Earnings call transcript: Prestige Consumer Health Q4 2025 shows growth

Prestige Consumer Healthcare Inc. (PBH) reported its fourth-quarter results for 2025, showcasing significant revenue guidance and ongoing strategic initiatives. The company highlighted an expected revenue gain of $830 million for the year, with a notable organic revenue increase of approximately $500 million. The stock showed a slight increase of 0.04% following the announcement, closing at $84.36, which positions it near its 52-week high of $90.04. According to InvestingPro data, the company maintains strong financial health with an overall score of "GREAT," supported by robust profitability metrics and impressive cash flow management. The stock currently appears overvalued based on InvestingPro’s Fair Value analysis.

Key Takeaways

• Prestige Consumer Healthcare expects $830 million in revenue gains for 2025.
• The company anticipates 2-3% organic volume growth in Canada.
• Four recent acquisitions are set to bolster its product offerings.
• A new Tennessee facility will increase production capacity significantly.
• The stock price remains stable, reflecting investor confidence.

Company Performance

Prestige Consumer Healthcare has demonstrated robust performance, driven by strategic acquisitions and expansion efforts. With an EBITDA of $361.26 million and a healthy gross profit margin of 55.9%, the company shows strong operational efficiency. The company is focusing on organic growth, particularly in the Canadian market, and is leveraging its diversified product portfolio to capture market share. The U.S. growth pipeline remains strong, with $1.4 billion in potential opportunities, $700 million of which are highly likely to materialize in 2025. InvestingPro subscribers can access detailed financial health metrics and 6 additional exclusive ProTips about PBH’s growth potential. The company’s diversified approach across multiple food segments and strong regional brand strategy are key differentiators in a competitive market.

Financial Highlights

• Revenue Guidance: $830 million gain expected for 2025
• Organic Revenue Growth: $500 million
• Contribution Margins: Targeting 27-28%
• Working Capital: Increased by $86 million in Q4 due to acquisitions
• Inventory Days: Increased to 62 days from a typical 54 days

Outlook & Guidance

Prestige Consumer Healthcare’s future outlook remains positive, with significant EBITDA growth anticipated. The company is preparing for the launch of a new Tennessee sandwich facility in mid-2025, which will add close to $300 million in capacity. Despite potential tariff challenges, the company is proactively managing these risks and has paused dividend increases to maintain financial flexibility. The 2027 targets have been reiterated, with a focus on U.S. growth initiatives expected to gain momentum in the latter half of 2025.

Executive Commentary

CEO George Paliologo expressed confidence in the company’s growth trajectory, stating, "We’ve gone from very little to $6,500,000,000 in sales. And I think the next $6,500,000 will come a lot sooner than in the past." This optimism is echoed by CFO Will Kalutich, who addressed concerns about the company’s financial structure, noting, "We are very dubious of the calculation with the leases because of how our REIT structure distorts that."

Risks and Challenges

• Tariff Uncertainties: Potential impacts on cross-border trade could affect profitability.
• Inventory Management: Increased inventory days may indicate supply chain adjustments.
• Egg Crisis: Ongoing issues in food production, though mitigated through cost-plus pricing.
• Capital Expenditure: High CapEx requirements may strain cash flow if not managed effectively.
• Market Competition: Intense competition in the consumer healthcare sector could pressure margins.

Q&A

During the earnings call, analysts inquired about the potential impacts of tariffs on the company’s operations, to which management responded with strategies to mitigate these risks. Questions also focused on the company’s acquisition strategy and balance sheet management, highlighting the importance of maintaining financial health amid expansion efforts. The discussion on new facility ramp-ups and growth expectations underscored the company’s commitment to scaling its operations efficiently.

Full transcript - Prestige Consumer Healthcare Inc (PBH) Q4 2024:

George Paliologo, CEO and President, Premium Brands: Good morning, and welcome everyone to our twenty twenty four fourth quarter and year end conference call. With me here today is our CFO, Will Kalutich. Hopefully, you’ve had a chance to listen to our prerecorded call posted on our website this morning. We will now take your questions.

Conference Moderator: Thank you. And ladies and gentlemen, we will now begin the question and answer session. And ladies and gentlemen, just wanted to introduce our speakers for today will be George Paliologo, CEO and President of Premium Brands and Will Kalotich, CFO of Premium Brands. And with that, our first question comes from the line of Kyle MacPhee with Cormark Securities. Please go ahead.

Will Kalutich, CFO, Premium Brands: Hey, Kyle.

Kyle MacPhee, Analyst, Cormark Securities: Hi, everyone. Hi, guys. Hey, Kyle. First, I want to talk through some of the moving parts feeding your 2025 revenue guidance. Your guidance implies $830,000,000 of revenue gains, more like $500,000,000 if we exclude the contribution of your recent acquisition.

So for that organic revenue gain of around $500,000,000 how much of that is linked to the contributions from your U. S. Growth programs versus other things like the clawback of revenue losses in 2024 linked to your large QSR client and maybe the Canadian consumer headwinds call back. And maybe as part of your answer, you can tell us whether or not timing for those major U. S.

Growth programs has changed for better or for worse since you gave us that slide back in Q3. I think you had up to $1,000,000,000 of U. S. Growth programs starting to turn on this year.

Will Kalutich, CFO, Premium Brands: Yes. So The U. S. Component is probably 60% to 65% of that organic growth, Kyle. And obviously Canada being the balance.

A little bit of exports included in the Canada number to Asia. In terms of the timing, it’s similar to what we’ve talked about last quarter. It is really heavily weighted to the back half of the year. We now have good clarity on a number of the bigger initiatives with planned launch dates, and those launch dates range from sort of late in Q2 to early to Q3, and hence the heavy weighting towards the back half of the year.

Kyle MacPhee, Analyst, Cormark Securities: Got it. Okay, that’s helpful. And then for your 2025 EBITDA guidance, again, if we back out these acquisitions, it seems like you’re assuming around 13%, fourteen % contribution margin to the organic revenue growth this year. That seems a bit low given the sources of your revenue growth by segmenting category. Are you just being conservative with margins or has something changed with your assumption for contribution margin like to these U.

S. Growth programs?

Will Kalutich, CFO, Premium Brands: No, our contribution margins, while we have been conservative in our outlook around them, should when you do the math, should be about 27%, twenty eight % blended. Again, being conservative given that certain protein is and bakery group’s contribution is much higher. I don’t know how much you take into account. We do have additional offsetting amounts. We do have continuing wage inflation across many businesses, some incremental plant overhead with new plants brought up in partway through 2024 and the new plants coming on in 2025, new capacity coming on new 2025.

And then we’ve got to help drive that growth, certainly a lot more S and M, selling and marketing to get things going. So that’s offsetting that and that’s probably why you’re coming to your lower contribution margin. But a lot of those costs are should wash through for 2026.

George Paliologo, CEO and President, Premium Brands: Got it.

Kyle MacPhee, Analyst, Cormark Securities: Okay. Thanks for those details. I’ll pass it on.

Conference Moderator: And your next question comes from the line of Derek Lessard with TD Cowen. Please go ahead.

Derek Lessard, Analyst, TD Cowen: Good afternoon, everyone. And great to see some momentum from these initiatives coming through.

Will Kalutich, CFO, Premium Brands: Hey, Derek.

George Paliologo, CEO and President, Premium Brands: Hey, Derek.

Derek Lessard, Analyst, TD Cowen: I think to maybe just hit on the more on the sandwich organic volume growth. Obviously, you did point it out that it was below your historical growth levels. But curious, you said due to some project or product launches taking effect in 2025, just maybe if you could add some color around those launches and maybe the timing as well?

Will Kalutich, CFO, Premium Brands: Yes. So it’s a lot of it is planned LTOs with specific customers and a couple of listings coming online with a major retail customer, a club retail customer. So again, similar to my comment on the last question, we’ve got planned launch dates, we’ve got good visibility, and it’s just sort of we’re in the lull between when those start kicking in and when some of our previous big launches are now lapping.

George Paliologo, CEO and President, Premium Brands: The other comment I would make, Derek, is that even with some of the well known challenges we’ve had with in the foodservice channel in The U. S, we had a record year in sandwiches in 2024. So both in terms of top line as well as EBITDA and EBITDA margin. So the numbers are pretty good.

Derek Lessard, Analyst, TD Cowen: Yes, absolutely. And maybe just one housekeeping for me in terms of your working capital. It increased about $86,000,000 in Q4 and it looks like it came a lot from receivables and inventory. Just maybe some color around that and what’s driving those and how should we be thinking about working cap in 2025?

Will Kalutich, CFO, Premium Brands: Yes. So our receivables are very clean. The agents are good. The day sales outstanding ratio in the ratio got distorted a little bit because of the acquisitions at year end. So you got their receivables on our balance sheet, but essentially no sales in the quarter.

So obviously that distorted the ratios. But otherwise, we’re happy where receivables are at. When you look at inventory, there’s a little more of a story there. Certainly, there was the acquisitions element. When we looked at our days purchases in inventory, they came in, in the quarter at about sixty two days, way above our expectations or normal levels, which were closer to fifty four days.

Three of those days was the acquisition impact I talked about with the receivables. It was we had the inventory but not the sales on our income statement. Then and then this is something that’s feeding into our 2025 projections. There were a couple of factors. We had several businesses with some very significant opportunity buys in the beef space.

It’s been the beef commodities market has been incredibly inflationary, incredibly high. And there did come an opportunity at year end and our businesses leaked on it. So that should help us going into 2025 from those all happening in Q4. Also we started building a little bit of inventory for some promos. We’ve got some plant projects that we were building some inventory prior to shutting down lines.

And also we had some lobster sales that got pushed into 2025. So there was a you strip out all that noise and we came in at about fifty four point five days purchases in inventory, which is pretty close to where we want to be. So it was higher than what you would like, but it was for good reasons.

George Paliologo, CEO and President, Premium Brands: Okay. Thanks for that color everybody. Okay. Thanks, Garrett.

Conference Moderator: And your next question comes from the line of Martin Landry with Stifel. Please go ahead.

Martin Landry, Analyst, Stifel: Hi, good morning George and well. Hey Martin. I would like to just dig a little further in your revenue guidance for ’25. Given consumer confidence in Canada. It looks like it’s declining a little bit given the trade tension.

So can you tell us what organic revenue growth rate you’ve assumed for 25% in Canada?

Will Kalutich, CFO, Premium Brands: We’ve been relatively conservative, Martin. The reality is the growth rate we are projecting is a little higher than in our guidance. We have backed it down for our guidance specifically for the reasons you point. I suspect ultimately it’s probably in the 2% to 3% range organic volume growth. But like I say, our internal expectations are actually a little higher than that.

Martin Landry, Analyst, Stifel: Okay. And then maybe on your balance sheet, there’s discussions about acquisitions. I know that you’ve paused your dividend increase because of the some of the uncertainties on the macro level. I mean, why don’t you pause acquisitions as well, reduce your leverage and maybe reduce also the risk premium that investors are applying given your risk leverage given your high leverage?

George Paliologo, CEO and President, Premium Brands: Yes. I think that’s a fair comment, Martin. And it is conceivable that this would happen as we’ve stated in the prepared remarks is that we are not going to make any acquisitions that would certainly deteriorate the balance sheet. That’s not going to happen. Ultimately, we’re trying to grow the business and we’re trying to improve our existing businesses.

The four acquisitions that we’ve done will be incredibly accretive ultimately for our businesses and they didn’t deteriorate the balance sheet in any way. So as we find acquisitions like that, of course, that would contribute to our growth and improve our profitability and enhance the competitiveness and the competitive position of our other businesses, we would probably do them, right? So, yes, we’re not aggressive with regards to acquisitions and we will be disciplined.

Will Kalutich, CFO, Premium Brands: And I would add, Martin, that the reality is we are we do expect to see significant growth in our EBITDA over the next year, driven by all the capital investment we’ve made. And that’s going to naturally deleverage the balance sheet. So in the interim, we certainly don’t want to miss out on these opportunistic buys that George is mentioning it’s relatively short in our sights getting the balance sheet down to

George Paliologo, CEO and President, Premium Brands: our ultimate targets? Ultimately, Martin, we’re managing the business for the long term. And we’re assessing, all acquisitions in a conservative way. We’re not going to be aggressive in terms of valuation. And as I said, if we find acquisitions that help our growth, they’re very accretive and improve the profile of our various businesses, we will do that.

Martin Landry, Analyst, Stifel: Yes. Just to follow-up on that, your leverage is around five turns when we include leases right now. And when you say that acquisitions have not deteriorated the balance sheet, do you does that mean that you paid less than five times EBITDA to acquire the recent acquisitions?

Will Kalutich, CFO, Premium Brands: Yes. Well, Martin, we’ve talked about this before. We are very dubious of the calculation with the leases because of how our REIT structure distorts that. We look at it as we disclosed in our MD and A based on pre IFRS basis. And our target is any acquisitions, the debt associated with it will be less than three times EBITDA.

George Paliologo, CEO and President, Premium Brands: The other comment I have, Martin, is that as again we’ve stated in our prepared remarks is that we spend in excess of $800,000,000 on capital investments and that debt is on our balance sheet, but the cash flow is not. So you’d have to normalize things if you were to assess our balance sheet.

Martin Landry, Analyst, Stifel: Yes, that’s fair. Okay. Thank you for your help.

: Thanks, Martin.

Conference Moderator: And your next question comes from the line of Ty Bollinger with CIBC. Please go ahead.

Ty Bollinger, Analyst, CIBC: Hi. Thanks for taking my question, guys. For my first one, I’m just wondering if you could maybe update us on the latest you’re hearing from your big food service customer and I guess the potential impact of their SKU rationalization on your program with them. Maybe it would also be helpful to understand exactly what assumptions you’ve kind of baked into your guidance around that specifically?

George Paliologo, CEO and President, Premium Brands: Yes. We can’t talk specifically about customers, but as I said earlier, obviously, we do a lot of business in the foodservice channel in The U. S. We had some challenges in that channel specifically. As I said earlier, not in sandwiches because we’ve made a lot of progress in the club channel.

We’ve got two more SKUs in that channel and every one of those SKUs is between $30,000,000 and $50,000,000 So we’ve made some really good progress with regards to the club channel, also in the C store channel and other channels as well. What we’re seeing in the foodservice channel today is encouraging. Things are improving. The trends are favorable. So again, we’re very optimistic that we will get back to growth in that channel.

And Tay, in terms of the projections, yes, yes, we continue to expect some contraction in the first couple of quarters and

Will Kalutich, CFO, Premium Brands: then a return to growth in the back half of the year.

Ty Bollinger, Analyst, CIBC: Okay, got it. That’s helpful. Thanks. And then I’m wondering within Canada, whether you’ve noticed any trends towards buying Canadian products? And I guess given the Canadian roots of many of your brands, is there anything that they’re doing or looking to do to maybe seize that opportunity from a promotional perspective or a packaging perspective, anything like that?

George Paliologo, CEO and President, Premium Brands: Yes. At this point, again, there is certainly that noise. There has been inquiries. I wouldn’t say we noticed anything materially different. But, yes, there’s a lot of talk about Canadians buying made in Canada products.

But again, nothing material that we can talk about.

Ty Bollinger, Analyst, CIBC: Okay, thanks. I’ll jump back in the queue.

Will Kalutich, CFO, Premium Brands: Thanks, Ty.

Conference Moderator: And your next question comes from the line of Chris Lee with Desjardins. Please go ahead.

Chris Lee, Analyst, Desjardins: Good morning George and Will. Hope you’re both doing well.

Will Kalutich, CFO, Premium Brands: Good morning. Hi Chris.

Chris Lee, Analyst, Desjardins: Yes, maybe start a question on tariffs. Can you just maybe share remind us roughly what percentage of your revenues are cross border currently? And then how quickly can you reduce that percentage by using some of those manufacturing redundancies that you noted in the press release? Thanks.

Will Kalutich, CFO, Premium Brands: Yes. So Chris, we have two key exposures currently. One is in our Specialty Foods group and the other in our Premium Food Distribution group. In our Specialty Foods group, we export in general as we’ve talked about in the past and as we disclosed in the press release, we try to manufacture our strategy is to manufacture in the market we sell. But occasionally, like what’s happened with our cooked protein programs, we’ll have plans that will have excess capacity, so they’ll explore new selling opportunities in other markets.

And in cooked protein, because there’s been such a dearth of capacity in The U. S. And the success of our Canadian based manufacturing programs, we do have a lot of cooked protein that crosses the borders about $300,000,000 3 hundred million dollars plus a year. But we are well positioned through a combination of capital investments we’ve made over the last year, year and a half as well as our recent acquisitions that if we needed to, a lot of that production could be done in The U. S.

So we’re well positioned to mitigate against that. There’d be a quarter or two of noise getting things settled out and we’ve already sort of started that process, so we’re well positioned to do it when the time comes if it needs to happen. So on the Specialty Foods side, we feel we’re well positioned. We got a little bit exposure in artisan breads and deli meats, but those are very minor. Like I say, they’re generally situations where businesses had a little excess capacity and so they pursued some opportunities in The U.

S. On the premium foods distribution side of our business, we really have one exposure and that’s in processed lobster. And there we feel we’re very well positioned to mitigate any impacts of a tariff issue. For one, we are actually one of the largest lobster processors in The U. S.

So clearly, our U. S. Operations would be well positioned in a tariff battle. And in terms of our Canadian production that goes into The U. S, the reality is lobster our lobster products are produced from a wild scarce resource.

And it’s not like because of a tariff, you can grow more lobsters in The U. S. That’s just not how it works. So it is a scarce resource. So we think between pricing the Canadian dollar, maybe a little depreciation there and maybe a little bit of savings in the supply chain.

Again, we feel we’re well mitigated to manage that situation as well. In addition to that, Chris, we also have sandwiches and pastries that are made in The U. S. That come to Canada as well. And for example, in

George Paliologo, CEO and President, Premium Brands: the case of sandwiches, we have redundant capacity in Canada. We’ve built a brand new Edmonton recently that can accommodate some production if we needed to. So redundancy on both sides of the border is a big asset for us.

Stephen MacLeod, Analyst, BMO Capital Markets: Got it.

Chris Lee, Analyst, Desjardins: Okay. Thanks for your very helpful detailed answers. My follow-up question is, I’m just wondering with quarter one almost over, how are the results trending so far? Are you seeing kind of similar trends that you saw in Q4? And have you noted any notable changes in consumer behavior as a result of the tariffs?

Thanks.

Will Kalutich, CFO, Premium Brands: Well, we don’t provide quarterly guidance, Chris, so I don’t want to comment on the quarter specifically. But in general, consumer behavior has in Canada has hung in there. We’ve seen sort of a continuation of what we saw in Q4 there. So that’s been a positive. And similarly in The U.

S, at least to the consumer base we are catering to, we really haven’t seen any changes in behavior there either.

Chris Lee, Analyst, Desjardins: Great. Okay. Thanks and all the best.

Will Kalutich, CFO, Premium Brands: Thanks, Chris.

Conference Moderator: And your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Please go ahead.

Stephen MacLeod, Analyst, BMO Capital Markets: Thank you. Good afternoon, guys. Good morning for you guys.

George Paliologo, CEO and President, Premium Brands: Hi, Stephen.

Stephen MacLeod, Analyst, BMO Capital Markets: Hi. Lots of great color so far, so thank you. But I just wanted to pick up on a couple of things. One is with respect to the 2025 sort of sales pipeline in The U. S.

And you talked about some of the delays. And I know, Will, you gave a little bit of color around your visibility. On the last call, you said that you indicated the pipeline was like $1,400,000,000 with $700,000,000 highly likely in 2025. I’m just curious if that’s still kind of the rough magnitude of what you’re expecting when you talk about these new launches coming in late Q2, early Q3?

Will Kalutich, CFO, Premium Brands: Yes. Yes. There’s really been no change in the pipeline, Steve. In fact, if anything, it’s grown since we’ve talked last, and particularly in the highly likely. So no, we still feel very good about the pipeline, and there’s lot of opportunities being pursued, again, primarily in The U.

S. Market.

George Paliologo, CEO and President, Premium Brands: And there’s a lot of exciting new initiatives, Stephen, in sandwiches, protein and bakery. These are sort of the three areas where we’ve had a lot of growth and a lot of exciting stuff going on.

Stephen MacLeod, Analyst, BMO Capital Markets: Okay, that’s great. And then just the overall lobster business, not the cross border portion,

Conference Moderator0: but could you just remind us

Stephen MacLeod, Analyst, BMO Capital Markets: how big that business is? Because I know it’s sort of been had some headwinds for the last two quarters. I’m just trying to want to confirm the magnitude of lobster.

Will Kalutich, CFO, Premium Brands: Yes. Our lobster business live and process, Steve, I want to say is about $300,000,000 to $400,000,000 It’s a good sized business like we’re one of the largest in North America.

George Paliologo, CEO and President, Premium Brands: Yes. Okay.

Stephen MacLeod, Analyst, BMO Capital Markets: That’s great. That’s all I had. Thanks guys.

George Paliologo, CEO and President, Premium Brands: Thanks, Steve. And

Conference Moderator: your next question comes from the line of Michel Friedar with National Bank Financial. Please go ahead. Vishal, you might be on mute.

Conference Moderator0: Hi. Thanks for taking my questions. There were some facility delays that I’ve observed. I was just wondering on the cause of delay the delays and management’s confidence that the facilities will come up in accordance to the schedule. So Scranton and Ferndale were pushed back.

And also the Montreal facility, I don’t know if that’s been completed or removed. Just wondering your thoughts on that.

Will Kalutich, CFO, Premium Brands: Yes. Nothing significant there, Vishal. They’re just sort of minor delays. I think things maybe got pushed out a quarter, various technical reasons, but certainly nothing material to point out.

Conference Moderator0: Okay. And the Montreal Seventy Five Thousand square foot facility, do you have any updates on that?

Will Kalutich, CFO, Premium Brands: The Montreal facility, I have to go back to the MD and A, Michelle. Is that the cooked protein line?

Conference Moderator0: Yes. Yes.

Kyle MacPhee, Analyst, Cormark Securities: Yes.

George Paliologo, CEO and President, Premium Brands: So you said in one chart

Conference Moderator0: and that was removed.

Will Kalutich, CFO, Premium Brands: Yes. I think that is one where we’re reassessing the it’s either one where we’re reassessing the project or it is complete now. I’d have to go back to the detail and refresh myself.

Chris Lee, Analyst, Desjardins: Okay.

George Paliologo, CEO and President, Premium Brands: Yes, go ahead, Dushyant.

Conference Moderator0: No, no. Please continue.

George Paliologo, CEO and President, Premium Brands: Yes, that project is being reassessed. Again, we’re building a very large facility in Toronto and that particular project you’re referring to is being reassessed as we speak.

Will Kalutich, CFO, Premium Brands: Yes. I’m not sure he’s talking Line four or five. That’s going to have to go back. Line four is complete.

George Paliologo, CEO and President, Premium Brands: Yes, yes, yes. But that’s the expansion of that, right,

Will Kalutich, CFO, Premium Brands: the addition to the building.

Conference Moderator0: Okay. I appreciate that color. Thank you. And with respect to the dividend, just wanted to get more perspective there. I mean, the dividend increase, at least historically, the ones that you provided, wouldn’t have been a substantial cash outlay on a year over year basis or even if it was a smaller one.

And obviously, the guidance commentary that management seemed to provide suggested a confidence and a conservatism, but the dividend statement seemed to oppose that a little bit. So wondering if you could just put some color around on how we should seemingly look at those messages, which at face value

Chris Lee, Analyst, Desjardins: could be viewed as contradicting?

George Paliologo, CEO and President, Premium Brands: Well, again, Vishal, I think that as we’ve always said, at the beginning of the year, we sit down with the Board, we talk about acquisition opportunities, capital allocation, capital projects, projected cash flow, free cash flow, all of those things. And we make decisions based on our assessment of the risks and obviously the opportunities we see in terms of employing capital in the business. And this time around given some of the noise around tariffs, we just felt that the responsible thing to do is just to hold back. That’s all.

Conference Moderator0: Okay. And that gets reassessed quarter by quarter?

George Paliologo, CEO and President, Premium Brands: That gets reassessed quarter by quarter, yes.

Conference Moderator0: Okay. Thank you for that.

Conference Moderator: And your next question comes from the line of Jonathan Barrow with Scotiabank. Please go ahead.

Conference Moderator1: Thanks. Good morning, George and Will.

George Paliologo, CEO and President, Premium Brands: Good morning. Good morning.

Conference Moderator1: I wanted to come back to the trade topic for a couple of questions. And in thinking about reciprocal tariffs or potential for reciprocal tariffs, PBH typically sources at least some of its products globally. And I appreciate the commentary about being able to produce locally. But when it comes to sourcing inputs, how should we think about PBH’s ability to source locally as well? What type of opportunities do you have to buy inputs locally and what are some inputs where that might be more challenging?

George Paliologo, CEO and President, Premium Brands: Yes. So our overall philosophy around manufacturing obviously is to own facilities in the markets that we sell to and we do. We have a lot of smaller plants in smaller markets. That’s part of our strategy and our point of difference in the marketplace is that we want to be the number one in a geographic area of Canada and The U. S.

That’s one of the reasons why we’ve been successful because we’ve differentiated ourselves this way from the national players. Sometimes when you look at this strategy, you might say, well, but you’re there’s some inefficiency to that. But again, we understand that. But at the same time, because we’re regional and local, we’re able to charge a premium because we get local support and consumers are willing to pay a little premium for a regional or local brand. So in general terms, that’s our overall strategy.

That applies with sourcing as well. To the extent possible, we source locally if we can. The other comment I have is that you have to understand that given our size and given who we are, we source globally as well. Our inputs tend to be global in nature. We source from Europe, from Asia, from Australia and New Zealand, Asia as well.

We have global supply chains in general, right? So we prefer local inputs. If we can’t find them, then we’ll source globally.

Conference Moderator1: Okay. Is it fair to say the majority of your inputs are also sourced in the countries that they’re produced, whether Canada or The U. S?

George Paliologo, CEO and President, Premium Brands: That’s a fair comment. Yes. Okay.

Kyle MacPhee, Analyst, Cormark Securities: That’s good.

George Paliologo, CEO and President, Premium Brands: Yes. Certainly the majority. The majority. Not all of it, of course, but the majority.

Conference Moderator1: Yes. Okay. I wonder how you’re thinking about the expected impact of tariffs on lobster to China. This is probably not a significant part of your lobster business, but had represented some of the growth. Are there other potential countries you’re looking at to export to as a result?

Will Kalutich, CFO, Premium Brands: We don’t actually export in the premium brands. I’ll get back to Clearwater in a sec, but we don’t consolidate them. But in our consolidated sales and EBITDA numbers, there are no export sales of lobsters from Canada. Our ready business in The U. S.

Does export, but obviously they’re not subject to the tariff being impacting Canada. In terms of Clearwater, historically they have exported some lobster to China, but it’s a small part of their business.

Conference Moderator1: Okay. That clears that up. Thank you for that. I wonder if you could tell us a bit more about the acquisitions you did to end the year and also the one with the recent convert deal. What specific platforms or maybe products does that help you grow into and how does that protect you against potential trade barrier concerns?

George Paliologo, CEO and President, Premium Brands: Well, again, we made four acquisitions in with the three in December and one in the first quarter. NSP is generally a cooked protein business with three facilities. The main facility is in Tulsa and it’s a very large facility in the cooked chicken space and it’s now part of Concord Meats, which is one of our largest platforms mainly focusing on cooked protein. They do have an Italian meat business as well as a fresh meat business as well. But again, we’re currently in that facility adding lines and equipment and it will help us continue to grow our business in that market.

And we’ve had a lot of growth in The U. S. Market in that business. The Vineland facility, which is outside of Philadelphia, it’s actually in New Jersey, but very close to Philadelphia, it’s one of the largest cooked meatball facilities in The U. S.

We have a growing cooked meatball business. We make meatballs in other facilities in The U. S. And this gave us the scale that we needed to continue to expand the business. There’s plenty of room there to add more lines as well in other parts of the cooked protein space.

Again, a very nice facility, great location, very close to the Northeast of The U. S, which has substantial potential for us. Itala Salami is a smaller Italian meats company based in the Toronto area, again part of Concord Meats. And Denmark Foods is the largest fresh meats company in the fifth largest metropolitan area in The U. S, in the Phoenix area.

We have a very similar company in the Seattle area called Icirnios. We’ve done very well with that. And anyway, that just gives us the opportunity to expand into a fast growing market in The U. S. Really excited with that acquisition as well.

Conference Moderator1: And then just one last one for me, a modeling question. Are you still expecting around $250,000,000 or $250,000,000 to $300,000,000 in sale leasebacks later this year?

Will Kalutich, CFO, Premium Brands: Yes, absolutely. We are planning for the plan today is in Q3 to do a sell leaseback around our Tennessee new Tennessee sandwich facility when it’s completed and then towards the end of the year for our GTA initiative, the Tennessee facility will be a much larger transaction obviously given the size of that project, but absolutely.

Conference Moderator1: Okay. That’s great. I’ll leave it there. Thank you very much.

Will Kalutich, CFO, Premium Brands: Thanks, Ed. Thanks.

Conference Moderator: And your next question comes from the line of Michael Glenn with Raymond James. Please go ahead.

Will Kalutich, CFO, Premium Brands: Hey, hi Will and George.

: Just following up on the Tennessee facility, can you just give us some sense as to when that opens? Like how should we think about the ramp taking place as you fill capacity? Will it contribute much in 2025 or is it more of a 2026 type scenario?

George Paliologo, CEO and President, Premium Brands: Yes. So completion of the first phase should be mid year end of June to the maybe June, July. So it’s the project is going well. And we see basically a twelve month ramp up in terms of the business we lined up and the business we are lining up for it. It’s a very large facility.

It will be probably the best, most modern state of the art automated facility of its kind. We’ll have some new technology in it. And anyway, yes, we’re really excited by it and things are going well at this point.

Will Kalutich, CFO, Premium Brands: Yes. And for our projections, we’ve sort of a conservative, like George says, late June, early July start up. We’re giving it a quarter of just working out the bugs. This is will be our largest sandwich production facility ever. And so really not starting to meaningfully contribute until the fourth quarter.

: Okay. And in terms of the capacity coming on there, are you able to provide any indication like how much you have been able to allocate at this point in time?

Will Kalutich, CFO, Premium Brands: Yes. No, we don’t the total capacity of this first phase is about close to $300,000,000 But it’s just we blended that into our general sales outlook.

: Okay. And then And

Will Kalutich, CFO, Premium Brands: I should add, Michael, because there will be we do this quite often is we’ll work with our customer base. Tennessee is strategically located a new geographical area of The U. S. And so we’ll strategically work with our customers to ship production around between the different plants to minimize freight costs for them.

: Okay. And then just in terms of the guidance, I’m just trying to get a better read on what your SG and A expense might look like next year given you did close the acquisitions. Should we expect SG and A expense to on a gross dollar basis? Are you able to give any commentary surrounding what level you might be expecting in 2025?

Will Kalutich, CFO, Premium Brands: Yes. Well, from the earlier question, our contribution margins on our growth, we’ve built them into our projections that we feel it’s a fairly conservative number at 20%, twenty eight %, twenty seven %, twenty eight %. And then to get to the expected EBITDA, you can have a little bit of plant overhead and then SG and A.

: Okay. And any just on those acquired businesses, is there any seasonality with those that we should take into consideration as we build them into the model?

Will Kalutich, CFO, Premium Brands: Yes, absolutely. There’s two factors you need to think about, Michael. One is, they do have a similar level of seasonality, some less than others like Denmark’s and Arizona, so it’s a less seasonal business. But certainly, the other acquisitions have a similar seasonality to our other protein businesses, I. E.

Weak Q1, weak Q4 and strong Q2 and strongest Q3. But also what you have in there is the MSP acquisition, which was really a capacity acquisition for us to a large extent. So a big part of its sales expectations is leveraging that capacity. So on top of the seasonality, you have to sort of build up a ramp up of the facility over the course of the year as we move we figure out how to produce different SKUs in that facility and then launch sales initiatives around those SKUs.

George Paliologo, CEO and President, Premium Brands: Okay. But to a large extent, Michael, that facility will support the expansion of already successful products that are doing well in certain geographic regions to go national, right? That’s kind of really the key

Will Kalutich, CFO, Premium Brands: to that. Longer term. But there will still be a ramp up over the year. Absolutely, absolutely.

: Okay, perfect. Thank you for taking the questions.

Will Kalutich, CFO, Premium Brands: Thanks, Michael.

Conference Moderator: And we do have a follow-up question coming from the line of Derek Lessard with TD Cowen. Please go ahead.

Derek Lessard, Analyst, TD Cowen: Yes, just a couple for me guys. I was curious on sort of the VA crises in in The U. S. On how you guys are dealing with whether it’s the sourcing or pricing or what have you?

George Paliologo, CEO and President, Premium Brands: Sorry, you cut out there. The egg crisis. Or the egg crisis, yes. So I don’t know if you follow the price of eggs, of course. I think that over the since 2022, I think they had to euthanize about 47,000,000 layers in The U.

S. As a substantial number. The price of eggs went up substantially, but has come off in the last few weeks. Most of the egg usage we have is in our sandwich division, where basically our pricing is cost plus, right? So we basically pass it on to the customer.

But, yes, the price has come off more recently substantially.

Derek Lessard, Analyst, TD Cowen: Okay. And maybe just one final one for me. Maybe if you could just add some color around the Denmark sausage, how it fits in, the quality of the product, etcetera?

George Paliologo, CEO and President, Premium Brands: Yes. As I mentioned earlier, we love we have a business similar to Denmark based in Washington State. The business is called Acirneos and it’s truly a best in class iconic brand. It’s all fresh meats, fresh sausage, fresh grinds, has a tremendous consumer following, sells at a premium to other similar products. And Denmark has the same brand positioning in the Arizona market.

They do well with a couple of retailers. The entrepreneur that built the business into a successful company didn’t want to expand any further, although there’s more demand for the products. We’re already talking to other banners and they’re interested in a best in class fresh program. So again, we want to build Denmark similarly the way we built Ascernios since we purchased it. I think AcelRneos is four times bigger today than when we bought it a few years ago, and we see similar growth opportunities with Denmark.

We love the Phoenix market. We obviously, it’s a market that’s growing immensely. It’s one of the fastest growing demographic regions in The U. S. And we love owning the number one local brand in that area.

Appreciate the color. Congratulations.

Will Kalutich, CFO, Premium Brands: Thank you. Thanks, sir.

Conference Moderator: Our next question comes from the line of Chris Lee with Dacerton. Please go ahead.

Chris Lee, Analyst, Desjardins: Thanks again. You mentioned weaker consumer spending in the convenience store channel. And I’m just wondering, is that still more confined to beef jerky or has it expanded to other products as well?

George Paliologo, CEO and President, Premium Brands: I would say for us, it only impacts us with regards to demand for food jerky. Our stick sales are doing extremely well in The U. S. Market. Ken, I don’t know if you follow some of the trends, but as we’ve predicted, sticks I think is the highest growth category in grocery today and in other channels as well.

We’ve invested in a lot of capacity for sticks in Canada and The U. S. Over the last few years and obviously we’re benefiting from the growth in the demand for premium sticks. So yes, just in terms of jerky, I would say at this point.

Chris Lee, Analyst, Desjardins: Okay. So nothing really has weakened in terms of other products that you sell into the C store channel so far?

George Paliologo, CEO and President, Premium Brands: We’re only seeing it in Germany demand.

Chris Lee, Analyst, Desjardins: Okay. Okay. No, thanks for that. And then maybe just a question on CapEx for you, Will. Are you still targeting, I think, total CapEx of roughly $250,000,000 this year?

Am I remembering that correctly?

Will Kalutich, CFO, Premium Brands: Yes, yes. So we talk about our CapEx in three buckets, Chris. One is our maintenance CapEx, which our guidance for $25,000,000 to $60,000,000 to $65,000,000 Then we have our major CapEx projects, all of which that have been approved, all of which are outlined in our MD and A. And as we mentioned in the formal presentation, there’s about $145,000,000 left to spend on those projects. And then we have our third bucket, which is a range of smaller project CapEx, I.

E. Things that will generate a 15% or better IRR after tax unlevered. And that can fluctuate quite a bit. And so right now and because we approve these projects on an individual basis over the course of the year, the smaller automation and smaller capacity addition projects. And so that can range anywhere from last year, I think it was about $60,000,000 60 million dollars to $80,000,000 a year.

So your number is in the ballpark.

Chris Lee, Analyst, Desjardins: Okay. And then maybe another one just on maybe on switching to free cash flow. If we include sort of total CapEx or not just maintenance and in our free cash flow calculation, I think last year was negative. Based on what you said, if CapEx is coming down this year and EBITDA grows the way that you envision, do you expect free cash flow to be maybe slightly positive this year just based on the same calculation? Or is it going to be still in a negative territory for this year?

Will Kalutich, CFO, Premium Brands: The way we look at free cash flow, Chris, is free cash is really just financing our maintenance CapEx. So that’s all we subtract in calculating our free cash flow. Project CapEx, I. E. Things that are going to generate a return of 15% or better, effectively over time self funding.

So on that basis, we just look at free cash flow after maintenance CapEx and we do expect to hit record levels of free cash flow this year, which is a term from the prior couple of years because of the impacts of both the high interest environment and all the investment we’ve been making and the costs associated with that investment interest, additional depreciation, additional lease costs. But yes, we expect to see a significant turnaround in our free cash flow this year.

Chris Lee, Analyst, Desjardins: Okay, great. Thanks for the colors and have a great weekend.

Will Kalutich, CFO, Premium Brands: Thanks, Chris. Thanks, Chris.

Conference Moderator: Your next question comes from the line of Rylan Conrad with RBC Capital Markets. Please go ahead.

Conference Moderator2: Hey, good morning.

George Paliologo, CEO and President, Premium Brands: Hey, Ross. Good morning.

Conference Moderator2: So just a couple of questions. Firstly, on premium food distribution, just curious to hear your thoughts around your expectations for organic volume growth for that segment going forward? Should we expect any further improvements there or even perhaps a return to positive growth?

Will Kalutich, CFO, Premium Brands: Yes. We are expecting some growth in Premium Food Distribution Group in 2025 with the stabilization of Canada. And the big unknown, Rylan, will be what happens in the lobster fisheries, both Canada and The U. S, because that’s really been the major tailwind or sorry, headwind for that group. So watch the lobster industry closely, how the fishing goes and that will determine the level of growth in our Premium Foods distribution group.

Martin Landry, Analyst, Stifel: Got it. Thank you.

Conference Moderator2: And then just secondly, with the reiteration of your 2027 targets, obviously, it implies a pretty strong growth trajectory over the next few years. So could you maybe just speak a bit about your confidence around achieving those? And as well maybe any additional color around maybe the organic and inorganic contribution to achieving them?

George Paliologo, CEO and President, Premium Brands: I think you again, if you look at by the way, this is I think our twenty fifth year of being in business as Premium Brands. And Will and I are co founders of Premium Brands. And we’ve gone from very little to $6,500,000,000 in sales. And I think that the next $6,500,000 will come a lot sooner than in the past. So if you look at how our different platforms have grown, it’s very easy to make the assumption that if we had capacity or the right capacity, we would continue to grow.

For example, our Sandoz platform grew from very little to $1,500,000,000 in sales, Canadian dollars. If we had capacity, we would be bigger. We understand the opportunities. We see the opportunities. Similarly, with our protein business, our protein business is world class.

It’s probably the best protein business in North America in terms of the brands, the quality of the products, the manufacturing expertise, the know how we have in that business. And because of that, we have a lot of inquiries from customers and channels for our products. So we see that every day. Our bakery group, which is small, is doing extremely well. And in the last recent quarter, grew its business in excess of 20% because they had capacity.

So again, we look at it at the micro level. We run very good businesses. They’re best in class. And because of that, we keep getting more and more opportunities with our customers. Awesome.

Appreciate the color. Thank you.

Conference Moderator: All right. Thank you. And I’m showing no further questions at this time. I would like to turn it back to George Vallejo for closing remarks.

George Paliologo, CEO and President, Premium Brands: Yes. Thank you, Ludi. I’d just like to thank everyone for attending today. We hope that common sense will prevail when it comes to tariffs and all the best to everybody.

Conference Moderator: Thank you. And ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.

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