PRBZF - Premium Brands Holdings Corporation (PRBZF) Q3 2023 Earnings Call Transcript
2023-11-14 16:38:13 ET
Premium Brands Holdings Corporation (PRBZF)
Q3 2023 Earnings Conference Call
November 14, 2023, 13:30 ET
Company Participants
George Paleologou - President, CEO & Director
William Kalutycz - CFO
Conference Call Participants
Martin Landry - Stifel
Derek Lessard - TD Securities
George Doumet - Scotiabank
Stephen MacLeod - BMO Capital Markets
John Zamparo - CIBC Capital Markets
Christopher Li - Desjardins Securities
Presentation
Operator
Hello, ladies and gentlemen, and welcome to the Premium Brands Holdings Corporation Third Quarter 2023 Earnings Conference Call question-and-answer session. [Operator Instructions]. This call is being recorded on Tuesday, November 14, 2023. I would now like to turn the conference over to George Paleologou. Please go ahead.
George Paleologou
Welcome, everyone, to our third quarter conference call. Hopefully, you've had a chance to listen to the prerecorded call, and have looked at the third quarter deck posted on our website this morning. With me here today is our CFO, Will Kalutycz, we will now move to the Q&A part of the call. Lester, back to you. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions]. Your first question comes from Martin Landry from Stifel.
Martin Landry
My first question is with regards to the Specialty Foods segment, you mentioned that the organic volume growth was 7.6% when we exclude 2 nonrecurring factors. I was wondering if you can discuss some of your program wins, which contributed to the growth of the segment this quarter?
George Paleologou
Yes. Again, Martin, there's a lot of positives going on with regards to the Specialty Foods group. We've -- I'd say outside of some challenges with regards to capacity, this was an exceptional quarter from the point of view of the Specialty Food Group. Some of our wins, for example, with us having added capacity with regards to our Sandwich Group, we've secured another very large QSR as a customer. The initial launch with that customer went exceptionally well.
In addition, during the quarter, we've made tremendous traction with regards to our Italian meats initiatives, particularly in the U.S., lots of growth there, even though we've shorted a lot of product due to capacity challenges again, which we're addressing. And also in the areas of raw and cook SKUs. As you know, we're by far the leader in North America in this area. And we had tremendous growth in those 2 programs during the quarter. So those are some sort of specific wins with regards to the traction we're making in our Specialty Foods Group, particularly in the U.S.
I will also want to add that, for the first time in a long time, we've gained new listings in Asia as well. We've got listings with certain retailers now in Asia. So we're shipping into that market once again. We see tremendous potential with regards to growing in that market as well. We probably got about 50 SKUs that I think we should be able to list in the Asian markets, particularly in Japan, South Korea and China. So there's lots of traction in our Specialty Foods Group, and again, in some cases, subject to solving some capacity issues and concerns. And as we've announced more recently, a lot of capacity has come now on stream and will be coming on stream shortly.
William Kalutycz
Yes. The only thing I'd add to that, Martin, is -- and it was a positive and a negative in the quarter was cook protein continues to be a category that we are doing extremely well in, in the U.S. So it was definitely one of the drivers of our growth. However, it was one of the categories that we're behind expectations for the quarter because of delays in getting our King's Command capacity expansion online. And that's one of those 2 factors you referred to at the beginning of the call, but cook protein continues to be a really exciting category for us.
Martin Landry
Okay. That's super helpful. I just want to talk about your other segment, the distribution segment. Trying to see what the outlook is for that segment for '24? Could you talk about like what -- are you operating at full capacity right now with that segment? Or do you have room to add more clients to offset the decline in volumes related to customer trading down? Just a little bit of visibility on that segment would be super helpful.
William Kalutycz
Yes. There really are -- there's lots of room in that segment to support that 4% to 6% organic volume growth over the next couple of years. We've got a few little projects like our Viandex facility expansion is coming online in Quebec, and we may do a little bit of an expansion in Western Canada for our Centennial business. But in general terms, not a lot of capital expenditures expected to support that 4% to 6% organic volume growth over the next number of years.
Martin Landry
And is there an order of magnitude that you can give us in terms of the capacity utilization for that segment?
William Kalutycz
Well, the thing is a large part of the business is distribution related. And so it's really adding trucks, adding distribution to the network. And in terms of the capacity utilization. Again, we've talked about this in the past, Martin. It's really hard for us to give a number because it's not one business with a set number of plants doing the same thing. It's a variety of businesses with a variety of plants doing a variety of different things.
George Paleologou
It's basically a national distribution network, Martin. It has facilities across the country. I would say overall, depending on where we're at in terms of capacity and focus in terms of that market is probably 50% to 80% capacity utilization across the network, but it depends really on the regional kind of aspects of the market opportunities. Right, it's very tough to say. But as Will said, there's plenty of capacity for us to meet our 4% to 6% growth target.
Martin Landry
Okay. And have you -- have you been able to sign new clients in that segment to offset the general industry volume decline?
George Paleologou
We are making a lot of progress in regards to accessing new channels into clients and new clients, Martin. We call it our Distribution Group. It's not just distribution into foodservice, it also does distribution into specialty retail and retail as well. Again, it's a very good platform for us. It's well positioned in the marketplace. Unfortunately, it does kind of face the same economic headwinds that the rest of the industry is facing, particularly in Canada.
Operator
Your next question comes from Derek Lessard from TD Cowen.
Derek Lessard
You guys seem pretty confident that your initiatives set in part by your major clients are pretty much done. Could you maybe just help us square away. I think it's a multiyear project for them. So just maybe square away how you guys are feeling about it just being sort of 1 quarter impact versus multiyear?
William Kalutycz
Yes. So Derek, are you referring to the challenge we call out on our specialty foods in the sandwich category?
Derek Lessard
Exactly, yes.
William Kalutycz
Yes. Okay. Yes. No, it was a very unusual situation. The reality is that customer -- that program is doing incredibly well. The reality is the program should have shown growth in volume terms of 9% to 10%, if not for these factors. And I can give you a little more color around those factors. And we expect that to continue into 2024 and forward. And that's part of our capital plan for Sandwich Group is to support that continued growth. Q3 was really an anomaly in -- and of course, 3 factors in there, one of which is that customer is getting much better at managing their inventory. And as a result, they've gotten it down to where it needs to be, and that just impacted us and our fill rate for the quarter into those distribution centers. So really, it was sort of -- it was definitely a onetime impact.
Another impact, which will continue over for the next couple of quarters is the customer eliminated displaying our products in their cases, in their cafes, and -- which makes perfect sense because the vast majority of the orders now are coming through mobile apps and drive-throughs. And it's a win in the sense that it's a lot less waste in the system, but it's kind of a onetime hit for us because those are sales for us that were essentially going in the garbage because they were being displayed at the end of the day, thrown out. So it makes a lot of sense in the long term, but it did impact us in the short term. And like I said, that will continue through for the next couple of quarters.
And then the third impact was just a one-off with -- we were filling in a distribution center in a market we didn't normally service. And for freight optimization rates -- reasons, the customer gave that to another supplier as their production came online. And we knew that was just a temporary situation in the third quarter of last year. And so that won't be an impact going forward.
George Paleologou
Again, Derek, I just want to add to that for us in our Sandwich Group, which is having a great year overall, by the way. Any sort of opportunity to leverage more capacity for other customers and other channels is probably a good thing for us long term. So again, we're not too concerned at all with the change in sort of the ordering patterns of this customer. We love the fact that they're optimizing their inventory. And to the extent that it gives us more capacity to pursue other customers, that's a good thing overall for our platform.
Derek Lessard
Okay. I mean that's a really good color, gentlemen. So in essence, that means you haven't had to adjust the way that you guys operate the sandwich business in any way?
William Kalutycz
Absolutely not, Derek. Like I said, the core program continues to do extremely well, and we see no change to that in sort of the near to midterm for future.
Derek Lessard
Okay. Just maybe switching gears to the free cash flow. It looks like you got a boost -- well, you did get a boost from working capital, more specifically on your payables and receivables. Well you did call out in the MD&A that you had, I think, 5 days less -- 5 less days in receivables due to a trade finance program. Just wondering if you can maybe add some color there and then maybe as well on the payable side?
William Kalutycz
Yes. So the payables were just purely natural fluctuation, Derek. Nothing unusual going on there. In terms of the receivables, yes, we put in place a trade program with a couple of our larger customers, and it's kind of a win-win for everyone. The program is based on them having a better credit rating than us. So it actually reduced -- we get our cash up front and the borrowing cost of that is less than our borrowing cost. So it's been a great program, very successful. And we're looking at ways to possibly expand it, but probably nothing material in the next couple of quarters.
Derek Lessard
Okay. And then on the inventories, are you still thinking that there's still about a $70 million opportunity there. I think it was only about $3 million, $4 million in the quarter. So how should we look at that?
William Kalutycz
Yes. No, we -- I have to say, we were a little disappointed in the progress in the quarter on the inventory. We had expected that $70 million was sort of over 2 quarters, we had expected half of that in this quarter. So we are still pushing for an improvement in the fourth quarter. Our days are still about 5, 6 days greater than we feel they should be. So we do expect to make some progress in the fourth quarter. Hopefully, that $50 million range, but we'll see how it plays out.
Derek Lessard
Okay. And maybe just one final one for me and something that stood out in the MD&A as well. You guys were quite forceful in saying that any acquisitions will -- that you make will not stretch the balance sheet. Could you just -- maybe can you just talk about why you were so forceful in that one line in particular?
George Paleologou
Well, again, I think that, as you know, Derek, over the years, we've been acquisitive. I think we've made over 100 acquisitions since we've begun this journey back in 2000, 2001. Both Will and I are CPAs, we understand balance sheets and the balance sheet got a little bit stretched mainly because of COVID and some of the implications of COVID on our business with regards to challenges with labor and inflation. And obviously, the impact that some of these kind of black swan events had on our results, right?
But we're very aware of that. I think I made a comment on the last call that we are starting to look at acquisitions. And I got a lot of questions as to whether we're going to go out and basically blow the balance sheet, et cetera. That's not going to happen. We're very cautious. We're involved in many friendly discussions with regards to companies joining Premium Brands, again, to the extent that the synergies are there and the opportunities for growth are there. We may do those deals and probably use our shares as a currency, again, if it makes sense from a sort of an IRR perspective. But again, you're not going to see us go out and make a large acquisition and overstretch the balance sheet, that's never going to happen. And our balance sheet overall will continue to improve based on some of the initiatives we have in place as we speak.
William Kalutycz
Yes. And just to expand on George's last point there, Derek. We're kind of in a unique part of our history in that. Over the last couple of years, what we've identified is our biggest growth opportunities have been on the organic side versus acquisitions. So we've been investing a lot more, particularly in the U.S. in capacity. And unlike when we do an acquisition where we immediately get that EBITDA. Unfortunately, CapEx, it takes 1 year or 2 to build the facility, and meanwhile, you're spending capital and you're not seeing incremental EBITDA.
The reality is we're now at the peak of that cycle and all these plants, we've got 5 plants coming online over the next 3 quarters, all of that we'll start seeing the cash flow in 2024. And really, we're just saying, okay, we'll be disciplined around acquisitions while we generate that cash flow from the CapEx and as that flows in, that's going to give us much more flexibility.
George Paleologou
Yes. And again, Derek, the 300 basis point improvement in the EBITDA margin of the Prepared Foods Group is an indication of basically starting to reap the benefits of the investment cycle that Will has just talked about, more good things to come there.
Operator
Your next question comes from George Doumet from Scotiabank.
George Doumet
Really strong margins at SF. Just wondering maybe how sustainable those are? Or maybe any onetime things to cognizant of in those margins?
William Kalutycz
No, very sustainable, George. Like George says, you're starting to see the benefits of the investments we've been making, but you're also seeing a normalization, right? Like it's been 2 years of incredibly challenging cost inflation. As we've talked about in the past, we're always behind the curve in terms of our pricing relative to where our cost structure is when we're in an inflationary cycle. That's all catching up now. You're starting to see that. And the fact is if you go back pre this crazy chaotic 3 years, Specialty Foods EBITDA margins were in the 12% to 13% range. So we actually see it as there's still more work to be done. There's still more upside in their margins.
George Paleologou
The only thing I would add, George, is that I can't emphasize enough how much focus we've had over the last 3 or 4 years in investing in automation, robotics, improved efficiencies, et cetera, et cetera. And as Will said, we are beginning to normalize our business. We're beginning to have plenty of access to labor. Supply chains are normalizing as we've talked about. Inflation, obviously, is beginning to normalize as well. And you're just basically seeing the benefits of the investments we've made in making our plants way more efficient. As we've talked before, we didn't stop investing even when we've had some dark days and some difficult times. We've continued to believe in the long term plan, and you're just starting to see the benefits of that investment cycle.
William Kalutycz
Yes. And George is absolutely right. In the quarter, George, plant efficiencies from these investments from continuous improvement was about $7 million of the growth in Specialty Foods cash flow. So that's absolutely sustainable.
George Doumet
That's really helpful. And I think, Will, in your prepared remarks, you mentioned a contribution of 20% to 45% -- sorry, contribution margin of 20% to 45% for the new capacity. Understanding there could be some issues like we saw at King's Command. You mentioned 5 plants coming online in the next 3 quarters. Like my question is generally how long does it really take for these investments to contribute to those kind of margins? Is it 1, 2 quarters, can it be sooner? Just any comments on that?
William Kalutycz
Well, the incremental sales contribute that from day 1, each sale, right, like that the way we calculate the contribution margin is sales less direct costs, right, that's labor, materials, any direct marketing, et cetera. So that contribution margin starts on day 1. Now in terms of the ramp-up cycle with the different businesses, we'll give you more color around our 2024 projections when we talk about that next quarter. But we're expecting a relatively quick ramp up just because we have such a clear line of a sight to a lot of this demand. We're essentially working with customers that we've had success in regional areas and helping take these initiatives to a national platform in the U.S. So we think it will be a pretty fast ramp-up.
George Paleologou
The only other comment I have, George, and I mentioned it in my prepared remarks is that we don't look at growth from the top down. That's not premium brands, right? So in the prepared remarks, last time I spoke about Global Gourmet. This time I talked about Shaw. And we've basically invested in that business. We got it to capacity. Now we've built a brand-new facility. We're pretty well sold out with regards to the new capacity coming on stream. It is operating as we speak. It is producing, and you know what, it will double and double again in size in the next 2 or 3 years. And that's the way we view growth, right? You have to look at it from the bottom-up perspective and that's why I've started talking more about our different platforms and the type of growth that they're seeing based on more capacity becoming available.
George Doumet
That's helpful. And just one last one, if I may. If you look at your long-term guidance that calls for estimate below 10% organic top line growth per annum. If you look to 2024, is there order particularly when you think you can maybe hit that run rate at all, given all the capacity coming online?
William Kalutycz
George, we'll talk more about 2024 next quarter. We're just coming out of our budgeting cycle right now, and I'd like to have everything heart nailed down before we start talking specifics about next year.
Operator
Your next question comes from Stephen MacLeod from BMO Capital.
Stephen MacLeod
Just wanted to see if you could give a little bit more color. You mentioned George, there was a new QSR Sandwich program that you secured this quarter. And I'm just wondering if there's an ability to give a little bit more color around that?
George Paleologou
Yes. So this is basically a customer that we've been talking to for probably 2 years, Stephen. It's a very large QSR in the U.S. We did -- for the first time, we did a limited promotion with them for 2 wraps a chorizo and a chicken wrap, was supposed to be a 2.5-month promotion. It did really well. It exceeded expectations. So the customer extended it to the end of the year. So I think that we'll end up doing about $50 million to $60 million worth of business with this customer this year, which is all new business. .
And then we are speaking to them today in regards to making the program permanent and adding another SKU. So anyway, it looks very good for next year. I don't have any more details on it as we speak, but I know the customer is extremely happy. I know that every time I've been in the U.S. and tried to buy this product, a lot of times is sold out, which is a good thing. It's kind of a new concept for this customer in the sense that it's probably one of the first items that they've ever marketed that is not made in the store. That means that they can have consistent execution across their network in terms of the program. So we're very, very pleased with kind of this particular opportunity. And we think there's lots of upside there as well.
Stephen MacLeod
Okay. That's great. Just turning to the PFD business. Is there any way to quantify what the impact was from the -- from the lobster harvesting shortage?
William Kalutycz
Yes. In general terms, we estimate the sales impact of about $30 million, a little over $30 million in the quarter, Steve. It was quite dramatic. Again, 20% decrease in the cash is an enormous number.
Stephen MacLeod
And would you expect the shortfall to be similar in Q4? It sounds like you worked this into the guidance.
William Kalutycz
Yes. It will certainly carry forward into Q4. We're hoping it won't be as dramatic. The reality is the harvesting in Q4 is generally disrupted by weather, which was the issue here, and I just want to make that very clear. The biomass, the lobsters are very healthy. There's lots of them out there, and it was just that the weather conditions were unusually poor throughout the quarter. Now that's normally the case in Q4. But if we get a little better weather, maybe the catch is a bit better, we can make up for some of that. But yes, we do expect for a good portion of that to continue into Q4 because of the lack of inventory they're carrying us forward.
Stephen MacLeod
Okay. That's helpful. And then just on the small acquisition you did. Is there any way to give a little bit of color around sort of sales and margins, if material?
William Kalutycz
Yes. So a great business. It was pretty small, like we disclosed, I think it was about $28 million in sales. As margins are relatively consistent with the premium food distribution group. It's -- we're quite excited about it. It was done by our Viandex team, and this is their third acquisition, and they've been acquiring these very complementary businesses that are in rural parts of Quebec and they bring all these benefits and synergies to them. So the first 2 have been very successful. We're very excited about this third one, Menu-Mer. And yes, so we hope its current profile is like I say, similar to Premium Food Distribution. But if it goes the way the last 2 have the margins are much higher than the average for the Premium Food Distribution Group once we're done.
Stephen MacLeod
Okay. Okay. That's great. And then maybe just finally, thinking about Q4 and just sort of going through the puts and takes in your guidance. It would be fair to assume that like directionally, Q4 would probably look a lot like Q3?
William Kalutycz
Well -- yes, Q4, when you look out in terms of from our previous discussions last quarter, specialty foods, like should -- a lot of the challenges there have gone away in the sandwich group. The capacity challenges will continue into Q4 just because the new Hempler's facility and the new King's Command protein facility, cook protein facility. We had expected King's Command to come online in Q3 and Hempler's early in Q4, both of those are now going to be late Q4. So we are a bit toned down from where we were last quarter on our specialty food sales because of that. In terms of the -- and then in terms of Premium -- our Premium Food Distribution group, we already talked about that.
Operator
Your next question comes from John Zamparo from CIBC.
John Zamparo
I wanted to follow up on an earlier question, George, specifically, you referenced the milestone in Asia. Just to be clear, that is outside of Clearwater, I assume? And if it is, can you say what platform that's under or what some of those leading SKUs are? And I wonder how you think about the materiality of that market or the potential materiality of that market for driving volumes in the next few years?
George Paleologou
Yes. So we've made a number of presentations and innovation sessions with customers in that market, John. It's across our different platforms. For example, I believe our team from Shaw Bakers are in Japan this week presenting a number of products to potential customers. Yes, the conversation and the new SKUs are completely outside of the Clearwater conversation. So these are kind of new opportunities for our sandwich group, our bakery group and our protein group. I think if you go to Japan today, you will find a number of our products already on the shelves. And as I said, this is a new opportunity. I think at this point, internally, we are looking at it as a probably $100 million opportunity in the shorter term. We think there's more opportunity than that given, obviously, capacity availability.
John Zamparo
Okay. That's good color. And I wanted to follow up on the LTO at the large QSR sandwich customer. Can you say was that a regional contract? And if so, could it become national? And if it is to become national, do you need to finish the Tennessee facility in order to address that? Or could the Edmonton facility help address it?
George Paleologou
No. It's definitely a national opportunity, John. This is a national program with this particular customer. And we have brought on new capacity in our Sandwich Group over the last couple of years, including, of course, Edmonton and in our Minnesota operations as well. So again, definitely a national customer and a national relationship.
William Kalutycz
And the opportunity there, John, is growing the SKUs, right, expanding the program, like George said, we've got a new -- a third SKU coming out shortly. And hopefully, we can continue to expand into both the breakfast and lunch programs.
George Paleologou
We think that potentially, and I'm talking more in terms of longer term, John, is particularly as Tennessee come on stream, it could be the size of our biggest customer, right? It's a very large opportunity overall.
John Zamparo
Got it. Okay. That's helpful. And then shifting gears, I wanted to ask about your future growth capital projects. In the prepared remarks, Will, I think you said it was around $275 million in project CapEx that you've identified over the next 7 to 8 quarters. So if we annualize that, it's about $140 million a year. I'm trying to reconcile that with the 5-year guide earlier this year of $800 million in project CapEx. I think that was over a 5-year -- or pardon me, over a 4-year span. So I'm just trying to get a sense of what the right number is over the terms of your 5-year guide?
William Kalutycz
Yes. So that 5-year guidance was -- includes 2024 -- sorry, 2023, and this year, we're probably going to -- as of the end of the third quarter, we were $234 million for the year, and we'll probably spend another $100 million, so in the fourth quarter just as we finish these projects. And then the balance is the other projects over 2 years and then some smaller projects that aren't yet approved that they carry us over to get to that $800 million by year 5.
John Zamparo
Got it. Okay. And then just one more. You referenced in the press release about some consumers shifting away from the conventional grocers towards discount and that having a small impact on your premium seafood and beef sales. You have a significant amount of volume through grocery. I wonder if you could take a shot at quantifying what the split is between what you'd consider discount and conventional?
William Kalutycz
Yes. And we got to be clear here. When we talk about premium seafood and beef products, those were products through our distribution networks, i.e., into our Premium Food Distribution Group. They're not the branded initiatives in Specialty Foods. And so they tend to be more price -- the premium beef products, premium seafood products generally sold in premium banners. And so there is some exposure there. The reality is it was an impact on the quarter, John, but it wasn't a huge impact. And we don't -- it's just one of those things that's slowing its growth, not putting it into contraction. And really, the issue in the quarter was what happened in the lobster business.
Operator
Your next question comes from Chris Li from Desjardins.
Christopher Li
I want to just maybe start with the near-term question, just in the Specialty Foods segment. I just maybe want to get a bit more granular. So based on everything you've said so far for Q4 for Specialty Foods, do you think sort of mid-single-digit organic volume growth rate would be reasonable to pencil in for Q4?
William Kalutycz
Yes. Again, that's probably in the ballpark, Chris. The reality is we were expecting close to double digits in the quarter. But like I say, the delays in the capacity expansion has really sort of taken that down a bit. So that's probably not unfair.
Christopher Li
Okay. And maybe a similar question, again, with respect to EBITDA margin, you did quite well, 11% in Q3. Is 11% reasonable for Q4 or do you think...
William Kalutycz
No, there's a natural cycle in our businesses with the seasonality. So I think you've got -- when you're looking at the quarter, you need to take that into account. There should continue to be year-over-year improvement, but then you've got to look at that in the context of the seasonality of the business.
Christopher Li
Okay. Understood. And then just maybe a question on inflation. I think inflation was largely flat in both SF and PFD. And then mostly we could get into a deflationary period next year. And I know you want to wait until Q4 before talking about 2024 outlook. But just wondering, how should we think about, I guess, the impact on EBITDA next year, if we do get into a deflationary period for your business. Should we think about in terms of offsetting the lower cost, and therefore, the impact on EBITDA should be still be okay, even if you get into a deflationary period?
William Kalutycz
Yes, Generally, a deflationary period is positive to our EBITDA, Chris, again, similar to how we lack or lag behind in price increases as in an inflationary environment. You see the opposite in a deflationary environment or sorry, the same thing in the deflationary environment, what price decreases lag. But having said that, we do have in our more differentiated higher-margin categories we do generally have emerge from these inflationary periods with permanently higher margins. Now -- and then the other comment I would make to is quite often what our businesses will do is instead of passing on price decreases, they'll do a lot more featuring and promotion. And so -- yes, so now they're featuring and promoting a more historic like margin, but they're getting incremental volume out of that. So it tends to again drive EBITDA. So generally deflationary cycles are very positive on our Specialty Foods businesses.
Christopher Li
And it is still your view that you'll get some volume stimulation like in the past?
William Kalutycz
Exactly.
Christopher Li
Okay. Okay. That's helpful. Maybe just a very long-term question. I know no one has a crystal ball on this, but obviously, a lot of media reports around weight loss drugs and the impact that could have on just a food business overall. Just wondering if you care to weigh in terms of what you think about that and the impact on your business longer term?
George Paleologou
Again, Chris, over the years, we've been asked a lot of questions around these type of developments. I remember having conversations with investors about plant-based meats, as you know, and before that, it was about how cannabis consumption and all the promotion around cannabis would impact food consumption, and before that, it was margarine versus butter, there always seems to be these new ideas that come out. In general terms, at Premium Brands, one of the models we use internally that drives a lot of our innovation is that the future of food is in the past. We're basic believers in the fact that at some point, the consumption of ultra process foods will probably be made illegal because it's so unhealthy for you and people will begin to return to eating foods with high-quality, less ingredients, less processed, et cetera, et cetera.
Now in regards to these drugs, who knows at this point, from our perspective, we support any development that will make people healthier. Again, I don't know enough about the side effects or how these drugs work. But I know that they are expensive. And I also know that from my perspective, based on my own experience, I mean, I'm generally a high saturated fat, high-protein, low-carb consumer and have benefited tremendously from this type of diet. My health is in great shape.
And I think that people ultimately will make the right decisions with regards to the diets they follow to get healthier. We think that a keto type of diet, which is kind of drives a lot of what Premium Brands does is probably a lot cheaper way to get to good health, right? So will people go for these type of drugs that are more expensive and maybe have significant side effects or will they go the natural way adopt the keto diet, which is, by the way, used by doctors around the world today to get people to lose weight and even reverse diabetes. So anyway, from my perspective, what would you guys choose? Would you choose a natural way or these type of drugs, right? So anyway, that's my response.
Christopher Li
And then maybe my very last question is just in terms of your balance sheet. Other than working capital improvement and EBITDA growth, are there other things you're looking at outside of that to further reduce your leverage? Or do you think you're in a decent place right now?
William Kalutycz
Yes. We have a number of initiatives underway at this point, Chris, but nothing we can discuss with on this call at this time.
Operator
Your next question comes from Derek Lessard from TD Cowen.
Derek Lessard
Yes. Just one follow-up for me. I was curious if you had a sense as to what your normalized specialty food margin would have been excluding some of those challenges, I mean you came in at 11%, do you have an idea of how much higher it could have been?
William Kalutycz
Yes. It's a great question, Derek. We did a detailed analysis of that. And the reality is once you normalize for the sandwich challenges we talked about and the little bit of capacity we had expected to sell from King's Command in the quarter. We would have come out at about 7.6% organic volume growth, which is right in our expected range for the quarter and about a 10.2% -- or sorry, 11.2% EBITDA margin.
Operator
[Operator Instructions]. There are no further questions at this time. George, please go ahead.
George Paleologou
Yes. Thank you, Lester, and thank you, everybody, for attending today. All the best. Bye, bye.
Operator
Ladies and gentlemen, this concludes today's conference call. Thank you for joining. You may now disconnect.
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Premium Brands Holdings Corporation (PRBZF) Q3 2023 Earnings Call Transcript