ROUGEMONT, QC


,


Nov. 11, 2022


/CNW Telbec/ – Lassonde Industries Inc. (TSX: LAS.A) (“Lassonde” or the “Corporation”) posted sales of

$556

.4 million in the third quarter of 2022, up 18.6% year over year. The Corporation’s operating profit for the third quarter of 2022 totalled

$19

.9 million, down from

$25

.4 million in the same quarter last year. Excluding

$2

.8 million in expenses related to the multi-year strategy discussed below, operating profit was down

$2

.7 million. The 2022 third‑quarter profit attributable to the Corporation’s shareholders totalled

$14

.5 million, down

$2

.3 million year over year.

“In spite of the difficult current environment for manufacturers such as Lassonde, we have been able to deliver an 18.6% year-over-year sales increase this quarter,” said

Nathalie Lassonde

, Chief Executive Officer and Vice-Chair of the Board of Directors of Lassonde Industries Inc. “From a profitability standpoint, the steps taken to address short-term challenges including labour shortages and supply chain disruptions are beginning to have a positive impact on production volume. In parallel, our team is focused on strengthening our leadership position in

North America

and building a foundation for sustainable growth over the long term.”

“We are encouraged by the progress of our multi-year strategy to strengthen our manufacturing operations in the U.S. and increase the capacity of our plants across

North America

to meet future demand,” said Vince Timpano, President and Chief Operating Officer, Lassonde Industries Inc. “While we expect to accelerate the deployment of our CAPEX investments over the next six months, some work planned under the Project Eagle component of our multi-year strategy has been delayed as a result of labour shortages as well as limited parts and equipment availability,” he added. “In terms of production capacity, we are pleased with the successful launch of our new line in

Toronto

. As part of our multi-year strategy, the addition of new production capacity at our locations across

North America

remains on track.”

Multi-Year Strategy

To provide clarity and orientation on the opportunities to pursue and to optimize capital allocation decisions, in early 2022, the Corporation developed a multi-year strategy (the “Strategy”). This Strategy aims to accelerate revenue growth, improve overall profitability, and drive long-term value by focussing on three strategic pillars:

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

Project Eagle

While the Corporation is actively pursuing all the aspects of its Strategy, the initial focus is primarily on improving the performance of its U.S. operations through Project Eagle as well as the implementation of new management systems and the upgrading of technology infrastructures, first in the U.S. and then throughout the Corporation. Project Eagle is the 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 from process realignment, employees training to specific capital deployments, improving plant performance and supply chain execution. The capital designated in support of Project Eagle will be deployed in three areas: (i) updating existing equipment to limit unscheduled downtime, (ii) increasing throughput on existing capacity by securing new equipment, and (iii) investing in new equipment in support of increased capacity in on-trend formats. Although this extensive transformation process is creating short-term disruptions, the Corporation expects these will be significantly outweighed by the medium‑ to long-term benefits anticipated as a result of the transformation.

After completing the diagnostics phase of Project Eagle, the Corporation recently 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 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 an improved cloud-based transportation management system.

Financial




Results

• Sales of
  
  $556.4 million
  
  . Excluding a
  
  $10.9 million
  
  favourable foreign exchange impact, sales were up
  
  $76.2 million
  
  (16.3%) from the same quarter last year, mainly due to a favourable impact of selling price adjustments and to an increase in the sales volume of private label products in
  
  Canada
  
  .

• Gross profit of
  
  $125.4 million
  
  (22.5% of sales), down
  
  $0.7 million
  
  from the same quarter in 2021.

• Operating profit of
  
  $19.9 million
  
  , down
  
  $5.5 million
  
  from the same quarter last year;
• 
  $8.5 million
  
  increase in transportation costs, resulting from higher fuel surcharges and base transportation rates, incurred to deliver products to clients;
• 
  $7.6 million
  
  decrease in performance-related salary expenses;
• 
  $2.8 million
  
  in expenses related to the multi-year strategy; and
• Lower gross profit.

• Profit attributable to the Corporation’s shareholders of
  
  $14.5 million
  
  , resulting in basic and diluted earnings per share of
  
  $2.11
  
  , down
  
  $2.3 million
  
  and
  
  $0.32
  
  , respectively, from the same quarter in 2021.

• Operating activities used
  
  $0.7 million
  
  in cash compared to
  
  $23.9 million
  
  generated in the same quarter last year. This increase in cash outflows was essentially due to a change in non-cash operating working capital items, which used
  
  $20.8 million
  
  more than in the same quarter of 2021, mainly attributable to higher inventory levels.

• As at
  
  October 1, 2022
  
  , long-term debt, including the current portion, stood at
  
  $259.6 million
  
  , up
  
  $84.2 million
  
  from
  
  December 31, 2021
  
  .

Outlook

According to industry data, sales volume in the Canadian and U.S. fruit juice and drink markets decreased during the third quarter of 2022 compared to the same period last year. During the first nine months of 2022 and intensifying in the summer months, the private-label product value proposition is increasingly becoming the alternative of choice for consumers as inflation is being reflected in higher retail prices. The Corporation has noticed stronger demand for its private label products in the third quarter and early into the fourth quarter, while demand for its branded products has remained relatively stable.

Excluding the foreign exchange impact, Lassonde’s sales were up 12.0% in the first nine months of 2022 compared to the same period of 2021, mainly due to selling price adjustments. However, the Corporation’s U.S. operations have continued to endure labour and equipment-related challenges in addition to those related to the supply of certain raw materials and finished products affecting all its business units. While the overall demand is tapering, these challenges are impacting the Corporation’s ability to fully meet client demand in certain regions.

Lassonde’s profitability decreased in the first nine months of 2022, mainly due to manufacturing challenges and to inflationary pressures that are strongly affecting its key commodities as well as warehousing and transportation costs. To counter inflationary pressures and improve its profitability, the Corporation has implemented pricing actions on its branded and private label product offerings, as well as adjusted contracts with some clients to recover costs and it expects these pricing actions should continue to take effect throughout the remainder of 2022 and into early 2023.

As previously mentioned, Lassonde developed, in the first quarter of 2022, a multi-year strategy designed to drive long-term value, accelerate growth, as well as improve overall margins and profitability. During the last quarter of 2022, Lassonde plans to continue deploying its strategic review, revitalizing its U.S. operations, and upgrading its technology infrastructures. It also plans to continue implementing new demand planning and transportation management systems in the U.S., the aim being to improve customer service and lower overall distribution costs.

For the last quarter of 2022, barring any significant external shocks and excluding foreign exchange impacts, Lassonde expects that its sales growth rate should be slightly higher than that observed in the first nine months of the year, mainly driven by selling price adjustments. The Corporation is, however, closely monitoring the evolution of consumer food habits in the context of a contraction of the economy. The Corporation continues to address supply chain, labour and production challenges (in part due to a tight labour market) and continued inflationary pressures, which are particularly affecting packaging, apple and orange concentrates, and transportation costs. The U.S. dollar has been strengthening compared to most foreign currencies. Given a large part of purchases of 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 those purchases that are integrated in products sold mainly in the Canadian market. Although the foreign exchange risk management mechanism protects the Corporation’s exposure to rapid and temporary fluctuations in currencies, it does not offset the entirety of the exposure nor its coverage beyond the protected window. However, despite the current volatile environment, the impact of early initiatives to revitalize U.S. operations and the run-rate effect of selling price adjustments, including for its private label contracts, should deliver increasing benefits. As supply challenges appear to be slowly fading, the Corporation has revised its inventory accumulation strategy and expects to reduce its inventory levels in quantities to levels that should progressively converge towards historical averages. However, that strategy might be impacted by opportunistic decisions to secure inventory ahead of potential additional price increases from suppliers.

Earlier in the year, the Corporation’s overall capital expenditures program for 2022 was estimated to reach

$100 million

. Although maintaining its initial intent in terms of investments, the Corporation now anticipates capital expenditures for 2022 of approximately

$55 million

given the uncertain market environment and given supply-chain challenges that are resulting in longer lead times from equipment manufacturers and contractors. However, it should be noted that commitments made by the Corporation over the last few months toward its capital expenditures program far exceed the amount of capital expenditures currently recorded in the financial statements.

Dividend

In accordance with the Corporation’s dividend policy, the Board of Directors today declared a quarterly dividend of

$0.70

per share, payable on

December 15, 2022

to all registered holders of Class A and Class B shares on

November 23, 2022

. On an annualized basis, this dividend represents approximately 25% of the 2021 profit attributable to the Corporation’s shareholders. This dividend is an eligible dividend.

About Lassonde

Lassonde Industries Inc. is a leader in the food and beverages industry across

North America

. The Corporation develops, manufactures, and markets a wide range of products, including ready-to-drink juices and drinks, fruit-based snacks in the form of bars and bites as well as frozen juice concentrates. It is also a key producer of cranberry sauces as well as specialty food products such as pasta sauces, soups as well as fondue broths and sauces. Lassonde is committed to delivering great tasting products to more hands, serving more needs, across more occasions, every day by crafting quality food and beverages that consumers love, clients value, employees are proud of, and that demonstrate care for our planet.

The Corporation is the largest producer of fruit juices and drinks in

Canada

and one of the two largest producers of store brand shelf stable fruit juices and drinks in

the United States

(“U.S.”). Its products are sold under several brands such as Allen’s, Apple & Eve, Kiju, Oasis, Old Orchard,

Rougemont

and Sun-Rype. It also manufactures private label products for the vast majority of major retailers and wholesalers in

North America

.

Lassonde produces superior quality products through the expertise of more than 2,700 people working in 17 plants across

Canada

and the U.S. To learn more, visit

www.lassonde.com

Caution Concerning Forward-Looking Statements

This press release contains “forward-looking information” and the Corporation’s oral and written public communications that do not constitute historical fact may be deemed to be “forward-looking information” within the meaning of applicable securities law. These statements are based on current expectations, estimates, projections, beliefs, judgments, and assumptions on the basis of information available at the time the applicable forward-looking statement was made and considering the Corporation’s experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to objectives and goals, in addition to statements with respect to beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as “anticipate”, “continue”, “estimate”, “endeavor”, “expect”, “may”, “will”, “project”, “should”, “could”, “would”, “believe”, “plan”, “intend”, “design”, “target”, “undertake”, “view”, “indicate”, “maintain”, “explore”, “entail”, “schedule”, “objective”, “strategy”, “likely”, “potential”, “outlook”, “aim”, “propose”, “goal”, and similar expressions suggesting future events or future performance in addition to the negative forms of these terms or any variations thereof. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Various factors or assumptions are typically applied by the Corporation in drawing conclusions or making the forecasts, projections, predictions, or estimations set out in the forward-looking statements. These factors and assumptions are based on information currently available to the Corporation, including information obtained by the Corporation from third-party sources. In this press release, forward-looking statements include, but are not limited to, those set forth in the table below, which also presents some (but not all) of the key assumptions used in determining the forward-looking statements:

These assumptions are based on currently observed macroeconomic trends including employment, inflation and interest rates; strength of the U.S. dollar (compared to the Canadian dollar); and risk of economic slowdown or recession. These assumptions are also based on currently observed geopolitical and competitive environments as well as consumer behaviours. It should be noted that some of these macroeconomic trends are currently highly volatile and rapidly evolving. In preparing its outlook, the Corporation made assumptions that do not consider extraordinary events or circumstances beyond its control. The Corporation believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon.

Such forward-looking statements relate to future events, are by their very nature subject to many important factors that could cause actual results to differ materially from those contemplated. Readers are cautioned that the assumptions considered by the Corporation to support these statements may prove to be incorrect in whole or in part. Factors that could cause actual results to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following: the scarcity of labour in

North America

and the related impact on the hiring, training, developing, retaining and reliance of qualified and/or key personnel together with their productivity, employment matters (including compensation), compliance with employment laws across multiple jurisdictions, and the potential for work stoppages due to non-renewal of collective bargaining agreements; the availability of raw materials (including as a result of climate change, extreme weather, global or local supply chain disruptions, loss of key suppliers or supplier concentration, impact of pandemics, geopolitical developments, military conflicts, and trade sanctions) and related price variations, fluctuations in inbound and outbound freight costs, impact of oil (and its derivatives) prices on the Corporation’s direct and indirect costs, along with the Corporation’s ability to transfer those increases through price increases or other means, if any, to its clients in competitive market conditions; the availability and reliability of co-packers; the successful deployment of the Corporation’s Strategy, including significant components such as Project Eagle; cyber threats and other information technology-related risks relating to business disruptions, confidentiality, data integrity, and business email compromise-related fraud; changes and developments affecting our industry, including customer preferences, tastes and buying patterns, market conditions and the activities of competitors and clients; major events, such as systems and equipment failure, pandemics and natural disasters, or increased frequency or intensity of extreme weather conditions (including as a result of climate change), could lead to unanticipated business disruptions at any of the Corporation’s facilities or at certain suppliers; crisis management and the execution of the business continuity plan; changes made to laws (including tax and tariffs), regulations, rules and policies that affect the Corporation’s activities as well as the interpretation thereof, and new positions adopted by relevant authorities; disruptions in or failures of the Corporation’s information technology systems, including the ability to access and implement all technology necessary to achieve the Corporation’s targets, commitments, and goals, as well as the development and performance of technology, innovation and the future use and deployment of technology and associated expected future outcome; the increasing concentration of clients in the food industry, giving clients significant bargaining power that could limit the Corporation’s ability to raise its prices to offset inflationary pressures; failure to adapt to ever evolving consumer habits, tastes and preferences, including the increased demand for low-sugar products; the implementation, cost and impact of environmental sustainability initiatives, as well as the cost of remediating environmental liabilities; failure to maintain the safety and integrity of the Corporation’s products, which could result in product recalls and product liability claims for misbranded, adulterated, contaminated, or spoiled food products, along with reputational damage; the successful deployment of the Corporation’s health and safety programs, laws and regulations; serious injuries to an employee or the death of an employee, which could have a serious impact on the Corporation’s business continuity and reputation and lead to compliance-related costs; the implications and outcome of potential legal actions, litigations and regulatory proceedings to which the Corporation may be a party; the sufficiency of insurance coverage; threats to the reputation of the Corporation and its brands; the incurrence of restructuring, disposal, or other related charges together with the recognition of impairment charges on goodwill or long-lived assets, particularly in a context of challenging performance and rising cost of capital; fluctuations in interest rates and currency exchange rates; the effectiveness of commodity and interest rate hedging strategies; pension plan performance, including the adequacy of pension contributions, assets, and potential pension liabilities; and expected future cash flows and the sufficiency thereof, sources of capital at attractive rates, future contractual obligations, future financing options, renewal of credit facilities, and availability of capital to fund growth plans, operating obligations and dividends.

The Corporation cautions readers that the foregoing list of factors is not exhaustive. Readers are further cautioned that some of the forward-looking statements in this press release, such as statements concerning sales growth rate, capital expenditures, inventory levels and expenses associated with the Corporation’s Strategy, may be considered to be financial outlooks for the purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will be achieved.

More information about risk factors can be found under the “Uncertainties and Principal Risk Factors” section of the 2021 annual MD&A. Readers should review this section in detail. The annual MD&A is available on the Lassonde Industries Inc. website at

www.lassonde.com

and on the Corporation’s SEDAR profile at

www.sedar.com

.

Additional information concerning the Corporation, including its  Annual Information Form, is available on the Corporation’s SEDAR profile at

www.sedar.com

. All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Corporation does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.

SEDAR registration number: 00002099

SOURCE Lassonde Industries Inc.

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