Despite a drop in sales volume of greater than 10 percent for the first quarter of 2019, High Liner Foods posted a higher adjusted earnings before interest, taxes, debt, or amortization (EBITDA).
The first quarter of 2019 saw High Liner's sales volume decrease by nearly 10 million pounds, from 88.1 million in 2018 to 78.5 million in 2019. Those sales represented USD 277.4 million (EUR 247.9 million), a USD 41.9 million (EUR 37.5 million) decrease from the USD 319.2 million (EUR 285.3 million) the company earned in 2018.
Gross profit also fell by USD 4.5 million (EUR 4 million), from USD 60.6 million (EUR 54.1 million) to USD 56.1 million (EUR 50.1 million). However, gross profit as a percentage of sales increased from 19 to 20 percent.
Despite the falling volumes and gross profit, the adjusted EBITDA increased by USD 8 million (EUR 7.1 million) to USD 32.2 million (EUR 28.7 million), from USD 24.2 million (EUR 21.6 million) in 2018. Coupled with that, the EBITDA for 2019 Q1 represented 11.6 percent of sales, compared to just 7.6 percent of sales in Q1 of 2018, reflecting the company’s push toward eliminating low-margin products in favor of more profitable ones.
“As reflected in the financial results for the first quarter of 2019, we are more profitable as a result of eliminating lower-margin products and are seeing significant improvements in our cash flow, Adjusted EBITDA and net debt to adjusted EBITDA because of efficiencies we are driving across the business," High Liner Foods President and CEO Rod Hepponstall said during a conference call reviewing the company’s financial statement.
The lower volumes, according to Paul Jewer, executive vice president and CFO, are partially a result of Easter falling later in the year than in 2018, which shifted volumes out of the first quarter of 2019. In addition, roughly half of the lower volume is associated with cutting products. The volume was also largely associated with products with lower margins.
“It was more significant in this quarter in the unprocessed side, rather than the processed side, and that was beneficial to margins,” Jewer said.
The lower value of the Canadian dollar compared to Q1 2018 has also affected the company’s bottom line, according to High Liner.
High Liner has been undergoing a five step “critical initiative plan,” which the company started to get back onto the path of profitability after “continuing challenges.”
According to Hepponstall, the realignment has been improving the company’s efficiency and costs, and the company is planning to engage with consultants to further drive those cost savings.
“To further strengthen our balance sheet and resilience we are expanding the scope of our supply chain improvement and cost saving activities,” Hepponstall said. “We have engaged consultant AlixPartners to accelerate progress on our supply chain excellence initiative and now foresee a significant increase in the total net annualized run-rate cost savings that can be achieved as we leverage the scale and potential of a truly integrated North American organization.”
Initially, the company planned to have net annualized run-rate cost savings of around USD 10 million (EUR 8.9 million) thanks to supply chain and other cost-savings methods, but according to High Liner, the savings will likely exceed that number.
High Liner also announced it changed the dividend and capital structure, revising the quarterly dividend from CAD 0.145 (USD 0.10, EUR 0.096) to CAD 0.05 (USD 0.037, EUR 0.033) per common share. According to the company, this “Will free up approximately USD 10 million [EUR 8.9 million] in cash flow that will support the reduction and refinancing of debt to create a stronger balance sheet.”
While the reduction in expenses is positive, Hepponstall said that's not the only step the company is taking to reform its business.
“Cost savings are important to offset the headwinds affecting our topline results, but they’re only one part of the equation,” he said. Other parts include bringing on a new vice president of marketing, updating customer engagement models, and sales and product innovations.
“We’re seeing progress. Our balance sheet is getting stronger,” he said.
