SunOpta Inc. Q3 FY2025 earnings call

Key Points

• Q3 was an exceptional quarter with 17% revenue growth, exceeding expectations, and 9 successive quarters of average 15% volume growth while maintaining high food safety and quality standards.
• Strength in categories: Plant-based milk, broth, tea, and fruit snacks are performing well. Won with category-leading customers in high-performing channels.
• Operational challenges: Accelerating business into 2025 strained the supply chain, causing inefficiencies in production schedule, increased maintenance and overtime costs, and delayed margin expansion initiatives. Midlothian facility faced pre-existing limitations exacerbated by new volume.
• Capacity investment: Announced investment of an additional aseptic processing capacity line at Midlothian facility, timed with wastewater management investment to utilize the facility's full power.

In the third quarter, SunOpta achieved revenue of $205 million, a 17% increase year-over-year, driven entirely by volume growth. Plant-based milk volumes saw high teens growth, broth had high single-digit volume increases, tea was the fastest-growing product category in retail and foodservice, and better-for-you fruit snacks achieved 21 consecutive quarters of double-digit revenue growth. Gross profit increased by $2.6 million or 11% to $25.5 million, but gross margin decreased by 60 basis points to 12.4%. Adjusted EBITDA increased 13% to $23.6 million compared to the prior year period.

2025 Outlook

• Revenue expected in the range of $812 million to $816 million.
• Adjusted EBITDA expected to be $90 million to $92 million.
• Free cash flow expected to be $20 million to $22 million.

2026 Initial Outlook

• Revenue expected in the range of $865 million to $880 million (6%-8% growth vs 2025 midpoint).
• Adjusted EBITDA expected to be $102 million to $108 million (12%-19% growth vs 2025 midpoint).
• Anticipate back half of 2026 to be stronger as recovery plan progresses.

• Supply chain strain due to accelerated volume leading to equipment inefficiencies, increased maintenance and overtime costs.
• Wastewater limitations at Midlothian facility causing operational inefficiencies.
• Delayed margin expansion initiatives as resources were reallocated to meet customer service and quality standards.

Q: Help with cadence around new investment and production capacity for broth.

A: Brian explained that taking on volume caused short-term challenges but there are time-bound plans to address equipment reliability, wastewater issues, and resume margin expansion initiatives by mid-2026.

Q: Squaring strong new business with broader consumer backdrop.

A: Brian noted being in growing categories like foodservice (coffee shops expanding) and better-for-you fruit snacks, with products not luxury items and diverse channel presence mitigating the broader consumer backdrop.

Q: Details on new aseptic line and wastewater.

A: Brian said the new aseptic line is for larger beverage and broth, timed with wastewater management fix to unlock efficiencies in existing lines and new capacity.

Q: Short-term business vs long-term commitments.

A: Brian emphasized long-term relationships and agreements with customers, choosing volume for long-term value creation and outperforming long-term algorithms.

Q: Impact of issues on 2026 and margins.

A: Greg explained issues will be time-bound, with resolution by mid-2026 leading to margin improvement and returning to original margin targets.