Upfield - comment

The company reported Q1 2024 financial results yesterday and hosted a call with investors. Upfield missed our topline estimate as we expected growth in the single digit while the company reported negative volume / mix growth of -1.2%. The most positive part of the report was the growth in gross profit (+9%), which beat our estimates by €13 million. Gross profit grew by modest commodity deflation and value creation savings of €21 million - the biggest driver of growth for the €221m EBITDA (+17%), which we note is not in the company’s control. Correspondingly, Q1 2024 free cash flow was at €82 million, higher than our expectations and driven by a doubling of cash flow from operations and reduction in capex. Reported net leverage at 6.5x was below our expectations and showed no quarterly improvement as net debt increased and the company paid higher cash interest and fees. Liquidity was better than our expectations at €771 million. Management maintained its outlook for the rest of 2024 of low single-digit organic growth and growth in EBITDA ahead of revenues and continued deleveraging. This implied that the company expects volume growth to accelerate in the remaining quarters with no help from pricing. Management stated on the call that they are focused on growing volumes which takes time and is challenging to execute. There was no mention of a refinancing of the notes and given that leverage remains elevated, we expect a refinancing of the notes in the back end of 2024 and an IPO to be possible only in 2025 / 2026.