Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Westrock Coffee Co (WEST, Financial) reported a 19% year-over-year increase in adjusted EBITDA for its beverage solutions segment, indicating strong performance despite challenging market conditions.
- The sustainable sourcing and traceability segment saw a 45% year-over-year increase in the quarter and a 132% increase year-to-date, showcasing significant growth.
- The company secured major new customer volume commitments for its single-serve cup business, which is expected to boost volume and profit in the coming year.
- Westrock Coffee Co (WEST) has completed a vast array of new contracts, with more than a dozen new customers expected to begin commercial volume purchases in early 2025.
- The Conway Extract and RTD plant is expected to generate more annual EBITDA than the entirety of the current base business once fully operational, highlighting its potential impact on future earnings.
Negative Points
- The single-serve cup business remains soft, with consumers continuing to shop down in packaging size, impacting volumes.
- The decision to extend the startup date for a major customer at the Conway plant has compounded current run rate pressures throughout fiscal 2024.
- Westrock Coffee Co (WEST) expects to end the year at the bottom of its previously announced guidance range due to lower-than-expected volumes.
- The company incurred almost $4 million in scale-up operating costs related to the Conway facility, burdening consolidated adjusted EBITDA.
- The macroeconomic environment has negatively impacted single-serve cup volumes and the sales ramp of extract and RTD products, leading to lower-than-expected performance.
Q & A Highlights
Q: Looking ahead to fiscal '25, what guarantees the slope of the ramp over the year, especially if a major client needs to push the launch of a product line?
A: Scott Ford, CEO, explained that the push given to a client this year was rare and strategic, allowing them to finish with other providers. The contracts for ready-to-drink and extract business include take-or-pay clauses, ensuring revenue even if volumes aren't pulled down. The company has worked to ensure that when production starts in '25, it will be at full capacity, minimizing disruptions.
Q: Are we turning on production straight into commercialization in the first quarter of '25, or is there still an acceptance window?
A: Scott Ford confirmed that while new products will go through acceptance, the numbers laid out reflect commercial production of products already approved in '24.
Q: Regarding EBITA growth drivers for next year, which are secured and which are anticipated?
A: Chris Pledger, CFO, stated that new roast and ground retail customers have been onboarded, with full-year benefits expected in '25. New volume commitments from existing single-serve customers and anticipated new contract wins will also contribute to growth.
Q: Can you elaborate on the rebound in single-serve cups? Is it a return to year-over-year growth or just a plateau?
A: Scott Ford noted that while the industry is growing modestly, Westrock expects a significant increase in cup volumes next year due to new customer wins and expanded commitments from existing customers.
Q: How does the push-out of a large customer impact other customers and production at the Conway facility?
A: Chris Pledger explained that the push-out allows for completion of commercialization work, ensuring a steep sales volume ramp in '25. The first can line is sold out, and a second line will start in the second half of '25 to accommodate additional volume.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
