Lassonde Industries posted sales of $315m in the third quarter of 2014, a 22.3% increase year over year. Profit attributable to the Company's shareholders for this period totalled $10.6m, down $0.6m from the third quarter of 2013.
"Our 2014 third-quarter results reflect a combined impact of solid performance by our U.S. private label products and charges incurred to acquire Apple & Eve. Furthermore, we are satisfied with the progress made in integrating our new subsidiary," said Pierre-Paul Lassonde, Chairman of the Board and Chief Executive Officer of Lassonde Industries Inc.
Financial results
It should first be noted that, on July 25, 2014, the Company completed the acquisition of Apple & Eve, LLC ("A&E") for a cash consideration of US$147.6 million, paid at the close of the transaction and subject to adjustments for working capital and other items. The Company owns a 90% stake in A&E, and members of the Lassonde family own the remaining 10% interest. Moreover, the interim consolidated financial statements for the third quarter of 2014 include the results of A&E from July 25, 2014 to September 27, 2014 and certain transaction fees related to the acquisition.
The Company's sales totalled $315.0 million in the third quarter of 2014, up $57.4 million or 22.3% from $257.6 million in sales in the same period of 2013. Sales from A&E added $38.8 million to the Company's third-quarter sales. Excluding A&E's sales, the Company's third-quarter sales posted a year-over-year increase of $18.6 million (7.2%), mainly due to higher sales of private label products and a favourable foreign exchange impact, partly offset by higher trade spending that had an unfavourable impact on sales of national brands. For the first nine months of 2014, sales totalled $831.6 million, up 9.9% from $756.7 million in the first nine months of 2013.
The Company's operating profit for the third quarter of 2014 totalled $20.0 million, down $2.1 million from operating profit of $22.1 million in the same quarter last year. Excluding the impact of the A&E acquisition, operating profit was up $2.0 million from last year's third quarter. This increase was mostly due to an improvement in the profitability of private label products in the United States partly offset by higher selling and administrative expenses. During the third quarter of 2014, the Company incurred $3.5 million in expenses related to the A&E acquisition. In addition, A&E posted a $0.6 million operating loss due, in part, to a $1.0 million increase in cost of sales attributable to an inventory step-up resulting from the acquisition. Operating profit for the first nine months of 2014 stood at $56.1 million, up $0.6 million from $55.5 million at the end of the first nine months of 2013.
The Company's financial expenses went from $5.8 million in the third quarter of 2013 to $6.0 million this quarter, an increase that was mostly attributable to a higher interest expense related to the financing of the A&E acquisition. For the first nine months, financial expenses went from $16.7 million in 2013 to $15.3 million this fiscal year.
"Other (gains) losses" went from a $0.6 million loss in the third quarter of 2013 to a $0.8 million gain in 2014. The 2013 third-quarter loss was mainly due to $0.2 million in foreign exchange losses and to a $0.4 million loss related to a change in the fair value of interest rate swaps. The $0.8 million gain in the third quarter of 2014 was due to foreign exchange gains. For the first nine months, the "Other (gains) losses" item was a $1.2 million gain in 2014 compared to a $0.4 million gain in 2013.
Profit before income taxes stood at $14.9 million for the third quarter of 2014, down $0.8 million from $15.7 million in the same quarter of 2013. For the first nine months of 2014, profit before income taxes totalled $42.0 million, up $2.9 million from $39.1 million in the first nine months of 2013.
An income tax expense at an effective rate of 26.4% (26.8% in 2013) brought the 2014 third-quarter profit to $10.9 million, down $0.6 million from $11.5 million in the same quarter last year. It should be noted that this quarter's result includes a net loss of $0.4 million from A&E and $2.3 million, net of tax, in acquisition-related costs. Profit attributable to the Company's shareholders totalled $10.6 million, resulting in basic and diluted earnings per share of $1.52 in the third quarter of 2014. In the third quarter of 2013, profit attributable to the Company's shareholders had totalled $11.2 million, resulting in basic and diluted earnings per share of $1.60. For the first nine months of 2014, profit attributable to the Company's shareholders totalled $28.9 million, resulting in basic and diluted earnings per share of $4.14 and, in the same nine-month period of 2013, profit had totalled $28.4 million, resulting in basic and diluted earnings per share of $4.06.
Cash flows from operating activities generated $11.0 million in cash during the third quarter of 2014, while they had generated $38.2 million in cash during the same period last year. Financing activities generated $141.4 million in the third quarter of 2014, while these activities had used $18.5 million in the same quarter of 2013. During the third quarter of 2014, cash flows generated for the A&E acquisition totalled $140.7 million, leaving a difference of $19.2 million on a comparative basis. Investing activities used $168.3 million in the third quarter of 2014 compared to $5.0 million for the same quarter of 2013. Excluding the $156.9 million in cash flows related to the A&E acquisition, investing cash flows increased $6.4 million year over year. At the end of the third quarter of 2014, the Company reported a cash and cash equivalents balance of $0.2 million and a bank overdraft of $11.3 million compared to a cash and cash equivalents balance of $12.0 million and a bank overdraft of $0.6 million at the end of the third quarter of 2013.
Outlook
Sluggish growth in demand for fruit juice and beverages is continuing to impact the sales volumes of North American producers in this sector. In the Canadian market, the Company is seeing some weakness in demand, particularly in eastern Canada. The resulting increased competition has an impact on prices as well as on the sales volumes of the Company's national brands. Moreover, the Company's management is not seeing any signs that competitive activity will diminish over the next quarter. However, the Company believes that it will be able to limit the impact of the increased competition with the strong performance of its private label products as well as with the favourable exchange impact from its U.S. dollar sales.
The Company expects the A&E acquisition to have a significant impact on its comparative financial data. To help measure this impact, it should be remembered that A&E recorded sales of approximately US$180 million for the 12-month period ended May 31, 2014 and an adjusted EBITDA of approximately US$15 million. The Company also expects to incur integration costs of approximately $0.7 million during the last quarter of 2014.
Barring any major external shocks and excluding future sales from A&E, the Company remains optimistic about its ability to slightly increase its consolidated sales in 2014 compared to those of 2013.
