High Liner Foods Reports First Quarter 2013 Operating Results
- Increases Quarterly Dividend by 20% to $0.18 per Share -
LUNENBURG, NS, May 7, 2013 /CNW/ - High Liner Foods Incorporated (TSX: HLF) ("High Liner" or "the Company"), the leading North American value-added frozen seafood company, today reported financial results for the thirteen-week period ended March 30, 2013. All amounts are reported in U.S. dollars.
Financial and operational highlights for the first quarter of 2013 include (all comparisons are relative to the first quarter of 2012, unless otherwise noted):
- Sales were $275.2 million, compared with $287.6 million;
- Reported net income of $5.3 million (diluted earnings per share ("EPS") of $0.34), compared with net income of $1.7 million (diluted EPS of $0.11);
- Adjusted EBITDA1 of $21.3 million, compared with $31.5 million;
- Adjusted Net Income2 of $9.8 million (Adjusted diluted EPS3 of $0.63), compared with $14.0 million (Adjusted diluted EPS of $0.91);
- Successful closing of Danvers production facility and moved production and food service distribution to Newport News facility;
- Completed favourable amendments on the Company's Term Loan B and asset-based working capital loan facility.
"The first quarter marks the first full quarter of complete comparables with the Icelandic USA acquisition," said Henry Demone, President and CEO. "It was a challenging quarter, particularly in the U.S., as we faced a number of issues specific to the quarter and a very strong first quarter last year as the comparable period. Prices for commodity products in the quarter declined more rapidly than the applicable costs for such products, resulting in reduced sales as well as reduced margins. In the U.S., restaurant sales were soft during the quarter as macro-economic considerations, including higher payroll taxes, impacted consumers and reduced restaurant traffic. Increased promotional activity for Sea Cuisine products in the U.S. increased sales for this line but reduced profitability due to higher promotional costs. In Canada, sales in the comparable period last year were stronger as a result of the launch of the highly successful Flame Savours product line. In addition, private label sales in both markets were weaker."
"We successfully closed our Danvers production facility, as planned and moved production and food service distribution to the Newport News facility. However, profitability was negatively impacted by production challenges and higher distribution costs in Newport News, related principally to delays in hiring and training additional staff, equipment relocation challenges, and lower throughputs on the increased production, all of which resulted in higher costs during the quarter. Also, we incurred additional logistics expenses during the period to minimize any disruptions to customers related to these challenges. These increased costs more than offset the benefits of the expected synergies in the quarter arising from the integration of Icelandic USA. When combined with an earlier Lent this year compared with last year, these factors resulted in lower sales and Adjusted EBITDA versus the same period last year. Nonetheless, we remain on track to achieve annual projected synergies of at least $18 million, the high end of our original estimate, although synergies in 2013 will be offset by the additional costs incurred in the first quarter," Mr. Demone noted. "We are also pleased to benefit from reduced interest expenses resulting from our recent term loan amendments. Our strong free cash flow4 also enabled us to reduce leverage to 3.7x Adjusted EBITDA (trailing twelve months) at the end of the quarter."
Financial Results
With approximately two-thirds of the Company's operations and a substantial portion of the assets and liabilities denominated in U.S. dollars, reporting in U.S. dollars is expected to result in less volatility in sales and earnings from Canadian/U.S. dollar exchange rate fluctuations.
|
Thirteen weeks ended March 30, 2013 |
Thirteen weeks ended March 31, 2012 |
|
| Sales in million pounds | 84.6 | 86.8 |
| Sales in domestic currency | $275,838 | $287,618 |
| Foreign exchange impact | $(676) | $(38) |
| Sales in United States dollars | $275,162 | $287,580 |
| Adjusted EBITDA | $21,298 | $31,529 |
| Net income | $5,264 | $1,728 |
| Adjusted net income | $9,786 | $14,009 |
| EPS (Diluted) | $0.34 | $0.11 |
| Adjusted EPS (Diluted)5 | $0.63 | $0.91 |
| Average Shares Outstanding (Diluted) | 15,611 | 15,389 |
Sales for the first quarter were $275.2 million, a decrease of 4.3% from
$287.6 million for the same period a year ago. Approximately 85% of
the decline was attributable to U.S. sales. Selling prices for
commodity products in the quarter declined more rapidly than applicable
raw material costs resulting in reduced sales. High Liner's U.S. food
service sales also decreased during the quarter, consistent with
reports published in the U.S. financial press,6 which indicated that U.S. restaurants experienced one of the weakest
sales performances in many years. Furthermore, private label seafood
sales also declined in both Canada and the U.S., consistent with
declines in the overall private label seafood market. High Liner's
total sales volume decreased by 2.5% to 84.6 million pounds with the
decline all in the U.S. food service market.
Adjusted EBITDA was $21.3 million, or 7.7% of sales, a decrease from $31.5 million, or 11.0% of sales, for the same period in 2012. The decrease in Adjusted EBITDA resulted from lower sales volume, higher distribution and production expenses, lower margins on some commodity products as declines in commodity selling prices outpaced input cost declines, and increased marketing costs.
Net income was $5.3 million (diluted EPS of $0.34), compared with net income of $1.7 million (diluted EPS of $0.11) for the first quarter of 2012. Net income during the quarter was negatively impacted by expenses related to the favourable amendments to the term loan (to reduce future interest costs) and the revaluation of an embedded derivative on debt, offset by lower amortization expense. Additionally, the substantial increase in the value of High Liner's stock increased stock-based compensation expense in the quarter to $3.2 million from $1.5 million for the same period last year. Net income for the first quarter of 2012 was negatively impacted by one-time integration costs related to the Icelandic USA acquisition expensed during the quarter, and higher stock-based compensation expense. Excluding the term loan amendment expenses, the revaluation of embedded derivative, impairment charges, one-time integration costs, stock-based compensation expense, and other non-recurring expenses, Adjusted Net Income was $9.8 million (Adjusted diluted EPS of $0.63) compared with $14.0 million (Adjusted diluted EPS of $0.91) for the same quarter in 2012.
Free cash flow was $83.6 million for the rolling four quarters ended March 30, 2013 compared with $18.3 million for the same period ended March 31, 2012. Cash flow generated from operations allowed the Company to reduce interest-bearing debt by $75.2 million, bringing net interest-bearing debt to $305.1 million at March 30, 2013 from $380.3 million at March 31, 2012.
Dividends
Today, the Board of Directors of the Company approved a quarterly dividend of CAD$0.18 per Common Share payable on June 15, 2013 to shareholders of record on June 1, 2013. This represents a 20% increase from the $0.15-per-share quarterly dividend paid on March 15, 2013, reflecting the Board's continued confidence in the Company's operations, and the fifth dividend increase over the last 11 quarters.
Outlook
"While we expect the challenging first quarter to have an unfavourable effect on full-year 2013 sales and Adjusted EBITDA, we are working to minimize the impact of these headwinds on our profitability going forward," said Mr. Demone. "The operating challenges experienced in the first quarter are not expected to continue. We have taken steps to rectify our labour, production, and distribution issues. As expected, seafood costs have stabilized and our cost of sales has decreased as we sell more less-expensive inventory. We have increased promotional spending on the Sea Cuisine line of products in the U.S. We will continue to focus on operating efficiencies that leverage our scale as the leader in value-added frozen seafood in North America. We will continue to identify and evaluate opportunities for growth."
"In this regard, we define our three strategic objectives for 2013. The first continues to be profitable growth, a goal that had guided us successfully over the past couple of years, which we intend to achieve through a combination of organic sales growth, smaller-scale acquisitions, and operating efficiencies. Our second objective is to achieve supply chain excellence by unlocking the benefits from a fully integrated infrastructure, services, and processes. Our third strategic objective is sustainable sourcing; we remain committed to sourcing all our seafood from certified sustainable or responsible fisheries or aquaculture farms by the end of the 2013," added Mr. Demone.
This news release is not in any way a substitute for reading High Liner's financial statements, including notes to the financial statements, and Management's Discussion and Analysis. The Company's Fiscal First Quarter Interim Financial Statements, which includes the Statements of Financial Position, Income, Comprehensive Income, Changes in Shareholders' Equity, Cash Flows and notes, can be viewed in the Investor Information section of the High Liner Foods website at http://www.highlinerfoods.com/en/home/investorinformation/quarterlyreports.aspx. As well, the restated Statements of Financial Position, Income and Cash Flows for the second and third quarters of 2012 to reflect the change in reporting currency to U.S. dollars are also located at http://www.highlinerfoods.com/en/home/investorinformation/miscellaneousfinancialinformation.aspx.
Conference Call
The Company will host a conference call on Wednesday, May 8, at 10:30 a.m. ET (11:30 a.m. AT) to discuss its first quarter financial results. To access the conference call by telephone, dial 647-427-7450 or 1-888-231-8191. Please connect approximately ten minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay by telephone until Wednesday, May 15, 2013 at midnight. To access the archived conference call, dial 1-855-859-2056 and enter Conference ID number 36949633.
A live audio webcast of the conference call will be available at www.highlinerfoods.com. Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for one year.
About High Liner Foods Incorporated
High Liner Foods Incorporated is the leading North American processor and marketer of prepared, value-added frozen seafood. High Liner's branded products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel, Sea Cuisine and Royal Sea labels, and are available in most grocery and club stores. The Company also sells its products under the High Liner, FPI, Mirabel, Viking, Icelandic Seafood, Samband of Iceland, Seastar, and Seaside brands to restaurants and institutions, and is the leading supplier of private label seafood products to North American food retailers and food service distributors. High Liner Foods is a publicly traded Canadian company, trading under the symbol HLF on the Toronto Stock Exchange.
This document contains forward-looking statements. Forward-looking statements can generally be identified by the use of the conditional tense, the words "may", "should", "would", "believe", "plan", "expect", "intend", "anticipate", "estimate", "foresee", "objective" or "continue" or the negative of these terms or variations of them or words and expressions of similar nature. Specific forward-looking statements in this document include, but are not limited to expectations with respect to, lower interest costs in 2013, lower average raw material costs in 2013 relative to the average in 2012, increased operating efficiencies, successful resolution of issues experienced in the first quarter of 2013, including production challenges and higher distribution costs in Newport News, equipment relocation challenges, and lower throughputs on the increased production, expected volume increases, growth in both sales and profitability by developing new products and promotional campaigns, anticipated financial performance, and our market position. These statements are based on a number of factors and assumptions including, but not limited to: availability, demand and prices of raw materials, energy and supplies; the condition of the Canadian and United States economies; product pricing; our ability to attract and retain customers; our level of bank loans and our operating costs. The statements are not a guarantee of future performance. By their nature, forward-looking statements involve uncertainties and risks that the forecasts and targets will not be achieved. Readers are cautioned not to place undue reliance on forward-looking statements, as actual results may differ materially from those expressed in such forward-looking statements. We include in publicly available documents filed from time to time with securities commissions and The Toronto Stock Exchange, a discussion of the risk factors that can cause anticipated outcomes to differ from actual outcomes. Except as required under applicable securities legislation, we do not undertake to update forward-looking statements, whether written or oral, that may be made from time to time by us or on our behalf, whether as a result of new information, future events or otherwise.
The Company reports its financial results in accordance with IFRS. Included in this media release are certain non-IFRS financial measures as supplemental indicators of operating performance. These non-IFRS measures are Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per Share.
The Company believes these non-IFRS financial measures provide useful information to both management and investors in measuring the financial performance and financial condition of the Company. These measures do not have a standardized meaning prescribed by IFRS and, therefore, may not be comparable to similarly titled measures presented by other publicly traded companies, nor should they be construed as an alternative to other financial measures determined in accordance with IFRS.
For further information about the Company, please visit our website at www.highlinerfoods.com or send an e-mail to investor@highlinerfoodinc.com.
1Adjusted EBITDA is earnings before interest, taxes, depreciation and amortization, excluding impairment of property, plant and equipment, business acquisition and integration expenses, stock compensation expense, gains or losses on disposal of assets, and the increase in cost of goods sold relating to inventory acquired from business acquisitions, above its book value, as part of the fair value requirements of purchase price accounting.
2Adjusted Net Income is net income excluding the after-tax impairment of property, plant and equipment, business acquisition and integration expenses, stock compensation expense, the increase in cost of goods sold relating to inventory acquired from business acquisitions over its book value, non-cash expense from revaluing an embedded derivative associated with the long-term debt LIBOR floor, marking to market an interest rate swap related to the embedded derivative, the write-off of deferred financing charges on the re-pricing of the Term Loan and withholding tax related inter-company dividends.
3 Adjusted EPS is Adjusted Net Income, as defined, divided by the average diluted number of shares.
4 The definition of Free cash flow follows the general principles and guidance for Standardized Cash Flow issued by the Canadian Institute of Chartered Accountants, which is cash flow from operating activities less purchase of property, plant and equipment (net of investment tax credits), as reported on the Consolidated Statement of Cash Flows.
5Adjusted EPS is Adjusted Net Income, as defined, divided by the average diluted number of shares.
6 See, for example, "Americans Cut Restaurant Spending as Tax Bite: Eco Pulse," Bloomberg.com, March 20, 2013.
SOURCE: High Liner Foods Incorporated