Earnings Call: Q3 2019

Nov 11, 2019

Earnings release

Good day, ladies and gentlemen. Welcome to the Premium Brands Holdings Corporation Third Quarter twenty nineteen Earnings Conference Call. As a reminder, this conference is being recorded. At this time, all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. It is now my pleasure to introduce your host, George Kaley Logo. Please go ahead. Thanks, Corey, and good morning, everyone. I would like to welcome you to our twenty nineteen third quarter conference call. I would also like to recognize the significance of this day and thank all the brave men and women who have fought for our country and to whom we owe our rights and freedoms. On an overall basis, I'm pleased with the progress we made in the execution of our many growth initiatives during the past quarter and in particular with the success we're seeing in The U. S. Across our seafood sandwich and protein platforms. Unfortunately, outside of our control, namely issues resulting from the severe outbreak of ASF in Asia and in particular China, combined with global trade disputes have temporarily distorted the economics of some of our legacy businesses. It is now projected that ASF outbreak in China will result in the loss of 50% to 55% of their hog production creating an unprecedented supply demand imbalance in global protein markets. To put the size of this issue in perspective, China produces almost half of the world's pork supply which means that over one quarter of the global supply of pork has been temporarily taken off the market. This is truly a first time event in modern history. I will be expanding on this issue as well as on some of our successes later. But before I do, I will be turning the presentation over to our CFO, Will Kalukic, for an overview of our financial results for the quarter. Will? Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward looking statements during our presentation, our forecasts and assumptions are subject to change and actual results may vary. Please see our 2018 MD and A, which is filed on the SEDAR website, www.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results. Our revenue for the quarter grew by $132,800,000 or 15.9% to a record 968,300,000.0 Acquisitions accounted for $69,100,000 of the increase, organic volume growth for $51,700,000 net selling price inflation for $6,500,000 and currency translation for 5,500,000.0 Our organic volume growth rate, which excludes the impact of selling price and exchange related inflation, was 6.2 for the quarter or on a nominal dollar basis, 7.6%. Our strong growth was driven by a broad range of initiatives with most of our success being in the seafood, sandwich, meat snack and charcuterie product categories. This was partially offset by three top line challenges. These consisted of: one, tough year over year comparatives for our Quebec based distribution operation due to an unusually large amount of feature activity by a particular retailer in twenty eighteen Two, lower than normal promotional activity for certain port based products as a result of cost and supply uncertainties associated with the outbreak of African swine fever in China. And three, continued weakness in the Western Canadian full service foodservice market. While our growth for the quarter exceeded our long term targeted range of 4% to 6%, it was below our expectations mainly due to slower than planned ramp up in a variety of new meat snack and sandwich product launches and the ASF related challenge mentioned earlier. Our adjusted EBITDA for the quarter increased by $12,800,000 or 18% to $84,100,000 This was driven primarily by our sales growth, adoption of the IFRS 16 accounting standard and efficiency improvements in a number of our production facilities. These positive drivers were partially offset by four main factors, namely: one, additional costs associated with investments we are making in infrastructure to support our current and future growth, including additional overhead associated with our new GTA facility, expanded Montreal operation and new lobster procurement initiatives. Two, a run up in the cost of mainlanded lobsters due to unexpectedly low landings, which resulted in lower than normal margins on fixed price lobster promotions with several major U. S. Retail chains. Three, labor cost inflation, particularly in our U. S.-based businesses where the labor market is extremely tight and four, additional outside storage costs mainly associated with long inventory positions being taken to hedge against rising global pork and beef commodity costs and to prepare for new product launches. The impact of pork and beef commodity cost inflation had a negative impact on our margin percentage for the quarter, but on a dollar basis was relatively neutral due to price increases implemented earlier in the quarter or in the previous quarter offsetting cost inflation. While our adjusted EBITDA set a new third quarter record, it was below our expectations due to the lobster margin and sales challenges I mentioned earlier and also because the margin improvement we had expected to result from recent selling price increases put through by many of our protein businesses to address ASF related cost challenges did not happen. This is because of further commodity cost inflation and in particular significant increases in the cost of specialized raw material sourced from Europe, which in turn was the result of a major increase in Europe's pork exports to China. Looking forward, we are reducing our sales and adjusted EBITDA guidance for 2019 based primarily on four considerations, namely the greater than expected challenges that occurred in the third quarter, the continuation of some of these challenges into the fourth quarter and in particular those associated with the outbreak of ASF in China, the Canadian dollar being stronger in the 2019 than we had previously forecasted, and delays in the closing of several planned business acquisitions. Note that this last factor impacted only the top end of our guidance. These factors are expected to be partially offset by the recent completion of two acquisitions, namely Viendex and Maincoast, albeit the impact of these is mitigated by the seasonality of their businesses. While we are expecting to complete additional acquisitions in the 2019, these have not been factored into our revised guidance. Our adjusted earnings per share for the quarter decreased by $0.15 per share to $0.88 per share, primarily due to three causes, namely: one, the dilutive effects of our recent private placement as a significant portion of the new capital raise is yet to be invested two, the adoption of the IFRS 16 accounting standard, which represented approximately onethree of the decrease in our EPS and three, the ASF challenges I outlined earlier. In terms of our financial position, we continue to maintain a very conservative balance sheet and strong liquidity. Our senior debt to adjusted EBITDA ratio was 2.0:one, which was well below our long term target range of 2.5:one to 3.0:one, while our total debt to adjusted EBITDA was 3.3:one, which was also below our long term targeted range of 4.0:one to 4.5:one. In terms of liquidity, we had $4.00 $9,000,000 of unutilized credit capacity at the end of the quarter. During the quarter, we invested $68,700,000 in businesses and growth related capital projects. These consisted of $49,600,000 for the investments in Veandex and North Delta Seafood and $19,100,000 for project capital expenditures. Turning to dividends. During the quarter, we declared a dividend of $19,600,000 or $0.05 $25 per share, on an annualized basis works out to $2.1 per share. Our free cash flow for the trailing four quarters was a record $174,700,000 as compared to dividends of $73,100,000 resulting in a payout ratio of 41.8%. I will now turn the presentation back to George. Thanks, Will. While ASF and global trade disputes are presenting us with certain short term challenges, we feel very good about our third quarter and year to date performance and the progress we're making towards becoming North America's leading specialty food company. We're particularly pleased with the headway being made by our seafood, sandwich and protein platforms in The U. S. Our third quarter growth in this market of almost 50% underscores the merits of our long term strategies and gives us the conviction that we will exceed our plan of achieving sales of 6,000,000,000 and an EBITDA margin of 10% by 2023. At a time when most large food companies are struggling just to maintain their sales, we're hitting singles and doubles on a regular basis, driven by our passion for producing authentic, great tasting and great quality products. Our U. S. Protein platforms meat snack initiatives are generating great momentum in all retail channels, including club, grocery and convenience store. This is most evident in the C store channel where we can now claim the title to having the fastest growing meat snack brand in The U. S. Driven by new product launches execution. During the quarter, our U. S. Seafood platform commissioned a new 40,000 square foot lobster processing plant in Saco, Maine. The ramp up of this facility is going very well and we're now without a doubt the best positioned company in The U. S. To capitalize on the growing demand by both retail and food service customers for new and innovative value added lobster products. It is early days, but the response so far from our customers to the new and innovative product solutions we're bringing to them has been excellent and sales traction is accelerating much faster than planned. Our U. S. Sandwich platform, which is our most developed initiative in The U. S. Had another solid quarter generating double digit organic growth driven in part by their new sales initiatives in the club retail and fee store channels and by their focus on the assembly of charcuterie, platters and trays. While sandwiches continue to be their focus, the success they're having in leveraging their assembly abilities to expand into the charcuterie and tray pack product categories has quickly filled their capacity in this fast growing segment of the market. Correspondingly, they're in the process of planning an expansion of their capacity as they establish themselves as the best in class manufacturer in this category. Partially offsetting the success we're seeing in so many areas of our business are the challenges caused by ASF related issues and global trade disputes, which are resulting in unprecedented volatility in both domestic and international global protein markets. This volatility is making it increasingly difficult to conduct our business on an as usual basis. However, there have been some recent positive developments with China lifting its ban on Canadian pork and beef and reducing some of its tariffs on meat imports from The U. S. While these developments don't resolve the immediate supply demand imbalances, it will help global protein markets to return to some normalcy and predictability. As a final word on this situation, I would like to reemphasize the transitory nature of these challenges that our long term perspective has not changed. We continue to manage our business and growth prudently and deliberately focusing on innovation, operational excellence and diversification, all the while keeping our eye on the long game. Turning to acquisitions, I'm very pleased to welcome the Deandex Main Coast Shellfish and North Delta seafood teams to premium brands. Deandex is a leading distributor of proteins in Quebec City and will expand the capabilities of our Quebec based CNC platform. Maine Coast Shellfish is a leading distributor of locally harvested seafood in The U. S. Northeast and will provide downstream distribution capabilities to ready seafood as they ramp up production at their Saco facility. North Delta Seafood is a leading processor and distributor of the wide variety of wild Pacific cod seafood and will further enhance and diversify our sourcing capabilities for these highly sought after products. North Delta will also expand our seafood platform's access to key markets in Asia and more specifically China. We're very happy to welcome these three very talented management teams to the PB family. In closing, I would like to once again state that we remain on track to deliver another year of record top and bottom line growth despite some of the unprecedented headwinds currently facing us. 2019 will be the sixteenth year in a row that we deliver record year over year results while continuing to grow and diversify our revenue and cash flow streams. In terms of our acquisitions activity, I'm pleased to report that we continue to enjoy an especially robust pipeline of opportunities, some of which are sizable and fully expect to add to our portfolio of great specialty food companies in the relatively near future. I will now turn the presentation over to Corey for the Q and A part of our presentation. Corey? Thank you. We will take our first question from George Doumet with Scotiabank. Yes. And thanks for taking my questions. Hey, George. Will, think you guys called out about $6,000,000 of the impact for ASF on EBITDA last quarter. Would you have that number handy for this quarter? And do you guys have any approximation maybe for the sales start up challenges that were also happened in the quarter as well? Yes. So it's actually very similar quarter over quarter, George. It's close to the $6,000,000 It's just a little under $6,000,000 And again, a similar sort of mix between commodity and sales impact. In terms of the ramp of the sales impact, it was a much smaller impact on our EBITDA, probably less than $2,000,000 sort of in that ballpark. And then just because of generally promo costs associated with those new ramp ups. And then finally, you know and and the one I wanna make clear because maybe it's it's a little more difficult to explain in the the written MD and A is the challenge in our Ready Seafood business with the Maine lobster situation. For the last little while, we've been talking about how there's been a glut of lobsters in The U. S, and that's been impacting Ready's margins. And, this this this quarter, actually, a lot of the initiatives they've put in place to address that have have sort of kicked in, and and that was that's been addressed. But we had sort of a reverse situation happen then in that the lobster landings in Maine this year were way below expectations, which actually resulted in a ramp up of lobster prices in The U. S. And Reddy got caught because they had a bunch of fixed promotions, which are negotiated well in advance of the season with some major U. S. Retailers. So that was another couple of million dollars of hit to our EBITDA. Those would be sort of the three major factors in the normalization of our earnings. I think, George, in your prepared remarks, you had mentioned that progress in the sandwich capacity sorry, sandwich platform in general. There seems we seem to be doing quite a bit of stuff on the capacity side. I'm just wondering, is it possibly in the cards to maybe add another sandwich plant over the next twelve months? Or is it going be just mainly reconfiguration of our existing ones? No. We will not be adding another plant, George. Again, we purchased we made two acquisitions, Buddy's and Rayburn's. Both acquisitions came with a lot of capacity, a lot of unutilized capacity, plus we built Phoenix as well. So again, we have plenty of production space. As I mentioned in my prepared remarks, we're getting very good traction in sandwiches in all channels. We're growing very nicely, in all channels, but also the charcuterie trade business is growing faster than sandwiches right now. We filled our capacity, which we have at Reno and Columbus, and now we're looking to expand that capacity within the plant network that we already have. But just a follow-up on that, George, is we will be investing in more lines in the existing facility. So there will be some CapEx to support our sandwich growth, but nothing on the scale of a new facility. Okay. And maybe just last one and maybe more of a general question for you guys. I know you guys pride yourselves on being an entrepreneurial and kind of decentralized model. But can you hold on to and maybe keep that culture, but also work out a plan to, I guess, reduce your footprint in the manufacturing and distribution capacity maybe to ultimately improve margins. Is that something you guys would consider? Well, again, George, we're not a consolidator. We don't make decisions that are driven by cost. We make decisions driven by value. So so, you know, you know, being entrepreneurial, it's part of our strength. It's part of our point of difference. You know, at times, we can sit back and say, yes. We can save some costs here by rationalizing and consolidating. You know, some large companies have done it in the past, but, you know, not with good results. Part of selling premium partisan type of products means that we have to maintain our entrepreneurial nature. Yes, there is some costs associated with that, but there's also opportunities to charge more for selling these type of products. So I think the value equation outweighs the cost savings equation. Okay. Thanks for answering. Thanks, George. Thank you. Our next question comes from Derek Lessard with TD Securities. George, you talked about double digit growth in sandwiches and charcuterie trays even faster. You're strong in seafood, and you got momentum in C stores. Just wondering how that only translated into like 6% organic growth and how does that tie into the slower ramp up in new products that you guys talked about? Yes. So Derek, the big factor there is the challenges around a lot of the the the processed meats, the pork based products and ASF's impact on them. So that was sort of a negative on our our growth profile, while sandwiches was the big positive. And then you had categories that did well, but overall, the other categories weighing them down in the protein group. Yeah. So so Derek, I think, just based on on, Will's prepared remarks earlier, it's not a surprise to anyone, for us to say that we weren't focusing our promotions, with respect to pork related type of products. In Canada in particular, and to some extent in The U. S. We have some exposure to pork and because of the uncertainty of the input costs and the prices, etcetera, we just didn't focus very much on promoting those type of products or those type of launches. Having said that, we are focusing more on seafood, chicken based, fully cooked protein, and and, you know, of course, sandwiches and charcuterie trays. So we're focusing more on products that are not impacted by, ASF, for obvious reasons. So that excuse me. That that that means the so the slower ramp was was because of the focus on everything but pork. Exactly. Exactly. I mean, we're trying to run the business prudently. And, you know, I I think that middle of the year, everybody was saying ASF was gonna be a 20% impact in terms of China's production and it's gotten worse and worse. It's now up to 50% to 55%. As I said in my prepared remarks, we did have the ban on Canadian pork, which meant that Chinese sourced a lot of pork from Europe. Prices skyrocketed in Europe impacting all of our partners and our suppliers there. And again, for obvious reasons, we focused on promoting other products other than those that are pork based. We felt that it was the right thing to do and the prudent thing to do and happy to say that we had a lot of traction, a lot of success with respect to all those non pork related products. Again, it's good to be diversified in this type of situation. Okay. Thanks for the color. And I guess maybe a follow-up to that is much of the business is tied to European specialty meat? I'm just trying to get a sense of your sensitivity to European prices. So Derek, we procure about $60,000,000 a year of product from Europe. And roughly half of that is 40% of that's bellies, 40% of that's charcuterie and 20% is rib products. They're all very specialized products. And and as a result, we can't easily shift procurement to another market, and and that's kinda why we're we're we're tied in with what's happening with Europe. Just wanna mention, Derek, that the disconnect between Europe and North America was strictly the result of of of the ban that China imposed on mainly Canadian pork. Obviously, there were some trade issues with The US pork as well. Well, with respect to the Canadian situation, that's gone away. Right? The market opened up again, last week. So we expect the disconnect between European pork and North American pork to, go away or diminish. So it was a short term issue. It was really a distortion of the economics that we're used to. We're faced with situations where we have to, raise prices in our domestic market because we import product from Europe. At the same time, the domestic situation is relatively benign. So we don't have a lot of pricing ability in those situations. Of course, we don't want to lose market share. It was kind of a very unusual event. But again, with Canada opening up now, we expect that discrepancy to go away. Okay. And one final one for me, and it's just on turning to your cash flow statement. Well, there was a big the working capital was a big source of funds this quarter. Just wondering if you can tell us what the driver of that was? And was there anything one off in terms of business operations? Yes. No, it was just timing. If you recall, Q2, we had a very big negative in our cash flow statement on the working capital line. So it was just the timing of items. Our next question comes from David Newman with Desjardins. Hey, David. Hey, David. Just quickly on just to kind of put a final nail on the coffin on this ASF situation. So EU prices are high and North American prices are flat or rolling over, but Canada is opening up. So if you get the situation where you see some normalization around the world, are you I guess you're pretty in decent position that you can raise prices again for your if the prices in North America rise or cost rise in North America? Definitely, David. And that we've always done that. Again, the issue was the large disconnect between North American prices and European prices, right? So that did not give us the ability to raise prices because, again, the competitive prices in North America were benign or flat. But but with Canada opening up again, now you'll have sort of more normal supply global supply and demand conditions, which we've we've operated for a long time and, obviously, we understand. And, again, we feel comfortable that that in this situation, we will be able to raise prices if we have to. And what do you think the the typical I know I know what your pricing lag is, but how long do you think this could linger as an issue? And obviously, you got an election next year in The U. S. Obviously, you want to get this solved. But how long do you think this might linger into 2020? Well, we again, as I said in my prepared remarks, there appears to be some sanity coming back into the global trade situation. The fact is that China, has a massive protein deficit, given ASF. It has a massive pork deficit as well. They will need to import pork from Canada, and The US. I I believe that that's why they opened up these market markets more recently. So so again, we think it's probably a 2019 issue and and we're already seeing that. We're already seeing openness and and and more liberalization of trade and trade coming back to to to normal. But, in the last six months, I would say we had nothing. Nothing was normal. It was very unusual. No. For sure. And then if you look at your programs in terms of your current programs that you've won and some of the ones that you guys are still looking at, you had some delays, I guess, on launching some of your current programs, which I think I recall was, like, 100,000,000 of $135,000,000 or $135,000,000 in total with the $35,000,000 cascading into 2020. Maybe just some thoughts on the delays. I think it's basically your Walmart breakfast sandwich program. And how is that going? Again, our organic growth overall, David, and also our numbers show, we're getting really good traction in terms of our product launches into The U. S. As I mentioned, our meat snack platform has been extremely well, growing very quickly. We now own the number one growth brand in Feast during The U. S, getting really good traction in club and grocery as well. Again, we talked about our sandwich initiatives and our charcuterie initiatives where we're getting incredible traction, particularly in The US market. So we're getting really, really good traction in terms of what we're trying to do and the way we're executing in The US. We generally follow the markets. We try to make prudent and astute decisions as to what we promote and what we don't promote. We even had to make some changes in our strategies given the recent 25% tariffs on European some European pork products imported in The U. Some products are included in getting the tariffs, some are not. So we're always trying to adjust and reposition ourselves and what we focus on to make sure, obviously, we manage our business as prudently as we can. But overall, we're very pleased with the growth that we're seeing and the opportunities we're seeing. There's no question about that. And are you still seeing some big fee stores as potentially part of the mix? Or is it still more of the small chains? Or what is kind of the constitution of the mix of business that you guys are currently bidding on? Again, David, I welcome you to take a trip into The U. S. And check out both some of the large C store chains and some of the smaller chains, we're getting very good traction in both sandwiches and meat snacks. Again, not an issue there, and that's driving a lot of our growth. Okay, guys. Hopefully, this thing gets sorted out real soon. And 2020 turns out to be a much better year when compared to this kind of debacle that we faced this year. So we'll talk soon. Thank you, David. Thank you. Our next question comes from John Zamparo with CIBC. Hey, thanks. Good afternoon. First question is more of a follow-up on what was asked earlier. So apologies if I missed it. I just want to better understand the ASF impact. So the press release noted the ASF did impact margins, but also said the impact from commodity costs was largely offset by price increases. So just help me understand what exactly was the impact from ASF? I think you'd split it earlier. And assuming it was mostly on new product sales, I'm assuming that's referring to the new contract wins in C store and club channels. So can you remind us of the 130,000,000 or so of that, how does it split between those two channels? Yes. So in terms of the margins versus dollars impact, so it was it's a nominal versus percentage concept, John. You we did we were able to cover the actual cost increases off over on an overall basis, but we didn't make the margin. So so, effectively, our our margins were going down while the net dollars changed stayed flat. Does that make sense? Yes, understood. Yes. Okay. And then in terms and sorry, what was the second part on the sales? So you said that you're going have to finance some new sales initiatives and that ASF impacted some of the new product launches that you targeted. So assuming this is referring to the 130,000,000 or so of new contract wins, can you remind me the split of that $130,000,000 between sandwich and meat snacks? Yeah. So well, the split was roughly 45% sandwiches, 55% protein, which included meat snacks, charcuterie, and some of our cooked protein plans. So all of those initiatives that were outlined in that $130,000,000 are progressing and progressing well. But like George talked about, some of the meat snack and charcuterie items, we have taken a less aggressive approach in terms of our featuring and promo based on what's been happening in Europe. And so those are ramping up slower than the original expectation, but they're still progressing. Got you. Okay, that's helpful. I want to ask about labor cost inflation. It impacted Specialty Foods gross margin in the quarter. It seemed this had been maybe an issue in the rearview mirror, but it sounds like it is still something you're dealing with. So can you talk about how this is impacting the business? And are there incremental steps you can take to address this? Because I believe you had already tackled some last year. Yes. And John, that was a year over year impact. That wasn't a surprise from a looking forward perspective. We had built that into our expectations. It's just purely that that is the year over year impact of primarily labor inflation. Okay, thanks. So that number was not a surprise to us. And also, again, we're in a unique position to leverage our Canadian production to service The U. S. Markets. In fact, this past quarter we had record production out of Canada shipped to The U. S. So we have an advantage over labor in this situation and it's one of our competitive advantages, I think, in terms of our project and growth initiatives in The U. S. Okay, understood. Maybe moving to the lobster market. So that had a significant impact on margins. And I know you're excited about the future of this business and that you're building it for the long term. But is there anything you can do to execute to reduce the impact on results over the next few quarters? Well, there's two stories, right, in the lobster impact on the quarter. One was the one I mentioned earlier on the question from George Doumet in terms of the impact on some fixed price contracts with retail. That was an actual negative hit to us. In terms of the other impact, one of the exciting things happening within our Ready Seafood business is they are using the disruption in the market to implement a whole number of new procurement initiatives, and and those are going very well. What they're doing is they're setting up the supply for their new Saco facility and some of their other growth initiatives. And in that industry, procurement is critical. It's a scarce resource, and your first step in any growth strategy has to be to procure the product. So they've gone out, procured it. In the interim, while they're now developing their Saco facility and other growth initiatives, they're effectively selling that supply at a nominal margin. So it's not a negative. It's just, again, it's impacting the percentage on margins. But now as they execute on their growth strategy, they will expand their margin. They'll pick up that additional margin. And our overall strategy is as usual, again, in in lobster as it is in pork and beef and chicken is really to move more towards value added and branded and that's why we're so excited with the completion of Saco and the commission of that facility. Right. And is there do you have a time line in mind for when that business would be selling at sustainable margins or the margins you like? Like is it closer to a year? Or is this kind of a three to five year project? It's close it's sort of a one plus type project, one plus years project. It's relatively but we're pretty excited about the opportunities and how quickly we expect them to ramp up. Okay, understood. And if I could just sneak in one more. More broadly, I'm just trying to get a sense into visibility into your portfolio companies. The Q2 call reaffirmed guidance, but the quarter didn't come in where you'd like. So is it that operations turned really sharply in the last six to seven weeks of the quarter? Or is it that you have limited visibility into some of the businesses? And if it's the latter, are there levers you can pull to try to increase visibility? Again, I think the major issue for us is really ASF and the the I don't know if you follow ASF and and some of the reports that are coming out of both China is that we've, you know, we've modeled about 20% loss of pork production in China and it's coming out at 50% to 55%, which is really disrupting the international pork markets to a much larger extent than what we modeled. This has not happened before. And we didn't model the disconnect between the European markets and the North American markets. Again, we've never had this type of a disconnect before. So generally, ASF is the big issue for us. But as I've mentioned earlier, we're adjusting our strategies, launches, our innovation, etcetera, to make sure that we minimize the impact. At the same time, we're obviously managing the business for the long term. But the situation in terms of ASF in China has been the real issue for us. And the European disconnect resulting from And the consequent disconnect, yes. Right. Okay. That's helpful. Thank you very much. Thank you. Thank you. Our next question comes from Bob Kahn with RBC Capital Markets. Thanks and good afternoon. Just wanting to understand the logistics of I guess how some of these promotions go into the market. I think you had similar commentary at Q2 that because of some of these commodity concerns, you may have pulled back on promotions or didn't execute them. I guess, can you just walk us through maybe the logistics of that? Is it as you see the commodity price rising up or your realized cost is high? Are you just pulling back on those promotions? Is the margin not right for you or the customer? So I'm just trying to understand how that's working on the ground level. Well, know, I can typically, you know, a a certain retailer will have, you know, six promotions, let's say, in a given year and and, you know, we bid on those promotions. And when it comes to pork type of products, we have not been very aggressive at all this year in both the second and the third quarter because of the uncertainty of pork pricing in particular, given the uncertainty around ASF. So that again, somebody else may have gotten that business. They're welcome to get the business that they lost. That's fine. You know, they they can do that. But but we have not been aggressive at all with respect to any product which involved pork. We've been aggressive on promotions with regards to other proteins, but but but generally speaking and historically, you know, pork is a big part of our business, but but we have not been aggressive at all in terms of these type of promotions on a retail by retail basis in Canada and The U. S. Then similarly with launch of the charcuterie programs in The U. S, again, just because of the margin profile being challenged, the team doesn't want to go out there with premium pricing to start off with. So they've just done a soft launch and is proceeding on a much more sort of conservative basis. And then just Yes, a follow-up on ahead. Yes, go ahead. Yes, just in general terms, I would say that every company in North America today that value add pork is probably very cautious with regards to to promotions. You know? This is ASF is impacting everybody, so so it shouldn't surprise anyone that companies are not promoting aggressively with respect to pork. Okay. And then just a follow-up on that, I guess, what kind of visibility are you seeing to commodity prices around put costs for the next few quarters? Do you have some of the pricing locked in for late this year, early next year, both from a North American and European sourcing point of view? Well, we're comfortable with respect to supply. Again, I you know, prices fluctuate. Generally, pricing has been volatile with respect to to pork in particular. We're modeling it to be quite inflationary for 2020. And again, our companies are planning accordingly. But as I mentioned earlier, we're generally happy with the fact that China has opened up to North America for pork in particular and we think, you know, what we're looking for is for the markets to return to normal global supply and demand conditions. That's what has been missing in the last six months. Okay, great. And then I guess just on the M and A front, it looks like kind of between last quarter and this quarter, you've indicated that some of the acquisitions might have been a little bit delayed. I guess is it acquisitions you just didn't feel were the right fit? Is it pricing? I guess maybe what are some of the causes of some of these acquisitions maybe not getting done around time? And how do you see the pipeline for transactions over the next while? Well, we have probably the most robust pipeline we've had in our history. Our M and A group here has been extremely busy over the last little while. It shouldn't surprise anybody that we're not aggressively trying to close acquisitions right now that involve pork related companies. We're concerned with respect to anything that involves pork. Having said that, all of our platforms right now have major acquisitions in the works. And a lot of times, the timing stretches by a few months. A lot of the timing is driven by the other side. But again, we're very confident with our pipeline and our ability to close many more acquisitions over the next few months. Okay, great. And then, just on the capacity side, I guess in terms of adding the lines that you're talking about in the sandwich plant, is it primarily in the new Phoenix facility? Because I understand, I think you moved away some production from some of the other plants to Phoenix. I guess, how should we think about how ramped up that Phoenix plant is right now and how much room is there to add lines in some of the other plants? Yeah. So so Phoenix is running, extremely well. We're very pleased with with how well it's been running in the last year or so. Phoenix is mainly focusing on sandwiches. And as we've taken some sandwich type of production out of Reno and Columbus and moved them into Phoenix, that gave us space to convert to charcuterie. So we do charcuterie in Reno and Columbus and we're looking, as Will said, to add more lines to to this very fast growing category. And then we have a we have a lot of space in our one of our Lakeville facilities, which we acquired from from, as part of the Buddy's transaction. So ultimately, depending on how rapidly we see growth coming, that that gives us a lot of of in adding lines as well. Okay. That's helpful. Thank you. Thank you. Our next question comes from Stephen MacLeod with BMO Capital Markets. Thank you. Good afternoon, guys. Hey, Stephen. Hey, Stephen. I just wanted to just circle back around on the sales delays. I know the question has been asked a couple of different ways, but I just wanted to try figure out kind of you were saying previously that $100,000,000 of those $135,000,000 of new product listings would flow through in the back half of the year. Can you talk about like how much you still expect to come through in the back half of the year and how much sort of gets bumped into early twenty twenty? We haven't isolated that 130,000,000 specifically, Stephen, but it is factored into our projections for the year. You know, in general terms, though, I would say that, you know, our run rate of that 130,000,000 for 2019 was about $90,000,000 So we had expected $40,000,000 of that run rate to happen in 2020. And so I guess probably about 10,000,000 to 15,000,000 of that's maybe been pushed out? All PERC related. Yes. Yes. So these are certainly not lost, just delayed? No, absolutely not. Absolutely not. And in fact, in terms of the pipeline, we haven't updated or we don't sort of continually update that $130,000,000 number. But the reality is based on further contracts that have been won, the run rate of that number into 2020 is much larger today than the $130,000,000 I see. Okay. And would it be safe to assume that the incremental dollars above and beyond that 130,000,000 would be in those categories, sandwiches, charcuterie, meat snacks? Yes. And cooked protein. And cooked protein. Don't forget cooked protein. That's a high growth category for us. Us. Right. Okay. Okay. That's great. And then just I know visibility right now is quite low, just given where all the moving parts that obviously impacted the quarter. But I just wanted to get your sense as what is your visibility as you roll into 2020, whether it's the top line I guess, I mean, line gross margin would be the most the two biggest variables. I'm just curious, how do you think about those numbers and what kind of confidence you have in where you could potentially end up as you roll into 2020, understanding it's a ways away and there are some factors, but I just wanted to get a sense of what visibility might look like? Again, Steven, I think you know that over the years we've diversified quite a bit away from pork. When we first launched premium brands, I think pork was probably 50% of our inputs. Today, it's a much lesser number. I would say that we have very good visibility with respect to the rest of the platform as it relates to other proteins, of course. You know, chicken, beef, seafood, these are massive parts of our business. Again, there is some uncertainty with respect to the pork situation. Situation in Canada far exceeded anyone's expectations with respect to how bad ASF would get. So we're a little bit cautious with respect to pork, of course. Having said that, as I mentioned earlier, all we want is we want normal global supply and demand conditions to be in place. And we're seeing evidence of that which makes us very happy. We did not have normal supply and demand conditions with regards to pork over the last six months. So we like the fact that Canada now has been opened up in regards to exports to China. We like the fact that there appears to be, again, more liberalized trade between U. S. And China with regards to protein and that will make the market get back to normal. Again, the pork situation is what causes us a little bit of concern, but we're seeing evidence that the markets are going the right way. Okay. That's helpful. And then just finally on the lobster situation. With respect to the pricing, is that a when do you see that issue sort of resolving itself in terms of the pricing with respect to the fixed price contracts? That was completely a one off situation this past summer, Steve. Okay. That's great. That's it for me. Thank you. Thank you, Steve. Thank you. Our next question comes from Dmitry Kimonetsky with Veritas. Hi, and thanks for taking my question. How much revenue did you generate from the new product initiatives year to date? Well, that was the majority of that growth in our organic specialty foods, 6.2% would have come from the new initiatives. Like I say, in fact, when you look at the new initiatives, it's larger than that because you saw flattened or in some cases, little bit of contraction in some of the other port categories with what's happening around the featuring issues. I see. Okay. So and how much revenue was lost in relation to your original guidance due to the ASF? It's probably in the $5,000,000 to $10,000,000 range. For the quarter or For the quarter. For the quarter. Yeah. It was about $5,000,000 in the second quarter and sort of 5,000,000 to 10,000,000 depending on, how we look at our promo activity in The U. S. With some of the new programs. I see. Okay. And broadly, what kind of multiples did you pay for 2,009 acquisitions, either revenue We or never talk multiples. But in terms of the two recent acquisitions, they're roughly 5% of EBITDA businesses at this point before synergies. Sorry, but then again, I apologize. So if you do the math around the sales and the margins, you sort of extrapolate some estimates around EBITDA. But again, we always talk about in our minds and the way we look at these things are through an IRR model, our 15% IRR concept. Right. But on the in terms of revenue, is this around one times revenue that was changed? Just trying to figure out the impact of the twenty nineteen acquisitions on revenue. Yeah. I don't have that metric, Dmitry. Again, we look at it from IRR perspective, not a multiple of revenue. Have to go back and run those numbers. Yeah. And there was also a put option exercised in the quarter for $70,000,000 Just wonder which business does that relate to? No. This past quarter, there was no put options exercised. And on the cash flow statement? Oh, are you now are you looking on the year to date? Because last quarter, we did we bought out the minority shareholders in our Hempfler's business in The U. S. We moved them up to the premium brands level. But that was in second quarter, not in the third. So for thirteen weeks ended September 2839, investment in and advances to associates net of distribution. So it's 16,300,000.0 Oh, okay. Okay. Yeah. So that's our investment in North Delta Seafood, Dmitry. And because that was a 50% interest, so it's being accounted for as an equity investment. I see. Okay. Excellent. Well, okay. Thank you very much. Okay, Dmitry. Thank you. Thank you. Our next question comes from Rob Wells with TD Wells. Good morning, George and Rob. Morning. Rob. Kristen, thank you for your efforts in building and growing the company. We look forward to better longer term returns. And thanks for your work to date. I have two questions. The first one is back in November, announced the normal course issuer bid. How much of that planned share buyback did you complete prior to the private placement in May? We actually didn't we put in place the buyback program, Rob, way back in in in last year when there was a significant amount of weakness in our share price. We were down in sort of low sixties. And so we put it in place because of the the silly in our opinion, the silly valuation of the company. But by the time we got the program in place, because there's various regulatory steps we had to go through, by that time, the share price had normalized. And as a result, we never ended up using it. Okay. And thank you. And the second question The good news in that though sorry, Rob. Good news in that is we did have reason it normalizes, we had some good long term shareholders who stepped into the stock and took advantage of the weakness. And you're saying outside of the private placement? Yes, outside of the private placement. Thanks. And George, in August on the call, you mentioned the possibility of a European acquisition, and I can't recall if it was either year end or within a six month period. Can you share any updates on that potential purchase? Yeah. Know, again, we we've got we're we're in a number of discussions with companies in North America and Europe. We truly expect to probably close a transaction involving one or two European companies in 2020. Thanks very much. Thank you, Rob. Thank you. Our final question comes from Derek Lessard with TD Securities. Yes. Just a few follow ups for me, gentlemen. I was just wondering if you're modeling any pressure in any other commodity markets like beef? We always model inflation or deflation, of course, given the, you know, the volatility in the market. Generally, we are modeling inflation, with respect to to beef, in particular. Again, there is a protein shortage in the world today based on what's happening in China with respect to ASF. Very often, there's a substitution effect when a certain market is short of a protein. So, generally, we're modeling inflation. We've done that in the past. What what we want to model is obviously the the type of trade issues and aberrations in supply in global supply and demand that we saw in the last six months. We're comfortable with inflation or deflation. Many of our a lot of our pricing tends to be cost plus. But, again, and and we're very comfortable with regards to passing on price increases to our customers under normal conditions. So inflation is not an issue for us. It's just that we had this unusual situation with respect to the disconnect of European and Canadian prices. Yeah. Okay. Thanks for that, George. And I was wondering, you guys talked about taking advantage of a lobster disruption. Can you remind me again what that disruption is? Well, was the China tariff issue where China placed a 25% tariff on U. S. Lobsters. And as a result, a number of suppliers and a number of players had really based their business plans on China. So that created a tremendous amount of disruption in the local market. Okay. And then one final one for me. Again, it's on M and A, but the ones that you guys completed this quarter. I'm just wondering how we should be modeling. I think there was some disclosure on sales for one of them, but maybe total sales and sort of the margin expectations. Yes. So there will be more coming what we expect this quarter, Derek. But in terms of the ones we completed, the index and Main Coast, you're looking at about $120,000,000 sales range with a roughly 5% EBITDA margin. 5%, you said? Yes. They're both distribution businesses. And before any synergies. That's their historic levels. Right. Thank you. Thank you. This concludes today's question and answer session. I would now like to turn the call over to today's speakers for closing remarks. Yes. I'd like to thank everybody for attending today. Thank you so much. Bye bye. Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.