Freedom Foods (ASX:FNP) share price slides despite 141% EBITDA growth in FY21

Freedom Foods shares are falling in early trade on Monday after a robust FY21 performance.

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The Freedom Foods Group Limited (ASX: FNP) share price is slipping in early trade on Monday as the food manufacturing company released its FY21 earnings.

After an initial jump of 3% on Friday's closing price, Freedom Foods shares have slid 4.55% to 42 cents at the time of writing.

Let's investigate further.

Freedom Foods share price falls despite strong revenue and earnings growth

  • Total revenue from continuing operations of $559.1 million, an 8% year on year growth
  • $76.4 million "earnings turnaround" from the year prior
  • Adjusted Operating EBITDA from continuing operations of $22.4 million, up 141% on restated loss of $54.0 million in FY20
  • Plant-based Beverages revenue up 16% to $152.9 million, with MILKLAB sales up 49% year on year
  • Dairy and Nutritional's revenue grew 7% to $394.3 million, with lactoferrin sales up 215%
  • Statutory net loss after tax of $38.8m million, a 72% improvement on "restated FY20 loss" of $136.4 million
  • No declared dividend for FY21.

What happened in FY21 for Freedom Foods?

In a potential positive for the Freedom Foods share price, the company grew total revenue by 8% to around $560 million in FY21, underscored by strength in its plant-based beverages plus dairy and nutritional's segment.

In fact, plant-based beverages grew revenue by 16% to approximately $153 million, alongside MILKLAB sales which grew about 50% over the year.

Freedom's dairy and nutritional's revenue also expanded by 7% to $394 million. Much of the growth here was underlined by lactoferrin sales which grew a mammoth 215% from the year prior.

The company also outlined growth in "key channels", including a 38% year on year increase in e-commerce sales and a 31% growth in export sales.

Consequently, export sales now "represent 24% of group revenue", a 4 percentage point gain from FY20.

Freedom also recognised an adjusted EBITDA growth of 141% from the year prior of $22.4 million. This represents a "significant, $76.4 million turnaround" from the EBITDA loss of $54 million reported in FY20.

The company explained this turnaround stemmed from "improved operational efficiencies across the business" but does exclude a one-off "restructuring cost" of about $28 million.

Freedom also recognised a statutory net loss after tax of $38 million, which is a "substantial improvement" from the net loss of $136 million a year ago.

Despite these growth patterns, Freedom's specialty seafood revenue decreased by 22% year over year. The decrease came as "COVID-19 disrupted global supply chains, causing stock shortages" which resulted in the "need to cancel promotions".

Finally, the company left FY21 with around $32 million in cash on its balance sheet, with an additional $48 million in working capital from "undrawn facilities".

What did management say?

Speaking on the results, Freedom Foods CEO Michael Perich said:

FY21 was a defining year for Freedom Foods Group, marking the start of our 'Reset, Transform, Grow' transformation into a progressive Australian and regional branded FMCG business, with a much improved operating model and tighter controls that better respond to changes occurring in the local and international environments.

Touching on the earnings turnaround, Perich added:

Actions to transform the Company are well underway, with the Group benefitting from the hard work and commitment of our employees. The continued focus by the team on the customer, quality and innovation has continued to deliver very pleasing results. The significant $76.4 million turnaround in our Adjusted Operating EBITDA performance year-on-year – as well as the sales growth we are seeing in our key brands and markets here and overseas – point to the potential of these actions to continue delivering better returns for the Company and its investors.

What's next for Freedom Foods?

Freedom does not expect to see the "full benefits of the improvements [it is] making to flow through until FY23".

This refers to the Group's "transformation strategy" that aims to "springboard" sales growth by capturing the "ever-increasing consumer demand" for healthy food and lifestyle alternatives.

As a result, management is confident in "continuing the positive momentum" achieved in FY21, as it pursues this transformation strategy.

Freedom also acknowledges the "uncertain impact of the latest COVID-19 lockdowns" to its supply chain, operations and end-markets and, thus, did not provide specific earnings guidance.

The Freedom Foods share price has had a choppy year to date, posting a loss of 85% since January 1. This result has lagged the S&P/ASX 200 Index (ASX: XJO)'s return of around 14% over this same time.

The author Zach Bristow has no positions in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Freedom Foods Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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