High Liner Foods reported higher net earnings despite lower sales volumes in its fourth quarter and year-end financial report for 2016.
High Liner President and CEO Keith Decker said in the earnings call that the improvement in net earnings reflected the impact of lower raw material prices and a continuing effort by the company to optimize its supply chain, along with lower finance costs as a result of using strong free cash flow in 2016 to lower debt levels.
However, he painted a darker picture of the future of the company’s business in traditional breaded and battered products, pointing out a large-scale shift in preferences in the U.S. market.
"We expect the trend of lower demand for frozen breaded and battered seafood products will continue into 2017 and that we will not return to volume growth until our new product sales can offset the decline that the traditional breaded and battered category is experiencing,” Decker said.
The New Brunswick, Canada-based processor and marketer of value-added frozen seafood reported a 4.5 percent, or USD 45.5 million (EUR 43 million), dip in sales in 2016, to USD 956 million (EUR 904 million) compared to USD 1 billion (EUR 945 million) in 2015. However, the company’s earnings before taxes, or EBITDA, increased by USD 4.2 million (EUR 4 million), or 5.4 percent, to USD 82.4 million (EUR 77.9 million), compared to USD 78.2 million (EUR 73.9 million) in 2015.
In the fourth quarter of 2016, the company reported sales of USD 210 million (EUR 199 million), down USD 14.9 million (EUR 14.1 million), or 6.6 percent, from 2015’s USD 224.9 million (EUR 212.7 million) fourth quarter. The firm’s gross profit decreased by USD 1.2 million (EUR 1.1 million), or 2.6 percent, to USD 44.9 million (EUR 42.5 million). High Liner’s EBITDA in the fourth quarter also decreased, to USD 17.4 million (EUR 16.5 million), compared to USD 17.8 million (EUR 16.8 million) in Q4 2015.
High Liner said the sale of its New Bedford scallop business in September 2016 had the impact of lowering sales volume by 600,000 pounds, USD 8 million (EUR 7.6 million) in sales and adjusted EBITDA by USD 300,000 (EUR 284,000) in the fourth quarter of 2016 compared to the fourth quarter of 2015.
Decker said the company is in good financial shape to pursue new product developments and potential acquisitions as a way to reengage portions of the U.S. market that are losing interest in its current product offerings.
“Innovation activities and new product offerings in 2017 will focus on bringing new customers to the frozen seafood category through the introduction of new frozen seafood products that align with emerging consumer trends and preferences,” Decker said. “We are well positioned for product innovation and further acquisition opportunities to support sales and earnings growth and further species diversification.”
Shares of High Liner Foods, trading under the symbol HLF on the Toronto Stock Exchange, dropped from CAD 19.90 (USD 15.19, EUR 14.36) to an end-of-day price of 18.39 (USD 14.04, EUR 13.27) following the earnings announcement, despite the company offering a CAD 0.14 (USD 0.11, EUR 0.10) per-share dividend.
