Earnings call transcript: Spectrum Brands Q4 2024 beats EPS forecast

Spectrum Brands Holdings Inc . (NYSE:SPB) reported its fourth-quarter 2024 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $1.02 compared to the forecasted $0.91. Despite this earnings beat, the company experienced a decline in its pre-market stock price, dropping 5.72% to $78.12. The revenue for the quarter was slightly below expectations, coming in at $700.2 million against the anticipated $705.9 million. According to InvestingPro analysis, the company appears undervalued compared to its Fair Value, with a P/E ratio of 19.16x and EV/EBITDA of 8.39x.

Key Takeaways

• Spectrum Brands exceeded EPS forecasts by $0.11.
• Revenue fell short of expectations by $5.7 million.
• Pre-market stock price dropped by 5.72% following the earnings release.
• The company launched the "Superior Delivers" initiative, targeting significant EBITDA improvements.

Company Performance

Spectrum Brands demonstrated resilience in the fourth quarter of 2024, with adjusted EBITDA reaching $159.1 million, a slight decrease of $3 million year-over-year. For the full year, adjusted EBITDA increased by $40.8 million to $455.5 million. Despite challenges in the propane market due to warmer weather, the company maintained its competitive position, particularly in the CNG segment. InvestingPro data reveals strong financial health indicators, with a current ratio of 2.4 and liquid assets exceeding short-term obligations, suggesting robust operational stability.

Financial Highlights

• Revenue: $700.2 million (slightly below forecast)
• Earnings per share: $1.02 (beating forecast by $0.11)
• Full-year adjusted EBITDA: $455.5 million (up $40.8 million from 2023)
• Leverage ratio: 4.1x (increased from 3.9x)

Earnings vs. Forecast

Spectrum Brands outperformed EPS expectations by approximately 12.1%, delivering $1.02 per share against the forecast of $0.91. Revenue, however, missed the mark by $5.7 million, coming in at $700.2 million versus the $705.9 million forecast.

Market Reaction

Despite the positive earnings surprise, Spectrum Brands’ stock saw a 5.72% decline in pre-market trading, closing at $78.12. This movement contrasts with the stock’s recent performance, which has seen a 52-week high of $96.74 and a low of $74.72. The market’s reaction suggests concerns about the revenue shortfall and potential future challenges. InvestingPro highlights that management has been aggressively buying back shares, and the stock is currently trading near its 52-week low, potentially presenting a value opportunity. InvestingPro subscribers have access to 7 additional exclusive insights about SPB’s current market position.

Outlook & Guidance

Looking ahead, Spectrum Brands expects an 8% growth in adjusted EBITDA for 2025. The company is targeting 5-10% growth in its North American propane and CNG segments. Capital expenditures are projected at $150 million, with plans to repurchase CAD $135 million in shares. Additionally, the company aims for a 0.5 turn deleveraging. Analyst consensus from InvestingPro supports this positive outlook, with price targets ranging from $80 to $110, suggesting potential upside. Get access to the comprehensive Pro Research Report, part of InvestingPro’s coverage of 1,400+ US equities, for detailed analysis and actionable insights.

Executive Commentary

CEO Alan MacDalen highlighted the transformative year for Spectrum Brands, stating, "2024 was a pivotal year for our company." He expressed confidence in future growth, saying, "We see even greater potential, and we’ll continue to show the same discipline going forward." MacDalen also reassured investors, "We’re shareholders too, and we’ve never been more confident in our ability to generate strong returns."

Risks and Challenges

• Warmer weather impacting the propane market.
• Potential supply chain disruptions.
• Macroeconomic pressures affecting consumer spending.
• Regulatory changes in the energy sector.
• Increasing competition in the CNG market.

Spectrum Brands remains focused on its strategic initiatives and market expansion, with a cautious outlook on potential challenges. The company’s proactive measures, such as the "Superior Delivers" initiative, aim to drive future performance and shareholder value.

Full transcript - Spectrum Brands Holdings Inc (SPB) Q4 2024:

Jonathan, Conference Operator: Thank you for standing by and welcome to the Superior Plus Fourth Quarter Results Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Chris Lichenthal, Vice President, Investor Relations.

Please go ahead, sir.

Chris Lichenthal, Vice President, Investor Relations, Superior Plus: Thank you, Jonathan. Good morning, everyone, and welcome to Superior Plus’ conference call and webcast to review our twenty twenty four fourth quarter and full year results. On the call today are Alan MacDalen, President and CEO and Greer Folter, Executive Vice President and Chief Financial Officer. For this morning’s call, Alan and Greer will begin with their prepared remarks and then we’ll open the call for questions. Listeners are reminded that some of the comments made today may be forward looking in nature and are based on Superior’s current expectations, estimates, judgments, projections and risks.

Further, some of the information provided refers to non GAAP measures. Please refer to Superior’s continuous disclosure documents available on SEDAR Plus and Superior’s website for further details. Dollar amounts discussed on today’s call are expressed in U. S. Dollars unless otherwise noted.

I’ll now turn the call over to Alan.

Alan MacDalen, President and CEO, Superior Plus: Thanks, Chris. Good morning, everyone. Well, it’s a pleasure to be speaking with all of you as we begin 2025 and look back on 2024. ’20 ’20 ’4 was a pivotal year for our company. One year ago, it became apparent we did not have the operational capability and customer orientation to deliver growth when challenged by competitors or weather.

Years of M and A had seen the company outgrow its operating capability. We relied too heavily on increased margins. We lost touch with our customers and growth was something bought, not earned. And this was simply unsustainable. Our shareholders and employees expect better.

They have every right to expect we can and will outperform our peers and grow in the face of normal market pressures. So we began a journey to change that narrative once and for all. Throughout the year, we worked tirelessly, planning and staffing Superior Delivers, our transformative initiative announced in November. Now transformation isn’t easy. In fact, it’s almost as difficult as it is necessary.

But when you have a company with as much potential as superior, there’s no question it’s the right thing to do. One of the things that makes transformation hard is time. Results never come as fast as you want. We needed to work hard through 2024 to build the superior we all know exists, but we also had to continue to serve our customers and not be taken off course by short term challenges. While we stood fast and persevered, committed to the more difficult path, rebuilding the foundation of our company and beginning a new era of growth and profitability.

Looking forward, now I can say with pride, the green shoots of superior delivers are starting to show, and we couldn’t be more energized about our plan for 2025 and the road ahead. We’ve made good progress in a short time. And while the impacts may not be seen in our Q4 performance, the foundation we laid in 2024 has set us up for success in ’twenty five and beyond. This is why we felt confident in issuing ’twenty five guidance of 8% growth in the Propane segment, which is supported by a $20,000,000 contribution from Superior Delivers. This $20,000,000 in 2025 equates to a roughly $40,000,000 improvement in our EBITDA run rate.

Now that’s almost 80% of our original Superior Delivers target of $50,000,000 achieved by the end of twenty twenty five. Great progress, but we are by no means done. We see even greater potential, and we’ll continue to show the same discipline going forward, focusing on building our customer base, setting ambitious targets and delivering results. At Seteris, twenty twenty four also saw some changes with a clear shift in market dynamics: rising supply, pressured margins and returns, prompting us to adjust our strategy. This year, we’ll be scaling back capital spending and refocusing the business on optimizing the performance of our MSUs and strengthening free cash flow.

Long term, we continue to see significant expansion opportunities in new markets, but we’ll continue to grow CNG, and our approach will be disciplined, focused on balancing growth with delivering returns and sustainable cash flow. Beyond operations, we also made key capital allocation decisions in 2024 to position the company for long term success. A critical decision was shifting our dividend strategy in favor of share repurchases and balance sheet flexibility, And we have acted decisively. As of today, we’ve invested CAD 86,000,000, repurchasing more than 5% of our outstanding shares. Now this shift has naturally led to some changes in our shareholder base.

And to our new shareholders, welcome. We’re thrilled to have you on board and believe you’ll share our excitement about the opportunities ahead. To those who have been with us throughout the transition, thank you. We recognize this has been a difficult period of change, but we appreciate your support as we enter what we believe will be the most exciting phase of our company’s history. We’re shareholders too, and we’ve never been more confident in our ability to generate strong returns.

We have the right plan and the right people to execute it. So thanks to the efforts of the past year, weathering a storm of unfavorable weather and some difficult decisions, we look forward to an exciting year in 2025. We have a clearly defined path to doubling our free cash flow by growing EBITDA and reducing capital expenditures, which will enable us to buyback nearly 10% of the company while meaningfully delevering our balance sheet. Greer will elaborate on the specifics, but needless to say, 2025 is set up to be a great year. Finally, in just over a month, we’ll have the opportunity present a more in-depth look at our business, our go forward plans and a multiyear financial outlook.

We’ll look forward to connecting with many of you at our Investor Day on April 2. Now with that, I’ll turn things over to Greer to topcoat our financial results in 2025.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Thank you, Alan, and good morning, everyone. The fourth quarter was characterized by some of the same challenges we encountered throughout the year, which was warm weather impacting the propane results and competitive pressure on pricing in CNG. Looking at Q4, adjusted EBITDA of $159,100,000 declined approximately $3,000,000 relative to last year, driven by lower EBITDA in our Canadian and wholesale propane businesses, partially offset by a $4,500,000 increase in CNG and a $1,000,000 increase in U. S. Propane.

Despite this modest decline, EBTDA per share held flat in Q4 compared to last year due to lower interest costs on our debt and lower average shares outstanding. Full year adjusted EBITDA was $455,500,000 representing a $40,800,000 increase over our 2023. This growth was primarily from a full year contribution from Sertaris, partially offset by lower results in the propane distribution segments. EBTDA per share increased from 1.25 in 2023 to $1.27 in 2024, and this is primarily due to the accretive return profile of our Sotteris acquisition. Now looking into the businesses.

U. S. Propane had a good quarter considering the circumstances and generated $85,200,000 of adjusted EBITDA in Q4. That was up 1% from last year. The growth is off the back of 4% colder weather in the regions that we operate, partially offset by the impact of a small divestiture we made in Q3 twenty twenty four, and that represented about $500,000 of EBITDA impact and also the sale of various distillate assets in Q4 of twenty twenty three, which had an impact of about $1,000,000 So if you look at organic growth for the business, it’s actually closer to 3%, which is reasonably aligned to the weather impact.

Relative to expectations, weather in the quarter was 7% warmer than the five year average, which was obviously warmer than we had expected. For the full year, adjusted EBITDA in the business was $218,500,000 a 2% decline largely due to the impact of warmer weather than expected. Weather was 2% warmer than the prior year and 10% warmer than the five year average. And then also the previously mentioned divestitures, which on a full year had about a 2,000,000 EBITDA impact. Canadian Propane produced adjusted EBITDA of $29,700,000 in Q4, which was down about 20% year over year.

The decline was primarily due to the timing of carbon credit sales in this business, and this had an impact of about 5,000,000 versus our expectations. As we accelerated some of these credits into Q1 of twenty twenty four, taking advantage of very strong carbon credit markets and then made the decision to defer selling of some of these as well into 2025 because of a current market that is weaker. Also causing headwind in the quarter is the divestiture of the Northern Ontario assets in the prior year, which impacted about $1,200,000 in the quarter and weakness in the Canadian dollar, which impacted about $1,100,000 in the quarter. Average weather across Canada was 5% colder than the prior year and 6% warmer than the five year average, but it should be noted that it was colder in the Western Region where we have a higher concentration of commercial customers that generate lower margins. For the full year, adjusted EBITDA was $82,300,000 a 17% decline reflecting the divestiture of the Northern Ontario assets.

As previously disclosed, these generated about $7,000,000 in 2023. Average weather for the year was consistent with the prior year and 8% warmer than the five year average. But again, the colder weather was showing up in the West where our margins are tighter. In wholesale propane, fourth quarter adjusted EBITDA of $10,500,000 was down 13% year over year, driven by weaker market differentials and lower sales volumes due to the warmer weather. Full year adjusted EBITDA was $32,000,000 and represents a 31% decrease.

The majority of this is expected as we generated about $10,000,000 of EBITDA in 2023 from unusual differentials that were not expected to repeat. And of course, warm weather being the other key factor in the results for this business in 2024. In compressed natural gas distribution, Sertaris delivered a strong quarter, generating $39,200,000 in adjusted EBITDA, up 13% year over year as our winter related activity picked up in November and December. We ended the quarter with eight forty two MSUs, up about 15% from the previous year, which was the main driver of growth in the quarter. For the full year, the business contributed $148,000,000 of adjusted EBITDA, reflecting a $77,700,000 increase over 2023, primarily due to the inclusion of full year of ownership in 2024 versus seven months in 2023.

On an organic basis, this business grew roughly 7%. Overall, CapEx came in around $190,000,000 which is in line with our expectation communicated at Q3 and about $40,000,000 lower than our original number as we drove higher capital discipline in the businesses. Turning to corporate results and leverage. Q4 corporate operating costs were relatively flat year over year for the full year as higher incentive plan costs were partially offset by lower management onboarding expenses related to last year’s senior leadership transition. Our leverage ratio was 4.1 times at year end, up from 3.9 times a year earlier.

This increase aligns with our updated Q3 expectations, reflecting the impact of share repurchases in Q4 and also lower adjusted EBITDA due to the warmer weather experienced in Q4. Now looking to 2025 guidance and expectations. Full year 2025 adjusted EBITDA is expected to increase by approximately 8% compared to 2024, primarily due to the implementation of Superior Delivers initiatives, continued growth in the Compressed Natural Gas segment as well as the normalization of weather to be in line with the five year average. Our adjusted EBITDA guidance is based on the following assumptions. We are anticipating 5% to 10% growth in our North American propane business, which includes 1% to 5% growth in each of The U.

S, Canadian and wholesale divisions. In the case of the Canadian business, we have calculated this growth on a constant currency basis. And if you don’t neutralize for that currency, growth in the Canadian division would decline to negative 1% to 5%. The main factor for growth in these businesses is colder weather, and we have assumed a five year average weather for 2025. And in addition, we have updated for the month of January where we experienced conditions that were favorable to the five year average.

We are also targeting $20,000,000 of additional in year EBITDA from superior delivers as our transformation program begins to generate in year EBITDA improvement, and this has been included in the 5% to 10% growth for the total North American propane business. As Alan mentioned, we expect to end the year with about $40,000,000 in run rate from superior delivers. There will be approximately $10,000,000 to $15,000,000 in onetime costs incurred in 2025 to generate the improvements associated with Superior delivers. Some of these potentially capital in nature, but the exact split on accounting for these costs is to be determined at this point. We are expecting growth in the CNG business of 5% to 10% as we shift to a more balanced approach to managing growth and capital investment in MSUs.

Corporate operating costs are expected to be $25,000,000 which is relatively consistent with 2024 levels. Primarily as a result of lower CapEx in our CNG business, capital expenditures are expected to be approximately 150,000,000 which is inclusive of lease additions. And we expect to repurchase about CAD 135,000,000 worth of our outstanding common shares. Bringing all this together, our 2025 plan is expected to delever the balance sheet by 0.5 turn split between outright debt reduction and the impact of higher adjusted EBITDA. And with that, I will turn it back to the operator for

Jonathan, Conference Operator: Certainly. Our first question comes from the line of Gary Ho from Desjardins Capital Markets. Your question please.

Gary Ho, Analyst, Desjardins Capital Markets: Yes, thanks. Good morning everyone. So just wanted to start off with the superior deliveries. I know you provided a bit more information in the upcoming Investor Day and you’ve given us the $20,000,000 guide of cost. So maybe can you talk about some of the initiatives that is already underway?

I think in your remarks on MD and A you mentioned kind of improving low margin customer contracts, reducing inefficient customer tanks, etcetera. Maybe, yes, what’s your early read on this and any customer retention risk of those that you’d like to keep? Any comments on that, please?

Alan MacDalen, President and CEO, Superior Plus: Hey, Gary. Good morning. It’s Alan. Yes, I mean, superior deliveries is really all encompassing. So we’re making an impact on the business all the way through our operations.

But as you noted, we cited some of the examples that are having an impact sort of in the short term. One of the big things that we’ve been addressing is as you look at your customer base and you start to rationalize it, you realize that taking in factors like delivery distance, volume and the contracts that people might be paying and then how people change over time, we identified some opportunities to implement some new pricing schemes. All under the guidance, of course, of wanting to retain these customers and be competitive in as many situations as possible. So some of the examples are things like customers that were home heat users that converted to having propane as a secondary fuel supply and their volumes decreased. We implemented rental agreements or adjusted rental agreements on the facilities we have.

Still good customers, just need to be priced differently. There’s some unprofitable customers that we had for reasons of just being charged a regional price, but geographically, where they’re located meant the cost of delivery was really high. So we adjusted those. And what we’re seeing right now is it’s kind of a mixed bag. I think, of course, you’re always going to see a little churn.

It doesn’t show up as quick as you think. And with the cold weather, of course, people are reliant on the service. So early days, we’re pretty pleased. And of course, we’re testing all this. We’re not just making wholesale changes.

So I’m really pleased with what we’re seeing so far in rightsizing our pricing for some of the customers that were underwater. Some other things we’ve done, of course, is things like reducing inefficient tank fills, better monitoring and better route density planning and route management has been implemented, which means that we’re delivering more fuel and less frequency, which is, of course, going to be a big help for us. We’ve had bulk plant and truck rationalization, which you’re not going to see really show up in short term performance measures, but that’s going to deliver value for the long term. And things like introducing or amalgamating our wholesale division. So our wholesale division primarily operated with wholesale customers in the Canadian business, and it’s now taking over all the procurement and distribution of our wholesale in The U.

S, of course, serving

Nelson Ng, Analyst, RBC Capital Markets: all of our book plans across The U.

Alan MacDalen, President and CEO, Superior Plus: S. So here’s a these are just small examples, but there are sort of four or five of many that are all having an impact across the board. We’re testing new pricing initiatives, new retention initiatives. Those are going to take longer to have an impact, but we’re really encouraged by the short term results we’re seeing and looking forward to scaling those up over the next year.

Gary Ho, Analyst, Desjardins Capital Markets: Okay. Thanks, Alan. That’s great color. And then maybe just moving on to the Seteris CapEx that’s down year over year. I think historically the team has a message of spending to maintain your leading market share.

It sounds like there’s a bit of a shift there. So can you talk about the trade off between maybe better economics versus market share looking out?

Alan MacDalen, President and CEO, Superior Plus: Yes. I’ll add a comment and then Greer might have something he wants to add. But gaining market share is really about growing with the segment and growing with our competition. And you know this as well as I do. I mean, this is a vertical, especially in the oil and gas market that grows so waiting list for an MSU was twelve to eighteen months.

And we did a really good job of keeping up with that growth and creating the share that we have today. On a short term view, so if you look out the next twelve to eighteen months, we think the investment we’re making right now will keep us in line in terms of where we were in the market. So we don’t see a big reduction in share. Volume is going to be growing over those time periods. So it’s not just an MSU count.

It’s really about where we’re deciding to allocate those MSUs and how much of the share of the active market we’re actually going after. So we’re feeling really good that these growth numbers are going to be in line with where the market is right now and that we’re going to continue to be at or at least very close to the share we have today.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Yes. I mean, the only thing I would add is just the approach has changed a little bit. I think the previous approach of just really there is difficulty in the supply chain getting as many of these MSUs as you possibly could. The market was growing so quickly, and so it was an approach of really get as much as you can and put them into the market. Things have changed a little bit.

I think it’s a little bit more of a I would call it probably a disciplined approach, a little more cautious. Not to say that this is going to be the pathway forever. I think the ability to ramp this up if we see opportunities is there. The supply chain, as Alan said, is not nearly as tight. We can get access to more.

So if we see opportunities and we look at these and understand these opportunities as good return opportunities, then we’ll do that. But I think at this point, we’re just being a little bit more cautious. As I said before, I think we would just be as many as we can get of these things, just let’s do that and we’ll find a place to put them. So it’s really just a change in the approach.

Alan MacDalen, President and CEO, Superior Plus: Yes, that’s well said.

Gary Ho, Analyst, Desjardins Capital Markets: Okay, great. Thanks for those comments. Those are Mattu. Thanks, Gary.

Jonathan, Conference Operator: Thank you. And our next question comes from the line of Ben Isaacson from BNS. Your question please.

Ben Isaacson, Analyst, BNS: Great. Thank you very much and good morning everyone. So when I look at the guidance, the headlines are very impressive, 8% EBITDA growth, 10% buybacks, half a turn down in leverage. And in that detailed guidance, I believe in the notes, you stated that the guidance does not include the impact of tariffs or inflation or higher interest rates. Obviously, tariffs are moving from a threat to a reality, maybe a little bit slower than we thought initially.

But in your scenario planning for tariffs, what kind of elasticity do you expect to see in each of the divisions? And where is the threat from tariffs in each segment? Thank you.

Alan MacDalen, President and CEO, Superior Plus: Hey, Ben. Good question. We’re at the highest level, we’re our two markets are both producers of propane and CNG. So in terms of the impact of cross border supply, we’ve been doing, as you would well expect, a lot of work to make sure that we have sufficient supply in each domestic market that we’re able to avoid having sort of any degree of material degree at least across border transport. And we’re feeling very confident today that the risk of that to our business plan in 2025 is quite minimal.

Through the course of the last quarter, we’ve also been making sure that if we had any contracts where you had a supply in Quebec that was being transported into Vermont contractually that we make sure we tidy those up so we weren’t didn’t have an exposure. And so far, touch that’s been well managed. In terms of the broader economic impact, I mean, anyone’s guess is as good as mine. But being in the Home Heat and Essential Services business, we see that we feel comfortable that we’re fairly well insulated in terms of consumer sentiment. And then from an inflationary standpoint, we’re going to take that in stride and make sure that we not only manage our costs as carefully as we can, but we’re going to be very prudent in passing on any price increases to customers that we don’t think are sustainable.

Ben Isaacson, Analyst, BNS: Great. Thank you for that. And then just I have a second question about those headline numbers, which I think are pretty impressive. But when I look at the share price, we’re getting close to an all time low. And we know the market is forward looking and these growth numbers aren’t really a surprise and you came out with superior delivers a few months ago and we’ll get more info on that shortly.

What do you think the market isn’t buying yet and still needs time? Is it the strategy? Is it the targets? Is it the execution? Or maybe something else entirely?

Alan MacDalen, President and CEO, Superior Plus: Great question, one we ask ourselves quite often around here. Far be it for me to guess what’s in the minds of investors, but I’ll tell you some things that I’m institutional investor rebalancing that we experienced over the last year. Of course, you would know as well as I the sentiment around things like share overhang following the Seteris acquisition. Those things all come into play. We had a lot of questions leading up to November in terms of what we were going to do with the dividend, and that always creates uncertainty when it comes to segment that I think needs to do a little bit more work to earn the trust of investors.

We’ve tried to be really cautious and not overpromising, but really be as transparent as we know how and what we think the issues are and where we’re focusing. We’re starting to see, as I said in my prepared comments, the green shoots of success, which we’ve always believed have been there, but you can’t turn those on overnight. And it’s my sincere hope that our investors are going to start to see a renewed sense of confidence that the team and more importantly, the segment has a lot of value to offer. And it’s just been a matter of us capitalizing on that. I’ll tell you, the investors I meet with, and I’m sure yours, always seem to be very encouraging in terms of you’re doing the right things, keep focused on running the business really well.

The sector has a lot of potential, and we’re excited to see where you’re going to take it. So I think that is probably the best sort of example of the wait and see attitude we’ve been seeing. And hopefully, as we progress through 2025, we’re going to give our investors lots to be excited about.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: And if I could

Ben Isaacson, Analyst, BNS: add, yes.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Ben, sorry, if I could add. I think this is part of the reason why we made the switch on capital allocation. We’ll be on pace to we obviously were pretty aggressive in fourth quarter buying stock back and we’ll continue to go on this path. I mean, as Alan said, we’ll buy back roughly 10%. And if the market is going to value the stock at $6 then Canadian and like all these numbers we’re talking about here are U.

S. So we think it’s great value and hopefully the market has seen that through our capital allocation approach.

Ben Isaacson, Analyst, BNS: That makes sense. Thanks guys.

Alan MacDalen, President and CEO, Superior Plus: Appreciate it. Thanks Matt.

Jonathan, Conference Operator: Thank you. And our next question comes from the line of Robert Catellier from CIBC (TSX:CM) Capital Markets. Your question please.

Robert Catellier, Analyst, CIBC Capital Markets: Hey, good morning everyone. I just wanted to follow-up on Citoris a little bit. Really trying to understand your appetite to allocate capital there in light of the pricing pressure. So maybe you can answer it this way. How was the $50,000,000,000 of CapEx you’re allocating to Sartorius and $25,000,000,000 going to be spent?

So where are you adding the MSUs? What verticals and markets to the extent you can discuss that?

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Hi, Rob. How are you? It’s Greer. Maybe I’ll start because I have the stuff in front of me, but I’m sure Alan will have a few comments. Yes, so we’ve targeted kind of 25 to 30 new MSUs that of the overall kind of total capital envelope, it represents kind of roughly half, I would say.

And the majority of those new MSUs will be going into the utility space. That’s where they’re earmarked. We’ve got a huge portfolio of MSUs and a great opportunity to sit back and have a look at where these assets are. And we believe there’s an opportunity to reallocate some of them from kind of lower return areas to higher return areas. So there’s a very large inventory.

And if there are kind of new opportunities we have that are quite lucrative, we can pull from the suite of assets that are sitting in kind of lower return areas. And so that’s the strategy. But yes, I think, yes, definitely fewer that is where those are going. And part of that was just because of the nature that was required, they were slightly different than some of the ones we had in inventory. And so that’s why we earmarked those.

And those are largely bought, that kind of $25,000,000 to $30,000,000 those are sitting here today, they’re probably all bought.

Alan MacDalen, President and CEO, Superior Plus: Rob, it’s Alan. The only other thing I’d add is I’d remind everyone listening, these are by nature mobile storage units, so they’re quite dynamic. So we’re looking at how much capacity we think we have in our existing fleet. And you can free up capacity by moving segments, moving geographies, having quicker turnaround, higher volume contracts versus lower, and you balance all the pricing and everything. Our ability to look at where we have some margin opportunities and capitalizing on that and then where we want to do more expansion beyond the well site.

So it’s not as simple as saying we don’t think of it like we’re buying 27 MSUs to put into utility support. We’re thinking more like we want to continue to grow our utility segment. And to do that and achieve our overall goal, we need 27 more MSUs. So at the end of the year, it could turn out that on an annualized basis, we’ve actually put more MSUs into that space. But it might be 100 for two quarters and 10 for two quarters.

So it’s a little dynamic, so it’s not as sort of linear as some people might think. But all that to say, we think there’s lots and lots of opportunity to continue to grow this business. And this is just one example that we’re going to be pursuing in ’twenty five.

Robert Catellier, Analyst, CIBC Capital Markets: Okay. Another question on Sotouris. I’m just curious how you see the recent increase in natural gas costs impacting customer demand. If you were to look at the rig count, it looks like we’re not really seeing a response there in the energy sector. So maybe just a comment on how the natural gas cost is impacting margins?

Alan MacDalen, President and CEO, Superior Plus: We’re not seeing a material shift in rig count or our forecast as a result of really any of the dynamics of the market over the last quarter, I would say. It’s been it remains optimistic. But in terms of material shifts, we’re not seeing anything that’s really noteworthy.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: And maybe I’ll just add, Rob, just to make sure we’re covering this. It is all pass through, right? So higher nat gas costs, we pass through to the customers. The idea here is that we’re making our margin on moving it, compressing it, moving it, decompressing it. So it is pass through.

Despite higher nat gas prices, there’s still quite a lot of distance between the overall cost of diesel. So looking at it like if our customers have dual fuel or eFleet type equipment, powering with nat gas, there’s still quite an advantage even though it has increased. So that’s also important. But yes, just one And the emissions as well, right?

Alan MacDalen, President and CEO, Superior Plus: That’s right. For sure.

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: I was just focusing on the economic side, but yes.

Robert Catellier, Analyst, CIBC Capital Markets: Yes. Last question. I was just curious if you could elaborate on the comment about the wholesale division entering new markets. Presumably, we’re talking about geographic expansion or are you referring to new products as well?

Alan MacDalen, President and CEO, Superior Plus: Well, historically, our I’ll clarify my comments, Rob. Historically, our U. S. Propane division effectively in sourced their wholesale procurement. So despite the fact that we had a wholesale division, that division focused primarily on supplying our retail businesses in Canada and wholesale customers in Canada and primarily in the Southwestern U.

S. What we the decision we’ve made late last year and the transition we’re into right now is that our wholesale division will now take responsibility for the wholesale procurement for the entire company. So it will be now servicing our retail needs all across The United States. And that gives us a couple of benefits. It gives us some modest improvements in our procurement.

It gives us a bigger buffer in terms of certainty of supply, which in quarters like the one we’re experiencing are not insignificant. But it also gives them more of a beachhead to grow from in especially the Northeastern U. S. Now that’s a really competitive market, and we’re not attributing big growth in the short term to this move. It’s more of an internal capabilities, but it’s not insignificant either.

I mean, there will be some opportunities coming out of our wholesale division now having a presence all across North America.

Robert Catellier, Analyst, CIBC Capital Markets: Okay. Thanks very much everyone.

Alan MacDalen, President and CEO, Superior Plus: Thanks Rob.

Jonathan, Conference Operator: Thank you. And our next question comes from the line of Nelson Ng from RBC Capital Markets. Your question please.

Nelson Ng, Analyst, RBC Capital Markets: Thanks and good morning everyone. Just another quick follow-up on Sutaris. So do you have any you talked about or diversifying or adding more MSUs into the Utility segment in the coming year. But do you have any additional comments on diversifying into other markets? I think you previously talked about adding more hubs, but I’m not sure whether adding more MSUs to the utility market requires hubs, but can you just talk about that in a bit more detail?

Alan MacDalen, President and CEO, Superior Plus: Hey, Nelson. Yes, I think so, if I understand your question right. So there’s two things. I mean, we’re looking at continuing to work our business development with our business development teams on opportunities both inside the Oil and Gas sector but beyond the well side. And we’re seeing more and more inbound opportunities coming from the utility support vertical, if you will.

And that’s quite widely distributed. So we can start to go after some of that market with the existing hub network that we have today. So that would be kind of point number one. Secondarily, we’ve identified two, three on the outside four or five geographies where we think there could be a good business case to expand into new hubs. In terms of the line of sight in 2025, it’s quite probable that we’ll announce a couple of new hubs in ’twenty five.

We’re not ready to do that today. But in terms of them making an impact on the business in year, it’s more of a 2026 business development initiative than ’twenty five. Okay. That makes

Nelson Ng, Analyst, RBC Capital Markets: sense. Yes. And then just to clarify on the $50,000,000 of CapEx for Sutaris, how many is that all going to MSUs or a combination of MSUs and hubs? And could you just remind me how many MSUs you’re adding over the next year?

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Yes, for sure. Nelson, it’s career. So think about this as yes, so $50,000,000 in capital, I’d say a little over half of it would be kind of new MSUs and the associated gear that kind of comes with it. So let’s call that between $25,000,000 and $30,000,000 of the $50,000,000 The other $20,000,000 would be kind of maintenance type CapEx and then earmark for a hub or two kind of thing. As Alan said, still kind of working on the details and we’ll as we kind of evolve through the year, we’ll be clear on that.

But yes, that’s the breakdown, if that’s helpful.

Alan MacDalen, President and CEO, Superior Plus: Yes. And the only comment I’d add about hubs, Nelson, just to follow-up to my comments is don’t mistake my comments for indecision. Putting a hub when you decide you want to you have a geography that’s of interest, finding the location for the hub, working out the access arrangements with the providers, the pipeline companies and then all the zoning and planning, those are not small tasks as you could well imagine. So it’s not just a matter of us trying to decide. There’s a lot of work goes into being able to establish a hub for the company.

Nelson Ng, Analyst, RBC Capital Markets: Okay, great. And then just Alan, for your, I think, April 2 Investor Day, that’s just over a month from now. I think now that you’ve given out 2025 guidance, you provide a bit of color on superior delivers. Can you just give us a quick preview in terms of what else we should expect to see, whether it’s like multiyear guidance or any color on, yes, additional info that we should expect to see?

Alan MacDalen, President and CEO, Superior Plus: Yes. I think I’m happy to. I mean, start with I’d like you to meet the team. I’d like you to get grounded in how the business was actually operating. We do all these calls every quarter, and it’s such a small glimpse into the business, and there’s so much financial data to get through.

And then of course, you have the complications of weather in the different business units, so much that all of you I know want to ask. It will give us an opportunity to really spend a little more time explaining some of the businesses and some of the how we run the business. I think one of the biggest kind of insights I’ve gained in my time here is just how attractive the propane segment is and why it’s performed the way it has. And when you understand those things, then you can really get invested in terms of, okay, so what are you as a team going to do about it? How long is it going to take?

What will be the measures of success? And where are you focused? So it would be my goal that you walk away with a much better view as to why we’re doing superior deliveries, how it’s focused and the benefit that we see coming out of it. From a CNG side, same thing, understanding the dynamics of the market and why we grew the way we did. Primarily understanding why we think that the strategy of a balanced growth strategy and really good cash productivity there is an important one and a prudent one at this point in the development of that segment.

And then what our outlook is for the organization going forward over the next three, five years, how we see our operating objectives translate into financial performance and why that really supports the thesis that Superior is a great company to be investing in. So all that to say, we really believe in the potential of the organization. I don’t think we’ve had a great opportunity and frankly, the time to bring you all into the tent in terms of that discussion. And I’m looking I’m really looking forward to doing that on April 2.

Jonathan, Conference Operator: And our next question comes from the line of Patrick Kenny from NBF. Your question please.

Patrick Kenny, Analyst, NBF: Thank you. Good morning guys. Maybe just on the buyback, you’ve been repurchasing shares for a few months now on top of committing another 135,000,000 CAD this year. But to an earlier point, the stock has not reacted favorably to this capital allocation strategy. So I’m just wondering, why not reallocate that US100 million dollars call it towards accelerating debt repayment beyond the 0.5 turn deleveraging that you’re looking for this year and accelerate that timeline towards your three times target?

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Patrick, you’re asking so the split with the free cash flow allocating it to repurchases versus debt, and you’re asking why not accelerate the debt more and buy fewer shares?

Patrick Kenny, Analyst, NBF: Yes. Just reallocating that CAD135 million towards the balance sheet instead of share repurchases just given you’ve seen somewhat of a lackluster market reaction to the buyback so far?

Greer Folter, Executive Vice President and Chief Financial Officer, Superior Plus: Yes. Maybe you’ll answer it this way and Alan may have comments as well. I think we think regardless of the market reaction in the short run here, we think these share repurchases are going to be great value in the longer run. So we’re going to continue to do that. We also are trying to balance obviously the management of our balance sheet, get the leverage down.

It’s been an important goal for us for a while. And so I think taking a half a turn out is really important. I’d say incrementally, if there are extra dollars that come as a result of outperformance either through superior delivers or even colder weather than we have expected. I think those incremental extra dollars will go to share repurchases, not debt redux. So if you look, we think we’re doing a lot here, taking leverage down half a turn.

I think if there was incremental extra dollars, it would not be going to debt reduction, it will be going to share repurchases.

Alan MacDalen, President and CEO, Superior Plus: I agree. I mean similar Pat, that’s Alan. Similar to my opening comments, I mean, you got to choose what you believe in. And when Greer and I and the team came aboard, our number one priority is what’s it going to take to run the company well and make sure that this is a company that has a solid foundation and will be able to outperform its peers for years to come. And there are days when that’s hard to do, a lot of short term distractions.

Similarly, when we look at capital allocation, we said we want to invest our cash wisely, want to have a conservative and investment grade balance sheet and not be too distracted by short term pressures. So we’re I think we have that balance in a really good spot. We’re going to demonstrate material improvement or change to the leverage position this year, and we’re investing in what we believe is very undervalued stock. So from my standpoint, we’re living our values here. We’re focused on the long term and doing the right things.

And to Greer’s point, these are not decisions you make once and never revisit. This is something we talk about on a weekly basis. And as conditions change, we’re going to change with them.

Patrick Kenny, Analyst, NBF: Okay, got it. Thanks for that. And then Alan, you mentioned on the propane side, the buy versus earn strategy that didn’t work over the past several years. So just wanted to check-in to see if you’ve uncovered any smaller non core platforms or perhaps geographies that just don’t fit with your Superior Delivers initiative here and which might make more sense to let go and redeploy those proceeds towards either the balance sheet or like you said moving into other core hubs for the company?

Alan MacDalen, President and CEO, Superior Plus: Yes. That’s a really important question. One of the fundamental tenants of where we think that competitiveness and growth comes from profitability in propane is density. And it’s almost like the e commerce model where the more density you have, the more disproportionately profitable your business is. And when you have assets like the ones you’re describing, they actually dilute your density and create a bit of a cost drag.

So ideally, if you had 1,000 customers in an isolated community, they would be less valuable than 1,000 customers that were in the community you’re already serving. So we’re looking at that right now. I can tell you from an early point of view, there aren’t any sort of big material markets that we’re in that we think we should exit or big communities that we think aren’t going to be value in the long term. And that’s not a marketing throwaway comment. I think this team that preceded us did a really good job of buying in our markets we want to be in.

So never say never. We’re going through that exercise. We may find that there’s some thinning out to do in terms of some of our more remote locations, but nothing at this stage is screaming kind of big material changes.

Patrick Kenny, Analyst, NBF: Okay. That’s great. I’ll leave it there guys. Thanks.

Alan MacDalen, President and CEO, Superior Plus: Thanks very much.

Jonathan, Conference Operator: Thank you. This does conclude the question and answer session of today’s program. I’d like to hand the program back to Alan McDonald for any further remarks.

Alan MacDalen, President and CEO, Superior Plus: Thank you very much, operator. And to all of you, thank you very much. It’s been quite the journey we’ve been on here for the last couple of years. It’s an exciting time, exciting time for Superior delivers. We’re so pleased with the progress we’re making.

We’ve got a lot of work to do, but I hope you can hear it in our tone and in the messages we’re sending you today that we have a great sense of optimism. And I’m really proud that the work we did in 2024, difficult though it might have been, has been in the best interest of the shareholders and the company for the longer term, and it’s going to pay dividends for years to come. So thank you very, very much for your time today, and look forward to seeing you all in a month, if not sooner.

Jonathan, Conference Operator: Thank you, ladies and gentlemen, for your participation at today’s conference. This does conclude the program. You may now disconnect. Good day.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.