Pyxus advances strategic growth initiatives
MORRISVILLE, N.C. , June 14, 2019 /CNW/ -- Pyxus International, Inc. (PYX), a global value-added agricultural company, today announced results for its quarter and fiscal year ended March 31, 2019.
Highlights
Fiscal 2019
Fourth Quarter
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*Adjusted EBITDA is not a measure of results under generally accepted accounting principles in the United States . See the reconciliation tables included in this press release for details regarding the calculation of Adjusted EBITDA.
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Pieter Sikkel , President, CEO and Chairman said, "Over the past fiscal year, we have accomplished real change at Pyxus International. From investing in differentiated capabilities across our entire portfolio to ensure we are uniquely positioned to capitalize on growth opportunities to propelling our leaf business forward through cultural and operational changes, we are committed to creating value through innovation for our customers, our partners and our shareholders.
"Our financial performance this year is a reflection of the strong performance of our leaf business as well as the significant investment in our new business ventures. Our leaf team addressed challenging market conditions with efficiency and agility, resulting in a 4.9% increase in full service volumes to 400.5 million kilos. Sales and other operating revenues decreased 2.4% to $1,801.6 million primarily due to a decrease in leaf volumes attributable to Hurricane Florence that reduced the U.S. crop size and foreign tariffs on U.S. tobacco. These decreases were offset by an increase in leaf volume, mainly attributable to larger crops in Africa , the timing of leaf shipments in South America and the continued development of the Other Products and Services segment. Gross profit as a percent of sales increased from 13.3% for the year ended March 31, 2018 to 13.9% for the year ended March 31, 2019.
"SG&A increased 16.5%, driven primarily by the requirements of the Company's new business ventures and related start-up costs as we continue to build out our Canadian cannabis manufacturing facilities in the provinces of Prince Edward Island and Ontario , as well as invest in marketing and advertising for our e-liquids businesses. These increases were offset by our cost-saving and restructuring initiatives in the leaf business, and we finished the year above our anticipated Adjusted EBITDA guidance range at $163.3 million . We remain focused on long-term debt reduction and have reduced our second lien notes to $635.7 million at March 31, 2019.
"We continue to see the benefit in the implementation of strategic initiatives to enhance the leaf business. For example, year-end uncommitted inventory was the lowest it's been since fiscal 2011, consistent with our working capital strategy. Despite challenges, particularly those in the African market, our tobacco shipments were minimally impacted and we executed largely as planned. While the cyclone that struck Mozambique , Zimbabwe and Malawi had some impact on operations, we were able to mitigate the extent to which our operations were affected and, most importantly, have been successful in our ability to provide support to the individuals and families that suffered the effects of the storm. Pyxus helped drive significant fundraising efforts across the industry. We will continue to work to provide assistance to these areas as they look to rebuild in the coming months. We have managed the unfavorable weather and logistical challenges of fiscal 2019 and our leaf business is tracking towards a normal performance taking into consideration these two factors for the first half of fiscal 2020.
"Turning to the performance of our global new business ventures, we are seeing ongoing acceleration in growth and are confident that our talented teams will continue to propel these businesses forward. Across all categories - legal Canadian cannabis, industrial hemp and e-liquids - these businesses remain on track to generate significant revenue and profit by 2020.
"When we first announced our transformation, we stated that we were entering into new potentially higher-margin business lines to deliver enhanced value to shareholders. In line with that objective, we are evaluating the consolidation of Pyxus' ownership in its two majority-owned Canadian cannabis businesses (i.e., FIGR Norfolk and FIGR East (licensed as " Canada's Island Garden"), collectively, "FIGR") with two of its minority-owned U.S. hemp and e-liquids businesses (i.e., Criticality and Purilum, respectively) under the common control of a subsidiary separate from Pyxus' other operations. Pyxus is assessing its opportunities to monetize a portion of its interests in this subsidiary in fiscal 2020.
"FIGR continues to be a leader in share in the Maritime provinces in Canada , with strong positions across categories. Since the legalization of recreational cannabis last fall, FIGR has maintained a strong market share position across all categories in Prince Edward Island and Nova Scotia by staying to true to its commitment to only sell into provinces it can adequately supply. Earlier this week, FIGR announced its expansion into its third Canadian East Coast market, New Brunswick . The introduction of FIGR products in New Brunswick grows FIGR's retail distribution as it continues to execute on its strategy to enter new provinces.
"FIGR intends to enhance its position through its commitment to increase local capacity, expected to be more than 140,000 kilograms annually. FIGR's Simcoe, Ontario facility, FIGR Norfolk (formerly licensed as Goldleaf Pharm Inc.) recently announced that the company had begun excavation and tree-clearing on the 20-acre parcel of land slated for phase two of its approximately 800,000 square foot expansion project. Phase two of the FIGR Norfolk build-out involves the construction of an approximately 200,000 square foot, state-of-the-art, modular indoor concept cultivation facility expected to be complete by the end of 2020, with associated revenue and profitability expected in early to mid-2021. The build-out of FIGR East also remains on track with the completion of phase one targeted for the coming weeks and the completion of phase two expected by the end of the calendar year.
"Our unconsolidated industrial hemp joint venture, Criticality, LLC, opened its 55,000-square-foot industrial hemp extraction and purification facility in Wilson, North Carolina this quarter. In May, Criticality announced the release of its professional line of CBD products, Korent Select, which are only available for sale to health care professionals. This is in addition to their Korent oil drop and e-liquid products, which were released in December 2018 and January 2019 respectively. Additional new product launches are expected later this year.
"The e-liquids category continues to grow, with sales for the fourth quarter across its collection of brands exceeding sales in any prior quarter. Specifically looking at Humble Juice Co. and Bantam, Humble is working to expand its product line with a launch of CBD products in the second half of 2019. Bantam recently launched its rebranding and new packaging.
"At the core of ensuring that we are delivering on our commitment to provide high-quality products and services to our customers, is SENTRISM, our proprietary blockchain-type platform which provides visibility into a products' source to market journey. This quarter, we are proud to share that we released SENTRI for Bantam and are working to enhance SENTRI capabilities for Korent and Purilum as well. We have no doubt that SENTRI will continue to provide a competitive advantage among our partners and consumers as the demand for greater product transparency continues to grow.
"As our business continues to evolve, we see a great opportunity in the advancement of our agronomy services, which focus on the development of value added agricultural products, and is a continuation of our strategy to move into areas of growth. In May, our affiliate, Pyxus Agriculture Limited Tanzania received the merger clearance certificate from the Tanzania Fair Competition Commission for the acquisition of an oil mill and refinery operation located in Dodoma which provides Pyxus with the ability to extract and sell sustainable sunflower oil in various product formats for human consumption as well as seed cake for animal feed. The purchase of the sunflower oil mill and refinery is yet another example of how Pyxus continues to evolve and diversify, expanding as a global agricultural company with CPG capabilities and signifying that we are entering the next phase of our company's transformation.
"We are pleased with our growth and pace of innovation, and we are encouraged by the substantial progress that we have made in our transformation efforts this past year. As we manage our new business lines and our existing leaf business, we expect sales to be in a range of approximately $1.850 billion to $1.950 billion and Adjusted EBITDA in a range of approximately $160 million to $180 million for the fiscal year ending March 31, 2020 . As we continue to execute our vision, we will not lose sight of our greater purpose: to transform people's lives so that together we can grow a better world."
Performance Summary for Fiscal Year Ended March 31, 2019
Sales and other operating revenues decreased $44.4 million or 2.4% from $1,846.0 million for the year ended March 31, 2018 to $1,801.6 million for the year ended March 31, 2019. This decrease was primarily due to a decrease in leaf volumes in North America attributable to Hurricane Florence reducing the U.S. crop size, foreign tariffs on U.S. tobacco, and a decrease in leaf average sales price of 7.3% primarily due to product mix and geographic sales mix. These decreases were offset by the continued development of the Other Products and Services segment and a 4.9% increase in total leaf volume to 400.5 million kilos mainly attributable to larger crops in Africa and the timing of leaf shipments in South America .
Cost of goods sold decreased $49.0 million or 3.1% from $1,599.8 million for the year ended March 31, 2018 to $1,550.8 million for the year ended March 31, 2019. This decrease was primarily due to product mix and geographic sales mix.
Gross profit as a percent of sales increased from 13.3% for the year ended March 31, 2018 to 13.9% for the year ended March 31, 2019. This increase was primarily due to lower leaf conversion costs in Africa from higher factory throughput driven by higher volumes, the favorable exchange impact on local currency costs, primarily in South America and Europe , and the continued development of the Other Products and Services segment. This increase was offset by higher leaf conversion costs in North America attributable to Hurricane Florence reducing the U.S. crop size.
SG&A increased $24.5 million or 16.5% from $148.3 million for the year ended March 31, 2018 to $172.8 million for the year ended March 31, 2019. This increase was primarily due to start-up costs associated with the development of the cannabinoid manufacturing facilities in the provinces of Prince Edward Island and Ontario in Canada , marketing expenses for the FIGR cannabinoid brand and the Humble Juice e-liquids brand, and the acquisition of an additional cannabis cultivation license from Health Canada. These increases were offset by leaf cost-saving and restructuring initiatives. SG&A as a percent of sales increased from 8.0% for the year ended March 31, 2018 to 9.6% for the year ended March 31, 2019.
Restructuring and asset impairment charges of $4.9 million for the year ended March 31, 2019 were due to the closing of one foreign processing facility in order to process tobacco in the affected area under a third-party processing arrangement going forward and the consolidation of the Company's U.S. green tobacco processing operations into its Wilson, North Carolina facility and the repurposing of its Farmville, North Carolina facility for storage and special projects.
Income tax expense increased $96.6 million or 164.3% from $(58.8) million for the year ended March 31, 2018 to $37.8 million for the year ended March 31, 2019. This increase was primarily due to a one-time benefit related to the enactment of the U.S. corporate income tax law in December 2017 , recorded in tax expense for the year ended March 31, 2018.
Performance Summary for the Fourth Fiscal Quarter Ended March 31, 2019