Lassonde Industries Inc.

Good morning, ladies and gentlemen. I'm here with Eric Gemme, Chief Financial Officer of Lassonde Industries.

Thank you for joining us for this discussion of the financial and operating results for our second quarter ended June 28, 2025. Now please turn to Slide 4.

Lassonde delivered another solid performance in the second quarter, driven by sales growth in each business unit. Sales increased by almost 19% to $742 million, with growth reaching slightly above 10% without the foreign exchange impact and the sales from Summer Garden.

This achievement continues to reflect the strength of our product portfolio as we sustained market share gains in Canada and in U.S. branded activities.

We also broadened our reach in Foodservice, while Specialty Food again delivered solid results with contribution from both our legacy business and Summer Garden. Now let's turn to Slide 5 for a closer look at operations, beginning with U.S.

Beverage activities. Lassonde concluded the first half of 2025 with market share gains, improved capacity and a 10% increase in production volume over last year.

This higher output supports increased distribution from our volume build-back initiatives with existing and new customers as well as the contribution from our single-serve line in North Carolina, which achieved its anticipated production level in the quarter. Category performance remains somewhat consistent with overall volume down low single digits.

With this said, we have noticed that the price gap between brands and private labels has reduced to the benefit of brands in the past two quarters, resulting in private label declines greater than the category. We believe these dynamics are driven by a lag in price execution where we led pricing due in part to apple inflation and tariffs.

We would expect to see branded competitors implement pricing actions in the back half of the year driven by commodity inflation, which we believe should restore normal price gaps and support private label category performance. Now let me provide you with a brief update on our strategic investment initiatives, which remain on schedule and on budget.

First, the relocation of production assets from a U.S. co-packer to our North Carolina hub is on track to be completed by the end of 2025, resulting in our first ever in-house juice box production in the U.S., which should improve reliability and reduce cost to serve U.S.

customers. Second, while we have reduced our capital expenditure projections for 2025, this adjustment has no material impact on the timeline or overall cost of our new facility in New Jersey.

Construction is progressing as planned with the phased transfer of existing production activities from the current facility beginning in late 2026 to be completed in 2027. These combined investments totaling USD 220 million represent an important step in our efforts to improve capacity, reliability and competitiveness while reducing production costs to improve margins in the U.S.

Turning to Slide 6. Our Canadian beverage activities had another robust quarter, driven by strong promotional support, innovation, distribution gains in both shelf-stable and chilled categories and a continued buy Canadian sentiment.

Despite overall market contraction, we achieved market share gains across both our branded and private label products. Category volume declines remain consistent with prior quarters with the most notable impact coming from the chilled orange juice category, driven by ongoing price inflation, yet our performance remained resilient, thanks to pricing, productivity improvement and innovation efforts.

Although we continue to execute on pricing to offset key commodity inflation, our focus on innovation to reduce commodity exposure also brought in positive results, mainly with nectars and drinks. As part of our broader focus on accelerating innovation, we are actively expanding our international flavor portfolio, which is gaining strong momentum as it aligns with a growing consumer trend.

Moving on to our Foodservice activities on Slide 7. Supporting the continued evolution of our operating model, we have created a North America Foodservice team to focus on growth opportunities in this channel.

Foodservice is a significant market, which we estimate represents roughly half of consumer spending on food and beverages, where our split between foodservice and retail has historically been around 10-90. Our foodservice activities had a solid quarter with double-digit sales increase over last year.

Growth was particularly strong in the U.S., driven by volume gains with broadline distributors, while in Canada, we improved our penetration of national accounts. The second quarter marked the commissioning of our new bag-in-a-box aseptic packaging line.

Early positive response validates our view of strong potential in this niche market as convenient dispensing makes it ideal for quick-serve restaurants and convenience stores, while bulk aseptic packaging will support sales to industrial customers looking for a consistent, ambient long shelf life product offering. Now let's turn to Specialty Food on Slide 8.

During the second quarter, we continued the integration of our North American operations, aligning our people, processes and technologies with improved operational efficiencies expected going forward. Summer Garden had another solid quarter with sales of $49.9 million and an EBITDA margin of 21%.

We continue to focus on integrating activities within the Lassonde Specialty Foods division, which further supports the strong performance of Summer Garden. During the quarter, we also remain focused on optimizing brand positioning and addressing opportunities to build brand distribution, including strengthening our marketing capabilities and deepening integration across commercial functions.

We also saw growth from third-party brands with our portfolio well positioned to capture momentum in the growing premium and super premium segments. As for legacy operations, we sustained our momentum in Retort products as ongoing growth in the premium category drove healthy demand for our premium glass jar soups and sauces.

We continue driving growth through our current offering while improving portfolio diversification via innovation and new client opportunities. Now to support our long-standing strategy of producing closer to our customers, we continue to evaluate targeted investments to improve capacity, capture further growth and lower cost by enhancing our specialty food production capacity.

This includes a potential plant expansion in Ohio and other alternatives to support future growth. I now turn the call over to Eric for a review of quarter two results.

Eric?

Thank you, Vince. Good morning, everyone.

Let's turn to Slide 9 for our second quarter sales, which amounted to $742 million, up 19% versus last year. Excluding Summer Garden and a favorable foreign exchange impact, sales increased 10%, reflecting higher sales volume in Canada, the favorable impact of pricing adjustments and a more favorable sales mix of private label products, both in Canada and in the U.S.

Moving to Slide 10. Gross profit reached $196 million or 26.4% of sales, up 11% from $176 million a year ago or 28.1% of sales.

Excluding Summer Garden, gross profit dollars were stable year-over-year for gross profit margin of 25.4%, reflecting higher cost of certain inputs, mainly oranges, which, as a reminder, benefited from a temporary procurement advantage last year and to a lesser extent, pineapples and apples. An increase in certain conversion costs in the U.S., mostly related to the deployment of new assets in North Carolina and the warehousing of raw materials and also the accelerated depreciation expense of certain U.S.

assets. These factors were partly offset by lower PET resin costs.

SG&A expenses were $141 million, up from $126 million last year. Excluding expenses from Summer Garden, SG&A decreased by $0.2 million, reflecting last year's cost of $7 million related to the acquisition, lower performance-related compensation expenses versus last year, all this offset by an increase in certain SG&A expenses, higher transportation costs in Canada, mainly due to higher volume and higher finished goods warehousing costs.

Excluding items impacting comparability, adjusted EBITDA increased 13% to $84 million or 11.4% of sales from $75 million or 11.9% of sales last year. Reflecting higher depreciation and amortization as well as higher financial expenses, adjusted profit attributable to the corporation shareholders declined slightly to $37 million or $5.47 per share compared to $39 million or $5.73 per share last year.

Turning to working capital on Slide 11. The days of operating working capital ratio stood at 59 days, up from 55 days in Q1.

This increase was primarily driven by a reduction in days of payables outstanding to 36 days, reflecting the timing of purchases and related settlements with suppliers. This was partially offset by a decrease in days of inventory outstanding, which have improved to 84 days.

Note that this inventory level is broadly in line with seasonal range for a second quarter. While we recognize that the ratio remains well above historical levels, we are committed to bring it within the target range by the end of 2025.

As a reminder, we may continue to strategically leverage our balance sheet to secure certain inventory availability and/or lock in costs ahead of anticipated price increases as we did earlier this year. Now on Slide 12.

Operating activities used $3 million in Q2 2025 versus generating $59 million last year. This variation is mainly due to more important working capital requirements this year versus last, notably higher accounts receivable in part due to a new ERP system in Canada, which had a temporary effect on the timing of invoicing before returning to historical range by the end of July and lower accounts payable, reflecting, as previously discussed, the timing of inventory purchases with a significant volume acquired in the first quarter now fully paid and $11.6 million increase in interest and income taxes paid, and this is partly offset by a higher EBITDA and a $6 million favorable change in the settlement of derivatives.

CapEx totaled $28 million in Q2 2025 and $107 million since the beginning of the year. The pace of CapEx spending slowed down during the quarter due to the timing of certain expenditures for the construction of the New Jersey facility.

We now expect to spend approximately USD 65 million in 2025 for this project, with the remainder being incurred in 2026 and early 2027. As a result, we expect CapEx to reach up to 7% of sales in 2025.

Turning to our balance sheet on Slide 13. Lassonde's net debt totaled $618 million at the end of the second quarter versus $587 million 3 months earlier.

This increase mainly reflects a higher level of working capital. As a result, the net debt to adjusted EBITDA ratio remained stable at 2:1 at the end of Q2 2025.

Had we maintained our days of operating working capital within historical range, the ratio would have been below 1.7:1. All things being equal, we anticipate the leverage ratio to range between 2 and 2.5:1 until the end of 2026, remaining well within our comfort zone of less than 3.25: 1.

Moving to Slide 14. We also completed during the quarter a significant amendment to our U.S.

credit facilities. The revised agreement increased the authorized amount of our revolving credit from USD 160 million to USD 250 million and established a new USD 250 million term loan.

This new term loan was used to repay the outstanding balance of the U.S. revolving credit and a portion of the Canadian revolving operating credit previously drawn to finance the Summer Garden acquisition.

The agreement also extends the expiry date to June 2029 with 364 days renewal options thereafter. Before turning the call back to Vince, I want to discuss briefly the upcoming transition in the CFO position.

As you might be aware, we announced that I would be leaving the company on July 1, 2026. I've decided to step away from a full-time executive role for a while to recharge and thoughtfully consider the next chapter of my life.

The extended notice period will ensure ample time for a thorough recruitment process and a smooth transition once a successor is identified. Additionally, I will remain available to support the team beyond that date on specific topics as needed.

In closing, I am truly grateful for all the years I spent at Lassonde, which gave me the opportunity to work alongside a truly remarkable team, and I'm confident about their ability to continue building on the numerous accomplishments we've achieved together. I now turn the call back to Vince for the outlook.

Thank you, Eric. Now before continuing, it is my turn to express my gratitude.

Eric's leadership, dedication and professionalism have considerably strengthened the financial capabilities of the company. He supported me and the entire leadership team in implementing a new strategy, realizing a key acquisition and strengthening stakeholder relations.

On behalf of everyone at Lassonde, Eric, [indiscernible] and we wish you all the best in your future, although I look forward to working with you for many more months, ensuring continuity and enabling a smooth leadership transition. Now please turn to Slide 15.

Given our first half performance in an uncertain market, we remain cautiously optimistic for the balance of 2025. While our focus remains on executing strategic priorities, we will remain disciplined and agile as uncertainty persists.

For U.S. beverage activities, our priorities include continuing our private label volume build back plan, realized price improvements to offset recent cost increases brought on by apple juice concentrate and tariffs, ramping up the North Carolina single-serve and juice box lines and executing our initiatives to improve capacity and lower cost.

For Canadian beverage activities, we remain focused on fortifying our leadership through innovation to reduce commodity exposure and ensure active participation in on-trend and growing beverage segments. Targeted promotion spending and marketing investments, leveraging our successful Canadian to the core campaign and ongoing efforts to improve productivity.

Our North American foodservice team will pursue its expansion efforts in this key market, including through our bag-in-a-box initiative. In Specialty Food, today marks the first anniversary of the Summer Garden closing.

We are pleased with its performance, and we see significant potential for this business as we further build our brands through improved market positioning while expanding distribution within the U.S. and within Canada.

Our priorities are to continue integrating our North American Specialty Food network, broadening distribution of our core brands, including G Hughes, fortifying our commercial capabilities while finalizing our assessment of expansion opportunities. Moving to Slide 16 for our sales outlook.

Given solid first half results, we now anticipate a sales increase slightly above 10%, excluding currency fluctuations, reflecting a full year contribution from Summer Garden, increased volume, in part supported by distribution, targeted promotional spending and the buy Canadian sentiment, the run rate effect of existing and planned selling price adjustments and sequential sales volume improvement related to the pace of our Build Back plan in the U.S. and additional volume available from our single-serve line in North Carolina.

Turning to Slide 17. The cost of orange juice and concentrates as well as apple and pineapple concentrates are expected to remain volatile through the remainder of the year as are other inputs affected by tariffs.

The cost of orange concentrate has remained volatile. After increasing from $2 to $3.40 per pound solid in early July ahead of potential U.S.

tariffs on Brazilian imports, last week's exclusion of orange juice from tariffs has brought prices down to about the range observed earlier in the year. As for apple juice concentrate, we implemented pricing adjustments late in the first quarter and made additional adjustments late in the second quarter to respond to higher-than-expected cost in the first half of 2025.

Pineapple concentrates availability remains constrained due to a poor crop in Thailand and reduced processing volumes in Costa Rica. This shortage may continue for several months with elevated prices, and we are closely monitoring this impact on input costs and juice blend formulations.

We remain vigilant in monitoring changes in consumer food habits and demand elasticity for our products amid ongoing inflation and volatility in commodity pricing and availability. These sudden and significant fluctuations, along with evolving consumer preferences, highlight the importance of innovation to reduce commodity exposure.

We have been active and will remain so on that front. As for the trade environment, the situation remains uncertain.

We are constantly assessing our exposure, and we have prepared mitigation measures to maintain a strong competitive position and an optimal cost structure, although the timing, duration and evolution of tariffs may affect these measures. In closing, as shown on Slide 18, we expect our momentum to continue and anticipate sound financial performance for Lassonde in 2025.

With a diversified product portfolio and a team of talented, passionate people, we are well positioned to expand our presence in the North American food and beverage market. We remain focused on executing our strategy, staying agile in a dynamic environment and delivering on our strategic investment projects.

This concludes our prepared remarks. We are now pleased to answer your questions.

Congratulations on your great results. The first question for me is on your sales guidance.

I acknowledge you've increased it a little bit, now you're calling for sales full year to be up slightly above 10%. But despite that slight upward increase that you've done in your guidance, it does still feel like you're expecting a significant slowdown in the growth in the back half.

And I'm looking at your organic growth so far this year in H1, and it's around 10%. So I'm wondering, why don't you expect that organic growth pace to continue into the back half, because your guidance suggests an organic growth rate of 3% to 5%.

So wondering a little bit if you can talk to your outlook for the second half. Is this just a matter of being a bit conservative?

Or you do see a real slowdown?

So Martin, thank you for the question. In fact, let's remind ourselves in terms of what we were anticipating in terms of growth at the beginning of the year, right?

It was coming from 3 areas: run rate of Summer Garden acquisition. Well, today is 1-year anniversary of that acquisition.

So of course, I no longer have a run rate effect on the back end of the year. Second, run rate effect of the single-serve line that we've deployed in North Carolina.

That line was deployed somehow July, August last year. Of course, it was in ramp-up, but still now we're lapping in terms of the full year.

There was price increases also that were deployed last year. And here again, we are getting into a lapping of those.

However, and this is the subtle difference that you see in this quarter, we have good volume in Canada, and because of various factors, that's why it gives us confidence to up a little bit from a 10%-ish to slightly above 10% view. But in terms of back end of the year, H2 growth, of course, the big factor that influences the full year are now lapping.

Okay. But you're also calling in your opening remarks a lot of positive attributes.

You've got some strong new sales volume, your build-back plan is working. I mean, why couldn't we see your organic growth remain around 10% for the back half?

Because again, the acquisition, I cannot double the sales, right? They will lap next year.

Same thing for the single-serve. Now it's running full capacity.

So I'm not sure I understand your question because it feels to me that we were clear. The growth of 10% was really a first half because of the run rate effect of those elements and price.

So now, ahead of me, from a volume perspective, we are in a market that is stable. Price increases some were deployed in the first and second quarter.

So we will have some growth from that in the back end of the year. And that's all there is.

Maybe moving on to just your New Jersey facility. Could you give us maybe just an update on what stage of the construction you're at right now?

Just to understand a little bit what's been done and what's left to build?

So 70% of the equipment are in order. We are working with the county for permitting.

So again, absolutely nothing of a problem. It's just a process.

So in terms of actual work on the ground, not started yet, but we hope that it's going to start in the next few weeks. So that explains a little bit our pushing of the CapEx to 2026 and '27, and now thinking about a USD 65 million cash outflow this year for this project.

However, when we look at our plan to get there, even with this permitting being slightly delayed and again, nothing wrong, just processing time by the county authority, we still have confidence in our timeline and also the total cost of the project.

So, when you say work on the ground has not started, what exactly do you mean by that? So the soil erosion study is the last thing that needs to be approved.

So, until you have soil erosion approval by the county, you cannot start building on the ground. You cannot start the excavation and for the foundation.

So that's why there's no movement on the ground, but all the equipment, all the design are orders, contractors are ready to go. We just need to get the county to give us a go-ahead.

And here again, I want to be very clear. It's not an issue, it's just processing time.

I wanted to just clarify the uptick in competitive promotional activity. Sorry if I missed a comment on this earlier, but when did that start?

Was it a Q2 event? And is that still ongoing?

Or did it start more recently in Q3?

Frederic, it's Vincent. you may not recall, but we identified some late insights at the last quarter call in terms of what we were experiencing in the category, but we didn't fully have all of the data to be able to talk more explicitly to it.

The most recent data confirms what we started to see towards the end of first quarter, where we started to see an increase in promotional activity with branded competition in the United States. One of the things that we've seen is what's driven that is the fact that we took pricing in the market.

It's commodities-driven. And we believe there's a lag relative to the competitors' response to that pricing.

They actually started to intensify their promotional pricing, thus closing the gap between brand and private label. And as a result of that, private label performance hasn't performed to the market.

And so it's actually losing a little bit of share. We believe that is short-term.

We believe there should be price adjustments taken in the market over the course of the next little while, which should restore the price gap back more to normal levels between brand and private label, which should benefit private label.

That's really helpful. And should we read into that, that Lassonde doesn't plan to match the aggressive promotional stance of some competitors, instead maybe focus on protecting margins and wait for that price gap to normalize?

Yes. Like we think that the actions that we've taken, we believe, are prudent and necessary, and we're going to remain disciplined in terms of the execution of that strategy.

Sounds good. Maybe just a question on Specialty Foods and innovation there.

Innovation is something you often talk about in the beverage category, and rightfully so. But just curious to know if there's product expansion opportunities or R&D efforts in Specialty Foods, if there's anything to highlight there?

Yes. What I would say to you, Frederic, is that's an ongoing area of focus.

I mean, in particular, from the SLI legacy business that we had, but also with Summer Garden, some of the work that they've done. What I would say to you, in particular with the acquisition with Summer Garden, the focus in 2025 was much more on fortifying the core, for us to be super clear on where do we want to play in the future.

And what you should start to see is that innovation come through as we look to 2026 and beyond. So there's a pipeline of development.

We've got very strong R&D capabilities. Innovating within sauces, red sauces, white sauces, as well as soups.

But again, like I said, through the Summer Garden acquisition, in particular, what I ask the team is to really fortify its focus on its core, get the core strengthened, build distribution, and then we'll think hard about the innovation pipeline through R&D as we approach 2026.

Well, thank you for joining us this morning. We look forward to speaking with you again at our next quarterly call.

Have a great day and a great weekend, everyone.