Welcome, everyone, to the Canada Packers Third Quarter 2025 Earnings Conference call. Today's conference is recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Annemarie Gerber . Please go ahead.
Good morning, everyone. Thank you for joining Canada Packers' Third Quarter 2025 Financial and Operating Results Conference Call and Webcast. My name is Annemarie Gerber , and I am the Director of Communications for Canada Packers. This conference call is being recorded today and is also available through an audio webcast on the company's website. All lines are currently on mute to prevent any background noise. Following the speaker's remarks, there will be time for questions. Analysts and investors are reminded that questions can also be directed to Canada Packers at any time to investors@canadapackers.com. This call contains forward-looking information with the meaning of applicable Canadian securities laws relating to activities, events, or developments the company believes, or expects will, or may occur in the future. Forward-looking information reflects the current expectations, assumptions, and beliefs of the company based on information available to it.
Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. Company documents filed from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions, and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking information except as required by law. Earlier this morning, Canada Packers issued a press release disclosing its Third Quarter 2025 financial results.
The press release, as well as our third quarter financial statements and management's discussion and analysis, was filed on SEDAR+ and also may be accessed on the company's website under the Reports and Filings section of the Investors' tab at canadapackers.com. The company also posted its Q3 2025 financial and operating results presentation to its website, which can be found under the Investors' tab under Events and Presentations. I would now like to turn the call over to Mr. Dennis Organ, President and Chief Executive Officer of Canada Packers. Dennis, the call is yours.
Thank you, and welcome everyone to Canada Packers' Inaugural Financial and Operating Results Conference Call. I am joined today by Deepak Bhandari, our Chief Financial Officer, who will provide a detailed review of our financials shortly. Today, we will review our Third Quarter 2025 results and provide an update on our priorities for the quarters ahead. We are immensely proud to be here for this important milestone in our journey to unlock our full potential as an independent, category-defining leader in premium sustainable pork. Canada Packers was founded in 1927 when several pioneering meat companies joined together to form what would become one of Canada's most trusted names in food. For nearly a century, we have proudly delivered premium pork to customers around the world. In October, we began trading independently on the Toronto Stock Exchange under the ticker CPKR, marking a new chapter in that legacy.
The CPKR symbol has deep roots in our history, and bringing it back reflects both our respect for the past and our confidence in the future. Generations of dedicated employees, farmers, and partners built this company through hard work, integrity, and an unwavering commitment to quality. To them and to everyone who continues that tradition today, I want to express my gratitude. To the shareholders and analysts who followed us for Maple Leaf Foods and continue to believe in the value we are unlocking, thank you for staying with us. To the new investors joining us for the first time, welcome. We are glad you are here. Discipline and delivery will define Canada Packers. We will compete and grow through operational excellence and a commitment to sustainability in all things. Our focus is on consistent execution, transparency, and building long-term value for our stakeholders.
One of the unique advantages of our model is that many of our key drivers are visible and measurable. From USDA pork cut-out values to global feed and grain prices, investors can track in real time the variables that shape our performance. That transparency, combined with disciplined execution, positions us well as a newly independent company. We begin our public life with momentum, a solid balance sheet, and strong cash generation. That strength gave the board confidence to declare Canada Packers' inaugural quarterly dividend of CAD 0.23 per share, announced this morning. It represents a healthy yield and signals our commitment to delivering shareholder returns from day one. Before turning to the quarterly results, I want to highlight what differentiates Canada Packers in the global marketplace.
Our portfolio is built around premium value-added pork designed to meet the needs of strategic customers in the world's leading pork-importing countries and at home in Canada. We optimize the whole hog across our customer base, matching each cut to the geography and partner that delivers the highest value. About 40% of our revenue comes from North America, where we serve strategic retail and food service accounts, partnering with them as experts in solution-based selling to meet the needs of their consumers. Another 40% comes from export markets, which are primarily Asia, including Japan, South Korea, China, and the Philippines, where we collaborate with leading distributors to deliver premium pork to some of the world's most discerning markets. The remaining 20% comes from the supply agreement with Maple Leaf Foods, providing stable, long-term volume and margin visibility.
Simply put, we sell a better mix of products to a better mix of countries, giving us a durable competitive advantage and supporting premium, consistent margins. That strategy, combined with favorable market conditions, produced strong results in the third quarter. We delivered double-digit sales growth year- over- year, driven by continued operating momentum, strong on-farm performance, and higher market pricing, supported by tight North American supply, high competing meat values, and low U.S. breeder stocks. Our top-line performance also benefited from higher processing volumes. We processed 37,000 more hogs than the prior year, a 3.7% increase, returning to a normalized growth rate after a first-half spike of 6%. These gains were driven primarily by improvements within our company-owned hog operations, including better animal health, nutrition, and farm management.
That performance pushed utilization to roughly 85% of capacity, up several points from last year, yet still leaving significant room for capital-like growth simply by filling our plants further. Internal volume growth also allowed us to capture more of the vertically integrated spread as declining feed costs coincided with stronger market pricing. The combined impact of strong execution and favorable markets resulted in significant Adjusted EBITDA gains for the quarter compared to prior year. As we look ahead, our focus is on disciplined execution and unlocking the full potential of our business. We are committed to operational excellence in every part of the value chain, from how we raise our pigs to how we run our plants and how we serve our customers around the world. Our profitability and resilience reflect our diversified global footprint, premium product mix, and consistent performance.
Our Chapter One strategy is straightforward: utilize existing capacity, protect our strong cash-generating business, and build the financial flexibility required to fund our Chapter Two growth, which will continue to enhance shareholder value. With that, I'll now turn it over to Deepak to dive deeper into our financial results and performance drivers.
Thank you, Dennis, and good morning, everyone. I share Dennis's pride in our strong operational and financial performance and the smooth transition we have made to operating independently. I'll now turn to our financial performance for the quarter. It is important to note that prior to July 28, Canada Packers did not operate as a standalone business within Maple Leaf Foods. As a result, our prior-year comparatives reflect carve-out statements, and our third-quarter results represent a hybrid period as we began operating under the supply agreement and the long-term service agreement rather than having costs allocated by Maple Leaf Foods. Accordingly, where possible, I will be referencing estimated performance numbers in addition to reported numbers because we believe they better reflect the operating performance of Canada Packers as a standalone entity.
This will only be necessary during this transitionary quarter as our fourth-quarter results will be a full quarter with standalone financial performance with prior-year carve-out comparatives. Turning to sales, we delivered performance sales of approximately CAD 475.6 million, representing an increase of CAD 74.3 million, or 18.5%, compared to prior year. Reported sales for the same period were CAD 481.8 million, which represented an increase of CAD 61.6 million, or 14.7%, compared to prior year. Our sales growth was driven by strong market pricing, increased hog volumes, higher average hog weights, as well as favorable U.S. and Japanese yen exchange rates. As a result of our continued focus on operational efficiency, we improved our processing volumes to 1.04 million hogs, or a 3.7% increase compared to the prior year.
In the third quarter, about 47% of hogs processed were internally sourced, and 53% were purchased from external suppliers, compared to 44% and 56%, respectively, in the prior year. We reported earnings for the quarter of CAD 25.6 million, representing a 31.7% increase over prior year. After removing the impact of the non-cash fair value changes in biological assets and derivative contracts, startup costs, and items included in other expenses that are not representative of ongoing operations, adjusted earnings for the quarter was CAD 47.5 million, or a 69.9% increase from prior year. We generated proforma-Adjusted EBITDA of approximately CAD 56.2 million during the third quarter, an increase of CAD 15 million, or 37%, compared to the prior year. The proforma-Adjusted EBITDA margin improved by 160 basis points to 11.8%. Our reported Adjusted EBITDA for the same period was CAD 60.2 million, representing an increase of CAD 19 million, or 44.7%, compared to the prior year.
The reported Adjusted EBITDA margin improved 260 basis points to 12.5%. Our increased profitability was driven by higher hog volumes processed and a significant improvement in the vertically integrated spread due to strong cut-out values and lower feed costs. This was partially offset by a decline in the packer spread compared to the prior year. During the quarter, we invested CAD 10.6 million in capital, compared with CAD 8.5 million in the third quarter of the prior year. In the third quarter, we reported adjusted free cash flow of CAD 42.4 million due to the strong profitability discussed earlier. From a capital allocation perspective, we remain focused on strengthening our balance sheet through free cash flow generation, deleveraging, and returning capital to shareholders.
As Dennis mentioned, we are pleased to announce that our board of directors have approved a quarterly dividend of CAD 0.23 per share, representing an annualized rate of CAD 0.92 per share, right in the middle of our target range. The dividend will be payable on December 31 to shareholders of record at the close of business on December 10. This reflects the durability of our profitability and our ability to generate strong free cash flow, allowing us to execute our capital allocation priorities of deleveraging and returning capital to our shareholders. I will now turn the call back over to Dennis.
Thank you, Deepak. As you have heard today, we are off to a strong start as a public company. We have the right team, the right operating philosophy, and the right strategy to deliver consistent, profitable growth. Our vision is clear: to be the global standard in sustainable pork as accelerating global demand for premium, responsibly produced protein continues to grow. We will stay disciplined, operate with excellence, and fill our plants with the gold standard pork our customers expect, all while staying true to our purpose: proudly raised, responsibly made. We are excited to build on this momentum and create long-term value for our investors. Thank you for your continued support. I look forward to updating you on our progress when we report our fourth-quarter results. With that, I'll turn the call back over to the operator for questions.
Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll go first to Michael Van Aalst at TD Cowen.
Hi, good morning, and congratulations on the spin and the first strong quarter. I wanted to ask you about the hogs processed because you were up 3.7%, which is, don't get me wrong, it's still a very good number, obviously. Like you said, you were at 6% in the first half. Can you just explain the cause of that dip in the hogs processed? Was it something that was available to you in the first half that was not there in Q3, or are you just lapping tougher comps now? What caused that slowdown?
Yeah, hello, Mike, and thanks for being on the call. Remember, two years ago, we started focusing on our operational excellence on our farm operations, driving out costs and improving performance. What'll happen for us is this growth will average around 2-3%, but it might be lumpy because as we make improvements on the farms and it takes time for those to work their way through our system to be market hogs, that's why we had a spike, and we're returning back towards more normal levels. When we start procuring hogs on the outside, it might be a little bit more consistent, our growth, because there'll be sort of smaller managed numbers. I think we saw the one big wave. It's in our numbers now, and so we think we'll be back toward normalized levels.
When you cycle that first half next year, do you expect to be able to grow off of that base, or was there some kind of flood of hogs that you don't expect to recover?
We anticipate to grow 2-3% top-line processing volume during Chapter One, which, say, this is roughly three years.
Okay, perfect. And then you mentioned 85% capacity utilization. Is it reasonable to expect 100% is possible, or do you have to leave a buffer?
You leave a buffer. This is mid-90s is more typical. Our mid-90s is on a five-day workweek. If you compare to the U.S., they work what we call a five and a half, which is basically every other Saturday. Remember the way that we're growing. We're doing this in roughly 100,000-head increments, making sure that we're validating the profitability of this growth as we go. Have a pretty good line of sight to the next year and two years, but we're going to continue to revisit that. There's nothing that says we couldn't flex into higher if we wanted to at some point. Right now, Chapter One, five-day workweek, mid-90%.
You could go to five and a half day like in the U.S., so nothing stopping you in terms of your union contract or anything like that?
Nope, nope.
Okay. All right. This final question. On Maple Leaf's call, they suggested they expected to continue to see some margin pressure in Q4 like they did in Q3 from their higher cut-out or higher costs of the cuts that they were buying. I know they do not buy all the cuts in the same balance, but you guys sell all the cuts in the same balance, pretty much. To what degree can we expect that your performance in Q4 will mirror Q3 versus kind of falling off with the hog prices that we are seeing right now?
Hi, Mike. It's Deepak. I'll answer that question for you. When you think about our Q3 results, one of the big drivers was the vertically integrated spread, which was driven largely by an inflated cut-out, as you talked about earlier. There will be normal seasonality of cut-outs that will happen in the fourth quarter. The cut-out tends to decline seasonally in the fourth quarter, and that spread will tighten. Still be very favorable, but it will tighten relative to our Q3 performance, and that will have an impact on our earnings in Q4 relative to Q3.
Yeah, again, that's not unexpected given the seasonality, but that's good to clarify. Thank you very much.
We'll go next to Irene Nattel at RBC.
Thanks, and good morning, everyone. I'll echo Mike's congratulations. Taking a step back. I kind of lost track, Dennis, of the number of times you used the word disciplined in your opening remarks. Yes, disciplined and consistent, we got those. We got those. I guess the real question is, you said you were focused on discipline execution, unlocking full value. Where are the biggest buckets that you see in terms of, I think you outlined, how you raise the hogs, how you run the plants, and how you serve the customers?
Correct. The way I would think about it, the first large improvement we had was on the farms, and that's where we were talking about the arrival of these hogs for the 6% growth last quarter. Now we're focused on in-plant operations. We have some opportunity to do a better job of controlling those costs. Just coming out of a spin, there are things that we're looking at that are more productivity than activity, just the processes we use, and really trying to take a hard look at our SG&A. Then the full range is on the sales optimization side as well. Some of the things that are going on today, we talked about a little bit in the markets. There's strength in Mexico. EU production is down, and that's helping us with North America meat markets.
We're constantly in a position where we're positioning meat, constantly in a situation where we're positioning meat to the most valuable place. Things to think about for us is, one, launching Canada Packers, the brand in Western Canada. We have a specific competitive advantage in Western Canada because of the capabilities that we offer in that market. Also, realizing that in Japan, we operate as closer to a branded company. We have a three-tier program: gold, silver, bronze, and we're working consistently. Today, we're working on brand refreshing, refreshing our brand strategy and our go-to-market strategy in Japan. We think we're in pretty good shape on the raising costs, work to do on the manufacturing side. Always the discipline and durability that we talk about in our businesses because we can position, we're agile.
We can position the meat into the most opportunistic locations, and that is where we end up with that EBITDA range. We are trying to continue to distance ourselves from the competition by differentiating ourselves and our programs. The things that we do in our plants, other suppliers, processors just do not do. That is more of a branded mentality.
That's really interesting. Coming back to when you talk about launching the Canada Packers brand in Western Canada, is that from a retail perspective, food service perspective? How should we be thinking about that? Does that open up possibilities for, let's call it, better price realization?
More retail and hopefully. What we separate ourselves with are capabilities out west, and we're trying to, now the brand packaging is just making its way into the market as we deplete some of the old things. We want to think about how we position ourselves in Canada and specifically in Western Canada as the differentiated product. This product of Canada, I'm not sure, the energy seemed to have run out of that a little bit, but at home in the prairies, we think we can command a premium for our Canada Packers brand.
That's really, so should we be thinking about, let's say, in the retail channel, and then I'll pass on to someone else. Will we be able to walk into a store in Western Canada and see sort of a case-ready Canada Packers branded product the same way we would have seen, let's say, Maple Leaf Prime poultry product?
Yeah, not case-ready, but you will see ribs and pork loins and things and picnics and butts with Canada Packers on the film, and it's working its way to the market right now.
That's really interesting. Thanks so much.
Yep.
We'll move next to Luke Hannan at Canaccord Genuity.
Thanks. Good morning, everyone, and congratulations on the completion of the spin. I wanted to circle back on the top-line performance. A lot of moving parts. Obviously, there's the processing volumes, there's the FX, but I did want to dig in a little bit more into the average weights of the hogs. Dennis, I think you talked about herd health and some of the things that you're doing there. Overall, when it comes to growing your sales volumes, I think most of it's probably going to be balanced towards growing processing volumes. I mean, how should we be thinking about how the hog weights trended during the quarter? Are you coming off of a low base, or should we be thinking about some of your top-line improvements and maybe any profit improvement projects that you have going on?
Should that be balanced also towards increasing the weight of your average hog as well?
Yeah, we did not disclose weights, correct? We probably will not disclose that, but know that that is important to us. There are two aspects when it comes to weights. One is the range. We want as tight a range as possible because that helps in the manufacturing facility. We are working on some initiatives to move our average weights up. I would say slightly. That area I would not consider significant if I compared to just the, if I pointed your attention to the processing volume, that will be the most meaningful impact. Again, what we are trying to do is continue to layer in things that allow us to recognize revenue or lower cost that help stabilize our EBITDA in that 10% range.
Got it. Thanks. My follow-up here, and Deepak, this is probably for you, just on the dividend. It is consistent with what the previous expectation was, being between CAD 25 million-CAD 30 million on an annual basis. How should we be thinking about this going forward, either as a payout ratio, as a percentage of net earnings, as a percentage of adjusted free cash flow? How roughly should investors be thinking about what the path for dividend growth looks like from here?
Yeah, I think it's a great question. The way we would think about it certainly internally is payout ratio. It is certainly one of the leading metrics that we would use internally and how we determined to come out with the dividend in that middle of the range. We are certainly, although we're not providing forward guidance on it, we're certainly looking to provide stable and consistent payouts. Payout ratio is the way I would think about it.
Okay. Thank you very much.
We'll go next to Etienne Ricard at BMO Capital Markets.
Thank you and good morning. As it relates to the growth to internally sourced hog processing volumes, can you help us understand what supported the year-over-year increase between better animal health as opposed to increasing the hog grazing capacity?
There's 12 critical KPIs to raising pigs. It's public information published by the, in cooperation with the U.S. government. All we did is got focused on operations. We took all of our different farm locations, measured us versus in that 12 critical KPIs, they published the top 10%, top 25%, bottom 10, bottom 25 in each one of those KPIs. To run a farm operation is relatively simple to know your gap to the benchmark or your potential. You just look at your KPIs in each area at each location versus the best in the industry, and then you get busy catching up to the industry. That's exactly what we did.
How would you compare against the industry for these metrics?
Top 25% and on our way to top 10%.
Okay. Interesting. On a separate topic, as you start budgeting for 2026 financial performance, how do you think internally about the feed costs, given they are relatively low at the moment?
Yeah.
What's your thinking on maybe using hedging tools to limit volatility going forward?
We have a substantial risk management team led by Lance Musselbagger's 35 years or so. He is long-tenured, very intelligent. We think about those kind of things all the time. We are not going to disclose our hedge position, but your conclusion seems reasonable, right? We are positioning ourselves as a company that can generate consistent cash flow and be highly discoverable just so that people can follow along quarter to quarter and year- over- year to understand what to expect in our business. We will be a range business, but we will always find a way to be easy to understand what is happening in our business. That being said, we would take what you could probably consider appropriate actions to mitigate risks or risk mitigation, which is exactly what the strategy there is. We will not disclose it, but your thinking is appropriate.
Thank you very much.
Yep.
As a reminder, if you would like to ask a question, please press star one. We'll pause just a moment. There are no further questions at this time. I'll turn it back over to management for any closing remarks.
Yeah. What I'd like to end with is just say thank you because it's not just attending this call, which is sort of a moment for us. I'm sitting here looking at Deepak, who we spent months and months working on this project along with just countless other folks in Canada Packers and Maple Leaf. For the folks that are on the call, that time was spent with you as well. I appreciate all the effort you're putting into understanding our business. Just know that we're working as hard as we can. Irene, we will be disciplined. This is a transparent organization. I just ask, let's not overcomplicate this. This is a relatively simple situation, a company that can generate good cash, pay down our debt, and then get focused on what chapter two will bring.
I thank you very much for your time today and all the time you've spent.
This concludes today's conference call. Thank you for your participation. You may now disconnect.