Primo Brands Corp Q1 FY2025 earnings call

• In Q1 2025, comparable net sales were $1.61 billion, up 3%, driven by 2.8% volume growth and 0.2% price or mix growth. Organic growth was 2.6% and inorganic growth was 0.4%.
• Normalized comparable net sales growth was 4.2% when accounting for the leap day impact in Q1 2024. Comparable adjusted EBITDA increased 12.1% with a margin of 21.2%, up 170 basis points from the prior year, due to synergies, cost optimization, and enhancing the organic operational consumer value equation.
• For brand leadership, Saratoga was official water of Golden Globes, Mountain Valley got natural endorsements from professional athletes, and regional spring water and national purified water brands were official water of MLB. Retail household penetration increased 110 basis points year over year in Q1.
• For net organic growth, solidified position as largest branded player in bottled water category, grew organic business, and introduced new six-count PET versions of premium waters into mass channel.
• Focus on providing exceptional customer service experience, monitoring key metrics, evolving digital presence, and expanding direct delivery service brand portfolio.
• In operational excellence, made progress in demand forecasting tools, Hawkins, Texas factory recovered quickly from tornado with no injuries after impact.
• Aimed to be first choice for stakeholders, valued partnerships with retailers, and will release 2024 sustainability report later this month, and participated in ocean cleanup projects.
• Focused on network optimization, cost consolidation, etc. in 2025, dispenser business exposure to tariffs is minimal, accounting for ~1% of net sales.

In the first quarter of 2025, comparable net sales reached $1.61 billion, reflecting a 3% increase. This growth was driven by a 2.8% volume increase and 0.2% price or mix growth. Organic growth contributed 2.6% while inorganic growth added 0.4%. Comparable adjusted EBITDA for the quarter rose to $342 million, a 12.1% increase compared to the prior year, with a comparable adjusted EBITDA margin of 21.2%, a significant improvement of 170 basis points over the prior year. Sales growth was achieved across all core water solution offerings and channels.

• Reaffirmed comparable net sales guidance of 3% to 5% growth.
• Full-year 2025 adjusted EBITDA expected to be between $1.6 billion and $1.628 billion with an implied margin of ~23.1% at midpoint, including $200 million cost synergy opportunity in 2025.
• Adjusted free cash flow guidance for 2025 is between $790 million and $810 million.
• Capital expenditures forecasted at ~4% of comparable net sales plus ~$200 million integration-related CapEx in 2025 and $50 million in 2026. Insurance claim will cover repair costs of Hawkins tornado facility less deductible, and business interruption reimbursement details to come later.

• Uncertainty in tariff environment, dispenser business (~1% of net sales) is primarily impacted.
• Hawkins, Texas factory tornado caused disruption to supply chain in Southern Region, repair may cost ~$50 million, with timing mismatch of capital outflow and insurance reimbursements.

Q: Ask about the performance of premium brands Saratoga and Mountain Valley and their future plans and performance expectations.

A: Robbert said Saratoga and Mountain Valley performed well, with 49% sales growth in Q1. Saratoga will focus on away-from-home channels like restaurants, and Mountain Valley added spring and glass bottling capacity and will be at the Academy of Country Music Awards.

Q: About the main elements of the EBITDA beat relative to internal plan and market expectations.

A: Robbert said EBITDA was driven by volume growth, customer demand, and effective cost control. David added that $20 million integration capture was on plan, and base business performed better than expected with efficiencies from integrating infrastructure.

Q: About sales growth acceleration and price mix situation.

A: Robbert said Q1 was mainly volume-driven, price had little growth to maintain consumer value and competitiveness, and will achieve 3% - 5% organic growth through increasing distribution points, etc. David added that price mix will be harmonized in last mile and other aspects later.

Q: About transitioning from soft organic growth in Q1 to full-year guidance and Poland Spring brand.

A: Robbert said normalized organic net sales growth of 4.2% after correcting leap day impact was in line with 3% - 5% guidance, and growth was achieved through adding supply of Mountain Valley and Saratoga in direct delivery and testing adding regional spring water to exchange racks in Walmart. David added that Easter promotion timing difference affected Q1, but will improve later.

Q: About the durability of HOD business in tight consumer spending environment and impact of tornado on guidance.

A: David said HOD business had improving website efficiency and slightly higher customer retention through integration, and tornado impact on EBITDA is offset by business interruption reimbursement, and on net sales is a timing issue.

Q: About service level tracking and synergy capture rhythm.

A: David said tracked metrics like on-time and full stock rates, NPS, etc., and $20 million synergy capture in Q1 was a good start, and will increase sequentially to achieve full-year synergy opportunity.