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Edited Transcript of PBH.TO earnings conference call or presentation 13-Aug-19 5:30pm GMT

Q2 2019 Premium Brands Holdings Corp Earnings Call

RICHMOND Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Premium Brands Holdings Corp earnings conference call or presentation Tuesday, August 13, 2019 at 5:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* George Paleologou

Premium Brands Holdings Corporation - President, CEO & Director

* William Dion Kalutycz

Premium Brands Holdings Corporation - CFO

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Conference Call Participants

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* David Francis Newman

Desjardins Securities Inc., Research Division - Analyst

* Derek J. Lessard

TD Securities Equity Research - Research Analyst

* Dimitry Khmelnitsky

Veritas Investment Research Corporation - VP, Head of Accounting & Special Situations, and Head of Training

* George Doumet

Scotiabank Global Banking and Markets, Research Division - Analyst

* John Zamparo

CIBC Capital Markets, Research Division - Associate

* Neil Linsdell

Industrial Alliance Securities Inc., Research Division - Head of Research and Equity Research Analyst of Consumer Products & Special Situations

* Sabahat Khan

RBC Capital Markets, LLC, Research Division - Analyst

* Stephen MacLeod

BMO Capital Markets Equity Research - Analyst

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Presentation

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Operator [1]

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Good afternoon. My name is Chris, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Premium Brands Holdings Corp. Second Quarter 2019 Earnings Conference Call. With us today is George Paleologou, CEO; and Will Kalutycz, CFO. (Operator Instructions) Thank you.

George Paleologou, you may begin the conference.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [2]

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Thanks, Chris, and good morning, everyone. I would like to welcome you to our 2019 second quarter conference call. Our results for the quarter are indicative of the progress we're making in becoming North America's leading Specialty Foods company.

Despite certain industry challenges and other transitory factors, we continued to execute our values-driven agenda and to position our business for long-term value creation.

To this end, we're especially pleased with the progress we're making in positioning our U.S.-based platforms for strong, sustainable growth, for product innovation and new channel penetration in several high-growth specialty food categories.

It is no surprise to us that even though we're in the early innings of our game plan, we're already seeing solid results, with our U.S. sales growing by 50% to $645 million on a year-to-date basis.

I will now be turning the presentation over to our CFO, Will Kalutycz, for an overview of our financial results for the quarter after which I will make a few brief comments. This will then be followed by the Q&A segment of the presentation. Will?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [3]

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Thanks, George, and good morning, everyone.

Before discussing our results for the quarter, I would like to caution you that to the extent we make forward-looking statements during our presentation, our forecast and assumptions are subject to change, and actual results may vary.

Please see our 2018 MD&A, which is filed on the SEDAR website, www.sedar.com for details on some of the factors that could cause our actual results to differ from our current expectations.

Turning to our results. Our revenue for the quarter grew by $183.9 million or 24.1% to a record $945.4 million.

Acquisitions accounted for $152.1 million of the increase, organic volume growth for $23.7 million, currency translation for $6.3 million and net selling price inflation for $1.8 million.

Our organic growth for the quarter was impacted by two major challenges. The most significant of these was unusually poor spring weather across our major markets in Ontario and Québec. This resulted in decreased consumer demand for a variety of barbecue and outdoor activity-related products, including burgers, fresh protein skewers and marinated meats. The other major sales challenge we faced related to extreme volatility in certain commodity protein markets caused by a severe outbreak of African swine fever in China.

Our sales were negatively impacted by this as many of our protein businesses reduced their product featuring and promotional activities in response to the cost uncertainties associated with these volatilities. These two challenges were partially offset by the benefits of a late Easter holiday, which pushed sales that would normally occur in the first quarter of the year into the second quarter.

Normalizing for the impact of these 3 factors and not taking into account any growth opportunities lost due to the weather and ASF-related challenges, our organic volume growth rate for the quarter is 4.6% which is within our long-term targeted range of 4% to 6%.

Our adjusted EBITDA for the quarter increased by $14.1 million or 19.0% to $88.3 million. This was driven primarily by our sales growth, adoption of the new IFRS 16 accounting standard and efficiency improvements in a number of our production facilities. These factors were partially offset by higher commodity protein costs in general and commodity pork costs in particular that were the result of the ASF outbreak in China.

All of our impact -- all of our businesses impacted by the ASF issue raise for selling prices adjust for the higher cost. However, this had only a limited benefit in the quarter as most of the increases took effect towards the end of June or in July. Normalizing for the estimated impacts of ASF, both on our sales and margins as well as for the poor spring weather and the adoption of IFRS 16, our second quarter adjusted EBITDA is $90.2 million, and the corresponding adjusted EBITDA margin is 9.5%.

Looking forward, we are maintaining our sales and adjusted EBITDA guidance for 2019 based on, one, the impact of the challenges we faced during the quarter being within the tolerances built into our current guidance ranges; two, our bullish outlook for the back half of the year, given the significant progress we are making on a variety of our meat snack, seafood, sandwich, deli meats and cooked protein growth initiatives; and three, being in the late stages of negotiations for the acquisitions of several businesses that correspondingly are expected to be completed in the coming months.

Excluding the potential impact of acquisitions, we would have maintained the bottom end of our guidance but brought down the top end to reflect the challenges of the second quarter.

Our adjusted earnings per share for the quarter decreased by $0.14 per share to $1.10 per share primarily due to 3 causes: the dilutive effects of a recent private placement as the associated new capital has not yet been invested; the ASF and weather challenges of the second quarter; and finally, the adoption of the new IFRS 16 accounting standard.

In terms of our financing activities, during the quarter, we raised net proceeds of $250.9 million from the private placement of 3.4 million shares.

Correspondingly, our financial position at the end of the quarter was very strong.

Our senior debt-to-adjusted EBITDA ratio was 2.0:1, which was below our long-term targeted range of 2.5:1 to 3.0:1, while our total debt to adjusted EBITDA was 3.3:1, which was also below our long-term targeted range of 4.0:1 to 4.5:1.

Furthermore, we had close to $400 million of unutilized capacity on our credit facilities.

During the quarter, we invested approximately $30 million -- $39 million in businesses and growth-related capital projects. This consisted of approximately $19 million in project capital expenditures, $17.6 million for the purchase of minority interest in one of our subsidiaries and $2.6 million for the acquisition of a value-added lobster processor.

Turning to dividends. During the quarter, we declared a dividend of $19.7 million or $0.525 per share, which on an annualized basis works out to $2.10 per share.

Our free cash flow for the trailing 4 quarters was a record $173.1 million as compared to dividends of $69.5 million resulting in a payout ratio of 40.2%.

I will now turn the presentation back to George.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [4]

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Thanks, Will. We're making great progress in leveraging the PB Ecosystem to accelerate growth in key strategic markets and product segments.

In seafood, through a combination of acquisitions and organic initiatives, including the construction of new capacity in Toronto and Montréal, we have created a strategic and unique national distribution platform that can service Retail and Foodservice customers coast-to-coast.

Also in seafood, our U.S.-based Ready Seafood business is close to completing a new lobster processing plant in Saco, Maine, that will be one of the most efficient and state-of-the-art facilities of its kind in the world.

Ready has already put into place the procurement strategies needed to support this operation and is perfectly positioned to cater to growing Retail and Foodservice demand for value-added lobster products.

In meat snacks, we're very pleased with progress we made by Oberto's business in positioning itself for substantial long-term growth in the U.S. The extent of their success was made very clear in June when they celebrated the highest sales month in their 100-year history. With Oberto's planning for several major new product launches in the second half of 2019, we expect the momentum to continue to build and to be celebrating many more sales records with them in the future.

In general terms, our single greatest growth opportunity is the expansion of our very successful specialty food platforms in the U.S. In this regard, I have already mentioned the momentum building in our seafood and meat snack initiatives.

Other areas where we have a robust pipeline of opportunities include our sandwich platform, which is leveraging its success in the Foodservice channel to develop new growth opportunities in the grocery and seafood channels and our deli meats initiatives.

I'm particularly pleased with our recent launch of the line of authentic Italian deli meats in the U.S. as it is a great example of how our companies can leverage one another's strengths to bring about category innovation and to develop new growth opportunities.

In terms of the ASF crisis in Asia, we're following the situation very closely and are continually reassessing how things may unfold, which is becoming increasingly difficult with the ongoing escalation of trade disputes and other geopolitical tensions.

Not surprisingly, this is creating transitory challenges for some of our businesses. However, we remain confident in the long-term outlook of our company, given our dynamic and entrepreneurial culture as well as the diversification we have built into our business model.

Turning to acquisitions, I am pleased to report that we're in a record number of discussions and expect to be announcing several transactions in the near future.

Our unique strategy of partnering with talented and successful entrepreneurs in the Specialty Foods space then helping them to grow their businesses, both through organic initiatives and acquisitions, is not only the core to our success but is also resulting in an increasing number of specialty food business owners looking to partner with us.

As a final note, I would like to comment on recent trends in ESG reporting. We have been a food industry pioneer in producing high-quality authentic foods with cleaner ingredients and never taking shortcuts or seeking to maximize short-term profits at the expense of long-term shareholder value creation.

10 years ago, we developed our mission statement in which we prioritized quality, community, sustainability and social responsibility. To this end, we have been putting our money where our mouth is and have been investing in supporting businesses that focus on products with clean and sustainably produced ingredients, local production footprints and an emphasis on giving back to their local communities.

Over the coming months, we will be formalizing and reporting on our ESG initiatives, however, the reality is that the principles of the ESG reporting have long been a core part of our culture and our DNA.

Correspondingly, we fully support and applaud the recent developments in this area and look forward to sharing with you our progress and leadership on ESG issues.

I will now turn the presentation over to Chris for the Q&A part of our presentation. Chris?

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Questions and Answers

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Operator [1]

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(Operator Instructions) And your first question comes from George Doumet with Scotiabank.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [2]

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So well, just to clarify the 2019 guidance, the bottom end. So that $331 million is noninclusive of any upcoming acquisitions?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [3]

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Correct, George.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [4]

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And just wondering, is there any wiggle room in that, maybe in that number to account for more ASF-related kind of pressure on the inputs or maybe as kind of George pointed to earlier, any maybe more trade-related headwinds?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [5]

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We're fairly neutral at the bottom end of our guidance on ASF. Our thinking is with the -- to the extent there is some further challenges that come our way towards the back half of the year or at the end of the back half of the year, the acquisitions impact would more than offset that. So that's our thinking around it right now. But the reality is when you look at what's happening out there, there seems to be because of all the global trade disputes some stability in the market and that combined with some inventory buys and other initiatives we take in, including the selling price increases, we're reasonably comfortable ASF shouldn't be an impact in the back half of the year.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [6]

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Okay. Great. On that topic, maybe you called out any the kind of the magnitude of price increases. I'm just wondering, I know it's early days, but I'm just wondering if you've seen any negative volume response at all? And are you seeing any maybe substitutions -- any evidence of substitution at all?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [7]

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So in general terms, the price increases for most of our businesses were in the 5% to 10% range. So there's some variability around that. But at this point, no, we haven't seen any volume impacts.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [8]

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I would add to that, George, that as Will mentioned in his comments, we saw less feature activity with certain pork-based products mainly because of decisions made by your customers. So there was a little bit of an impact because of that.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [9]

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That's helpful. And just one last one if I may. Will, on the working capital, I think we're up $66 million year-to-date, that's a big amount historically. Is there any color you can maybe share on that and how you kind of expect it to trend in the second half of the year?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [10]

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So a chunk of that is acquisitions related, but a good portion of it also is, we've been -- going into Q3, a number of our businesses have been building inventory in anticipation of new product launches and just preparing for the busy season. So you've got, in a way, sort of a deferred revenue number built into that inventory as well as, as I mentioned earlier, we had been building some -- taking some long inventory positions in pork based on some buying opportunities in the market. So a portion of that certainly we expect to unwind in the third quarter.

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Operator [11]

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Our next question comes from Derek Lessard with TD Securities.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [12]

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On your guidance, you did say that Q2 sales and EBITDA were below internal expectations. So I guess in a perfect world, just wondering where those expectations were and were the lower-than-expected results tied to anything organic or executional or was it all ASF and weather-related?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [13]

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Yes. It was all ASF and weather-related, Derek. If you normalize for that, we would have exceeded our expectation. We would actually have exceeded the tolerance range we'd set in our guidance for the quarter. So we -- that's why we focus so much on those. In terms of missing our expectations, again, it was within the tolerance as we built into our guidance but below our specific expectation for the quarter.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [14]

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Okay. I guess a follow-up to that is, did you guys think that you could hit, I guess, the top end of your guidance range without acquisitions?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [15]

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In terms of the quarter's performance, like I say, if it hadn't been for the weather and ASF impacts, we certainly would have been on track for the higher end of the range.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [16]

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Okay. That's helpful. And maybe just how should we think about your gross margin in the Specialty Foods business going forward, given the price increases and the big incremental contributions you're expecting to get from organic growth from the new initiatives?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [17]

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Yes. So we should see some continued expansion -- some normalization in the third quarter as ASF gets mitigated with the price increases. So you should see some expansion there. We don't provide any specific numbers for gross margin guidance. But certainly, when you go through the third quarter, you can see what the impact of ASF was. We tried to isolate that in the quarter.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [18]

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Okay. And maybe just one my final one for me. Just wondering if you could quantify to some degree the more imminent deals that you're close to getting done. I'm just trying to tie that back to your guidance range that you provided.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [19]

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Again, Derek, I would say that we have a record number of transactions in the pipeline. We backed up a little bit in terms of the pipeline because of a large equity -- private equity issue that we did -- private placement that we did. And we don't -- there is tuck-in and bolt-on deals there, and there is some other larger transactions in the pipeline. It's tough to give you guidance on when things will be done when, but I would basically confirm that this is probably the busiest we've ever been.

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Operator [20]

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Your next question is from Sabahat Khan with RBC Capital Markets.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [21]

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Just on some of the Specialty Foods initiatives that you have in the market. Can you maybe talk about the feedback or the response that you've seen, both to sandwiches programs and Oberto's one, more so on the lines of the impact that ASF had on demand. What are the chances some of that demand comes back in the later half of the year? Or is there potential that because of the pricing you may not get those listings and so forth?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [22]

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Again, I think you asked the question in regards to Oberto. Oberto is not a user of pork. The majority of their products are beef based. And I think I mentioned in my prepared remarks that we're extremely pleased with the momentum that we're seeing. June, as I mentioned in my remarks, was by far the best month ever in the history -- in the 100-year history, and this is before the majority of the launches in the pipeline -- product launches in the pipeline. So we're extremely pleased with the momentum we're seeing with our meat snacks platform in the U.S., and we think we are going to have a much stronger flattish half of the year, again, just based on the amount of new launches in the pipeline. With regards to sandwiches, again, as we mentioned in the prepared remarks, we are looking for a stronger second half of the year based on the progress we're making in terms of penetrating new channel -- new channels in particular Retail and (inaudible) in the U.S.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [23]

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Saba, I just want to clarify to the -- in terms of the impact of ASF on our sales, it wasn't because of price increases impacting volume. It was a conscious decision to not participate in certain promotional activities because the businesses just weren't certain what their cost structure was going to be. And the last thing they want to go out there is produce or commit to a special and then have the costs go up and their margins being impacted negatively. So we haven't released -- in terms of just the general ongoing organic growth, we haven't seen any negative impacts there. It's -- it was just very specific isolated reasons why the sales were impacted around the promotions.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [24]

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Okay. That's helpful. And I guess your initial comments are on potentially moving the top end of the guidance range down, it's because those promotional opportunities passed?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [25]

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Well, it's a combination of that and the weather. Right? The weather was sort of a onetime hit. That was about a $20 million hit across all of our businesses in the quarter, the weather. So it was a pretty substantial number.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [26]

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So the weather would be the bigger impact in that situation.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [27]

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On the top line.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [28]

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On the top end I'll say.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [29]

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Okay. Great. And then I guess just on the sandwiches side, your Phoenix facility, can you maybe talk about do you have sort of line of visibility to when that plant will be fully utilized? And I'm just trying to think about the margin improvement trajectory in that business. And when you think you'll be at sort of optimal capacity there and do you have line of sight to demand for that capacity as it comes online?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [30]

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Well, we are very, very pleased with the Phoenix -- the progress we've made in the Phoenix facility. We've moved some of our larger skills into that facility from some of the other plants. And again, we're very pleased how we are doing operationally. We are -- we have a good handle on the labor as well anyway. So we're -- as part of the operational improvements that Will mentioned in his prepared remarks are coming out of some of the progress we've made in Phoenix. The -- in terms of the margins overall with respect to our sandwich platform in the U.S., we've got a few plants now, especially the ones we acquired more recently that are running well below capacity. And as we build volume through these plants, then you will see tangible improvements in their margins in particular. So that's where you're going to see progress in terms of margins and overall profitability.

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Sabahat Khan, RBC Capital Markets, LLC, Research Division - Analyst [31]

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Okay. Great. And then just last one for me. I guess the comment around labor, just directionally speaking, what are you seeing on the labor availability front and as well as freight cost front as we look to the back half of the year or early next year? There's obviously been some challenges in the broader employment situation in the U.S. Are you seeing any signs of that getting better as you head into the back half of the year?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [32]

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Yes. This has been one area where I think we've talked about in the past is definitely a very tight labor market in the U.S. in general. We are managing it much better. It did catch us by surprise, I would say, about a year, 1.5 years ago when we were looking at our business. But again, we're doing a lot better, as I mentioned in previous -- on previous calls, we've invested in automation, we've invested in enhanced employee welfare and compensation programs. We've moved production around, especially in our sandwich facilities. We've moved production in -- for markets that were very tight with respect to labor to markets where there is a lot more labor availability. So again, we're quite pleased with the progress we've made in this area, and it's part of the reason why we're optimistic with our product launches, and obviously, the projected growth of our business, particularly in the U.S.

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Operator [33]

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Your next question is from John Zamparo with CIBC.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [34]

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Just a couple of follow-ups at first. The -- it looks like a $10.5 million or so EBITDA impact combined between weather and ASF. Will, based on the comments you made on top line weather being a $20 million impact, does that mean the EBITDA impact is about equal between those 2 factors?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [35]

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Yes. So it's a little higher from the ASF. To get specific, the EBITDA impact we estimate from ASF to be about $6 million of that and a little over $4 million from weather.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [36]

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Okay. That's helpful. And a follow-up on the working capital question. I mean what do you expect is a reasonable annual investment in working capital as you approach that 2023 guidance? And do you think adding pork or buying it on opportunistic terms, will that have a material impact on the back half of the year?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [37]

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In terms of the optimistic level, that's a little difficult right now because they're just -- there are so many dynamics changing through -- both through acquisitional impacts as well as growth initiatives. I know, for instance, our Ready Seafood business is starting to significantly ramp up for the start of their Saco facility, new lobster processing facility in the back half of the year. So I really can't give you a normalized level, but in terms of the pull-down in inventory from the ASF impact, yes, that should help. To the extent we do see some spikes, we're not expecting it, but if we do, that should help normalize for that and provide a little more certainty around our margins.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [38]

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Okay. And then on ASF, what kind of cost inflation have you seen subsequent to the quarter end on either pork or other key commodities? And how does that compare to the price increases you've enacted?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [39]

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I would say, John, that it has been an extremely volatile environment. I think that you've probably heard about the ban on Canadian pork to China. So that caused some volatility at the time. This relates to some of the opportunistic buys that Will referred to as well. But it is a global commodity and eventually things get back to normal. It's very tough to say because it depends on each commodity. I would say the environment today is stable, as Will mentioned, but we are seeing inconsistencies. So for example, the Chinese right now are favoring the European market, and Europe is a little more expensive right now than traditionally. There's a disconnect between the European market and the North American market. And some of our raw materials do come from Europe. So it's a dynamic environment. We're managing it. As Will mentioned, we've made some opportunistic buys, and we don't think that anything drastic is going to happen for the remainder of the year. We're thinking more a stable environment and slightly inflationary.

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John Zamparo, CIBC Capital Markets, Research Division - Associate [40]

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Okay. That's helpful. And just one last one for me. George, in your shareholder letter from last year, you raised the prospect of potentially doing international M&A. Just wondering if that's still on the table in the near term or is that something you're looking at in future years.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [41]

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No. That's definitely the case and beginning 2 weeks ago, we have a permanent managing director based in Europe, based in Munich in Germany. And we are looking at a number of possible M&A opportunities in Europe.

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Operator [42]

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Your next question is from David Newman with Desjardins.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [43]

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Just on your guidance for the second half, I'm just trying to get the quantum of the potential lift here in organic growth on the back of some of the initiatives that you have. So I think as previously, you flagged it, it was about $135 million previously won, of which $100 million will be back end loaded, and I think you were also kicking the tires of 7-Eleven, Couche-Tard and Grocery Mass on some of the meat snacks, cooked proteins, et cetera. So any sense of what the lift could be, either in a dollar sense or from an organic volume growth? What should we be thinking about modeling in the back end of this year?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [44]

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Well, we've given our guidance, David, and it's based on a range of assumptions. So unless I get into very specific assumptions, I can't give you a specific number.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [45]

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Just broad range. It's obviously going to be better than the first half, so just kind of broad brush ranges. I think you sort of said $8 million to $10 million in the past in Specialty Foods would be what you would annualize at, that would be kind of in the ballpark? Or what do you guys think?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [46]

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Yes. It's certainly -- your first statement is absolutely right. It's going to be much stronger in the second half than the first half. $8 million to $10 million is probably a fair number. I need to go back and revisit that but...

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [47]

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On a run rate, though, right?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [48]

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On a run-rate basis, yes.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [49]

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Okay. And then on the pricing that you guys put in for the pork side, obviously, pork is only, I think it's mid-teens percent of your overall mix. Are you taking any price increases on the other commodities? And what should be our assumption on terms of price -- pricing into the second half?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [50]

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I would say, David, the rest of the protein complex is behaving more normal, I would say, within the normal parameters. So no changes to our strategies there. Generally, a bit of an inflationary environment, I would say, and our pricing models are generally dynamic, very dynamic. A lot of our business is cost-plus, especially our distribution business that sells a lot of beef in this case, for example, or a lot of lamb. But nothing out of the ordinary, I would say.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [51]

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And in the 5 to 10 that you guys put in, would that be kind of the upper limit? In other words, beyond that you kind of get into maybe perhaps demand destruction at all on the pork side?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [52]

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I wouldn't say that, David. A lot of times we've been surprised. You have to remember that we are at a very, very high end of the spectrum, a broad spectrum and consumers buy our products, not because they are the cheapest but because they like them, because they enjoy them. We always discuss this internally. Will they pay an extra $1 or $2 to buy a products? And I can tell you that historically, we've always been surprised. The fact of the matter is that our consumer is very quality-driven, brand-driven consumer. They go to the store and they want to buy our products. And that's part of the reason why we're confident with the velocity of our products given our pricing.

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David Francis Newman, Desjardins Securities Inc., Research Division - Analyst [53]

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Okay. And last one for me, guys. Just on the Foodservice channel, I mean, obviously, you've had to step down on price points away from the white cloth towards limited service or quick service. Is there something strategically that you can do there at all? I mean, obviously, I think Western Canada is in pretty tough, I think, right now in terms of the higher-end restaurants. Is there anything that you guys would do strategically to kind of tackle those lower price points?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [54]

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Yes. Again, I think that's a good comment, David. And again, in my prepared remarks, I mentioned about the fact that we've built effectively a national distribution platform, which gives us some competitive advantages and synergies in terms of servicing all segments of the markets, even segments that we haven't traditionally gone after. Having said that, I think we've mentioned in the past as well that we are leveraging those assets and that infrastructure to go after what we call specialty retail, and specialty retail has been a major focus for our distribution business. You know that business over the last 4 or 5 years has grown to be over $100 million. So yes, we're -- there is a slowdown in Western Canada with respect to white tablecloth, but we are getting some traction in specialty retail, some very nice traction. Unfortunately, they oil patch has had its issues, and we lost some traction in North Florida, which disguises the progress we've made with specialty retail.

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Operator [55]

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Your next question is from Stephen MacLeod with BMO Capital Markets.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [56]

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I just wanted to circle around just on some of the new listings that you highlighted in the press release and also previously. I believe some of those would have set in late Q3 if I'm not mistaken. Can you just talk a little bit about how those new programs have performed, I guess, across protein and sandwiches specifically?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [57]

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To the extent that we've launched some new products, Stephen, and particularly steaks, premium type of steaks and some innovative type of jerkies, like turkey tenders and steak strips, we are extremely pleased with the traction we're getting so far.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [58]

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And how about on the sandwich side?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [59]

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Again, most of the -- sandwiches has had a good quarter, but most of its new growth initiatives will be in the third quarter, third and fourth quarter.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [60]

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Okay. So would they be setting sort of now or later into Q3?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [61]

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Yes. So they are -- some of the retail initiatives, I think, we've talked about in the past have launched. They're out in the stores. It's really too early to make a call at this point, Steve. Certainly, initial orders, initial consumer feedback and buyer feedback is all very positive. But outside of that, there's not much more we can say. It's just too early.

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [62]

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Okay. Yes, I see. And just to be clear, would you sort expect sort of $90 million to $100 million falling in the back half of the year?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [63]

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Where did you get that number, Steve?

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Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [64]

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Of the $135 million, I thought previously you had said you would expect $90 million to $100 million falling in this year, maybe that's an annualized number exiting...

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [65]

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Yes. I'll have go through the math with you. I don't have it off the top of my head. Yes, so that $130 million from the beginning of the year, that was a annualized number. So yes, so a portion of that may happen into 2020. But I can go with -- through with that you off-line.

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George Doumet, Scotiabank Global Banking and Markets, Research Division - Analyst [66]

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Okay. And then I guess just finally, George, in terms of -- you mentioned you now have an MD sitting in Germany. Can you talk a little bit about what the focus would look like in potentially international markets or would it be very similar to what you currently do in North America? I assume it will, but I'm just curious if it would be mostly focused on protein, sandwiches, seafood?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [67]

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Yes. I would say initially, it would be protein-related and effectively, we're looking at companies there that have products that we feel that could get traction in North America. In other words, the idea for us is to leverage our marketing and distribution infrastructure in North America to grow their sales. So it will be situations where we like their products. We believe that their products meet the attributes that we would like, and we think that by leveraging our existing sales, marketing and distribution infrastructure, we would be able to get traction. We are currently distributing and selling a lot of these type of products in North America, and it is conceivable that we would make investments that would enable them to grow capacity or speed up their innovation, et cetera, et cetera. So that's generally the primary focus.

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Operator [68]

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Your next question is from Neil Linsdell with Industrial Alliance Securities.

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Neil Linsdell, Industrial Alliance Securities Inc., Research Division - Head of Research and Equity Research Analyst of Consumer Products & Special Situations [69]

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Just following up again on the ASF. When is the pork price increases? Is there any reason to look at trying to position yourselves as substitute? So is it really just like offering substitutes or is it really just a matter of managing the price increases in the supply chain on the pork?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [70]

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Can you clarify that, Neil?

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Neil Linsdell, Industrial Alliance Securities Inc., Research Division - Head of Research and Equity Research Analyst of Consumer Products & Special Situations [71]

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Well, I'm thinking if you do get a lot of price increases on the pork side, would you have customers that will start looking for more beef or other products where you can better position yourself and start looking at how you can offer those to be more competitive or as people start looking for substitutes if the price of the pork is getting too high?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [72]

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Again, Neil, you have to look at the space that we're in, in terms of Premium Brands, right? And again, there is no question that at the low end of the spectrum, there would be an impact on demand if you raise prices. Premium Brands does not go after the consumer that goes to the store and wants to buy the cheapest, the cheapest product available. That's not our core consumer. So we feel comfortable that -- and we've had these situations in the past. In 2014 and 2015, we had skyrocketing pork prices because of the PD virus. And we raised prices, and at that time, we didn't see an impact on our -- on demand. So again, ASF may be inflationary to pricing, we understand that, but you have to remember that generally speaking, our products are very premium and are not sold based on price. They're based on their quality, their differentiation and their different attributes.

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Neil Linsdell, Industrial Alliance Securities Inc., Research Division - Head of Research and Equity Research Analyst of Consumer Products & Special Situations [73]

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Okay. That's good. And the acquisitions that you're choosing about being in the latter stages of negotiation right now. Is there anything in there that would change or mitigate the seasonality that you have now? Or are you looking at acquisitions which will help smooth out some of your seasonal patterns?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [74]

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Yes. That is a good question, and I think that as we've mentioned in the past, we've taken some seasonality out of our business by virtue of the expansion -- the aggressive expansion we've had in the U.S. over the last 2 or 3 years. So to the extent that we make more acquisitions in the U.S., that will take out some seasonality out of our business. It's been part of our long-term strategy, and U.S.-based type of acquisitions will do that.

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [75]

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But the specific transactions, Neil, you are not going to see much of that benefit in the near term. They are more sort of typical seasonal businesses like the remaining in our current portfolio.

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Neil Linsdell, Industrial Alliance Securities Inc., Research Division - Head of Research and Equity Research Analyst of Consumer Products & Special Situations [76]

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Okay. And since you're talking about international or outside North America, can you say if any of these acquisitions in the latter stages of negotiation are outside North America?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [77]

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Again, it's not inconceivable that we would do a transaction in Europe, let's say, over the next 6 months.

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Operator [78]

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Your next question is from Dimitry Khmelnitsky with Veritas.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - VP, Head of Accounting & Special Situations, and Head of Training [79]

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How much revenue from the new initiatives was recognized in Q2?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [80]

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From the new initiatives? Clarify that for me, Dimitry.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - VP, Head of Accounting & Special Situations, and Head of Training [81]

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Of course, yes. So the $90 million to $100 million worth of the new initiatives in sandwiches and meat snacks, including meat steaks that are supposed to be recognized during the year related to the $135 million annualized amount, if you will. So in Q1, you mentioned there was $6 million worth of these new initiatives recognized in terms of the revenue. I was wondering what was the amount for Q2?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [82]

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Yes. I don't have that specific amount. In general terms, though, it's certainly more than what was in Q1. But again, thinking of some of the specific product launches in that group of products, particularly in the sandwich group, a lot of that was, as I mentioned earlier, stuff that was kicking in, in June and July. So it would be certainly far more weighted to the back half of the year than the front half.

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Dimitry Khmelnitsky, Veritas Investment Research Corporation - VP, Head of Accounting & Special Situations, and Head of Training [83]

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Right. Okay. And just to go over the guidance again. By how much will you have reduced 2019 revenue guidance absent in your acquisitions? You did mention $20 million in revenue. Are they related to weather? Is there anything else beyond the $20 million related?

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William Dion Kalutycz, Premium Brands Holdings Corporation - CFO [84]

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There's another $4 million to $5 million from the ASF impacts. So those are the big impacts on the revenue side. And then we talked about the EBITDA impact. So that $10 million to $11 million range from those issues.

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Operator [85]

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Our last question is from Derek Lessard with TD Securities.

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Derek J. Lessard, TD Securities Equity Research - Research Analyst [86]

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Just one last question for me actually. I'm just wondering, again, on the new product listings coming in the second half if there is any potential snags that we should be looking out for? Or has everything been greenlighted at this point?

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [87]

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Yes. Again, everything has been greenlighted. We have a lot on the go. I would say the groups, particularly in the U.S., are extremely busy trying to connect the dots in terms of production, in terms of operations, in terms of distribution, et cetera, et cetera. But again, we're very optimistic, and we're looking forward to a very busy latter half of the year.

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Operator [88]

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This concludes the Q&A period. And I'll now turn it back to George Paleologou for any closing remarks.

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George Paleologou, Premium Brands Holdings Corporation - President, CEO & Director [89]

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Yes. I'd just like to thank everybody for attending.

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Operator [90]

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This concludes today's conference call. You may now disconnect.