Lassonde's Q2 Margin Gains Contrast With Softer Sales and One-Time Impairment

Lassonde Industries (TSE:LAS.A) reported second-quarter sales of C$738 million, down from C$742 million a year earlier, as weaker private-label volumes in Canada and planned portfolio cuts offset growth in other areas. The bigger story was on the margin side: gross profit rose 16% to C$228 million from C$196 million, aided by lower orange concentrate costs, pricing actions and a more favorable product mix.

Profit attributable to shareholders came in at C$27 million, or C$3.95 per share, versus C$34 million, or C$5.03 per share, in the same quarter last year. The decline reflected a C$30 million impairment charge, including C$27 million tied to a customer-relationship intangible in U.S. specialty foods. On an adjusted basis, profit attributable to shareholders increased 36% to C$51 million, or C$7.45 per share.

The quarter underscores a broader shift underway at Lassonde: management is stepping away from lower-margin volume, using procurement timing and pricing to protect profitability, and putting more emphasis on branded and specialty products. The planned share buyback reinforces that shareholder-return tilt, while the New Jersey facility and rapid backfilling of lost specialty-food volume point to longer-term growth priorities.

Chief Executive Officer Vince Timpano said the quarter played out against a backdrop of macroeconomic uncertainty and pressure on consumer demand, and against a strong prior-year period that got a lift from "Buy Canadian" sentiment. He said the company's diversified portfolio kept performing well even as measured category volumes declined.

Chief Financial Officer Francis Trudeau said lower commodity costs were the largest driver of gross profit improvement, followed by selling-price adjustments and sales mix. He said Lassonde has taken an "aggressive position on hedging" for orange concentrate, with most hedge positions ending around the end of 2026. Still, he cautioned that current margins may be above historical norms and remain exposed to swings in freight, transportation, fuel and PET resin costs.

Selling, general and administrative expenses rose to C$157 million from C$141 million, largely because of higher transportation costs tied to fuel surcharges, increased performance-related compensation and some administrative costs. The impairment in U.S. specialty foods followed contractual changes with a customer that are expected to lower production volumes and related profit. Trudeau emphasized the charge was specific to that customer relationship and did not signal any broader deterioration in the business's goodwill.

Adjusted EBITDA, excluding items affecting comparability, rose 19% to C$101 million, or 13.7% of sales, from C$84 million, or 11.4% of sales, a year earlier.

In U.S. beverages, Lassonde said it increased volumes and gained market share even as the category declined. The company began recovering distribution that had been temporarily held back by earlier supply constraints, though private-label demand remained soft. Its Apple & Eve brand benefited from distribution gains with national retailers in the Midwest and West, especially in single-serve and juice-box formats.

Construction of the company's new New Jersey facility remains on schedule, with equipment installation underway. Lassonde expects to begin moving production over from the current facility in late 2026 and finish that transition in the first half of 2027.

In Canada, Lassonde said it kept its category leadership despite mid-single-digit category-volume declines and a difficult year-over-year comparison. National brands outperformed the category, helped by shelf-stable products and single-serve formats. Private-label volumes were softer because of one large customer's go-to-market strategy and Lassonde's decision to discontinue selected product lines.

Trudeau said discontinued lower-margin or non-strategic Canadian beverage lines represented about C$8 million in quarterly sales. He also cited several factors behind the revised sales outlook: product-line discontinuations, customer-specific market changes, the fading benefit of last year's Buy Canadian demand and broader category softness.

Foodservice volumes across North America remained constrained by weaker away-from-home dining demand. Still, Lassonde expanded private-label beverage offerings through U.S. broadline distributors and began supplying customized beverages to a Canadian quick-service restaurant chain through its bag-in-box aseptic platform. Timpano said initial results from that relationship exceeded expectations, and volumes are expected to ramp in the second half.

In specialty foods, Canadian and U.S. operations both posted gains, led by premium and super-premium pasta sauces. Summer Garden increased volumes for third-party pasta-sauce brands, and G Hughes remained the top better-for-you barbecue sauce brand, according to the company. Lassonde completed a brand refresh for G Hughes, transitioned packaging at the manufacturing level, expanded a previously announced Canadian mass-merchant distribution deal and secured distribution with a national food retailer.

On the U.S. specialty food contract change, Timpano said Lassonde has already secured replacement volume equal to more than half of the expected 2027 shortfall through multi-year agreements, and is in talks to cover another 25%. Trudeau said the replacement volume is spread across multiple customers and that the company is confident it can backfill the lost business quickly. The volume impact is expected in the third and fourth quarters of 2026, while pricing effects have already shown up this year.

Excluding foreign exchange and major external disruptions, Lassonde now expects 2026 sales to be slightly below 2025 levels. Management said it will prioritize profitable sales over volume for its own sake, given uncertain consumer spending, input costs, logistics conditions and tariff developments. The company expects orange concentrate costs, and to a lesser extent apple concentrate costs, to be lower than last year based on spot prices, but it expects Middle East-related conditions to create inflationary pressure on transportation and PET resin costs.

Operating cash flow totaled C$78 million in the quarter, compared with a C$3 million use of cash in the prior year. Net debt fell to C$451 million from C$474 million at the end of the first quarter, and the net-debt-to-adjusted-EBITDA ratio improved to 1.22-to-1.

Lassonde also said it plans to launch a normal course issuer bid, subject to Toronto Stock Exchange approval, to repurchase up to 200,000 Class A subordinate voting shares over 12 months. Timpano said the move reflects management's view that the shares are undervalued and its confidence in the company's long-term prospects.

Lassonde Industries develops, manufactures and markets ready-to-drink fruit and vegetable juices and drinks, produces store-brand shelf-stable juices in North America and is a major producer of cranberry sauces. The company operates as a single reportable segment covering juices, frozen concentrates, specialty foods and imported wines.