Premium Brands Holdings Corporation (PBH) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, August 6, 2026. And I would now like to turn the conference over to George Paleologou, CEO and President of Premium Brands; and Will Kalutycz, CFO of Premium Brands. Mr. Paleologou, please go ahead.

Thank you, Ina. Good morning, and welcome, everyone, to our 2026 Second Quarter Conference Call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to our prerecorded remarks posted on our website this morning. We will now take your questions. Ina?

[Operator Instructions] And your first question comes from the line of Martin Landry from Stifel.

My first question is on your Specialty Foods segment. For the Q2, I think your organic volume growth was 6%. When I look at it, it seems to be the lowest it's been in the last 4 quarters. And you about an easy comparable period last year to comp. So I was wondering if you can discuss a little bit the environment out there? The U.S. economy seems to be doing well. Are your clients hesitating on some projects? Are you losing bids to competitors? Just a little bit of color on the competitive dynamic would be great.

Yes. An absolutely no on both those points, Martin. Our U.S. sales space is doing well. You saw we generated 25% organic volume growth on our protein initiatives in the U.S. There is no sign of slowdown there. It just continues to be strong. The headwind in the quarter was similar to last quarter with the loss of a major LTO with the customer. That will -- we had expected to come back in the second half of this year, but it will be now early 2027. The only new factor in the equation on the Specialty Food side is really in Canada. We did see some slower sales in Eastern Canada. We're expecting it was weather-related. But outside of that, everything is green.

Okay. And can you discuss a little bit, how you see the rest of the year shape up? Is this -- is the growth [ to not be ] more back-end loaded towards Q4 or spread evenly in Q3 and Q4 using your revised guidance?

Yes, pretty evenly over the quarters. Some of that may be a little bit weighted to the Q4 because as part of our revenue guidance revisions, there were really three key factors as we talked about in our MD&A and press release. One of the factors, really, there's two elements, and that's on the -- on our Specialty Foods initiatives in the U.S. As I mentioned in -- on your last question, the LTO deferral, obviously, that's going to impact us as that moves to 2027. But the factor that maybe impacts your current question a little bit is -- the other thing that hit our guidance or resulting in a revised guidance was on the retail side of our U.S. business. We had two major launches happening in the back half of the year. One, it launched, but the customer went with a phased-in approach instead of a all-out bang approach with all their stores across the U.S. So that is going. Initial indication is going very well, so we have no hesitation there. But corresponding as it's a phased event phased launch, that will push a little bit of the growth more in Q4 versus Q3 from that perspective. And then we also have a second large launch that we thought was going to occur early in -- late in Q2, early Q3. It is now scheduled for October, and it's with a large customer in the U.S. It's a 1,500 store launch. So we're pretty excited by that. And like I said, that's going to happen in Q4. So those factors will push a little bit of the growth into Q4 versus Q3, but we're still expecting Q3 to be a solid growth quarter.

Okay. And then maybe last question. I noticed that Stampede Culinary had a pretty solid quarter in relation to their Q1 sales. The Q2 sales were pretty strong. And is this just a seasonality? Or did they win new contracts?

Well, they're growing very nicely. They're winning new contracts. That's part of it, but certainly, seasonality is an element as well. Overall, Stampede is on plan today with their sales.

And your next question comes from the line of George Doumet from Ventum Financial.

Just a quick follow-up. It looks like you guys you dropped the adjusted EBITDA guide by $35 million at the midpoint. I just want -- I just wanted to know how much of that was truly timing related? You did call out some stuff earlier. So how much of that $35 million is truly timing related? How much of that would be, for example, the processing capacity closure and maybe some weakness in the consumer? Just -- if you could just break that down for us would be helpful.

George, it is 100% timing related. If you look at the midpoint of the drop in our revenue guidance, it was about $200 million. Our EBITDA drop was at $30 million, as you mentioned. So that's a contribution margin of 15%, which is low. And it's low because relative to the sales, because half of our sales are, as I mentioned earlier, the delayed initiatives in QSR and retail in the U.S., good margin business. The other half was related to the shutdown of the facility in Ontario. We're exiting a bunch of products that had very low with any contribution margin. And then foodservice weakness in Canada, which again is a lower contribution margin business. So when you take that mix, you come up with that 15%, and it's all sales related. None of our assumptions have changed on -- we haven't changed any of our assumptions on the commodity markets. Operations are going well. Our start-up costs are on plan. The -- in terms of commodity, while we haven't reflected it in our outlook, we did mention it in our MD&A that we are starting to see possible cracks in the beef market. So there could be some upside in our outlook from that if that continues to develop, like early signs seem to be indicating.

I would add to that, George, that the general commodity input environment has been very inflationary in the last 5 or 6 years. And we're seeing evidence that prices are either flattening or declining. So that's not incorporated into our projections. So that applies not to just beef, but some of the other species as well.

That's helpful. And just a follow-up for me on this weakness in Canada and the foodservice segment. Does that at all impact the monetization process that's going on right now from perhaps a values perspective and from a timing perspective?

No. You know what -- and we say weakness, the reality is our Distribution business generated about 5% to 6% organic growth. It was mostly price driven, though. Their volumes are relatively flat. 5% to 6% in that industry, if you look at [ Cisco's ] international results, we're in line with them. Like the business is doing well. It's just customers aren't spending as much in that channel and volumes are down a little bit. But it continues to be profitable. And the long-term outlook and perspective of that business has not changed 1 iota.

Having said that, George, we also benefit in other channels when the foodservice channel is flat or is not as strong, right, because people still have to eat.

And again, George, I just want to emphasize, your question on the valuation of that business. We did revise our guidance, but nothing fundamental that's changed in our business. We're talking certain initiatives moved out a quarter, maybe a little softness in foodservice, but the fundamentals have just not changed at all.

The question here, guys, is that we have capacity, and we have demand for that capacity. Ultimately, as we've said before, we are dealing with very large customers in the U.S. and very, very large launches. So ultimately, when they make a decision to defer a launch, we still have to keep that capacity for them. We have no issue filling some or all of that capacity with other customers. But ultimately, obviously, we want to execute for these large customers, right? So that's kind of where we're at today.

And your next question comes from the line of Luke Hannan from Canaccord Genuity.

Look, I want to follow up on that last point that you made there. So clearly, the demand is still there and you want to keep capacity available for that. But I imagine your customers wouldn't be making these decisions. Or maybe the question is why exactly -- what's your view almost driving them to shift out the timing for some of these LTOs? Because obviously, there's big implications you guys and trying to build your business going forward. So I'm just curious, maybe what's the rationale that they would have given you from choosing to launch at a certain time versus another?

Well, you have to break the initiative -- between the two retail initiatives we're talking about. And that's just a question of scheduling timing, there's no kind of specific thing you can point out is that it just -- we had to make some assumptions in the original numbers, and they've turned out to be a little bit off in terms of the timing. That's all that is. On the LTO side, it's interesting. It's with a major QSR customer, and they're going through some internal changes. They're addressing some other issues in their business. And this just got kind of pushed down the list for the time being.

Again, I think Will mentioned it before, but we had a similar situation with a very large club customer last year with the launch of a great quality, very successful stick product with them. I think we've talked about that in the past. And ultimately, that launch was delayed for about a year. Again, for their own reasons. But we -- it was a very significant launch. And we kept that capacity available for them, and we executed extremely well. Right? So these things happen, and this is the nature of the size of the customers and the size of the opportunity.

Got it. And then for my follow-up here, and then I'll pass the line. George, in your prepared remarks this morning, you had touched on the fact that the pipeline, the sales pipeline is robust as it's ever been in the history of the company. Can you frame up for us, how much of that is demand from existing customers, customers that you already work with or from new customers? Is that demand for many products that are expected to stay there over time? Is it weighted more towards LTOs? Can you just frame up for us what that pipeline looks like?

Yes. So Luke, we've made a lot of comments in the past. We've bought a lot of capacity. We've built a lot of capacity, and we've always been confident that we would fill it. And we have been filling it, as you could see from our numbers. So really, why are we so confident, right? Again, we do follow the CPG space, and a lot of the companies are facing volume declines. And most of them are, and we're growing. So why is that? And why are we so confident? And effectively, what we've done is we've done and executed a lot of great innovation. We've launched a bunch of products with customers in the U.S. A lot of these customers are growing, they're doing well. And then, of course, because those products are doing well, other potential customers join us and call -- sorry, I had to answer the -- they contact us. And then they say, could we list your products, right? So as we've added capacity, we've rolled out these products to more customers in the retail space, in the club space and in other channels, right? So that's really how we've done it, right? We provide the demand with 1 customer, it does really well. It gets noticed, and then we have opportunities to sell products to other customers. If you visit the U.S. today, we've got products in all states, and we continue to add SKUs to -- with all the major retailers.

And your next question comes from the line of Ty Collin from CIBC.

So just to start, maybe a question around margins. So gross margin stepped down a little more than expected in Q2. SG&A margin was also a little bit lower. Is that mostly due to just mixing in higher Stampede sales? Or were there any other margin factors that kind of accelerated or decelerated sequentially in the quarter that you want to call out?

No. It was 100% Stampede. And I think in the MD&A, we give a normalized gross margin number. You can see, Stampede is quite a bit lower than our average in our Specialty Foods segment. So it was 100% due to that.

Okay. Great. And then just back to the comments you made on the commodity picture starting to get a little bit more favorable and focusing on beef in particular. When would you start to see the benefits of lower beef prices or lower commodity prices starting to hit the income statement? And do you think that you would need to kind of give any of that back to customers one way or another, given the focus on affordability?

Yes. No. In terms of timing, yes, if we started seeing that happen significantly, it's probably later part of Q3 at the earliest just because of inventories and hedging programs and those sorts of things. In terms of giving it back to customers, it depends on how far it falls. At some point, we're always very transparent with our customers. And similar with when prices are going up, that's -- that transparency helps us put through price increases. And as they come down, we'll pass those on. But similar to the delays on the way up, there will be delays on the way down. So we will capture some extra margin over above normal margin levels for a short period. But ultimately, in the long term, we would pass it on.

But also, Ty, if the retail price points come down, we will benefit from more volume, right?

Right. Okay. Got it.

And your next question comes from the line of Chris Li from Desjardins Capital Markets.

I wanted to just maybe pivot to the free cash flow, the positive free cash flow that you guys generated in Q2. I think in your prepared remarks, Will, you mentioned that you expect the trend to accelerate in the back half. I wanted just to confirm that, that is the case? And what are some of the key drivers?

Yes, absolutely. So clearly, working capital was a major drag in Q1. That was somewhat neutral in Q2. It should become more positive in Q3, so that will be a driver. The continued growth in our EBITDA will be a driver. The tailing down of our CapEx will be a driver, and the tailing down of our restructuring will be a driver. In short [ form ], there's a lot of factors contributing to that, Chris, as we come to the end of this major CapEx cycle we've been in. And we're just at the tail end of that. And each quarter that goes by, you're going to see the positive results of that flowing through. But certainly, EBITDA will be a big part of that.

Okay. That's helpful. Maybe one more for you, Will. Just on the Specialty Foods EBITDA margin, it improved by around 40 basis points in the first half of the year. Do you expect that rate of improvement to continue in the second half?

It should show some continuous improvement, driven by the -- we're starting to lap all the overhead increases with our different facilities as we continue to grow. So yes, you should see some continued improvement. In terms of the trend line and the numbers, yes, it's probably going to be similar to Q1, Q2, 30, 40 basis points.

Okay. That's helpful. And then, George, I just want to ask you about just the -- what you're seeing in terms of the M&A environment. I noticed you guys removed the slide you usually have on acquisition opportunities. I'm not sure if that's intentional? Just wanted to get your sense of how this environment right now for acquisitions?

Yes, Chris. Again, we're always happy to disclose what's going on. We're always in a number of discussions, as you know. We are sort of the acquirer of choice for a lot of companies. A lot of companies come to us, and we're in a lot of discussions. And as we've gotten bigger and we're getting more attention, when we disclosed that we're in an advanced stage of discussions with different companies, there's a lot of speculation going on, and it impacts our NDA and confidentiality agreement. So that's one of the reasons why we pulled it. We'll decide whether we will reestablish it down the road. But that's the main reason. Ultimately, we are acquisitive. We're always looking to partner with good companies. And again, that's the reason we pulled it.

And your next question comes from the line of Stephen MacLeod from BMO Capital Markets.

Just wanted to follow up on a couple of things. Just given the revised top line guidance, just wondering if you could give some color around your expected organic volume growth rate for the back half of the year and sort of how that would shape out between Q3 and Q4?

Yes. So in terms of breaking it down between the two segments, PFD, very conservative, more -- probably similar -- we're going to be around 1%, 2% growth most likely. Specialty Foods, I would say it's going to be similar to Q2, carried through for the balance of the year. With a little stronger in Q4 and a little weaker than Q3, as we discussed earlier.

Okay. Perfect. And then just -- I just wanted to come back to the pipeline. I know you've talked a lot about it being -- continuing to be very strong for new launches and LTOs and things like that. I guess, would there be a way to sort of frame how much of that is positioned? Or how much of that would represent your kind of $2 billion sales pipeline that you've created through or sales capacity you've created through your capital investment program?

LTOs as a percentage of that $2 billion, that's what you're asking, Steve?

Yes. I'm just trying to get a sense of whether that the pipeline is identified -- yes.

It's probably -- again, we've never actually done that calculation, but just thinking through the initiatives in the pipeline, it's probably 1/4 of it at best.

So that would mean that the remaining 75% is other opportunities that are to come in the future?