High Liner struggles in Q1 as pandemic seafood-buying surge wanes
Lunenburg, Nova Scotia, Canada-based High Liner Foods reported weaker sales and profits in the first quarter of 2021, while acknowledging “global supply challenges.”
The value-added seafood company recorded USD 243.4 million (EUR 199 million) in sales in Q1 2021, down USD 25.2 million (EUR 20.6 million) from Q1 2020. By volume, the company’s sales decreased by 7.5 million pounds to 69.8 million pounds. Its gross profit shrunk by USD 1.1 million (EUR 900,000) to USD 57.7 million (EUR 47.2 million) and its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined by USD 2.9 million (EUR 2.4 million) to USD 27.8 million (EUR 22.7 million).
"Our Q1 results demonstrate the continued resilience of our business, improving gross profit, and the foodservice recovery that is underway," High Liner Foods President and CEO Rod Hepponstall said in a press release. "In both our retail and foodservice businesses, we are executing against our strategy and driving profitability gains as a percentage of sales. Our efforts to build a strong, integrated supply chain and a diversified portfolio has served us well during this time of heightened global supply challenges."
In an 18 May conference call with investors, Hepponstall blamed lower foodservice-sector sales on COVID-19, which created a disparity in year-over-year comparisons, as the pandemic only began affecting U.S. foodservice sales at the end of Q1 2020. Similarly, the company’s quarterly retail sales suffered from a comparison to the same period in 2020, a time when Americans were rushing to supermarkets across the country and buying frozen seafood in an unprecedented fashion.
“Market conditions in High Liner Foods' retail and foodservice business in the first quarter of 2021 were markedly different from the same period in the first quarter of 2020,” the company said. “As a result, sales volumes declined year-over-year in both retail and foodservice business. However, in foodservice, the company delivered its strongest performance in Q1 since the onset of the pandemic, which is attributed to the foodservice recovery that is underway, coupled with strong operator relationships and a compelling product offering. The volume decline was partially offset by new business wins and new product sales.”
Foodservice sales, which represented more than 70 percent of the company’s total business pre-pandemic, now sit at around 60 percent of the firm’s overall sales, according to Hepponstall. That had a significant impact on the company's overall performance, according to the firm's 2020 year-end results.
“As non-commercial foodservice [businesses] and schools emerge [from COVID-related operational limitations], we’re optimistic about that impact on our business,” he said. “Given our scale in the category, we’re very excited about the reponing of the foodservice channel.”
Hepponstall said the company is still noticing “rapidly changing consumer behavior, moving from retail back to foodservice and vice versa,” but said the company was committed to its strategy of leaning on value-added seafood products as its pathway to a more profitable future.
“We’re particularly pleased with the performance of our value-added products and we hope to continue to expand our offerings,” Hepponstall said, calling out favorably-received products such as the company’s Miso-Glazed Cod, which he said “continues to sell well on both sides of the border.”
“We’re still seeing a huge upside for the future in this category, which is ripe for expansion,” he said.
High Liner managed to decrease its net debt by USD 23.2 million (EUR 19 million) to USD 244.8 million (EUR 200.2 million) in Q1, primarily reflecting repayments of long-term debt during the first quarter of 2021. The company said it was aided by the repricing of its USD 265 million (EUR 216.7 million) senior secured loan in March 2021. High Liner Foods Executive Vice President and Chief Financial Officer Paul Jewer said the move is poised to save the company approximately USD 2 million (EUR 1.6 million) in annual cash interest expenses.
"Improving upon our strong balance sheet and reducing our cost of capital remains a priority as we execute on our strategy to invest in our business and build upon our leadership in branded value-added seafood in North America,” Jewer said in March.
Jewer said High Liner is planning around USD 20 million (EUR 16.4 million) in capital expenditures in 2021, which represents a shift in company strategy away from conserving cash to protect its balance sheet. Hepponstall said the investment is being made in further building out the company’s Sea Cuisine Chef’s Collection brand.
Hepponstall acknowledged High Liner is facing “some global supply challenges that are largely due to macro-economic and pandemic-related issues outside of the company's control” – primarily related to transportation and logistics.
“Supply is still good and demand is down in many parts of the world. The challenge is really logistical difficulties and the time and difficulty it takes to get products to the United States through both international shipping and domestic transportation. It’s a problem across the industry, and in those cases, we have had to pass on price increases to customers to cover our costs.”
But Hepponstall said the firm was “managing the impact of the supply chain issues by drawing on the scale of its global supply chain and the diversification of species, product, procurement, and strong customer and supplier relationships to support its position.”
“I’m very pleased with work done over past 18 months to diversify our supply chain and put us in position where have significant resilience,” he said. “Our scale and diversification ... has put us in an advantageous position compared to our competitors and we fully intend to take advantage of that. Without question we’ll have some short-term challenges that we’ll have to manage through, but I don’t expect any significant impact on our business.”
Hepponstall said the company continues to keep an eye on concerns over inflation and to prioritize capturing and retaining a skilled labor force, but said overall, he believed the company is in a strong position.
"We continue to operate in unprecedented times with ongoing uncertainty related to consumer behavior, supply and demand dynamics, and government restrictions,” he said in the Q1 press release. “That said, we are seeing promising signs with foodservice recovery and remain confident that the execution of our strategy will enable us to continue on our path to profitability and growth.”
Photo courtesy of Sea Cuisine