Premium Brands Holdings Corp
TSX:PBH
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Premium Brands Holdings Corp
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Good day, and thank you for standing by. Welcome to the Premium Brands Holdings Corporation First Quarter 2021 Earnings Conference Call. [Operator Instructions] Our speakers today will be George Paleologou, CEO and President of Premium Brands; and Will Kalutycz, CFO of Premium Brands. I would now like to hand the conference over to your speaker today, George Paleologou. Please go ahead.
Thank you, Cheryl, and good morning, everyone. I would like to welcome you to our 2021 first quarter conference call. Hopefully, you had a chance to attend our AGM presentation yesterday. In case you didn't, you can find the presentation deck on our website. We are now on Slide 4 of this presentation. Our CFO, Will Kalutycz, and I will walk you through our Q1 results as reported this morning. We are now on Page 5, on Slide 5. Our key messages this quarter are that we're making excellent progress with all platforms. We delivered record Q1 results despite ongoing COVID-19-related challenges, including supply chain disruptions, logistical issues and, of course, commodity inflation. Demand for our products remains very strong, particularly in the U.S., driven by economy, reopenings and the return of out-of-home dining. April sales were very strong across all platforms. For the first time in our history, our U.S.-based sales in our Specialty Foods division exceeded our Canadian sales. Clearwater delivered an excellent first quarter with a 940 basis point margin improvement driven by ecosystem coordination synergies and strong price realization. Our acquisition activity remains robust. We expect to complete many transactions over the course of the year. And our PB seafood platform, including Clearwater, is beginning to take shape as the only vertically integrated seafood entity in North America with unique competitive advantages, leveraging best-in-class assets, excellent management teams and featuring ocean to plate related attributes like premium quality, sustainability and traceability combined with excellent, social and environmental stewardship. I will now pass it to our CFO, Will Kalutycz, for the financial portion of the presentation. Will?
Thanks, George. Before I begin, I would like to remind you that some of the statements made on today's call may constitute forward-looking information, and our future results may differ materially from what we discuss. Please refer to our 2020 MD&A and other information on our website for a broader description of the risk factors that affect the company's performance. Now turning to our sales on Slide 7. Our sales for the quarter were $1,009.8 billion, up $74.8 million or 8% from 2019. The key drivers of our growth were organic volume growth of roughly $79 million driven by the continued solid progress we are making in all of our core categories, including meat snacks, charcuterie, cooked meats, artisan sandwiches and seafood. The next major driver of our growth were acquisitions, which accounted for about $59 million of our increased sales, and then finally, selling price inflation of roughly $16.6 million. When looking at the selling price inflation between our Specialty Foods segment and our Premium Foods Distribution segment, most of the inflation came from our Premium Food Distribution segment, which has very dynamic pricing and was able to address the inflationary environment we are in very quickly. Our Specialty Foods segment had about $6.5 million of selling price inflation, roughly half of that being cost-plus related -- cost-plus contracts with certain customers, and the other half being selling price increases put through to deal with price inflation from late in 2020. Offsetting these positive drivers of our sales growth were 3 key challenges. The first by far and most significant was COVID-related factors, which was a headwind of about $46 million in our sales. I'll talk a bit more about that on a later slide. Next was the stronger Canadian dollar. Our average translation rate for our U.S.-based businesses for the first quarter of this year was CAD 1.26 versus CAD 1.35 in the first quarter of last year. And then finally, we had some labor-related lost sales due to our certain sandwich plants ramping up for customer demand and having some issues getting labor to ramp up for that demand. Those problems have now since been resolved, but they were an issue in the first quarter. Normalizing for COVID, our sales would have been $1,055.6 billion or roughly a 13% increase from last year. Turning to Slide 8, talking about our organic growth rates. The solid line on this slide is our actual organic volume growth rate, and the dotted line is our organic volume growth rate normalized for COVID. The key message of this slide is really how much COVID has been hiding the success of our businesses in growing their sales. If you look at the last 6 quarters and you strip out the impacts of COVID, you can see that our businesses have been growing in high single digits, low double digits. So good, solid traction gaining there, driven largely by our product categories all being on trend and the investments we've made in capacity over the last several years. Turning to Slide 9 and looking at the impact of the pandemic on our sales. You can see for the quarter, the impact was $45.8 million. Oddly, in the first quarter of 2020, the pandemic actually had a positive impact on our overall sales. Our Specialty Foods sales were up about $16 million, and then this was offset by some Foodservice impacts in our Premium Food Distribution group for a net impact of $6.6 million. Once normalizing for that, the impact in the first quarter this year was roughly $39 million. You can see that the breakout of the impact -- most of it was in the Foodservice segment, $34 million in Foodservice, $9 million relating to airlines, $2.6 million to cruise lines, and retail was roughly flat, again, because of the bump we saw in the first quarter of 2020. Looking forward, we are cautiously optimistic that once the economy starts reopening that we should see a quick recovery in our Foodservice, and we base that on a couple of considerations. One is what we're seeing in the U.S. and Chinese economies with the reopenings there and the strong demand in the Foodservice channel resulting from that, but also interestingly, we saw early in the first quarter some decent demand in our Foodservice channel starting to form as there's some normalization in the environment. However, with the increase in infection rates in Canada and the increased lockdowns associated with those, we quickly saw that trend reverse. Turning to the next slide, our weekly sales trends. Really, the only point to illustrate here is we're starting Q2 very strongly. Q1 was a good quarter. It is our seasonally slowest quarter, and you can't read too much into it. As we go into Q2 and start seeing some of the seasonal demand kick in, we're very excited about what we're seeing at this point. Next slide, turning over to EBITDA. Our EBITDA for the quarter was $82.5 million, an increase of $18.2 million or 28.3% from 2020. The major drivers of this were acquisitions, and particularly the Clearwater acquisition, which generated about $9.5 million of investment income, and sales growth, which was a major also contributor to our EBITDA growth, and then finally, production efficiencies. We continue to see great strides being made in our Specialty Foods group across various plants. Other factors positively impacting our EBITDA, but in a much more insignificant way, was COVID from a cost perspective, overall, had a slightly positive impact as negative costs in our plants associated with additional PPE and production efficiencies, were offset by savings in marketing and travel and a small amount of government subsidies. From a commodities exposure perspective, it was a slightly positive overall. We saw in our Premium Foods Distribution group some margin expansion. Given the inflationary environment, their ability, their dynamic pricing models and some decent inventory positions and forward buys, they were able to take advantage of that to get some margin expansion, but that was largely offset by margin contraction in our Specialty Foods segment as that inflationary environment hit them. And in many of these businesses, there's a 30- to 90-day notice period for getting selling prices through with their larger retail customers. Most, if not all, of our Specialty Food businesses now are in the process of putting through price increases to deal with these. So we're cautiously optimistic to some degree. We will mitigate the impacts of this inflationary environment going forward. The negative factors impacting our EBITDA for the quarter. We continue to invest in infrastructure to support our growth, both from the perspective of plants as well as SG&A. And then we saw wage inflation, albeit we're starting to lap some of the numbers from last year, some of the increases put through last year. So not as material as last year, but still a factor in the quarter. Discretionary compensation was up. And then finally, the stronger Canadian dollar continued to impact our EBITDA as well, the translation of our U.S. dollars, as I talked about earlier in our sales. If you normalize our EBITDA for the impact of COVID, which overall for the quarter was about $9.7 million, that consisted of about $11 million of negative impact from the sales lost, offset by about $1.3 million in net COVID-related savings, as I discussed earlier. Normalizing for that, our EBITDA is $92.2 million or an increase of roughly $28 million or 43% as compared to 2019. Our margin for the quarter was 8.2%, which was a nice improvement over the last few years. And then normalizing for COVID, it would have been 8.7%. Turning over to the next slide, talking a little bit about the inflationary environment. We are seeing inflation across all sorts of elements of our business. Clearly, most commodities that we buy as inputs, pork, beef, chicken, turkey, certain species of seafood, corrugated and then other parts of our raw materials such as corrugated materials, packaging and several other elements that we use in our manufacturing. This slide highlights 2 key commodities, pork index and the beef index, and you can see the significant amount of inflation happening in these. As I mentioned earlier, our businesses are putting through selling price increases to deal with these inflationary pressures. Turning to our earnings on Slide 13. Earnings for the quarter were $32.3 million, an increase of $11.2 million or 53%, and this is despite COVID. The key driver of that was our EBITDA, which was $18.2 million, as I discussed earlier. And then offsetting that were some increased taxes and some increased depreciation associated with acquisitions and recent capital expenditures. Normalizing for COVID, which had a net of tax impact on us of about $7.3 million, our EBITDA -- sorry, our adjusted earnings for the quarter were $39.6 million, an increase of $18.5 million or roughly 57%. In terms of earnings per share, our number for the quarter was $0.72 a share, up $0.19 a share from 2019 or roughly 35%, 36%. Normalizing for COVID, our earnings per share would have been up -- would have been $0.91 per share for the quarter or up $0.38 per share or 72%. You'll notice the percent increases in our EPS relative to our earnings was a bit lower, and this is really a function of the equity issuances we did in 2020. A lot of that capital was still sitting on our balance sheet and not yet put to work, which you'll see in a later slide. And so we do expect that, that capital starts to generate returns, continuing improvement in our EPS relative to our earnings overall. Turning to Slide 14, talking a little bit about our Clearwater acquisition, the most significant in our history. We acquired a 50% interest in them. Very strong start, as George mentioned earlier. Top line was relatively flat, slight downly about $6.4 million, and largely due to some Brexit-related challenge for their Scotland operations, a lot of which have been dealt with and is in the rearview mirror. And then also, the stronger Canadian dollars, a good portion of their sales are in U.S. currencies. Also, interestingly, their sales were lower because of some of the discipline they were able to take in the selling of their products given their stronger balance sheet. So more product went into inventory this quarter than in past quarters in the expectation that it will be sold later in the year at higher margins when those products for seasonal reasons, there's a much more significant demand for them. Offsetting those negatives on the sales was China and the reopening there. We saw some good demand, particularly in clams and live lobsters. In terms of EBITDA, very strong performance by the company, up $7.8 million to $20.1 million, driven by 4 key factors: operations; grade efficiencies, both from continuous improvement, but also very high-quality catches that allow for very efficient processing was a big driver of the results; stronger margins in China, the U.S., in Foodservice as those economies reopen and some improved demand in retail in Europe helped with the general pricing environment across a range of species. And then most interestingly, the next 2 big drivers of the improvement in the margins were there synergies with our ecosystem. One was, as I mentioned earlier, them taking a much more disciplined approach on what they're selling, not being afraid to put product into inventory. And as a result, what they did sold was sold at higher margins. And then also leveraging the knowledge and distribution within Premium Brands to maximize their margins. So overall, a really solid start with Clearwater and great improvement in their EBITDA, well ahead of expectations for the quarter. If you look at the statement on the left-hand side of the slide, you'll see down below highlighted in gold some large costs. These were the acquisition costs and closing fee paid to Premium Brands. These were purely onetime costs associated with the transaction and will not be reoccurring. Turning over to Slide 15, talking a bit about capital allocation. During the quarter, we allocated $721 million of capital, $637 million of that for acquisitions, $67.2 million for major capital projects and $16.5 million to our REIT as part of a sale-leaseback transaction on certain properties held by the company. In terms of actual dollars spent in the quarter, we spent $682 million, putting to work some of that capital that I mentioned earlier that was sitting on our balance sheet at the end of 2020. Again, acquisitions being the big number, $637 million. Large capital projects, we spent roughly $17.1 million; on smaller capital projects, $11 million; and then $16.5 million on the REIT, as I mentioned. Looking forward, subsequent to the quarter, we've announced another new capital project and expansion of our Buddy's sandwich plant, roughly in Canadian dollars, a $15 million project. Again, as we've talked many times in the past about our base expectations around any capital we invest is a minimum 15% internal rate of return based on after-tax unlevered and generally on a 10-year-plus cash flow model. So again, these are long-term value drivers that will continue to help us create value at Premium Brands. Turning to Slide 16 and looking at our balance sheet. At the end of the quarter, despite the capital allocations I mentioned earlier, we continued with a very strong balance sheet. We had about $405 million of unused credit capacity at the end of the quarter. Our senior debt-to-EBITDA ratio was 2.5:1, which is at the very bottom of our long-term targeted range of 2.5:1 to 3.0:1. And our total debt-to-EBITDA ratio was 3.8:1, nicely below our long-term targeted range of 4.0:1 to 5.1 -- or sorry, 4.5:1. And I should mention, the only difference between our senior and our total debt-to-EBITDA ratios are our convertible debentures. Looking forward, we did complete the sale and leaseback transaction in the quarter. It closed on the last Friday of the quarter. Unfortunately, the funding didn't flow until the following week. As a result, the net proceeds of the sale and leaseback of roughly $152 million was sitting as a receivable on our balance sheet. When you normalize our financial position for that cash flow, that would increase our unused credit capacity to $550 million, clearly positioning us well to continue to execute on our acquisition and then capital projects initiatives. And it would drop our senior debt-to-EBITDA ratio down to 2.1:1 and our total debt-to-EBITDA ratio down to 3.3:1. So again, we continue to have a very strong balance sheet. Next slide, Slide 17, just a couple of comments on convertible debentures. Again, our convertible debentures is an equity strategy for us. The concept that we're raising equity ultimately at a premium instead of a discount by just issuing shares directly. So correspondingly, our strategy is always to force conversion with our converts as soon as we can. We've done 9 debentures so far, 6 of them have been fully converted, 3 are still outstanding. And you can see the most -- the next one that matures at the end of December 2023 is now well within -- our share price is well above the call price of $107.25. Unfortunately, until the end of this year, the conversion can't be forced unless the share price is 125% of that price. So we can't convert it today. But again, as soon as we can, we will be forcing conversion of that convertible debenture as well. And then my final slide, Slide 18, on our free cash flow. Nice improvement in our free cash flow for the quarter, up $14.2 million to $203 million as compared to -- on a trailing 12-month basis as compared to 2020, and this is, again, despite COVID. From a free cash flow per share basis, we are back at our historic record of $5.08 per share. The last couple of years, our free cash flow per share has been impacted by a couple of challenges. In 2019, it was the outbreak of African swine fever in China that disrupted global protein markets. And then 2020, it was COVID. And then as well, both years, there were some share equity issuances that resulted in some short-term dilution until that capital is put to work. But with that capital being put to work now and the growth we continue to see in our business, we now expect to generate continued record free cash flow per share amounts. Our dividend for the quarter was $63.5 per share, which works out to an annual rate of $2.54 per share. That's up 10%. We -- 10% increase that we announced during the quarter from our dividend rate in 2020. And that dividend resulted in a payout ratio based on a trailing 12-month basis of 48.3%, which is below our sort of general targeted range. As my final comment to the presentation, I would like to make aware to everyone who has not seen our AGM presentation. Then in it, we provide a detailed road map on how we expect to achieve our 2023 targeted sales and adjusted EBITDA of $6 billion and $600 million, respectively. I encourage you to have a look at it. With that, I will now turn the presentation over to George.
Thank you, Will. We're now on Slide 20 and 21. The Clearwater transaction in partnership with Mi'kmaq First Nations was historic and transformational. As Will explained, the transaction closed on January 25, 2021. The deal created a global top 20 seafood company and the only vertically integrated seafood platform in North America. PB seafood division also delivered record growth and record EBITDA during the first quarter, leveraging best-in-class products, combined with favorable consumer trends and strong retail demand. Our ocean-to-plate branding initiatives are beginning to take shape in the North American market site, leveraging on-trend attributes like premium quality, transparency, innovation, social responsibility and community engagement. We are now on Slide 23 and 24. We're making great progress in growing and diversifying the sales of our U.S. protein platform. Its growth during the quarter was in the high teens. Its meat stick sales continue to ramp up, and we're on target to exceed $100 million in meat stick sales in 2021. Our operational and business improvement initiatives are going very well, including investments in increasing capacity at our Hempler's facility, where we've commissioned the 50,000 square foot expansion. Our authentic charcuterie sales under the Oberto's brand are going well, particularly in the C-store segment, where demand is projected to be particularly strong. And we're also in advanced discussions to acquire further capacity to support the growth of this exciting platform. We're now Slide 25 and 26. Demand for the products of our sandwich division are very strong, with QSR channel returning to or exceeding preproduct levels. Continued investment in technology and automation initiatives with 2 generation 3 lines on order and the installation of a fully automated panino lines. Our investments in charcuterie and panino tray assembly have been completed. We showed 2 videos yesterday at our AGM to demonstrate the reasons we're so excited with our automation initiatives in sandwich and in panino assembly. We have invested in capacity to produce single-serve meals, and sales in this area are going well. Our plant-based breakfast sandwich sales are tracking to exceed $100 million this year. And finally, our sandwich division is projecting 2021 revenues to exceed $1 billion for the first time. We're now on Slide 27. As you can see, our acquisition pipeline remains very strong, and we expect to complete several transactions during the remainder of the year. Slide 28. Our first comprehensive ESG report is due to come out in June of this year. We are committed to achieving carbon neutrality. And we'll be disclosing targets and objectives in our upcoming ESG report. I will now pass it back to Cheryl for the Q&A segment of the presentation. Cheryl?
[Operator Instructions] Our first question comes from John Zamparo.
I wanted to start on the cost inflation side. How should we think about your ability to offset this? And I mean if we look historically, you've been able to get 1% to 2% price increases, but it does seem as though, based on the chart you're showing, but also commentary received across the space that inflation could be materially higher this year. So what's the willingness and ability of your business to potentially pass through much higher price increases?
Yes. Again, I -- it's a very good question, John. I think you have to remember that the majority of our business is either cost-plus. For example, our entire sandwich platform has always been on a cost-plus basis. And a lot of our business is always passing on price increases and price decreases, particularly on the distribution side, right? The pricing on the distribution side of our business is very, very dynamic. In fact, as Will mentioned earlier, sometimes, inflation is beneficial because we're always holding very large inventory positions in that area. So really, the only part of our business that has some exposure to inflation with regards to commodities is our protein group. But you have to remember that our protein group is really the most premium product in the market, and the products don't sell on price. If you're out there as a consumer and you want to buy the lowest quality out there at the lowest price, you don't buy Premium Brand products, right? So our consumers are very loyal. We passed on substantial increases to them in the past, and they continue to buy the product. So we feel very comfortable with the ability of the platform to handle high inflation as we see right now.
Yes. And so John, you made the comment of 1% to 2% inflation. That might -- I'm not sure where that number comes from. But when you look at our protein group and you go back, for instance, to when we had the issues with ASF in 2019 or the disruption back in 2014, '15 with a range of issues, there were double-digit price increases they were putting in place over the course of the year.
Got it. Maybe we can move to the comment in the press release about global shipping networks and the disruptions you've seen there. Can you elaborate on exactly what the impact you're seeing on that is and what do you expect the rest of the year?
Yes. I think it is well documented, John. There is a shortage of containers around the world. I guess world consumption has turned to goods and services as opposed to -- to goods as opposed to services and the shortage of containers. So there is a lot of delays. There's a lot of unloading type of delays because of congestion in different ports, et cetera, et cetera. Again, it's just another headache. As you know, we had a lot of headaches to deal with over the last year. And we're just mentioning it because, again, it's out there, and we'll manage through it. We've always had a diversified supply chain. And again, it's another area where we're -- we need to manage.
Understood. And then last one for me. On the labor supply issue in the U.S., I think you'd said during the call that this has been solved. This is an issue we're hearing from most of the companies in the space. So I guess how would you characterize your level of confidence that this isn't going to limit sales increases in the rest of the year? Or would you maybe see higher wage inflation that could impact margins rest of the year in the U.S.?
Yes. Again, John, the issue for us really is the demand side. As I mentioned in my prepared comments, there is tremendous demand, particularly in the states where things have opened up. We are seeing unprecedented demand, particularly in the QSR channel. So again, the challenge for us is to hire more people to be able to keep up with the demand. And what we're saying is we're going to grow. We are going to see some of the benefits of that. But unless in some cases, we're able to find the labor, we're going to walk away from business and -- or we're going to pass on some business, right? So really, the focus here is not the labor shortage. It's really the robustness of the demand.
And our next question comes from George Doumet.
I know there is a lot of moving parts to the inflation kind of debate, but can you maybe talk a little bit -- looking at where input costs sit today, I think, Will, you mentioned kind of double-digit price increases in the past. One more diversified product different commodities. But can you maybe tell us a little bit about what you're seeing in terms of order of magnitude of both potential price increases that we're going to put through in Q2 and Q3?
I think, George, it varies, of course, by segment and by commodity. And again, George, we're going to put whatever price increases to -- are necessary for us to maintain our margins and to continue to run our business, right? And that's what we've always done. Again, I just want to remind you that our product differentiated. We're not a commodity player. And we have demonstrated our ability to pass on these price increases in the past. And thankfully, the consumer continues to buy the products, right? We're more concerned about velocity sometimes when we raise prices than anything else, right? But again, in the past, we've been pleasantly surprised by the fact that even with higher prices, the consumer -- our loyal consumers continue to support our products.
Okay. And given the magnitude, which looks to be pretty high, how confident are you that we'll get to hold on to some of these prices when inflation abates in [indiscernible]?
Again, George, it's not about holding on to those. It's really about passing on the cost today. I think that a lot of times, if raw materials come down, we'll invest in promotions and those type of things so that we can find new markets and provide new volumes and new opportunities for our products, right? But again, it's just -- the issue for us is to maintain our margins at fair levels rather than to vouch the market, let's say, when commodities come down.
Okay. On the Clearwater, substantial improvement in gross margins. You guys -- looks like it's about 940 basis points. I'm just wondering how much of that is purely due to the PB ecosystem synergies? And can you clearly quantify that for us? And also looking at -- for this year and next, can you maybe call out what those PB ecosystem synergies could be or could look like or what they are?
Yes. George, I think that we're not in a position to do that at this point, George. But my comment would be that commodity companies are never good public companies. It's very tough to be a commodity company in the public market. And I think that Clearwater, it's a very, very well-managed company, tremendous assets, great quality assets, tremendous access to great resources. And there's no doubt in our mind that this company will be a stronger seller and will exercise better price realization given the uniqueness of these products. And I think that a lot of the benefits you're seeing are because Clearwater is not a publicly traded company. It doesn't have to report an increase in sales every quarter, right? So plus, again, the benefit of intel from the front lines, which Clearwater is getting, are incredibly beneficial to them. And I would also like to say that there's a halo effect. Clearwater is a great company, great brand, great global reputation, and they brought a halo effect to our PB seafood business as well and, again, part of the reason why the PB seafood division had a record quarter. So early stages. The markets have gone with us, which is a good thing. This great, great demand in China, in the U.S., as their economies open up and Clearwater, of course, will benefit from some of the commodity inflation that you and John mentioned earlier, right? So even Clearwater provides a nice hedge for us when protein costs appear to be inflationary.
Okay. Just one more, if I may, maybe for, Will. I know in the past, you guys have done a few ad hoc kind of sales and leaseback transactions. It seems like you've got a nice capital unlock here. Is this something that we're going to be doing more and more over versus [indiscernible] model?
Well, it's a tool we quite often used with acquisitions when the owner of the business has a piece of real estate that they bought way back when they founded the business and there's a tremendous amount of value tied up in the real estate. So it's a nice way for us to unlock that value while continuing to control the real estate. So these pieces of property were all related to our Confed acquisition that we announced in the quarter as well. So generally, it's around that. It's very rare. It's occasional but rare that will take sort of legacy assets enrollment to the REIT. But having said that here and there, that does happen.
And our next question comes from Martin Landry.
My first question is on your comments on April being a record month for you. I would love to get some color as to what's the breakdown in terms of sales growth between Canada and U.S. I would assume that the U.S. has seen really good growth, and Canada is probably more muted given the lockdown measures in Ontario. So I'd like to hear a little bit more on that front, if you can.
Yes. I think you certainly captured it, Martin. We've talked a lot about our sandwich group, of course, our protein platform in the U.S. and our seafood platform in the U.S. And a number of states have opened up their economies. And all I could say is that we're just seeing amazing demand in those areas. And to the point, as I said earlier, where given some of the logistical challenges, we are -- we have to walk away from business. But again -- or opportunities. But again, a lot of growth or -- the great majority of the growth for us is coming out of the U.S. In Canada, fine, we're doing well. As Will said, we were getting good traction in Foodservice in the early part of the quarter. And then with the lockdowns in March, of course, things slowed down. And I mean that shouldn't surprise anybody.
Yes. And maybe that's a good segue into my next question on capacity utilization. Can you talk to us about which platforms are you tight on capacity right now? I would assume the sandwich platform is probably one of them. And maybe talk about what kind of capacity expansion is coming up near term to alleviate that?
Yes. So we have announced several projects over the last couple of quarters across various platforms, our sandwich group. We just announced the Buddy's initiative as well as the gen 3 lines last quarter. So investing in capacity in the sandwich group. The protein group, similarly in meat snacks, we announced the investments at Oberto's and in Hempler's. So those are 2 key areas we're investing in. Dry cured is another area where we're doing the Brantford expansion with Piller's. So it essentially goes across all our key categories. Seafood, nothing major planned right now, but we continue to invest in the infrastructure to support the distribution, but that infrastructure is one of the things that a lot of capacity has freed up with the demand destruction in Foodservice. And then the last major area, artisan brands. We're investing in our new Stuyver's facility, we announced that a couple of quarters ago. And that business is, again, a U.S. expansion story, tremendous opportunities down there and lacking the capacity to execute on them. So it really -- there's projects across all the major categories pretty well, Martin.
Okay. And is it possible to perhaps quantify how much sales these expansion projects could support once fully ramped up?
Yes. I don't have that number. That's part of what we've built into our 5-year model in supporting that growth. It varies quite significantly from project to project, but it's certainly in the $200 million to $300 million range when you add up all the projects as a minimum.
Yes. One comment on that, Martin, is that in the past, we've also leveraged co-packer capacity to support our growth, right? That's always been a part of our playbook. And again, not all of our products are made by our companies, right? And for example, now we are in the process of working with a few co-packers to support growth.
Our next question comes from David Newman.
Great set of results and -- including Clearwater on the shoot. Not to beat a dead horse, but on the commodity inflation, very confident you guys can get it through. You have done it in the past. Obviously, you can get it through. But is there any short -- sort of short-term timing difference here in terms of 30-, 90-day lag in retail in the protein? And should we be cautious about the second quarter margins on that front until you can get it through and cover the nut? Or do you have enough inventory or forward buy acquisitions that you can leverage in the inflationary environment?
Yes. We do have some inventory positions to carry us through and help mitigate. So really, David, it's one of tracking what happens in the market. If prices continue or costs continue to accelerate like they have, then certainly, the inventory is only going to take us so far, our forward buys are only going to take us so far, and there will be some margin pressure, but -- in the short term. But again, it's going to be a function of what happens over the next 2 months.
[indiscernible] Go ahead, George.
Yes. The other comment I'll make, David, is you shouldn't make the assumption that all of our commodities have bought always at market prices, right? There's these cases where we entered into long-term commitments with our suppliers and -- based on fixed pricing, et cetera, et cetera, right? So that's just a comment.
Okay. Well, hopefully, they hedged it. I guess the second thing is you've done a great job of keeping your doors open, keeping your customers happy. And you made a comment that you're seeing some opportunities arise out of that in terms of being a good supplier to some of your key customers. Is there -- can you kind of point to a few things that you're really seeing where that's really kind of gaining traction?
Yes. I think we've mentioned it earlier, David. And again, particularly in -- with respect to our U.S. platforms, the demand with respect to all of our U.S. platforms is unprecedented because our key platforms in the U.S. have done an incredible job with regards to business continuity and providing steady supply chain to the customers. Again, I can tell you unequivocally that demand and opportunities in the U.S. are not lacking in any way. So the issues for us, of course, is to figure out the labor situation and some of the logistical issues we've talked about. But this is -- the U.S. platform's growth is a very good example of what we just said and how we are benefiting from the fact that we've had very good execution in those platforms.
Okay. And then the last one, sort of how the quarters shake out here in terms of the cadence of improvement coming out of COVID? As an example, obviously, travel demand, we're seeing -- I think some of the cruise lines are sold out in the fall. We're seeing resurgence in bookings, et cetera. So that's one area where you kind of got hit coming in not only just full service restaurants, but obviously, airlines, cruise lines, all that area. So do you think there's a possibility coming out of this that you could over-index versus more normalized conditions as people are caged animals, they want to get out and go south or go on a tour or go on a cruise line or whatever, do you think there's a possibility we could actually over-index?
Yes. Our general expectations are for -- again, based on what we've seen happening in the U.S., David, and in China and that little glimpse we saw at the beginning of the first quarter, we are bullish that once things open up, there is going to be that surge. And our biggest foodservice exposure today that has yet to normalize from COVID is in Canada. So that's going to be a big factor in the turnaround that. Getting into some of the specifics, though. Cruise lines, we're slightly bullish that, yes, we'll see some pickup towards the end of the year. But again, there's a lot of risk there. And what happens is going to be really a function of international markets. Airlines were fairly bearish, although I think you're going to see much more travel. We're not quite sure how the food element is going to work at this point. So we're being conservative there in our outlooks. And then foodservice, absolutely, when it comes back, it will come back with a vengeance, but the question is when does that happen? And I guess the only bearish comment on the Foodservice segment is a big driver -- and you saw this -- there was that earlier chart in my presentation on the COVID impact by quarter, and you saw a bigger impact in the fourth quarter. And a lot of that is because of all the event-type business that happens towards the last part of the year. And that's a large gatherings of people, and there's tremendous uncertainty how that's going to unfold for this year. So that's probably the only bearish element in there.
Okay. If I just squeeze one minor -- sub-question to that one. Are you seeing the potential for staycation this summer as people really make travel plans to hit the road in terms of meat snacks and sandwiches and -- do you think do you think that's really going to resonate this summer?
Well, I think that -- and again, we have to be careful whether we're talking about Canada and the U.S., right, U.S. is opening up nicely. And we are expecting unprecedent demand in C store and QSR, David. We're already seeing it. And as I said earlier, our issue is not demand. And I think a lot of people will still drive in holidays as opposed to fly in holidays. So again, we're expecting substantial demand in those 2 channels.
And our next question comes from Vishal Shreedhar.
So I understand the commentary that PBH is seeing substantial demand for its products, which is nice to hear. I wanted to focus in a little bit on the meat stick category, which is a focus category that management indicated that there was a lot of opportunity in. And one of the plans was that there was opportunity to grow market share for the meat stick brands because of the quality and success in other markets. Wondering how the market share is doing in that particular category, do you see expansion there?
Yes. I think we have to be careful when we talk about the meat stick category, right, because again, we're the lead meat stick company in Canada by far, but I'm not sure we've ever taken anybody's market share. We've simply found white space. We felt strongly when we acquired Oberto's that the meat stick category was very underdeveloped in the U.S. mainly because the main brands of meat sticks were very low quality. So again, we launched a lot of very high-end premium products just like in Canada, and we're gaining great traction with regards to those products because those products are finding that white space, right? So it's not about taking somebody's market share. It's opening up new markets for a product. The Premium Brands never, never looked at the market in terms of going after some in market share. That is a silly equation, right? We try to find new opportunities and new white space for a certain product. When you look at our cooked products in the U.S., for example, our cooked, stewed products, that is a substantial category, and that was completely new space. We never took anybody's market share in that space. It's well over $100 million category for us, maybe close to $200 million. But again, that is the PB approach, right? Not about market share.
And just switching gears here. You talked about the traction in the sandwich platform with management's targeting $1 billion or I don't know if you said greater than $1 billion or $1 billion this year for sales, which I would see as impressive given the challenges of COVID. Just wondering, what is the runway for that platform? I mean this is a fairly sizable growth over the years. I'm wondering, how -- when you look out several years, are you still seeing substantial demand for that product continuing, and could this business double down?
Yes. Again, we refer to it, of course, as the sandwich division, but it's really an assembly business, right? And it's -- sandwich business is growing well over 20% over 10 years. But now they're in -- charcuterie assembly and the charcuterie category is growing nice. It's one of the fastest growth categories in retail today, and they're getting into panino assembly, which is a healthier type of meat snacks and single-served meals, which we think is a high-growth category, if you look at the growth of the category in Europe. For example -- anyway, so it goes back to my comment with regards to finding white space and trying to create markets, not trying to steal somebody's market, right? So they're -- again, they're diversifying their assembly capabilities very nicely. They have a lot of -- they're getting a lot of traction in areas that I wouldn't call sandwiches. And again, we're really, really excited by the growth prospects of some of these new SKUs that they're in.
And our next question comes from Derek Lessard.
I just wanted to take the Clearwater integration maybe a step further. Could you talk about the integration of the lobster business with Clearwater and Ready Seafood and maybe some of the wins and opportunities that you're seeing there?
Yes. I would say that the word, Derek, is not integration, it's coordination. The management teams of both companies are working extremely closely on supply chain type of synergies and also on marketing and sales synergies as well. And really, it relates to price realization opportunities more than anything. And again, we're really pleased with the way the 2 management teams are working together. And as you know, lobster is a big segment for us. We're working on several value-added type of initiatives with regards to lobster. Clearwater was never focused on the value-added part of the business. And again, all I could say is that we're extremely pleased with the coordination type of activities between the 2 companies. Great, great management teams, great initiatives, great coordination.
Okay. And my last one is, I guess, I'm wondering where you are in the automation of the sandwich plants? And if you're expecting that to maybe perhaps alleviate some of the labor pressures you're seeing there?
Yes. Derek, I don't know if you saw the AGM presentation yesterday, but we actually showed videos of our generation 3 lines that we're installing. And it's very exciting. It's -- this complete automation, the use of AI technology with robotics. And anyway, yes, we're -- yes, it will give us more capacity and also will be a lot more efficient.
And our next question comes from Stephen MacLeod.
Lots of great color so far, but I just wanted to circle around on 2 things. One was you mentioned that in Canada, particularly, you saw -- you were off to a great start in Q1 before the shutdowns hit. And I'm just curious if you can give a little bit color on what growth rates look like before things began to slow down in Ontario and other markets in Canada?
Yes. We don't have a specific growth rate to discuss, Steve. What we did see was a good sort of week-to-week improvement, but we never came to the point of actually coming to a whole sort of normalization of the growth rate.
Again, Steve, in general terms, if lockdowns are announced, which impact restaurants, we get impacted, right? And that's generally in our distribution group. But again, we -- March was a lockdown month again in many parts of Canada. We see Alberta, Ontario and Quebec mainly. And our sales to that segment were impacted materially.
Okay. Okay. That makes sense. And then I just wanted to make sure I'm -- once again, any color -- incremental color around kind of the cadence for sales growth through the year. I mean I think I would expect to see maybe the top line base in the demand you're talking about to accelerate in Q3 -- Q2, sorry. On Q3, you'd probably begin to see minimal COVID impacts on a year-over-year basis. And then do you expect to be in a more normalizing environment by the time we get to Q4?
Steve, that's the very reason we're not giving any guidance for the year at this point. It all depends on how COVID rolls out. So you make a couple of key COVID assumptions and you change those and our outlook will change. It's going to be so much a function of how the economy opens up, and particularly with Foodservice in Canada.
And Stephen, you saw the April numbers, right, that we've disclosed the April number, right? And again, you can sort of deduce that we're still in lockdowns in Canada, and we've been impacted greatly in the distribution group, but that was by far the best April on record, followed by a very challenging April, obviously, last year. So that just shows you the robustness of the demand in markets where things are opening up, obviously, in the U.S., right? So if we make the same assumptions with regards to when Canada is going to open up, then again, all bets are off, and we're going to see substantial demand.
And our next question comes from Sabahat Khan.
Just I guess on the -- following up on the commentary from the last question. I guess in terms of the uncertainty looking ahead, are you seeing -- or are you more concerned about the food retail Specialty Foods channel? Or is it more Premium Food Distribution? Just trying to understand, based on the conversations you're having with your customers, which areas maybe more uncertain as we look to the back half of this year and into next year?
Sorry. Saba, can you repeat the last part of that? You cut out on us.
Yes. Just on the -- in terms of the outlook, obviously, you're not providing outlook just given the operating backdrop. But based on the conversations you're having with your customers, what is more of uncertain area for you? Is it the Premium Food Distribution side? Or is it the Specialty Food side? Where does it -- and where are you less certain on the outlook?
Yes. No. Certainly, in the Specialty Foods side, the key area being impacted is really the airline business. There's a little bit of foodservice exposure there, but it's the airline business. And we -- like I mentioned earlier, we're pretty bearish on that. We don't hold -- it's probably the impacts are going to be relatively consistent for the rest of the year. So it's more in the Premium Food Distribution side. That's where the heavy foodservice exposure is. The Foodservice and the Specialty Foods side tends to be in the QSR segment. And as George has talked about, we've seen a significant rebound there already, both towards the end of 2020 and certainly in 2021. So it most certainly is the Premium Food Distribution group.
And then just in terms of the cruise and airline stuff, is that airline exposure really sort of sandwiches exposure quiet a few years ago? Or has that been -- or is it more business lines that are exposed to that side of the business?
It's primarily our sandwich group.
Okay. And then I guess just looking ahead into kind of 2022 and onwards, there's a little bit of tailwind, obviously, for food retail as an industry through COVID. How are you thinking about that as you go into 2022? Do you have enough initiatives or other programs in place to sort of start to comp against those strong numbers that the industry benefited from over recent years? Or based on what you're seeing now, is that demand, you think, going to be more sustained as you move forward even as the kind of the economy reopens?
Yes. We -- again, when you sort of look back, I mean, we never really had the access to the labor or the -- a lot of capacity to take advantage of opportunities. There were a lot of opportunities, obviously, to sell through to these channels during the pandemic. But really, we were more focused on business continuity and obviously, making sure that we didn't overstress our workforce, right? So again, we did fine in those channels, of course, but I wouldn't say we took full advantage of the opportunities, mainly because some of the other challenges. So we're expecting a return to normality of lifestyle. The question is when, of course, as Will said. And again, I wouldn't say that we benefited immensely from the fact that demand in cloud and retail is so strong.
Yes. We're hoping to, Saba, that there is some sort of longer-term sustainable benefit is. Our Premium Food Distribution group -- the Foodservice business is in that group. We've got a slide in our AGM presentation that talks about how they performed relative to some of the other peers in their segment of the food industry, and they've done an amazing job of developing new sales channels, particularly in retail, new relationships. So we really are bullish that there are some good sustainable opportunities in that channel. So when the Foodservice comes back, you should see some really good solid growth if they can maintain those sales as well as then get back to Foodservice. And then the one thing that's been lacking in all the growth numbers we've been talking about is Foodservice in Canada was a key growth market for us. We made major investments in Quebec and Ontario and growing our sales in those segments. And none of that growth is built into the organic normalized growth rates we've been talking about. So yes, you could see some really strong numbers from Premium Foods group once everything comes back.
Okay. And then as you think about the sandwich business, the target that you're laying out is the outlook for $1 billion of sales. Can you maybe help us think through the composition of that $1 billion? Many, many years ago, it was primarily 1 customer you go into other channels. Can you maybe give us some context on what is mass or C stores? How big a portion of your sandwich business those new channels could be in a few years?
Yes. It's exciting what's happening in our sandwich group. There's so many growth initiatives within that group. You're right, they sort of built their business around a core customer, but I can tell you that they have amazing growth in C-store this quarter, in retail, both mass and general grocery. Like George talked about earlier, they're getting into other types of assembled products like charcuterie, which has been a big growth driver. Also, their assembled meals is another growth driver for them. There's just so many areas that are expanding, and you're seeing that. That major customer is becoming a much less significant overall customer to their platform.
Okay. And then just one last one for me. I guess there's one C-store customer you were doing some trials with and that was picking up. And I guess through the pandemic presumable that program got put on hold or slowed down. Is that something that's picking back up? Or is that -- just want to get update on where that program is at this point?
All I'll say again is that C-store will see tremendous growth for us this year. We are -- as Will said, we're getting excellent traction in both our sandwich and our protein division in the U.S. in the C-store channel, and we're really excited by that.
And this concludes our question-and-answer session. I'll now turn the call back to George Paleologou for closing remarks.
Thank you, everybody. I'd like to thank you for attending today, and have a great summer.
Thank you for joining us today. This concludes our call. You may now disconnect.