SunOpta Inc. Q2 FY2025 earnings call

• Second quarter revenue grew 13% with 14% volume growth, and adjusted EBITDA increased 14% despite $1.6 million tariff headwinds.
• Better-for-you fruit snacks had 20th consecutive quarter of double-digit growth, with output up 22% in 2Q '25, and an investment in a new manufacturing line to increase output by ~25% is announced.
• Margin expansion initiatives are progressing, with beverage and broth unit production up 16% and fruit snack production up 22%, and the company is ~1/3 of the way to achieving 300 basis points of gross margin expansion by Q4 compared to Q1.

SunOpta achieved year-over-year revenue growth of 13% in the second quarter of 2025, driven by 14% volume growth across its portfolio. The better-for-you fruit snacks segment saw its 20th consecutive quarter of double-digit year-over-year increases, now comprising 20% of total revenue. Beverage and broth unit production increased 16% year-over-year, while fruit snack production rose 22%. Adjusted gross margin was 15.2% despite a 90 basis point tariff headwind, and the company is approximately 1/3 of the way to achieving 300 basis points of gross margin expansion by Q4 compared to Q1.

• Revised revenue outlook: $805M-$815M (11%-13% growth) for the year, up from prior guidance. Adjusted EBITDA reaffirmed at $99M-$103M (12%-16% growth).
• Sequential improvement expected in revenue and adjusted EBITDA, with 47% Q3 and 53% Q4 split for revenue, and 42% Q3 and 58% Q4 split for adjusted EBITDA.
• Capital allocation priorities: Delevering to 2.5x net leverage by end of 2025, investing in business via CapEx, and returning excess capital to shareholders.

• Tariff uncertainty remains a risk, with a timing lag in pass-through pricing for revised tariffs announced in August impacting the third quarter.

Q: About the new fruit snacks plant, details on customers, ramp, and plant-based capacity.

A: It's a manufacturing line in an existing plant, oversubscribed by existing customers, with $25M investment, and the line will fuel 2027 growth. On plant-based capacity, enough for 2026 growth, and potential for growth CapEx in 2027 if needed.

Q: Adjusted gross margin progression in back half of year.

A: Q2 had 90 basis point tariff timing lag, Q3 expected to have ~$2M impact from new tariffs in August, with full pass-through expected in Q4, and operational efficiencies to make up the difference.

Q: New business pipeline and how it tilts towards categories.

A: Pipeline is stronger than ever, with more items in the funnel, especially in better-for-you fruit snacks, and foodservice and club channels growing, leading to more volume in the pipeline. Customers are gaining share and outperforming markets.

Q: Broth capacity balance and strategic importance.

A: Broth is seasonal, allowing optimization of aseptic capacity, with 75%-80% of broth business prebuilt and in inventory, and it serves as an opportunity to manage production ebbs and flows, supporting long-term growth strategy.