Profits up but sales down as High Liner Foods copes with changing market
Shifting consumer preferences resulted in a mixed third-quarter report for Canadian seafood company High Liner Foods.
While its overall profit was up, sales for both the quarter and the year were down for High Liner, as the North American seafood-eating public moves away from breaded and battered frozen seafood and toward more premium products and unprocessed items, according to High Liner CEO Keith Decker, who spoke during the company’s earnings report on 9 November
"Lower sales volume in the third quarter primarily reflects the continued impact of lower overall demand for traditional breaded and battered frozen seafood products which we were unable to offset with sales from our new frozen seafood products that align with emerging consumer trends and preferences."
The Lunenberg, Nova Scotia-based company reported its gross profit increased by USD 2.5 million (EUR 2.29 million) to USD 46.4 million (EUR 42.4 million) in the third quarter, which ran through 1 October. That’s up 5.8 percent from the third quarter of 2015, reflecting an increase in gross profit as a percentage of sales, “partially offset by lower sales volumes,” the company said in its earnings report on 9 November.
High Liner’s adjusted EBITDA increased in the third quarter by USD 800,000 (EUR 732,400) to USD 17.9 million (EUR 16.4 million), up by or 4.9 percent. High Liner increased its net income by USD 500,000 (EUR 457,280), to USD 6.6 million (EUR 6 million) and lowered its net interest-bearing debt2 to adjusted EBITDA, calculated on a rolling twelve-month basis, to 3x at the end of third quarter of 2016, compared to 3.4x at the end of the second quarter of 2016 and 4.0x at the end of the 2015 fiscal year.
The company said its increase in net income reflects “lower business acquisition, integration and other expenses related to non-routine activities, lower finance costs and a lower effective income tax rate, partially offset by increased share-based compensation expense,” it said in a press release.
However, the company’s sales for the quarter were down by USD 9.3 million (EUR 8.5 million), or 3.9 percent, to USD 230.8 million (EUR 211.2 million), and for the year so far, sales have decreased by USD 30.6 million (USD 28 million), or 3.9 percent, to USD 746 million (EUR 682.7 million), compared to USD 776.6 million (EUR ) for the first three quarters of 2015, according to the company. Its sales volume was down by 3 million pounds for the third quarter, or 4.4 percent, to 64.4 million pounds, “primarily reflecting lower sales volume in our U.S. retail and foodservice businesses,” CEO Keith Decker said.
The company suffered some losses in efficiency due to the transfer of production from its New Bedford, Massachusetts facility, which it sold to Blue Harvest Fisheries in September, to its other facilities in the U.S. and Canada. However, Decker said he expected the company to save money in the fourth quarter due to the removal of the losses from its New Bedford plant off its books. Decker said he expected the completion of outstanding supply-chain optimization activities will provide a minimum of USD 20 million (EUR 18.3 million) in annual costs savings in 2017.
The price of High Liner Foods' common shares trading on the Toronto Stock Exchange closed yesterday on 8 November at CAD 27.22 (USD 20.35, EUR 18.63). The company announced a dividend of CAD 0.13 (USD 0.10, EUR 0.09) per share.
The upcoming largest challenge for High Liner will be to continue to adapt to the changing preferences of younger consumers, Decker said. The company is seeking to retain its market share and gain new customers through the development of new products, including more products made with Atlantic salmon, he said.
"While we expect our sales volume trend to improve, we do not expect to return to volume growth until our new product sales can offset the decline that the traditional breaded and battered category is experiencing," Decker concluded.