Village Farms International (Otc) ((VFF)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Village Farms International’s recent earnings call painted a picture of strategic growth and resilience, particularly in the cannabis sector. The company is making significant strides with its Vanguard Foods transaction, positioning itself for future expansion. While the Canadian cannabis segment shows robust performance, challenges persist in the fresh produce sector due to environmental factors and a decline in US cannabis sales. Overall, the positive developments in cannabis suggest a promising outlook.
Transformative Transaction with Vanguard Foods
Village Farms has embarked on a strategic initiative by privatizing its fresh produce division into a joint venture named Vanguard Foods LP. The company retains a 37.9% stake and receives $40 million in cash. This move is anticipated to unlock long-term value for both the cannabis and produce businesses, marking a pivotal shift in the company’s operational strategy.
Strong Growth in Canadian Cannabis Segment
The Canadian cannabis segment has shown impressive growth, with gross margins expanding from 25% to 36%. Adjusted EBITDA has increased by 75% year-over-year, and international medical export sales have surged by 285%. These figures highlight the momentum and potential of the Canadian cannabis market for Village Farms.
Netherlands Operations Begin Contribution
The Leli Holland subsidiary in the Netherlands has started contributing to revenue, reporting nearly half a million dollars in its first month. With adjusted EBITDA at breakeven, this marks a successful entry into the European market, further diversifying Village Farms’ revenue streams.
Positive Cash Flow and Strong Financial Performance
Village Farms has reported a 75% increase in adjusted EBITDA and a 291% rise in net income, maintaining positive cash flow from operations. This financial strength underscores the company’s ability to navigate challenges and capitalize on growth opportunities.
Impact of Dust Storms on Fresh Produce Segment
Environmental challenges, such as dust storms in Texas, have significantly impacted the fresh produce segment. This led to a 31% increase in cost per pound and a $4.3 million non-cash charge, contributing to a consolidated net loss of $6.7 million. These factors highlight the volatility in the produce sector.
Decline in US Cannabis Sales
US cannabis sales have decreased to $3.9 million, influenced by state-level actions affecting unregulated hemp products. Despite this decline, the gross margin remains healthy at 66%, indicating resilience in the face of regulatory challenges.
Forward-Looking Guidance
Looking ahead, Village Farms is focused on closing the Vanguard Foods transaction in the second quarter, which is expected to enhance cash flow and financial performance visibility. The company aims to capitalize on the expanding Canadian cannabis market, with gross margins projected to continue growing. This strategic focus is set to drive future growth and shareholder value.
In summary, Village Farms International’s earnings call reflects a strategic pivot towards strengthening its cannabis operations while addressing challenges in the fresh produce sector. The overall sentiment is positive, with the company poised for growth through strategic transactions and market expansion.