SunOpta (US:STKL)2020-08-06 03:15Financial Data and Key Metrics Changes - The company reported a 6% revenue growth, a 45% increase in gross profit, and a 103% growth in adjusted EBITDA year-over-year [7][24] - Adjusted EBITDA increased to $20.5 million from $10.1 million in the prior year, with an estimated COVID-19 impact of a negative $2 million on adjusted EBITDA [8][27] - Gross profit was $39.7 million for Q2 2020, an increase of $12.4 million compared to $27.3 million in Q2 2019, with a gross margin of 12.8%, up from 9.3% the previous year [24][26] Business Line Data and Key Metrics Changes - The Plant-Based Food and Beverage segment grew 9.6% on an adjusted basis, with a gross margin of 18.2%, an improvement of 340 basis points from the prior year [12][13] - The Fruit-based business unit posted a 0.8% adjusted revenue increase, with gross margin expanding 350 basis points year-over-year [16][26] - The Global Ingredients segment achieved 6.9% adjusted revenue growth and a 300 basis point improvement in gross margin year-over-year [19][20] Market Data and Key Metrics Changes - The company experienced a modest negative impact on total revenue and EBITDA due to COVID-19, estimating a $10 million negative impact on revenue [10][24] - The plant-based business unit demonstrated resilience with strong retail demand, particularly in plant-based beverages and broth, despite challenges in foodservice sales [12][36] Company Strategy and Development Direction - The company is prioritizing investments in the Plant-Based Food and Beverage segment, which is seen as the primary driver of long-term growth [6][22] - Capital projects are on track to expand extraction capabilities, expected to come online in Q4 2020, potentially providing $100 million in additional revenue [15][22] - The company is focusing on operational execution to improve gross margins and create capacity in manufacturing facilities [6][10] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about future EBITDA growth and the ability to deliver consistent above-average results [6][7] - The company is confident in its strategy and positioning within the plant-based market, citing strong consumer trends driving demand [14][22] - Management acknowledged the challenges posed by COVID-19 but highlighted effective operational management and employee safety as priorities [9][10] Other Important Information - The company generated positive operating cash flow during the quarter, despite typical seasonal investments in working capital [8] - Total debt decreased to $448.9 million, down approximately $20 million from the first quarter and down $42 million from year-end 2019 [28] Q&A Session Summary Question: Pricing dynamics for strawberries and margin stability - Management is in discussions with customers to adjust pricing where possible throughout the third and fourth quarters and into 2021 [34][35] Question: Growth in retail versus foodservice for plant-based beverages - Strong growth was observed in both retail broth and plant-based beverages, with a quicker recovery in foodservice than expected [36] Question: Barriers to entry in the plant-based beverage market - Management highlighted technical manufacturing challenges and long lead times for capital equipment as barriers to entry, impacting competitors' ability to ramp production [37][39] Question: Fruit margins and expectations for the year - Management confirmed expectations to exit the year near a 10% gross margin for the fruit segment, despite challenges in harvest volume [44][45] Question: Capacity expansion and revenue potential - The company aims for full utilization of new capabilities within 24 months, with a strong sales pipeline supporting this goal [52] Question: Margin profile of new product launches - The new arbor fruit bar is expected to be margin accretive to the overall fruit snacks platform, emphasizing innovation in the category [63]