High Liner Foods Incorporated (HLF) Earnings Call Transcript & Summary

[Operator Instructions] This conference call is being recorded today, Friday, August 14, 2026, at 10:00 a.m. Eastern Time for replay purposes. I would like to turn the call over to Matt MacDonald, Vice President of Finance and Investor Relations for High Liner Foods. Please go ahead.

Good morning, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the second quarter of 2026. On the call from High Liner Foods are Paul Jewer, Chief Executive Officer; Kimberly Stephens, Chief Financial Officer; and Anthony Rasetta, Chief Commercial Officer. I'd like to remind listeners that we use certain non-IFRS measures and ratios when discussing our financial results, as we believe these are useful in assessing the company's financial performance. These measures are fully described and reconciled to IFRS measures in our MD&A. Listeners are also reminded that certain statements made in today's call may be forward-looking statements under applicable securities law. Management may use forward-looking statements when discussing the company's investments and acquisitions, strategy, business, and markets in which the company operates, as well as operating and financial performance in the future. These statements are based on assumptions that are believed to be reasonable at the time they were made and currently available information. Forward-looking statements are subject to risk and uncertainties. Actual results or events, including operating or financial results, could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risk and other factors that could cause its anticipated outcomes to differ from actual outcomes in its publicly available disclosure documents, including its most recent annual MD&A and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. At the close of markets yesterday, August 13th, High Liner Foods reported its financial results for the second quarter ended July 4th, 2026. That news release, along with the company's MD&A and unconsolidated condensed interim consolidated financial statements for the second quarter of 2026, have been filed on SEDAR+ and can also be found in the investor section of the High Liner Foods website. If you'd like to receive our news release in the future, please visit the company's website to register. Lastly, please note that the company reports its financial results in U.S. dollars, and therefore the results to be discussed today are also stated in U.S. dollars unless otherwise noted. High Liner Foods' common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Paul for his opening remarks.

Thanks, Matt, and thank you for joining us on today's call. The second quarter marked an encouraging step forward in strengthening the underlying performance of our business. Demand remained resilient, and we maintained top-line momentum, particularly in retail, while adjusted EBITDA increased year-over-year, both on a reported basis and when normalizing for IEEPA tariff-related costs and recovery. We achieved these results despite continued pressure on gross profit from inflation, higher raw material costs, and continued tariffs, providing early evidence that our actions across pricing, promotions, and supply chain are gaining traction. Let me briefly update you on the progress we are making across each of these priorities. On pricing, we utilize the available post-Lent pricing window to implement increases in our retail portfolio. These actions are an important step towards strengthening margins, although external conditions continue to evolve as new tariffs are implemented and raw material and fuel costs continue to rise. On promotions, following increased activity around Lent, we took a more targeted and disciplined approach in the second quarter with greater emphasis on margin and return on investment. As you will hear from Anthony, demand remains strong even as our promotional activity moderated, particularly in the club channel. And on supply chain, improved product availability and retail fill rates during the second quarter reflect our efforts to strengthen execution across our plants and operations. We have a series of initiatives underway to drive efficiencies across the supply chain, and this work remains critical to our ability to offset inflationary cost pressures while maintaining compelling value for customers and consumers. IEEPA tariff recoveries announced today help explain the margin pressure the business experienced during 2025 and the beginning of 2026. While the recoveries will be recognized in our second and third quarter results, they relate to costs incurred during those earlier periods, and as we have discussed before, during those periods, we were not able to immediately or fully price for the tariffs. Tariff refunds show the extent to which tariffs affected our margins and provide a clearer view of the underlying performance and potential of the business. With improving execution, continued innovation, and the underlying strengths of our business, we are confident in our ability to strengthen performance in the core and build sustainable growth over time. Seafood remains under-consumed, and demand for healthy, affordable, and convenient protein solutions remains as relevant as ever. For more than 100 years, we have worked in partnership with our customers to navigate changing conditions and deliver compelling value to consumers across North America. We will continue to do so with a balanced and disciplined approach focused on making steady progress on the factors within our control while investing for the opportunity ahead. With that, I will pass the call over to Kimberly to discuss our financial results.

Thanks, Paul, and hello, everyone. As Paul described, our second quarter results reflect continued top-line momentum and year-over-year adjusted EBITDA growth, both on a reported basis and when normalizing for the impact of the IEEPA tariffs. Progress on the strategic initiatives that we have underway on promotion, price, and plant operations benefit from our right-sized organizational structure and the ongoing cost discipline to support our value proposition amid the inflation and the higher raw material costs. From a volume perspective, sales volume increased in the second quarter by 2.2 million pounds, or 4%, to 57 million pounds compared to 54.8 million pounds in the second quarter of 2025 due to the sustained demand for High Liner's diversified product portfolio, the successful launch of new product introductions and innovations, additional contract manufacturing business, and the volumes associated with the United States Department of Agriculture, USDA, contract. Sales increased in the second quarter by $29.7 million, or 12.4%, to $269.3 million compared to $239.6 million in the same period last year, driven both by the increased volume as well as increased pricing reflected in inflationary markets. Gross profit decreased in the second quarter by $3.2 million, or 6%, to $50.1 million, and gross profit as a percentage of sales decreased by 370 basis points to 18.6% as compared to 22.3% in the second quarter of 2025. The decrease in gross profit, though, is largely driven by the $10.1 million in inventory-related losses associated with the fire at a third-party warehouse facility, which the company expects to recover through the recognition of insurance coverage by the end of 2026. This impact has been normalized in both adjusted EBITDA and adjusted net income. The inventory loss is partially offset by the $7.9 million in International Emergency Economic Powers Act tariff recovery, otherwise known as IEEPA tariff, recognized during the second quarter. Gross profit in the second quarter of 2026 includes approximately $5.7 million in incurred IEEPA-related tariffs in the cost of sales, excluding the tariff recoveries discussed previously, compared to $2.8 million in the same period of 2025. Distribution expenses consisting of freight and storage increased in the second quarter by $2.8 million or 24.6% to $14.2 million compared to $11.4 million in the same period in the prior year. The increase in distribution expense was mainly due to the increase of sales volume, as well as increased freight costs incurred on the sales associated with the newly acquired brands from ConAgra Brands and the incremental distribution costs from increased fuel costs and freight rates. As a percentage of sales, distribution expenses increased to 5.3% in the second quarter compared to 4.8% in the same period in the prior year. Adjusted EBITDA increased in the second quarter by $5.1 million or 20.3% to $30.2 million compared to $25.1 million in the same period in the prior year. And adjusted EBITDA as a percentage of sales increased to 11.2% compared to 10.5%. The increase in adjusted EBITDA reflects the company's balanced approach to pricing, favorable SG&A, and the tariff recovery previously mentioned. Reported net income decreased in the second quarter by $3.4 million or 40% to $5.1 million, while diluted earnings per share decreased to $0.18 compared to $0.28 in the prior year. The decrease in net income reflects the decrease in gross profit previously mentioned, increased distribution expenses, and higher financing costs, partially offset by favorable SG&A and lower business acquisition integration and other expenses. Excluding the impact of certain non-routine or non-cash expenses that are explained in our MD&A, adjusted net income in the second quarter of 2026 increased by $1.2 million or 10.4% to $12.7 million. Adjusted diluted earnings per share increased to $0.44 from $0.38 in the same period in 2025. With regard to cash flow from operations on the balance sheet, net cash flows from operating activities in the second quarter of 2026 decreased by $18.6 million to an outflow of $3 million compared to an inflow of $15.6 million in the same period in 2025. The decrease is primarily driven by cash outflows from non-cash working capital balances, specifically purchases of inventory and higher accounts receivable balances, partially offset with an increase of accounts payable. Cash flows also decreased as a result of higher cash taxes paid. These are partially offset by the higher cash flows provided through operations in the second quarter of 2026 compared to the prior year. Net debt at the end of the second quarter of 2026 increased by $13.4 million to $335.8 million compared to $322.4 million at the end of fiscal 2025, reflecting higher bank loans and lease liabilities, partially offset with lower long-term debt and higher cash balances. Net debt to adjusted EBITDA was 3.6x at July 4th, 2026 compared to 3.5x at the end of fiscal 2025. We expect the ratio to improve throughout the year and be slightly below the company's long-term target of 3x by the end of fiscal 2026. While the company recognized the $7.9 million of tariff recovery received during the second quarter, the company received further tariff recovery of $27.9 million of the total $41.3 million applied for, subsequent to quarter end. This amount will be recognized in the company's third quarter of 2026 financial results. As Paul noted, the recoveries provide an important context for the tariff pressure absorbed by the business during 2025 and 2026, of which approximately half of the tariff recoveries relate to tariff cost of sales in 2025, and the remainder relates to 2026. We are still in the process of analyzing the full tariff impact, including the extent to which those costs may have been partially offset by pricing actions. Given the number of variables and the assumptions involved, any analysis to isolate normalized performance absent IEEPA tariffs remaining is complex. However, the broader takeaway is that the recoveries provide further evidence of the underlying resilient performance and the potential of our business. I'll hand over the call to Anthony to discuss our operational performance.

Thanks, Kimberly, and hello, everyone. As Paul and Kimberly have outlined, we once again delivered a strong quarter on the top line, supported by sustained demand and improving execution. From a commercial perspective, volumes held despite implementing pricing and reduced promotional activity. We saw improved product availability and a positive reaction to new product innovation, leading to new listings and expanded distribution across the 24 new items launched so far in 2026. In our retail business, we carried the strong momentum we experienced at the start of the year into the second quarter. Operationally, better product availability helped us improve fill rates, meet demand more consistently, and importantly, grow higher-margin products, including our SkinPack product line. While inflation and price sensitivity continue to shape the category, consumers are being deliberate about where they direct their spending and prioritizing restaurant-quality, value-oriented seafood meals at home. Against this backdrop, the breadth of our portfolio across species, formats, and price points served us well, with growth across both premium and value offerings. We delivered strong performance in the club channel on both the top and bottom line, with consumers continuing to purchase our products after promotions ended. This was very encouraging to see as it validates both the strength of our value proposition beyond price, including the quality, convenience, and breadth of our offering, as well as our strategy on promotional investments through the holiday and Lent period. We're also seeing the benefit of the overall investment we've made in this growth channel over the past 18 months, as our customers are quick to provide prominent placement for our new innovations, including our continued expansion in Sea Cuisine. This premium brand was once again a standout performer during the quarter, driving significant gains across both club and traditional grocery, with family pack growth and new listings expanding its reach. Our customers have responded very strongly to our new Sea Cuisine innovations, including our Sea Cuisine Guinness battered fish strips, a highly relevant breaded and battered solution, as well as the honey chipotle salmon and garlic herb crusted tilapia family packs, which are expanding our value-added portfolio and creating new opportunities for profitable growth. During the quarter, we also began shipping our new Sea Cuisine skillet meals to select retailers across the U.S. This innovation is helping to expand the category with complete restaurant-quality meal solutions that offer the taste, convenience, and protein today's consumers are looking for with salmon and shrimp options. We know that uncertainty around how to prepare cooked and uncooked seafood remains a barrier to greater at-home consumption. At the same time, consumers are dining out less and looking for affordable, low-effort ways to create high-quality dining experiences at home. The Sea Cuisine skillet meals address both needs by making seafood easier and more approachable through a complete meal solution that can be prepared with confidence and minimal effort. We are excited by the opportunity this represents and will continue to prioritize building distribution in both the traditional grocery and club channels in the coming quarters, supported by retailer-specific shopper and digital marketing. Innovation also remains critical on the value side of our portfolio. During the quarter, we launched new private label products with national discount retailers across value-added salmon, shrimp, and pollock, target growth species for our business that are strategically important as we further diversify our species mix. Mrs. Paul's and Van de Kamp's are now well integrated into our portfolio, and we're on track with recognizing the expected synergies and have also secured new distribution. We remain focused on supporting both brands with targeted investment and marketing. In Canadian retail, we gained significant market share and performed well during the quarter, despite the inflationary pressures weighing on the category. Our performance was driven by the strength and diversity of our portfolio across species, which supports the stability of our business and provides a strong value proposition to consumers. We saw strong demand for our pan-seared and High Liner family pack offerings, supported by a number of key promotional programs along with the continued strength in our Catch of the Day product line. In food service, the breadth of our portfolio helped us navigate softer consumer demand, gain market share, and successfully implement price during the quarter, despite category challenges. Consumers remain price sensitive and are trading down in the face of inflationary pressures that are impacting many species, especially cod and haddock. We saw growth in our shrimp, salmon, and pollock offerings, key areas of focus for us with room for further development. Against this backdrop, we continue to support operators with value-oriented products that keep seafood on the menu amidst inflation-driven price increases, as well as value-added distributor label solutions that help offer better pricing and help operators drive traffic. By channel, our overall performance was again supported by gains in casual dining and non-commercial channels, including long-term care. Turning to innovation, our fully cooked platform represents a key growth opportunity in our pipeline, and we're encouraged by our early commercial progress, with permanent listings at a major U.S. convenience customer performing well and expanding to additional locations. In April, we introduced the platform to Canadian food service and secured initial listings with multiple distributors. Our focus is now on converting that committed distribution and a strong sales pipeline into meaningful volume. Building a new platform of this scale will take time, and we're applying the insights from our U.S. rollout to accelerate its development in Canada. While we expect the operating environment to remain challenged in the back half of the year, the diversity of our portfolio and the strength of our team give me confidence in our ability to execute and build on the progress that we're seeing. With that, I'll hand the call back to Paul for his concluding remarks.

Thanks, Anthony. This was a quarter with a lot of moving parts, but when you look through the noise, the message is clear. Our business remains resilient, and we are taking the necessary steps to return to the level of profitability we have proven our business can deliver. We deliver top and bottom-line growth, supported by advancements across the strategic initiatives we have underway on price, promotion, cost management, and operational efficiencies. While we still have work to do, particularly as tariffs continue and higher raw material and other input costs persist, we are encouraged by the traction we are seeing and remain focused on optimizing the factors within our control. As we have said, we expect the benefits of these actions to become even more evident in the second half of the year, and the progress we have made in the second quarter gives me confidence in our ability to deliver year-over-year adjusted EBITDA growth independent of any tariff recoveries. As a market leader with a diversified portfolio, a resilient global supply chain, strong balance sheet, and a track record of navigating challenging market conditions, we are well positioned to drive improved performance in the short term and profitable growth over time. The fundamentals of our business are strong, and the long-term opportunity, driven by growing consumer demand for healthy, high-protein, convenient meal solutions, remains as compelling as ever. We are committed to capitalizing on that opportunity from a position of stability and strength. With that, we will open the line for questions.

[Operator Instructions] First, we will hear from Luke Hannan at Canaccord Genuity. Please go ahead.

Good morning, everyone. I wanted to start on the topic of tariffs. So specifically, you called out the refunds or the recoveries that you got in Q2 and then also what you've gotten in Q3 to date. And it was also mentioned in prepared remarks that you're almost undertaking an analysis to figure out what the refunds are, figure out what exactly is sort of the normalized earnings power going forward. We can't just take those refunds and add that to the EBITDA to get a sense of exactly what that is, which I do sort of understand in practice for a couple of reasons. One, you talked about the pricing increases, but also the new tariffs that are in place. And I think I'd like to start with that second piece first. So can you just frame up for us what the net tariff headwind, I guess, or just the gross tariff headwind will be for the balance of the year, and then also what to expect on a steady state basis going forward? I imagine it wouldn't be as much as what the IEEPA tariff recoveries would imply, but...

Maybe we'll just start there. Yes, sure. I think that's a good place to start. Luke, the reality is you're right. The IEEPA tariffs were at higher rates than what we're currently facing in the business today. We transitioned from those higher IEEPA tariffs to a short period of basically a 10% tariff on just about everyone, to now a situation where on most countries that we import seafood from into the U.S., we would have either a 10% tariff or a 12.5% tariff depending on the country, with a few actually still remaining at 0. So we will still have tariffs that we have to pay. We feel good about where we are in terms of having to price for those tariffs. Like before, we haven't been able to fully price for them, and we've got to continue to manage our business well and try to offset rising raw material costs and inflation in other areas. But it's a better environment as we look forward on tariffs than what it's been in the past, because the reality, in particular with the IEEPA tariffs, is they came fast. They were significant. And we certainly weren't able to pass on all of it in the form of pricing.

On that last piece there, Paul, typically what we've seen from CPG companies is anytime that there is a price that's implemented during the quarter, pricing that's passed through, it tends to be a volumetric pullback from the consumer before settling out longer term. Did you see any of that as a functional result of the price increases? Did you see any pullback in volumes during the quarter? Because on a reported basis, obviously it looks fine, but I'm just wondering if there's anything going on underneath that.

Yes, I think as we said in our remarks, the resiliency in the volume has been better than we expected. And some of that is the reality on the species where prices had to go up the most, cod and haddock being a great example. Supply is also a challenge. So in a scarce market, I think you don't have the elasticity or as much of the elasticity that you might have otherwise had. We feel good about how volume has held up. As you know, in the first quarter, part of that was supported by us in terms of promotional activity. As we mentioned in the second quarter, I think we're still seeing some positive benefit associated with some of that volume staying even when not on promotion. So we feel good overall about where we are on balancing that need to protect margin and having a price in order to do that, while also continuing to support growth in the category overall. We'd love to do it in an environment where we didn't have tariffs or where raw material increases weren't as significant as they've been. But we're managing to do it even in that environment, we believe.

Okay, thanks. For my last question, and then I'll pass the line, I just want to make sure I understand the moving parts when it comes to refunds, as well specifically when it comes to your net leverage target. So you reiterated that you should finish the year just under 3x net leverage, but if I understand it correctly and if I've done the math correctly, if we take the expected tariff proceeds that you'll get from Q3 and beyond that should actually show up in an adjusted EBITDA as well purely because of the matching principle, and so it makes sense why you wouldn't adjust that out, but the number that I get is actually closer to 2.5x rather than just under 3x when we account for that. So is there anything I guess that we should be thinking about as far as incremental investments in the back half of the year that would get you closer to just under 3x versus 2.5x?

No, Luke, your math is exactly right. You know, we're all outside of the tariff impact. We're also seeing improved leverage ratio because of just how we're operating the business. But obviously, the impact of the IEEPA tariffs, both in adjusted EBITDA as well as the cash received, will get us to approximately, I think, to where the numbers are that you've listed.

Okay. I'll pass the line. Thanks.

The next question will be from Michael Glen at Raymond James. Please go ahead.

So maybe just some follow-ons there. So the accounting, just to be, as we look into Q3, the accounting for the $27.9 million will be identical to how we saw the accounting take place this quarter. Just want to make sure I'm thinking about that right.

Yes, exactly. It'll be in cost of sales.

Okay. And then are you able to indicate what the blended average rate was you were paying under the IEEPA tariffs?

Yes. Oh, God, that would be hard to do. If you look at the blended average rate now, Michael, of somewhere between 10 and 12.5, I think under IEEPA tariffs, it would have been in the high teens for sure, because there were some countries that were, you know, north of 20, and there were a lot of countries that were in those high teens, and there were a few countries that were 10. So, that's an order of magnitude. I certainly don't have any, you know, more specific analysis to help you with that.

No, that's fine. I was just trying to gauge how to think about that a little bit. Kimberly, you touched on the inventory build in Q2. I, at least from my side, it was unexpected to see that size of an inventory build take place right now. Can you maybe give a little bit of insight into that?

Yes, absolutely. I'd say a third of it is actually related to the higher inflation that we're seeing in the [ crustacean ] species. And then we're also doing opportunistic buying both just to secure volume as well as just getting ahead of some of the upcoming inflationary impacts that we're expected to see in some of our key species as well.

Okay. And then maybe one for Anthony. On the product introductions that you're talking about in retail, are the introductions you're making at retail, are they additive to floor space or are they replacing other products? And then maybe to follow on that, maybe speak to overall grocery trends towards square footage to seafood right now. Thanks.

Yes, hi, Michael. Yes, I think the answer is we are helping the category gain space. When you think about a line extension as we would consider it on something like Guinness, that wouldn't be incremental to a shelf. It's incremental to us, but probably not for the category overall, versus something like the skillet meals launch that we just introduced where it's absolutely incremental to seafood. There are placements happening in the frozen meal section, which is incremental to seafood, as well as some of them happening within seafood overall. When you think about the club channel, which is where we've had the most success, that's completely incremental because if you think about going into a Costco and you know you see a pallet space or a space in the freezer door, that would be expanded distribution also. So within grocery, I think we're seeing nice tailwinds as consumers are shifting somewhat given the inflationary environment away from eating out and into at home. So we're seeing the category volume hold up even in spite of the inflationary pressures while the introduction of the innovation that we have both on the premium side with the success of Sea Cuisine and on the value side in Sea Cuisine with the launch of our value packs as well as what we're doing within club and private label. We continue to help the category stay propped up in an inflationary environment.

Next question will be from George Doumet at Ventum Financial. Please go ahead.

Yes, hi, good morning, guys. Even after accounting for the tariff recoveries and the inventory loss, it feels that gross margins are down materially year-over-year. Do we need to take more pricing to kind of get a better margin profile in the second half? As we go into the second half of the year to prove that margin will be helpful.

Yes, I think there's a couple of things, George. You're right, you've identified the tariff recovery piece and the insurance piece, but also remember that while we had a tariff recovery, we also had tariff costs in the quarter that we incurred that the refunds relate to. So I think you got to factor that in to the analysis. And then you're right, there is some margin compression associated with mix. Certainly, Kimberly, in her remarks, spoke about where some of our growth was coming from. And if you think about USDA or industrial volume as an example, then that's going to be at some lower margins on average. And then the other thing you have to factor in is just frankly the math of significant inflation, right? When you deliver the same gross margin dollar or EBITDA dollars on a significantly inflated sales number, even when you pass on the dollars, it results in some margin compression. But I think you're also right. The reality is we still have some more work to do on pricing and promotion. I thought we made quite a bit of progress in the second quarter, but more to come there. And the operational improvements, particularly in our supply chain that we have available to us. We started to see those kick in in the second quarter, but there's still more opportunity there that will be supportive of margin expansion as well.

Yes, on that topic of operational improvements, should we expect that to be more gradual, like come in on the next few quarters into next year, or would you expect a bit of a step change in kind of the back half?

No, I think you're right. I think it's more gradual. It's squeezing the benefit out of better operational execution of plants, one of the more significant opportunities. So I would see that as growing through Q3 and Q4 into the first quarter of next year.

One quick one, if I may. Kimberly, you mentioned kind of upcoming inflation. I'm just wondering about your outlook for inflation for the rest of the year, if you expect perhaps some white groundfish prices to come off a little bit and in that context just I'm just wondering also if you think of this environment, if it'd be easier to hold onto price at all. Thanks.