Premium Brands Holdings Corp
TSX:PBH
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Premium Brands Holdings Corp
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Good day, ladies and gentlemen. Welcome to the Premium Brands Holdings Corporation First Quarter 2020 Earnings Conference Call. Our speakers today will be George Paleologou, CEO and President of Premium Brands; and Will Kalutycz, CFO of Premium Brands. As a reminder, this conference is being recorded. [Operator Instructions] It is now my pleasure to introduce your host, George Paleologou. Please go ahead, sir.
Thank you, Brian, and good morning, everyone. I would like to welcome you to our 2020 first quarter conference call. We hope that you and your families are healthy and safe during these uncertain and difficult times. Also, I would like to thank all of my 9,000 PB associates who have been doing an amazing job in producing the foods needed to nourish our fellow citizens. Their hard work and dedication is greatly appreciated. Turning to our results. Our strong first quarter numbers are indicative of the progress we're making in becoming North America's leading specialty foods company. During the quarter, we made great progress on many fronts, including in our core categories of value-added seafood, artisan sandwiches, meat snacks, premium dry cured meats and cooked proteins. Organic growth for the quarter of 14% speaks for itself.The first quarter is, however, old news, and it seems that it happened a very long time ago. COVID-19 has changed everything we know, the way we live and even the way we interact and communicate. No one knows what the post COVID-19 universe will look like, and those that pretend to will probably be proven wrong. But what we do know is that people's love for good food and their interest in finding healthier and more convenient ways to feed their families will continue. The physical venue, where they enjoy their meals or the method they use to source food may change. But demand for this basic human need will not. At Premium Brands, we're well positioned to get to the other side of this crisis. Please see my 2020 letter to shareholders titled Great People and Great Culture - Our Points of Difference for details on why we're confident in making this statement. The letter can be found on our website at www.premiumbrandsgroup.com. In the latter, I focused in on why we're anti-fragile, a term coined by Mr. Nassim Taleb, and by which we mean that we will emerge from this formidable challenge a stronger company. In short, this is due to 3 factors, namely, our decentralized entrepreneurial culture, which pushed decision-making to the front lines, our unique PB ecosystem, which provides support and resources and allows our businesses to focus on the long-term and our diversified business portfolio. Also on our website, you'll find the PowerPoint presentation used for our AGM last Friday. In the presentation, you'll find many details on how we're dealing with the COVID-19 crisis as well as additional color on our long-term financial strategies and our acquisitions pipeline.I will now be turning the presentation over to our CFO, Will Kalutycz, for an overview of our financial results for the quarter, which will then be followed by the Q&A segment of the presentation. Will?
Thanks, George, and good morning, everyone. Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecast and assumptions are subject to change and actual results may vary. Please see our 2019 MD&A, which is filed on our SEDAR website -- on the SEDAR website, www.sedar.com, for details on some of the factors that could cause our actual results to differ from our current expectations. Turning to our results. Our revenue for the quarter grew by $158.4 million or 20.4% to a record $935 million. The majority of the growth was driven by organic sales initiatives, which accounted for $113.7 million of the increase. Acquisitions accounted for $33.5 million, selling price increases were $6.5 million and currency translation for $4.7 million. Our organic volume growth rate, which excludes the impact of selling price increases and currency exchange-related inflation, was 14.6% for the quarter, which was well above our long-term targeted range of 4% to 6%. On a nominal basis, i.e., after selling price and currency exchange inflation, our organic growth rate was 16.1%.Our strong organic growth for the quarter was driven by a wide range of initiatives that we have been working on for a while and span across our 5 platforms, with seafood, artisan sandwiches, meat snacks and premium dry cured meats being the product categories we are seeing the most success in. Our growth rate was also positively impacted by an unusual spike in demand in the retail channel in the last 2 weeks of the quarter that was tied to consumer concerns around the COVID-19 outbreak. This factor was, however, partially offset by COVID-19-related decreases in our sales to food service-focused businesses and as a result, the net impact on our sales in the quarter of the COVID-19 crisis was relatively small at $6.6 million. Normalizing for the COVID-19 impact, our organic volume growth rate for the quarter is still a very strong 13.8%.A key factor to note about our growth is that this is the fifth quarter in a row where we have increased our quarter-over-quarter growth rate. From a 2% rate in the first quarter of last year to 14.6% this quarter, we have consistently increased our growth rate each quarter as many of the initiatives that we've been talking about over the last 1-plus years gained traction. In terms of our adjusted EBITDA for the quarter, it increased by $4 million or 6.6% to a first quarter record of $64.3 million, which we were pleased with, given that our first quarter is historically our weakest of the year due to the seasonality of many of our businesses. The growth in our adjusted EBITDA was driven by our strong sales performance, offset by investments that we've been making in production and SG&A infrastructure to support our continued growth as well as some labor inflation, additional outside storage costs associated with several inventory strategies, which I will come back to in a moment, and extra costs incurred in relation to the COVID-19 crisis. The increase in our outside storage costs, which was about $1.7 million for the quarter, was the result of increased inventories in many of our businesses as they implemented a number of hedging and risk mitigation strategies to deal with commodity cost inflation and supply chain disruption risks associated with both the African signed fever-related challenges that we have discussed in the past and the follow-on effects of COVID-19. Our adjusted earnings per share for the quarter increased by $0.01 to $0.53 per share due to a variety of factors, including the improvement in our adjusted EBITDA, lower borrowing costs and the reversal of $2 million of contingent consideration relating to a past acquisition. These factors were partially offset by additional amortization and depreciation associated with recent investments in acquisitions and capital expenditures as well as the dilutive effects of our equity offering from the third quarter of last year as a significant portion of the new capital raise has not yet been invested. In terms of our outlook for 2020, while the first quarter was a great start to the year. As George mentioned earlier, it seems like eons ago and the world has changed dramatically. The COVID-19 crisis and its fallout effects are impacting almost all areas of our business. On the sales side, we have seen our Foodservice, airline, convenience store, cruise ship and export customers all hit hard. Our production facilities and supply chains are also experiencing a significant amount of disruption through these turbulent times. And while we are confident in our abilities -- in the abilities of our dynamic and entrepreneurial management teams to navigate through these trying times, in the near term, the crisis is having a negative impact on our performance. While these disruptions are not expected to affect our long-term objectives, the extent and specific timing of their impact is highly uncertain and cannot be predicted. And correspondingly, we are not able at this time to forecast with reasonable accuracy our results for the balance of 2020. As a result, we have withdrawn our revenue and adjusted EBITDA guidance for the year.In the meantime, we are actively managing the situation and where appropriate, airing on the side of caution in terms of what's best for our employees, communities and customers. Furthermore, our decentralized business model, which includes a large number of regional production facilities rather than 1 or a few centralized facilities, provides us with flexibility and redundancy and better positions us to service customers without disruption. Turning to our financial position. We went into the COVID-19 crisis with a very strong financial position and continue to maintain a conservative balance sheet and strong liquidity. Our senior debt to adjusted EBITDA ratio at the end of the quarter was 2.8:1, which is within our long-term targeted range of 2.5:1 to 3.0:1, and we had approximately $214 million of unutilized credit capacity at the end of the quarter.Looking forward, we have stress tested our financial position using a variety of bad case scenarios and are confident in our ability to weather the storm. We have, however, out of an abundance of caution, temporarily suspended the closing of any new business acquisitions and deferred certain capital expenditures until we have better clarity on the length and impacts of the COVID-19 pandemic.During the quarter, we invested $22.6 million in capital projects, all of which are expected to generate a 15% or more return. These included a recently announced 41,000 square foot expansion of our artisan bakery in Langley, BC, several meat snack capacity expansions, additional charcuterie tray capacity at our Reno sandwich plant and newly installed automated sandwich production lines at our Phoenix sandwich plant. Earlier in the quarter, we also invested $32.2 million in new businesses, consisting of BC-based food broker and distributor in form brokerage, Washington based meat snack producer, Bavarian Meats, and our first European investment, Italy-based dry cured meats producer, La Felinese.Turning to dividends. During the quarter, we declared a dividend of $21.7 million or $0.5775 per share, which on an annualized basis works out to $2.31 per share. Our free cash flow for the trailing 12 months was a record $182.2 million as compared to dividends of $80.7 million, resulting in a payout ratio of 44.3%.I will now turn the call over to the operator for the Q&A segment. Operator?
[Operator Instructions] We'll take our first question from George Doumet from Scotia Bank.
George, you have mentioned in your MD&A that you're starting to see some green shoots in demand. Can you maybe talk a little bit about that, what channels are you seeing that in?
Yes. Yes, George. Actually, if you had asked me that question in April, you would have gotten a very different answer. But we are very encouraged by the -- some of the trends we're seeing in the QSR channel. There is no question that consumers are out and about. And our order book with regards to QSR is looking much, much better to the point where some QSR accounts are -- and it's unbelievable really, they're back to pre-COVID-19 levels. So again, we're very, very encouraged to see those type of trends in May.
Okay. Great. And maybe just moving over to, obviously, the seismic inflation that's been catching a lot of eyes on beef, pork and other protein cutouts. Can you maybe talk a little bit about how we navigate that in terms of pricing actions? And also wondering if you've seen any kind of to date. I know it's early, but if you're seeing any negative volume response from our price increases?
Yes, the pricing inflation that you're seeing more recently, George, is really only in regards to fresh meat, fresh beef and fresh pork. And it's mainly impacting the -- a lot of the retail cuts, the cuts that you will find in the retail store. Now I just want to remind everybody that these very high prices were preceded by the lowest prices in history almost, well below 5-year averages. A lot of our companies effectively buy forward. If they see opportunities like that, they will buy. They will commit. Again, we saw some historically very low pricing. Now from our perspective, a lot of the primary plants are having issues, of course. I think there's a lot of noise about some of the issues they're having. The meat industry is an essential service industry in both Canada and the U.S. I believe that the Secretary of Agriculture in the states announced on Friday that he expects most primary plans to be back in production in about 7 to 10 days. Again, short term, yes, there is a lot of inflation with regards to some retail cuts. No question about that. We were leading in -- we're going into Mother's Day weekend, which makes sense. But again, we don't expect that to be long-term in any way.
Okay. And just one last one, if I may. I know you guys removed the guidance. I know it's a pretty fluid situation. Margins are volatile. But can you maybe talk a little bit about the organic volumes that we're seeing maybe in half the quarter-to-date in both of our operating segments? I think you can maybe help us with just some of the volume side of things.
I think, George, everything about what we do today is it really needs to be looked at by channel, channel demand. And really, what I'm going to say is not going to surprise anybody. I think in North America, there's a lot of demand that's coming from the retail channel in general, which includes club as well. When you look at some of the supply chain issues, some of the issues that both primary and value-added producers have had in North America, you can expect that we're inundated with orders and inundated with demand in that channel. That's not to say that we're taking a lot of those orders. In many cases, we turned them down because we're in a situation where we don't want to overstress our already stressed workforce. So again, there's other dynamics in our decision-making other than demand. No question that demand in the retail channel and the club channel is very, very strong. Now with regards to QSR, I commented on QSR. QSR was not in very good shape in April. But we're definitely seeing a comeback in demand through the QSR channel, which is very significant for us. And again, we're very encouraged by what we're seeing there. For us, the only channel really that we are concerned about at this point, as Will said, is the airline channel, which will take a longer time to come back. It's not as significant for us. But we feel that it will come back at some point, but not any time soon.
We move on to our next question, we've got Derek Lessard from TD Securities.
I just wanted to ask you, how you expect to balance, I guess, the increased supply side for the sandwich business, particularly as one of your bigger clients starts to open up stores with some of the, I guess, the supply side issues that's going on in the industry?
Derek, do you mean supply chain issues?
Yes, sorry.
Yes. We -- again, we've done business in the QSR channel for a long time. We've got very well-established relationships with the entire supply chain. We don't expect any issues at all with regards to the ramping up of that particular channel. And things have been going very well in regards to our sandwich group. We did not lay off anybody. We took on some lower-margin business in the interim just to make sure we keep everybody employed. So part of our concern was that we would have to hire a lot of people and retrain a lot of people, but we haven't had to do that. That was our major concern. So we're very well positioned to take on the -- the coming back with demand in that channel.
And Derek, I'd add to that is, as you know, those programs are generally frozen and that was a key area where we did in anticipation of possible supply chain disruptions build a lot of inventory. So we're well positioned on that side of things as well.
Okay. That's very helpful. I was just wondering how much of your end product in meat snacks is being sourced from some of the bigger packers out there?
I would say our supply chain with regards to that category tends to be very, very international, Derek.
Okay. And one last one for me is, you just said that you expected to defer certain CapEx until you gain greater clarity on COVID. Could you maybe just talk about some of the impacted projects? And what we should be expecting for CapEx in 2020?
Yes. So in the MD&A, we outlined the projects underway. So we'll continue with those projects as outlined. We had some bigger projects we were looking at potential, both capacity related as well as efficiency related. We've shelved those for the time plan, the newer projects, until, like I say, we get a little more clarity on the impacts of COVID. So I would suspect at this point, Derek, it's a rough number to be close to where we were last year, maybe a little bit lower overall for the year.
We'll now take our next question from Sabahat Khan from RBC.
I just wanted to get a little bit of color from you on your outlook commentary. I think it was indicated that you're expecting some significant impact, particularly in Q2. And I think some of the earlier commentary indicated that you are seeing some improvement in some channels. So I just wanted to understand kind of what channel you're seeing the weakness in that this outlook commentary relates to? Or have things kind of gotten better relative to this commentary?
Yes. I think if I'm to look at the quarter sequentially, I would say that the second quarter will probably be the trough, the bottom, let's say, particularly in April. I think that may will be much better than April, basically because of the ramp-up of demand in the QSR channel. And depending at the speed at which provinces and the states will open up. Again, if we are to use some optimistic assumptions, we should be back to some relative normal in the third and fourth quarters. We think that the third quarter will be ramping up. And then we should have a strong fourth quarter. That's the way we're seeing the demand return in terms of each channel.
Okay. And then when we look at the Foodservice channel, should we assume based on the commentary that the strength in QSR is offsetting any weakness in the, call it, casual dining space? Or is that kind of still going to -- is the Foodservice channel still expected to be, I guess, a net negative through Q2?
It will be net negative overall, but the trending will be favorable, certainly, beginning with, again, the slowdown in -- the sharp slowdown in April. I think we've mentioned before that, that business services QSR as well as direct-to-home meal services as well as specialty retail. We've seen good growth in that part of the business. We believe that fine dining will probably take longer to come back. Because of the difficulty of ensuring social distancing. But certainly, all aspects of Foodservice, outside of fine dining, are looking very good right now.
Okay. And then on the sandwiches side, there's some commentary in the MD&A around, additional or most -- or a lot more of the growth was coming in the specialty food side from sandwiches, which are a bit of a margin drag. I just want to get a bit more color. Is that normal core sort of sales you were expecting in Q1? Did maybe some of your customers maybe pull forward some orders into Q1 just as a precaution. I just want to understand what drove a lot of that growth in the sandwiches side during Q1?
The growth -- first, I just want to comment on the margin side of things. So the sandwich category is, you're correct, a drag on gross profit, but it also has a lot less SG&A. So it's actually relatively neutral on EBITDA margin. In terms of the growth in the quarter, it was a combination of factors. We've got a lot of new initiatives out there with several new -- especially in the retail channel. And then in the QSR side of our business, there were some specials, some featuring done by some customers. As well as some good organic growth. So it was kind of a whole range of factors that drove the number in the sandwich group.
Okay. And then on the -- just one on the commodity side. I think you indicated that when prices were low, you pre-purchased home, and I think that led to some of the storage costs, but there has been general inflation that you acknowledged. I guess, how should we think about the -- how those flow through your cost? How long into the future quarters, where you're able to prebuy, do you expect sort of some near term benefit, and then you realize some of the higher costs? I just want to understand, over the coming quarters, how that should cycle through?
At this point, we don't expect an impact for many, many reasons. Some of them I mentioned earlier. The other side of it as well is that in this type of environment, it's not that difficult to get some price increases from customers. They understand what's going on. They're looking for solutions. So many of them are looking at empty shelves, right? So again, if we were to play a role in terms of giving them some solutions, then we pass on some of that inflation. So in general terms, at this point, as we look at it, we don't expect an impact. But also, we don't expect it to be long-term either because plants will come back. There's all kinds of indications that governments in Canada and the U.S. want these plants to be back online.
We'll now take our next question from John Zamparo from CIBC.
You mentioned you'd have to incur some higher costs to maintain employee safety. I just want to get a sense of the magnitude of these, maybe in terms of what you've seen so far or what you expect either per quarter or on an annual basis.
Yes. We're still refining our expectations going forward, John. There's just too many changing variables at this point. In terms of the quarter, though, it was about $1.2 million in what we've isolated as COVID-related costs, i.e. idle labor time, additional sanitation, additional PPE, those type of costs.
And those have gone up materially in the second quarter.
Okay. That's helpful. And then a follow-up on inflation. I just want to get a sense of what the impact you expect cost inflation to be on gross margins in the coming quarters. There's obviously a lot of unknowns and moving parts at this point. But when you account for higher cost inflation, your ability to increase prices, the hedging positions and the higher than usual inventories that you took, how should investors think about gross margins over the next few quarters? Is it -- do you view it kind of as a net positive or net negative?
Again, John, we're not giving any guidance for the balance of the year just because there's so many floating variables because a big part of what drives our margins is our sales volumes. The contribution margin concept. So there's so much uncertainty around that with how this all plays out. I really can't answer that question at this time.
Okay, understood. More of a housekeeping question. What percent of sales come from either airlines or cruise ships, you called out both of those in the press release.
Airline sales in total are about roughly $50 million across the company. And cruise line sales, probably $20 million to $30 million range.
Okay. And then last one for me, more of a broad question, but how would you describe Premium Brand's ability to transition products that were destined for Foodservice into the retail channels?
Exceptional, actually. And really proud of how some of our teams have transitioned their capacity to service, find, capitalize on opportunities in the retail channel. To the extent possible, they moved mountains to find new sales opportunities.
We'll now take our next question from David Newman from Desjardins.
Just as you look at your typical Q2, what is your typical monthly volumes in April, May and June? I know it's kind of granular, but just trying to get a sense of COVID impacting April and we kind of get some green shoots in May and June, what would be the typical pattern that you'd see month by month?
It's our normal seasonal pattern, David. So April is the weakest month of the quarter, and then it ramps up over the course of the quarter with the June month being the strongest.
Right, because you're building for the summer?
Exactly.
Okay. And you've had some offsets here. You've won some business, obviously, in your Foodservice side. And you're using some of your capacity for things like co-packing and school lunch programs. Now if business comes back, do you retain that? In other words, are you -- is there a potential here that you will coming out of this be better positioning because you will have won some incremental new business?
I think so, David. I think we -- there has been situations where we've had new business opportunities that we've turned down mainly because of some of the production issues that the rest of the industry has been having. We've kind of sat back and we said, listen, what business opportunities are sustainable and possibly will continue once things normalize. And so we've taken on some business. That we feel will remain. They will not go away when things get back to normal. So again, we've been picky. And we feel that whatever business we pursue, we pursued will remain after things normalize.
Okay. And then on pricing, George, the price increases that you're putting through, how sticky are they? And how long can you think you can keep them?
I think in today's environment, David, I can tell you that really, it's not a normal environment. It's not what we're used to. Everybody is focused on producing food at any costs sometimes and making sure that shelves do not go empty. There is -- this is -- in this quarter, we're making decisions that are really driven by our wish to do our best for the common good. And I think that applies to retailers as well. That applies to all of our customers. So again, everybody recognizes that this is not a normal type of environment. This is about putting food on the shelves and giving people the opportunity to have food to buy when they go to the store. So again, this is not a normal way of doing business. If we have incremental costs, then there is a better conversation around our ability to pass them on, immediately, at times, right? But again, this is just the nature of the situation we're in right now.
Yes. And last one for me, guys. Just on the cost, and I recognize you want to retain your core employees, have had some temporary layoffs and things like that, temporary closures of some of your facilities. But anything you can point out in terms of the offsets on the cost side in like SG&A that you might, in a low environment month with furloughs and things like that, be able to kind of keep some of your profitability and cash flow retain some of it?
Yes. There's certainly been some of that, David. We're -- in our distribution businesses that have been hit the hardest, there's been some layoffs and cutbacks on fleet size. But really, we have taken the approach that this is temporary and we want to -- when this turns, we're ready and able to service our customers. So there has been some of that, but not a lot.
And I would say, David, that we've taken and we've asked our partner companies to take a very long-term approach to layoffs. We feel strongly that the economy will come back. Most of our competitors have made major layoffs, especially in the Foodservice channel. We have not. We are ready to go. And we're actually seeing some of the benefits of that today because our people are -- have been out there calling on customers, supporting them. Our view is that we're in this for the long term. And we know that some customers are having issues, and we're not going to abandon them. And that's helping us get more business as things open up again.
Okay. And then last one for me is on the seafood side. I think we're coming into sort of a peak season on lobster soon in May, June? I mean, what's the setup for that in terms of restaurants and exports and obviously, cruise ships is gone, too. So some of that business will go away. But at the same time, you've got Saco working now. So what are the puts and takes kind of in the lobster side?
I think if you take a look at some of the slides in the AGM presentation, David, again, you could see the exceptional retail packaging of some of these lobster products. So the real focus right now for that group is really retail and club, of course. There's not a lot going on in fine dining and in the export channel. But there is lots of activity with regards to value-added branded product into the retail and club channel. So that's we're all focusing right now.
We'll now take next question from Vishal Shreedhar from National Bank.
I think I know the answer to this, so I thought to validate. Has this pandemic caused you to reevaluate the way -- even in an incremental fashion, the way that you look at your business in terms of the market segments you want to participate in, the geographies you want to focus on or the types of businesses you want to acquire?
It hasn't changed the way we view our business either collectively or on an individual basis. As you know, again, it's -- we've shown it in different presentations. We're building 6 platforms with growth plans and expansion plans across Canada and the U.S., and that continues to be the case.
Okay. With respect to retail demand that you're seeing. Obviously, there was a big spike with panic-buying in March, call it, the early part of March, and it tend to have tapered off. The categories that you've participated in, could you give us some perspective on the type of retail demand that there is in Q2, maybe versus the end of Q3? Has it tapered off significantly? Or is it still quite elevated relative to trend -- to historical trend?
No. Yes. I would say, yes, we did see an uptick in demand in the latter part of March. Effectively, people pre-bought some of their April purchases. And then we saw that in the drop of demand in the first 2 weeks of April. And then again, that demand and more has come back. So that's really what happened.
Okay. And with respect to inflation and the incremental charges or costs you're incurring because of COVID. Through this call, you've been noting that you do see ability to take price if it's needed, and this is an exceptional time. So I'm wondering why management would flag the incremental cost associated with COVID if there is, in fact, such an easier opportunity to take price to offset these challenges? How should we think of the net benefit between taking price and the actual incremental costs associated with COVID?
I think the best way I can explain it is that our view is that we're in a country, in our countries here, Canada and the U.S. are in a very, very difficult situation. A lot of people have lost their jobs, of course, and yes, we're going to take a hit in our margins. We're not going to pass everything on to the customer. We don't want to be in a situation we're being accused of gouging anybody. That's not who we are. We are taking a hit. We want to keep prices reasonable for our customers and the consumer. Until we -- things settle down, and we begin to see the economy open up again. So again, we're making conscious decisions like that. And we feel good about those decisions.
And Vishal, I would add that when we -- our businesses take pricing, it's generally based on longer-term concepts. And one of the things that we don't understand fully at this point is how much of the COVID costs are permanent. Like there's a chunk in there that are just onetime idle labor, things of that nature that you're not going to go to a retailer and recover a onetime cost. It's more -- if there's a permanent change in our cost structure, that's what ultimately we would put forward in the pricing.
Okay. And that would lead me to the next question. So in terms of the extra sanitization, you don't have a view of whether that's going to be a year-long thing or 2 years or whatever the case is? It's too early to ascertain?
Yes. The sanitation cost, I would guess that a lot of that will be permanent, but that's not the big component of it. The big component at this point has been idle labor. Plants whereby we've slowed lines down because of physical distancing, will that be necessary going forward? We're not sure. Plants where we have, for safety reasons, instead of laying people off, sent them home, paid them while the plant was idle for a day or 2 and then brought them back. It's those sort of onetime costs that are most of that $1.2 million in the quarter.
Plus in the second quarter, the wage premiums that we're paying for some of the frontline workers.
Okay. And just lastly here, a quick one. Accounts receivable. Do you have any comment on the health of your customers? And whether we should anticipate any sort of problems there?
Yes. We are tracking that very closely. We understand our exposure. In the grand scheme of things, it's not very large. And we have actually seen, as George mentioned, as more of these restaurants start to open up and do curbside service and take out service that had previously been shut down, we're gaining even more confidence around our exposure there. So there may be something in the future. It's hard to say at this point who's going to survive and who's not. But the reality is it will not be a big number.
We will now take our next question from Stephen MacLeod from BMO Capital.
I just wanted to circle around on the Foodservice side because you have some pretty positive commentary around the QSR business. And how that's performing relative to sort of the casual dining or maybe more like table cloth lining. Can you just give us a sense of what the breakdown is of your Foodservice on markets? And how much of that is made up by the QSR business?
Well, Stephen, QSR is a substantial part of our business. We do business with most major banners. I think that probably the world knows our larger customer. But QSR is the majority of our -- what we call our Foodservice business, the great majority. I'm given that number well, but.
Yes. Well, you know the numbers, Stephen, in terms of our largest customer, percentage of sales from our Foodservice group. So you can figure out what the percentage of and that's just the one. And then like George says, we do deal with a number of the large banners. So you extract from that and you can come back to some sense of materiality of the street sales.
Yes. Okay. Okay. No, that's helpful. And then the new launches that you had in place were positive for the front end of the quarter. Can you talk a little bit about how those have performed in -- with the COVID-19 backdrop once sort of the panic hit?
Well, it's a real mixed bag, Steve. Some categories where we saw tremendous success in the first quarter, such as sandwiches, a component of that was driven by the QSR segment. So that clearly has gone away. Other categories, such as the dry cures and the meat snacks. While dry cured has been a positive overall, given the strength of the retail channel. Meat snacks is kind of a mixed bag because 1 of the channels that has been hit really hard is the convenience store channel. And as you might guess, a lot of meat snacks get sold through that channel. So whereas meat snacks is doing strong on the retail, it is struggling in C-stores. So it's sort of a whole bunch of different stories in there.
Okay. That's great. And then maybe just finally, in terms of acquisitions, you talked about sort of pausing the pipeline. Can you just talk a little bit about where your acquisition pipeline sort of sat once before things slowed down? And when you might expect that to pick back up?
In the AGM presentation, Stephen, which is posted on our website, at the very end, there is a slide that even breaks down our acquisition pipeline in terms of the ones that are likely to happen, the ones that are not as likely the probable ones, et cetera. We've given a lot of color on the pipeline. It's a substantial pipeline. I think it's the first time we've done that. I mean you may want to take a look at that. In terms of acquisitions, I guess, our official position is that, of course, we're in a number of discussions and we have a lot of possible transactions in the pipeline. At this point, we're wait and see, and we're trying to assess the market and what the environment is doing and when things are going to get back to normal at this point.
We'll now take our next question from Sabahat Khan from RBC Capital Markets.
Just a quick one on the working capital here. I think you indicated that there was some inventory buildup in Q1, just thinking about the rest of the year, what should we expect for Q2? Should there be a bit of a recovery? And any comments on the full year working capital just balance.
Yes. We do expect it to come back to normal levels. So if you map out sort of the trend from last year, and we haven't done a lot of acquisitions since last year. That should give you a good signal for Q -- end of Q2 going into Q3. It really is expected to be a onetime spike at the end of Q1. Now having said that, we'll see how things fall out over the course of the next several months because there are so many uncertainties. But based on the scenario of some normality coming back to the market, then you should see a decrease in -- a material decrease in our net working capital.
I would like to turn the conference back to you for any additional or closing remarks.
Yes. Thank you. Brian, we hope everybody stays healthy and safe, and thank you for attending today.
This concludes today's call. Thank you for your participation. You may now disconnect.