ROUGEMONT, QC, March 29, 2019 /CNW Telbec/ - Lassonde Industries Inc. (TSX: LAS.A) ("Lassonde") posted sales of $1,594.0 million in 2018. Excluding the $66.9 million in sales by Old Orchard Brands, LLC ("OOB") and a $1.0 million unfavourable foreign exchange impact, sales were up $2.0 million year over year. The 2018 profit attributable to the Company's shareholders totalled $66.4 million compared to $89.9 million last year. Excluding a $10.2 million impact in 2017 resulting from a reduction to deferred tax liabilities related to the U.S. tax reform, an estimated $5.5 million impact from the OOB acquisition, and a $0.6 million gain on capital assets recognized in 2017, the 2018 profit attributable to the Company's shareholders was down $7.2 million year over year.

"The Company's fiscal 2018 sales were in line with our expectations, whereas operating profit felt the effects of intensifying inflationary pressures, mainly in our U.S. operations and both in terms of input costs and transportation costs. Adjustments to selling prices will continue to be gradually applied in 2019 but at a pace that considers the Company's competitive environment as well as the impacts that such price increases could have on sales volume. We are also seeing that factors such as scarcity of labour, transportation costs, and tariffs on certain inputs are creating instability in our U.S. cost base and these factors do not seem to be dissipating. It is important not to hinder the Company's long-term positioning due to short-term profitability pressures. To respond to these disruptions in our U.S. market, we are making the necessary adjustments to our business model and will leverage the synergies from our recent acquisitions," said Pierre-Paul Lassonde, Chairman of the Board and Chief Executive Officer of Lassonde Industries Inc.

2018 Financial Results

In 2018, the Company completed the acquisition of OOB for a total cash consideration of US$152.8 million, including US$2.8 million in working capital adjustments. A contingent consideration of up to US$10.0 million may be payable over the next two years subject to specified financial milestones based on OOB's adjusted EBITDA. Moreover, an amount of US$4.2 million was paid to settle the charges related to the acquisition and its financing. The Company recognized this business combination using the acquisition method in accordance with the provisions of IFRS 3. Therefore, the 2018 consolidated financial statements include the results of OOB from May 31, 2018 to December 31, 2018 and certain transaction fees related to the acquisition. Note 6 to the 2018 consolidated financial statements contains additional information about the acquisition, including information on the acquisition financing and related costs.

For 2018, the Company's sales totalled $1,594.0 million, up $67.9 million or 4.4% from $1,526.1 million in 2017. Sales from OOB added $66.9 million to the Company's 2018 sales. Excluding OOB's sales and a $1.0 million unfavourable foreign exchange impact, the Company's sales increased by $2.0 million (0.1%) year over year, largely due to higher sales of private label products partly offset by a decrease in the sales of national brands.

The Company's 2018 operating profit totalled $105.2 million, down $28.1 million from $133.3 million last year. During 2018, the Company incurred $2.0 million in expenses related to the OOB acquisition. As for OOB, it posted $0.9 million in operating profit, which includes a $0.8 million expense as inventory was stepped up as part of the allocation of the acquisition purchase price. Excluding the impacts of the OOB acquisition and of a $0.6 million gain on capital assets recognized in 2017, the Company's operating profit was down $26.4 million year over year. This decrease came mainly from a lower contribution margin realized by U.S. operations largely resulting from a notable increase in transportation costs and higher input costs combined with a more difficult competitive environment. These items were partly offset by lower performance‑related salary expenses. As for the Canadian operations, the contribution margin is higher than last year, mostly due to lower performance‑related salary expenses, improved performance by specialty food product operations, a favourable foreign exchange impact on hedged U.S.-dollar purchases, and a favourable decision by a U.S. administrative tribunal on the tariff classifications of certain products. This decision has reduced customs duties paid in previous years. These items were partly offset by higher transportation costs.

The Company's financial expenses went from $12.2 million in 2017 to $15.1 million in 2018. This increase is due to $5.6 million in interest expenses related to the financing of the OOB acquisition. Excluding these interest expenses, financial expenses were down $2.7 million, essentially due to a $1.3 million decrease in the amortization of transaction costs and a $1.0 million decrease in interest on long-term debt.

"Other (gains) losses" went from a $0.3 million gain in 2017 to a $1.1 million loss in 2018. The 2017 gain was essentially due to foreign exchange gains while the 2018 loss was mainly due to a $1.5 million loss resulting from a change in the fair value of financial instruments partly offset by $0.4 million in foreign exchange gains.

Profit before income taxes stood at $88.9 million in 2018, down $32.4 million from $121.3 million in 2017.

Income tax expense went from $25.8 million in 2017 to $20.9 million in 2018. At 23.5%, the 2018 effective income tax rate was higher than the 21.3% rate in 2017. It should be noted that an $11.3 million favourable non-cash adjustment to the deferred tax liabilities of the U.S. entities was recognized in 2017. This downward adjustment to deferred tax liabilities came from a reduction to the U.S. federal corporate tax rate following the U.S. tax reform adopted in December 2017. Excluding the impact of this adjustment, the 2017 adjusted effective income tax rate would have been 30.6%. When compared to the 2017 adjusted effective income tax rate, the 2018 lower effective income tax rate mainly reflects the impact of a reduced tax rate arising from the U.S. tax reform.

The 2018 profit totalled $68.0 million, down $27.5 million from $95.5 million in 2017. It should be noted that the 2018 results include $1.4 million, net of tax, in OOB acquisition-related costs, $4.1 million, net of tax, in additional financial expenses related to the financing of the acquisition, and a net loss of $0.6 million from OOB. Excluding the impact of the 2017 adjustment to deferred tax liabilities, the impacts of the OOB acquisition and the gain on capital assets recognized in 2017, the 2018 profit was down $9.5 million year over year.

The 2018 profit attributable to the Company's shareholders was $66.4 million, resulting in basic and diluted earnings per share of $9.50. In 2017, profit attributable to the Company's shareholders had totalled $89.9 million, resulting in basic and diluted earnings per share of $12.87. Excluding the $10.2 million impact resulting from a reduction to deferred tax liabilities, the impacts of the OOB acquisition and the gain on capital assets recognized in 2017, the 2018 profit attributable to the Company's shareholders was down $7.2 million year over year.

The Company's operating activities generated $114.7 million in cash during 2018, while they had generated $144.9 million in cash during 2017. As for OOB's operating activities, they generated $9.6 million in cash during 2018, leaving a difference of $39.8 million on a comparable basis. Financing activities generated $110.7 million in cash during 2018, while they had used $92.4 million in 2017. During 2018, the cash flows related to the financing of the OOB acquisition were $193.3 million, leaving a difference of $9.8 million on a comparable basis. Investing activities used $232.2 million in cash during 2018 compared to $35.8 million used in 2017. Excluding the $196.9 million in investing cash flows related to the OOB acquisition, investing activities used $0.5 million less cash than in 2017. At year-end 2018, the Company reported a cash and cash equivalents balance of $4.6 million and a bank overdraft of $nil, whereas, at the end of 2017, the cash and cash equivalents balance was $16.2 million and the bank overdraft balance was $5.0 million.

Fourth Quarter Financial Results

For the fourth quarter of 2018, the Company's sales totalled $426.8 million, up $24.2 million or 6.0% from $402.6 million in the fourth quarter of 2017. Sales from OOB added $25.6 million to the Company's fourth-quarter sales. Excluding OOB's sales and an $8.8 million favourable foreign exchange impact, the Company's fourth-quarter sales were down $10.2 million (2.5%) year over year. This decrease was mainly due to a 7.4% decrease in U.S. sales related to branded products as well as private label products.

The Company's operating profit for the fourth quarter of 2018 totalled $25.7 million, down $16.5 million from $42.2 million in the same quarter last year. As for OOB, it posted a $0.4 million operating loss. Excluding the impact of the OOB acquisition, the Company's fourth-quarter operating profit was down $16.1 million year over year. This decrease was largely due to lower sales and the resulting impact on the recovery of fixed production costs. The 2018 fourth-quarter operating profit was also affected by a significant increase in input costs, particularly apple concentrates and the resin used to manufacture plastic bottles, and by an increase in transportation costs. These items were partly offset by a decrease in performance-related salary expenses.

The Company's financial expenses went from $2.9 million in the fourth quarter of 2017 to $4.5 million in the fourth quarter of 2018. Excluding $2.5 million in interest expense related to the financing of the OOB acquisition, financial expenses were down $0.9 million. This decrease came essentially from a $0.4 million decrease in the amortization of transaction costs and a $0.3 million increase in interest income.

"Other (gains) losses" went from a $0.1 million gain in the fourth quarter of 2017 to a $0.8 million loss in the fourth quarter of 2018. The 2017 fourth-quarter gain was essentially due to foreign exchange gains while the 2018 fourth-quarter loss was mainly due to a $1.4 million loss resulting from a change in the fair value of financial instruments, partly offset by $0.6 million in foreign exchange gains.

Profit before income taxes stood at $20.4 million in the fourth quarter of 2018, down $19.0 million from $39.4 million in the fourth quarter of 2017.

Income tax expense went from a $0.4 million credit in the fourth quarter of 2017 to a $4.4 million expense in the fourth quarter of 2018. At 21.3%, the 2018 fourth-quarter effective income tax rate was higher than the -1.0% rate in the same quarter of 2017. It should be noted that an $11.3 million favourable non-cash adjustment to the deferred tax liabilities of the U.S. entities was recognized in 2017. This downward adjustment to deferred tax liabilities came from a reduction to the U.S. federal corporate tax rate following the U.S. tax reform adopted in December 2017. Excluding the impact of this adjustment, the 2017 fourth-quarter adjusted effective income tax rate would have been 27.8%. When compared to the 2017 fourth-quarter adjusted effective income tax rate, the lower 2018 fourth-quarter effective income tax rate mainly reflects the impact of a reduced tax rate following the U.S. tax reform.

The 2018 fourth-quarter profit totalled $16.1 million, down $23.7 million from $39.8 million in the fourth quarter of 2017. It should be noted that the current quarter's results include $1.8 million, net of tax, in additional financial expenses related to the financing of the acquisition, and a net loss of $1.4 million from OOB. Excluding the impact of the 2017 adjustment to deferred tax liabilities and the impacts of the OOB acquisition, the 2018 fourth-quarter profit was down $9.2 million year over year.

The 2018 fourth-quarter profit attributable to the Company's shareholders was $15.8 million, resulting in basic and diluted earnings per share of $2.26. In the fourth quarter of 2017, profit attributable to the Company's shareholders had totalled $37.2 million, resulting in basic and diluted earnings per share of $5.32. Excluding the $10.2 million impact related to an adjustment to deferred tax liabilities in 2017 and the impacts of the OOB acquisition, the 2018 fourth-quarter profit attributable to the Company's shareholders was down $8.3 million year over year.

Outlook

The Company noted that, in the U.S. market, industry volumes for the fruit juice and drinks market were down slightly for the twelve-month period ended December 31, 2018. In the Canadian market, the situation was different, as industry sales rose slightly when compared to the same twelve-month period last year. Specifically, the Company's 2018 sales were up 4.4% year over year. Excluding foreign exchange impacts and the impact of the OOB acquisition, the adjusted year-over-year sales increase was 0.1%. Barring any significant external shocks (and excluding foreign exchange impacts and the impact of the OOB acquisition to maintain a comparable basis), the Company expects that, for 2019, its consolidated annual sales growth rate will be slightly above that of 2018.

The Company remains concerned about the significant cost increases affecting transportation. It also notes that the high costs for resin and other raw materials purchased in the fourth quarter will have an unfavourable impact on cost of sales in the first quarter of 2019, while second-quarter costs should be closer to historical averages. The Company expects its selling price increases to gradually take effect in 2019, but it must remain cautious in a competitive environment that has become more difficult due, among other factors, to an ownership change affecting its largest U.S. competitor. The Company is also paying close attention to the potential impacts of the recent changes made to Canada's Food Guide.

The Company expects its use of investing cash flows to be higher in 2019 than the average of the past five years, as two major investment projects will be undertaken to provide the Company with additional capacity for fruit juice and drinks and specialty food products. The Company believes that its use of investing cash flows could reach between $45 million and $55 million in 2019. These disbursements will have a limited impact on the Company's profit for 2019 and will primarily affect its cash flows.

About Lassonde

Lassonde Industries Inc. is a North American leader in the development, manufacture and sale of a wide range of ready-to-drink fruit and vegetable juices and drinks marketed under brands such as Apple & Eve, Everfresh, Fairlee, Fruité, Graves, Oasis and Rougemont.

Lassonde is also one of the two largest producers of store brand shelf-stable fruit juices and drinks in the United States and a major producer of cranberry sauces.

In 2018, Lassonde acquired Old Orchard Brands, LLC, a fruit juice and beverage manufacturing company based in Sparta, Michigan. OOB's product portfolio consists of nearly 100 different varieties, including 100% juice, 100% juice blends, reduced-sugar juice cocktails, lemonades and flavoured teas. OOB is a leader in ready-to-drink fruit juices and drinks in the Central United States. Old Orchard is also the second largest frozen juice concentrates brand in the United States.

Lassonde also develops, manufactures and markets specialty food products under brands such as Antico and Canton. The Company imports and markets selected wines from various countries and manufactures apple ciders and cider-based beverages.

The Company produces superior quality products through the expertise of approximately 2,200 people working in 15 plants across Canada and the United States. To learn more, visit www.lassonde.com.

Caution Concerning Forward-Looking Statements 

In this document and in other documents filed with Canadian regulatory authorities or in other communications, the Company may from time to time make written or oral forward-looking statements within the meaning of applicable securities legislation. Forward-looking statements notably include estimates, expectations, forecasts, and projections of future investment spending, revenues, expenses, earnings, profit, indebtedness, financial position, losses, upcoming projects, business and management strategies, and business growth and expansion. In the context of this document, forward-looking statements are particularly used to discuss preliminary results, the rate of sales growth, and profit attributable to shareholders. The forward-looking statements contained herein are used to help readers better understand Lassonde's financial position and the results of its operations as at the dates presented and may not be appropriate for other purposes. Forward-looking statements can be recognized by such words as "may," "should," "believes," "predicts," "plans," "expects," "intends," "anticipates," "estimates," "projects," "objective," "continues," "proposes," "targets," or "aims" as well as words and expressions of a similar nature and whether they are used in the affirmative or negative or used in the conditional or future tense. Forward-looking statements also include any statements that do not refer to historical facts.

By their very nature, forward-looking statements are based on assumptions and involve inherent risks and uncertainties, both general and specific in nature. It is therefore possible that the forecasts, projections and other statements will not be achieved or will differ significantly from those expressed or implied in such forward-looking statements or could affect the extent to which a particular forecast, projection or other statement materializes. Although Lassonde believes that the expectations reflected in these forward-looking statements are reasonable, it can give no assurances that these expectations will prove to be correct.

Readers are cautioned against placing undue reliance on forward-looking statements when making decisions, as the actual results could differ considerably from the opinions, plans, objectives, expectations, forecasts, estimates and intentions expressed in such forward-looking statements due to various significant factors. Such factors include, among others, the economic, industrial, competitive and regulatory environment in which Lassonde operates or factors that are likely to have an impact on its operations, its ability to attract and retain customers, consumers, and qualified staff, the availability and cost of raw materials and transportation, its operating costs, and the price of its finished products in the various markets where it operates.

The Company cautions that the foregoing list of factors is not exhaustive. For additional information about the risks, uncertainties, and assumptions that could cause Lassonde's actual results to differ from its stated expectations, readers may also consult the "Uncertainties and Principal Risk Factors" section of the Company's most recent annual MD&A and the other documents it files from time to time with securities regulators in Canada and available on sedar.com. The forward-looking statements contained in this press release reflect the Company's expectations on this date and are subject to change after this date. Lassonde does not undertake to update publicly or to revise these forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable legislation or regulation.

SEDAR registration number: 00002099

SOURCE Lassonde Industries Inc.

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