Ms. Nathalie Lassonde reports

LASSONDE INDUSTRIES INC. ANNOUNCES ITS Q3-2023 RESULTS

Lassonde Industries Inc. has released its financial results for the third quarter of 2023.

"Lassonde Industries delivered solid third quarter results, driven by improved execution throughout our operations," said Nathalie Lassonde, chief executive officer and vice-chair of the board of directors of Lassonde Industries. "During the quarter, we also held our first investor day, highlighting the depth and quality of our management team and reinforcing our confidence for the future."

"Reflecting our ability to execute against strategic priorities, all divisions once again improved their profitability in the third quarter when compared to last year. We benefited from ongoing share growth in our Canadian beverage division and from improvements in our U.S. operations, bolstered by the portfolio optimization process and the deployment of new technology, which more than offset lower sales volume," said Vince Timpano, president and chief operating officer, Lassonde Industries. "To achieve our long-term objectives, we remain focused on building back U.S. volumes, fortifying our leading position in Canada, and accelerating the growth of our specialty food business through a combination of organic and investment-driven growth."

Third quarter highlights:

• Sales of $583.4-million. Excluding an $8.1-million favourable foreign exchange impact, sales were up $18.9-million (3.4 per cent) from the same quarter last year, mainly due to the favourable impact of selling price adjustments, partly offset by a decrease in sales volume, essentially in the United States.
• Gross profit of $146.3-million (25.1 per cent of sales), up $20.8-million from the same quarter in 2022. Excluding a $3.3-million unfavourable foreign exchange impact, gross profit was up $24.1-million from the same quarter last year:
  • Higher gross profit for all of the corporation's divisions;
  • Favourable impact of selling price adjustments to offset cost increases;
  • Higher cost for certain inputs, especially apple and orange concentrates;
  • Gross profit loss of $1.5-million in 2022 following a production interruption on the cranberry sauce line at the corporation's New Jersey plant.
• Operating profit of $35.7-million, up $15.9-million from the same quarter last year:
  • Higher gross profit;
  • $14.3-million increase in performance-related salary expenses;
  • $11.1-million decrease in transportation costs incurred to deliver products to clients, resulting (i) from decreases in fuel surcharges and in base transportation rates; (ii) from savings related to the use of new processes and the transportation management system in the U.S.; and (iii) from a decrease in sales volume.
• Excluding items impacting comparability, adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $52.9-million (9.1 per cent of sales), up $14-million from the same quarter last year.
• Profit attributable to the corporation's shareholders of $24.3-million, resulting in basic and diluted earnings per share (EPS) of $3.56, up $9.8-million and $1.45, respectively, from the same quarter in 2022. Excluding items impacting comparability, adjusted EPS was $3.67 compared with $2.54 in the same quarter last year.
• As at Sept. 30, 2023, long-term debt, including the current portion, stood at $208.5-million, representing a net debt to adjusted EBITDA ratio of 0.98:1. This is down $40.8-million from Dec. 31, 2022.
• Dividend of 50 cents per share, paid on Sept. 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 the first nine months of 2023, the corporation has mainly continued its implementation of new cloud-based management systems and made additional investments to optimize its production network. For this purpose, the corporation reported expenses of $1.2-million and $4.3-million, respectively, in the third quarter and first nine months 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 include (i) three projects to improve production efficiency and capacity in Canada; (ii) further upgrades to the enterprise resource planning (ERP) software in Canada; along with (iii) 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

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

The corporation took important steps to reduce its stock-keeping units (SKU) complexity, harmonize packaging formats, consolidate formulas, and rationalize low-margin products and/or customers. The portfolio simplification reduces execution complexity by limiting downtime related to production changeovers, which should increase throughput. The corporation also completed the implementation of a cloud-based transportation management system, and more recently, implemented a demand planning system and deployed a new supply planning and production scheduling tool. Some of these initiatives will ultimately benefit the rest of the organization; for instance, the transportation management and demand planning systems are first rolled out in the U.S. and then throughout the corporation.

Benefits from those initiatives began materializing in the performance of the first nine months of 2023 and the corporation expects further benefits as it gradually builds back volume following the portfolio simplification.

Outlook

The corporation is making the following forward-looking statements for fiscal 2023:

Sales growth rate:

• During the first nine months of 2023, the corporation has taken additional pricing action on its branded and private-label product offerings, including adjusting contracts with certain private-label customers to recover as much as possible the cost increases it incurred. It expects the run rate effects of such pricing action to continue to be felt during the fourth quarter. The corporation is also taking further pricing action during the fourth quarter mainly due to the higher cost of orange concentrate.
• For 2023, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be in the mid-single-digit range, mainly driven by selling price adjustments partly offset by lower volumes. The corporation keeps 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, have thus far helped, and should continue to help during the fourth quarter, to improve the corporation's ability to meet demand and return to historical order fill rate levels, particularly in the U.S.

Key commodity and input costs:

• So far in 2023, the corporation has noticed some stabilization in the inflation trend of most of its input costs and is expecting this trend to continue until the end of the year. However, the corporation is closely monitoring the price of orange concentrate, a key commodity for the corporation, which has been trading at historically high levels for the last 12 months, even reaching a new peak of $4.32 (U.S.)/pounds sol. in October, 2023. The information currently available indicates that this trend will continue to persist for a foreseeable future. The corporation is also monitoring the price of cranberries and sweeteners.
• Given that a large portion of the raw material and packaging 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:

• In 2022, the corporation had experienced a $13.9-million decrease in performance-related salary expenses, whereas in 2023, all other things being equal, these expenses should return to the upper range of the levels seen in the past.
• 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 upgrade its U.S. ERP. Spending in support of its strategy is expected to reach approximately $7.5-million in 2023.
• The interest expense for the fourth quarter of 2023 will be higher than that of fourth quarter 2022 given higher rates on floating rate debt.

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 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 cost ahead of potential 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 this ratio to return 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 Dec. 15, 2023, to all registered holders of Class A and Class B shares on Nov. 23, 2023. This dividend is an eligible dividend.

Conference call to discuss third quarter 2023 financial results

Open to: Investors, analysts and all interested parties

Date: Friday, Nov. 10, 2023

Time: 1:30 p.m. ET

Call: 604-638-5340 (for international participants), 1-800-319-4610 (for 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, Nov. 17, 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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