Resistance to price increases and continued soft demand in the United States foodservice market added up to disappointing results in the second quarter of 2015 for High Liner Foods. The Lunenburg, Nova Scotia, Canada-headquartered value-added frozen seafood company has reported that revenues decreased by $9.2 million, or 3.9%, to $226.3 million for the 13-week period ending on July 4, compared to $235.5 million generated in Q2 the year before.
Keith Decker“Sales and volume declines compared to the second quarter of fiscal 2014 resulted in earnings that were below our expectations,” stated Keith Decker, president and ceo. “Significant price increases due to raw material cost increases in 2014, along with the weaker Canadian dollar and some sales execution and promotion challenges, led to this sales and volume decline.”
It was not possible to pass on all price increases to customers, analysts and stock holders were told during a conference call on August 5. Cost pressure on haddock in particular already had impact in the back half of last year. Now, however, raw material prices are “moving in the right direction,” according to Decker.
Declines were more significant in the company’s value-added business, which ranges from premium fish dishes to shrimp and lobster products, than in the commodity segment during the second quarter. This is all the more reason then, said Decker, to ramp up promotion of its innovative Pulled BBQ Salmon offering, which won the “Best New Foodservice” award during the Seafood Expo North America in Boston earlier this year.
High Liner Foods aims to step up marketing and promotion of its award winning Pulled BBQ Salmon and other innovative foodservice and retail products in the second half of 2015.Volume Falls 9.5%
Sales volume decreased during the second quarter by 6.4 million pounds, or 9.5%, to 61.3 million pounds, compared to 67.7 million pounds sold in the same period last year. This primarily reflected lower sales volume from both US and Canadian operations, partially offset by the company’s acquisition of Miami, Florida-based Atlantic Trading Company last year.
Approximately 70% of High Liner Foods’ business, purchases as well as sales, is transacted in US dollars. The weaker Canadian dollar in the second quarter of 2015 compared to the same quarter in 2014 decreased the value of reported US dollar sales of the company’s Canadian dollar-denominated operations by approximately $8.6 million relative to the conversion impact last year.
An analyst participating in the August 5 conference call, noting that there have been 13 sequential declines in US market volume, wanted to know what ails that country’s foodservice sector.
Pointing out that since 2009 [Editor’s note: following the 2008 financial crisis, stock market meltdown and onset of the Great Recession] there has been a major re-set taking place on the US foodservice scene, Decker said “the industry is in better shape this year.”
This appears to be the case even as one of the world’s largest quick service restaurant operators continues to post disappointing results, and the restaurant count in the United States fell by 1% to 630,511 units during the year ending May 2015, according to a survey conducted by the Chicago-headquartered NPD Group. Fast casual chain outlets, however, registered a 7% increase during the same period.
On the retail business side of the ledger, Decker reported that activity in both the US and Canada is “down approaching double digits.” This holds true for major competitors across the board in the US as well, he added.
Sales in domestic currency decreased in the second quarter by $0.8 million, or 0.3%, to $241.8 million, compared to $242.6 million in 2014. This reflected lower overall sales volume, partially offset by the impact of price increases in both the US and Canada.
Net income decreased in the second quarter of 2015 by $1.2 million, or 23.1%, to $4.0 million ($0.13 per diluted share) compared to $5.2 million ($0.17 per diluted share) in the second quarter last year. The decrease reflects lower adjusted EBITDA, partially offset by lower one-time expenses and lower tax expense.
Net cash flows provided by operating activities decreased in the second quarter of 2015 by $13.6 million to $9.1 million compared to $22.7 million in the same period last year, due to lower cash flows from changes in net non-cash working capital.
First Half Results
Financial and operational highlights for the 26-week period that ended on July 4 were reported as follows:
- Sales decreased by $1.6 million, or 0.3%, to $536.6 million compared to $538.2 million during the first half of 2014
- Turnover in domestic currency increased by $16.0 million, or 2.9%, to $568.7 million compared to $552.7 million
- Adjusted EBITDA decreased by $0.5 million, or 1.1%, to $43.4 million compared to $43.9 million
- Adjusted EBITDA in domestic currency increased by $0.7 million, or 1.6%, to $45.6 million compared to $44.9 million
- Reported net income decreased by $0.6 million, or 3.5%, to $16.5 million (EPS of $0.53) compared to $17.1 million (diluted EPS of $0.55)
- Adjusted net income decreased by $1.0 million, or 4.7%, to $20.3 million (adjusted diluted EPS of $0.65) compared to $21.3 million (adjusted diluted EPS of $0.68).
Positive Outlook
Looking ahead, Decker expects to see volumes bounce back into positive territory during the second half of the year.
“With an improvement in sales trends towards the end of the second quarter, we will continue to focus on increasing volume in the remainder of 2015. Volume improvements will help to achieve the benefits related to our supply chain optimization initiatives and improve earnings. These efforts will be further assisted to the extent we realize expected lower seafood raw material prices,” he concluded.
About High Liner Foods
High Liner Foods’ retail branded products are sold throughout the United States, Canada and Mexico under the High Liner, Fisher Boy, Mirabel and Sea Cuisine labels, and are available in most grocery and club stores. The company also markets branded products under the High Liner, Icelandic Seafood, FPI, Viking, Mirabel, Samband of Iceland and American Pride Seafood labels to restaurants and institutions, and is a major supplier of private label value-added frozen seafood items to North American food retailers and foodservice distributors.
