Sunopta Inc (STKL) 2012 Q3 法說會逐字稿

Thank you. 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.

Whereas all of the risks 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 projections in any forward-looking statements.

Finally, we would also 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.

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 on line.

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 non-core assets, and new financing agreements in both North America and Europe, our balance sheet is in the strongest position it has been in some time, leaving us well positioned for future growth.

We truly believe that healthy eating and healthy eating 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 yet 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 of Purity Life, which was not aligned with our core strategy. We continue to assess options for other non-core, non-food assets and are working to maximize the value of these investments for eventual re-investment 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.

While an impact on costs in the quarter, all of these initiatives are focused on growing our value-added foods portfolio. Earlier this year, we announced a 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?

Thanks, Steve, and good morning, everyone. I will 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 US 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 declines 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 feed-stuff 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 pre-tax, acquisition and startup costs related primarily to the startup of our Allentown, Pennsylvania pouch-filling facility and acquisition costs at Opta Minerals.

On a year-to-date basis, we reported 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 $0.30 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 one-time 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 [1.5] 1-to-1 and total debt-to-equity ratio of [0.5] 2-to-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 will 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 operation of $2.7 million last year. This represents record cash generation from operations for the Company for the first three quarters, indicative of increased earnings and disciplined working-capital management.

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

During the third quarter, we refinanced both of the credit facilities that serve 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 four-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 costs 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 EUR45 million, a EUR10 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 stand-alone 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?

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 remained 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 US 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 continued 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 on the way.

In grains and food group, we reported strong revenue and operating income increases versus the prior year. We continue to focus on the value-added categories in the grains and foods group, expanding our milling capabilities for processing of grains-based ingredients, our roasting capabilities for both consumer package 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 costs 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 function to our US corporate office located in Edina, Minnesota.

In addition to the synergistic benefit that will be realized from centralization, we expect that 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-base 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 effect 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 startup of our Allentown, Pennsylvania facility. I am pleased to report that the first two pouch lines in Allentown were commissioned on time and started shipping product right at the end of the third quarter.

A good problem we encountered is that we have reached our sales capacity for our [two West Coast] pouch lines and the first two lines at our Allentown facility, mostly through committed, longer-term contracts. Accordingly, we have initiated our expansion plans at Allentown and will be installing an additional two 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 costs that cannot be avoided, we expect to see noticeable improvement in the operating margins of the consumer product groups 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. Another 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 are pleased to see the international foods group continue to perform near [started] 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 five 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?

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?

Thank you. (Operator Instructions). Greg Badishkanian, Citi.

Hi, it's Alvin; and good morning. 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?

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.

Great to hear. And I guess, looking near term -- operating margins have increased 130 basis points, excluding some of those startup 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?

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

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 categories that we operate in. And I mean I think that's really the trend you're going to see -- is that year-over-year successive improvement.

There is 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 third quarter. But I think it's fair to say that this is the trajectory that -- to expect.

Great.

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

Yes -- a couple of points. In North America, we saw a little bit of acceleration during the third quarter, and that's held into October. So I don't see much change there at this stage. We will see the benefit of some of the pouch products coming on line, as Rik mentioned, where we really didn't get much revenue in the third quarter because of the commissioning and then the quality -- hold process before you release product, 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'd 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 October that looks pretty good at this stage.

So the way it's always described to 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 expectation, especially in the United States. So that's been good for us, and allowed that group to hold steady. So careful and cautious is the word in Europe at this stage.

Great. That's it for me. Thank you very much.

Thanks, Alvin.

Peter Prattas, Fraser Mackenzie.

Good morning, guys.

Good morning, Peter.

Hey, Peter.

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 shedding those businesses? And couldn't we expect from here to start gaining momentum?

Well, I mean of course the evaluation process of all of our offerings is a continuous process. So you're never always 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. But we will continue to expand over there in the current categories and in adjacent categories that we think offer good, long-term potential.

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?

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 are forcing out -- there is 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 their earnings -- a couple hundred thousand in operating income. They have been working very, very hard to manage -- [continue] to realize the synergies that had 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 and change into this -- a couple months into it now -- they've made very good progress on their plan to realize on synergies. It'll 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 that the idea is to get them into that 10% operating-margin target.

Excellent. Thanks very much.

Thanks a lot, Peter.

Christine Healy, Scotiabank.

Thanks. Hi, guys.

Hi, Christine.

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 with this non-core business. So maybe you could just confirm to them what your plans are with Opta Minerals?

Yes, sure. Okay, that's fine. As we've indicated, in our three 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.

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 fiber is going; how many customers you're working with? And do you think this could be a material contributor to revenue going forward?

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.

Okay.

Because, with 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 state of [bench] work and, in some cases, even trials.

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 were 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?

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 go more aggressively after the bread markets as well. And that project is nearing completion.

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 fill? Is there anything that you really feel is missing?

Yes, I think, as Rob indicated, where we really want to go -- and that is really strategy number two. So strategy number one is becoming the pure play. Strategy number two is actually moving up into the value chain, if you like, and more and more focus on consumer packaged and value-added ingredients.

It's pleasing for us to see that consumer package has grown year to date by 15%. And that's certainly something that we're -- 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 plain to strategy number three, if you like -- leveraging our platform are any of these value-added consumer products -- can we do that and copy that internationally? And that's something that we're looking at very hard at this particular point in time.

That's great. Thanks, guys.

Thanks, Christine.

Bob Gibson, Octagon Capital.

Hey, everyone.

Good morning, Bob.

Hey, Bob.

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?

Sure.

And also what you're thinking as longer term -- I mean once these two lines in Allentown go in, where do you go from here?

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

Yes. And you're right that 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. Think of companies like (inaudible) that are more into 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 off Allentown with two lines. That is, those two lines are carrying all of the factory over it 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 two 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-acid aseptically packaged pouches, which will have a significant improvement in flavor and also a significant improvement in cost profile to consumers versus the current resource of pouches.

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

A glass jar -- yes.

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

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

Well, our bar business -- 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 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.

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

No major disruption. I mean we have --

Allentown shut down for one day.

Allentown shut down for a day and a half or something like that. But that's in the Philadelphia area. They were able to get that 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 there may have been other -- those were the two that were most impacted. I mean other places closed early and went home and that sort of thing, but nothing substantial, Bob.

Great. Thanks so much.

Thanks a lot.

(Operator Instructions). Scott Van Winkle, Canaccord Genuity.

Pouch question-- how significant a business is that today?

Which one, sorry?

Pouches.

In terms of what we currently run? We ran just about 300,000 of sales --

Out of Allentown.

-- at the third quarter, out of Allentown. We're looking up --

And then the West Coast lines were full.

The West Coast has been operational all year, Scott.

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

Just under $12 million.

That's right.

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 Project seal is 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 driver even without passage?

Yes, Scott. I'll answer a bunch of the questions. We have had a large number of inquiries from people -- our main 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 I look at it, anyways, 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 is 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 is 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 their 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.

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 one or two -- 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?

Yes, we're seeing it -- and you can see it. If you ever look at the grains group, especially, Scott, it's our packaged -- the aseptically packaged beverages continue to outperform over the year, as well. We had a nice lift in grains-based -- organic grains and other feedstuff 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.

Great. Thank you very much.

Thanks, Scott.

[Ron Ruvin], [Ruvin] Capital Investments.

Hey, guys. How you doing?

Hey, Ron. How you doing?

Good -- just wanted to get an update on the Mascoma -- anything -- any new developments 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?

Yes. Well, you're certainly right. They didn't see an ideal IPO market. Interestingly enough, since they filed their IPO, there has been three similar IPOs pulled completely. And if you go back and 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-to-ethanol industry to improve yields, et cetera. And I've talked about that in the past. So that continues to go well for them. The product is called [Transfirm]. It's being used by seven ethanol producers in the US with trials at another 14. So that process continues to go well.

They have three cellulosic ethanol projects to build cellulosic ethanol facilities that are in various stages 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.

And you mentioned, as far as the core business and everything else right now -- it's 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 into -- eventually into the double digits?

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

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

I think that's a very difficult question to answer given the number of plants that we have. 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've got, so to speak -- start thinking about fruit snacks, thinking about juices. And on the ingredient side, I think that at this stage we are underutilized. And so 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.

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.

Yes. And, no, I don't think that 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.

Okay, great.

Great quarter, guys. And I'll talk to you soon.

Thanks a lot, Ron. Take care.

Take care.

Keith Howlett, Desjardins Securities.

Hi, Keith.

Hi, Steve.

I was wondering what the size now of the aseptic beverage is, and soups business -- would be.

Approaching $200 million.

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

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

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

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

Oh.

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

Yes. So it's not our focus.

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

No. I think if 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 started up a number of small customers and working with a number of very big customers -- of course, especially in the Greek yogurt segment because that's the one that's growing.

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

This is cellulose fiber. And we need to go to -- we are in the process of installing ball milling so that we can get basically smaller fiber so that it can go into the bread markets.

I see. Great. And then just finally on the -- what used to be the fruit-bar business -- was that part of the 30% growth rate or was the 30% growth rate more on the Carson bars? Or is the whole business growing at 30%

No. The Carson bars are seeing explosive growth. The fruit bars are seeing modest growth.

Great. Thanks very much.

Great. Thank you. Any other questions?

Thank you. I am not showing any further questions in the queue. I'd like to turn the call back over to Mr. Steve 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. I appreciate you joining the call, and we look forward to talking to you soon. Thank you.

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