Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

SunOpta (NASDAQ:STKL)

Q3 2012 Earnings Call

November 07, 2012 10:00 am ET

Executives

Steven R. Bromley - Chief Executive Officer and Director

Robert McKeracher - Chief Financial Officer, Principal Accounting Officer and Vice President

Hendrik Jacobs - President and Chief Operating Officer

Analysts

Alvin C. Concepcion - Citigroup Inc, Research Division

Peter Prattas - Fraser Mackenzie Limited, Research Division

Christine Healy - Scotiabank Global Banking and Markets, Research Division

Robert Gibson - Octagon Capital Corporation, Research Division

Scott Van Winkle - Canaccord Genuity, Research Division

Ron Reuven

Keith Howlett - Desjardins Securities Inc., Research Division

Operator

Good morning, and welcome to SunOpta Inc.'s Third Quarter 2012 Earnings Conference Call. By now everyone should have had access to the third quarter 2012 earnings release. If you have not received the release, it is available on the Investor Relations portion of SunOpta's website at www.sunopta.com. This call is being webcast, and a transcription will be available on the company's website.

Before we begin, we would like to remind everyone that the prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and, therefore, undue reliance should not be placed upon them. We refer all of the risk factors contained in SunOpta's press release issued yesterday, the company's annual report on Form 10-K for fiscal 2011, quarterly report on Form 10-Q for the third quarter of 2012 and other filings with the Securities and Exchange Commission for more detailed discussions of the factors that could cause actual results to differ materially from those projection and any forward-looking statements.

Finally, we would also like to remind listeners that the company may refer to certain non-GAAP financial measures during the teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued yesterday.

And now, I would like to turn the call over to SunOpta's CEO, Steve Bromley. You may begin.

Steven R. Bromley

Good morning, everyone, and thank you for joining us today as we discuss results for the third quarter ended September 29, 2012. Before I get going, I apologize for my raspy voice today. I've been fighting a cold, but we'll try and make it through.

On the call with me today are Rik Jacobs, our President and Chief Operating Officer; Rob McKeracher, our Vice President and Chief Financial Officer; and John Ruelle, our Vice President and Chief Administrative Officer.

Today, I will provide you with a brief overview of our third quarter results. Rob will provide more detail on our financial results for the quarter, and Rik will provide an update on operational developments. Finally, I will provide a few closing remarks, and then we'll open up the call to questions.

Before I begin, I want to express our sincerest best wishes to all those who were affected last week by Hurricane Sandy. A number of our operations and employees were impacted by the storm, but we are happy to report that everyone is safe and sound and all operations are back online.

Now focusing on the third quarter. We are very pleased with our results which reflect higher revenues, significant improvement in operating margin and a 72% increase in both operating income and net earnings versus the prior year. In fact, our third quarter and year-to-date earnings are a record for the company.

We also realized very strong cash flow from operating activities during the quarter and year-to-date periods. Our year-to-date cash flow from operating activities is also a record for the company. As a result of these strong cash flows, the disposition of noncore assets and new financing agreements in both North America and Europe, our balance sheet is in the strongest position that it's been in some time, leaving us well-positioned for future growth.

We truly believe that healthy eating and healthy living are key long-term global trends and further believe that our integrated natural and organic foods platform is well-positioned to leverage opportunities in these growing global markets.

There are many factors driving the continued growth in demand for natural and organic foods, and this is really positive for us. Recently, Proposition 37, proposing mandatory labeling of GMO foods in California, garnered a lot of attention. We support the public's right to know what is in the foods they eat. And as such, we support the labeling of products containing genetically modified organisms. While the proposition did not pass this time around, there is clearly increasing awareness of the GMO issue, and we feel that this will be another positive contributor to our long-term growth.

As mentioned previously, our core strategies include: one, continually focusing on becoming a pure-play natural and organic foods company; two, aggressively growing our value-added packaged foods and ingredient portfolio; and three, leveraging our integrated platform. Our results for the quarter clearly reflect our progress towards achievement of these strategies.

Over the course of this year, we have continued to focus on our portfolio of natural and organic food offerings and, in doing so, disposed the Purity Life which was not aligned with our core strategy. We continue to assess options for other noncore -- nonfood assets and are working to maximize the value of these investments for eventual reinvestment in our global natural and organic foods platform.

We continue to invest in our value-added packaged foods and ingredients portfolio and production capabilities, leveraging our integrated capabilities to bring increased value to our customers and, in doing so, higher operating margins to our company.

Our results for the quarter include continued strong growth in these categories but also the impact of numerous investments that we are making to expand our capabilities. Rik will provide further details in a few minutes. But our results for the quarter include expenses related to executing on this strategy, including costs to commission our new pouch filling operation in Allentown, Pennsylvania, and expansion projects at our aseptic beverage operations in Modesto, California; Healthy Snacks operations in Carson City, Nevada and Omak Washington; and integrated juice processing operations in San Bernardino, California. On impact on cost in the quarter, all of these initiatives are focused on growing our value-added foods portfolio.

Earlier this year, we announced the realignment of our operating groups to improve efficiencies and our go-to market efforts, plus a 6% reduction in our salaried workforce. We are seeing the benefit of these initiatives and continue to work on numerous other activities intended to further leverage the platform we have in place.

In summary, we believe we reported a very good quarter for the company, with solid revenue growth and even better earnings growth supported by a strong and strengthening balance sheet. We have much more to do as we execute on our core strategies, but we are confident that we are headed in the right direction and are operating in markets offering excellent long-term growth potential.

With that, I'll now turn the call over to Rik and Rob who will provide further financial and operational details. Rob?

Robert McKeracher

Thanks, Steve, and good morning, everyone. I'll take the next few minutes to review our financial results for the third quarter ended September 29, 2012. Please note all figures discussed today are in U.S. dollars unless otherwise noted.

For the third quarter of 2012, we reported revenues of $279.3 million as compared to revenues of $257 million during the third quarter of 2011, a year-over-year increase of 8.7%. Excluding the impact of changes, including acquisitions, foreign exchange, commodity pricing and rationalized product lines, our consolidated base growth rate was approximately 6%. Third quarter revenue growth reflects continued momentum in our integrated packaged food product categories, as well as increased demand for organic grains within SunOpta Foods. Offsetting this growth was the effect of a number of product rationalizations in SunOpta Foods and volume decline in certain food ingredient categories.

Operating income for the third quarter of 2012 was $12.7 million or 4.5% of revenues versus $7.4 million or 2.9% of revenues in the prior year, a 72% increase compared to the third quarter of 2011. This increase was driven by improved operating income in SunOpta Foods. Continued growth in aseptically packaged beverages, improved sunflower margins, stronger organic grain and feedstock margins and improved results at our frozen food consumer products operation contributed to the increased profitability. It is worthy of mention that, overall, our consumer packaged food categories have experienced approximately 15% revenue growth year-to-date.

During the third quarter, we reported earnings of $5.8 million or $0.09 per diluted common share as compared to earnings of $3.4 million or $0.05 in the prior year. Included in earnings for the third quarter of 2012 was approximately $1.2 million in pretax acquisition and start-up costs, related primarily to the start up of our Allentown, Pennsylvania pouch filling facility and acquisition costs at Opta Minerals.

On a year-to-date basis, we recorded revenues of $821 million versus revenues of $777.5 million last year, a year-over-year increase of 5.6%. Year-to-date, we have realized earnings of $19.8 million or $0.30 per diluted common share as compared to $12.8 million or $0.19 per diluted common share last year, a year-over-year increase of 54% even though last year's results included a favorable onetime item of approximately $3.5 million. Year-to-date, we have realized EBITDA of $54.8 million as compared to $42.2 million last year, a year-over-year increase of 30%.

At September 29, 2012, our balance sheet reflected a current ratio of 1.51:1 and total debt to equity ratio 0.52:1. Total debt outstanding at the end of the third quarter is $165 million, an increase of $3 million compared to December 31, 2011, despite the fact that Opta Minerals has borrowed $29.2 million to finance acquisitions completed in 2012.

I'll touch further on debt and cash flows in a moment. To end the third quarter of 2012, we had total assets of $669.3 million and a net book value of $4.85 per outstanding common share. On a year-to-date basis, we have generated cash from operations of $38 million as compared to cash used in operations of $2.7 million last year. This represents record cash generation from operations for the company for the first 3 quarters, indicative of increased earnings and disciplined working capital management.

Capital expenditures of $5.7 million in the third quarter and $17.6 million year-to-date includes spending primarily at our ingredient and packaged products facilities plus investment in maintenance spending across a number of other business units.

During the third quarter, we refinanced both of the credit facilities that served our core foods business. On July 27, we amended and expanded the credit facilities that are used to finance our core North American food operations via a new 4-year agreement with a syndicate of lenders.

The amended agreement provides for additional borrowing capacity and includes a $175 million committed revolving facility, as well as an uncommitted $50 million accordion feature. The facility lowers our overall borrowing cost and will provide increased financial flexibility and capital resources to support growth. At the end of the third quarter, borrowings on this facility were $38 million, representing 24% of our total debt outstanding.

On September 25, we refinanced and expanded the European credit facility used to finance the global sourcing supply and processing operations of the International Foods Group. The new agreement provides for borrowing capacity of up to EUR 45 million, a EUR 10 million increase from the previous facility and is secured by the working capital of our International Foods Group. At the end of the third quarter, this facility was essentially utilized, representing 40% of our total debt outstanding.

Opta Minerals also expanded its debt facilities during the quarter in order to fund its most recent acquisition and now have debt outstanding of $59.3 million, representing 36% of our total debt. This debt is standalone and has no recourse to SunOpta.

The increased borrowing capacity provided by new credit facilities, improved operating margins, improved cash flows and a strong balance sheet continue to keep the company well-positioned for future growth and provide added flexibility when assessing strategic expansion options.

That concludes my financial comments. And at this time, I'll turn the call over to Rik, who will provide an overview of operational developments in SunOpta Foods. Rik?

Hendrik Jacobs

Thanks, Rob, and good morning, everyone. Overall, we were very pleased with the third quarter results from SunOpta Foods. We experienced increased revenue and operating margins primarily as a result of continued strength in the Grains and Foods Group. We remain focused on expanding and enhancing our consumer packaged and ingredient processing capabilities as we believe these are categories that offer the strongest growth and profitability potential for the company longer term.

Furthermore, we continue to leverage our integrated foods platform via streamlining efforts to cut cost and increase collaboration across our businesses to make the most efficient use of the expertise of our people and processes.

The drought that affected much of the U.S. in 2012 continues to be a topic of discussion. With most of our contracted crop now harvested, we do not foresee any issues in our ability to meet customer demand throughout 2013. We've had an average crop, which was better than many other parts of the country. And although supply will not be as plentiful as prior years, we are leveraging our global capabilities to close any potential gap.

During the third quarter, we continue to invest in our integrated platform. And over the next few minutes, I will comment briefly on a number of significant expansion initiatives that are underway.

In Grains and Foods Group, we reported strong revenue and operating income increases versus the prior year. We continue to focus on the value-added categories of the Grains and Foods group, expanding our milling capabilities for processing of grains-based ingredients, our roasting capabilities for both consumer packaged and bulk corn, soy and sunflower products, as well as the processing expansion at our Modesto aseptic facility, which has now been commissioned.

Our commercial development team consistently evaluates new processing and packaging capabilities to ensure we stay at the leading edge in the packaged food categories we operate in.

Looking forward, we expect continued growth in our aseptically packaged beverage categories. And with concerns over the drought behind us, we expect the base grain businesses to perform in line with historical levels.

Our Ingredients Group reported another quarter of decline as both revenue and operating income was lower versus the prior year. The decreased operating income is reflective of overall lower volumes of both fiber- and fruit-based ingredients as new sales have been slower to develop than we had anticipated. While these results are disappointing, we remain encouraged by the outlook and prospect pipeline for the Ingredients Group.

In addition, we continue to find ways to rationalize cost to keep our margins in line with expectations and have initiated a plan to close the Chelmsford office of the Ingredients Group and relocate certain back-office functions to our U.S. corporate office located in Edina, Minnesota.

In addition to the synergistic benefit that will be realized through centralization, we expect the office closure to result in annualized savings of approximately $1.2 million once fully implemented.

Innovation and product development remains a key component to the success of the Ingredients Group, especially in the area of fiber ingredients as the fiber market continues to grow, but also become more competitive. To this end, in the third quarter, we continue to expand on our fiber production capabilities and are encouraged by the interest generated today for our new offerings including rice fiber, cellulose and a proprietary starch ingredient.

Similarly, our fruit ingredients team continues to work closely with our customers to develop new formulations for use in fruit-based and topping applications. The key category is dairy-based products, especially yogurts.

The Consumer Products group reported a slight decline in revenues due to a number of rationalized product lines that have been exited in 2012. Excluding the effects of these rationalizations, revenues on a normalized basis increased approximately 5% as a result of new product launches, most notably our flexible pouch offerings.

We continue to invest heavily in new capabilities, the most significant being the start-up of our Allentown, Pennsylvania facility. I'm pleased to report that the first 2 pouch lines in Allentown were commissioned on time and started shipping product right at the end of the third quarter.

A group problem we encountered is that we have reached our sales capacity for our 2 West Coast pouch lines, and the first 2 lines at our Allentown facility are also reaching capacity, mostly through committed longer-term contracts.

Accordingly, we have initiated our expansion plans at Allentown and will be installing an additional 2 pouch filling lines, which we expect to be operational in Q3 2013.

While the expansion work needed to fuel the growth we're experiencing in the pouch category brings with it period cost that cannot be avoided, we expect to see noticeable improvement in the operating margins of the Consumer Products group by the second half of 2013.

The streamlined frozen food division reported another profitable quarter and continued to see increased sales volume for their retail frozen food offerings. A number of planned upgrades have been completed at the facility, which will help drive incremental sales volume as we head into 2013.

Lastly, the International Foods Group reported revenues were down slightly but actually increased 3.1%, excluding the effect of changes in foreign exchange rates and commodity prices. We're pleased to see the International Foods Group continue to perform near its target operating margin range despite the economic slowdown in Europe.

As demand continues to grow for natural and organic food products, the need for continuous development of expanded sources of supply cannot be underestimated. Our international foods operations are strategically positioned with personnel on 5 continents. And we're confident that this bodes well for the future of this group.

In fact, we've been focusing significant resources on expanding our presence in the value chain in specific ingredient categories through forward integration into niche processing.

With that, I'll turn the call back over to Steve. Steve?

Steven R. Bromley

Great. Thanks very much, Rik. In summary, we continued to execute on our core strategies focused on becoming a pure-play natural and organic foods company, growing our value-added packaged foods and ingredients portfolio and leveraging our platform in natural and organic foods. We are pleased with our results and progress to date and remain confident in our future prospects.

With that, we'd like to open up the call for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Greg Badishkanian of Citi.

Alvin C. Concepcion - Citigroup Inc, Research Division

It’s Alvin. In regards to your long-term goal of reaching the 8% operating margin, how do you feel about the pace you're moving at towards reaching that goal? In other words, how close are you to reaching that goal relative to where you initially thought you'd be at this time?

Steven R. Bromley

Yes, I'd say we're pretty much on track at this stage of the game. I mean, we're up about 160 basis points year-over-year. Last year, it was 2.9%. This year, we're up to 4.5%% and year-to-date, we're 4.9%. We've clearly had some additional costs that are incurring as we ramp up our value-added product offerings but I'd say we're right where we thought we'd be at this stage.

Alvin C. Concepcion - Citigroup Inc, Research Division

Great to hear. And I guess looking near term, operating margins increased 130 basis points including some of those start-up costs, and I realize there are some seasonal fluctuations. But is that the pace of margin expansion we should expect over the next quarter or next several quarters?

Steven R. Bromley

Rob, do you want to comment on that a little?

Robert McKeracher

Yes. No, I mean, you're seeing the year-over-year effect of us focusing certainly more of our capital expansion and energy on the higher value-added consumer products and ingredients category that we operate in. And I mean, I think that's really the trend you're going to see is that year-over-year success of improvement. There's certainly a bit of seasonality as we move from Q2 into Q3 and there's a greater percentage of grain-based sales that garner a slightly lower margin in the third quarter. But I think it's fair to say that this is the trajectory that -- to expect.

Alvin C. Concepcion - Citigroup Inc, Research Division

Great. And then lastly, have you seen any significant changes in demand in the U.S. natural product industry in October relative to the third quarter? And if you could provide any comments on Europe if you have any?

Steven R. Bromley

Yes, a couple of points. In North America, we saw a little bit of acceleration during the third quarter, and that's held -- held into October, so I don't see much change there at this age. We're seeing -- we will see the benefit of some of the pouch products coming online. As Rik mentioned, that we really didn't get much revenue in the third quarter because of the commissioning and then the quality whole process before you release products, which is now behind us. Europe, it's interesting. Obviously, the markets have been impacted there and the markets that have really been impacted are more of the Southern Spain and Greece and those locations where we've seen some weakness. This year, it was quite odd. August, which is a traditional holiday season there and is normally soft for us, was the softest we've seen ever that we remember. I think we were off 40% year-over-year. That came off a fairly strong July and then a fairly strong September, and then an October that looks pretty good at this stage. So the way it's always described us is that it's careful and cautious there and there's not a lot of new products being launched, which we need to have happening to really see our business grow. The fortunate part for us is that the balance of the international platform has performed beyond expectations, especially in the United States. So that's been good for us and then allowed that group to hold steady. So careful and cautious is the word in Europe at this stage.

Operator

Our next question is from Peter Prattas of Fraser McKenzie.

Peter Prattas - Fraser Mackenzie Limited, Research Division

The Consumer Products segment clearly isn't where you want it to be as yet, and I know you've been busy discontinuing the unprofitable lines on the frozen side. Are you now done shutting those businesses, and could we expect from here to start gaining momentum?

Hendrik Jacobs

Well, I mean, of course, the evaluation process of all of our offerings is a continuous process. So you're never always done -- or completely done with it. When it comes to the frozen food side, we are done with that, and that's also why you have now seen the second consecutive quarter of profitability in that particular division. When -- but we will continue to expand over there in the current categories and in adjacent categories that we think offer good long-term potential.

Peter Prattas - Fraser Mackenzie Limited, Research Division

Great. And just on Opta Minerals, it looks to be performing well. You've yet to include any synergies that you may realize on the WGI acquisition. Can you share with us how long you think it might take to realize the synergies you're after? And is your goal ultimately to get that WGI acquisition in line with Opta Minerals at around a 10% operating income?

Steven R. Bromley

Yes. So Peter, a bunch of things. Yes, Opta Minerals had a good quarter. They're continuing to see -- their acquisition that they completed earlier this year has performed very well. That's the acquisition in Regina, Saskatchewan, Canada. And on top of that, they've continued to see growth in their core categories, so very good results. They did acquire 94% of WGI sort of early September. They're forcing out -- there's a compulsory, I don't know what it's called, a compulsory acquisition of the balance of the shares, which takes place tomorrow, November 8. At that stage, they'll own 100%. In the quarter, WGI was a slight drag on the earnings, couple of hundred thousand in operating income. They have been working very, very hard, the management team, to realize the synergies that have been identified as part of that transaction. From a meeting that we had last week, I'd say that they're on schedule. The target is to get that business into the range of operating margins that Opta Minerals has. And so a month in change into this, well, a couple of months into it now, they've made very good progress on their plan to realize on synergies. It will take them through the end of this year and a little bit into next year to get that all done. But they're certainly making progress. And to your point, the idea is to get them into that 10% operating margin.

Operator

Our next question is from Christine Healy of Scotiabank.

Christine Healy - Scotiabank Global Banking and Markets, Research Division

While we're talking about Opta Minerals, I'll just add on from Peter's question. So it performed very well in the quarter, but the most popular question I've been getting on your results is investors are concerned that it did really well and that it might change your plans of this noncore business. So maybe you can just confirm to them what your plans are with Opta Minerals?

Robert McKeracher

Yes, sure. Okay, that's fine. As we've indicated in our 3 core strategies, our first core strategy is to become a pure-play natural and organic foods company, and that's our intention. We're very fortunate to have Opta Minerals performing as well as it is, but it's not a food asset and that's not core to our strategy.

Christine Healy - Scotiabank Global Banking and Markets, Research Division

Okay. And then just moving on to rice fiber, and forgive me if you spoke on this, I had to get on a little bit later. But can you just give us an update on how rice fibers is going? How many customers you're working with? And do you think that this could be a material contributor to revenue going forward?

Hendrik Jacobs

Yes. In fact on the rice fiber, we have shipped some product already to -- but it is not yet to the big fishes, let's put it that way because we're the big ones. Obviously, there's a lot of reformulation work that needs to go on into the end consumer product. But we can confirm that we are working with a number of big prospects there as indicated in my comments earlier. And that is now at the stage of bench work and, in some cases, even trials.

Christine Healy - Scotiabank Global Banking and Markets, Research Division

Okay. And then I guess for the Louisville plant, the upgrade that you did there, that allows you to produce cellulose fiber, and I believe you said there are some other specialty fibers that you could produce at that plant now. Has there been any headway into some of those other specialty fibers at this stage?

Hendrik Jacobs

We are in the Louisville plant. We are also -- yes, we are able to ship cellulose already at this stage. But the continued upgrades that we're doing is actually on something that you call ball milling. And that would allow us to grow more aggressively as to the bread markets as well. And that project is nearing completion.

Christine Healy - Scotiabank Global Banking and Markets, Research Division

Okay, great. And I guess just lastly, I guess if you look across all of your different product categories in the company and you see some of the trends that are happening in the natural and organic segment, are there any gaps in your product category that you are looking to sell? Is there anything that you really feel is missing?

Hendrik Jacobs

Yes, I think as Rob indicated, where we really want to go, and that is really strategy #2. So strategy #1 is become into pure play. Strategy #2 is actually moving up into the value chain, if you like, and more and more focus on consumer packaged and value-added ingredients. And that's -- it was pleasing for us to see that consumer packaged has grown year-to-date by 15%, and that certainly is something that -- that growth rate, we want to keep up there. Where we are looking right now, as I mentioned earlier, to adjacent categories to the ones that we're doing business in, so are there other aseptically packaged products that we could be filling and categories in North America. But furthermore, and that's playing to strategy #3, if you like, leveraging our platform, are any of these value-added consumer products, can we and do that and copy that internationally. And that's something that we're looking at very hard at this particular point in time.

Operator

Our next question is from Bob Gibson of Octagon Capital.

Robert Gibson - Octagon Capital Corporation, Research Division

I really want to focus in on the pouch business, and I know it's used for baby food. Can you give me some color as to what other things that these pouches are being used for? And also what you're thinking as longer term. I mean, once these 2 lines in Allentown go in, where do you go from here?

Steven R. Bromley

I'll Let Rik take that since I have no voice left.

Hendrik Jacobs

Yes, you're right. That's currently most of the pouches that are being sold in North America are really on baby, toddler, but I also think it will go into the kids segment already right now with some of these applesauce products and things like that. I think of companies like [indiscernible] that are more in the conventional. They are much more playing towards kids than they are to babies. So that we see expanding. And yes, of course, we did not start up Allentown with 2 lines. That is -- those 2 lines are carrying the -- all of the factory overhead right now. It is our intention and indeed, the facility that we build is to continue to grow that as we indicated. We think that the next 2 lines will be operational in Q3, but we're looking beyond that as well. And I think, beyond that, I think the next big wave to hit not only in the United States but also in Europe is for low-asset aseptically packaged pouches, which will have a significant improvement in flavor and also a significant improvement in cost profile to consumers versus the current refill of the pouches.

Steven R. Bromley

Bob, when you ask what other products, just think anything that's in a can or a bottle today.

Robert McKeracher

Glass jar.

Steven R. Bromley

Yes. Glass jars, all of those products, are likely candidates for moving into pouches. So you have juices and sauces and, yes, it's endless.

Robert Gibson - Octagon Capital Corporation, Research Division

Okay. And then maybe you could give me some updates on your bar business and especially the yogurt application on the bars?

Hendrik Jacobs

Well, our bar business, the top line growth we're very, very happy with. I think at expanding it more than 30% at this particular point in time. Where we have more work to do, quite honestly, is on further integration of this facility so that we get to exactly the cost level that we want. And that's really what has been happening over -- in Q3. And now we're getting to the required yields, required costs. So that business is just set to take off. In terms of the yogurt application there, we are not there yet, but working on it.

Robert Gibson - Octagon Capital Corporation, Research Division

Okay. And then lastly, I kind of was looking geographically at your businesses. But just confirm to me that the Hurricane Sandy didn't disrupt any of your facilities?

Steven R. Bromley

No major disruption. I mean, we have...

Hendrik Jacobs

Allentown shutdown for a day.

Steven R. Bromley

Allentown shutdown for 1.5 days or something like that. But that's in the Philadelphia area. They were able to get that back up and running. And we have a development center in Chelmsford, Massachusetts that was down for a day as well, but everything is back up and running. And then everything -- and there may have been other -- those are the 2 that were most impacted. I mean, other places closed early and went home and that sort of thing, but nothing substantial, Bob.

Operator

[Operator Instructions] Our next question is from Scott Van Winkle of Canaccord Genuity.

Scott Van Winkle - Canaccord Genuity, Research Division

A pouch question. How significant a businesses is that today?

Steven R. Bromley

Which one, sorry?

Scott Van Winkle - Canaccord Genuity, Research Division

Pouches.

Robert McKeracher

In terms of what we currently run, we ran just about 300,000 of sales in the third quarter out of Allentown. We're looking up...

Steven R. Bromley

And then the West Coast lines were...

Robert McKeracher

The West Coast has been operational all year, Scott, and...

Steven R. Bromley

I think we've done about $12 million in revenue so far this year.

Robert McKeracher

Just under $12 million.

Steven R. Bromley

That's right.

Scott Van Winkle - Canaccord Genuity, Research Division

Okay. And Prop 37 obviously didn't play out, but all the commentary you see on non-GMO shows a lot of growth. And I think I read something that non-GMO -- that GMO projects seals, one of the fastest-growing label claims in the food industry. Do you think or do you see that trend continuing even without Prop 37? Or has there been any increased interest that came your way with the debates going on in California? And at the end of the day, doesn't it still probably get an incremental drive even without passage?

Steven R. Bromley

Yes, Scott. Look -- so I'll answer a bunch of the questions. We have had a large number of inquiries from people -- I mean, food manufacturers trying to understand how to go about sourcing the non-GMO given the supply restraints that there are. And so that has happened. Second, the way we -- the way I look at it anyway is that the horse is just out of the barn here. I mean, if you go to Europe, nobody wants to touch GMO stuff, period. And there's more and more of awareness developing here in North America. And so I don't think we've seen the end of the GMO labeling issue in any way, shape or form. And as we said in our remarks, we support labeling such that everybody gets to know what's in their food period. And if it's GMO, then they should know about that. Whatever is in there, it should all be labeled. And so we support that. We don't think it's going to go away, and we think it positions us well. There's a lot of interest. I think a lot of food manufacturers are now considering if there are GMOs in products what do I need to do about getting them out. Some of them may have breathed a big sense of relief today in that they're not under a potential 18-month transition window. But I think they all know it's there, and the consumers are interested. And I think the vote was 54% to 46%, so a lot of people are very interested, and I don't believe that they'll go quiet. And we're going to see continued growth in that.

Scott Van Winkle - Canaccord Genuity, Research Division

Great. And then the third quarter, that kind of core growth figure of 6%, up from 5% in Q2. Can you kind of pinpoint maybe 1 or 2 or a trend or specific thoughts as to why the Q3 was a little stronger than Q2, particularly given the commentary about August vacations in Europe?

Robert McKeracher

Yes, we're seeing it and you can see it if you really look at the Grains Group especially, Scott. It's our packaged -- aseptically packaged beverages continue to outperform over the year, as well we had a nice lift in grains-based, organic grains and other feedstock sales in the quarter that helped us there. So that's really what you're seeing is that step up from kind of a 5% normalized or I guess you could say internal growth rate into the 6% for the third quarter.

Operator

Our next question is from Ron Reuven of Reuven Capital Investments.

Ron Reuven

Just want to get an update on the Mascoma. Anything -- any new development in regards to their IPO? I know they filed for an IPO some time ago and probably didn't see an ideal IPO market. Anything -- any news on that?

Steven R. Bromley

Yes. Well, you're certainly right. They didn't see an ideal IPO market. Interestingly enough, since they filed their IPO, there's been 3 similar IPOs pulled completely. And if you go back to take a look at the IPOs in the alternative energy space over the last 28 to 30 months, they're all down substantially. So the market is not right for an IPO, although the IPO -- although they still remain IPO-ready. In the meantime, Ron, they continue to execute on their plan. They've developed a number of new technologies that are now being commercially deployed into the regular corn ethanol industry to improve yields, et cetera, and I've talk about that in the past. So that continues to go well for them. The product is called TransFerm. It's being used by 7 ethanol producers in the U.S., with trials at another 14. So that product, that process continues to go well. They have 3 cellulosic ethanol projects to build cellulosic ethanol facilities that are in various states of development, but all with government funding, one in the United States, one in Canada and one in Brazil, which is positive. So they continue to execute, and I think that's most important right now, and continue to execute on their plan, and they'll watch for the right time to do an IPO.

Ron Reuven

And you mentioned as far as the core business and everything else right now is starting to grow now, and it seems like you mentioned even this quarter that we're in right now we're starting to accelerate. So do you see that the growth rate is going to remain at around 6%? Or do you see it accelerating eventually into the double digits?

Hendrik Jacobs

Yes. We see -- I mean, if you look at where we are putting the majority of our focus, which is on the consumer packaged, that has grown year-to-date at 15%. So as we -- more and more of our portfolio becomes consumer packaged goods sale, we actually see an acceleration of our growth into the future.

Ron Reuven

Okay. And then I guess last question, as far as the overall business now is still above $1 billion a year, it seems like you're on a run rate this year, probably around $1.1 billion. Would you -- what would say is your manufacturing capacity? Like how much do you think your business could handle at this stage without necessarily adding that much more to your manufacturing facilities and expenses?

Hendrik Jacobs

I think that's a very difficult question to answer. With given the number of plants that we have. I mean, some of them are completely full capacity and we're looking to install more, such as on our aseptic beverages and on our pouches. Some of the plants that we have, have opportunity for further growth within the four-walls that we got, so to speak, thinking about fruit snacks, thinking about juices. And on the ingredients side, I think that at this stage, we are underutilized, and so we're -- that's where we're most aggressively trying to chase new business right now. But I mean I think it's very difficult to give you an overall utilization because it's kind of like having your head in the oven and your feet in the refrigerator if you like.

Ron Reuven

Yes, no, I get that. I'm just figuring whether it's -- you think it's another 20%, another 50% or do you think it's -- you're going to each time you're anticipating growth, you're probably going to have to build out quite a bit more to -- in order to handle it.

Hendrik Jacobs

Yes. No, I don't think that's really true because, I mean, most of our factories today even the ones that are well-utilized are not yet running on a 24/7 schedule, so I do think we still have more room for growth. And I would say that it is definitely more than 20% in the next year.

Operator

Our next question is from Keith Howlett of Desjardins Securities.

Keith Howlett - Desjardins Securities Inc., Research Division

Steve, I was wondering what the size now of the aseptic beverages and soups business would be?

Steven R. Bromley

Approaching $200 million.

Keith Howlett - Desjardins Securities Inc., Research Division

And within that, what would be the fastest-growing categories of products?

Hendrik Jacobs

I think, at the moment, all customers in all segments are showing growth, but the fastest-growing would be the almond based beverage.

Keith Howlett - Desjardins Securities Inc., Research Division

And then are the soups -- how is the soup component of that business faring?

Steven R. Bromley

Very low because we don't have time to do it.

Hendrik Jacobs

And we don't provide any of these ingredients either.

Steven R. Bromley

Yes, so it's not our focus.

Keith Howlett - Desjardins Securities Inc., Research Division

And then just on -- I wasn't sure what the reference to yogurt was in relation to the bar business.

Hendrik Jacobs

No I think we're talking about an application of where we can actually put yogurt on to one of our protein bars. But so we're not quite ready for that. The other reference that we made in our comments is that when you look at fruit-based ingredients, we're very focused on the dairy-based category and especially yogurts and dairy. We start about the number of small customers in working with a number of very big customers, of course, especially in the Greek yogurt segment because that's the one that's growing.

Keith Howlett - Desjardins Securities Inc., Research Division

And then just finally on the fibers for the bread industry that you refer you were making some changes in Louisville. What fiber is -- was that, I wasn't sure.

Hendrik Jacobs

It is a cellulose fiber, and we need to go to -- we need to -- we're in the process of installing ball milling so that we can get basically smaller fibers so that we can go into the bread markets.

Keith Howlett - Desjardins Securities Inc., Research Division

I see, great. And just finally on the -- what used to be old -- the fruit bar business. Was that part of the 30% growth rate? Or was the 30% growth rate more on the Carson [ph] bars, or is the whole business going at 30%?

Hendrik Jacobs

The Carson [ph] bars are seeing explosive growth. The fruit bars are seeing modest growth.

Operator

I'm not showing any further questions in the queue. I'd like to turn the call back over to Mr. Steve Bromley.

Steven R. Bromley

Great. Well, thanks very much for joining us today. I really appreciate you joining.

In closing, I'd like to thank all of our employees for their hard work and our customers, suppliers and shareholders for their continued support. We're really focused on continuing to execute on our plans, and we look forward to sharing our progress with you as we move forward.

As always, feel free to give us a call if you have any questions. And lastly, I apologize for my terrible voice today and for putting up with us. Appreciate you joining the call. We look forward to talking to you soon. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This conclude today's program. You may all disconnect. Everyone, have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: SunOpta Management Discusses Q3 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts