Premium Brands Holdings Corporation (OTCPK:PRBZF) Q4 2022 Results Conference Call March 16, 2023 1:30 PM ET
Company Participants
George Paleologou – President and CEO
Will Kalutycz – CFO
Conference Call Participants
Derek Lessard – TD Cowen
George Doumet – Scotiabank
Martin Landry – Stifel GMP
Stephen MacLeod – BMO
John Zamparo – CIBC
Operator
Good afternoon, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation Fourth Quarter 2022 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded on Thursday, March 16, 2023.
I would now like to turn the conference over to George Paleologou, CEO and President of Premium Brands. Please go ahead.
George Paleologou
Thank you, Ena. Welcome everyone to our 2022 fiscal year and fourth quarter conference call. With me here today is our CFO, Will Kalutycz.
Our presentation today will follow the deck that was posted on our website this morning. Will is going to help us unpack the numbers for the fourth quarter and the year shortly followed by more in-depth discussion over new five-year plan.
We are now on slide 4, which outlines certain key highlights for the quarter and the year. Some of the headlines of the quarter are as follows. Results for the quarter were on plan, despite the various well publicized headwinds, including inflation, supply chain disruptions and labor shortages. On a more positive note, we continued to see evidence that life and the world are normalizing after three years of unusual volatility and economic and industry dislocations.
We’re delighted to share our new five-year plan and related targets, which call for us to reach $10 billion in sales and $1 billion of EBITDA by the end of 2027. We will have more discussion on this later on in the presentation.
Clearwater had an excellent quarter and delivered record EBITDA for the year of about $130 million on sales of approximately $600 million. Both our platforms did well during the quarter, benefiting from improving business conditions, including better labor availability, and easing supply chain issues. Our charcuterie, cooked protein artisan sandwich and specialty bakery businesses performed very well, while our center of the plate best-in-class protein offerings continue to drive the growth over foodservice businesses.
Of particular note this quarter is that 55% of our specialty foods platform sales were generated by our U.S. based businesses. Although we did not close any acquisitions during the quarter, we’re pleased to report the completion or near completion of several capital projects that will solve a number of capacity challenges facing our businesses.
We’re pleased to have purchased approximately 167,000 shares for cancellation or NCIB at very compelling prices, thus benefiting all shareholders. For the ninth year in a row, we announced yet another double-digit increase in a quarterly and annual dividend. At PB we’ll have to share our growth and our value creation with our long-term shareholders through dividend increases as a way of cushioning the blow of unprecedented market and stock price volatility.
We remain very confident that our decentralized intrapreneurial business model combined with our great people and culture will continue to drive above average returns for long-term shareholders through increasing dividends and capital appreciation for many more years to come.
Now, we’re on slide 5. As you can see on slide 5, we remain an acquisiter of choice and our pipeline continues to be robust, with many exciting small and larger projects and opportunities. Acquisitions remain a key part of our growth strategy over the next few years, and we expect to complete many more transactions in the future. I will now pass it on to Will. Will?
Will Kalutycz
Thanks, George.
Before I begin, I would like to remind you that some of the statements made on today’s call may constitute forward looking information. And our future results may differ materially from what we discussed. Please refer to our MD&A for the 14 and 52 weeks ended December 31, 2022, as well as other information on our website for a broader description of the risk factors that could affect our performance.
We are now on slide 7. Our sales for the quarter were $1.6 billion. That was an increase of roughly $289 million or 21.5% from 2021. There were five key drivers of our growth. First was there was an extra week in the quarter due to our year-end falling on December 31st, which resulted in 14 weeks versus the normal 13. This accounted for about $80 million of our growth. Selling price inflation was another $61.9 million of our growth. Organic volume was $60.8 million of our growth. And that was driven, as George mentioned earlier, by our sandwich initiatives, cooked protein, artisan baked goods, value added process lobster products, and reclassing of certain warehousing rental income. Acquisitions accounted for $43.8 million of our growth and a weaker Canadian dollar relative to the U.S. dollar $42.9 million.
Turning over to slide 3 — or, sorry, 8. Our organic volume growth for the quarter was 4.5%. You can see from the chart, over the last three quarters we’ve improved our growth rates consecutively nicely, rising from 1.3% back in Q2 up to 4.5%. So, we are now in our long-term targeted range of 4% to 6%. But there’s still four main factors holding us back from reaching our potential of exceeding our long-term target. First was Q4 is generally a lower growth quarter just for seasonal factors. Next was our protein branded businesses were impacted particularly by a shift in spending by consumers from retail to foodservice. We continue to experience turkey supply challenges both in Canada and the U.S. This knocked about 60 basis points off of our organic volume growth rate. And finally, we have seen slower growth or relatively flat sales in certain categories, mainly beef jerky and certain cooked protein categories, which is a positive from previous quarters where we actually were seeing some demand destruction that is now leveled and year-over-year roughly flat. And as we see some stability in commodities, we expect to see growth resume there in 2023.
Turning to slide 9. For the year, our sales were $6,029.8 million. That was an increase from 2021 of $1.1 billion or 22.3%. For 2023, we’ve issued new guidance or our guidance of sales of $6.4 billion to $6.6 billion, using the midpoint of that at $6.5 billion that would represent an increase from 2022 of $470 million or roughly 8%. And I should note that does not include any potential new acquisitions. That’s entirely based on the businesses that exist today.
Turning to slide 10. This slide just shows our sales by week. The black line on the far left is the start of 2023, the gold line was 2022, and the blue line 2021. Can see we started — that we continue to show great growth across our platforms. And more importantly, as we’ve seen, you’ll see on a later slide, inflation is pulling back, pricing is stabilizing. So, more and more of that growth should be organic volume versus price inflation.
Turning to slide 11. Our adjusted EBITDA for the quarter was $136.4 million. That was an increase of $22.9 million, or 20.2% from 2021. There were five key positive drivers. First was selling price increases net of certain cost inflation, and we’re going to talk a bit more on that on the next slide. Organic sales growth was a major driver of the increase in our EBITDA. Plant efficiencies. As George mentioned, we’re seeing much better labor conditions, supply chains normalizing and that’s translating to much improved operations. The 53rd week, extra week did contribute a bit to our EBITDA. It was only about $2 million on $80 million of sales, as I mentioned earlier. So, it was dilutive to our margins, but it was a small contributor to our EBITDA. And then finally, the weaker Canadian dollar relative to the U.S. dollar.
On the negative side, we continue to experience higher outside storage costs due to our inventory positions, which we will be talking about in a later slide. Discretionary promotion was up, which is a great sign. We are definitely seeing more normalcy in the market. Our retailers open to new products, new product listings, and correspondingly our business are getting much more active on promotion and advertising, which is setting the stage for 2023. Continued investment in our SG&A infrastructure. A good portion of that was actually invested in salespeople, as our businesses are ramping up for 2023. And then, finally, some additional incentive-based compensation.
Turning to slide 12, as I mentioned, inflation was a positive impact on our EBITDA for the quarter. This slide shows by quarter for 2022, our selling price increases and then, the cost inflation of our raw materials, wages and freight costs, which are the three key components, we do isolate. And you can see Q1, this 2022, it was a negative $1.9 million. As we started catching up on our pricing, you saw improvement in Q2 to $3.5 million, Q3 to $12 million and Q4 to $16 million. So, a very positive trend and made so even more because Q4 is a seasonally slow quarter. So, adjusting for that, that trend would have been even stronger.
From a margin impact, for the first two quarters of the year, you can see inflation was definitely eroding our overall margins. Q3, it was probably slightly positive because, again, this is before general cost inflation. So once you take into account that, it’s probably slightly positive. And by Q4, we’re making great progress in margin recovery, which sets the stage for a very positive 2023.
Below that we’ve isolated what we call the impact of retailer selling price increase notice periods, which generally run 60 to 90 days. You can see they were steadily decreasing through the year as we were catching up on our pricing and those notice periods met. There was a bump in Q4 as a number of our businesses started putting through price increases for just general cost inflation. We are seeing some stability on the commodities and labor fronts, and a little bit of deflation in freight. So, again, setting us up well for 2023.
Turning to slide 13. Our EBITDA margin for the quarter was 8.3%, relatively flat compared to Q4 last year at 8.4%. Our target is 10%, and there were five key factors that resulted in that variance from our target for the quarter. One of the key ones has just been unutilized production capacity. Due to some of the challenges George mentioned earlier, in 2022, inflation in the back half of the year, particularly which results in a lot less featuring by retailers — are us featuring with retailers. And then in the first part and a little bit in the second part of the year supply chain, labor, challenges and little interest by retailers in listing new products, all of that led to significant unutilized capacity in our network, which I’ll talk about on the next slide.
Another big factor in the quarter was just Q4 is a seasonally slow quarter. Usually our margins for the quarter are about 40 to 60 basis points below the annual average margins. So, that was certainly a contributor. The retailer selling price increases I mentioned earlier, the $8.6 million. That was about 60 basis points impact on the quarter. The extra week, again, the $2 million in contribution based on $80 million in sales, that eroded about 30 basis points in our margin. And then finally, bolt-on acquisition, turnaround acquisitions that we made in 2022, that impacted our overall margins by about 10 basis points, which was a very positive message because back in Q3, which is, again, a seasonally much stronger quarter, those same acquisitions had a negative impact of about 25 basis points. So, we’re making great progress on those initiatives and are very excited to see how they’re coming along.
Slide 14, this just gives you a bit of a sense of where the unused capacity is in — across our network relating to some of our more recent projects. There’s also a general capacity throughout the system as well. You can see from the slide, roughly $320 million of unutilized capacity in 2022. And at the start of the year, our expectation was a good portion of that was going to be put to work, but for the challenges of 2022 it wasn’t. Again, going into 2023 everything is lined up well, and we’re excited that that capacity will be used.
Slide 15. For 2022 annual, our EBITDA was $504.2 million. That was an increase of $73.5 million or 17.1% from 2021. We also issued our guidance for 2023 with our quarter four results. And that is for a range of $590 million to $610 million in adjusted EBITDA. Using the midpoint of that, that $600 million, which would represent an increase from 2022 of $95.8 million, or roughly 19%.
Slide 16. Our adjusted earnings for the quarter were $52.9 million. That was up about $700,000 or 1.3% from 2021. Major drivers were EBITDA growth and lower income taxes and then that was offset by increased amortization of a right-of-use assets, accretion of our lease obligations as well as some additional depreciation. And then, the biggest factor was additional interest expense, both through a combination of higher market rates and our larger debt balances. Our EPS for the quarter — adjusted EPS was $1.19, and that was roughly in line with 2021.
Slide 17. Just talking a little bit about our inventory, which we’ve talked in previous quarters has been a bit of a challenge coming through the supply disruption issues over the last couple of years. We made some progress from Q3. Our inventory was down about $35 million from Q3. However, it was about $68 million short of the target we set last quarter. But, the good news is $50 million of that variance is for very positive reasons. It’s new initiatives that occurred in the back half of the quarter and should create value in 2023. First off, we invested about $26 million in opportunistic inventory buys, just great, great opportunities for margin expansion in 2023, largely for products where the price is locked in. And so, by doing these buys, we’ve locked in the margin. And then also about $24 million for new sales initiatives, inventory builds — and some of that is actually sales that were expected in 2022, but were just due to timing differences occurred in 2023. So, very positive factors driving most of that variance from our target.
Slide 18. We continue to mean very strong liquidity. Our unused credit facilities totaled about $514 million at the end of the quarter. That was up from $455 million last quarter. We showed some improvement in our senior debt and total debt to EBITDA ratios. Our total debt to EBITDA ratio fell from 4.5 last quarter to 4.3 this quarter. And our senior debt to EBITDA ratio fell from 3.3 last quarter to 3.2 to 1 this quarter. We had expected a bit more of an improvement in the ratios this quarter. However, the inventory buys that I mentioned in the last slide, as well as the 53rd week did impact our ratios and the impact of the 53rd week was on our accounts payable. We saw a dramatic decrease in our days purchases and payables just because of that extra week and the timing of invoices. And if you normalize for the additional inventory by the roughly $50 million and the AP, we would have been at a ratio of roughly 2.9 to 1 for our senior debt to EBITDA ratio, so within our targeted range.
Turning to slide 19. Our free cash flow for the quarter — sorry for 2022 was $286 million. That was an increase of $22.6 million, or 8.6% from 2021. Our free cash flow per share was $6.41, an increase of roughly $0.36 from 2021 or 6%. Our payout ratio for the year came in at 43.8%. And as George mentioned earlier, with our fourth quarter results, we announced a 10% increase in our dividend rate to $0.77 a quarter or $3.08 per annum. And you can see from the slide that this will be the 9th year in a row where our dividend increase has been double-digits.
Slide 20. During the fourth quarter, we spent roughly $60 million on Project CapEx. You can see $44 million of that was spent on 16 major projects, all primarily capacity rate related. We have since completed five of those projects and the remaining ones are proceeding well within plan. For the year, we spent $185 million on capital projects, Project CapEx with $141.2 million of that being on the major projects.
Slide 21, our five-year plan. We’re pleasant as George mentioned earlier to report that we did exceed our five year target that we set in 2018, one year early with our sales coming in at $6,030 million versus the $6 billion target. And you can see from the slide, this is the third year in a row that we have exceeded our five-year target earlier than plan. And in 2018, we also set an EBITDA target of $600 million. And while we won’t achieve — we did not achieve that a year earlier, we are certainly well on track to achieve it on plan in 2023.
Correspondingly, we’ve set new targets, as George mentioned, of $10 billion in sales and $1 billion in adjusted EBITDA by 2027. These new targets we set are a little bit unique, because generally in the past our targets have included a fairly significant acquisitions component to the expected growth. And as George mentioned earlier, we do expect acquisitions to be — continue to be a major growth driver. However, because of there being so many organic initiatives going on across our company and a fair amount of investment associated with those, we isolate the most of the growth to organic volume growth or organic growth. So, you can see, roughly $9.5 billion of our targeted $10 billion relates to organic — will be driven by organic growth initiatives. Corresponding with that we’ve given some guidance around our capital spend over the next five years, which we expect to be about $800 million to support growing to that target. Again, we fully expect these to be easily achievable targets based on the fact that very little acquisitions are included in them.
The next slide gives you a sense of the — or a summary of the major projects included in our five-year plan. There’s 18 projects listed here. 11 of them are in progress, as you would have seen on the earlier slide, and 7 are in assessment or early planning stages.
With that, I’ll turn the presentation back over to George.
George Paleologou
Yes. Thank you, Will. We’re now on slide 23. Again, we’re going to go through some of our new capacity additions and builds. We’re excited, as Will said, to bring more automated, efficient capacity online. This is a picture of our Stuyver’s facility in Langley, BC, where we’ve just installed a state-of-the-art fully automated artisan bakery line featuring robotics, automation, and fully continuous lines in terms of ovens and packaging as well.
We’re now on slide 24. We just completed a 55,000 square foot addition to our Premier Meats facility in just outside of Montreal. The plant will now feature both cooked and the value added fresh lines as well, mainly for healthcare, foodservice and specialty retail.
We’re excited to bring the largest state-of-the-art sandwich assembly and charcuterie assembly facility to fruition in Edmonton, Alberta. This plant will be fully operational in May of this year. Very excited to have more sandwich assembly and charcuterie assembly capacity on board.
This is a picture of a brand new built, our next adjacent to an existing Hempler’s facility in Ferndale, Washington. We’re bringing on board about 100,000 square feet of production space.
Hempler’s is well known for best-in-class bacon, so adding bacon capacity to that facility, but also steak capacity to support the growth of our steak business in the U.S. market.
And finally, as we’ve talked earlier, we’re pleased to announce the construction of the 525,000 square foot plant complex actually in Cleveland, Tennessee to service the U.S. southeast market. This plant will be very automated, food safe, state-of-the-art and actually we talked about adding some vertical integration to that facility as well.
Just some of the products that we’re getting good traction in, in both Canada and the U.S. I think as you probably know, we are a large player in dry cured meats in Canada and in the U.S. and a lot of those — these products now can be found in both, Canada and the U.S. And we’re just getting started in the U.S. market.
As you Will said, cooked protein on slide 29, it’s a major focus for us, we’re the leader in skewers cooked and raw skewers in North America. A lot of these products can be found again all across North America.
Same with — on page 30 as well, some other cooked protein products that we recently launched into the market. Fresh skewers is a major focus for us. Again, we’ve been a significant player in Canada in that market. But now you can find a lot of these products in retail and foodservice in North America.
We are looking forward to bringing a laminated bakery facility, brand new built in San Leandro, California, should be completed mid-2023, getting a lot of traction with a lot of these amazing, authentic products.
I spoke earlier about the added steak capacity at Hempler’s in Ferndale. That plant will make a lot of these products. A lot of these products are getting the traction, particularly in the U.S. market. And we’re happy to bring on extra steak capacity.
And finally, again, we bring labor saving and labor solving solutions to QSR and in other channels. We’re seeing great traction in this platform. It’s grown a lot for us. And we’re really happy to have a complex now that will take care of our needs probably for the next five years.
I will now turn it back to Ena for questions. Ena?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Your first question comes from the line of Derek Lessard from TD Cowen. Please go ahead.
Derek Lessard
My first question is I just wanted to maybe just touch on your featuring and co-promo activity in the quarter or maybe into Q1. So, what does it look like and how is that translated into volume growth, if any and your expectation for margins for the rest of the year?
Will Kalutycz
Q1 is again, a seasonally slow quarter, Derek. So, the key message is things are setting up for the busy quarters, Q2, Q3, featuring should be back to historic levels. So, we expect that to be a story you’re not going to hear anymore. But it’s not a big story in Q1 generally, because of it being a seasonally slow quarter.
George Paleologou
And Derek, I think that goes well with my comments and Will’s comments around normalizing business conditions. For a few years, we couldn’t present products or innovation to customers. Now, they’re all open for business, I think, in many, many ways with foodservice that reopening, retail, again, is starting to look at exciting innovation to drive traffic. Anyway, so these conditions generally bode well for featuring and promotions, which is just something that wasn’t done for a couple of years.
Derek Lessard
And maybe just switching gears, and thank you for the new five-year guidance. You guys have clearly shown an ability to hit these longer ranges. It’s aggressive on the top-line for sure. But it looks like you’re being a little conservative on the margin side. Next year, you’re guiding to at the midpoint of your guidance range to about 9.2%, but only 10% five years after that. Just maybe help me square that away.
Will Kalutycz
Yes. It’s pretty simple answer, Derek. You’re absolutely right. We have been conservative there. Our internal expectations are actually quite a bit higher. But we just wanted to make sure we made — put a commitment out there, we were absolutely certain we were going to meet.
George Paleologou
You have to understand that Derek that we’ve been shell shocked, obviously, with black swan events the last three years all happening at once. So we’re tending to be a little bit conservative with some of our assumptions.
Operator
And your next question comes from the line the George Doumet from Scotiabank. Please go ahead.
George Doumet
I just want to talk a little bit about the use — sandwich facility. Can you maybe talk a little bit about the capacity of that facility when it’s ramped up. And we also have $210 million of extra capacity. So, it feels that you guys see a pretty big runway for sandwich growth over the next little bit. Can you talk a little bit about where that’s coming from, what end markets, et cetera?
Will Kalutycz
Yes. It’s the same old story, George. We continue to run — we’ve got all these fantastic initiatives on opportunities that we’ve identified in the sandwich category. But, we have a key customer that keeps growing like crazy. And as for — we keep losing that capacity to that customer and not being able to pursue these other growth initiatives. So, we fully see kind of the current network being filled up in 2023, early 2024, including the recent Columbus initiative that we’re working on. And so, this is going to provide us that capacity we need to both support that customer, as well as pursue these other growth initiatives.
George Paleologou
Yes. And I think, to add to that, George, is that you have to look at the two mega trends that got us here in the first place, and obviously drove the growth of this division. One, of course is, the fact that a lot of QSRs today are having labor challenges, right? So, what we do is we provide a labor saving solution for the QSRs. We don’t see this situation improving. Because of that we’re getting — over the years, we’ve gotten a lot of inquiries from QSR. Unfortunately, we just haven’t had the luxury of extra capacity. We’ve prioritized our existing customers. So, we feel very comfortable that the labor saving, food safe, great quality sandwich solutions that we bring to QSR customers in particular will bode well in terms of filling that capacity.
Secondly, we’re starting to see tremendous traction in club as well. I think you can see a lot of our SKUs appearing now in club stores. We feel that we’re just scratching the surface of that channel. There’s simply more opportunity for us to grow in club in particular, consumers are busy. They’re looking for convenient, good quality, snacking solutions and breakfast solutions. And this category fits really well with those trends. Anyway, those are — those two trends are driving a lot of the demand that we see going forward.
George Doumet
That’s really helpful. And I saw a reclassification of warehouse rental income in PFD revenues. Will, can you talk a little bit a little bit about that and give us some color? What that is?
Will Kalutycz
Yes. It’s a — core part of our Confed business is they lease out parts of their warehousing space. So in the past they have — we were netting that with the lease structure, so it was netted into the use of assets account. And that’s been reclassified now as where it should be as revenue. So, that’s about $1.5 million a quarter.
George Doumet
And just one last one for me. The guidance assumes stable commodity prices. In the event that perhaps we see deflation accelerating towards the second half of the year, can you perhaps talk a little bit about the potential for outside the margins and how that should flow through the P&L from a timing standpoint?
Will Kalutycz
Yes. So, in our guidance, we are — our assumption is relatively stable commodity markets in our 2023 guidance. If we see a deflationary environment, particularly in pork which is a key raw material for our protein businesses, that generally is a margin expansion opportunity. The fact is — and you see it on two ways. One is prices tend to be sticky on the way down for most products. So you have some temporary margin expansion. But then also there are certain categories, where when we go through these inflationary times, they set new consumer price points and those price points don’t change. And so, you have sort of a permanent value capture there. But you will see as we generally will use that margin to drive some more featuring, but now we’re featuring at historic margins. So it’s — again, it’s a value, opportunity, value capture opportunity. But like I say, going back to our outlook for 2023, in that range of $590 million to $610 million in adjusted EBITDA, that’s based on a relatively moderate stable commodities environment.
George Paleologou
Just a comment, George…
Will Kalutycz
And sorry, George, just on your last question in terms of the sales around that — the new sandwich facility in the U.S. So, that facility, once it’s fully built out, will support about US$650 million to US$660 million in sales.
George Paleologou
And it’ll be built in three stages all the way to 2029, I believe.
Will Kalutycz
Right. Exactly.
George Paleologou
Again, Will’s comments are very relevant, George, in regards to commodities. I just want to remind everybody that we are not overdeveloped in one commodity. The comment relates to a basket of many commodities that we use, including seafood and lobster, and beef and pork and chicken, et cetera, et cetera. We’re well balanced in terms of commodities. Sometimes a certain commodity takes off, or drops, but overall, the basket of commodities remains constant, because another commodity has gone the other way. So, just want to remind you that.
Operator
And your next question comes from the line of Martin Landry from Stifel GMP. Please go ahead.
Martin Landry
My first question is on your five-year guidance. You’re calling for $1 billion in EBITDA. And I was wondering, if you anticipate to be able to fund that with internally generated cash flows or you think you’re going to need to maybe issue equity. Just trying to get a sense of what your $1 billion in EBITDA could look like, or could translate into an EPS metric?
Will Kalutycz
Well, that’s the exciting part of this plan, Martin, is we can achieve this plan entirely organically without any, including the small amount of acquisitions built roughly $0.5 billion or $500 million in acquisition, sales revenue built into the expectations, internally. No equity will be required. Equity would become more of a requirement if there was a larger acquisition opportunity on the horizon.
Martin Landry
Okay. That’s helpful. And then, I mean, you touched a little bit on it, George, in the answers to the previous questions. But when I look at your organic growth rate, again, for your five-year plan, I think, — well, you’re calling for a growth rate organically of 9.6%, annually. That’s higher than your 6% to 8% that — of your historical guidance. So, it’s obviously a big number. And it sounds like you have a lot of inbounds from your clients. It sounds like you still have a lot of untapped proportion of these, but it’s certainly much faster than industry growth rates. So, just wanted to see how much visibility do you have in that growth rate right now?
Will Kalutycz
Yes. That — just to give you some context for that 6% to 8%, organic volume growth rate, that is based on kind of just normal trends, like looking at our existing products, product mix, and what we expect it to grow just on its own organically. And then, as we make these investments in these new initiatives, these new capacities, we always expect that to accelerate the growth rate to well above that 6% to 8% range. And again, so what you’re seeing is we’re investing in these higher growth categories — the reality is where we’re investing, they’re not stable categories. These are fast growing opportunities. Cooked protein is a great example. It’s growing at well over, low-double-digit rates. So, we’re investing in those high growth categories. And with that capacity coming along, that’s what’s making us bullish on those overall growth numbers.
George Paleologou
The other comment I have, Martin, is that if we make the same assumptions around the growth of a lot of these exciting categories that Will mentioned in the U.S., similar to the way they grow in Canada for us, then we’re just scratching the surface in the U.S. We’re just getting started in the U.S. market. So — and we are getting a lot of traction in the U.S. as we speak. You’ll be surprised how many of our products you’ll see on shelves in the U.S. And the nature of the U.S. market is that when we see opportunities, they’re not small opportunities, they’re larger opportunities. And that’s the discussion around capacity, right, capacity. A lot of times we’ll sit down with a customer, we’ll do an innovation session with them, and they’ll say, okay, we want to roll this out across our 10,000 stores. Well, we don’t have the capacity for that. So, for us, automated, modern capacity is a key variable that as you could see with our discussion earlier, we’re solving that issue and we’re really excited with our ability to now cater to the demand that we see.
Operator
And your next question comes from Stephen MacLeod from BMO. Please go ahead.
Stephen MacLeod
Just wanted to follow-up on a couple of lines of questioning. Just in terms of the long-term growth targets for 2027. You’ve given a lot of good color around top line and EBITDA margin potential. Just curious if you can give a bit of — maybe a bit more of a granular breakdown between how you think about gross margin and SG&A leverage over that time period. And then, maybe more specifically, or more near-term, SG&A did seem to tick a little bit higher in Q4. And just curious if that’s just related to that seasonality of the of the period.
Will Kalutycz
Yes. I’ll start with the last part of your question, Steve. In terms of Q4, definitely there is a seasonality element, right, because of the slower sales relative to our SG&A being relatively fixed. But going forward, one of your first questions, absolutely there’s investment being made there for future growth. Our SG&A, I think was up over the quarter. Our SG&A infrastructure, i.e., our spending in our core people was up around $3 million, and almost half of that was additional sales people across the network. So, that’s all sort of to support that growth in 2023 going forward. So, it is investing in the future.
Stephen MacLeod
And then, would you expect any major material change to your gross margin profile over that time period?
Will Kalutycz
Yes. So — and this kind of goes to Derek’s comment a bit. We talk a lot about our contribution margins, particularly in our specialty foods businesses. And I shouldn’t note, Steve, that when we look at our growth out over the next five years, it is much more weighted to the specialty food side of our business to — than to the premium food distribution and the contribution margins in those businesses, i.e. the dollars that flow to the bottom line with an incremental sale, they’re on average 25% plus with — in our bakery goods, they can be over 40% on certain items. So very, very accretive to our overall margin. And so, yes, so you’re going to see gross margin improvement as we leverage those capacities. Vice versa, that’s one of the reasons why our margins have not improved over 2022 because we invested in that capacity, invested in that overhead and we have — we didn’t see the leveraging happening. So, as we see that leveraging, you’ll see our mark gross margin and obviously EBITDA margins improving.
Stephen MacLeod
And then I just wanted to go back because I think you gave a little bit of color around the new sandwich facility. I believe you said it’s — can support north of $600 million in sales and it’s been built in stages. But I just wondered if you could just give that color, again. I just, I missed that.
Will Kalutycz
Yes. No, you’re right. That’s around US$650 million plus in sales. That’s U.S. dollars.
Stephen MacLeod
Okay. And over what time period? Did I hear that it will be something done in stages through 2029. Is that right?
George Paleologou
Yes, it’ll be in stages. Now, the big part of the growth is in from 20 — the first phase is completed at the end of ’24, early ’25. So, you’ll see that growth kicking in at ’25, ’26, ’27 being the big years and then support some more towards the latter part, with the final edition coming on stream in 2029. So, that US$655 million in sales, that will support us beyond our five-year business plan, based on how things are looking today.
Stephen MacLeod
And then maybe just along those lines, along the sandwich [ph] facility. You talked about it being very automated leveraging technology, and I know you have some of the technology in your Phoenix plant. But just curious if you can give a little bit of incremental color around, like what that does for you in terms of throughput and profitability at the plant level?
Will Kalutycz
Yes. Absolutely. The advantage of the automation is really cost efficiency. And so, we’ve got I’d say two Gen 3 lines, George, now in Phoenix, and one in Reno. And certainly with the Columbus expansion that we’re undergoing, there’ll be a Gen 3 line put in there, which is the fully automated line, and more planned for the Tennessee plant. Again, the tremendous efficiency gains, I can’t remember off the top of my head the savings, but you have instead of — by order of magnitude 50 people on a line, doing very manual repetitive work, now you have 15 to 20 doing much more sophisticated work. So, not only is it incredibly efficient, but it does make for a much better work environment.
Operator
[Operator Instructions] And your next question comes from the line of John Zamparo from CIBC. Please go ahead.
John Zamparo
I also wanted to start on the on the 2027 targets and I appreciate all the color on this so far. A couple of quick questions. The long-term guide and organic growth, can you share your assumptions on pricing or volumes within that number?
Will Kalutycz
Yes. So, in terms of — the only year where there is significant pricing assumptions is in 2023. And in fact, we are projecting overall to be slightly deflationary. So our guidance, our sales guidance for 2023, you’ll notice that the growth rate is a little bit lower than you might have expected. That is because we’re expecting a bit of deflation. Going out to ’24 and beyond, John, we generally — 1% to 2% inflation is built into the numbers.
John Zamparo
And then, secondly, can you say what a reasonable split would be between specialty and distribution, specialty typically outperformed, of course. But I wonder, are these going to be somewhat in mind, or do you think specialties is above that 9 to 10 number?
Will Kalutycz
You’re talking growth rates, John?
John Zamparo
Yes. Still within the growth rate?
George Paleologou
Yes. No, specialty is by far the big growth driver. It’s going to be above that and premium foods distribution group, it will be sort of in our targeted range; that 4% to 6% range. You’ll notice from the capital investment, the vast majority of it is in our protein, sandwich and bakery groups, i.e., all specialty foods groups companies.
John Zamparo
I think that may answer this next one. It’s a follow-up on Martin’s question. Just the level of organic growth is a — it’s a meaningful step up versus the past. And I wonder when you think about the $1 billion in EBITDA versus the $0.5 billion now, what the biggest drivers are going to be an EBITDA dollars, if you could rank them between sandwich and seafood and proteins?
George Paleologou
I think, John, as Will said, it’s driven by a mix issue, a change in the mix. There’s no question that we’re seeing some — and taking advantage of some mega trends that we’re well positioned in. For example, the growth in charcuterie demand across North America, the growth in cooked protein. We’ve talked about skewers as well. Dry cured, which we’re one of the leaders in dry cured in North America, dry cured meats, including Italian and German. The premiumization trend in terms of meat snacks, and the artisan bakery goods that we’ve talked about earlier. All of these products tend to be the ones that are going to drive our growth based on availability of capacity. And they’re generally higher margin than that what we’ve done historically with the entire basket. So, those will drive the growth in our in our margins.
Will Kalutycz
Yes. And George is right. Contribution margin, higher contribution margins on those specialty foods groups is a big drive. But you should also note, John, that the $500 million we did this year is a depressed number, like inflation had a major impact on us. Just the price delays, i.e. not taking into account the impact of inflation before we put the pricing, and just the price delays from retailers, that alone was $46 million impact on us this year, i.e. if the price increase had just gone through when we first put — sat down with the retailer and negotiated it, that would have right there been $46 million to our bottom line. So, it’s definitely a depressed number we’re starting from.
John Zamparo
And just a couple of housekeeping matters. The remeasurement of provisions in Q4, is that from lower expectations contributions from recent deals, or is there an accounting element of that — the discount rate or the multiple you’re paying…
Will Kalutycz
That relates to a seafood business on the West Coast that we have an equity interest in. And we just for conservative purposes, because the West Coast fisheries are struggling. I don’t know how much you hear about it in Ontario. But there are serious concerns around the salmon fishery and some of the other fisheries. And just for conservative purposes, we wrote down the investment on that basis. The business itself is doing okay. And certainly — I’m sorry, John. I was referring to the equity adjustment we made.
In terms of the provisions, yes, actually, that was a very simple one. The remeasurement provisions related to the contingent consideration on an acquisition, and the contingent consideration was set at incredibly high rates, high levels, so that if they were hit, it made our IRR work. The fact they’re not going to hit those levels, we’ve done a remeasurement based on that. But overall, the business is still in sort of plan relative to our base IRR. It’s just not — we’re not going to see the upside that would have driven the contingent consideration.
John Zamparo
And then, last one for me. George, you referenced vertical or potentially looking at vertical integration. I think that was on your Ferndale plant. Can you elaborate a bit there?
George Paleologou
No, actually, John, that was referring to the facility in Cleveland, Tennessee. We’ve secured about 65 acres. We’ve talked about the assembly plant that — and the assembly capacity. But again, it’s not in the plan yet but we have talked about adding a bakery there. Possibly, that’ll save our customers a lot of freight because a lot of the baked goods that we use come from all over the place, saves the planet as well. And there’s many, many reasons to do more things there. That’s why I called it a complex. So, again, it’s not in the five-year plan, but we’ve certainly talked about the possibility of adding vertical integration to that facility, both in baked goods as well as in some of the other proteins that we use.
Operator
Thank you. Mr. Paleologou, there are no further questions at this time. Please continue.
George Paleologou
I’d like to thank everybody for attending today. Thank you.
Will Kalutycz
Thanks, Everyone.
Operator
Thank you. That does conclude our conference for today. Thank you all participating. You may now disconnect.