STKL

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.

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.

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.

• 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.