SunOpta Inc. Q2 FY2024 earnings call

Key Points

• Brian started by highlighting the quarter's performance, including 21% volume-driven revenue growth and adjusted EBITDA exceeding guidance. Volume growth was spread broadly across customers, panels, and product categories. The brands supported by SunOpta were outperforming their respective categories.
• On operational performance, in the second quarter, unit output in aseptic facilities increased by over 24% vs prior year, and in fruit snacks facilities by over 33%. The oat extraction expansion in Modesto came online, and Midlothian's third line started producing sellable product. Efficiencies are being driven through various projects across facilities.
• Priorities include growing volume by expanding customer relationships, acquiring new customers, and expanding TAM; driving operational improvements to increase output and sustainable margins; and maintaining a disciplined financial approach to deleveraging to under 3 times EBITDA by year-end.

In the second quarter, SunOpta saw volume-driven revenue growth of 21% and adjusted EBITDA of $20.6 million. Revenue growth was broad-based across customers, panels, and major product categories. The top three customers had double-digit revenue growth, top five customers posted an average year-over-year revenue growth of 23%, the fruit snacks business grew by over 24%, and the foodservice segment revenue increased at a double-digit rate. Revenue contribution % wasn't explicitly broken down by specific product segments but emphasized broad growth across various areas.

SunOpta is raising its 2024 revenue outlook to a range of $710 million to $730 million, representing growth of 13% to 16%. For adjusted EBITDA, the outlook remains $88 million to $92 million, a growth of 12% to 17%. The third quarter is expected to be similar to the second quarter with slight improvement, and both revenue and adjusted EBITDA are expected to increase in the fourth quarter. The company is accelerating supply chain investments to drive higher sustainable margins and improved profitability from the fourth quarter onward.

Q: Could you talk a little bit more about the upside in sales, whether it was more in the existing customer base, new additions ramping more quickly, or TAM part of the growth story?

A: Brian mentioned it was a little bit of everything, including new product launches, TAM expansion initiatives like protein shakes and plant-based beverages, and the fact that brands supported are outperforming their categories. Growth was across all areas where SunOpta provided strength.

Q: What makes your business different in foodservice despite broadly traffic trends in foodservice establishments?

A: SunOpta has a diverse customer base across channels (foodservice, club, retail). The brands supported are outperforming categories, and there's opportunity for innovation and co-development with customers, which can lead to growth at a different index than overall revenue streams.

Q: On volumes and margin, could you explain short term investments and confidence in inflection in the fourth quarter?

A: Volume growth tested the supply chain, and they're investing in areas like downline efficiencies, equipment maintenance uptime, labor and labor management, procurement, and inventory management. They're confident in producing volume and getting better at it, with cost per unit produced and labor unit produced better than Q2 2023 in some areas.

Q: How should we think about the potential for adding new business into the pipeline?

A: Brian stated they communicate what they see, not what they hope for, but continue working on a wide range of initiatives from growing share with customers to acquiring new customers and innovating with the portfolio while focusing on what they can see.