High Liner held back by ‘soft’ US restaurant sales, reduced sales prices

February 21, 2013, 8:21 am

High Liner Foods reported strong performances in its Canadian and Icelandic USA businesses in Q4 and the full year, but saw sales slide in the US overall.

The company reported a "soft" restaurant demand, as well as lower sales prices for commodity products and tough competition in the US market.

Total sales for the fourth quarter increased by 26.6% year-on-year to $218.30 million, with annual sales up 40.16% to $942.34m, driven by the Icelandic USA acquisition of December 2011.

The growth in sales for Q4 stems from an increase in High Liner's Canadian business, as well as the addition of the Icelandic USA operations, which accounted for $59.5m of the quarter's sales.

Total Q4 sales volume increased by 23.3% to 63.4 million pounds, with Icelandic USA accounting for 29.8 percentage points of the increase, offset by 12 percentage points in volume decrease for the pre-Icelandic USA business.

Assuming the acquired Icelandic USA operations had been part of High Liner's operations for the full comparable period in 2011, total Q4 sales declined by 1.8% while total sales in pounds declined by 5.6%. The decline during the fourth quarter was exclusively in the US, the company said.

Outside of Icelandic USA, which processes at a plant in Newport News, Virginia and sells mainly into foodservice, High Liner operates plants in Portsmouth, New Hampshire and Malden, Massachusetts.

Its non-Icelandic USA business comprises of a mix of foodservice and retail business, with its Fisherboy commodity brand and Sea Cuisine brand for value-added seafood products representing the company in US retail. Its FPI brand is big in US foodservice.

“On a pro forma basis, that assumes Icelandic USA had been part of our operations for the full year in 2011, our total US operations recorded a sales decline of 0.9%, with weakness coming from our non-Icelandic USA businesses during the second half of the year,” said Henry Demone, CEO.

This was as a result of “reduced selling prices on commodity products, competitive activity, and soft restaurant sales”, said Demone.

“Despite this, we recorded a 12.9% growth in adjusted EBITDA at our US operations, which complements our 8.7% adjusted EBITDA growth in Canada on a pro forma basis,” said Demone.

Adjusted EBITDA for the fourth quarter increased by 54.2% to $22.1 million, or 10.1% of sales, from $14.3 million, or 8.3% of sales, for the same period in 2011.

For comparison purposes, assuming that Icelandic USA had been part of High Liner's operations for the full fourth quarter of 2011, Adjusted EBITDA increased by 11.6% year over year. Synergies achieved during the quarter were $3.7 million and for the year were $9.4 million.

Annual adjusted EBITDA was $91,726, up 62.46% y-o-y.

"We are very pleased to report another strong year, marked by the successful integration of Icelandic USA into High Liner Foods' operations," said Demone.

"With the first full year of Icelandic USA included in our results, we recorded one of the highest levels of sales, adjusted EBITDA, and adjusted net income in the company's history.”

The board of directors of the company approved a quarterly dividend of $0.15 per common share payable on March 15, 2013 to shareholders of record on March 1, 2013.

This represents an 36% increase from the $0.11-per-share quarterly dividend paid on Dec. 15, 2012, reflecting “the board's continued confidence in the company's operations, and the fourth dividend increase over the last 10 quarters”, said the company.

Net loss for the quarter was $2.7m, compared with net loss of $2.9m for the fourth quarter of 2011. As in the first three quarters, net income was negatively impacted by after-tax one-time integration costs related to the Icelandic USA acquisition expensed during the quarter.

Additionally, the substantial increase in the value of High Liner's stock increased stock compensation expense in the quarter to $5.10m. The accelerated expensing of net financing costs on amendments to the term loan, to reduce future interest costs, also negatively affected results.

Excluding the one-time integration costs, the non-cash accelerated expensing of net deferred financing costs, and stock-based compensation expense, adjusted net income increased by 57.80% to $10.60m y-o-y.

The net result for the year was $2.20, down 88.19% y-o-y. However, the adjusted net result for the year was $38.07m, up 31.94%.

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