Lassonde – Not a dividend darling anymore

Lassonde Industries is a leader in the production and sale of food and beverages in North America. The company is one of the top two producers of store brand, shelf-stable fruit juices, and drinks in the U.S. and the largest producer of fruit and vegetable juices and drinks in Canada. Almost 40% of Lassonde’s sales are in Canada and 60% are from the U.S.

The company operates through two market segments: the retail segment (accounting for nearly 87% of the company’s sales) and the foodservice segment (13%). It has only one reportable operating segment, i.e., the development, manufacturing, and marketing of a wide range of ready-to-drink juices and drinks, fruit-based snacks, frozen juice concentrates, and specialty food products. Lassonde operates through four subsidiaries and 18 plants across Canada and the U.S.

Founded in 1918, Lassonde is a leading name in the agri-food industry and deals in specialty food products, fruit and vegetable juices, and wines. It is also a major producer of cranberry sauces.

The company operates through specialized subsidiaries such as Apple & Eve, Arista Wines, Lassonde Pappas and Company, Old Orchard Brands, and Lassonde Specialties; and Sun-Rype Products more than 25 well-known brands in Canada and the U.S.

Some of its prominent brands are Oasis, Rougemont, Del Monte, Everfresh, Graves, and Fruite, etc. Its Old Orchards shelf-stable brand commands first or second positions in many key Midwest and South Central U.S. markets.

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Revenue Growth & Market Exposure

Lassonde engages in the manufacture and sale of fruit and vegetable juices and beverages. The company’s client base is diverse comprising of supermarket chains, independent grocers, superstores, warehouse clubs, major pharmacy chains, online sales, hotels, hospitals, schools, and wholesalers.

Lassonde is focusing on product innovation and private-label customer development and is witnessing an increase in sales driven by private label products. The company is expanding its product portfolio to cater to consumers’ shift towards healthy and nutritious food. It continues to invest in new technology to allow for greater flexibility and more container options.

Lassonde’s acquisition of Old Orchard Brands (OOB) has expanded its portfolio of ready-to-drink fruit juices and drinks in the Central U.S. Its acquisition of Sun-Rype has strengthened its foothold in northwestern North America and strategic positioning in the Canadian national brand juice and beverage industry.

The company’s Q3 sales of $495 million increased by 17% YoY, and Sun-Rype contributed $47 million. Gross profits also improved on the back of higher sales volume, a decrease in the cost of certain raw materials, and an improvement in the production rate at one of Lassonde’s plants.

Lassonde’s sales have grown at a rate of 12% CAGR in the last decade. The company reported higher quarterly sales on the back of Sun-Rype’s acquisition and increased consumer purchases of food items during the COVID-19 crisis. The company has witnessed a significant increase in retail juice and drink sales and a decline in sales to the foodservice segment.

Lassonde expects 2020 sales to be higher than that of 2019. A consumer-focused product offering, a long-standing relationship with key stakeholders, a diverse customer base, and a leading brand reputation make Lassonde a distinct winner.

Dividends

Lassonde’s dividend streak has been pretty impressive. The company has a dividend growth of ~10% CAGR per annum, over the last five years. Its earnings have also compounded at more than 10% annually, at the same time.

Lassonde has a dividend yield of 1.6% and a very reasonable payout ratio of 18% currently. Lassonde paid ~13 million in dividends in the first nine months of 2020. The company last raised its dividend by more than 9%. It has also re-established its share repurchase program in 2018.

Lassonde’s investments in building additional capabilities for specialty food products, enhancing the flexibility of its production capacity for fruit juices and beverages in the U.S., and upgrading its ERP software in Canada are expected to position the company well for continued growth in the future. The additional production capacity of Lassonde Specialties is expected to increase sales by 25% to 30% upon completion of the project.

The company expects the Sun-Rype combination to result in significant economies of scale and pooling of logistics and distribution capabilities. Lassonde is targeting organic growth through innovation around national brands and by developing new solutions for customers through private brands. 

Lassonde is eyeing organic growth, expanding its presence in new markets and segments, and enhancing capacities that should improve its overall profitability. The company should gain from strong demand for specialty food products, falling costs of raw materials, the acquisition of Sun-Rype, and synergies from the OOB integration. Lassonde also continues to make good progress on the three-year $30 million Lassonde Specialties investment program.

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Competition

Lassonde Industries operates in the processed food category. The food industry in the U.S. market is highly competitive. Lassonde Industries faces intense competition not only from traditional retailers but also from growing online and discounted retail trade. Tropicana, OceanSpray (PepsiCo), and Minute Maid (Coke) are its top competitors.

Lassonde also competes directly with Cott Corp., a leading supplier of carbonated soft drinks with distribution in North America, Europe, and the UK. The competitive environment related to private label products continues to be difficult in the U.S. However, the company’s ongoing product and packaging differentiation provides it a competitive edge over its peers.

TickerKeyTickerCompanySectorIndustryScoreQuoteMarket CapP/EFPEEPSYield RawYieldPayoutRatioPaymentsDividendChowderGrowthRatingIncomeRatingTollboothAmbassadorAchieverAristocratKingCountryGraph
TSE:ATD.BATD.BAlimentation Couche-Tard Inc.Consumer DefensiveGrocery Stores0.7441.6536.6613.9213.922.990.00840.840.117140.350.2812105Consumable - NecessitiesYESYESYESNOCanada1
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TSE:SAPSAPSaputoConsumer DefensivePackaged Foods0.5439.0616.1126.2526.251.490.01791.790.469840.700.069466Consumable - NecessitiesNOYESYESNOCanada1
TSE:MRUMRUMetroConsumer DefensiveGrocery Stores0.7056.3213.8417.0617.063.300.01781.780.303041.000.145585Consumable - NecessitiesYESYESYESNOCanada1
TSE:EMP.AEMP.AEmpire Co Ltd A NvtgConsumer DefensiveGrocery Stores0.5938.6610.3114.7414.742.620.01351.350.198540.520.067457Consumable - NecessitiesNOYESYESNOCanada1
TSE:PBHPBHPremium Brands Holding CorpConsumer DefensivePackaged Foods0.51119.575.2155.7155.712.150.02122.121.181442.540.091174Consumable - DiscretionaryNONOYESNOCanada1
TSE:MFIMFIMaple Leaf FoodsConsumer DefensivePackaged Foods0.5328.373.5231.1331.130.910.02542.540.791240.720.158454Consumable - DiscretionaryNONOYESNOCanada1
TSE:PRMWPRMWPrimo WaterConsumer DefensiveBeverages - Non-Alcoholic0.2020.542.690.000.00-1.240.01441.441.000040.240.014402Consumable - DiscretionaryNONONONOCanada1
TSE:NWCNWCThe North West Company Inc.Consumer DefensiveGrocery Stores0.5235.401.7212.5312.532.820.04074.070.510641.440.040747Consumable - NecessitiesNONOYESNOCanada1
TSE:JWELJWELJamieson WellnessConsumer DefensivePackaged Foods0.6038.581.5438.1738.171.010.01301.300.495040.500.445184Consumable - DiscretionaryNONONONOCanada1
TSE:LAS.ALAS.ALassonde Industries Inc.Consumer DefensiveBeverages - Non-Alcoholic0.42195.971.3613.8913.8914.110.01331.330.184342.600.042333Consumable - DiscretionaryNONONONOCanada1
TSE:ADW.AADW.AAndrew Peller Ltd.Consumer DefensiveBeverages - Wineries & Distilleries0.4411.340.526.416.411.770.01901.900.121540.220.090734Consumable - DiscretionaryNONONONOCanada1
TSE:CSW.ACSW.ACorby Spirit and Wine LtdConsumer DefensiveBeverages - Wineries & Distilleries0.3518.120.5116.6416.641.090.04644.640.770640.840.062424Consumable - DiscretionaryNONONONOCanada1
TSE:HLFHLFHigh Liner Foods IncConsumer DefensivePackaged Foods0.3713.330.4413.0113.011.020.02102.100.274540.280.021004Consumable - DiscretionaryNONONONOCanada1

Bottom Line

Over the last 100 years of existence, Lassonde Industries has successfully managed to fuel its geographic expansion and enter the untapped market segments. Lassonde is a leading name in the ready-to-drink juices and drinks segment with popular brands and the largest producer of fruit and vegetable juices and drinks in Canada.

The company is in a good position to tap the growing demand for drinks and beverages supported by strategic acquisitions like OOB and Sun-Rype. The company expects the demand for its products to increase driven by changes in food habits related to the impacts of COVID-19 and strong demand for specialty food and private label products.

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