High Liner Foods reported mixed results for the first quarter of 2020 ending on March 28, as the Lunenburg, Nova Scotia, Canada-headquartered value-added frozen seafood specialist’s sales volume declined by 1.2 million pounds, or 1.5 percent, to 77.3 million pounds. Sales value decreased by $8.8 million to $268.6 million, while gross profit rose $2.7 million to $58.8 million and gross profit as a percentage of sales increased by 170 basis points to 21.9%.
Net income for the 13-week period fell by $0.6 million to $14.2 million compared to $14.8 million, and diluted earnings per share decreased to $0.41 compared to $0.43.
“Our improving financial performance in Q1 reflects significant progress and momentum in our business,” said President and CEO Rod Hepponstall. “Our work to drive continuous improvement across our business has significantly enhanced our ability to respond to the extraordinary challenges posed by Covid-19. We enter this period as strong as we have ever been.”
He continued: “Our fully integrated and flexible supply chain is allowing us to maximize supply to our retail customers who continue to have increased demand for frozen seafood products at this unprecedented time. We are able to deliver excellent fill rates to our retail customers by leveraging excess capacity in our foodservice business that surfaced due to Covid-19 restrictions.”
The company is well positioned to navigate through the current challenges posed by disruptions from the coronavirus pandemic, including economic uncertainty and fluctuating customer demand for products thanks to its significant liquidity, integrated North American operations, solid balance sheet, and prudent cost management measures.
“We are grateful for the dedication and commitment of our employees, especially those on the front line in our production and warehouse facilities,” said Hepponstall. “Their safety will remain our top priority as we ensure the essential steady supply of seafood to meet the needs of families across North America.”
Covid-19 Related Update
High Liner Foods responded quickly to the dramatic impact of the coronavirus on its business and that of key customers and stakeholders. The company’s Covid-19 Task Force is focused on enhanced health and safety protocols for all employees, including putting in place additional measures to safeguard workers and to facilitate social distancing. It will continue to adapt and adopt best practices that prioritize the health and safety of its employees and the stability of food supply from its facilities.
Starting mid-March, High Liner experienced an unprecedented surge in orders from retail buyers tied to Covid-19 that continues today. The company has been able to meet the increased demand and satisfy customers with excellent fill rates by redirecting resources, inventory and production capacity across its integrated North American operations.
Over the same time period there has been a significant decline in foodservice business [which represented approximately 65% of total sales in 2019] as a result of the closure of restaurants and schools across North America. Demand from institutional foodservice customers, such as long-term and health care facility operators, has remained relatively stable since the onset of the pandemic’s spread from China and Europe to the United States and Canada.
The company’s overall supply chain has operated with minimal disruption during the health emergency despite operating fewer production lines overall and implementing social distancing measures. There have been limited interruptions in production, transportation and warehousing activities, and no significant issues related to the procurement of raw materials and ingredients.
Production resumed on April 27 at High Liner Foods’ plant in Portsmouth, New Hampshire following a short operational suspension put in place by activation of the company’s Covid-19 response plan.
Like other food processors, High Liner is experiencing increased costs associated with Covid-19. This includes extraordinary recognition pay for frontline employees, unexpected outlays for personal protective equipment, safety enhancements and increased sanitation requirements. It is taking the necessary steps to manage spending and preserve cash to minimize impact from the coronavirus crisis, including workforce adjustments and deferring approximately $6 million of the $15 million previously planned for capital expenditures in 2020.
Outlook Uncertain
The company’s outlook is directly impacted by the duration of government imposed social distancing measures related to the epidemic, specifically timing for re-opening of currently shuttered segments of the foodservice industry and related consumer behavior which at this point remains uncertain. It is not known whether potential future production disruptions will occur and whether incremental costs associated with Covid-19 will extend beyond the second quarter.
Despite the strength in retail business, High Liner anticipates that declines on the foodservice side of the ledger may limit its ability to deliver year-over-year EBITDA growth. The company will continue to offset the impact of this decline by strengthening its retail capacity and carefully managing costs. It is also working in partnership with hospitality customers as they pivot to food take-out and delivery options, and to ensure readiness for a quick ramp up as and when social distancing restrictions are lifted across North America and consumer demand returns to some semblance of normalcy.
High Liner is confident in its liquidity position as a result of prudent cash management and early refinancing of debt in 2019. The company does not have any impending debt maturities and will continue to utilize its $150 million working capital credit facility if required. Borrowings on this facility, net of cash on hand, are currently approximately $28.9 million.
On May 12 the board of directors approved a quarterly dividend of CAD $0.05 per share on common shares, payable on June 15 to holders of record on June 1, 2020.
