High Liner Foods Inc

TSX:HLF

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the High Liner Foods Inc. conference call for results of the second quarter of 2021. [Operator Instructions] This conference call is being recorded today Tuesday, August 17, 2021, at 2:00 p.m. Eastern Time for replay purposes. I would now like to turn the conference over to Charlene Milner, Vice President of Finance for High Liner Foods. Please go ahead.

[Charlene Kristen Milner, Vice President of Finance]

Thank you. Good afternoon, everyone. Thank you for joining the High Liner Foods conference call today to discuss our financial results for the second quarter of 2021. On the call from High Liner Foods are Rod Hepponstall, President and Chief Executive Officer; and Paul Jewer, Executive Vice President and Chief Financial Officer.In a moment, I'll pass the call over to Rod for some remarks on our performance in the second quarter before handing over to Paul, who will review the financial performance. Rod will then make some final remarks before opening the call up for questions.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&A. Listeners are also reminded that certain statements made on today's call may be forward-looking statements that are subject to risks and uncertainties.Management may use forward-looking statements when discussing the company's strategy and business in the future. Actual operating or financial results could differ materially from those anticipated in these forward-looking statements. High Liner Foods includes a thorough discussion of the risk factors that can cause its anticipated outcomes to differ from actual outcomes in its publicly available disclosure documents, particularly in its annual report and annual information form. Please note that High Liner Foods is under no obligation to update any forward-looking statements discussed today. Earlier today, High Liner Foods reported its financial results for the second quarter ended July 3, 2021. That news release, along with the company's MD&A and unaudited condensed interim consolidated financial statements for the second quarter of 2021 have been filed on SEDAR and can also be found in the Investor Center section of the High Liner Foods website. If you'd like to receive our news releases in the future, please visit the company's website to register. Lastly, please note that the company reports its financial results in U.S. dollars, and therefore, the results to be discussed today are also stated in U.S. dollars, unless otherwise noted. High Liner Foods common shares trade on the Toronto Stock Exchange and are quoted in Canadian dollars. I will now turn the call over to Rod for his opening remarks.

[Rodney W. Hepponstall, President, CEO & Director]

Good afternoon, everyone, and thank you for joining us today to discuss our results for the second quarter of 2021. I would like to start today's call by welcoming Anthony Rasetta to our team. As we announced a month ago, Anthony has joined High Liner Foods as our Chief Commercial Officer. Bringing his extensive experience in developing, marketing and selling multinational food and snacking brands. He will work to integrate our sales and marketing functions to advance our branded, value-added growth strategy. We're thrilled to have -- thrilled that Anthony has joined High Liner Foods, and we look forward to his contributions as we advance our strategy to develop -- deliver profitability and growth. I would also like to recognize the resiliency of our people and our business. Throughout the pandemic, our team has come together to focus on safely meeting the needs of our customers and consumers across North America, despite their own personal challenges.As a business, we have remained extremely agile, quickly pivoting to mitigate the impact of the challenges presented by COVID-19 and the related market conditions so that we can continue to improve our financial performance, advance our growth strategy and create value for our shareholders. This was the case during the second quarter of 2021 when despite the continued uncertainty related to the pandemic, and volatility of the global supply chain, we delivered gross profit percentage gains on increased sales.As with the first quarter of 2021, our performance metrics in Q2 are clouded by year-over-year comparisons. Once again, market conditions in the second quarter of 2021 were significantly different than the second quarter of 2020 when we saw the surge in demand in our retail business as at-home food consumption increased and the significant decline in foodservice demand as COVID-19 restrictions affected eating away from home.During the same period this year, consumer habits shifted in the opposite direction as consumers change their preference from having restaurant quality seafood at home and started to dine out once again, strengthening our foodservice business. We can all relate to the desire to start eating out again and are thrilled that our frozen seafood value-added offerings are on menus and doing well. The foodservice recovery is in full swing, even though many of our key markets still had in-person dining restrictions and our noncommercial customers were not yet fully operational during the second quarter.There have been many occasions throughout the pandemic that I have felt grateful for the diversification of our business and the ability to serve consumers regardless of where they wish to consume seafood. Financially, when you look past the year-over-year comparisons and compare our performance to 2019, we achieved a 2-year compounded annual growth rate of 1.7% on gross profit and 4.6% on adjusted EBITDA.We also improved our gross profit as a percentage of net sales by 420 basis points from 19.2% in Q2 2019 to 23.4% in Q2 2021. Aligned with our strategy, branded products represent 62% of our portfolio compared to the start of the pandemic when that number stood at 55%. Looking at this trajectory, along with the strength of our team, our product offering and improving performance in the second quarter, we remain confident in both the resilience of our business and our potential to continue to drive adjusted EBITDA growth over the course of the year.With that, I will hand the call over to Paul to walk us through our financial performance for the second quarter. Paul, over to you.

[Paul A. Jewer, Executive VP & CFO]

Thank you, Rod, and good afternoon, everyone. Please note that all comparisons provided during my financial review of the second quarter of 2021 are relative to the second quarter of 2020, unless otherwise noted. Sales volume increased in the second quarter by 1.1 million pounds to 50.4 million.In our foodservice business, sales volume was higher due to the impact of significantly reduced COVID-19 restrictions on the company's foodservice customers as compared to the second quarter of 2020. This increase was partially offset by our retail business, where sales volume was lower compared to the same period last year, due to the significant surge in demand at the onset of the COVID-19 pandemic a year ago.Sales volume in the second quarter was also negatively impacted by the global supply challenges that have resulted in shipping container availability issues and reduced raw material supply. Sales volume was favorably impacted by new business and new product sales. Sales increased in the second quarter by $24 million to $189.8 million due to the higher sales volumes, pricing actions related to inflationary increases on input costs, lower promotional activity and changes in sales mix.In addition, the stronger Canadian dollar in the second quarter of 2021 compared to the same quarter in 2020 increased the value of reported U.S. dollar sales from our Canadian dollar-denominated operations by approximately $6 million relative to the conversion impact last year.Gross profit increased in the second quarter by $7.7 million to $44.4 million, and gross profit as a percentage of sales increased by 120 basis points to 23.4% as compared to 22.2% in the second quarter of 2020. The increase in gross profit reflects the higher sales volume discussed above in combination with favorable changes in product mix reflected in the improved gross profit as a percentage of sales.In addition, the stronger Canadian dollar increased the value of reported U.S. dollar gross profit from our Canadian operations in 2021 by approximately $1.5 million relative to the conversion impact last year. Adjusted EBITDA increased in the second quarter by $2.5 million to $19.6 million, and adjusted EBITDA as a percentage of sales remained consistent with the prior year at 10.3%. The increase in adjusted EBITDA is a result of the increased gross profit, partially offset by an increase in distribution expenses and net SG&A expenses.In addition, the stronger Canadian dollar increased the value of reported adjusted EBITDA in U.S. dollars from our Canadian operations in 2021 by approximately $1.2 million relative to the conversion impact last year. Reported net income increased in the second quarter by $4.6 million to $8 million and diluted earnings per share increased by $0.13 to $0.23. The increase in net income reflects a decrease in finance costs and a decrease in income tax expense.The higher net income was also due to the increase in adjusted EBITDA, partially offset by an increase in share-based compensation expense. Excluding the impact of certain nonroutine or noncash expenses that are explained in our MD&A, adjusted net income in the second quarter of 2021 increased by $5.7 million or 121.3% to $10.4 million and correspondingly, adjusted diluted earnings per share increased by $0.16 to $0.30.Turning now to cash flows from operations in the balance sheet. Net cash flows provided by operating activities in the second quarter of 2021 decreased by $26.4 million to an inflow of $5.9 million compared to an inflow of $32.3 million in the same period in 2020 due to less favorable changes in net noncash working capital and higher income taxes paid partially offset by higher cash flows from operations and lower interest paid.Our cash flow position is allowing us to increase inventory to help mitigate the supply chain challenges we are facing. Net debt at the end of the second quarter of 2021 increased by $3.4 million to $248.2 million compared to $244.8 million at the end of the first quarter of 2021, primarily reflecting a lower cash balance on July 3, 2021, partially offset by lower balances of long-term debt and lease liabilities.Net debt to adjusted EBITDA was 2.8x at July 3, 2021, compared to 2.9x at the end of the first quarter of 2021 and 3x at the end of fiscal 2020. In the absence of any major acquisitions or unplanned capital expenditures in 2020, we expect this ratio to remain relatively consistent with where it is today.As a result of our strong balance sheet and cash flow, we remain confident in our liquidity position. We do not have any impending debt maturities, and we will continue to utilize our $150 million working capital credit facility, if required. The company currently has no borrowings on this facility.I will now turn the call back over to Rod for some final remarks before opening up the call to questions. Rod?

[Rodney W. Hepponstall, President, CEO & Director]

Thanks, Paul. Now for a brief update on how we are advancing our branded value-added growth strategy. As I've spoken about before, we are going to market much more aggressively than in prior years. We are putting marketing dollars behind this and are already seeing positive results in terms of both customer and consumer engagement. Take, for example, our Pan-Seared 2-pack campaign on digital and social media. We successfully educated consumers on the benefit of the product. The fact that is it's restaurant quality ready in 20 minutes and perfect for 2 people. Paired this with a promotion and saw a 30% to 40% increase in velocity and sales up on average of 30% during the month of the campaign.We also secured a major new Canadian retailer to stock this product in Q3. We're also seeing encouraging results with our Sea Cuisine marketing campaign that I spoke about during our call -- our last call. This quarter, we kept up the momentum with sales driven in part by value-added content across social media platforms. We look forward to enhanced packaging capabilities coming online to support the increasing popularity of this product.These are just a couple of examples of how we are going to market differently and the opportunity that is out there for us. This is the tip of the iceberg, and I'm excited to build on our early results as we integrate our sales and marketing efforts under the leadership of Anthony as our new CCO.In foodservice, we were able to capitalize on the heightened profile of our products with our U.S. sales team back in the field for the first time in 18 months. We are continuing to supplement with virtual selling as needed, but are taking all opportunities to deepen customer and supplier relationships and establish new ones.The foodservice rebound continues to be driven by quick service restaurants and casual dining, many south of the border. We are optimistic that we will see noncommercial customers, schools, hospitals and other institutional customers open up this fall and are ready to capitalize on this opportunity.Our product portfolio also gives us capability to support fluctuating consumer behavior across all price points. In line with our strategy, we are selling more branded value-added products than commodity products. a trend that is contributing to our overall profitability. We are optimistic that this will continue as our branded value-added advantage continues to be well received by both foodservice operators under pressure and consumers who are looking for easy-to-prepare delicious seafood to enjoy at home.We also had success in the second quarter selling our new innovations. We are excited for the upcoming test of our Alaskan Wild Wings at a leading U.S. casual dining chain and feel very good about how this product has been received across the market. We're also winning new business in the retail space and gain new listings and shelf space at major retailers during the quarter.We have aggressively advanced our branded value-added strategy. We have had to mitigate against global supply chain challenges. Like others in the industry, these challenges primarily relate to container availability and increased cost of container shipping. This unfortunately is impacting our fill rates and our ability to satisfy customer demand. Like others in the CPG industry, it is also curtailing our ability to promote our products in our usual fashion, which we expect is impacting our retail volumes.In response to these challenges, we are taking pricing action in both retail and foodservice and continue to build our inventory, but we can expect there will be a lag before we can realize the benefits in both areas. We also further diversified our supply base to help mitigate against challenges and are leaning on the advantages of our scale, our diversification of species within our portfolio and our integrated supply chain to help navigate through these issues.For example, we can quickly reallocate product with our system to areas of higher demand such as during the pandemic when we allocated product to support our surging retail business and now when we are reallocating product to our foodservice business as demand for eating away from home increases.Bottom line, we are being proactive in managing the factors within our control. The pandemic is far from over, and related global macroeconomic conditions remain very challenging. We remain prepared for this to continue to impact performance and offset demand for our products and stand ready to support all of our stakeholders through the months ahead. We remain acutely aware of the importance of ensuring a steady supply of seafood to families across North America as a healthy and affordable source of protein and are working closely with our stakeholders to support them through the ongoing challenges.As our new purpose statement says, we are reimagining seafood to nourish life. This is evident in all we do from community initiatives, such as our goal to provide 10 million meals by 2025, to our unwavering commitment to support health, safety and wellness of our people. Despite all of these challenges and uncertainty of the current environment, I remain confident and believe High Liner Foods is operating from a position of strength and with the right strategy and team behind it.In light of this and our continued momentum executing against our strategy, we expect to continue to deliver adjusted EBITDA growth in 2021.With that, I will hand the call over to the operator for a brief question-and-answer period. Operator, please go ahead.

[Operator]

[Operator Instructions] Your first question comes from George Doumet from Scotiabank.

[George Doumet, Analyst]

Maybe this one for Paul. Can you best estimate the lost volumes from the container shortages and the raw material supply in the quarter? Maybe give us a sense of magnitude there?

[Paul A. Jewer, Executive VP & CFO]

Yes. So in the quarter, George, we'd estimate it would be 3 million pounds to 4 million pounds of total impact, and that is from pure shortages, but also the impact we would see in terms of having to have some product unallocation. And also, we've reduced promotions in some of our retail business to reflect the fact we don't want to promote when we have supply challenges. So the combination of the 3 of those areas would have had that kind of impact approximately in the quarter.

[George Doumet, Analyst]

Okay. And how do work service volumes in general compared to, I don't know, 2019, either Q2 '19 or '19 generally speaking? Anything, I guess, prepandemic?

[Paul A. Jewer, Executive VP & CFO]

Service levels, overall? Yes, so...

[George Doumet, Analyst]

No. Volumes.

[Paul A. Jewer, Executive VP & CFO]

Volumes overall. Sorry. Yes. So I mean, we saw quite an increase in food service in 2021 compared to 2020, but it's still not back to 2019 levels. And the primary reason for that is some of our sectors in foodservice, school business, institutional feeding, as an example, are not back to the pre-pandemic levels.In retail, we saw a decline this quarter compared to the prior year. We are not above 2019 levels, but that's more about some lost business in 2019 than it is related to the pandemic.

[George Doumet, Analyst]

That's great. Just one last one, if I may. Just outside the supply chain, it looks like we're seeing substantial inflation in commodity costs in Q2. I think it's even got more pronounced into Q3 to date. So it's a 2-part question. Like I'm just wondering when do you expect to have those higher input costs hit our P&L. And it looks like we're pushing price quite a bit now. So I'm just wondering, is that for freight. Or is that more for the higher commodities we're seeing?

[Paul A. Jewer, Executive VP & CFO]

Yes. So the commodity cost increase is certainly much less for us than the freight cost impact. And the primary reason for that is our primary commodity, as you know, is seafood raw material. And that, we haven't seen much in the way of price inflation other than in one particular species. So we've been fortunate in that regard. We have seen some of the ingredient costs go up, to your point. We have had the past price to reflect that. It's a market issue. And the biggest piece for us is the international freight. We have had already pass price in that regard, and there's more pricing increases to come, unfortunately, to reflect that higher cost environment. But that's recognized as a necessary price increase as again, is impacting all industries, all customers, all supply chains.

[Operator]

Your next question comes from Kyle McPhee from Cormark Securities.

[Kyle McPhee, Analyst of Institutional Equity Research]

Just starting with a follow-up on the foodservice stuff. So you mentioned you're still below '19 levels because of some institutional and school stuff. But what about specifically the restaurant channel. Has that fully normalized or how much below '19 are you for the restaurant channel specifically?

[Paul A. Jewer, Executive VP & CFO]

Yes. No, we'd still be below in the restaurant channel a bit as well, primarily in our commodity business, our value-added businesses performed there. And part of the reason for that is full service restaurants, which are more important to us than other restaurant chains still aren't back to full levels of operations.We unfortunately know many of our restaurant customers are facing significant staff shortages. So we're still seeing some impact there, but a significant recovery from where we were in 2020.

[Kyle McPhee, Analyst of Institutional Equity Research]

And can you quantify that at all, maybe as a percentage of '19, where you're at now?

[Paul A. Jewer, Executive VP & CFO]

For that sector, the restaurant sector specifically, I don't have that number in front of me. It would be -- it would not be as significant as the K-12 educational or industrial or institutional business that I mentioned earlier.

[Kyle McPhee, Analyst of Institutional Equity Research]

Can you maybe speak to just where your total food service business has been as a percentage of '19 adjusted for all the contracts and stuff that are done?

[Paul A. Jewer, Executive VP & CFO]

Yes. So I mean, we would still be 15% to 20% below 2019 levels. And -- but that, again, is -- that's -- we're 29% above 2020 levels.

[Rodney W. Hepponstall, President, CEO & Director]

Yes. Kyle, if I may add, one of the things that certainly is contributing to the performance versus 2019 is Paul's point earlier, we have a very dynamic market happening between whether it be provincial or different state restrictions on in-person dining, certainly, restrictions on capacity with the restaurant and labor. So we could literally go province by province or certainly state by state and provide you some level of impact. But again, very, very dynamic, and I think we're going to be a bit before we see wide opening dining across North America, particularly in the key sectors that we're in.And again, we index very heavily in call a lot of the health care and the school industries and many hospitals and other long-term care are not back to normal visitation and/or electrosurgery where we see certainly in hospital feeding on a significant basis. And certainly, we're very optimistic about return to school this fall.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. And on that return to school. For the schools that you're specifically serving, do you expect them to all open?

[Rodney W. Hepponstall, President, CEO & Director]

Well, optimistically, I'd love to say yes. I think that is a case-by-case basis across municipalities in North America. But we're certainly very optimistic. I can say, as we monitor the largest school districts across North America, we certainly anticipate many of the kids being back with particular restrictions, but we're certainly very optimistic about that portion of our business.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. Okay. And then just following up on the supply side issue. You said you lost 3 million pounds to 4 million pounds of sales opportunities. Was it weighted to a specific type of product or channel? I'm just trying to get a feel for what it translates into in dollars or even what the margin mix impact would have been?

[Paul A. Jewer, Executive VP & CFO]

Yes. I would say it's slightly more skewed, Kyle, to our commodity product and our value-added product. But I think using our representative margins as an organization overall and applying those percentages to that lost volume would probably be a reasonable estimate of the bottom line impact on that volume impact.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. Okay. And then on pricing, you said that you've increased pricing as expected. Can you help us understand how large the pricing gain was? And maybe more important, based on what your cost inflation was, did it kind of net out to a neutral impact? Or is there some drag or maybe even a benefit?

[Paul A. Jewer, Executive VP & CFO]

Yes. So I don't want to give any particular percentages because it obviously varies by segment and product in terms of the percentage increase. But overall, we believe that we have sufficiently been able to cover the cost increases. There's always some lag, as you can imagine in that.But with time for the price increases to take hold, knowing what we know today about cost increases, then we feel good about what we've been able to do to manage the profitability of our business. Obviously, we'll continue to monitor what may continue to happen on supply chain cost increases as we look forward.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. And last quick one. Other than supply chain cost inflation is your actual -- do you foresee any material issues with respect to access to supply? Or is this lost sales opportunity going to be snowballing in the coming quarters?

[Paul A. Jewer, Executive VP & CFO]

It's more of a timing issue than species not being available. But with the challenges with containers with the challenges with some of the primary processing in other countries around the world, it extended the length of our supply chain, which was already long. So we're confident we'll have the ability to recover.We've seen a significant recovery already over the course of the last 1.5 months compared to where we were when we were in Q2. And we're going to continue to work on that. As Rod mentioned earlier, the team has done a wonderful job of leveraging the diversity of our supply chain to come up with contingency plans and find options for us.

[Operator]

Your next question comes from Jonathan Lamers from BMO Capital Markets.

[Jonathan Lamers, Analyst]

On the supply chain and container shortage challenges, ocean freight rates have only increased since June, as you pointed out, Paul. So are you seeing the impact of the shortage challenges worsening into Q3 or improving? And how is your inventory build-out address this in terms of your ability to satisfy demand for the second half?

[Rodney W. Hepponstall, President, CEO & Director]

Yes, Jonathan, maybe I can take a shot at that here. I would say we are monitoring the global positioning of containers, certainly ships available and our access to that. So I think from the data we have today, I think we would appear we're probably at the peak of the impact I don't consider -- I don't view any additional impact beyond this. Now this may be sustained for a bit of time. But that said, we are very focused on building the right inventory levels, getting as much product as we determine on the water as possible, and we've been fairly successful with that over the last several weeks. So we believe certainly that we're managing it quarterly through the situation. That said, this is a very, very dynamic and global issue that we all have to manage through from a -- whether you're in the CPG business or certainly any other business out there.

[Jonathan Lamers, Analyst]

And we talked at length about foodservice volumes versus 2019. Could you update us on where retail volumes were versus 2019, either for Q2 or the first half?

[Paul A. Jewer, Executive VP & CFO]

Yes. I think I mentioned for Q2, we're slightly below volumes for 2019. Less about pandemic impact there more about some lost customer business in 2019 versus 2020, retail is down more significantly. Because as you can imagine, we had quite a bit of freezer loading in the early part of Q2 in 2020, which didn't repeat in 2021. Having said that, we still believe the increased traffic that we saw in the category in 2020 is an opportunity that we're going to continue to work on exploiting as we go forward.

[Rodney W. Hepponstall, President, CEO & Director]

Yes, Jonathan, maybe I can even add. What we've seen is a pretty rapid path back to what I would say, historical consumer spend dollars back to almost a 50-50 consumers have shifted back to foodservice. And what we've been able to do certainly with the strength of our foodservice business is capture those incremental dollars in our foodservice business, although still a bit below 2019, again, that's because of some segments not opening. But we believe, certainly, as consumers become much more fluid in where they choose to have restaurant quality seafood, we're really well positioned with both the retail and foodservice businesses we have.

[Jonathan Lamers, Analyst]

Paul, on past calls, you've been able to share with us the value-add mix of sales for the quarter. Would you happen to have that nearby for Q2 versus last year?

[Paul A. Jewer, Executive VP & CFO]

Yes. So for Q2 this year, it's 62% value added. That's down slightly from 66% a year ago, but is consistent with where it was in 2019. So what that reflects is we've seen, thankfully, some of our unprocessed commodity business come back as we've seen some recovery, particularly in foodservice.

[Jonathan Lamers, Analyst]

So the encouraging point on that, Paul, is you've really been able to hold your gross margin percentage through this shift back toward nonvalue-add products. Is that you kind of see going continuing. Yes, sorry, go ahead.

[Paul A. Jewer, Executive VP & CFO]

That is a dynamic that we've been very pleased with. I think the team has done a good job of managing gross margin even as we've seen some of that lower-margin business come back. We're pleased with the mix as it sits. And Rod mentioned this in his prepared remarks, we've also maintained a branded percentage that's higher than 2019 as well, which, of course, helps with the sustainability of our business, but also the profitability of our business.

[Jonathan Lamers, Analyst]

And the last question, if I may. Could you remind us what nonrestaurant or institutional food service customers represented as a share of sales pre-pandemic?

[Paul A. Jewer, Executive VP & CFO]

Yes. So just to give you a high-level breakdown. Health care is the biggest institutional segment. It's almost 1/4 of our volume. Foodservice restaurants are very similar in size to health care. Followed by QSR and educational, which would be both in the sort of mid-teens as a percentage. And then there's sort of a long list of smaller percentages that make up the balance.

[Operator]

Question comes from Sabahat Khan from RBC Capital Markets.

[Sabahat Khan, Analyst]

I guess just following up on the retail discussion there. I guess with the uptick that happened last year during the pandemic, were you able to identify specific segments of the market that came to this category that weren't there before? And has there been an opportunity to keep some of them? And at a higher level, are you able to sort of comment on the ability to maintain some of those consumers within the category? Has there been some success with that? Are you seeing some of those folks stick around?

[Rodney W. Hepponstall, President, CEO & Director]

Yes. I would say there's a number of things that happened in the category in Q2, specifically last year. Number one, we saw the category as we know it slowed. And that would be all the way through from the value product up to premium product offering. So our product portfolio stretches the range, unlike many others in the industry. So we were able to capture the value, again, all the way up to the premium. But where we have seen some extreme benefit to us would be in our product like Sea Cuisine as an example. Sea Cuisine is up year-over-year, 6% -- a year over -- 2 years is up roughly 35%. And so the premium offering of our products solve many new consumers coming in because as you recall, we've talked previously, Seafood was the #2 item reference consumers missed eating out. So they turn to the retail channel to get the restaurant quality type meals. Now we did see significant consumers come into the category in again, 2020. Some of those consumers have left, again, as we've seen the normalization of food or dollars spent at home versus away from home. But we feel very confident in the digital and direct-to-the-consumer campaigns that we've had that have supported the continued growth as an example, within Sea Cuisine. So we're much more targeted. And as we've talked about, we are much more aggressive in our approach, significantly more marketing dollars than we've historically spent in order to certainly communicate the benefits of High Liner branded product in the marketplace, but also keep those consumers in the channel.

[Sabahat Khan, Analyst]

Okay. And then I guess with that growth in fee for the consumer demand at least, has retailer support generally been there, whether it's with regards to, I guess, freezer space or just focusing on the category?

[Rodney W. Hepponstall, President, CEO & Director]

Yes. We've seen a great partnership from our customers without question. We deal with the leading retailers across North America. They certainly want to deal with leading brands and certainly companies of scale like us that can manage through the dynamic market. So we would anticipate continued support from them. And as we look at their emphasis as dollars have shifted away from retail back into foodservice, they're taking the necessary steps as well to keep the traffic coming into their individual locations. So we view this as a great partnership with our major customers and an opportunity to continue to expand seafood at home.

[Paul A. Jewer, Executive VP & CFO]

And we think we're now in a position, Sabahat, where we've got more opportunity as we look ahead on the innovation front because the reality is during the pandemic, many of our retail customers had to focus on executing the business that they were already in rather than looking at opportunities to expand or grow the category. We believe that we'll be able to work with them on category expansion and growth more now as we look forward.

[Sabahat Khan, Analyst]

That makes sense. And then I think Paul I think there's a question earlier on just being able to secure just inventory, kind of for the shipping constraints. But I guess maybe a broader question, what's some uncertainty on pricing and freight? I guess, how far ahead were you guys able to maybe secure or supply or maybe -- is there an opportunity to maybe lock in prices before inflation goes higher. I just want to understand how willing suppliers are to lock into contracts to provide product a few quarters out?

[Paul A. Jewer, Executive VP & CFO]

Well, I think the bigger issue there is we'll buy the inventory earlier if we can. And we've done some of that because we've recognized it takes longer for the raw material to make its way through the supply chain today than it did before. And that's why you've seen our working capital performance versus a year ago. We've utilized some cash there and expect we will continue to do that as we move through the back half of the year. We're in a fortunate position to be able to do that. And so if we see opportunities to get volume priority #1, at the right price, then we'll do that to make sure we're in the best position we possibly can be going into lent and the balance of 2022.

[Sabahat Khan, Analyst]

Okay. And then just last one for me. With the balance sheet kind of below your targeted range of 3x on the leverage side, any thoughts as we head into '22? If the background does normalize any thoughts on capital allocation and how you're thinking about deploying the improved balance sheet position?

[Paul A. Jewer, Executive VP & CFO]

Sure. Yes. As we've identified in our prepared remarks, we've spent more in capital than we have historically. We see an opportunity to continue to do that in the near term. We will continue to show support for the dividend. We've done a small amount of share buybacks over the course of the last 1.5 months, but pretty insignificant there. And at some point, we hope that we'll have the opportunity to deploy the balance sheet further to support any accelerated growth opportunities. But in the meantime, we'll continue to improve our financial performance. We'll continue to invest in our business, and you'll see leverage to continue to improve until we see more of those accelerated growth opportunities.

[Sabahat Khan, Analyst]

Yes. If I could just squeeze in one more. I guess on just last comment there. Has there been an opportunity, I guess, capture market share? How the smaller players on the -- I guess, particularly on the retail side, where maybe contractor share and things like that? How is the industry dynamic been there, I guess, in the context of the larger scale in the retail side?

[Paul A. Jewer, Executive VP & CFO]

Yes, nothing I'd identify significantly in terms of a change in the landscape in retail or food service. The one thing I would say is we have seen, unfortunately, some in the industry have struggled even more than we have from a supply perspective. And we've tried to be there whenever we can to support our customers in those cases. I think it will still take a little bit of time as we continue to see the full recovery from the pandemic to see how things may settle out in the industry overall.

[Operator]

We have a follow-up question from Kyle McPhee from Cormark Securities.

[Kyle McPhee, Analyst of Institutional Equity Research]

Just a follow-up on the CapEx. It looks like you upped it a bit. I'm just wondering what the added CapEx is for. And then maybe can you comment on how much of that $22 million guidance for this year is true growth CapEx as opposed to maintenance?

[Paul A. Jewer, Executive VP & CFO]

Yes, the majority of it is maintenance CapEx, your point, Kyle. I would say less than $5 million would be growth -- pure growth CapEx. It's up a bit, and that reflects the opportunity to execute on projects where we can, the willingness to invest in the business. And we have seen, not unlike most areas, some cost increases that we had to deal with, even on the capital side of the business.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. Okay. And last one. I appreciate all the comments on all your new products and innovation and now it seems to be increasing momentum. But much like in past quarters, can you kind of encompass that and an overall growth contribution just isolated at these new products and innovation?

[Paul A. Jewer, Executive VP & CFO]

Yes. So there'd be approximately 3 million pounds of new product or new customer business in the quarter. And we're pleased that, that would contribute in the neighborhood of a couple of million dollars of contribution.

[Kyle McPhee, Analyst of Institutional Equity Research]

Got it. Okay. And correct me if I'm wrong, but you -- I think you had a similar -- that's building on a similar contribution from a year ago. So the kind of 2-year stack would be about double that. Am I thinking about it right?

[Paul A. Jewer, Executive VP & CFO]

Yes. It's a similar trend this quarter versus previous quarters. We haven't really seen it accelerate at this stage. We would hope that, that, as I mentioned earlier in a comment, I hope that we have some opportunity for that to be the case as we continue to recover from the pandemic.

[Operator]

There are no further questions at this time. I'll turn it back to Rod for closing remarks.

[Rodney W. Hepponstall, President, CEO & Director]

To close, I want to thank you for joining our call today. We look forward to updating you on our results for the third quarter of 2021 on our next conference call in November. Please stay safe and well.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.