization that we would implement through a plan of arrangement. Under the proposed new structure, Maple Leaf Foods will retain a slightly lower ownership interest in Canada packers, roughly 16% to 17% as compared to 19.9%. And we've aligned with McCain Capital on a set of representations and covenants related to the applicable tax rules, which is typical for a Butterfly transaction with a more than 10% shareholder. With this structure, we will need to get an advanced tax ruling from the CRA, which we think will take up to 9 months. So, this now becomes the long pole in the 10th, moving our target closing out a little further than we originally anticipated, although we still remain confident that we will close in 2025. Many more details will come when we file our information circular, which we are currently targeting for Q1 of 2025. And with that, operator, we can now turn the call over to questions, please.
Operator: Thank Your first question is from Irene Nattel from RBC Capital Markets. Your line is now open.
Irene Nattel: Thanks, and good morning everyone. Thank you for the comprehensive review. Question for me really is around the core Maple Leaf business ex Canada Packers. If we look at sort of if you do the arithmetic, EBITDA year to date is relatively flat, so plus or minus about $5 million in any given quarter. So, can you please walk us through what the different puts and takes have been year to date and what the factors are that are moderating the gains and how we as a result of the capital and how we should be expecting things to unfold as we move through late 2024 and into 2025?
Curtis Frank: Yes. Good morning, Irene. Thank you for your question. I'll walk through the kind of the moving parts. I think you're referencing the kind of the pro form a maple leaf business excluding the pork business. In that particular case, you would have seen as part of our materials, the financials that we provided where we held our margins in the kind of the pro form a Prepared Foods business are relatively flat. And as you mentioned, we did have a slight decline in adjusted EBITDA for the Prepared Foods business within the quarter within the LTM, sorry. The moving parts as you referenced, there are three of them that I think are important to note. The first is that our capital projects have continued to contribute and deliver right in line with our expectations. So that was a help within the last quarter. It's been a help on an LTM basis and we believe we'll complete the operational benefits of that work in Q4 right in line with what we would expected. So, the capital projects are contributing, I think is important point number one. That's being offset by two factors, points number two and three.Number one, an uptick in our SG&A. And in the third quarter, that was fairly material just given the timing of variable compensation on a year-over-year basis. So that would have been certainly within the quarter the most material factor. But at a strategic level, as you and the market are fully aware, we're certainly seeing the transitory impacts of an inflation-stressed consumer environment play through our business.On one hand, I'm really pleased and happy with the top-line performance in the business in particular. We saw 2% growth this past quarter in our prepared foods business. It was driven by over 3% growth in our prepared meats business. We had volume growth in prepared meats, which in this consumer environment relative to other North American consumer packaged goods companies was a really great outcome. And we had market share growth in prepared meats, in poultry, and in our plant protein business. So, I think those are all good and important indicators in the business. Offsetting that the consumer does in the moment is seeking more value. So, we are seeing more trade down than we would like, and we are making more investments to grow our volume and protect our market share than we would like in the moment. But again, we believe that those impacts will prove to be transitory as they have been over the course of history.I outlined in my comments, Irene, the notion that we're not sitting still. I think as a brand-led consumer packaged goods company. We're obligated in an environment like this to lead. And there are a number of areas where we're stepping up to lead through the ambiguity of the current consumer demand environment.
Q - Irene Nattel: That's really helpful. Thank you, Curtis. And follow on question from Matt, please, which is, you talked about investing in brands, I assume that means vendor support and premium products. What about at the other end of the market? If consumers are looking for value, in your product introductions, have you included anything that really would address more that value-seeking behavior?
Curtis Frank: We have -- actually, that's a great question, Irene. So we have some really great examples in our frozen further processed poultry portfolio, whereas the poultry business for us given it's very much premium position has been disrupted even with the mix between sustainable meats and the conventional parts of our portfolio.So we launched a number of frozen offerings that are meant to and ethnic offerings actually that are meant to bring value to the frozen poultry category would be a great example of how we're kind of pivoting within our portfolio to meet the consumer demand in the short term for value seeking behaviors, while at the same time protecting the market share in our premium portfolio of brands knowing that the consumer environment will change over the course of time.
Irene Nattel: That's great. Thank you. And just one final housekeeping question, if I may. You mentioned something that the process can take up to 9 months on the spin post the filing. The clock started when on that process. So, I guess what I'm really trying to say is if we're thinking about like if it's 9 months from now, so mid-2025, is it just to give us a better idea?
Curtis Frank: Yes. Plus, mid-2025 is a very much a reasonable time line, plus or minus a couple of months here or there, Irene. I mean, the CRA ruling is outside of our direct control, obviously. So that will be dependent on their timeline. We'll continue to give you updates along the way. Q1 will be an important milestone because we'll file our prospectus information. But I think mid next year, plus or minus month a couple of months here and there depending on how the CRA decision plays out is a reasonable expectation at this stage.
Operator: Your next question is from Michael Van Aelst from TD Cowen. Your line is now open.
Michael Aelst: Good morning. Thanks for giving those five levers to your 14% to 16% goal. But are you able to quantify or at least kind of give us some benchmarks as to how important each one of those are? And is this all is this everything that's needed to get into that 14% to 16% range?
Curtis Frank: Good morning, Mike. The second part of your question, I'll answer first, which is, yes. I mean, the sands have obviously shifted to a certain extent over the last number of years from wildly dislocated pork market conditions in a post-pandemic economy to the consumer demand environment we're seeing in the short term. But yes, those are the five factors that I think are clearly going to position us into that 14% to 16% range. I'm going to resist the temptation to quantify each and every one of them. So, I won't do that. But what I will do is, one of them is certainly quantifiable because we've outlined it in our slide presentation that we provided earlier this morning, which is the 110 basis points in pork market conditions from where we are today. And what I would tell you is the combination of the balance of them put them the other 4 put us squarely at or depending on overarching market conditions. I think it would put us squarely operating consistently in that range and I feel really good about that.
Michael Aelst: Okay. So, if I if is it fair to say that the pork market improvement, particularly the Japan, as you mentioned of 110 basis points, that would be the biggest of the five?
Curtis Frank: Yes. I think, yes, that would be one of the largest ones. The second one that I think is material is the consumer environment. It's pretty material, Mike, as well. And the capital project benefits you should see as we indicated continue to improve and take shape in the Q4. And that's why we've indicated that we do expect a sequential uptick here in the Q4 of some magnitude just given the capital benefits coming to full fruition.
Michael Aelst:
A - Curtis Frank: One thing, and Dennis could talk about this as well. But the one thing I admire about the way Dennis is operating the business today is he's identified a series of levers that have the potential to create significant value in his business, in the event that that does not happen fast enough, Mike.Do I expect it's going to take fourth quarters? I don't know, I don't have a crystal ball. So, I think it would be maybe even irresponsible for me to put a precise timing on that. But what I would say is that the overarching conditions are moving in the right direction. The dislocation that we saw in market conditions and the impact of product flowing into Japan, it's certainly easing. Oversupplied markets are easing, that's causing less disruption in Japan and it makes the commercial terms of doing business in Japan much more favorable.So that's positive. The currency impact has been problematic with the devaluation of the N, as you know, and that's I don't think materially changed over the course of the last short little while. And so, we're positioned well commercially. We've added customer relationships in Japan. So new sources of growth in the Japanese market. So, the volumes are actually improving. We did see an improvement in our profitability in Japan. We can break it out obviously, but we did see an improvement in our profitability in Japan in the third quarter. And I'm pretty confident that getting back to the levels of profitability we would expect in Japan is very much on the horizon.
Q - Michael Aelst:
A - Curtis Frank: David will maybe step in here, Mike, and give you a perspective.
David Smales: Yes. Hi, Mike. So obviously that debt reduction and reduction in leverage has been ongoing for a while now. As we noted in our comments, free cash flow generation has been increasing. We expect those trends to continue into 2025, which gives us the option to look at a number of alternatives, including investing in the business.We've talked about opportunities to look at network optimization, cost reduction initiatives. So being able to invest in those kinds of projects is important. Obviously, we'll look at as we move through the year and we get into a range from a leverage perspective. That is comfortably in investment grade category. What that means for us at that point in terms of other opportunities to deploy capital, including return of capital. But that will evolve as we move through 2025.
Michael Aelst: So, an NCIB is possible at some point during this year
David Smales: Say that again, Mike, missed that.
Michael Aelst: And like a buyback is possible at some point in 2025?
David Smales: Well, I'm not going to predict what we will or won't do, but obviously historically that has been a focus for us. We have invested significant efforts to return capital through NCIBs historically, it's still very much part of the playbook. And in the right conditions would be something we would definitely be looking at. I'm not going to predict how we're going to how or when that will materialize.
Michael Aelst: Thank you. And last question, is there anything to explain or what does explain that $5 million increase in depreciation from Q2 to Q3 like an 8% increase?
David Smales: In depreciation? Nothing specific. It's just the run rate and the capital that came on over the last number of years, but there's no one specific factor influencing that.
Michael Aelst: It seems like a big jump from one quarter to the next one. I don't think any new plants opened up. Anyway, I'll follow-up offline. Thank you.
Operator: The next question is from Mark Petrie from CIBC (TSX:CM). Your line is now open.
Mark Petrie: Yes, thanks and good morning. I wanted to just follow-up specifically on Japan. And so, it's fair to say then that you've taken the actions that you feel like you need to in order to get to a restored profitability there and then the other sort of factors are largely out of your control, whether they be competitive or supply or FX. Is that a fair summary?
Curtis Frank: Yes. I wouldn't want to leave you with the out of control out of our control sound bite though market. That's accurate. We're taking the actions commercially, at a pace that as fast as we can in Japan, respecting in Japan, nothing moves at lightning speed, consistent with many markets. So commercially, we are taking the steps and making progress. And that shows up for us financially, making progress. On the market conditions and currency that you're describing is out of our control, that's fair and that's reasonable. And that's why I very much represented the view for Dennis and his team of, if it proves to be out of our control and does not normalize in a way that we're satisfied with, there are other levers that we can backfill that gap with. And I think that that's strength that Dennis has brought in his leadership of the team and his experiences and I think will benefit the pork business not only today, but moving forward.
Mark Petrie: Yes. Okay. Understood. And I wanted to actually just go into that side of things a little bit. You talked about sort of the premium side of the hog business and how important that is and what a differentiator it is. Could you just talk about some of the drivers of demand for those sorts of different pockets of the business that you described?
Curtis Frank: Yes, sure Mark. I'll pass this one over to Dennis and then we'll get opportunity for him to give you an update.
Dennis Organ: Yes, I think the way I would describe it is we have the way we differentiate ourselves is through specialty programs all the way down just up and down the spectrum. So, you've heard about our RWA, sustainable meats, our loose cell housing, all of those attribute programs that require a premium. So that's one way we differentiate ourselves. But there's also other areas that are things that we do that other people either don't do at the same level, or don't do at all. And there, the way I described it in my comments were retail friendly packs. For North American customers. So, think about all of the retailers struggling, getting, labor in the stores.
Q - Mark Petrie: Yes. Okay. That's helpful. Thank you very much. And I guess actually just sort of related to that. There was a call out that you processed more hogs in Q3, and you expect that to continue to rise. What are the drivers there? And I know further capital investment is sort of required to kind of fully unlock that efficiency and volume opportunity. But what are the drivers of the increase so far? And how much could that increase in the next year or so?
Dennis Organ: Yes. So, I've mentioned that, there's two ways that well, actually three things that we think about in our manufacturing facilities. Number one is utilization. The biggest thing that we need to get working in our favor is that we have some processing capacity in Brandon. What I would say happened last year and continues to happen this year is opportunistically acquiring hogs from growers. What we've been working on now that you will start to see in our numbers in ‘26 and it may take two or three years after that to actually fully fill up the plant is we're building strategic relationships with folks that can-do things on a larger scale.This will not require CapEx from us. There will be a little CapEx we have to put in the plant, but I would say it's going to fall more in the -- it would be what you would consider normal for our capital expenditures there. So, utilization is a big deal. The other thing that we've talked about is our opportunity to automate the plant. We have some easy-to-install, so sort of not overly complex equipment that we're a little bit behind the industry.I like these investments because they're manageable, $1 million or $2 million, $3 million projects at a time, not significant, so we have that coming. And then the last one, which is most critical, Curtis mentioned it too, reiterated from my operational excellence. Whether it's raising a pig, processing a pig, or our actions to sell a pig, we just have to get better at executing the things that we do. So those three things together will lower our cost base, but continue to help us sell at a premium.
Mark Petrie: Okay. Thanks for that. And I just wanted to confirm just with regards to the Winnipeg Bacon facility. So that volume has come into that facility and you're expecting the full run rate for Q4. Is that fair?
Curtis Frank: We are, Mark. That's fully accurate. Yes.
Operator: Thank you. Your next question is from Vishal Shreedhar from National Bank. Your line is now open. Hello, Vishal. Can you please check if you're on mute? Your line is now open.
Vishal Shreedhar: Hi. Thanks for taking my questions. With respect to the sequential improvement in Q4 relative to Q3, should we expect the majority of that to relate to the onboarding of the customer in the Bakken facility? And can you help us understand what that benefit would be in terms of some number for us to better model that benefit?
Curtis Frank: Good morning, Vishal. Thanks. Thank you for your question. I'm going to stay disciplined and not provide quarterly guidance in line with kind of our normal practice. And I know that maybe frustrating, but I'm going to resist that the temptation as well, if that's okay. But I will give you some context. So, we are saying we're expecting a sequential improvement in Q4 and I think that's totally appropriate given for a long period of time, we've been saying our capital projects will achieve their full operational benefits in the Q4. And it's not just the precooked bacon, a center of excellence, it's also the last of the remaining work to do within London poultry as well. So, in those two instances, our two most significant and largest capital projects We're now into Q4 and I think we're confident to say that they'll contribute within the quarter. Outside of that, I think, and we're seeing more normalized market conditions in pork continue into the Q4. So those two things in and of themselves give us confidence in making a statement that we expect the level of sequential improvement. But I think I don't want to get further ahead of myself than that, if that's okay.
Vishal Shreedhar: Related to the benefits from the two larger facilities, London and Bigan, would do you expect it's going to be the full or substantially the full run rate of benefits achieved in Q4? Or will you expect that to build again into Q1?
Curtis Frank: No, I would expect we'll see the full operational benefits in Q4. And then as I mentioned in my comments, Vishal, I mean, these things operationally, we're in a wonderful place in both of these startups, wonderful. Again, expecting to be fully on track is a great milestone for our team and one that we'll celebrate for certain in the Q4. The commercial components are lots of moving parts as I indicated earlier in both poultry and prepared meats. Getting the sales mix that we expect on those assets now is the primary area of focus. That's going incredibly well in precooked bacon. And in poultry, in the fresh poultry category, our focus is obviously on reestablishing and reigniting the level of growth that we'd historically seen in our sustainable meats business, in particular in Raised Without antibiotics. So, I think next year will be all about accelerating commercial performance. In the Q4 of this year, I expect we'll have the full operational benefits put to bid.
Vishal Shreedhar: Okay. In Q3, the contribution, sequentially from the large capital investments was flattish quarter over quarter, as I understand. But you also had more volumes, and you onboarded a customer in the Bakken facility in Q3. So, I would have anticipated at least some operating leverage and benefit in Q3, sequentially. Why wasn't there any?
A - Dennis Organ: Well, I don't necessarily see it the same way. When we were here at this particular moment a quarter ago, talking about our Q2 results, we indicated we expected very similar conditions in the third quarter. And that's exactly in fairness how things played out. So, I said in my opening comments, it was a quarter that was in line with our expectations, acknowledging that we have more work to do. But it was a quarter that was in line with our expectations.
Q - Vishal Shreedhar:
A - Dennis Organ: Well, I wish I could give you a precise date. I personally would love that for myself as well. It will arrive at the destination. What we've said this year is that we would continue to make progress in moving forward toward that target. And I think we had 240 basis points of margin expansion on a year-to-date basis, which is material.So we've made progress. It hasn't been perfect, but we've made progress. So, we haven't established our guidance for 2025 at this point outside of the capital range that we provided. And we thought that was important because we didn't want you to be misled by the $100 million of capital this year, which kind of would be a misleading number to utilize for 2025. So, we wanted to get ahead of that. I think our normal practice, Vishal, is to give a bit more of a clear outlook for 2025 along with our Q4 earnings. And you can expect that we'll do that in the next quarter. I doubt it will provide what you're looking for, which is a precise moment in time at which will arrive in the range.That would require us to predict the exact timing of a full restoration of conditions in Japan and predict the consumer environment full recovery to a moment in time. We know those things are headed in the right direction. We're seeing positive momentum in Japan. And through the combination of stabilizing inflation, interest rates coming off and the brand plans we have in place, we're very confident that we'll make headway on the consumer side as well. So, do we expect to be in that range in 2025? Yes, we do. But I don't want to give you an exact date.
Vishal Shreedhar: Thank you for that color.
Dennis Organ: Thank you.
Operator:
Luke Hannon: Thanks. Good morning and thanks for all the commentary thus far. I wanted to go back to I think you mentioned in your prepared remarks that you saw 50% growth in greenfield in the US how much of that is you capturing higher share of shelf at your existing customers versus just expanding into new customers? And then if you think about the white space that you have in the US going forward, how much is predicated on the one capturing more share shelf in existing customers versus the other being expanding into new customers?
Curtis Frank: Yes, that's an excellent question. The short answer is it was both in the last quarter. I did have an opportunity to dig into that data. So, it was both. We saw both an increase in velocities, which is always good to see again, particularly in the consumer demand environment, which is a little different in the United States than it is in Canada, in its current state. So, we saw an increase in velocities and we expanded distribution at the same time. The one thing I'm not insecure about is the headspace that exists to continue to broaden our distribution and expand our product portfolio in the United States. Like I just I feel great about the capabilities we have on the ground. We now have manufacturing plants in the US, an office and innovation center in Chicago, an organizational structure that's aligned geographically to Canada and fact that we're distributing projects products to every one of the Top 10 retailers is amazing. The number of products though that we have at each one of those customers as compared to the Canadian market pales in comparison. And we're still such a very small share of the US market that there's just an enormous opportunity for growth for us in the US. So, both contributed velocity and expansion of distribution. And I fully, fully, fully expect that that will continue to be the case moving forward.
Operator: Thank you. There are no further questions at this time. I will now hand the call back to Mr. Curtis Frank for the closing remarks.
Curtis Frank: Okay. Thank you everyone for joining us today. It was clearly another quarter of progress that would be evidenced by an adjusted EBITDA margin that's improved, as I said earlier, 240 basis points year to date to $230 million improvement in our free cash flow year to date and the rapid deleveraging of our balance sheet. So, we're very positive on the quarter in terms of it unfolding as we had expected and very much look forward to speaking with you again at the end of our Q4 here in due course. So, thank you for joining us here today.
Operator: Thank you. Ladies and gentlemen, the conference has now ended. Thank you all for joining. You may all disconnect your lines.
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