Cott Reports Third Quarter 2019 Results

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(Unless stated otherwise, all third quarter 2019 comparisons are relative to the third quarter of 2018; all information is in U.S. dollars.)

TORONTO and TAMPA, FL, Nov. 7, 2019 /PRNewswire/ - Cott Corporation (NYSE:COT; TSX:BCB), a leading provider of home and office bottled water delivery services in North America and Europe and a leader in custom coffee roasting for the U.S. food service industry, today announced its results for the third quarter ended September 28, 2019.

"We are pleased with our top and bottom line performance during the quarter," commented Tom Harrington, Cott's Chief Executive Officer. "Both our Route Based Services and our Coffee, Tea and Extract Solutions segments delivered strong revenue and EBITDA growth during the quarter. We remain confident in our full year outlook for 2019, as well as our ability to deliver long-term shareholder value," continued Mr. Harrington.

THIRD QUARTER 2019 GLOBAL PERFORMANCE

• Revenue increased 1% to $616 million (increased 6% excluding the impact of foreign exchange, the divested Cott Beverages LLC business and the change in average cost of coffee) driven by organic growth within both the Route Based Services and the Coffee, Tea and Extract Solutions reporting segments, as well as the benefit of acquisitions, including Mountain Valley. Revenue growth by segment in the quarter is tabulated below:

 

• Gross profit increased 5% to $326 million (6% excluding the divested Cott Beverages LLC business). Gross margin as a percentage of revenue increased 190 basis points to 52.9% compared to 51.0%. Excluding Cott Beverages LLC, gross margin as a percentage of revenue increased 70 basis points to 52.9% compared to 52.2% driven primarily by improved operating leverage within our operations, offset in part by foreign exchange.
  
  
• Income tax expense was $9 million compared to $1 million due primarily to increased income incurred in taxable jurisdictions. Cash taxes paid during the quarter were $1 million.
  
  
• Reported net income and net income per diluted share were flat at $9 million and $0.06, respectively, as the growth in operating income was offset by increased tax accruals. Adjusted EBITDA was $96 million compared to $92 million driven by growth in revenue and the resulting operational leverage, offset in part by foreign exchange and increased year-over-year incentive accruals in the quarter.
  
  
• Net cash provided by operating activities of $82 million, less $36 million of capital expenditures, resulted in $46 million of free cash flow, or $50 million of adjusted free cash flow (adjusting for the items set forth on Exhibit 7), compared to adjusted free cash flow of $56 million in the prior year due in part to other cash inflows in the prior year.

THIRD QUARTER 2019 REPORTING SEGMENT PERFORMANCE  

Route Based Services

• Revenue increased 5% (6% excluding the impact of foreign exchange) to $472 million due to organic growth in Home & Office Delivery ("HOD Water") bottled water driven by both volume growth and pricing benefits as well as growth from acquisitions. A detailed breakdown is tabulated below.

 

• Gross profit increased 5% to $286 million, driven primarily by revenue growth. Gross profit as a percentage of revenue was up 20 basis points at 60.6%.
  
  
• SG&A expenses as a percentage of revenue decreased 80 basis points to 50.2% (see Exhibit 4). SG&A expenses increased to $237 million compared to $230 million due primarily to the addition of Mountain Valley as well as higher year-over-year incentive accruals in the quarter, offset in part by a foreign exchange benefit and lower amortization expense.
  
  
• Operating income increased 20% to $46 million compared to $39 million, while adjusted EBITDA increased 4% to $92 million compared to $89 million, as revenue growth and the corresponding operational leverage was offset in part by foreign exchange and higher year-over-year incentive accruals in the quarter.

Coffee, Tea and Extract Solutions  

• Revenue increased 4% (7% adjusting for the change in average cost of coffee) to $145 million driven primarily by 4% growth in coffee pounds sold and 19% volume growth in liquid coffee and extracts. A detailed breakdown is tabulated below.

 

• Gross profit was $40 million compared to $35 million and gross margin as a percentage of revenue increased to 27.4% compared to 25.2% driven primarily by leveraging the volume growth generated during the quarter.
  
  
• SG&A expenses were $37 million compared to $33 million driven primarily by higher selling and operating costs which supported the volume and revenue growth of the business segment.
  
  
• Operating income was $3 million compared to $5 million while adjusted EBITDA was up 17% at $10 million, driven by growth in revenue and the resulting operational leverage, offset in part by the higher selling and operating costs associated with driving volume growth.

2019 FULL YEAR REVENUE AND ADJUSTED FREE CASH FLOW

Cott continues to expect full year 2019 consolidated revenue of $2.4 billion and adjusted free cash flow of more than $150 million (when excluding acquisition, integration and other one-time cash costs).

THIRD QUARTER 2019 RESULTS CONFERENCE CALL

Cott Corporation will host a conference call today, November 7, 2019, at 10:00 a.m. ET, to discuss third quarter results, which can be accessed as follows:

North America: (888) 231-8191
International: (647) 427-7450
Conference ID: 6899766

A slide presentation and live audio webcast will be available through Cott's website at http://www.cott.com. The earnings conference call will be recorded and archived for playback on the investor relations section of the website for a period of two weeks following the event.

ABOUT COTT CORPORATION

Cott is a water, coffee, tea, extracts and filtration service company with a leading volume-based national presence in the North American and European home and office delivery industry for bottled water, and a leader in custom coffee roasting, iced tea blending, and extract solutions for the U.S. foodservice industry.  Our platform reaches over 2.5 million customers or delivery points across North America and Europe and is supported by strategically located sales and distribution facilities and fleets, as well as wholesalers and distributors.  This enables us to efficiently service residences, businesses, restaurant chains, hotels and motels, small and large retailers and healthcare facilities.

Non-GAAP Measures

To supplement its reporting of financial measures determined in accordance with GAAP, Cott utilizes certain non-GAAP financial measures.  Cott excludes from GAAP revenue the impact of foreign exchange, results of the divested Cott Beverages LLC business, and the change in average costs of coffee, as well as other items identified on the exhibits hereto, to separate the impact of these factors from Cott's results of operations.  Cott excludes from GAAP gross profit the results of the divested Cott Beverages LLC business to separate the impact of this divested business from Cott's results of operations.  Cott utilizes EBITDA and adjusted EBITDA on a global and segment basis to separate the impact of certain items from the underlying business.  Because Cott uses these adjusted financial results in the management of its business, management believes this supplemental information is useful to investors for their independent evaluation and understanding of Cott's underlying business performance and the performance of its management.  Additionally, Cott supplements its reporting of net cash provided by (used in) operating activities from continuing operations determined in accordance with GAAP by excluding additions to property, plant and equipment to present free cash flow, and by excluding acquisition and integration cash costs,  a working capital adjustment related to the Concentrate Supply Agreement with Refresco, and other cash inflows to present adjusted free cash flow, which management believes provides useful information to investors in assessing our performance, comparing our performance to the performance of our peer group and assessing our ability to service debt and finance strategic opportunities, which include investing in our business, making strategic acquisitions, paying dividends, repurchasing common shares and strengthening the balance sheet.  The non-GAAP financial measures described above are in addition to, and not meant to be considered superior to, or a substitute for, Cott's financial statements prepared in accordance with GAAP. In addition, the non-GAAP financial measures included in this earnings announcement reflect management's judgment of particular items, and may be different from, and therefore may not be comparable to, similarly titled measures reported by other companies.

Safe Harbor Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 conveying management's expectations as to the future based on plans, estimates and projections at the time Cott makes the statements. Forward-looking statements involve inherent risks and uncertainties and Cott cautions you that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statement. The forward-looking statements contained in this press release include, but are not limited to, statements related to the execution of our strategic priorities, future financial and operating trends and results (including Cott's outlook on 2019 adjusted revenue and adjusted free cash flow), potential uses for cash and related matters. The forward-looking statements are based on assumptions regarding management's current plans and estimates. Management believes these assumptions to be reasonable, but there is no assurance that they will prove to be accurate.

Factors that could cause actual results to differ materially from those described in this press release include, among others: our ability to compete successfully in the markets in which we operate; fluctuations in commodity prices and our ability to pass on increased costs to our customers or hedge against such rising costs and the impact of those increased prices on our volumes; our ability to manage our operations successfully; our ability to fully realize the potential benefit of acquisitions or other strategic opportunities that we pursue; potential liabilities associated with our recent divestitures; our ability to realize the revenue and cost synergies of our acquisitions due to integration difficulties and other challenges; our exposure to intangible asset risk; currency fluctuations that adversely affect the exchange between the U.S. dollar and the British pound sterling, the exchange between the Euro, the Canadian dollar and other currencies, and the exchange between the British pound sterling and the Euro; our ability to maintain favorable arrangements and relationships with our suppliers; our ability to meet our obligations under our debt agreements, and risks of further increases to our indebtedness; our ability to maintain compliance with the covenants and conditions under our debt agreements; fluctuations in interest rates, which could increase our borrowing costs; the incurrence of substantial indebtedness to finance our acquisitions; the impact on our financial results from uncertainty in the financial markets and other adverse changes in general economic conditions; any disruption to production at our manufacturing facilities; our ability to maintain access to our water sources; our ability to protect our intellectual property; compliance with product health and safety standards; liability for injury or illness caused by the consumption of contaminated products; liability and damage to our reputation as a result of litigation or legal proceedings; changes in the legal and regulatory environment in which we operate; the seasonal nature of our business and the effect of adverse weather conditions;  the impact of national, regional and global events, including those of a political, economic, business and competitive nature; our ability to recruit, retain and integrate new management; our ability to renew our collective bargaining agreements on satisfactory terms; disruptions in our information systems; our ability to securely maintain our customers' confidential or credit card information, or other private data relating to our employees or our company; our ability to maintain our quarterly dividend; our ability to adequately address the challenges and risks associated with our international operations and address difficulties in complying with laws and regulations including the U.S. Foreign Corrupt Practices Act and the U.K. Bribery Act of 2010; increased tax liabilities in the various jurisdictions in which we operate; the impact of the 2017 Tax Cuts and Jobs Act on our tax obligations and effective tax rate; and credit rating changes.

The foregoing list of factors is not exhaustive. Readers are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date hereof. Readers are urged to carefully review and consider the various disclosures, including but not limited to risk factors contained in Cott's Annual Report on Form 10-K and its quarterly reports on Form 10-Q, as well as other filings with the securities commissions. Cott does not undertake to update or revise any of these statements in light of new information or future events, except as expressly required by applicable law. 

Website: www.cott.com

 

SOURCE Cott Corporation

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