Premium Brands Holding is one of Canada’s leading food companies and ranks amongst the largest sandwich companies in North America. The company owns a wide range of specialty food manufacturing and food distribution businesses.
It operates through a network of 49 facilities and distribution platforms in Canada (more than 60% sales) and the U.S. serving more than 22,000 customers. Exports accounted for 1.7% of the sales. The company has two reportable segments, specialty foods (~64% of 2020 revenue) and premium food distribution (~36%).
Premium Brands has operations in British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, Nova Scotia, and Arizona, Minnesota, Mississippi, Nevada, Ohio, and Washington. Premium Brands Holding is known for its leading regional brands and product differentiation and is driven by the customers’ preference for local foods.
- Opportunity Score: 45
- Ticker: TSE:PBH
- Sector: Consumer Defensive
- Industry: Packaged Goods
- Market Cap: 5.29B
- P/E: 56.49
- Dividend Yield: 1.91%
- Payout Ratio (Earnings): 107.44%
- Canadian Dividend Aristocrat: YES
- Chowder Score: Members Only
- Revenue Growth: Members Only
- Dividend Growth: Members Only
- Dividend Growth Fit: 6/10
- Dividend Income Fit: 4/10
Revenue Growth & Market Exposure
Premium Brands is highly diversified across businesses, products, customers, and geography. This diversification significantly reduces any single business risk. Its customer base includes regional and specialty grocery retailers, restaurants, hotels, and institutions.
Premium Brands deals in specialty food products with regional local brands providing high product differentiation. Specialty food businesses are characterized by higher and consistent selling margins relative to other types of food manufacturing companies. The specialty food business faces less competition from large food companies and generates higher sales growth when compared to them.
Expertise in manufacturing specialty food products with strong proprietary brands in the leading niche market and differentiated food distribution are Premium Brands’ key competitive advantages. In its differentiated food distribution business, Premium Brands offers specialized products and services in addition to logistical solutions. The company enjoys a significant advantage to gain from emerging consumer trends.
Over years of business, Premium Brands has developed a good understanding of consumer tastes and preferences. Given the rising consumer health awareness, the company has been investing in specialty food businesses that focus on great-tasting foods made with wholesome ingredients. Premium Brands operates through its portfolio of valuable brands, such as Harvest Meats, Piller’s, Freybe, Expresco, and Deli Chef, etc.
The company has been expanding aggressively through acquisitions. Premium Brands’ revenues have grown at more than 22% CAGR in the last decade. The pandemic continues to affect Premium’s sales particularly in the fine dining, airline, and cruise line channels.
The company, however, registered a 10% growth in sales in the last quarter and also in FY2020. It completed the acquisition of Allseas Fisheries during the quarter, and Starboard Seafood, Distribution Cote-Nord, and a 50% interest in Clearwater Seafood, and subsequent to the quarter-end. Premium Brands is targeting to achieve $6 billion in sales and $600 million in adjusted EBITDA by 2023.
Premium Brands is a Canadian dividend aristocrat with a solid history of dividend payments. The company has paid more than $400 million in dividends since 2005 and has grown them at an impressive more than 10% CAGR over the last five years. Its current dividend yield stands at ~2% but it sports a high dividend payout ratio. Premium Brands has a proven history of growing revenues and cash flow. Its earnings have grown at an 8%+ CAGR in the last decade.
Premium Brands’ stock performance has been stellar generating a compound annual shareholder return of more than 22% over the last 15 years. The company last raised its quarterly dividend by 10%. It stands a good chance to gain from cross-business synergies, expertise, leading brands, distribution, and footprint.
Premium Brands is favorably placed to gain from the potential of its several transformational acquisitions which have started to bear fruit. With the acquisition of Clearwater Seafood, Premium Brands will strengthen its offerings in the Seafood Group and will become the only vertically integrated seafood entity in North America. It now has five strategic platforms, consisting of Canadian Protein, Seafood, Sandwich, U.S. Protein, and Canadian Distribution groups, which have the potential of achieving $1 billion in annual sales.
Business acquisitions contributed 11% and 67% of total 2020 revenue increases in SF and PFD segments, respectively. The company also continues to invest in product innovation initiatives such as single-serve meal capacity, plant-based breakfast sandwiches, etc. It had set a five-year target, in 2018, to achieve $6 billion in sales and $600 million in adjusted EBITDA.
The food processing industry is extremely competitive. The company competes with many local, regional, and national food manufacturers and distributors. Premium Brands faces competition from the likes of Saputo Inc., Maple Leaf Foods, SunOpta Inc., Neptune Wellness Solutions, etc. Saputo Inc. is one of the top ten dairy processors in the world and the largest cheese manufacturer in Canada, while Maple Leaf Foods is Canada’s largest food processor and a leading consumer protein company.wpDataTable with provided ID not found!
Premium Brands’ premium food distribution business enables it to generate and sustain additional margins. As North America’s leading specialty foods company, Premium Brands is well-positioned to benefit from new product launches, sales opportunities in the U.S., and a robust pipeline of business acquisition opportunities.
Though the company continues to be impacted by lockdowns, travel restrictions, and the shutdown of social events, it is well-positioned to generate high growth rates once the Canadian and U.S. economies fully recover.