Good morning and welcome, everyone, to our 2024 fourth quarter and year-end conference call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to our pre-recorded call posted on our website this morning. We will now take your questions. Ludi?
Thank you. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press a star followed by the number one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing any keys. To withdraw your question, you may press a star followed by the number two. Ladies and gentlemen, I just wanted to introduce our speakers for today. It will be George Paleologou, CEO and President of Premium Brands, and Will Kalutycz, CFO of Premium Brands. With that, our first question comes from the line of Kyle McPhee with Cormark Securities. Please go ahead.
Hey, Kyle.
Hi, everyone.
Hi, guys.
Hey, Kyle.
First, I want to talk through some of the moving parts feeding your 2025 revenue guidance. Your guidance implies $830 million of revenue gains, more like $500 million if we exclude the contribution of your recent acquisition. For that organic revenue gain of around $500 million, how much of that is linked to the contributions from your U.S. growth programs versus other things like the clawback of revenue losses in 2024 linked to your large QSR client and maybe the Canadian consumer headwinds clawback? Maybe as part of your answer, you can tell us whether or not timing for those major U.S. growth programs has changed for better or for worse. Since you gave us that slide back in Q3, I think you had up to $1 billion of U.S. growth programs starting to turn on this year.
Yeah. The U.S. component is probably 60%-65% of that organic growth, Kyle, and obviously Canada being the balance. A little bit of exports included in the Canada number to Asia. In terms of the timing, it is similar to what we have talked about last quarter. It is really heavily weighted to the back half of the year. We now have good clarity on a number of the bigger initiatives with planned launch dates, and those launch dates range from sort of late in Q2 to early to Q3, and hence the heavy weighting towards the back half of the year.
Got it. Okay. That's helpful. For your 2025 EBITDA guidance, again, if we back out these acquisitions, it seems like you're assuming around 13%-14% contribution margin for the organic revenue growth this year. That seems a bit low given the sources of your revenue growth by segment and category. Are you just being conservative with margins, or has something changed with your assumption for contribution margin linked to these U.S. growth programs?
No, no. Our contribution margins, while we have been conservative in our outlook around them, when you do the math, should be about 27%-28% blended. Again, being conservative, given that sort of protein and bakery groups' contributions are much higher. I do not know how much you have taken into account. We do have additional offsetting amounts. We do have continuing wage inflation across many businesses, some incremental plant overhead with new plants brought up in partway through 2024, and the new plants coming on in 2025, new capacity coming on in 2025. We have, to help drive that growth, certainly a lot more S&M selling and marketing to get things going. That is offsetting that, and that is probably why you are coming to your lower contribution margin. A lot of those costs should wash through for 2026.
Got it. Okay. Thanks for those details. I'll pass it on.
Your next question comes from the line of Derek Lessard with TD Cowen. Please go ahead.
Yeah. Good afternoon, everyone. Great to see some momentum from these initiatives coming through.
Hey, Derek.
Hey, Derek.
I'd like to maybe just hit more on the sandwich organic volume growth. Obviously, you did point it out that it was below your historical growth levels. Curious, you said due to some project or product launches taking effect in 2025, just maybe if you could add some color around those launches and maybe the timing as well.
Yeah. A lot of it is planned LTOs with specific customers and a couple of listings coming online with a major retail customer, a club retail customer. Again, similar to my comment on the last question, we've got planned launch dates, we've got good visibility, and it's just sort of we're in the lull between when those start kicking in and when some of our previous big launches are now lapping.
The other comment I would make, Derek, is that even with some of the well-known challenges we've had in the food service channel in the U.S., we had a record year in sandwiches in 2024. Both in terms of top line as well as EBITDA and EBITDA margin. The numbers are pretty good.
Yeah. Absolutely. Maybe just one housekeeping for me in terms of your working capital. It increased about CAD 86 million in Q4, and it looks like it came a lot from receivables and inventory. Just maybe some color around that and what's driving those and how should we be thinking about working cap in 2025.
Yeah. Our receivables are very clean. The agents are good. The Days Sales Outstanding ratio in the ratio got distorted a little bit because of the acquisitions at year-end. You got the receivables on our balance sheet, but essentially no sales in the quarter. That distorted the ratios. Otherwise, we're happy where receivables are at. When you look at inventory, there's a little more of a story there. Certainly, there was the acquisitions element. When we looked at our days purchases and inventory, they came in in the quarter at about 62 days, way above our expectations or normal levels, which were closer to 54 days. Three of those days was the acquisition impact I talked about with the receivables. We had the inventory, but not the sales on our income statement. This is something that's feeding into our 2025 projections.
There were a couple of factors. We had several businesses with some very significant opportunity buys in the beef space. The beef commodities market has been incredibly inflationary, incredibly high. There did come an opportunity at year-end, and our businesses leaped on it. That should help us going into 2025 from those all happening in Q4. Also, we started building a little bit of inventory for some promos. We have some plant projects that we were building some inventory prior to shutting down lines. Also, we had some lobster sales that got pushed into 2025. You strip out all that noise, and we came in at about 54.5 days purchases and inventory, which is pretty close to where we want to be. It was higher than we would like, but it was for good reasons.
Okay. Thanks for that color, everybody.
Okay. Thanks, Derek.
Your next question comes from the line of Martin Landry with Stifel. Please go ahead.
Hi. Good morning, George. And Will.
Hey, Martin.
I would like to just dig a little further in your revenue guidance for 2025. Given consumer confidence in Canada looks like it's declining a little bit given the trade tensions. Can you tell us what organic revenue growth rate you've assumed for 2025 in Canada?
We've been relatively conservative, Martin. The reality is the growth rate we are projecting is a little higher than in our guidance. We have backed it down for our guidance specifically for the reasons you point. I suspect ultimately it's probably in the 2%-3% range organic volume growth. Like I say, our internal expectations are actually a little higher than that.
Okay. Okay. I mean, on your balance sheet, there is discussion about acquisitions. I noted you have paused your dividend increase because of some of the uncertainties on the macro level. I mean, why do you not pause acquisitions as well, reduce your leverage, and maybe reduce also the risk premium that investors are applying given your risk leverage, given your high leverage?
Yeah. I think that's a fair comment, Martin. It is conceivable that this would happen. As we've stated in the prepared remarks, we are not going to make any acquisitions that would certainly deteriorate the balance sheet. That's not going to happen. Ultimately, we're trying to grow the business, and we're trying to improve our existing businesses. The four acquisitions that we've done will be incredibly accretive ultimately for our businesses, and they didn't deteriorate the balance sheet in any way. As we find acquisitions like that, of course, that would contribute to our growth and improve our profitability and enhance the competitiveness and the competitive position of our other businesses, we would probably do them, right? Yeah, we're not aggressive with regards to acquisitions, and we will be disciplined.
I would add, Martin, that the reality is we do expect to see significant growth in our EBITDA over the next year driven by all the capital investment we've made. That is going to naturally deleverage the balance sheet. In the interim, we certainly do not want to miss out on these opportunistic buys that George is mentioning with the fact that it is relatively short in our sights getting the balance sheet down to our ultimate targets.
Ultimately, Martin, we're managing the business for the long term, and we're assessing all acquisitions in a conservative way. We're not going to be aggressive in terms of valuation. As I said, if we find acquisitions that help our growth, they're very accretive and improve the profile of our various businesses, we will do them.
Yeah. Just to follow up on that, your leverage is around five turns when we include leases right now. When you say that acquisitions have not deteriorated the balance sheet, does that mean that you paid less than five times EBITDA to acquire the recent acquisitions?
Yeah. Martin, we've talked about this before. We are very dubious of the calculation with the leases because of how our restructure distorts that. We look at it as we disclose in our MD&A based on a pre-IFRS basis. Our target is any acquisitions, the debt associated with it will be less than 3 x EBITDA.
The other comment I have, Martin, is that, as again, we've stated in our prepared remarks, is that we spend in excess of CAD 800 million on capital investments, and that debt is on our balance sheet, but the cash flow is not. You'd have to normalize things if you were to assess our balance sheet.
Yeah. That's fair. Okay. Thank you for your help.
Thanks, Martin.
Your next question comes from the line of Ty Collin with CIBC. Please go ahead.
Hi. Thanks for taking my question, guys. For my first one, I'm just wondering if you could maybe update us on the latest you're hearing from your big food service customer and I guess the potential impact of their SKU rationalization on your program with them. Maybe it would also be helpful to understand exactly what assumptions you've kind of baked into your guidance around that specifically.
Yeah. We can't talk specifically about customers, but as I said earlier, obviously, we do a lot of business in the food service channel in the U.S. We had some challenges in that channel specifically. As I said earlier, not in sandwiches because we made a lot of progress in the club channel. We've got two more SKUs in that channel, and every one of those SKUs is between CAD 30 million and CAD 50 million. We have made some really good progress with regards to the club channel. Also in the C-s tore channel and other channels as well. What we're seeing in the food service channel today is encouraging. Things are improving. The trends are favorable. We are very optimistic that we will get back to growth in that channel.
Ty, in terms of the projections, yeah, we continue to expect some contraction in the first couple of quarters and then a return to growth in the back half of the year.
Okay. Got it. That's helpful. Thanks. I am wondering within Canada whether you've noticed any trends towards buying Canadian products. I guess given the Canadian roots of many of your brands, is there anything that they're doing or looking to do to maybe seize that opportunity from a promotional perspective or a packaging perspective, anything like that?
Yeah. At this point, again, there is certainly that noise. There have been inquiries. I would not say we have noticed anything materially different. Yeah, there is a lot of talk about Canadians buying made-in-Canada products. Again, nothing material that we can talk about.
Okay. Thanks. I'll jump back in the queue.
Thanks, Ty.
Your next question comes from the line of Chris Li with Desjardins. Please go ahead.
Good morning, George and Will. Hope you're both doing well.
Hi, Chris.
Yeah. Maybe I'll start with a question on tariffs. Can you just maybe share or remind us roughly what % of your revenues are cross-border currently? And then how quickly can you reduce that % by using some of those manufacturing redundancies that you noted in the press release? Thanks.
Yeah. Chris, we have two key exposures currently. One is in our Specialty Foods group and the other in our Premium Food Distribution group. In our Specialty Foods group, we export in general, as we've talked about in the past and as we disclosed in the press release, we try to manufacture. Our strategy is to manufacture in the market we sell. Occasionally, like what's happened with our cooked protein programs, we'll have plants that'll have excess capacity, so they'll explore new selling opportunities in other markets. In cooked protein, because there's been such a dearth of capacity in the U.S. and the success of our Canadian-based manufacturing programs, we do have a lot of cooked protein that crosses the borders, about CAD 300 million-CAD 300-plus million a year.
We are well-positioned through a combination of capital investments we have made over the last year, year and a half, as well as our recent acquisitions that if we needed to, a lot of that production could be done in the U.S. We are well-positioned to mitigate against that. There would be a quarter or two of noise getting things settled out, and we have already sort of started that process. We are well-positioned to do it when the time comes if it needs to happen. On the specialty food side, we feel we are well-positioned. We have a little bit of exposure in artisan breads and deli meats, but those are very minor. Like I say, they are generally situations where businesses had a little excess capacity, and so they pursued some opportunities in the US.
On the Premium Food Distribution side of our business, we really have one exposure, and that's in processed lobster. There we feel we're very well-positioned to mitigate any impacts of a tariff issue. For one, we are actually one of the largest lobster processors in the U.S. Clearly, our U.S. operations would be well-positioned in a tariff battle. In terms of our Canadian production that goes into the U.S., the reality is lobster, our lobster products are produced from a wild, scarce resource. It's not like because of a tariff you can grow more lobsters in the U.S. That's just not how it works. It is a scarce resource. We think between pricing, the Canadian dollar, maybe a little depreciation there, and maybe a little bit of savings in the supply chain. Again, we feel we're well-mitigated to manage that situation as well.
In addition to that, Chris, we also have sandwiches and pastries that are made in the U.S. that come to Canada as well. For example, in the case of sandwiches, we have redundant capacity in Canada. We've built a brand new facility in Edmonton recently that can accommodate some production if we needed to. Redundancy on both sides of the border is a big asset for us.
Got it. Okay. Thanks for your very helpful detailed answers. My follow-up question is I'm just wondering, with quarter one almost over, how are the results trending so far? Are you seeing kind of similar trends that you saw in Q4? Have you noted any notable changes in consumer behavior as a result of the tariffs? Thanks.
We do not provide quarterly guidance, Chris, so I do not want to comment on the quarter specifically. In general, consumer behavior in Canada has hung in there. We have seen sort of a continuation of what we saw in Q4 there. That has been a positive. Similarly, in the U.S., at least to the consumer base we are catering to, we really have not seen any changes in behavior there either.
Great. Okay. Thanks, and all the best.
Thanks, Chris.
Your next question comes from the line of Stephen MacLeod with BMO Capital Markets. Please go ahead.
Thank you. Good afternoon, guys. Morning for you guys.
Hi, Stephen.
Hi. Lots of great color so far, so thank you. I just wanted to pick up on a couple of things. One is with respect to the 2025 sort of sales pipeline in the U.S., and you talked about some of the delays. I know, Will, you gave a little bit of color around your visibility. On the last call, you said that you indicated the pipeline was like $1.4 billion with CAD 700 million highly likely in 2025. I'm just curious if that's still kind of the rough magnitude of what you're expecting when you talk about these new launches coming in late Q2, early Q3.
Yeah. Yeah. There has really been no change in the pipeline, Steve. In fact, if anything, it has grown since we talked last, and particularly in the highly likely. No, no, we still feel very good about the pipeline, and there is a lot of opportunities being pursued, again, primarily in the U.S. market.
There is a lot of exciting new initiatives, Stephen, in sandwiches, protein, and bakery. These are sort of the three areas where we have had a lot of growth and, yeah, a lot of exciting stuff going on.
Okay. That's great. Then just the overall lobster business, not the cross-border portion, could you just remind us how big that business is? I know it's sort of had some headwinds for the last two quarters. I just kind of want to confirm the magnitude of lobster.
Yeah. Our lobster business live and process, Steve, I want to say is about CAD 300 million-CAD 400 million. It's a good-sized business. We're one of the largest in North America.
Yeah. Okay. That's great. That's all I had. Thanks, guys.
Thanks . Stephen.
Your next question comes from the line of Vishal Shreedhar with National Bank Financial. Please go ahead. Vishal, you might be on mute.
Hi. Thanks for taking my questions. There were some facility delays that I've observed. I was just wondering on the cause of the delays and management's confidence that the facilities will come up in accordance to the schedule. Scranton and Ferndale were pushed back. Also, the Montreal facility, I don't know if that's been completed or removed. Just wondering your thoughts on that.
Yeah. Nothing significant there, Vishal. They're just sort of minor delays. I think things maybe got pushed out a quarter, various technical reasons, but certainly nothing material to point out.
Okay. The Montreal 75,000 sq ft facility, do you have any updates on that?
The Montreal facility, I'd have to go back to the MD&A, Vishal. Is that the cooked protein line?
Yes. Yes.
Yeah. Yeah.
I saw it on one chart, and it was removed.
Yeah. I think that is one where we're reassessing the project or it is complete now. I'd have to go back to the detail and refresh myself.
Okay. And.
Yeah. Go ahead, Vishal.
Oh, no, no. Please continue.
Yeah. That project is being reassessed. Again, we're building a very large facility in Toronto. That particular project you're referring to has been reassessed as we speak.
Yeah. I'm not sure if he's talking line four or five. That's what I have to go back.
Line four.
Line four is complete.
Yes. Yes. Yes. That is the expansion of that, right? The addition to the building.
Okay. I've got that color. Thank you. With respect to the dividend, just wanted to get more perspective there. I mean, the dividend increase, at least historically, the ones that you provided, would not have been a substantial cash outlay on a year-over-year basis, or even if it was a smaller one. Obviously, the guidance commentary that management seemed to provide suggested a confidence and a conservatism, but the dividend statement seemed to oppose that a little bit. Wondering if you could just put some color around on how we should seemingly look at those messages, which at face value could be viewed as contradicting.
Again, Vishal, I think that as we've always said, at the beginning of the year, we sit down with the board. We talk about acquisition opportunities, capital allocation, capital projects, projected cash flow, free cash flow, all of those things. We make decisions based on our assessment of the risks and obviously the opportunities we see in terms of employing capital in the business. This time around, given some of the noise around tariffs, we just felt that the responsible thing to do is just to hold back. That's all.
Okay. That gets reassessed quarter- by- quarter?
That gets reassessed quarte- by- quarter, yes.
Okay. Thank you for that.
Your next question comes from the line of John Zamparo with Scotiabank. Please go ahead.
Hey. Good morning, George and Will.
Good morning.
Good morning. I wanted to come back to the trade topic for a couple of questions. In thinking about reciprocal tariffs or potential for reciprocal tariffs, PBH typically sources at least some of its products globally. I appreciate the commentary about being able to produce locally. When it comes to sourcing inputs, how should we think about PBH's ability to source locally as well? What type of opportunities do you have to buy inputs locally, and what are some inputs where that might be more challenging?
Yeah. Our overall philosophy around manufacturing obviously is to own facilities in the markets that we sell to, and we do. We have a lot of smaller plants in smaller markets. That's part of our strategy and our point of difference in the marketplace is that we want to be the number one local or regional brand in a geographic area of Canada and the U.S. That's one of the reasons why we've been successful, because we've differentiated ourselves this way from the national brands and the national players. Sometimes when you look at this strategy, you might say, "Well, but there's some inefficiency to that." Again, we understand that. At the same time, because we're regional and local, we're able to charge a premium because we get local support, and consumers are willing to pay a little premium for a regional or local brand.
In general terms, that's our overall strategy. That applies with sourcing as well. To the extent possible, we source locally if we can. The other comment I have is that you have to understand that given our size and given who we are, we source globally as well. Our inputs tend to be global in nature. We source from Europe, from Asia, from Australia, New Zealand, Asia as well. We have global supply chains in general, right? We prefer local inputs. If we can't find them, then we'll source globally.
Okay. Is it fair to say the majority of your inputs are also sourced in the countries that they're produced, whether Canada or the U.S.?
That's a fair comment.
Yeah. Okay. That's good.
Yeah. Certainly the majority.
The majority. Not all of it, of course, but the majority.
Yeah. Okay. I wonder how you're thinking about the expected impact of tariffs on lobster to China. This is probably not a significant part of your lobster business, but had represented some of the growth. Are there other potential countries you're looking at to export to as a result?
We don't actually export in the Premium Brands. I'll get back to Clearwater in a sec, but we don't consolidate them. In our consolidated sales and EBITDA numbers, there are no export sales of lobsters from Canada. Our Ready business in the U.S. does export, but obviously, they're not subject to the tariff being impacting Canada. In terms of Clearwater, historically, they have exported some lobster to China, but it's a small part of their business.
Okay. That clears that up. Thank you for that. I wonder if you could tell us a bit more about the acquisitions you did to end the year and also the one with the recent convert deal. What specific platforms or maybe products does that help you grow into, and how does that protect you against potential trade barrier concerns?
Again, we made four acquisitions, with the three in December and one in the first quarter. NSP is generally a cooked protein business with three facilities. The main facility is in Tulsa, and it's a very large facility in the cooked chicken space. It's now part of Concord Meats, which is one of our largest platforms, mainly focusing on cooked protein. They do have an Italian meats business as well as a fresh meats business as well. We're currently in that facility adding lines and equipment, and it'll help us continue to grow our business in that market. We've had a lot of growth in the U.S. market in that business. The Vineland facility, which is outside of Philadelphia, it's actually in New Jersey, but very close to Philadelphia. It's one of the largest cooked meatball facilities in the U.S.
We have a growing cooked meatball business. We make meatballs in other facilities in the US, and this gave us the scale that we needed to continue to expand the business. There is plenty of room there to add more lines as well in other parts of the cooked protein space. Again, a very nice facility, great location, very close to the northeast of the U.S., which has substantial potential for us. Italia Salami is a smaller Italian meats company based in the Toronto area, again, part of Concord Meats. Denmark Foods is the largest fresh meats company in the fifth largest metropolitan area in the U.S., in the Phoenix area. We have a very similar company in the Seattle area called Isernio's. We have done very well with that. Anyway, that just gives us the opportunity to expand into a fast-growing market in the U.S.
Really excited with that acquisition as well.
All right. That's good color. Just one last one for me, a modeling question. Are you still expecting around CAD 250 million or CAD 250 million-CAD 300 million in sale lease backs later this year?
Yeah. Absolutely. We are planning for the plan today is in Q3 to do a sale lease back around our new Tennessee sandwich facility when it's completed, and then towards the end of the year for our GTA initiative. The Tennessee facility will be a much larger transaction, obviously, given the size of that project, but absolutely.
Okay. That's great. I'll leave it there. Thank you very much.
Thank you.
Great. Thanks.
Your next question comes from the line of Michael Glen with Raymond James. Please go ahead.
Oh, hey. Hi, Will and George. Just following up on the Tennessee facility, can you just give us some sense as to when that opens? How should we think about the ramp taking place as you fill capacity? Will it contribute much in 2025, or is it more of a 2026-type scenario?
Yeah. Completion of the first phase should be mid-year, end of June to maybe June, July. The project is going well. We see basically a 12-month ramp-up in terms of the business we lined up and the business we are lining up for it. It is a very large facility. It will be probably the best, most modern, state-of-the-art automated facility of its kind. We will have some new technology in it. Anyway, yeah, we are really excited by it, and things are going well at this point.
Yeah. For our projections, we've sort of a conservative, like George says, a late June, early July startup. We're giving it a quarter of just working out the bugs. This will be our largest sandwich production facility ever. Really not starting to meaningfully contribute until the fourth quarter.
Okay. In terms of the capacity coming on there, are you able to provide any indication how much you have been able to allocate at this point in time?
Yeah. No, we don't. The total capacity of this first phase is about close to CAD 300 million, but it's just we blended that into our general sales outlook.
Okay. And then.
I should add, Michael, because we do this quite often, we'll work with our customer base. Tennessee is strategically located, a new geographical area of the U.S. We strategically work with our customers to shift production around between the different plants to minimize freight costs for them.
Okay. Okay. Just in terms of the guidance, I'm just trying to get a better read on what your SG&A expense might look like next year, given you did close the acquisitions. Should we expect SG&A expense to, on a gross dollar basis? Are you able to give any commentary surrounding what level you might be expecting in 2025?
Yeah. From the earlier question, our contribution margins on our growth, we've built them into our projections that we feel it's a fairly conservative number at around 27%-28%. To get to the expected EBITDA, you're going to have a little bit of plant overhead and then SG&A.
Okay. Just on those acquired businesses, is there any seasonality with those that we should take into consideration as we build them into the model?
Yeah. Absolutely. There are two factors you need to think about, Michael. One is they do have a similar level of seasonality. Some less than others, like Denmark's in Arizona, so it is a less seasonal business. Certainly, the other acquisitions have a similar seasonality to our other protein businesses, i.e., weak Q1, weak Q4, and strong Q2, and strongest Q3. Also, what you have in there is the NSP acquisition, which was really a capacity acquisition for us to a large extent. A big part of its sales expectations is leveraging that capacity. On top of the seasonality, you have to sort of build up a ramp-up of the facility over the course of the year as we move, we figure out how to produce different SKUs in that facility, and then launch sales initiatives around those SKUs.
Okay.
To a large extent, Michael, that facility will support the expansion of already successful products that are doing well in certain geographic regions to go national, right? That's kind of really the key to that.
Longer term, but there'll still be a ramp-up over the year.
Absolutely. Absolutely.
Okay. Perfect. Thank you for taking the questions.
Thanks, Michael.
We do have a follow-up question coming from the line of Derek Lessard with TD Cowen. Please go ahead.
Yeah. Just a couple for me, guys. I was curious on sort of the egg crises in the U.S., on how you guys are dealing with whether it's the sourcing or pricing or what have you.
Sorry, you cut out there.
The egg crisis.
Oh, the egg crisis. Yeah. I don't know if you follow the price of eggs. Of course, I think that since 2022, I think they had to euthanize about 47 million layers in the U.S. It's a substantial number. The price of eggs went up substantially but has come off in the last few weeks. Most of the egg usage we have is in our sandwich division, where basically our pricing is cost-plus, right? We basically pass it on to the customer. Yeah, the price has come off more recently, substantially.
Okay. Okay. Maybe just one final one for me. Maybe if you could just add some color around the Denmark sausage, how it fits in, the quality of the product, etc.
Yeah. As I mentioned earlier, we have a business similar to Denmark based in Washington State. The business is called Isernio's, and it's truly a best-in-class iconic brand. It's all fresh meats, fresh sausage, fresh grinds, has a tremendous consumer following, sells at a premium to other similar products. Denmark has the same brand positioning in the Arizona market. They do well with a couple of retailers. The entrepreneur that built the business into a successful company didn't want to expand any further, although there's more demand for the products. We're already talking to other banners, and they're interested in a best-in-class fresh program. Again, we want to build Denmark similarly the way we built Isernio's since we purchased it. I think Isernio's is four times bigger today than when we bought it a few years ago. We see similar growth opportunities with Denmark.
We love the Phoenix market. Obviously, it's a market that's growing immensely. It's one of the fastest-growing demographic regions in the U.S. We love owning the number one local brand in that area.
Appreciate the color. Congrats, guys.
Thank you.
Thanks, sir.
If you would like to ask a question, simply press the star followed by the number one on your cell phone keypad. Our next question comes from the line of Chris Li with Desjardins. Please go ahead.
Oh, thanks again. You mentioned we carry consumer spending in the convenience store channel. I'm just wondering, is that still more confined to beef jerky, or has it expanded to other products as well?
I would say for us, it only impacts us with regards to demand for beef jerky. Our stick sales are doing extremely well in the U.S. market. I do not know if you follow some of the trends, but as we have predicted, sticks, I think, is the highest growth category in grocery today and in other channels as well. We have invested in a lot of capacity for sticks in Canada and the U.S. over the last few years. Obviously, we are benefiting from the growth in the demand for premium sticks. Just in terms of jerky, I would say at this point.
Okay. So nothing really has weakened in terms of other products that you sell into the C-store channel so far?
We're only seeing it in jerky demand.
Okay. Okay. No, thanks for that. Maybe just a question on CapEx for you, Will. Are you still targeting, I think, total CapEx of roughly CAD 250 million this year? Am I remembering that correctly?
Yeah. Yeah. We talk about our CapEx in three buckets, Chris. One is our maintenance CapEx, which our guidance for 2025 is CAD 60 million-CAD 65 million. We have our major CapEx projects, all of which have been approved, all of which are outlined in our MD&A. As we mentioned in the formal presentation, there's about CAD 145 million left to spend on those projects. We have our third bucket, which is a range of smaller project CapEx, i.e., things that will generate a 15% or better IRR after tax unlevered. That can fluctuate quite a bit. Right now, because we approve these projects on an individual basis over the course of the year, there's smaller automation and smaller capacity addition projects.
That can range anywhere from last year, I think it was about CAD 60 million-CAD 80 million a year. Your number is in the ballpark.
Okay. Maybe another one, just maybe on switching to free cash flow. If we include sort of total CapEx, so not just maintenance, in our free cash flow calculation, I think last year was negative. Based on what you said, if CapEx is coming down this year and EBITDA grows the way that you envision, do you expect free cash flow to be maybe slightly positive this year just based on the same calculation, or is it going to be still in the negative territory for this year?
Again, the way we look at free cash flow, Chris, is free cash flow is really just financing our maintenance CapEx. That is all we subtract in calculating our free cash flow. Project CapEx, i.e., things that are going to generate a return of 15% or better, effectively over time, self-funding. On that basis, we just look at free cash flow after maintenance CapEx, and we do expect to hit record levels of free cash flow this year, which is a term from the prior couple of years because of the impacts of both the high-interest environment and all the investment we have been making and the costs associated with that investment, interest, additional depreciation, additional lease costs. Yeah, we expect to see a significant turnaround in our free cash flow this year.
Okay. Great. Thanks for the color, and have a great weekend.
Thanks, Chris.
Thanks, Chris.
Your next question comes from the line of Ryland Conrad with RBC Capital Markets. Please go ahead.
Hey, good morning.
Hey, Ryan.
Good morning.
Just a couple of questions. Firstly, on Premium Food Distribution, just curious to hear your thoughts around your expectations for organic volume growth for that segment going forward. Should we expect any further improvements there or even perhaps a return to positive growth?
Yeah. We are expecting some growth in Premium F ood Distribution group in 2025 with the stabilization of Canada. The big unknown, Ryland, will be what happens in the lobster fisheries, both Canada and the U.S., because that's really been the major tailwind or sorry, headwind for that group. Watch the lobster industry closely, how the fishing goes, and that'll determine the level of growth in our Premium Foods Distribution group.
Got it. Thank you. Just secondly, with the reiteration of your 2027 targets, obviously, that implies a pretty strong growth trajectory over the next few years. Could you maybe just speak a bit about your confidence around achieving those and as well maybe any additional color around maybe the organic and inorganic contribution to achieving them?
I think, again, if you look at, by the way, this is, I think, our 25th year of being in business as Premium Brands. Will and I are co-founders of Premium Brands. We have gone from very little to CAD 6.5 billion in sales. I think that the next CAD 6.5 billion will come a lot sooner than in the past. If you look at how our different platforms have grown, it is very easy to make the assumption that if we had capacity or the right capacity, we would continue to grow. For example, our sandwich platform grew from very little to CAD 1.5 billion in sales. If we had capacity, we would be bigger. We understand the opportunities. We see the opportunities. Similarly, with our protein business. Our protein business is world-class.
is probably the best protein business in North America in terms of the brands, the quality of the products, the manufacturing expertise, the know-how we have in that business. Because of that, we have a lot of inquiries from customers and channels for our products. We see that every day. Our bakery group, which is small, is doing extremely well. In the last recent quarter, it grew its business in excess of 20% because they had capacity. We look at it at the micro level. We run very good businesses. They are best in class. Because of that, we keep getting more and more opportunities with our customers.
Awesome. Appreciate the color. Thank you.
All right. Thank you. I am showing no further questions at this time. I would like to turn it back to George Paleologou for closing remarks.
Yeah. Thank you, Ludi. I'd just like to thank everyone for attending today. We hope that common sense will prevail when it comes to tariffs. All the best to everybody.
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.