Sales up, earnings down in 2017 for High Liner; Demone says company will not pursue acquisitions in 2018
High Liner Foods reported lower earnings in 2017, despite earning more than USD 1 billion (EUR 811 million) in sales.
The Lunenburg, Nova Scotia, Canada-based processor and marketer of value-added frozen seafood announced its 2017 sales increased by USD 98.8 million (EUR 80.1 million) to USD 1.05 billion (EUR 852 million), compared to USD 955 million (EUR 774.7 million) in 2016. However, its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) dropped by USD 15.3 million (EUR 12.4 million) to USD 66.1 million (EUR 53.6 million), compared to USD 81.4 million (EUR 66 million) in 2016. And the company’s gross profit fell from USD 201.8 million (EUR 163.7 million) in 2016 to USD 186.1 million (EUR 151 million) – a fall-off of USD 15.7 million (EUR 12.7 million).
The company was affected by three major events in 2017: the sale of its scallop business in New Bedford, Massachusetts, U.S.A.; its acquisition of shrimp importer Rubicon Resources; and a recall of numerous products due to the inclusion of a milk allergen that was not properly represented on the ingredient label and allergen statement.
High Liner Foods Chairman and CEO Henry Demone said the results were below the company’s expectations. Demone rejoined the company in August 2017 after High Liner fired then-CEO Keith Decker. He said High Liner has experienced declines in its sales of higher-margin, value-added products, and increases in sales of its lower-value raw products, Demone said.
“Both our Canadian and U.S operations experienced unfavorable changes to product mix and increased costs," Demone said. "We are committed to improving performance in 2018 and plan to do this through actions on pricing, costs, supply chain effectiveness, and product innovation."
The loss of the New Bedford scallop business, sold on 7 September, 2016, had the impact of lowering the company’s sales volume by 2.4 million pounds, sales by USD 31.4 million (EUR 25.5 million), gross profit by USD 1.3 million (EUR 1.05 million) and adjusted EBITDA by USD 300,000 (243,300) during 2017 compared to 2016.
High Liner’s product recall, announced in April 2017, decreased the firm’s sales volume by 2.4 million pounds, its sales by USD 8.8 million (EUR 7.1 million), gross profit by USD 13.5 million (EUR 11 million) and adjusted EBITDA by USD 2 million (1.6 million) between 2017 and the prior year.
The acquisition of Rubicon on 30 May, 2017, had the impact of increasing sales volume by 21.7 million pounds, sales by USD 117.1 million (EUR 95 million), gross profit by USD 14 million (EUR 11.4 million) and adjusted EBITDA by USD 3.8 million (EUR 3.1 million) in 2017.
However, Rubicon's contribution to Adjusted EBITDA in 2017 was “significantly below the annual pro forma Adjusted EBITDA expected from this business when it was purchased,” according to Demone, “due to raw material cost increases that have not been fully passed on to customers, along with lower than expected volumes, particularly in the fourth quarter of 2017.”
In addition, the company expects Rubicon’s contributions to continue to be curtailed due to the loss of a major customer, according to Demone.
“While the company expects Rubicon's product margins to improve in 2018, it anticipates sales volume declines will continue as one of its major customers continues to procure certain products directly from shrimp producers,” he said. “High Liner is focused on replacing this lost volume and leveraging Rubicon's capabilities in shrimp to grow shrimp sales across the rest of the company's business.”
Demone dismissed the idea that High Liner might consider a merger or acquisition in 2018.
“We’re really focused on fixing our operations and running the business we have today better. With our balance sheet, it’s not sensible for us to be looking at acquisition targets today,” he said. “With the credit markets being quite liquid, I expect acquisitions are going at a premium, but we’re not in that mindset in 2018 – it’s all about running our business better.
In the fourth quarter of 2017, High Liner posted increased sales – up by USD 54.2 million (EUR 44 million) to USD 263 million (EUR 213.3 million), compared to USD 208.8 million (EUR 169.4 million) in Q4 2016. The company’s gross profit, which went up by USD 900,000 (EUR 730,000), was helped by a USD 11.2 million (EUR 9.1 million) recovery attributable to the corporate income tax rate cut that was passed into law in the United States in November. However, the company’s adjusted EBITDA decreased by USD 3 million (EUR 2.4 million) to USD 13.1 million (EUR 10.6 million), compared to USD 16.1 million (EUR 13.1 million) in the fourth quarter of 2016.
In its Q4 earnings announcement, the company declared a quarterly dividend of CAD 0.145 (USD 0.11, EUR 0.09) per share. The price of its shares, which trade on the Toronto Stock Exchange under the symbol HLF, closed on Wednesday, 21 February at CAD 13.73 (USD 10.79, EUR 8.76).