Ms. Nathalie Lassonde reports

LASSONDE INDUSTRIES INC. ANNOUNCES ITS Q1-2023 RESULTS

Lassonde Industries Inc. has released its financial results for its first quarter ended April 1, 2023.

"Lassonde Industries enjoyed a strong performance during the first quarter and we will continue to invest in our operations to become a more efficient organization. We are confident that progress on our multiyear strategy will continue through the remainder of 2023, with more significant benefits to be achieved in 2024. Over the next few quarters, we will maintain focus on macroeconomic conditions to ensure we are responding to the needs of our customers and consumer trends as we execute our multiyear strategy to drive long-term value," said Nathalie Lassonde, chief executive officer and vice-chair of the board of directors of Lassonde Industries.

"Each of our divisions delivered solid performance in the quarter, with our U.S. business demonstrating increased tangible benefits from Project Eagle. Sales increased as our price adjustments and an optimized sales mix more than offset a volume contraction, which partially resulted from actions taken to rationalize our product portfolio. Additionally, through Project Eagle, we are seeing improved efficiencies in our U.S. facilities and lower transportation costs realized in part through the implementation of a new transportation management system," added Vince Timpano, president and chief operating officer of Lassonde Industries.

First quarter highlights:

• Sales of $547.3-million. Excluding a $19.5-million favourable foreign exchange impact, sales were up $18.8-million (3.7 per cent) from the same quarter last year, mainly due to selling price adjustments and a favourable change in the sales mix of U.S. private-label products, partly offset by a decrease in sales volume, mainly in the United States.
• Gross profit of $136.6-million (25 per cent of sales), up $1-million from the same quarter in 2022. Excluding a $2.4-million favourable foreign exchange impact, gross profit was down $1.4-million from the same quarter last year:
  • Higher cost for all inputs, especially apple and orange concentrates;
  • Increase in the corporation's conversion costs.
• Operating profit of $26.2-million, up $3.8-million from the same quarter last year:
  • $10.3-million decrease in transportation costs incurred to deliver products to clients, resulting from decreases in fuel surcharges and in base transportation rates and from savings related to the use of the new transportation management system in the U.S.;
  • $2.9-million unfavourable foreign exchange impact that affected the conversion of the selling and administrative expenses of the U.S. entities into Canadian dollars;
  • Increase of certain administrative expenses;
  • Higher selling and marketing expenses;
  • $1.3-million decrease in expenses related to the multiyear strategy (the strategy).
• Excluding items impacting comparability, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $43.1-million, up $3.4-million from the same quarter last year.
• Profit attributable to the corporation's shareholders of $17.1-million, resulting in basic and diluted earnings per share (EPS) of $2.51, up $2.3-million and 37 cents, respectively, from the same quarter in 2022. Excluding items impacting comparability, adjusted EPS was $2.48 compared with $2.37 in the same quarter last year.
• As at April 1, 2023, long-term debt, including the current portion, stood at $268.4-million, representing a net debt to adjusted EBITDA ratio of 1.67:1.
• Dividend of 70 cents per share, paid on March 15, 2023.

Multiyear strategy

To provide clarity and orientation on the opportunities to pursue and to optimize capital allocation decisions, in early 2022, the corporation developed a multiyear strategy. This strategy aims to accelerate revenue growth, improve overall profitability and drive long-term value by focusing on three strategic pillars.

• Building a growth-oriented portfolio;
• Driving sustainable performance;
• Improving capacity to act.

Associated incremental operating expenses

During fiscal 2022, the corporation began its strategic review, completed the diagnostic step of Project Eagle, invested in a project to optimize the current capacity of its specialty food division and began implementing new cloud-based management systems, including demand planning and transportation management systems. During the first quarter of 2023, the corporation has mainly continued its implementation of new cloud-based management systems and made various investments in support of the three pillars of its strategy. The corporation reported expenses of $11-million in fiscal 2022 and additional expenses of $1.1-million in the first quarter of 2023.

Associated capital expenditures

The corporation is dedicating capital expenditures aligned with its strategy to support growth, enhance productivity, and invest in innovation and sustainable development. These investments included two projects in 2022 to improve production efficiency and capacity in Canada with a third project authorized in the first quarter of 2023, continuing to upgrade the enterprise resource planning (ERP) software in Canada along with investments in the U.S. to improve production efficiency and to deploy a new single serve line in the corporation's plant based in North Carolina.

Project Eagle

Launched in the second quarter of 2022, Project Eagle is a component of the corporation's strategy specifically aimed at revitalizing its underperforming U.S. operations, with the objective to capture growth, improve margins and drive long-term sustainable performance. In addition to reviewing the U.S. operations' products and customers portfolio, Project Eagle also seeks to identify and address key issues hampering performance within its supply chain and manufacturing facilities, including product simplification, process realignment, employee training and capital deployment.

After completing the diagnostic step of Project Eagle, the corporation recently took important steps to reduce its stock-keeping unit (SKU) complexity, harmonize packaging formats, consolidate formulas, and rationalize low-margin products and/or customers. The portfolio simplification should allow the corporation to reduce execution complexity, which would limit downtime related to production changeovers and ultimately increase throughput. The corporation also completed the first phase of the implementation of a cloud-based transportation management system. Early benefits from both initiatives began materializing in the first quarter performance.

The capital designated in support of Project Eagle will be deployed in three areas: (1) updating existing equipment to limit unscheduled downtime; (2) increasing throughput on existing equipment; and (3) investing in new equipment in support of increased capacity in on-trend formats. While the equipment upgrades are expected to result in short-term disruptions, the corporation expects they will be significantly outweighed by the medium- to long-term benefits.

Finally, some of the initiatives deployed under Project Eagle will ultimately benefit the rest of the organization; for instance, the deployment of new transportation management and demand planning systems are first rolled out in the U.S. and then throughout the corporation.

Outlook

Lassonde continues to expect the largest factors impacting its performance in fiscal 2023 will be the financial health of consumers, the inflationary environment, and the frequency and severity of supply chain disruptions. As a result, the corporation is making the following forward-looking statements for fiscal 2023:

Sales growth rate:

• During the first quarter of 2023, the corporation has taken additional pricing action on its branded and private-label product offerings, including adjusting contracts with certain customers to recover cost increases it incurred. It expects the run rate effects of such pricing action to be felt during the balance of the year. The corporation also expects further pricing action to be implemented over the course of 2023 as inflation persists.
• For 2023, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be in the mid- to high-single-digit range, mainly driven by selling price adjustments. The corporation is, however, closely monitoring the evolution of consumer food habits and demand elasticity in a context of price increases.

Productivity and service level:

• Labour and operational initiatives, together with fewer supply chain constraints, are expected to improve the corporation's ability to supply demand and return to historical order fill rate levels, particularly in the U.S.

Key commodity and input costs:

• The corporation has recently noticed some stabilization in the inflation trend of most of its input costs and is expecting this trend to continue until the end of fiscal 2023. However, the corporation is still closely monitoring the price of orange concentrate since the price for this key commodity has been at an elevated level over the past 12 months, even reaching a new historical peak of $2.86 (U.S.)/pounds sold in April, 2023.
• Given that a large portion of the raw material purchases made by Lassonde's Canadian operations are in U.S. dollars, a strengthening of this currency against the Canadian dollar could result in a higher cost for products sold in the Canadian market. Furthermore, the corporation is expecting an unfavourable foreign exchange impact for 2023 when considering its hedged positions.

Expenses, including expenses related to the strategy:

• The corporation's performance-related salary expenses are expected to return to normal levels in 2023.
• During 2023, Lassonde plans to continue deploying its strategy, revitalizing its U.S. operations and upgrading its technology infrastructures. It also plans to continue implementing new cloud-based demand planning and transportation management systems, the aim being to improve customer service and lower overall distribution costs. It also intends to explore the potential impact of upgrading its U.S. ERP. Spending in support of its strategy is expected to reach up to $10-million in 2023.
• Higher interest expense is anticipated given higher rates on floating rate debt as well as a higher average indebtedness level compared with 2022.

Effective tax rate:

• Effective tax rate should be about 26.5 per cent for fiscal 2023.

Working capital:

• As supply chain challenges appear to be dissipating, the corporation has revised its inventory accumulation strategy and, although noticing an increase at the end of the first quarter, it expects to progressively reduce its inventory levels. As a result, its days operating working capital should trend toward the upper end of its historical levels (pre-COVID-19) during 2023 and within its historical range by the end of fiscal 2024. However, this strategy might be impacted by (i) opportunistic decisions to secure inventory ahead of potential additional price increases from suppliers; (ii) the objective of ensuring an adequate service level; or (iii) the identification of new potential supply chain disruptions.

Capital expenditures:

• The corporation's overall capital expenditures program for 2023 is estimated to reach up to 4.5 per cent of its sales as it continues to deploy capital in support of its strategy. This estimate depends on the timing of disbursements for certain large capital projects and on the evolution of the macroeconomic environment. The corporation expects to return this ratio to a range of 2 per cent to 3 per cent of its sales (including a maintenance component and a certain growth component) by 2025. The new capital assets will be financed, to the extent possible, using the corporation's operating cash flows, although the corporation may also turn to borrowing if interest rates and conditions prove advantageous.

Dividend

In accordance with the corporation's dividend policy, the board of directors declared today a quarterly dividend of 50 cents per share, payable on June 15, 2023, to all registered holders of Class A and Class B shares on May 25, 2023. This dividend is an eligible dividend.

Conference call to discuss first quarter 2023 financial results

Open to: Investors, analysts and all interested parties

Date: Friday, May 12, 2023

Time: 1:30 p.m. ET

Call: 416-764-8658 (for Toronto and overseas participants), 1-888-886-7786 (for other North American participants)

A live audio broadcast of the conference call will be available on the corporation's website on the investors page. A replay of the webcast will remain available until midnight, May 19, 2023.

About Lassonde Industries Inc.

Lassonde Industries is a leader in the food and beverage industry in North America. The corporation develops, manufactures and markets a wide range of private-label and national brand products, including ready-to-drink beverages, fruit-based snacks as well as frozen juice concentrates. It is also a leading producer of cranberry sauces and specialty food products such as pasta sauces, soups, and fondue broths and sauces. The corporation also imports and markets selected wines from several countries of origin and produces apple cider and cider-based drinks.

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