Premium Brands stock is a buy, Desjardins says
Desjardins Capital Markets analyst Chris Li maintained a Buy rating and $98.00 target on Premium Brands Holdings (Premium Brands Holdings Stock Quote, Chart, News, Analysts, Financials TSX:PBH) after the company reported second-quarter results that were largely in line with expectations.
Premium Brands posted Q2 adjusted EBITDA of $177-million and earnings per share of $1.33. That was slightly ahead of Desjardins’ forecast of $172-million and in line with the consensus for $174-million in EBITDA and $1.27 in EPS. Management reiterated its 2025 guidance, targeting revenue of $7.2–7.4-billion and adjusted EBITDA of $680–700-million.
As reported by the Globe and Mail, Li said solid growth in the U.S. helped offset temporary raw material cost pressures during the quarter.
“Key highlights include continuing strong top-line growth from US protein and bakery, partially offset by temporary softness in sandwich (lapping tough comps from a new product launch),” Li said. “Canada benefited from some stabilization of consumer behaviour in both the retail and foodservice channels. Profitability was impacted by raw material cost pressures (mainly beef and chicken), with a ~C$15m negative impact to EBITDA, and overhead associated with new production capacity.”
Li said Premium Brands expects raw material cost pressures to ease in the second half of the year. The company is relying on recent price increases, some softening in raw material costs, cost-reduction initiatives, and improved manufacturing utilization to support margins. Total debt to EBITDA declined to 4.2x in Q2 from 4.6x in Q1, helped by a US$166 million sale-leaseback tied to its Tennessee sandwich plant and higher adjusted EBITDA, partly offset by an increase in inventory for third-quarter product launches.
“For the rest of the year, management expects leverage to continue to improve, driven by EBITDA growth and other initiatives, including inventory reduction,” he said. “Management expects FCF to increase meaningfully next year, driven by lower capex as it nears completion of major investments in plant capacities over the past three years which support ~C$1.7b of incremental sales capacity vs 2024 sales levels.”
He said the company made no acquisitions during the quarter but “the pipeline remains full, with management expecting to complete several transactions this year while continuing to deleverage the balance sheet.”
-30-
Rod Weatherbie
Writer
Rod Weatherbie is a journalist based in Prince Edward Island. Since 2004, he has written extensively about the Canadian property and casualty insurance landscape. He was also a founder and contributing editor for a Toronto-based arts website and a PEI-based food magazine. His fiction and poetry have been featured in The Fiddlehead, The Antigonish Review, and Juniper.