High Liner Foods (TSX:HLF) reported first-quarter financial results on Thursday. The transcript from the company's first-quarter earnings call has been provided below.
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The full earnings call is available at https://app.webinar.net/revD7gJl42k
Summary
Herbalife Ltd reported strong top-line growth driven by promotional activities and product innovation, although operational pressures and supply chain constraints impacted profitability.
Key strategic initiatives include addressing pricing strategies post-Lent, focusing on targeted promotions to optimize margins, and improving supply chain efficiency.
Despite challenges, the company remains optimistic about improving bottom-line performance with pricing adjustments, cost management, and strategic investments in innovation.
Financially, the company saw a 24.8% increase in sales to $334.9 million, but gross profit as a percentage of sales decreased due to higher raw material costs and promotional activities.
Management emphasized a disciplined approach to capital expenditures and capital allocation to ensure optimal returns, while also addressing challenges related to rising fuel costs and supply constraints.
Full Transcript
OPERATOR
Good morning ladies and gentlemen. Thank you for standing by. Welcome to the Highliner Foods Incorporated Conference call for results of the first quarter of 2026. At this time, all participant lines are in the listen only mode. Following Management's prepared remarks, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. If anyone has any difficulties hearing the conference, please press star key followed by zero for operator assistance at any time. This conference call is being recorded today, Thursday, May 14, 2026 at 10:00am Eastern Time for replay purposes and I would like to turn the call over to Matt McDonald, Vice President of Finance and Investor Relations for Highliner Foods. Please go ahead
Matt McDonald (Vice President of Finance and Investor Relations)
Good morning everyone. Thank you for joining the Highliner Foods Conference call today to discuss our financial results for the first quarter of 2026. On the call from Highliner Foods are Paul Jewer, Chief Executive Officer, Kimberly Stevens, Chief Financial Officer and Anthony Rosetta, Chief Commercial Officer. I would like to remind listeners that we use certain non IFRS measures and ratios when discussing our financial results as we believe these are useful in assessing the Company's financial performance. These measures are fully described and reconciled to IFRS measures in our MD and A. Listeners are reminded that certain statements made on today's call may be forward looking statements under applicable securities law. Management may use forward looking statements when discussing the Company's investments and acquisitions strategy, business and markets in which the Company operates, as well as the operating and financial performance in the future. These statements are based on assumptions that are believed to be reasonable at the time they were made and currently available information. Forward looking statements are subject to risks and uncertainties. Actual results or events, including operating or financial results, could differ materially from those anticipated in these forward looking statements. Highliner Foods includes a thorough discussion of the risks and other factors that could cause its anticipated outcomes to differ from actual outcome in its publicly available disclosure documents, including its most recent annual MDA and Annual Information Form. Please note that Highliner Foods is under no obligation to update any forward looking statements discussed today at the close of markets yesterday May 13, Highliner Foods reported its financial results for the first quarter ended April 4, 2026. That news release, along with the Company's MDA and unaudited condensed interim consolidated statements for the first quarter of 2026 have been filed on SEDAR plus and can also be found in the Investors section of the Highliner Foods website. If you would like to receive our news release in the future, please visit the Company's website to register. Lastly, please note that Company reports its financial results in US Dollars and therefore the results to be discussed today are also stated in US Dollars unless otherwise noted. Highliner Foods common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Paul for his opening remarks.
Paul Jewer (Chief Executive Officer)
Thanks Matt and thank you everyone for joining us on today's call. Before I share my perspective on the quarter, I'd like to begin by welcoming Matt to Highliner Foods as our new Vice President of Finance and Investor Relations. Matt brings extensive public market experience both domestically and internationally in oil and gas, real estate and financial services. We are thrilled to have him on board. Now turning to the first quarter. When I last spoke to you in February, we were encouraged by the strong start to the year, both in terms of demand for our products and the progress we were making on driving enhanced profitability. As we reported today, despite a volatile and inflationary macro environment, the strong demand we saw at the start of the year persisted through the quarter, supported by an earlier lent promotional activity and product innovation. Demand on the top line surpassed our expectations. However, as the first quarter progressed, that outperformance created operational pressure impacting profitability and delaying the timing of our margin improvement initiatives. Challenges included larger than expected constraints on global supply, particularly in key whitefish species which impacted fill rates and operational efficiency across the supply chain. Against this backdrop, our plants were operating in catch up mode to respond to higher than planned demand which coupled with higher inflation and rising input costs negatively impacted our Q1 margins. I recognize that the strength of the top line has not translated to bottom line profitability over the past three quarters and this is being actively addressed across the business. Our focus is on the factors we can control and it comes down to strengthening execution across the organization in three primary areas, pricing, promotions and supply chain. First, on pricing. With Lent behind us, we've been able to address pricing with our customers and now have necessary pricing in place across the majority of our portfolio for Q2. However, these are unprecedented times and as raw material costs continue to rise, we are prepared to have more frequent pricing discussions with our customers, particularly as it relates to certain whitefish products and along with all suppliers, we will be seeking to pass on higher fuel costs. Second, promotions. We are taking a more targeted approach to promotional activity to ensure investments support the bottom line as well as the top line. In today's environment, strategic investment in trade is essential to attract a value conscious consumer to our brands and to the category in general. However, as we consider future investments, we will put greater emphasis on the importance of optimizing margins and an overall return on investment. Third Supply Chain Given the global supply shortages in some of our key species and the resulting higher raw material costs, the work we are undertaking here focuses on strengthening planning around raw material availability and driving greater efficiency across our operations. While this is still in progress, I'm pleased to report that post lent raw material availability is and production are improving. We are taking steps to improve capacity utilization by reducing lower return SKUs and focusing our teams on productivity and operational discipline in parallel to action on price promotions and supply chain. We will continue to manage costs across the organization and remain extremely disciplined in our capital expenditures and capital allocation to ensure optimal return on investment. Our recently announced organizational changes have helped to right size our costs to this current reality. To sum up, we have a clear roadmap for stronger bottom line performance and to restore margins to the level this business is capable of delivering. With that, I will pass the call over to Kimberly to discuss our financial results. Kimberly, over to you.
Kimberly Stevens (Chief Financial Officer)
Thanks Paul and hello everyone. As Paul mentioned, we saw strong top line growth during the first quarter supported by our targeted promotional activity, the earlier led in period and the underlying strength of our branded and value added product portfolio.
Kimberly Stevens (Chief Financial Officer)
While margins remain pressured due to the ongoing internal and external factors previously discussed, we are applying insights from the first quarter to strengthen our execution across pricing, promotion and plant operations while simultaneously we're continuing to identify cost saving opportunities to support our value proposition in an inflationary and competitive environment. Despite continuing to operate in a volatile and inflationary macroeconomic environment, we continue to see and experience top line growth in both volume and net sales over the prior year.
Kimberly Stevens (Chief Financial Officer)
In both retail and food service sales volume increased in the first quarter by 7 million pounds or 10.6% to 73 million pounds compared to 66 million pounds in the first quarter of 2025 due to the timing of the Lenten period, the additional contract manufacturing business and the volume growth associated with the United States Department of Agriculture USDA contract retail volume was also higher due to the incremental volume associated with the newly acquired brands from conagra Brands as well as the company's targeted approach to value driven promotions and innovations and strong demand in the Highliner Foods diversified product portfolio. Sales increased the first quarter by 66.5 million or 24.8% to 334.9 million compared to 268.4 million in the same period last year driven by the increased volume as well as the increased pricing reflecting inflationary markets, gross profit increased for the first quarter by 3.1 million or 4.9% to 66.6 million and gross profit as a percentage of sales decreased by 380 basis points to 19.9% as compared to 23.7 in the first quarter of 2025.
Kimberly Stevens (Chief Financial Officer)
The increase in gross profit is driven by the increase of sales volume previously mentioned. This is offset though by higher raw material costs including tariffs on select species, elevated promotional activity, unfavorable product mix and supply chain challenges due to the limited availability of supply, particularly in the company's key whitefish species, which is reflected in the decline in the gross profit as a percentage of sales.
Kimberly Stevens (Chief Financial Officer)
Distribution expenses consisted of freight and storage increased in the first quarter by 4.2 million or 33.6% to 16.7 million compared to 12.5 million in the same period in the prior year. This increase in distribution expense was mainly due to the increased freight costs incurred on the sales associated with the newly acquired brands from Conagle brands and incremental retail distribution.
Kimberly Stevens (Chief Financial Officer)
Increased storage costs from higher levels of inventory due to the newly acquired brands and to support strategic purchasing at the beginning of the quarter also contributed to the overall increase. As a percentage of sales, distribution expenses increased to 5% in the first quarter compared to 4.7% in the same period in the prior year.
Kimberly Stevens (Chief Financial Officer)
Although the distribution cost rose due to the addition of the newly acquired brands, we are pleased to report that these brands generated incremental positive adjusted EBITDA during the quarter. As anticipated, adjusted EBITDA decreased in the first quarter by 2.8 million or 8.7% to 29.3 million compared to 32.1 million in the same period in the prior year, and adjusted EBITDA as a percentage of sales decreased to 8.7% compared to 12%. The decrease in adjusted EBITDA reflects the increase of gross profit previously mentioned, offset by increased distribution and SGA expenses. Reported net income decreased in the first quarter by 7.3 million or 47.7% to 8 million, while diluted earnings per share decreased to $0.27 compared to $0.51 in the prior year.
Kimberly Stevens (Chief Financial Officer)
The decrease in net income reflects the expenses related to the recent restructuring efforts that the Company undertook to align its cost structure with the current market conditions as well as the decrease in the adjusted EBITDA previously mentioned. Excluding the impact of certain non routine or non cash expenses that are explained in our MDA, adjusted net income for the first quarter of 2026 decreased by $5.2 million, or 31.3% to $11.4 million. Adjusted diluted earnings per share decreased to $0.39 from $0.55 in the same period in 2025. With regards to cash flows from operations and the balance sheet, net cash flows from operating activities for the first quarter 2026 increased by $35.6 million to an inflow of $25 million compared to an outflow of 10.6 million in the same period of 2025.
Kimberly Stevens (Chief Financial Officer)
The increase is primarily driven by favorable changes in non cash working capital balances, specifically in the collection of our accounts receivables and lower inventory balances in relation to the earlier timing of the lenten period in 2026 compared to 2025, partially offset with the repayments of our account payable balances.
Kimberly Stevens (Chief Financial Officer)
Net debt at the end of the first quarter of 2026 decreased by 4.4 million to 318 million compared to 300 million at the end of fiscal 2025, reflecting our higher cash balances partially offset with an increased bank loans and lease liabilities, Net debt to adjusted EBITDA was 3.6 times at April 4, 2026 compared to 3.5 times at the end of fiscal 2025. We expect the ratio to improve throughout the year and be slightly above the company's long term target of three times by the end of fiscal 2026. We are in the process of applying for US tariff refunds, however, this is not currently reflected in our financial statements. Due to the high level of uncertainty around the process and the timing of collecting these funds, we are continuing to pursue this and we will share further updates when appropriate.
Kimberly Stevens (Chief Financial Officer)
I'll now hand the call over to Anthony to discuss our operational performance.
Anthony Rosetta (Chief Commercial Officer)
Thanks Kimberly. As you've heard, we delivered a strong quarter on the top line in Q1 and while we have work to do on the bottom line, we are encouraged by the strong demand for our diversified portfolio of products across species and channels despite inflation.
Anthony Rosetta (Chief Commercial Officer)
Starting with the retail side of our business, we entered the year with a strong start in January, benefiting from our fall promotional activity as consumers continue to purchase products outside of the promotional period. Supporting margins Building on that momentum, we executed our established Lent promotional strategy consistent with prior years, designed to support demand in a pressured consumer environment while reinforcing our market leadership position and supporting category growth. Demand during the period exceeded our expectations, driving share gains in US Retail and strengthening our hold on the number three manufacturer position in the market. Driven across both club and traditional grocers, our premium sea cuisine innovations exceeded expectations across multiple new product launches including Guinness Battered Fish Strips and Shrimp Honey Chipotle Salmon Garlic Bread Crusted Tilapia and family packs. We also saw growth in our other premium brands, Sea Cuisine, Seaworthy, Atlantic Salmon and positive momentum in our recently acquired brands Mrs. Paul's and Vandicamp's where targeted investment during the first Lenten period with these brands in our portfolio drove strong consumer uptake and volume growth. As we announced in March, our new line of frozen Sea Cuisine Skillet Meals will be in market starting in June offering a complete premium, quick and easy to prepare meal solution to customers with sole salmon and shrimp options. I look forward to providing additional updates next quarter. In Canada, we remain the number one branded value added leader and our strategy continues to support consumers across the value spectrum in an inflationary and promotionally driven environment. We gained share during the quarter as we expanded support within key retailers and maintained strong positioning across both premium and value offerings including gross in our Pan Sear and Catch the Day products. Turning to foodservice, we outperformed the category, gaining share and strengthening our market leadership position. We saw strong performance in Value Added Salmon, Shrimp and Attic with demands for our products holding steady through Lent. While we experienced some softness in QSR related to pressures at a key customer, overall performance was supported by growth in casual dining and non commercial channels, particularly lodging, long term care and schools. We received strong customer engagement on our fully cooked product line that launched in January and secured a permanent listing with a major convenience customer in the US we are encouraged by the market. Reception to this innovation and expanding distribution remains a priority for the year as we demonstrate the potential for fully cooked products in the convenience, non commercial and QSR channels. As we move through the year, our focus is on improving realization across pricing and sharpening promotional discipline while continuing to support innovation and leverage the breadth of our diversified portfolio across channels. As Paul noted, pricing actions are underway with some key product lines priced appropriately in Q2 and will support margin improvement as we move through the year. In parallel, we're maintaining strong cost discipline to help offset ongoing input cost pressures and the lag between incurring higher costs and the ability to pass it on, which as previously mentioned is particularly applicable in retail where pricing often requires longer lead times. We're also working in partnership with our customers to revise our promotional campaigns to ensure a balanced approach that prioritizes long term profitability. We expect to have fewer promotions now that we're through the important Lent season and as we look to the remainder of the year, our focus will be on sustaining the additional customers we've gained from the success of our promotional activity in the first quarter. Leveraging marketing to support our base business While the environment remains challenging, the strength of our portfolio and the capability of our team give me confidence in our ability to execute.
Paul Jewer (Chief Executive Officer)
Paul thanks Anthony. As we move through the balance of the year, we're focused on taking the appropriate actions across pricing, promotions and supply chain to strengthen our margin performance. We are well positioned to make these necessary adjustments and return to the level of profitability we have proven our business can deliver. As a market leader with a diversified global supply chain and product portfolio, we have many strategic advantages we can leverage to help strengthen our value proposition to customers and consumers while meeting our own financial goals. Similarly, we are fortunate to have a talented and committed team with a track record of navigating through significant headwinds that demonstrates the resilience of our business. While our operating environment certainly remains challenging, I am confident in our ability to improve how we manage the factors within our control and at the same time, the investments we have made over the past 12 to 18 months in our brands, innovation and capabilities will continue to serve us. We will continue to build on that foundation, leveraging new innovations and our market leadership position to attract more consumers to seafood, a category that remains underpenetrated. That said, our focus is squarely on profitable growth. While we have work to do and do not expect an immediate turnaround, we are confident in our ability to stabilize performance and deliver higher adjusted EBITDA year over year in 2026. Importantly, we are doing this from a position of strength. Our balance sheet remains solid, our supply chain is resilient and we are well positioned to deliver long term value. With that we will open the line for questions.
OPERATOR
Thank you sir. Ladies and gentlemen, if you do have any questions at this time please press Star followed by one on your touchtone phone. You will then hear a prompt that your hand has been raised and should you wish to decline from the polling process please press Star followed by two. If you are using a speakerphone you will need to lift the handsets first before pressing any keys. Thank you. Please go ahead and press Star one now. If you have any questions first we will hear from Kyle McPhee at APB Core. Kyle, please go ahead. Kyle
Kyle McPhee
hello everyone. First one from me. I just want to try and better understand the year over year volume gain in Q1 up 11%. I understand the favorable lent period shift, the acquired volume from ConAgra, the bigger USDA contract all helping, but there's still a delta versus what I thought your volume would be a positive delta so it seems like it's maybe explained by the you mentioned a contract manufacturing volume win. Is this a new customer win in Q1 or just a prior win you haven't lapped? And if it is new, you know this is a seasonal win during the Lent period when demand is higher. Or is this a durable new win for highliner?
Paul Jewer (Chief Executive Officer)
Thanks Kyle for your question. So yeah, I would say the volume drivers are kind of split into a third, a third, a third. And so like ConAgra was a third of the drivers to our incremental volume. As you indicated that the additional contract manufacturing business that we gained this quarter, as well as the USDA contract that I mentioned in my remarks was also about a third and then the remaining amount was split between, I'd say the Lent timing shift as well as the incremental growth in our base business. And Kyle, in terms of the contract manufacturing customer, it is a new customer. It is not just for the Lent period. It is a longer term relationship that we're certainly very happy to be working with them on great product that runs well through our plants.
Kyle McPhee
Got it. Okay, that's helpful. So it sounds like the Delta was that contract manufacturing and just growth of the base business. So great to see. Second question, I just want to better understand the volume gains versus price gains versus gross margin percentage decline pattern you posted this quarter. Bit of an odd combo of moving parts. Seems a bit odd to me that the gross margin percentage came down so much despite taking so much price gains to offset species inflation and tariffs while still holding volume gains. Was it a huge abnormal negative hit from volume mix that hit gross margin percentage so much this quarter? You know, a big shift into into lower margin value or contract manufacturing. Any color there to just help me understand.
Kimberly Stevens (Chief Financial Officer)
Yeah, again Kyle, the main driver of our impact on our gross margin this quarter was really due to the higher raw material costs. And I would say that's about 2/3 of the business. And as you saw the inflationary impact of being able to add that to our net SAL kept net sales higher. But I would say 2/3 of the impact of GP was really related to the higher raw material costs. And then in addition to that you would have seen that we had higher trade promotions in the quarter as well. And then as Paul indicated, that impacted our plant performance.
Paul Jewer (Chief Executive Officer)
And so Kyle, in terms of the higher raw material costs, that's particularly in our whitefish species, the increases in codd and haddock in particular were significant and we just weren't able to pass it on fully, particularly during the Lent period. So that did have an impact on margins. As Kimberly Identified. And of course, the other thing I would highlight, if you're looking at margin as a rate with the significant inflation on the top line dollars, even if you deliver similar EBITDA dollars, it's deflationary from a rate perspective. So that was also a factor.
Kyle McPhee
Got it. Okay. And just to confirm, when you, you know, we can back into your implied price gains, I think it was around 14%. That would be net of the promotional activity that kind of offsets pricing gains. Is that correct? That's where that moving price. That's correct. Got it. Yeah. Okay, thank you. I'll pass the line.
OPERATOR
Thank you. Next question will be from Neven Joche at BMO Capital Markets. Please go ahead, Neven.
Neven Joche
Yeah, good morning. Thanks for taking the questions. On the new USDA contract that supported volumes. This quarter was fully ramped up to start Q1. And then should we expect a similar year over year contribution to the remainder of 2026?
Anthony Rosetta (Chief Commercial Officer)
Hey, Nevin, it's Anthony. Yes, we're fully ramped up on usda. We won a few different products that we're producing for them. If you recall, we talked about that coming online in terms of the award of that contract in the fourth quarter of 2025. And so that'll stay pretty steady through the next two quarters and then we'll be lapping it in the fourth quarter.
Neven Joche
Okay, thank you. And then on the supply chain pressure that you're seeing on whitefish, is that all related to fish supply or is there something going on with transport or otherwise? And then if you could just give an update on what the situation looks like today.
Anthony Rosetta (Chief Commercial Officer)
Sure, yeah. It is not related to transport and certainly not in the first quarter because that would have been raw material inventory we were acquiring towards the end of last year. It is related to challenging quotas on cod, in particular in Norway and also in Alaska, but also in haddock, driven by some shift, we believe, as cod became more difficult to acquire, there was some shift to haddock and to other species. And we've been certainly helping drive some volume to other species like pollock or cape hake. And we'll continue to do that as we see challenges in cod quotas. We're also, as you know, some supporting cod aquaculture. We're also very pleased to be buying cod again from Newfoundland where the stocks are improving quite significantly. So we have more optimism as we look forward. The supply constraints were particularly acute during the Lent period when demand is highest. As we come through the second quarter, we expect to be in a much better supply position across really all of Our species for the back half of the year.
Neven Joche
Great. Thanks for taking my questions.
OPERATOR
Thank you. Next question will be from Luke Hannan at Kennaccord Genuity. Please. Go ahead, Luke.
Luke Hannan
Thanks. Good morning. I wanted to start with my first question, I guess is just on your expectations for the year. You're still calling for a year on your EBITDA growth. How should we think or I guess how are you guys thinking about or how are you reflecting the expected imposition of the Section 301 tariffs coming in later this year? How has that been reflected in your expectations or your forecast for the year, if at all?
Paul Jewer (Chief Executive Officer)
Yeah, great question. We have not included in our expectations any tariff recovery at this stage as we identified in our disclosure. It's too early to do that. Obviously we're working hard to recover some of the tariffs that we paid and that will be incremental to our expectations for the back half of the year. You know, we're really, as we identified in our prepared remarks, expecting to see some improvement as we move through the back half of the year. You know, we still have work to do in the second quarter, but with our performance in the back half of last year, with the steps that we've taken on pricing promotion, supply chain improvement with the acquisition of the Con Agribrands mid last year, all of those things give us confidence in the back half of 2026.
Luke Hannan
So just on recovery for a second, I know you guys talked about you can disclose 41.3 million as the amount that you guys paid in IPA tariffs is the expect. I know there's not much you guys can say at this point because there's just so much uncertainty, but we've heard from some other companies that whatever they paid in tariffs may not necessarily be what they get as far as refunds. Is your overall high level expectation though that that amount will have to be broken down and shared potentially with some of your suppliers who presumably also would have been paying tariffs?
Paul Jewer (Chief Executive Officer)
Yeah, I mean, at this stage we can't really talk about what we'll do with refunds until we actually know that we'll get refunds. So you're certainly right about that and we're, you know, we're working hard on that process. Big kudos to our teams because, you know, it's been a significant amount of effort, but we've got very strong support and documentation for the refunds we've applied for. Listen, whenever there are significant cost increases, particularly you know, as we face in seafood on raw material costs, it's always a conversation with our customers and you know, we'll continue to have that discussion with them as we look at the opportunities to continue to support the category as we go forward.
Luke Hannan
Okay, and I want to go back to my first question, make sure this is absolutely clear because Paul, you did say you're not expected to recover or rather you haven't built in that you're expecting to recover these tariff refunds. But my question was around IPA tariffs are rolling off. We're expecting section 301 tariffs will come on later this year. With that knowledge or with that expectation, you're still expecting to deliver year on year EBITDA growth like that's been reflected in your guidance.
Paul Jewer (Chief Executive Officer)
Yeah, I mean at this stage what's included in our expectations is the tariffs we're currently paying. Right. Which is largely a 10% tariff on everything going into the US if there are incremental tariffs again on top of that, then we'll have to certainly manage that in our business. That is currently, you know, we don't know what will come of those 301 tariffs at this stage if there are more on, you know, the countries that are providers of our, of our seafood. So yeah, you're right. We'll have to wait and see there. And of course the other, the other increasing cost that we'll be managing through the back half of the year is the rising costs associated with fuel. But you know, as we, as we have historically shown in the past, you know, while it may have some short term impact, we work hard at making sure that we get back to the kinds of margins that were typical to
Luke Hannan
delivering with the fuel surcharges that you guys have in market. Now, is the expectation that that higher fuel cost will be fully passed through, partially passed through? How should we think about that?
Paul Jewer (Chief Executive Officer)
Yeah, I mean we're obviously working as hard as possible to have it fully pass through, but you're never able to get fully pass through just from a timing perspective and other things. So we've, we've reflected some negative impact associated with fuel costs in our, in our forecast for the back part of the year at this stage.
Luke Hannan
Okay, thanks. And then last one and then I'll pass the line just on, on the conagra brands I know you guys talked about when you initially acquired them. I think the expectation was for an incremental US 4 million of EBITDA for 2026. I just wanted to confirm if that's still reasonable. And then also I know at the time the expectation was to capture all the synergies. It would take 12 to 18 months have you guys made? Can you just share what headway or what progress you've made on that front thus far?
Kimberly Stevens (Chief Financial Officer)
Yeah, absolutely. So what we're really pleased to share is that the conegro brands have actually performed really well under our ownership. And so we, as I indicated in my remarks, we saw incremental year over year adjusted EBITDA growth just in line with, in line with our expectations for the conagra brands as a standalone. We are on track of recognizing the synergies, I would say, throughout 2026 and on track to kind of target that 11 million in 2027.
Luke Hannan
So bacon, the outlook is still that 4 million for this year. Correct.
OPERATOR
Okay, thank you. Thank you. Next question will be from Ryland Conrad at RBC Capital Markets. Please go ahead. Ryland.
Ryland Conrad
Hey, good morning. Thanks for taking my questions. To start just on the pricing actions for the retail channel, I guess can you confirm that those have now been fully in effect post lent? And through Q2, are you seeing any demand elasticity from consumers in response to those price increases?
Anthony Rosetta (Chief Commercial Officer)
Hey Ryan, it's Anthony. Yes, we had, because of what we talked about in the fourth quarter of last year and early this year there was a lag in being able to get the pricing pass through on retail given blackout windows and the lend timing and longer lead times in retail. So the majority of customers have accepted and we're into our pricing right now. It's a little early to tell on price elasticity because some of it's just hitting the the market and you know, we're obviously lapping length from last year in the latter part of April. So I think it's still too early to tell. What I would say overall is that as you saw in our Q1 results, in spite of the inflation, the demand has held up well, probably better than we thought in terms of the elasticity impact. But we'll continue to monitor it and see how the consumer reacts to it and then make sure that we have, because of the breadth of our portfolio across value and premium, hopefully we have the right solutions for them regardless.
Ryland Conrad
Okay, got it. And then just in light of the solid volume performance in Q1 that came in ahead of your expectations in balancing that with the current macro environment, are you still expecting to deliver low single digit volume growth for the full year or has that changed?
Anthony Rosetta (Chief Commercial Officer)
Yeah, no, I think our expectations are still in line with that, Ryland. I'd say on a year to go basis, like you mentioned, there will be some inflation and price elasticity impact. What we're doing on Proactive pricing and promotional optimization. And then in the fourth quarter we'll get into lapping that USDA contract manufacturing. So that will slow some of the volume pace versus what we've seen, but still expecting that range of volume growth
Ryland Conrad
on the full year. Great. Thank you. And maybe last for me, just on gross margins, given the incremental year over year pressure in Q1, do you still see that 21% to 21.5% range as being achievable for this year?
Kimberly Stevens (Chief Financial Officer)
I think at this stage, what we, given what we delivered in the first quarter from a rate perspective and given what I highlighted in terms of just the inflation that's in the top line and the effect on margin percentage, I think it'll probably be a little below that 21% range, but certainly better than as we finish the year, better than where we are, where we're starting the year from a rate perspective.
Ryland Conrad
Okay, thanks very much.
OPERATOR
Thank you. Next question will be from Fred Catale at Raymond James. Please. Go ahead, Fred.
Fred Catale
Hey, good morning. Could you speak to the promotional environment through the year geographically and then how that's being balanced with upward pricing adjustments and maintaining share?
Anthony Rosetta (Chief Commercial Officer)
Sure. Yes. So as we mentioned, obviously the most intense promotional period for us and the category is in Q1 with lent timing, we definitely will still continue to appropriately promote on our business. You won't see the level of depth and frequency on those promotions throughout the year. It's very similar in terms of how we operate between Canada and the U.S. and across retail and food service. Lent tends to be the peak promotional timing and period. It slows down a bit in the summertime and then picks up again before the holidays at the end of the year and then ramping up for Lent 2027. So again, you should see less than we saw in the first quarter. We're trying to make the right balanced decisions on the balance of the year to appropriately support our brands. We don't want to lose the strong momentum we've gained. I mean, Sea Cuisine is the fastest growing brand in retail right now and we have great innovation out in the market. We talked about Guinness and I mentioned the meals platform that we're launching. And appropriately, we'll still put some investment behind driving trial so that we can have consumers try our products and then continue to buy it on base business or when it's not on promotion ongoing
Fred Catale
and on the, on the, on the fully cooked offering that was launched in January. How's that resonating versus expectations?
Anthony Rosetta (Chief Commercial Officer)
Yeah, it's off to a great start. So we had Fully cooked launch. As we talked about in January of the year, we had it within a national convenience customer in the US that was intended to be a limited time offer during Lent, but they were so pleased with the velocity and the sales on it that they agreed to take it as a full time item. We've also secured some more listings, particularly in the non commercial side of food service. So servicing hospitals, long term care facilities, areas where they're really looking for that convenient, easy solution. And so yeah, we believe it's off to a great start and provides that great convenience and value offering that our customers and consumers are looking for.
Fred Catale
Okay, and last one for me, if we look at one of the companies you have a stake in, Norquad recently raised capital. Could you just speak to your participation there and then the strategy going forward, what you plan to do with that?
Paul Jewer (Chief Executive Officer)
Yeah, sure. So Norcott is a company that we have been investing in over the past couple of years and we are selling their product in the market in the US today. Very pleased to be doing that. As I mentioned earlier, particularly with constraints on Wild caught and certainly a great premium product. We did make a small additional investment in Norcod as part of their last financing round and look forward now as they continue to grow their top line and improve their operational performance to results from operations being sufficient to support the growth of their business going forward.
OPERATOR
Thank you. Thank you. Next question will be from Georges Dumais at Ventum Financial. Please go ahead, George.
Georges Dumais
Hi, good morning everybody. I'd like to get your thoughts on retail. Are there any trend themes that you can highlight when it comes to promo in general versus this, I guess this year versus the other lent periods? And how would you characterize the retail environment right now? And do you think promo in general could remain elevated I guess over the next couple of quarters? Just your thoughts there please?
Anthony Rosetta (Chief Commercial Officer)
Sure. Hey George, it's Anthony. Definitely saw with the earlier lend timing and with consumers looking for value that there was elevated promotion for our category in particular. I don't expect that level of intensity to remain after the first quarter. What we are seeing, I think which is positive for us is as consumers are, you know, looking for better value and are struggling with being able to go out and go to restaurants. They're looking for restaurant quality at home. And so we saw the real benefit of that in actually the premium parts of our portfolio in Sea Cuisine and Seaworthy where with our innovation, in our innovation, our increased distribution and then just the portfolio of products that we provide that consumers are actually moving even in Canada on Our pantsier side of the business, we saw the most growth in the premium side of it. So I think that as consumers are looking for those restaurant quality experiences at home, that bodes well for the retail environment. But I think the promotional intensity that we saw in Q1 won't be as elevated for the balance of the year.
Georges Dumais
Okay. Hopeful and maybe following up. Anthony, I know it's early days, but when would you expect to be behind from a timing perspective, at least, the negative volume response that could come up. Is it more of a Q3 thing? Is it more of a Q4 thing? When do you think we'll be kind of better gauged to see when we're behind it?
Anthony Rosetta (Chief Commercial Officer)
You're talking volume pressure associated with pricing, like in elasticity, Correct? Yeah. I think we will have the best understanding by the end of the second quarter as to what's happening with elasticity. As Paul said, the increases in raw material costs are largely known at this point while they're not fully behind us, but we'll have most of that reflected on our brands and products. So for the majority of the business, I would say we'll have a good indication by the end of the second quarter. Some of it, with the predictions on some of the whitefish species in particular will take us into the third quarter where there'll be some elevated pricing. So certainly coming out of the third quarter, I would expect to have full visibility on price impacts and elasticity and consumer response to that.
Georges Dumais
Okay, thanks. And maybe for Kimberly understanding, it's a little bit of a crystal ball question. I know there's a lot of moving parts, but can you maybe quantify the impact that you would expect from working capital this year, given all the stuff that's going on? And maybe I was hoping you guys can give us an updated target on where you see leverage ending the year.
Kimberly Stevens (Chief Financial Officer)
Yeah, absolutely. As you saw what happened in Q1, we were able to offload a lot of free cash flow, and we anticipate that to continue into the back half of the year. We, as I indicated in my remarks, we expect to slowly deleverage throughout the year and be just slightly above our 3 times target by the end of 2026.
Georges Dumais
Okay, those are my questions, guys. I'm sorry, one last one. Actually, on buybacks, is that something we'd have to wait to get to? That kind of three. Three times. How do you think about maybe capital allocation to shareholders given where you're stocking? Is that more. Yeah, go ahead. Thanks.
Kimberly Stevens (Chief Financial Officer)
Yeah, you would have seen that we pulled back a little bit on our share buyback in leading into mid Q1. And that is due to the fact that, you know, while we have competing priorities in our capital allocation, deleveraging is at the top of that list at the moment. But we didn't cut it completely because we still believe in the value of what it does in terms of the value of our stock as well as returning the capital to our shareholders. So we will continue to buy back shares alongside with our deleveraging initiatives.
Georges Dumais
Great. Thanks for your answers.
OPERATOR
Thank you. Next question will be from Kyle McPhee at ATB Cormac. Please go ahead, Kyle.
Kyle McPhee
Just a couple quick follow ups. One of the many moving parts you guided to helping margins throughout the rest of the year, one was that you briefly mentioned was cutting out, I think lower margin skews. Is that a notable moving piece like we will notice it in volume drag in Q2 and beyond, or is that a small incremental moving piece?
Anthony Rosetta (Chief Commercial Officer)
No, it's a smaller incremental piece, but can actually be quite helpful as we look at the efficiency of our plants.
Kyle McPhee
Got it. Okay. And then the C store win for your pre cooked product lineup that you launched, was that effective for the full Q1? And can you. And it sounds like it's a permanent listing now, so can you help us kind of quantify the the size, how meaningful that is?
Anthony Rosetta (Chief Commercial Officer)
Yeah, look, I think fully cooked is still very much in its infancy. And you know, that initial win with the customer as much as there are, you know, over 1,000 stores in the US that we're servicing with it. I wouldn't say is the largest driver of our growth so far, but seeing the good everyday volume that we'll get out of it, which will be lower velocity in turns than what we saw during Lent because we're outside of peak season, will continue to build with the distribution that we're picking up in non commercial and then the continued work that we do to get traction in QSR in particular.
Kyle McPhee
Got it. Okay, that's it. Thank you.
OPERATOR
Thank you. Ladies and gentlemen, a reminder to please press star one on your telephone keypad should you have any questions. And at this time, Mr. Duhar, it appears we have no other questions. Please proceed.
Paul Jewer (Chief Executive Officer)
Thank you, operator. And thank you all for joining our call today. We look forward to updating you with our results for the second quarter of 2026 on our next conference call in August.
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