© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Felicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Primo Water Corporation First Quarter 2021 Results Conference call. [Operator Instructions] I'll now turn the call over to Jon Kathol, Vice President, Investor Relations. Please go ahead.
Welcome to Primo Water Corporation's First Quarter 2021 Earnings Conference Call. [Operator Instructions] This call will end no later than 11:00 a.m. Eastern Time. The call is being webcast live on Primo's website at www.primowatercorp.com, and will be available for a playback there for 2 weeks. This conference call contains forward-looking statements, including statements concerning the company's future financial and operational performance. These statements should be considered in connection with cautionary statements and disclaimers contained in the safe harbor statements in this morning's earnings press release and the company's annual report on Form 10-K and quarterly reports on Form 10-Q and other filings with securities regulators. The company's actual performance could differ materially from these statements, and the company undertakes no duty to update these forward-looking statements except as expressly required by applicable law. A reconciliation of any non-GAAP financial measures discussed during the call with the most comparable measures in accordance with GAAP, when the data is estimable, is included in the company's first quarter earnings announcement released earlier this morning or on the Investor Relations section of the company's website at www.primowatercorp.com. I am virtually accompanied by Tom Harrington, Primo's Chief Executive Officer; and Jay Wells, Primo's Chief Financial Officer. As part of this conference call, we have included a deck online at www.primowatercorp.com that was designed to assist you throughout our discussion. Tom will start today's call by providing a high-level review of the first quarter and our progress on the strategic initiatives we are currently focused on. Then Jay will discuss our first quarter financial performance in greater detail, provide an update on ongoing synergy work and offer our outlook for the second quarter and the full year 2021 before handing the call back to Tom to provide a long-term view ahead of Q&A. Within the prepared remarks, Tom and Jay will be discussing our continuing operations, which incorporates the legacy Primo business and excludes the S&D business, which was sold in February of 2020. With that, I will now turn the call over to Tom.
Thank you, Jon, and good morning, everyone. This morning, we reported a solid start to 2021 as our financial results were at the high end of our expectations on both revenue and adjusted EBITDA. Our revenue of $478 million grew 1% compared to last year and adjusted EBITDA increased 8% to $76 million. Our strong results are impressive, given that we were cycling the effects of pantry-loading that we experienced during the early days of the pandemic. A large portion of our revenue decline was from our noncore coffee service business. Our pure-play water businesses performed well and once again validates our strategy to focus on water solutions. During the quarter, the extreme winter weather events in February created a brief but challenging operating environment in several markets. I'm incredibly proud and appreciative of the way our teams in these markets responded, continuing to deliver healthy hydration solutions directly to the front door of our customers during a real emergency. Our commitment to providing customers with high-quality water whenever, wherever and however they want it remains at the center of who we are. The demand for our at-home products and services remains elevated more than 1 year from the onset of the pandemic as we've continued to deliver for our customers. During the first quarter, revenue from our residential or at-home customers was 25% higher than the prior year as reported and up 7% on a pro forma basis. While revenue from our commercial customers was lower by 23% compared to last year, we've generally seen a slow but steady improvement from our commercial customers over the past 12 months, and we are optimistic that continued reopenings in the markets we serve will lead to incremental revenue from these customers. As a reminder, our commercial business is centered around small businesses, not large offices. In the March release of the ADP Small Business Report, small businesses in the U.S., as defined by having 1 to 19 employees, are near full recovery when compared to pre-pandemic employment levels. U.S. businesses with 20 to 49 employees are at an index of 115 when compared to the low point of COVID employment levels in April 2020. In short, the small business, small office environment is beginning to return to work, and the segment is likely to grow further from here. Even as we expect improvement on the commercial side, we are confident that the new residential customer sign-ups will remain loyal Primo customers even as local economies reopen and people return to work. In other words, our customer base is not subject to a one-for-one trade-off or a zero-sum game as commercial segment activity recovers. As evidenced by trends in the do-it-yourself retail channel and residential real estate, we expect consumers to continue to do more dining, working and entertaining from their homes, which will drive growth in our residential customer base and at-home consumers who use our Water Direct and Exchange or Water Refill and Filtration services. We have seen consumer purchasing behavior changed significantly during the pandemic. Consumers are buying more of their products online and having more of those goods and services delivered directly to their doorstep in a safe, no-contact way. This includes everyday essentials like healthy, clean drinking water. We are well positioned to benefit from these trends as our overall digital and e-commerce efforts continue to progress and our Water Your Way offering remains highly complementary. It is also clear that the investments we have made to improve the customer experience are yielding positive results, increasing the likelihood that these new sign-ups remain satisfied with our service. Our global cooler quit rate for the first quarter was 19.8%, which is slightly higher than prior year. Our Net Promoter Score declined from its record high of a year ago, driven by service disruptions in markets that experienced new lockdowns and the short-term impact of the U.S. weather events. On top of all of that, we believe there are more structural and thematic tailwinds that support the retention of these customers and the continued growth of our overall business. The growth in the health and wellness category continues to support our prospects of gaining share of the broader beverage category at the expense of sugary sweetened beverages. COVID continues to elevate the health and wellness conversation, and research in customer behavior continues to drive increased water consumption. In addition, the perception of the declining quality of municipal tap water is well documented, which supports the growth of our products and services. Tap water as a primary drinking source is expected to continue to decline. Consumer demographics also favor bottled water, as Gen Zers and Millennials have demonstrated their preference for bottled water versus tap. In addition to retaining new customers, we're also diligently focused on adding new customers. The addressable bulk water market of U.S. residential households alone is estimated to be between 22 million to 29 million and growing as younger generations have adopted bottled water as their primary method of water consumption in the home. Our dispenser sales provide an important entry point to access these households and capitalize on our 4R, recurring razor/razorblade revenue model. Our internal research indicates that among last year's North American dispenser sell-through sales of 1 million units, 60% of respondents are new to the category, 30% are replacing their previous dispenser and the remaining 10% are adding an additional dispenser to an existing or secondary residence. Additionally, of those likely to become a future dispenser household, research indicates their consumer preference as 45% for Water Direct, 30% prefer Exchange and 25% prefer Refill. We should continue to capture our fair share of this growth as our 4R model remains one of our strategic advantages. Improving trends, favorable tailwinds and execution against our strategic initiatives provide the confidence to raise this year's adjusted EBITDA outlook to between $380 million and $390 million and to reiterate our long-term expectation of 5% organic revenue growth annually, plus the incremental benefit from our regular tuck-in M&A activity. Our plan is to accelerate M&A activity, and we expect to be at the high end of the range of $40 million to $60 million of investment in 2021. We maintain a robust pipeline of tuck-in opportunities that we plan to execute against this year and beyond. Yesterday, we announced that our Board of Directors authorized a new $50 million share repurchase program, which expires on May 9, 2022. Following our successful transformation into a pure-play water company and effectively navigating the pandemic over the last 12 months, we have sufficient liquidity to fund our tuck-in acquisition program in addition to implementing an opportunistic return of capital plan in 2021. Our new share repurchase program reflects our confidence in the consistent and recurring nature of our model, our continued long-term cash flow generation and demonstrates our commitment to creating value for our shareholders. On the ESG front, we continue to elevate our commitment to sustainability leadership. Last year, we achieved carbon neutrality in our U.S. operations, and our European water business has been carbon neutral for 9 consecutive years. In Europe, we source 100% renewable energy to cover the electricity consumption of all of our European operations, which have achieved carbon-neutral electricity consumption. In December, our Diamond Spring site in Pennsylvania was certified by the Alliance for Water Stewardship, AWS, and we became the first company to have a spring water source certified under AWS standards. We subsequently obtained that same certification for the second of our spring wells, our Wekiva Springs site in Florida during the first quarter. This year, we are introducing our latest sustainability goal of becoming 100% carbon neutral in our global operations by the end of this year. I will discuss our priorities and outlook for 2021. But first, I would like to turn the call over to Jay to review our first quarter financial results in greater detail.
Thank you, Tom, and good morning, everyone. Starting with our first quarter consolidated results, revenue increased 1% to $478 million compared to $474 million. The increase is due to the legacy Primo acquisition, increased demand for products and services from residential customers and at-home consumers as well as foreign exchange, partially offset by lower revenue from coffee services and our Water Direct commercial customer base both in our North America and Rest of World segments. Global revenue from residential customers and at-home consumers grew 25% and global revenue from commercial customers declined by 23% in the quarter. A major portion of the commercial decline was from our office coffee services business, which was down roughly 50%. On a pro forma basis, global revenue decreased by 7%, driven by lapping last year's surge of volume caused by pantry-loading and the effect of lower volume in our commercial channel. Adjusted EBITDA increased 8% to $76 million compared to $70 million. The increase was driven by demand for products and services from residential customers and at-home consumers, continued operating leverage improvement, the legacy Primo acquisition and ongoing synergy realization. Our adjusted EBITDA margin increased by 110 basis points to 15.9%. On a pro forma basis, adjusted EBITDA margins improved by 80 basis points, while total adjusted EBITDA was down slightly by 2% versus Q1 2020. SG&A expenses declined 3% to $248 million compared to $255 million. The decline was the result of cost reduction initiatives in response to the pandemic, most of which were implemented in April of last year. Please keep in mind that January and February were the last 2 months of incremental SG&A associated with the legacy Primo acquisition, and this incremental cost was more than offset by tight cost management. On a pro forma basis, SG&A declined roughly $21 million or 8% versus Q1 2020. We have discussed our expectation for certain costs to slowly return in 2021 as we restart certain promotional and marketing initiatives, but it will be important to balance these organic investment plans while protecting the efficiencies we have generated. We benefit from a highly variable cost structure, and we will remain diligent with how we manage these costs. Turning to our segment level performance for the quarter. In North America, revenue increased 4% to $366 million compared to $351 million. The increase was driven by the legacy Primo acquisition and strength within our residential customer and at-home consumers, partially offset by lower revenue from our Water Direct commercial customer base and coffee services. On a pro forma basis, revenue declined by 6%. Again, the decline was driven by the effect of lapping last year's pantry-loading. Adjusted EBITDA increased by 10% to $68 million due to the legacy Primo acquisition, continued operating leverage improvement and ongoing synergy realization. On a pro forma basis, adjusted EBITDA was lower by 2% compared to Q1 2020 when we grew adjusted EBITDA by $20 million. Turning to our Rest of World segment. Revenue decreased by 9% to $113 million. Excluding the impact of foreign exchange, revenue declined by 14%. The decline was driven by lower revenue from our Water Direct commercial customer base and coffee services. Adjusted EBITDA in this segment decreased 1% to $15 million as declines from Water Direct and coffee service businesses were largely offset by improved operating leverage resulting from cost reductions and the impact of foreign exchange. Turning to our liquidity position and balance sheet. We ended the quarter with a cash balance of $102 million and available net borrowing capacity on our cash flow revolver of $194 million for a combined total liquidity position of $296 million. This equates to a net leverage ratio of 3.5x, and we continue to target a post-synergized net leverage ratio of 3.0x. Also, as we've previously announced, we closed a private placement offering of $750 million senior notes due 2029. The proceeds of that issuance were used to redeem our outstanding 2025 notes. The new notes carry an interest rate of 4.38% per year. And as a result, we were able to lower our expected 2021 interest expense from $73 million to $68 million. Going forward, on a full year basis, we expect interest savings of just over $8 million versus previous rates. Turning to synergies. We continue to make good progress on our synergy capture work and remain well ahead of the schedule we provided at the time of the legacy Primo acquisition. We continue to target the full $35 million in synergies over 3 years, but have significantly accelerated that number after the cost reductions we pursued last year. After realizing roughly $18 million of cost synergies in 2020, we realized another $7 million in the first quarter of 2021, expect to achieve $1 million per quarter for the balance of 2021 and the remaining $7 million of synergies will be realized in 2022. As Tom said, we are pleased with our first quarter results and the strength of our residential channel despite the lapping of pantry-loading in the prior year. Many of our commercial customers are still grappling with when and how to fully reopen, but we're starting to see some more active commercial customers, albeit consuming at a less than pre-pandemic level as they abide by local capacity constraints. As we have now lapped the pantry-loading effect, we expect more consistent growth versus prior year across all key metrics beginning in Q2. Looking to the second quarter, based on the information we have available to us as of today, we currently expect consolidated revenue from continuing operations to be between $490 million and $510 million. We also expect that our second quarter adjusted EBITDA will be in the range of $90 million to $95 million. For the full year 2021, revenue is projected to grow by approximately 5%, and we are raising our outlook for adjusted EBITDA by $10 million to now between $380 million and $390 million. We also expect around $15 million of cash taxes, $68 million of interest as well as capital expenditures of around $135 million. Turning to capital deployment. Our current plan is to focus on accelerating the robust pipeline of tuck-in opportunities in front of us. We feel confident in our ability to achieve the high end of our target of $40 million to $60 million of tuck-ins this year. And as Tom discussed, we will fund a new $50 million opportunistic share repurchase program. Before I turn the call back to Tom, I would like to point out that our exposure to commodity inflation is relatively small. Our materials are recycled, and our main expense item subject to inflation is labor as the cost of making and delivering our water solutions is predominantly labor and we have taken price increases that has allowed us to stay ahead of inflation. Within cost of sales, the impact of third-party freight is up slightly compared to recent quarters and that effect is embedded in our outlook. In terms of our growth algorithm after 2021, we expect to grow organic revenue by roughly 5% per year, generate an incremental 20 to 30 basis points of adjusted EBITDA margin improvement annually and add incremental $5 million to $10 million of inorganic adjusted EBITDA annually from accretive tuck-in acquisitions. I will now turn the call back to Tom.
Thanks, Jay. Moving forward, we are focused on executing our differentiated Water Your Way platform in our key focus areas to drive the success of the business. Our priority has always been and will continue to be the health and safety of all of our associates, customers and suppliers. We will leverage our pure-play water model to drive organic revenue growth by approximately 5%. We will continue to enhance the customer experience through improving customer-facing tools and building out a more diverse e-commerce solution. We are improving our My Water+ mobile app and e-commerce sites, developing meaningful relationships with new online retailers, engaging customers with new and exciting promotions and implementing rewards programs. We're developing new customer acquisition strategies to diversify our acquisition channels, further reduce our cooler quit rate and improve customer retention. In Europe, we are accelerating our Water Refill, Water Exchange and Water Dispenser businesses to diversify our customer base and capture growing demand in the residential market. Last month, we began to introduce dispenser sales in Europe. Although these sales are off of a very small base, initial excitement levels are high. Our existing presence and leadership position in Europe makes the rollout of these products and services relatively low cost. These efforts are well underway, and we expect to see the benefits as the year progresses. Additional focus areas include protecting our efficiency improvements and leveraging our highly variable cost structure; remaining focused on the identified synergy actions related to the legacy Primo acquisition; identifying and executing highly accretive tuck-in acquisitions across North America and Europe; and seeking new ways to further improve our standing as an ESG and sustainability leader, including our new goal of achieving carbon neutrality in our global operations before this year is up. As Jay noted, we expect our consolidated second quarter revenue to be between $490 million and $510 million and for our adjusted EBITDA to be between $90 million and $95 million. For full year 2021, we are forecasting revenue growth of approximately 5% and for adjusted EBITDA to be in the range of $380 million to $390 million. We expect to see sustained strength from our Water Direct residential customer base and in other at-home channels and improvement from our Water Direct commercial customer base as we progress throughout the year. With that, I'll turn the call back to Jon to move us to Q&A.
Thanks, Tom. [Operator Instructions] Operator, please open the line for questions.
[Operator Instructions] And your first question comes from the line of Kevin Grundy of Jefferies.
Two questions for me. First on guidance and then second on capital deployment. So first, with respect to the guidance, you maintained your revenue outlook, took up your EBITDA outlook, which is encouraging. It sounded like there will be some incremental benefit from tuck-in M&A. Can you just talk about maybe some of the other factors driving your improved earnings outlook?
Yes. Partially, it would be the uncertainty about the first quarter. So we did do better than we expected, which gives us confidence as we move through the year. We're also encouraged by the early results in April. So it just fortifies, if you will, or strengthens our confidence in delivering against that commitment. And your comment on tuck-ins is also worthy of note. If you think about it, we've historically done $40 million to $60 million over the course of a year. So when we say we pulled them forward, we would still hit the high end of the range. But frankly, we'd do it in 9 months or less, right, because we haven't done anything to date.
Understood. Yes, I was going to pick up on that, too. Just more broadly though with respect to accelerating tuck-in M&A and then with the buyback announcement. Just to put a finer point on this, is it fair to say there's likely a longer-term time line with respect to larger-scale M&A? Because I ask that in the context, I think there was some ambiguity around the Nestle deal post the acquisition there from One Rock and Metropoulos that maybe there was some potential that there would still be some opportunity there. I suspect that, that is not likely, if you -- given -- particularly given your commentary around accelerated M&A and then the buyback announcement. If you could just confirm that. And then relatedly, maybe just talk about the cadence of tuck-in M&A and buybacks in your outlook. And then I'll pass it on.
I'll take the first one, and then I'll have Jay cover the back end. The former ReadyRefresh business, BlueTriton, continues to make strategic sense. But frankly, it's a nice-to-have, not a must-have for us. And we, of course, will maintain our financial discipline. But the good news is there are good things happening in our company. We have a robust tuck-in pipeline of $40 million to $60 million. Jay can talk about the cadence. We approved a share repurchase of $50 million, which is a way to return capital to our shareholders. We're continuing our dividend. We're going to invest in CapEx. And we believe as countries come out of the lockdown that we'll see a nice rebound on commercial. I'll give you one example. In the month of April, in Israel, small, 5% of our business overall, we enjoyed 60% top line growth. And they're open. So that gives us real confidence in how our business completes. So we're focused on what we do, which is get that 5% top line, manage our costs, enjoy the benefit of the returning as lockdowns change over time.
And on cadence of tuck-ins, it's definitely going to be back half of the year weighted. We've got a very good pipeline going now, but it takes time to get through due diligence and finalizing the deal. So wouldn't expect to close anything much first half the year. It would really be the second half of the year. And with regards to the guidance we give, I really don't include tuck-ins in my guidance until the acquisitions are completed. So my guidance currently does not include the benefit of any tuck-ins.
Your next question comes from the line of John Zamparo of CIBC.
I wanted to start with customer behavior, and I would like to get your thoughts on whether you think the additional residential customers you've added over the last, call it, 12 to 14 months can be sticky in a post-pandemic environment. I appreciate the color on Israel. That's interesting. But you also referenced the slightly higher quit rate. But just I'd like to get your thoughts on any insights you have on customer stickiness for the longer term.
Yes. If you look at our quit rate, it was 19.8% versus like 19.6% something. So it's really flat on a year-over-year basis. We're not seeing any behavior differences in terms of how residential customers perform post-pandemic than, frankly, pre-pandemic other than our investments in customer service and the app and all the delivery side of our business has generally made customers stickier. And then on the commercial side, it really comes down to when do they reopen, right? So we see the small business reopening. But to Jay's point, there are still restrictions on how many people can sit in a barbershop, how many people can sit in the dentist's shop. So while they're open, the consumption is a little bit lower. So that to us is a tailwind that should help us go forward. So we're pretty pleased with where the residential and the commercial customer bases sit today. And frankly, April only improved the [ situation ].
Yes. I mean, John, you look at April, that's one thing I'm sure we're going to get asked the question on. North America Water Direct and Exchange is up a little over 13% in April, and that's with the residential being up a little over 4% and commercial, as more normalized, is up plus 25%. You look at Europe, which is also normalizing. I mean our Europe business is up over 30%. And you look at Israel that has fully reopened. April was up more than 60%. So we are seeing residential -- now that we've done lapping Q1 going into April, residential growing at 4% to 5%. That's showing we're maintaining our customers and growing that business. And the commercial reopenings are starting to show in our volume now that we've -- we're done lapping Q1.
Okay. That's very helpful. And then my follow-up is on the e-commerce side. I'm curious what you can disclose here either on percentage growth or percentage of total sales. But would just appreciate any more color on the e-commerce side of the business, whether internally or through your distribution partners.
Yes. That business today is small. So we could double that business, and frankly, it would be very -- have very little impact on us. But importantly, and we referenced this in our last call, we've made some investments on digital leadership. So we're upping our game on all things digital, which will manifest itself in our existing sites, be it water.com or sparkletts.com, as an example, but it will also extend into our legacy Primo e-commerce transactional sites, which is a way for us to sell more dispensers. So we're bullish about where it goes, but we have to build all the capabilities to take advantage of this and scale it. And we'll scale it, frankly, both in North America and across our Eden business in Europe and Israel.
Your next question comes from the line of Daniel Moore of CJS Securities.
Maybe just a little bit more color in Europe. It sounds like you would maybe describe it at least as having stabilized in terms of the commercial business. Talk about the green shoots you're seeing there and sort of sequential growth month-to-month. You mentioned year-over-year, but just any more color there would be helpful.
Yes. So if you go back, in the first part of January, it was challenging because there was a spike in Europe post the Christmas and New Year's holiday, so -- and then it recovered. And then there was, because of some growth in cases, you saw a little bit more lockdowns. March appears to have stabilized. We're pleased with where we are in April. But year-over-year comp, of course, it was bleak last year, as you'll recall. And right now, that's pretty encouraging because that's coming out of the Easter holiday in Europe, right? So we didn't see meaningfully different lockdowns. So we think the business -- and we see it by country, it's recovering country by country. They're all a little bit different. Eastern Europe is performing a wee bit better than Western Europe. And we know that over the course of the next quarter that we'll expect to grow our business in Europe based on the experience of last year. Israel, it's true that's been the single biggest change, right? But they're open, right? So it really depends on how quickly people open. Take it to California, right? So if California opens on June 15, it really depends on how they define "open." But that on the North American side gives us some optimism about how the commercial business will perform here in the States.
Yes. And on rolling out our 4R model to Europe, we're progressing really well. In April, we started selling dispensers in Europe. Early stages, but that is good that we've begun it. Exchange locations. Last quarter, talked about rolling out in the Baltics and Russia, and we filled in some gaps and now have right around 1,000 units out in market there. We're seeing encouraging traffic and conversion of our e-commerce websites in Europe. So overall, you asked the sequential trend, we're still not seeing anything dramatic year-over-year. Growing 30-plus percent is key, but we're seeing the right trends start to take root over in Europe.
Perfect. And one more. You were very clear in your comments as it related to the ReadyRefresh assets. It's greatly appreciated. If the stars were to align at some point, how much due diligence would you have left to do? In other words, how quickly could a deal come together down the line?
Dan, I think we've provided all the comments that we want on this topic. We're really excited how our business is performing and everything we have in front of us. And I think we've commented all we want to do on that opportunity.
Okay. Lastly, just your ability to attract the necessary labor and drivers without much inflation if, say, the recovery accelerates more than expected.
Yes. In terms of labor, there are pockets that are more challenging than others. We have a fully developed talent acquisition team that are focused on the hot spots. And they were less impactful today in Europe, but certainly in the U.S., we have those pockets. And we're taking the appropriate steps to pay the correct wages to attract. And to Jay's point, we're taking pricing activities to make sure we cover the cost of inflation. So we think that we have the right actions, tactics in place, so that we can continue to provide customers a service they expect.
Your next question comes from the line of Derek Dley of Canaccord Genuity.
Just one quick one for me, as most of them have been answered. But with the sort of shift back to some commercial volumes coming back online here in quite a strong way, are there any other incremental costs, I guess, outside of labor that you would need to add? I mean, marketing was something you guys mentioned you were going to have a bigger push on the commercial side pre-COVID?
Yes. There's a couple of points here. So let's talk about the [ route ] operations and customer delivery. We have certain expectations in terms of productivity, and you'll recall last year we took actions to downsize very quickly. We'll put those back slowly, so that we maintain productivity levels that we enjoyed when we took the actions last year. That's a key driver of our cost structure. We have said and we will continue to build our investment on sales and marketing. So as the markets open, there's going to be an opportunity, and we'll make investments back into sales and marketing appropriately. Particularly, if you think about the marketing side and as we invest and build-out this digital platform, we're going to need to invest some resources there all around communicating to customers Water Your Way at the appropriate price for new customer acquisition cost.
[Operator Instructions] And your next question comes from the line of Andrea Teixeira of JPMorgan.
I just wanted to follow up a little bit on the guidance. So I appreciate you raised -- obviously, your synergies have been coming in better than anticipated and faster. So again, on the top line, I obviously understand the level of [ urgency, ] of course, for the commercial business. But it seems as if April has been coming in strong. So help us understand how to bridge, like, the commercial against the residential. Residential continues to be keeping its momentum. So is that just to see how the second half is going to play out before -- it's too early to say or -- and that's the reason why you kept your 5% top line growth? And Help us bridge that.
I mean there's a couple, both top line and bottom line. Let me see if I can answer that question. Keep in mind, as part of our full year guidance, it is also lapping Q1, which we were lapping the pantry-loading. Both Tom and I have talked a lot about that. So that's pushing down our full year average. I think if you look at our guidance for Q2, we've guided about 10% growth as we are lapping the largest amount of shutdowns, lockdowns that happened last year. So when you look at the average of very complex first half of the year, we think 5% top line growth is important. And you look at the EBITDA side, we are basically within our forecast, which shows roughly, if you take the middle of the range, $20 million of EBITDA growth, you could say $10 million is synergies and $10 million is true growth. And the pantry-loading that we saw probably took, I mentioned it last quarter, I mentioned it again this quarter, high single-digit EBITDA type effect. So when you add that on, overall I think we're very happy with both where our top line and bottom line guidance is while, at the same time, as Tom just mentioned, spending more behind sales and marketing to make sure we continue the organic growth we're talking about.
That's wonderful. And then on the announcement to put back the buyback program, reenact it, like relative to your priorities. Obviously, I understand the transformational M&A that we discussed before would be a top priority, and then tuck-in and then buybacks? Is that the way we should be thinking?
Yes. I think if you think about 2021, we were cautious about tuck-ins coming out of 2020 because we didn't have clarity about how the world would develop. So we're going to take that $40 million to $60 million. As we said earlier, you'll see that in the back half, which is a fulsome opportunity for us in terms of how much we can actually execute. So I wouldn't want to spend much higher than that over, let's call it, a 6-month period, frankly. So we want to make sure that we do all the things we're supposed to do to properly onboard new customers.
And you look at our liquidity position for the year, the free cash flow we're going to generate even after spending at the high end of our tuck-in range, we have the extra cash to look to do opportunistic share buyback programs, and that's where we're going to deploy our excess cash that we're going to generate this year.
Your next question comes from the line of Pavel Molchanov of Raymond James.
I wanted to follow-up on M&A. You obviously have a pretty diverse geographic footprint, and you can either add additional assets in existing areas of operation or potentially going into a brand-new geography, especially in Europe. Do you have a preference for either one as you allocate that tuck-in capital?
Yes. There's a couple of ways to think about it. Some will be driven by local market execution. So do we have the right team in place that can handle whatever size acquisition that is? We certainly prioritize returns first, right? So best returns go to the front of our list. But if you look -- so we'll have several in the U.S. We also will have some in Europe. And we will extend to, hopefully, adjacent geographies. So it's not very easy for us to then hop the border, particularly in Europe, as an example. So we're looking at opportunities in the Eastern European-ish market in real time.
Understood. Let me also follow up on the comment about kind of reopening, lockdowns easing. At least in North America, the one exception to that is Canada with Ontario, Quebec, Alberta, a couple of other provinces in pretty harsh lockdowns at the moment. Are you noticing any worsening in those markets in the March/April time frame?
No. It's actually been better a little bit, right? So it's still in the, to your point, pretty much full lockdown. But we're beginning to see some green shoots on residential customer base. So we're also making some investments there. And that would go back -- if you go back to the beginning of no-contact delivery and how consumers value that. So we're seeing some of that in Canada. But we expect Canada will be slower based on the timing of when they all go through the vaccination process, if they choose to.
[Operator Instructions] And your next question comes from the line of Carla Casella of JPMorgan.
So you've done the recent capital structure transaction with the bond issue. Anything on your plate in terms of further capital structure? You mentioned the buybacks, but anything on the debt side?
I mean we are now very happy with our capital structure. Our debt, both the euro and the U.S. tranche, are all long maturity at good rates. So that is what we're looking to do. We have a little bit drawn down on our cash flow revolver, and we'll use that off and on to do tuck-ins, operate the business, and that will move up and down a little bit. But on the senior notes, no plans to do anything more.
Okay. And then also on your cost of goods sold and input costs, can you give us a bit of a breakout of your components of COGS, how much of it is related to the resin or raw material costs versus labor versus transportation?
Our new bottle purchases, which is a big component, are capitalized, and they're capitalized because we get 50 trips and they last for quite a long time. So it's not in cost of goods. And if you think about 50 trips on the price of a bottle, it's really de minimis in terms of its impact to us in terms of any resin changes. And you will remember we also have energy surcharge and delivery fees that help offset energy cost changes and general inflation. So we've managed to avoid -- we've implemented that policy, and it's worked quite nicely for us to insulate those swings.
As there are no further questions at this time, I'll turn the call back over to Mr. Kathol.
This concludes Primo's first quarter results call. Thank you all for attending.
And you may now disconnect at this time.