Premium Brands Holdings (TSX:PBH) Q3 2026 Earnings Call

0:00 Hey everyone, and thank you for joining us for this Premium Brands Holdings Corporation third quarter 2026 Q&A session. My name is Jim, and I'll be your moderator on behalf of Premium Brands. As a reminder, today's question and answer session will be conducted electronically. To signal for a question, please press star followed by the digit 1 on your telephone keypad. Joining us today on the call will be CEO and President George Paleologou, as well as CFO Will Ditch. Mr. Paleologou, you may begin, sir.

0:30 Thank you, Jim. Good afternoon and welcome everyone to our 2026 third quarter conference call. With me here today is our CFO, Will Kalutycz, and our Chief Investor Relations Officer, George Dumais. Hopefully, you've had a chance to listen to our pre-recorded remarks posted on our website earlier this afternoon. We will now take your questions. Thank you. We'll take our first question today from the line of Luke Hanan at Canaccord. Thanks. Good afternoon, guys. I apologize. We may have talked about this in the prepared remarks, but can you just unpack what exactly happened, I guess, during Q3? Was there another delay in the limited time offers, and that's what led to the contraction in the organic volume growth rate in specialty foods in the U.S.? And next, though, can you just put them up for us, the overall activity, I guess, maybe, of the food service channel or specifically the LTOs that you guys have and the food service channel? Because I think what everyone's trying to figure out from here is maybe is it still realistic to have the guidance in place that you do for 2027 in light of what seems to be a deteriorating macro?

1:44 Yeah. Hey, Luke, it's Will. So, you know, you get a lot of time to talk there. Starting with the U.S. initiatives and the growth rate there, that was roughly within plan. We knew there were going to be some headwinds from the promotions and a temporary lull in some of the customer initiatives in Q3. In the prepared march, George talks a little bit about some of the things that are turning. We've got about $170 million now of accepted, confirmed business with customers that are launching through Q4 and into 2027. So any surprise in the numbers wasn't from the U.S.

2:29 initiative. It was more focused around our Stampede business. You know, Stampede has seen some softness in their food service sales. So that contributes, you know, they had about a $20 million miss from plan in the quarter. And, you know, a chunk of that was the food service segment, some of their customers. Some of their customers are doing really well. Some of them are struggling. They're working with the customers that are struggling to help address some of the consumer price point issues resulting from a challenging environment. and then part of it was just a promotion with one of their bigger customers that was moved from Q3 to Q4. So we'll pick that up in Q4. So that was really the sales story for the quarter in our specialty foods group. And then on the EBDOT side, again, it was our Tampy business and they misplanned. And before I get into that, I do want to make it clear that Stampede, on a year-over-year basis, had a spectacular quarter. Their sales were up almost 15% year-over-year, and half of that was organic growth.

3:43 So, the business itself is doing well, it's just not doing as well as we were planning on. On the EBITDA side, they misplanned by about $12 million, these are all Canadian dollars, and Most of that, two-thirds of that is a special procurement initiative they're working on. They were close to it. It got delayed a little bit. That was about, like I say, two-thirds of our EBITDA miss of $12 million from Stampede or about roughly $5-6 million or $5 million. And that is something that we have now confirmed. Unfortunately, it's going to carry through to Q4, but it's confirmed to launch in January 2027, so we're very excited about that. And there's going to be some great procurement savings around the initiative.

4:37 And then the rest of the EBITDA was just the salesness, the contribution margin from the salesness. That's really the story of the numbers in the quarter. Okay, thanks. And so the second part of that question is framing up for us the 2027 guidance. And specifically, I mean, it seems like the macro has taken a step back here. Naturally, you guys are seeing headwinds as it relates to your business. What can you unpack, I suppose, the building blocks of highs that you get from where the business is today? We'll call it $840 million for this year to the billion that you expect to get for 2027. Yeah, so

5:17 Really the story is around sales, Luke. The initiatives we're working on are all in a specialty foods group. They're all at contribution margins from minimal 20% to as high as 40% some of our baked goods initiatives, but sort of that high 20s, low 30s overall. So the story is the sales and getting the sales, getting to our $10 billion target. And we see a very clear path to that. You know, as I mentioned earlier, you know, we've confirmed about $170 million in new business now launching. There's actually, including that $170 million, there's a total of over $900 million of sales initiatives. We are actively working with customers and expect to launch, you know, Q4 through into 2027.

6:10 So that's really the core of the story. Yeah, a little bit of a lull in the third quarter. Like I say, other than the stampede side of things, really no surprises. In terms of the consumer environment and consumer weakness that you may read in some of the headlines, we're seeing that in our distribution business a bit. We're seeing it a bit in our food service exposure and stampede a bit. But our core retail initiatives, We're dealing with all the customers that are winning in today's market, Costco, Trader Joe's, all the many, many great customers. And the areas that are driving our growth are new distribution points, so new customers, new geographical areas, and that's why we continue to be bullish on 2027. Okay, got it.

7:09 Thanks. I'll pass the line.

7:12 Thanks, Lou. Our next question will come from Derek Lessard at TD Cowen.

7:19 Good afternoon, everybody, and congratulations, George, on the new role. It's just great to see the free cash flow momentum here. There was a nice working capital release, and aside from the inventories, which I guess everybody was expecting, there was a There was a big increase in the payables, Will. Could you maybe just talk about where that increase is coming from?

7:44 Yeah, it's just timing of payments. There's nothing in particular. Yeah, really, it's just timing.

7:56 Okay, fair enough. And just maybe one last one. It seems like the language... around your billing dollars in asset divestitures and monetization seems to have changed a little bit. Wondering if you could maybe just qualify what you guys mean by progressing ahead of plan.

8:19 Well, to this point, Derek, we've monetized about $250 million. million dollars worth of non-core assets and investments basically by selling a couple of bakery investments ahead of plan and actually we realized more than we had budgeted. Both of them were sold in mid-teen multiples which we're very happy with and then I think that we've commented about assessing or evaluating options for our distribution business as well.

9:07 So we're in the process now of evaluating options there. So, again, we feel very comfortable about getting to that billion dollars and even exceeding it based on what we have in the pipeline right now. Okay. Thanks, everybody.

9:25 Hey, Derek, before you go, I realized when you're looking at the AP amount and you see that absolute increase, it's mostly driven by Stampede, the acquisition of Stampede. Got it. Thanks, Will. Yep. And our next question will come from Martin Landry at Stiefel.

9:48 Hi, good afternoon guys. My apologies, I haven't had a chance to listen to the opening remarks, but I want to understand a little bit your revenue and your EBITDA trajectory. Your revenues are up 22% year-over-year, but yet your EBITDA, you're not seeing, you know, your EBITDA margin is flat at 9% on a year-over-year basis. So, you know, can you help me understand a little bit, you know, why aren't we seeing a little bit of leverage at the EBITDA line?

10:30 Yeah, it's quite simple, Martin. It's stampede. You know, stampede, EBITDA margins in the quarter were, you know, around 7%. So, if you exclude sound feed from the calculation, you do see that incremental improvement you would expect with some of the organic growth in the quarter.

10:51 Okay. Thank you. And then, you know, echoing Luke's questions, I mean, you know, it's It sounds like the consumer is a little bit frugal right now, wondering what you're seeing. Historically, you had a lower exposure to the discount grocers in Canada. I believe that exposure has increased in recent years. Can you talk a little bit about what you're seeing from your clients and from the end consumer in terms of response to price increases and demand?

11:39 Yeah, so Martin, I think we mentioned that Canada was flat for us in the third quarter. We had some weakness in the Food Service Channel, as Will talked earlier, and some strength in the retail and club channels. So again, we were flat in Canada. With the acquisition of Stampede, we have more food service exposure in the U.S., of course, and yeah, there's no question that food traffic is down and some of the Thank you. Thank you. Thank you.

12:52 and, you know, convenience. You know, we're very strong in terms of having capacity to cater to different, and coaching, of course. We are, you know, in a very good position to cater to large customers that are looking to launch Premium Private Label Products is a big growth area for us. And we've been benefiting from, you know, having the right capacity to produce those type of products. So that generally describes the environment we're in today.

13:40 Okay, that's helpful. And then maybe just a last question for me. How does your commodity cost align with your selling price right now for Q4? Is there a disconnect or are they pretty much aligned?

13:59 Absolutely, and in fact, you know, one of the reasons we feel confident about Q4 not changing our guidance in the quarter is we are starting to see some deflation across the protein complex. and we really didn't benefit from that. It started in Q3, but we really didn't benefit from it because of inventory positions, but we are now starting to see that benefit.

14:26 Okay. Thank you. Thanks, Martin. And our next question will come from Vaman Abdalpena at Ventum Financial.

14:37 Hi, George and Will, and congratulations, George, on the new position. Thanks for taking my question. I'm going to stay on the guidance. First, you mentioned the guidance. Is it fair to assume that realistically we are aiming for the lower end of the guidance this year? And then looking to the next year, we are looking for around $800 million of extra revenue to get to our target. Can you break down in how much of that 800 would be stuff that were pushed from this year to next year and how much would be new programs initially programmed for next year and around the timing of that and what are the risks on those revenues?

15:29 Yes, so in terms of the run rate for, you know, sort of run rate sales initiatives going into 2027 versus new growth initiatives, You know, I would break that, you know, $800 to $900 million from next year, probably about 30, 70, 30% run rate and 70% new initiatives. 30 to 40, you know, in that range for the run rate initiatives.

16:00 And on the risk of the new programs, like how timing sensitive are those for the next year?

16:09 Again, there are no guarantees when it comes to these initiatives, but a lot of them we're well along, and that's what's giving us the confidence in getting them across the finish line.

16:21 And when those programs are launched, are there like a ramp-up in generating EBITDA or startup costs, or they're contributing from the beginning?

16:33 Well, it's a good question, Bahad, because It depends on the nature of the launch. For instance, we launched at the end of this quarter, we were developing through the quarter and it launched towards the end of the quarter, about $60 million in new sandwich initiatives. And they were quite complex products and that's what contributed partly to our startup cost increases in the quarter. But the reality is now most products don't have that level of complexity and correspondingly we would not normally expect any sort of material startup costs with them. You know, a lot of the growth next year is based around cooked protein products, which we've worked through a lot of those issues now.

17:26 You know, our core frozen sandwich programs, again, we've worked through a lot of those issues. are six programs. We work through a lot of those. The one area where we are planning some startup destruction costs for next year are our cattle programs. We've got a really full pipeline of cattle products, soups, and meal preparation products. And we've got the new Hancock plant coming on stream this quarter, Q4. And so there will be some associated with that. But We don't expect it to be outrageous or anything.

18:04 Thank you, very helpful. And one last one before I cross the line. With the monetization being ahead of the plan, does that monetization impact the target of $10 billion revenue? Is it material in that? Should we adjust for that or not really?

18:20 Yeah, I comment on that in the prepared comments. Again, depending on the timing, it may have an impact, yes.

18:29 Thank you very much. Thank you. Thanks, Paul. Our next question will come from Ty Collin at CIBC.

18:40 Hey, Ty. Hey. Thanks for taking my questions, everyone. So, you know, I just wanted to return to the outlook around organic volume growth and, you know, the comments of expecting that to kind of reaccelerate to double digits next year. I mean, you know, I think you're tracking kind of closer to a mid-single-digit rate this year in specialty foods. I think the hope is that this year would have been a little stronger from that standpoint. So I guess what gives you the confidence that you can actually, you know, kind of double that rate next year and avoid some of the, you know, unknown unknowns that you experienced this year with, you know, with delays and consumer headwinds and otherwise?

19:25 Yeah, one of the big things hitting our... Thank you for having me. LTOs of that significance in our system. And that ended last year. So that's been a headwind all year. That was a $100 million skew for us. Really, you've got that going away. And at the same time, a lot of the stuff we've been working on as we've been, you know, we've been ramping up the capacity over the last couple years, a lot of the stuff we've been working on has now moved from that sort of early stage bucket in the way we look at things to either highly likely or actually confirmed.

20:23 And so it's all that together that gives us that confidence in 2027.

20:30 Okay, got it. Thanks. And then just around capital allocation priorities, you know, you talked about the billion dollars of proceeds that you're hoping to realize from some of these asset monetizations. I mean, you know, if you kind of had that billion dollars in hand at this point, you know, how would you kind of rank order your priorities and how would you think about, you know, buyback, M&A, and dividends specifically?

20:56 So, Ty, again, just want to make sure you understand we've already realized $250 million. of that building, okay? We've already closed those monetizations and we've realized the 250, right? Just, again, in terms of prioritization, obviously we stated that we would like to get our debt down. We think our debt will come down very quickly with a free cash flow that we're generating from operations. We're confident that that will happen in 2027 at some point, even if we don't sell anything else or if we don't monetize any other assets, but we will, of course.

21:41 Beyond that, as we stated in our prepared remarks, you know, we are going to focus on buying back our stock. We think at these levels, it's a very good allocation of our capital. So those are mainly our two priorities. Okay, thanks. All the best. Thank you. Thanks, Todd. Our next question will come from Michael Glenn at Raymond James. Hey, just to start, I just want to circle in on the Q4 guidance. If I look at the implied ranges, it does seem to imply a bump up to, say, a 10. Thank you very much.

22:50 which we really see from our U.S. initiatives, the third quarter being the trough, so that starts coming back in the fourth quarter, and the commodity discussion we had earlier. Okay. Sorry, the protein commodities, to be more specific. Okay. Okay, so then for 3Q, was protein commodities, they were quite a sizable drag in 3Q? Protein?

23:24 No, in the third quarter, they were relatively stable. We didn't get the benefits of the deflation you've been seeing in the market, and that's largely just because of inventory positions, transfer time, those sorts of factors. We do start to see that and expect that in the fourth quarter. And then, you know, the surprise in the third quarter, which will continue into the quarter four, was the Stampede procurement initiative that got delayed until January 27. Okay. And then maybe just on the ballot sheet, a few quarters ago you used to provide a slide with the acquisition opportunities.

24:12 Would you be able to provide some insight into the M&A pipeline right now? Would you characterize any discussions you're in right now as advanced or active at this point?

24:26 Yeah, so as I mentioned earlier, we're not prioritizing acquisitions right now. We're in many discussions in all with in all our platforms. Having said that, we find it very hard to justify buying, making acquisitions instead of buying back our stock. So our major focus beyond paying down the debt is to buy back the stock at this point in time. Okay. Thanks for taking the questions. Thanks, Michael. Our next question will come from John Zambaro at Scotiabank.

25:16 Hey, John. Hey, John. The guide for this year, can you say what it assumes Stampede does in terms of EBITDA?

25:29 Yeah, we don't give specific guidance on Stampede's EBITDA. Okay. Maybe just directionally, though, it assumes some growth. Is that fair to say?

25:39 Oh yeah, no, no, absolutely. And in Q3, it was year-over-year growth in Stampede TV as well, and we do expect that to continue in Q4. And again, part of their miss in the quarter was the sales element, which we will make some good progress there because part of that was a promotion that was moved from Q3 to Q4. Right, okay, understood. And then coming back to the pipeline of products, just for the rest of this year, to get to the 26 EBITDA guide, do you need any new initiatives to begin that are not yet in place for the last, call it eight weeks of this year?

26:28 In large part, no. The only uncertainty, John, would be in terms of the specific timing and the significance of the initial launch. You know, we have had in the past surprises where customers have decided to do it on a regional basis instead of all at once and things like that. And some of those factors are still being figured out.

26:53 We launched six major initiatives around the end of the third quarter. They did not have an impact, unfortunately, in the third quarter because they were launched late in the quarter. And again, some uncertainty, obviously, as to how successful they'll be, but they've been launched. Okay, that's helpful. And then one last one. The Custom Culinary Solutions category, the OBG category, for that category. I think it was down in high single digits. Was that entirely the product of the sandwich LTO that you referred to, Will, or were there other contributing factors?

27:38 Yeah, that was the vast majority of it was promotion. Yeah. Okay. Thank you very much. I'll pass it on. Thanks, John. We'll take our next question from Chris Lee at Desjardins.

27:54 Oh, good afternoon, everybody. Hey, Chris. Hello. George, I was intrigued by your comments around the emergence of the premium private label business in the U.S. and obviously it's very on trend. Just wondering, how big is it right now for PBH and how big do you think the opportunity could be longer term?

28:14 Yeah, yeah. It's a very, very significant opportunity, Chris. You know, I think that historically in the Private label was maybe around 10% of the market. Today, over the last five years, it's gone to about 20% of the market. And if you sort of assume that it'll follow European trends, in our view, it'll get up to 40% of the market. So it's a significant growth area. It's one where we've had a lot of success.

28:59 We have state-of-the-art facilities. We've always been focusing on premiumization. It's part of our DNA. And we're in a very, very good position to provide customers with premium private label solutions. So it's a fast-growing area of our business. And and, you know, probably it's been growing for us in the mid-teens overall.

29:28 Okay, that's helpful. And would you say the contribution margins on that business, would that be comparable to your other U.S. businesses?

29:37 Yeah, it is, Chris. The reality is a lot of our growth in the U.S. has been with premium private label. And so, yeah, it's interesting. The gross margins are lower, but you don't have the selling and marketing costs associated with it. So ultimately the contribution margins are in line based on the platform you're running in. So obviously sandwich is lower than protein, which is lower than bakery.

30:03 And part of our confidence, Chris, with regards to the 27 guidance is that We're in many, many discussions, of course, with very, very large retailers about providing them with premium private label solutions, and those are very large pieces of business.

30:27 Okay, yeah, that makes sense. And then I have one on Stampede. We'd love to hear more about the new imported beef procurement initiatives. What exactly are you guys doing there, and how much could the benefits, I guess, be for EBITDA next year once they start to come on?

30:46 Hey, Chris, what we're doing is very unique and will give us a fantastic competitive advantage, so we can't give any details on it. But the savings, potentially, you know, $25, $30 million a year.

31:04 Like, it is a very large number, which we'll share with our customers and some with our suppliers as well. So we won't benefit entirely from that, but there'll be a big benefit.

31:17 Okay, perfect. And my last very quick question, I guess, for Will is, As you think about the OVGR for Q4, I guess, especially for business, where do you think that will land? Is it back to that mid-single-digit

31:30 point? Yeah, so it's certainly going to be much better than this quarter, but it won't be as good as Q3. So, yeah, you're not going to be far off from that.

31:41 Okay, great. Thank you very much and all the best. Thank you. Thanks, Chris. and a reminder to our phone audience if you would like to ask a question or if you have a follow-up, it is star and one on your telephone keypad. We'll hear next from the line of Ryland Conrad at RBC Capital Markets.

32:02 Thanks very much. Just following up on the procurement initiative, is that kind of 25 to 30 million per year also including any benefits for your legacy protein platform?

32:15 No, this is quite unique to, at least initially, to Stampede, but it's a great point, Rylan. You know, once we get it up and running and it's working, yeah, our other businesses will explore it, where the particular raw materials make sense.

32:35 Okay, great. And just on the deflation beef that you've seen, are kind of into Q4. Is that simply just being driven by the market opening up for more imports, or are you beginning to see any signs of kind of consumer demand disruption there?

32:53 Yeah, it's certainly, you know, the opening of the U.S. markets has helped. That is definitely a factor, but there does seem to be some consumer demand I got it. And just lastly for me,

33:27 Could you give us an update on whether leverage is still distracting towards the three times or better target? I think you previously said early to mid-2027 along with just any puts and takes that might impact that timeline.

33:42 Yeah, we still fully expect to hit that target in next year. We have sort of We'll move next to Luke Hannon at Canaccord. Thanks. I wanted to go back quickly on the topic of deflation in the commodity complex, or specifically, I guess, proteins that you're seeing. I imagine most of that is attributable to pork, because we've seen a decline in pork values, but it sounds like you're also talking about beef as well.

34:29 Can you just say directionally which of those has been more meaningful of late?

34:34 Well, in Q3, you know, Beef was not at all helpful, or it was stable in Q3 for us, just because of the inventory position. Q4, it's really beef and chicken. Those are the key ones. Pork, we'll see some benefits there, but over time, pork has just become a smaller and smaller component of our raw materials. Got it. Thanks. Then I want to go back to the billion dollars of monetization target, and maybe it's a higher level question. What was it that initially, what characteristics, what criteria, I guess, did you assess within the business that made you determine, hey, these particular segments might make sense for us to invest versus keep? And then secondly, you know, is it possible that the scope of that, the criteria as it relates to that expands in the near term as well as you progress on those monetizations?

35:31 Yeah, again, as I said in my prepared remarks, Luke, we are taking a look at all of our investments and all of our platforms. We have to remember that we started in Canada and grew across Canada, you know, from west to east and built up our business on a on a west-to-east basis. And then we, you know, we began expanding in the U.S. And the U.S. is in a very good market for us. We've grown a lot there. It is, I think it's like 72% of our business, especially foods today, even though it's a new market for us.

36:23 We still think that we're in early stages in that market, and we see a lot of opportunities to grow. So it makes sense for us to take a look at our different businesses and different platforms. And to the extent that we have some platforms that are more mature, it might make sense for us to look for strategic alternatives for them and take that capital and invest that in a high-growth, high-return market, which we find the U.S. to be. Got it. Thanks. No problem. And we'll take a follow-up from the line of Derek Lessard at TD Town.

37:07 Yeah, just one follow-up for me. Just on the procurement initiative, you said it was delayed. I was just curious when you expected to start contributing, and one, and then two, when you expected to wrap up fully.

37:25 It was expected to start in Q3, Derek. Q326. This involves finding the right partners and making sure that they can execute the program. Unfortunately, it was delayed. That process was delayed. It will be operational in Q127 now. Okay. Thank you.

37:57 and sorry, just a follow-up comment, Derek, and it is immediately beneficial. There's no ramp-up associated with it. Ladies and gentlemen, this does conclude the Q&A for the Premium Brands Holdings Corporation for quarter 2020 fixed earnings call. It's my pleasure to turn the floor back to you, Mr. Paleologou, for any additional or closing remarks that you have.

38:22 Thank you, Jim. I know it's been a long day for everybody. Thanks, everybody, for attending. All the best. Ladies and gentlemen, this does conclude our session. We thank you all for your participation. You may now disconnect your lines.