SunOpta Announces Third Quarter 2022 Financial Results
November 09, 2022 at 17:00 PM EST
Continued strong revenue growth of 15.7% vs. prior year to $229.7 million
Gross margin expanded 190 basis points to 13.7%
Net loss from continuing operations of $12.6 million, including $14.2 million net loss from asset dispositions
Adjusted EBITDA increased 41.7% vs. prior year to $22.1 million
Raising 2022 Outlook
SunOpta Inc. (“SunOpta” or the “Company”) (Nasdaq:STKL) (TSX:SOY), a U.S.-based global pioneer fueling the future of sustainable, plant-based and fruit-based foods and beverages, today announced financial results for the third quarter ended October 1, 2022.
All amounts are expressed in U.S. dollars and results are reported in accordance with U.S. GAAP, except where specifically noted.
Third Quarter 2022 highlights:
“Strong execution continues to define our results. Innovation and capacity expansion are propelling steady volume growth, productivity gains are being driven by operational efficiencies, and we are balancing inflationary cost pressures with customer pricing,” said Joe Ennen, Chief Executive Officer. “Similar to last quarter, plant-based growth was broad based with revenues up 20% compared to the third quarter of last year led by a 68% increase in oat milk, our top selling product type, while fruit-based revenues were up 10%, with gross margin at a five-year high of 12.3%, reflecting continued strength in snacks and improved frozen fruit execution. Our new greenfield plant in Texas remains on track and the recent sale of our non-core sunflower business is another important step in our portfolio transformation. Given our strength in leading categories, along with the continued expansion of our aseptic capacity and capabilities, and a significantly de-risked operational profile, we believe that we remain well positioned for success and realizing our vision of Fueling the Future of Food.”
Third Quarter 2022 Results
Revenues of $229.7 million for the third quarter of 2022 increased 15.7% compared to the third quarter of 2021 driven by 19.9% growth in Plant-Based Foods and Beverages and 10.0% growth in Fruit-Based Foods and Beverages. The increase in revenues reflected a 13.9% increase in pricing along with a 1.9% increase in volume/mix.
The Plant-Based Foods and Beverages segment generated revenues of $137.7 million, an increase of 19.9% compared to $114.9 million in the third quarter of 2021. Pricing increased 16.2% driven by actions to offset inflationary cost increases, together with the pass-through effect of higher sunflower commodity pricing. Volume/mix was up 3.7%, reflecting growth in oat-based offerings and teas partially offset by softer volumes in sunflower and decreased demand for everyday broths.
The Fruit-Based Foods and Beverages segment generated revenues of $91.9 million, an increase of 10.0% compared to $83.6 million in the third quarter of 2021. Pricing increased 10.6% reflecting actions to offset inflationary and commodity cost increases, while volume/mix declined a modest 0.6%.
Gross profit was $31.4 million for the third quarter, an increase of $8.0 million compared to $23.4 million in the prior year period. Gross profit margin was 13.7% compared to 11.8% in the third quarter of 2021, an increase of 190 basis points. Gross profit in the Plant-Based Foods and Beverages segment increased $1.4 million to $20.1 million, while gross margin declined 170 basis points to 14.6% primarily due an estimated 225 basis point decline in pass-through pricing to recover cost inflation, together with the impacts of higher labor and utility costs, increased inventory reserves, and higher depreciation expense. Gross profit in the Fruit-Based Foods and Beverages segment increased by $6.6 million to $11.3 million and gross margin increased 670 basis points to 12.3% despite an estimated 50 basis point impact from the dilutive effect of pass-through pricing to offset commodity cost inflation. Excluding the pricing effect, Fruit-Based gross margin benefited from portfolio rationalization and manufacturing consolidation, as well as increased production volumes and plant efficiencies in our fruit snack operations.
Segment operating income¹ was $7.6 million, or 3.3% of revenues in the third quarter of 2022, compared to segment operating income of $3.9 million, or 2.0% of revenues in the third quarter of 2021. The increase in segment operating income was due to higher gross profit, partially offset by a $4.2 million increase in SG&A expenses due to higher employee compensation costs, including incentive accruals partially offset by a reduction in expenses related to business integration in 2021.
Adjusted EBITDA¹ was $22.1 million or 9.6% of revenues in the third quarter of 2022, compared to $15.6 million or 7.9% of revenues in the third quarter of 2021.
Loss attributable to common shareholders for the third quarter of 2022 was $13.4 million, or $0.12 per diluted common share, which was inclusive of an after-tax loss on the held-for-sale sunflower business of $16.9 million and an after-tax gain on the sale of the Oxnard facility of $2.7 million, compared to a loss of $3.8 million, or $0.04 per diluted common share during the third quarter of 2021.
Adjusted earnings¹ in the third quarter of 2022 was $2.0 million or $0.02 per common share, compared to adjusted earnings of $1.1 million or $0.01 per common share in the third quarter of 2021.
Please refer to the discussion and table below under “Non-GAAP Measures.”
Balance Sheet and Cash Flow
As of October 1, 2022, SunOpta had total assets of $859.0 million and total debt of $306.3 million compared to total assets of $755.1 million and total debt of $224.6 million at year end fiscal 2021. During the third quarter of 2022, cash provided by operating activities was $20.0 million compared to cash provided by operating activities of $5.1 million during the third quarter of 2021. Investing activities of continuing operations consumed $21.9 million of cash during the third quarter of 2022 versus $17.4 million in the prior year, as investments in capacity expansion were partially offset by proceeds from the sale of non-core assets.
We are raising our previously provided outlook for fiscal 2022, as follows:
SunOpta plans to host a conference call at 5:30 P.M. Eastern time on Wednesday, November 9, 2022, to discuss the third quarter financial results. After opening remarks, there will be a question-and-answer period. Investors interested in listening to the live webcast can access a link on SunOpta's website at www.sunopta.com under the "Investor Relations" section or directly here. A replay of the webcast will be archived and can be accessed for approximately 90 days on the Company's website. This call may be accessed with the toll free dial-in number dial (888) 440-4182 or International dial-in number (646) 960-0653 using Conference ID: 8338433.
¹ See discussion of non-GAAP measures
2 The Company has included certain forward-looking statements about the future financial performance that include non-GAAP financial measures, including Adjusted EBITDA. These non–GAAP financial measures are derived by excluding certain amounts, expenses or income, from the corresponding financial measures determined in accordance with GAAP. The determination of the amounts that are excluded from these non-GAAP financial measures is a matter of management judgment and depends upon, among other factors, the nature of the underlying expense or income amounts recognized in a given period. We are unable to present a quantitative reconciliation of the aforementioned forward-looking non-GAAP financial measures to their most directly comparable forward-looking GAAP financial measures because management cannot reliably predict all of the necessary components of such GAAP measures. Historically, management has excluded the following items from certain of these non-GAAP measures, and such items may also be excluded in future periods and could be significant amounts.
About SunOpta Inc.
SunOpta (Nasdaq:STKL) (TSX:SOY) is a U.S.-based, global pioneer fueling the future of sustainable, plant-based and fruit-based food and beverages. Founded nearly 50 years ago, SunOpta manufactures natural, organic and specialty products sold through retail and foodservice channels. SunOpta operates as a manufacturer for leading natural and private label brands, and also proudly produces its own brands, including SOWN™, Dream™, West Life™ and Sunrise Growers™ For more information, visit www.sunopta.com, LinkedIn and Twitter.
Certain statements included in this press release may be considered "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation, which are based on information available to us on the date of this release. These forward-looking statements include, but are not limited to, our belief that construction of our new greenfield plant in Texas remains on track and that we are well positioned for success and realizing our visions, as well as forecasted revenue, and adjusted EBITDA growth for fiscal 2022. Generally, forward-looking statements do not relate strictly to historical or current facts and are typically accompanied by words such as “continue”, “expect”, “believe”, “anticipate”, “estimates”, “can”, “will”, “target”, "should", "would", "plans", "becoming", "intend", "confident", "may", "project", "potential", "intention", "might", "predict", “budget”, “forecast” or other similar terms and phrases intended to identify these forward-looking statements. Forward-looking statements are based on information available to the Company on the date of this release and are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments including, but not limited to, the Company’s actual financial results; uninterrupted operations and service levels to our customers; current customer demand for the Company’s products and the additional anticipated demand; general economic conditions; continued consumer interest in health and wellness; the Company’s ability to maintain product pricing levels; planned facility and operational expansions, closures and divestitures; cost rationalization and product development initiatives; alternative potential uses for the Company’s capital resources; portfolio optimization and productivity efforts; the sustainability of the Company’s sales pipeline; the Company’s expectations regarding commodity pricing, margins and hedging results; improved availability and field prices for fruit; procurement and logistics savings; freight lane cost reductions; yield and throughput enhancements; and labor cost reductions. Whether actual timing and results will agree with expectations and predictions of the Company is subject to many risks and uncertainties including, but not limited to, potential loss of suppliers and customers as well as supply chain, logistics and other disruptions resulting from or related to COVID-19; unexpected issues or delays with the Company’s structural improvements and automation investments; failure or inability to implement portfolio changes, process improvements, go-to-market improvements and process sustainability strategies in a timely manner; changes in the level of capital investment; local and global political and economic conditions; consumer spending patterns and changes in market trends; decreases in customer demand; delayed or unsuccessful product development efforts; potential product recalls; working capital management; availability and pricing of raw materials and supplies; potential covenant breaches under the Company’s credit facilities; and other risks described from time to time under "Risk Factors" in the Company's Annual Report on Form 10-K and its Quarterly Reports on Form 10-Q (available at www.sec.gov). Consequently, all forward-looking statements made herein are qualified by these cautionary statements and there can be no assurance that the actual results or developments anticipated by the Company will be realized. The Company undertakes no obligation to publicly correct or update the forward-looking statements in this document, in other documents, or on its website to reflect future events or circumstances, except as may be required under applicable securities laws.
In addition to reporting financial results in accordance with U.S. GAAP, the Company provides additional information about its operating results regarding segment operating income, adjusted earnings and adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”), which are not measures in accordance with U.S. GAAP. The Company believes that segment operating income, adjusted earnings and adjusted EBITDA assist investors in comparing performance across reporting periods on a consistent basis by excluding items that management believes are not indicative of its operating performance. The non-GAAP measures of segment operating income, adjusted earnings and adjusted EBITDA should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP.
In order to evaluate its results of operations, the Company uses certain other non-GAAP measures that it believes enhance an investor’s ability to derive meaningful period-over-period comparisons and trends from the results of operations. In particular, the Company excludes specific items from its reported results that due to their nature or size, it does not expect to occur as part of its normal business on a regular basis. These items are identified in the tables below. These non-GAAP measures are presented solely to allow investors to more fully assess the Company’s results of operations and should not be considered in isolation of, or as substitutes for, an analysis of the Company’s results as reported under U.S. GAAP.
When assessing its financial performance, the Company uses an internal measure that excludes charges and gains that it believes are not reflective of normal operations. This information is provided to allow investors to make meaningful comparisons of the Company’s operating performance between periods and to view the Company’s business from the same perspective as the Company’s management. Adjusted earnings and adjusted earnings per diluted share should not be considered in isolation or as a substitute for performance measures calculated in accordance with U.S. GAAP.
The following is a tabular presentation of adjusted earnings and adjusted earnings per diluted share, including a reconciliation from loss from continuing operations, which the Company believes to be the most directly comparable U.S. GAAP financial measure.
Segment Operating Income and Adjusted EBITDA
The Company defines segment operating income as loss from continuing operations before income taxes, interest expense and other income/expense items, and adjusted EBITDA as segment operating income plus depreciation, amortization, stock-based compensation, and other unusual items that affect the comparability of operating performance as identified above in the determination of adjusted earnings. The following is a tabular presentation of segment operating income and adjusted EBITDA, including a reconciliation from loss from continuing operations, which the Company believes to be the most directly comparable U.S. GAAP financial measure.
Sunflower Business - Selected Financial Information
The following table presents a summary of the results of operations of the sunflower business, together with a reconciliation of adjusted EBITDA for the sunflower business from earnings/loss before income taxes, which we consider in this case to be the most directly comparable U.S. GAAP financial measure.
Segment operating income/loss and adjusted EBITDA are non-GAAP measures. See discussion above under the heading “Segment Operating Income and Adjusted EBITDA” on the use of these non-GAAP measures.