TORONTO — SunOpta, Inc. reported progress in turning around its frozen fruit business, but second-quarter sales for frozen fruit and fruit ingredients still declined 3.3%.
The Toronto-based company lost $5.1 million in the quarter ended June 30 despite success in healthy beverages and snacks. SunOpta lost $2.4 million in the previous year’s second quarter. Second-quarter revenues of $319.3 million were down 5.1% from $336.5 million. Adjusted for changes in foreign exchange, commodity prices, and sales of flexible resealable pouch and nutrition bar products, a business that SunOpta has exited, revenues declined 0.6%.
“During the second quarter, we continued to make progress with the value creation plan, including additional conversions of our sales opportunity pipeline, strong performance in aseptic beverages and snacks and continued growth in organic ingredients,” said David J. Colo, president and chief executive officer of SunOpta, in an Aug. 8 earnings call. “While challenges remain in frozen fruit, results improved sequentially, and we made good progress implementing our frozen food operational improvement plan.”
SunOpta’s Consumer Products segment reported operating income of $4.8 million, which was up 2.1% from $4.7 million in the previous year’s second quarter. Revenues of $172.6 million in the segment were down 9% from $190.3 million in the previous year’s second quarter. The decline primarily reflected the decrease in sales of frozen fruit and fruit ingredients.
Gross margin in frozen fruit continued to trail the prior year, which reflected lower pricing and increased manufacturing costs driven by a reduced pack plan and excess costs associated with inventories, including transportation, storage and obsolescence, Mr. Colo said.
“We are making steady progress on our plan to turn around frozen fruit and are 90% through our pack plan for next year, which will substantially wrap up in the third quarter,” he said. “Recall that our plan is for a reduced pack plan this year in order to rebalance our inventory levels to our refined demand plan. This initiative is designed to improve matching up pricing to input costs, while ensuring optimal inventory levels.”
Recent commercial wins in frozen fruit included expanded distribution and additional stock-keeping units (s.k.u.s.) of frozen fruit into the mass and grocery channels, securing incremental frozen fruit offerings for the food service channel with shipments expected in the fourth quarter, and increased sales of co-manufactured fruit snacks expected to ship in the third quarter.
A growth of 1.6% in the healthy beverages platform partially offset the decline in frozen fruit and fruit ingredients.
“This growth was driven by strong performance in aseptic beverages, while premium juice sales were lower year-over-year as we rationalized unprofitable points of distribution,” Mr. Colo said. “Aseptic sales were up 6% despite still lapping one month of sales to a large private label account that ended at the end of April last year.”
SunOpta plans to expand aseptic processing and packaging capacity and capabilities at its beverage facility in Allentown, Pa. The expansion is expected to cost about $22 million and should come online in the middle of 2019.
In SunOpta’s Global Ingredients segment, operating income of $3 million was down 62% from $7.9 million in the previous year’s second quarter. Revenue of $146.7 million was up 0.4% from $146.1 million.
“We continue to see solid demand for internationally sourced organic ingredients, including sales growth in the U.S. and European markets, although sales growth in Europe moderated from the first quarter level,” Mr. Colo said. “Growth of internationally sourced organic ingredients continue to offset the anticipated reduction of sales in our North American grains business, which is still lapping sales related to specialty soy products that we exited last year.”
In the six months ended June 30, SunOpta companywide reported a loss of $11.5 million, which compared with a loss of $15.7 million in the same time of the previous year. Six-month revenues were $632 million, down 5% from $666.5 million.