Supremex Inc (SUMXF) Q2 2024 Earnings Call Highlights: Navigating Revenue Challenges with ...

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Wed, Oct 9, 2024, 3:44 PM 4 min read

Total Revenue: $69.2 million, down 3.3% from the same period last year.
Envelope Revenue: $49.5 million, up slightly from $49.2 million last year, with an 8.4% volume increase and a 7.4% decrease in average selling price.
Packaging and Specialty Products Revenue: $19.9 million, down from $22.4 million last year.
Adjusted EBITDA: $9 million or 13.0% of sales, compared to $9.6 million or 13.3% of sales a year ago.
Envelope Segment Adjusted EBITDA: $8 million or 16.2% of sales, down from $9.7 million or 19.6% of sales last year.
Packaging and Specialty Products Segment Adjusted EBITDA: $2.7 million or 13.7% of sales, up from $1.7 million or 7.4% of sales last year.
Net Earnings: $2 million or $0.08 per share, compared to $2.1 million or $0.08 per share last year.
Adjusted Net Earnings: $2.1 million or $0.08 per share, compared to $2.3 million or $0.09 per share a year ago.
Net Cash Flow from Operating Activities: $10.2 million, up from $10 million last year.
Free Cash Flow: $10.9 million, up from $9.8 million a year ago.
Net Debt: $50.4 million as of June 30, 2024, down from $53.7 million three months earlier.
Net Debt to Adjusted EBITDA Ratio: 1.3x, stable compared to the end of the previous quarter.
Dividend Declared: $0.04 per common share, payable on September 20.

Warning! GuruFocus has detected 3 Warning Sign with SUMXF.

Release Date: August 08, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Supremex Inc (SUMXF) reported a high single-digit increase in envelope volume, with a notable 25% increase in US volume compared to Q2 2023.
The company successfully completed the integration of Forest Envelope into its Chicago operations within 90 days, achieving planned timelines and budgets.
Supremex Inc (SUMXF) generated strong free cash flow, enabling debt reduction, share buybacks, and the declaration of a dividend.
Packaging business profitability improved significantly, with EBITDA margins reaching nearly 14%, a level not seen in several quarters.
The company has more than $69 million in available liquidity, providing flexibility for future investments and operations.

Negative Points

Total revenues decreased by 3.3% compared to the same period last year, with envelope revenue slightly up but offset by a decrease in average selling price.
Packaging and specialty products revenue declined due to lower demand from certain sectors, reflecting economic conditions.
Adjusted EBITDA decreased to $9 million or 13.0% of sales, down from $9.6 million or 13.3% of sales a year ago.
Net earnings slightly decreased to $2 million or $0.08 per share, compared to $2.1 million or $0.08 per share last year.
The company faces ongoing challenges in the packaging segment, with volumes remaining soft in key verticals, impacting absorption and efficiency.

Q & A Highlights

Q: Can you elaborate on the Niagara optimization and its implications for the business? A: Stewart Emerson, President and CEO, explained that the Niagara optimization is a strategic move to reduce costs and improve efficiency. The decision was influenced by a potential rent increase and the need to consolidate operations. By concentrating production in fewer facilities, Supremex aims to maintain production levels while significantly reducing fixed costs by over $2 million annually. This move is expected to enhance operational efficiency and capacity in the US market.

Q: How are envelope volumes performing, particularly in the US market? A: Stewart Emerson noted that while demand hasn't fully stabilized to 2021-2022 levels, it is gradually improving. The US market has shown strong volume growth, with Supremex capturing significant business, leading to a positive outlook for the second half of the year. The company is experiencing less pricing pressure and expects continued growth in envelope volumes.

Q: What is the current demand situation in the packaging segment, especially in discretionary spend areas like health and beauty? A: Stewart Emerson indicated that demand in discretionary segments remains soft, with no significant changes observed. However, Supremex has been successful in gaining market share through new customer acquisitions and business wins, which are contributing to improved EBITDA margins in the packaging segment.

Q: Can you provide more details on the financial performance and cost management strategies? A: Francois Bolduc, CFO, reported that total revenues were slightly down, but the company achieved a strong free cash flow of $10.9 million. Supremex is focused on cost optimization, particularly in the envelope segment, where initiatives are expected to deliver significant cost savings. The company maintains a strong balance sheet with a net debt to adjusted EBITDA ratio of 1.3x, providing flexibility for future investments.

Q: What are the strategic priorities for Supremex moving forward? A: Stewart Emerson emphasized that Supremex is well-positioned to benefit from market recovery. The company is focused on expanding its presence in the US envelope market and improving operational efficiencies in both the envelope and packaging segments. Supremex aims to leverage its strong balance sheet to support acquisitions and investments while maximizing cash flow generation.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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