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George Paleologou: Good morning, and welcome, everyone, to our 2025 Third Quarter Conference Call. With me here today is our CFO, Will Kalutycz. Hopefully, you've had a chance to listen to our prerecorded remarks posted on our website this morning. We will now take your questions. Ludy.
Operator: [Operator Instructions] With that, our first question comes from the line of Chris Li with Desjardins.
Christopher Li: I want to just start asking, I guess, George, in your prerecorded comments, you did make some comment about you guys have begun the process of monetizing some assets with an announcement hopefully soon. I want to just ask, is it fair to say, I guess, you guys wouldn't make that comment unless there is a decent likelihood of something happening? And then if there's anything beyond what you said that you can share, I think, would be very helpful.
George Paleologou: Yes, Chris, again, I don't think we have very much to add at this point, Chris, but we do expect to make some announcements in the near future.
Christopher Li: Okay. Okay. And then just maybe hypothetically speaking, if something were to transpire, would the proceeds from sale likely be used for debt reduction? Is that fair to assume?
Will Kalutycz: Yes, absolutely, Chris.
Christopher Li: Got it. Okay. Okay. No, that's good. I'll leave it at that. And maybe another question, maybe, I guess, maybe for you, Will, is just in terms of the Specialty Foods segment, I think in the press release, you noted that if you normalize for the high beef cost impact, gross margin would have been about 70 basis points higher than the reported number. So that would imply EBITDA margin compared to last year would be roughly stable. So if I'm reading that correctly, can you sort of talk about maybe other areas that might be pressuring your margin a little bit beyond just the input cost pressure? Because I would have expected the margin rate would have been a bit stronger in light of the very, very nice strong top line growth that you guys are achieving.
Will Kalutycz: Yes. Actually, the answer is quite simple, Chris. It was plant overhead. It was a combination of both the Tennessee facility coming online and a number of plants adding second shifts. So we were hit with a lot of incremental overhead in the quarter. That was almost as much of an impact on the quarter's margins as the beef prices that you mentioned earlier. Again, it's that capacity coming on that's going to help us achieve the growth expectations we have in Q4 and going into 2026.
George Paleologou: The only other thing I would add, Chris, is that, as you know, as we've announced, we've built inventory for the big launch, the biggest launch in our history, which obviously is taking place as we speak. And so had that launch happened sooner during the third quarter, then our margins would have been higher.
Will Kalutycz: And Chris, also, just while we're sort of talking on this, the other area that all that ramp-up impacted us was that was a big driver of the large restructuring charge in the quarter. As we brought on those second shifts, as we're ramping up the Tennessee facility, there's all sorts of inefficiencies and throughput, yield issues. And so those same factors were the driver of the restructuring charge as well.
Christopher Li: Okay. So maybe I'll just take advantage of your answer. Just maybe one last question for me is still on the margin. So if I take your updated full year guidance, it seems like your implied Q4 EBITDA margin, you're implying that the margin rate should be up year-over-year in Q4. Am I reading that correctly? And if...
Will Kalutycz: Yes. We should see some very modest improvement in Q4. Again, we're going to have some of the beef headwinds continue into Q4 as well as that overhead impact. But the offsetting factor is going to be the growth.
Operator: And the next question comes from the line of Martin Landry with Stifel.
Martin Landry: I would like to just touch a little bit on the commodity price -- the commodity cost increases and your offset with prices. What was your ability to increase prices in recent weeks? And what kind of impact do you expect to see from that disconnect in Q4?
Will Kalutycz: So in terms of the pricing, Martin, again, it's sort of a range of factors. Our businesses have been watching beef prices. It was quite a spike, and it is, as George alluded to in his prerecorded comments, specific to some key drivers that we are expecting to reverse. So the business has held back a little bit. But alternatively, we do what will become a tailwind is on the chicken side, where we did put a number of price increases through in Q2 and beginning Q3. So those are going to be kicking in. So it's kind of Q4 is -- and that's why we're being conservative in our guidance. It's going to be a little mucky. But certainly, by Q1, we expect things to be back to normal levels.
Martin Landry: Okay. And just shifting gears, when you do price these new contracts, when you go bid for new businesses, what kind of margin is embedded in your new contracts? Is this margin accretive to your overall revenue? Just trying to understand a little bit when you go and try to get these large contracts, do you have to take a little bit of a margin hit? Or is it margin accretive?
Will Kalutycz: It's absolutely margin accretive. In terms of -- we've referenced the historical one of the largest launches in our history, which is happening in Q4. The contribution margins on that are in line with our protein group's overall strategy of high 20s, low 30% contribution margins. And so it's within that range. It is at the bottom of that range, but it is still within that targeted range. Again, we talk about across our 3 big growth platforms, protein sandwich and bakery. Our sandwich group targets roughly 30% contribution margins, plus or minus. Our -- sorry, that's our protein group. Our sandwich group is 20% to 25% contribution margins. And then our bakery group, which is our highest are 40% plus. So all of them are -- that growth you're seeing in the U.S. is incredibly accretive. We just need to now start leveraging all that capacity, all that overhead we've added. And that's when you're going to see that accretiveness to the overall margins of the company.
George Paleologou: Yes. My other comment, Martin, is that in our culture, we don't bid for new business, right? Bidding assumes that we're bidding against somebody else. We develop very best-in-class innovative products, and we show them to our customers, right? That's the nature of business for Premium Brands.
Martin Landry: Yes. Okay. Understood. And then maybe just a last question. You reiterated your fiscal -- or your 2027 revenue goals of $10 billion. That's going to be, I think, a 33% increase versus what -- where you're going to get to this year. So I'm just trying to see a little bit how it's going to play out in the next 2 years. Is this split evenly into '26 to '27 in terms of the growth rate? Or is there going to be 1 year that's going to have a little bit more faster growth?
Will Kalutycz: No. We expect '26 to be a very strong year. Again, I think if you look at the cadence of our growth through '25, it's really accelerating as we get towards the end of the year, right? So Q3 was much stronger than Q2. And likewise, Q4 is going to be very strong relative to Q3. So we're going into '26 with that tailwind as well as continued new product launches through '26. So '26 will be the strongest. And then we'll start filling some of the capacity we've developed towards the end of '26. And so you'll see a slightly modest growth rate in '27. But we feel very bullish that between '26 and '27, we're going to get to that $9 billion, $9.5 billion in sales organically and then the balance will be filled out with acquisitions to get to our $10 billion target.
Operator: The next question comes from Kyle McPhee with Cormark Securities.
Kyle McPhee: Great organic volume growth in Q3, 10% for the total company and your commentary -- your outlook commentary is suggesting it accelerates even more than what we're already seeing into Q4 here. I'm hoping you can give some color on some of the moving pieces driving that. Is it even more of an acceleration for U.S. Specialty Foods versus the huge number we already saw in Q3? Or is it because you expect Canada to start posting wider organic volume growth versus the levels prevailing now? Any color on that moving...
Will Kalutycz: Yes, -- it's the U.S., Kyle. And again, you're going to see the continuation of a lot of the initiatives from Q3. The one normalization, the one -- our sandwich group had an unusually strong third quarter. Some of that was an image strategy with one of our larger customers. They were putting more inventory in their system. So sandwich group, you're actually going to see come down -- come off a little bit in Q4 relative to Q3, but you're going to see protein accelerate. Again, the big thing being this major meat stick launch we're in the progress of executing right now. And so you're going to see really strong numbers in the protein group. That, combined with some of the things we're doing in cooked protein, and European deli meats will be the big drivers.
George Paleologou: Yes. And the only thing I would add, Kyle, is that really, as we've talked to you in the past, it's really leveraging the capacity that we've built and also purchased, right? That's really what's driving our growth. In many cases, we're rolling out very successful products in different regions across the country, right? That's given us a lot of traction.
Kyle McPhee: Okay. And correct me if I'm wrong, but this major record sized program launch in Q4 that is in the -- it's a beef-based product. It doesn't sound like you have any changes to your contribution margin expectations. But is that kind of a mid- long-term comment or right out of the gate type of comment? I'm not sure if pricing for these types of contracts was set quarters ago or if it's set current to the current beef inflation environment.
Will Kalutycz: Yes. No, it's right out of the gate. And it's very clear. It's -- a lot of that inventory sitting on our books at the end of the third quarter was both a combination of raw materials to take us through a couple of quarters as well as finished goods. So we're very comfortable on the standard contribution margins expected from that product. Now there are some start-up costs associated with them that we put in restructuring, as I mentioned earlier, attached to some yield. We're still refining the equipment, the processes, the throughputs, training the people. And so there are some still efficiencies to gain in both throughput and yields on that program.
George Paleologou: We're very excited by that launch, Kyle, 2 to 3 years in the making. It's an exceptional product. Again, it will do extremely well, we feel.
Kyle McPhee: Got it. Okay. And just one more thing on the beef category here. From what I can see in the market data, quarter-over-quarter sequential inflation is finally inflected to down so far in Q4. Are you seeing this with your own business, meaning beef specific margin drag starts to fade, prices can finally start to catch up?
Will Kalutycz: Yes. We'll see, Kyle, because what we're not seeing that we would historically see at this time of the year is buying opportunities, some significant supply opportunities in the market. And we're not yet seeing those given some of the changes in trade and some of the other issues around beef. But that could quickly change given a change in the political environment.
George Paleologou: Although we are seeing them in chicken, Kyle.
Will Kalutycz: Yes, chicken, absolutely. Yes.
Kyle McPhee: Okay. And I'll squeeze in one last one here. Your cash flow statement has $43 million coming in from investments. What is that from? Is that Clearwater catching up on accrued payments? And if so, do you expect that to continue?
Will Kalutycz: Yes. The vast majority of that is Clearwater catching up on payments. Lots of good things happening in Clearwater's business. As we talked about last quarter, they did sell the Macduff operation. That was actually a positive impact on our EBITDA in the third quarter. They put in a new financing structure, a very competitive structure that has really improved their liquidity. And they're looking at a few other opportunities in their business. So we're -- along with all that, they saw some return to normalcy in the clam turbot and shrimp fisheries. So the ship seems to be turning, and we are starting to see good things there and setting up for a much better 2026.
Operator: The next question comes from the line of Derek Lessard with TD Cowen.
Derek Lessard: Congratulations to you and your clients on the launch.
Will Kalutycz: Thanks, Derek.
George Paleologou: Thanks you, Derek.
Derek Lessard: The one question I do have is, so we all know about this big national customer. I was curious if you guys can maybe add some color to some of the upcoming launches in 2026. You said you're expecting an acceleration through the period. Just curious on what's happening.
George Paleologou: We're very -- as Will said, Derek, we're very bullish with regards to the top line for '26. Some of the challenges this quarter were basically ramp-up related, right? We're ramping up a lot of facilities, a lot of new capacity. But again, we did well. We've executed well, all the controllables for the quarter. But as I've said before, we're comfortable that the demand is there. It's coming from all channels. We're doing really well in the coffee channel, for example. We're picking up new customers all the time, leveraging our new capacity in the sandwich group. Protein, meat snacks and cooked protein are -- again, they're growing immensely for us, lots of demand, new demand for our products. Again, some -- we will have some challenges around ramp-up again as we ramp up brand-new capacity and brand-new technology. But overall, we're very bullish for '26 from a top line perspective.
Will Kalutycz: Yes. It's interesting, Derek. Our sales pipeline, which we've talked about in the past, we pulled off of that pipeline about $250 million this quarter of successful launches. But despite that, the pipeline continues to grow. And it's just -- it's a range of initiatives across many customers across those 3 platforms. So it's very diversified and it's not as dependent as, say, this major launch we just completed in Q4.
George Paleologou: And it's really, again, Derek, driven by the fact that we can offer to our customers innovative in-demand products, leveraging best-in-class efficient food safe capacity.
Derek Lessard: Okay. And just curious if you guys have experienced sort of increased demand from one of the -- one of your bigger clients that had struggled earlier in the year and last year.
Will Kalutycz: Yes. Yes, it's interesting. The -- that's a client I referenced earlier, who has sort of changed their inventory strategy to try to improve fill rates in their stores. And so we saw some growth from that. But we did see some growth in the core business. It was great. There's a couple of new products that we launched earlier this year that are doing really well. So yes, very positive signs there.
Operator: The next question comes from the line of Luke Hannan with Canaccord Genuity.
Luke Hannan: I just wanted to circle back to -- so the 70 basis points of beef price beef cost inflation, it sounds like that's going to be resolved, not necessarily in Q4, but maybe in Q1. But I wanted to come back to the ramp-up or the second shift. It was also -- it sounded like a 70 basis point headwind. When should that -- when should we expect that to be resolved?
Will Kalutycz: Well, that overhead is there, right? It's permanent, Luke. And what will resolve it now is as we continue to leverage that capacity, and we talked earlier about the accretive margins of the new business. So that -- it's really one of -- that's fixed overhead. That's there now. That capacity is in place. And then as we grow the top line, that's what's going to grow the margin.
George Paleologou: And that growth in the margin, Luke, will come from using up the capacity, of course, and then optimization of mix as well once that happens, right?
Luke Hannan: Right. And so that's -- just to be clear, though, that's probably a 2026 event, early 2026 event?
George Paleologou: That's correct.
Will Kalutycz: Well, it will contribute in Q4 as well, Luke, because we are expecting some very solid growth in Q4. So that overhead is relatively fixed. There's a little bit of variability to it, but that should -- you should start seeing a little bit of that benefit in Q4.
Luke Hannan: Got it. Okay. And then sticking with beef for a second here. So I realize price increases are coming and that will help alleviate margin as well. But it was mentioned in the press release that you guys are exploring, I think, new procurement strategies as well. Just curious to know what exactly levers to pull -- what levers you guys have to pull on that front, new procurement, maybe the cost savings you can get there.
George Paleologou: Yes. Luke, so there's different assumptions we could make. I think that the market knows that there's been some trade issues with Brazil. And hopefully, those will be resolved. We're hearing rumors that they may be resolved sooner rather than later. Obviously, that will be a positive for us and our input costs. There appears to be traction with with issues around this screwworm epidemic in Mexico and the ability for Mexico to ship animals into the U.S. for processing. That should improve the situation as well as we go forward. The other one is really about us ramping up plants and making sure that we run them at capacity or at full capacity or close to full capacity, while at the same time, allowing us the time to optimize the mix as well, right? So those will effect improve margins ultimately.
Luke Hannan: Got it. Last one for me again on beef, and then I'll pass the line here. I'm just trying to get a sense of what the consumer response has been to price increases of late. And I realize there's more to come, and it seems like everybody is taking price as well. But really, I guess what I'm getting at is, are you getting the sense that the consumer is reaching the point where they are completely stretched and they won't respond maybe according to your expectations as far as the volumetric response to whatever price increases you may need to take?
George Paleologou: It's a very good question, Luke. And again, we're talking about beef right now, right? As we mentioned earlier, chicken prices have come off. Our input costs with regards to chicken have come off quite substantially during the quarter. The amazing thing is that although prices for beef are very, very high from a historical level, demand remains very strong. And it relates to my prepared remarks about the changes in consumer preferences, changes in the buying patterns for consumers. I think I've mentioned it before, but last year, for example, there was some inflation in beef prices as well, not as much as we saw this quarter, but the #1 growth SKU in all of grocery was ground beef. So there's something happening there with regards to demand. It is a super food. It is considered to be a super food. It's very satiating. And consumers are choosing it, particularly beef with the different claims like Grass-Fed and other claims, right? So consumer is holding. The consumer demand is holding.
Operator: The next question comes from the line of Michael Glen with Raymond James.
Michael Glen: Just on M&A, perhaps, Will and George, you can provide an update for us in terms of what you see as your financing and capital structure options with regard to some of the M&A you've outlined in Slide #4 of the deck.
Will Kalutycz: Yes. So as you see, there's lots going on there, a lot of discussions. Really, all we can say is what we've been saying in the past, Michael, is we are committed to deleveraging our balance sheet. And anything we do on the M&A front will be done within that context. Again, last year, we did 3 transactions at the end of the year, one at the beginning of this year. And through the combination of how we structured that with debt, equity and contingent consideration, all of those transactions were less than 3x debt-to-EBITDA cash flow in them. So again, we are committed to that deleveraging and getting our total debt-to-EBITDA ratio, not just our senior, but our total over time down to that 3: 1 or better range.
George Paleologou: The other thing I would add, Michael, is as we've stated before, we're involved in both acquisitions and monetization as well.
Michael Glen: Okay. So that was kind of the follow-up I had for you there. Would any of the perhaps larger transactions that you've outlined in that slide be contingent on successful completion of the monetization?
George Paleologou: Yes. I'm not sure about the timing, but as long as we have good visibility in regards to the outcomes of our monetization, probably.
Will Kalutycz: Probably not. Probably not.
Michael Glen: Okay. And then just circling back to Clearwater. Will, can you just provide -- do you expect any incremental or additional returns of capital from Clearwater over the course of '26?
Will Kalutycz: Yes. No, absolutely. They're an incredibly asset-rich business, and they do have some redundant assets that they're looking to monetize. So between that and the improvement in the core operations, absolutely.
Michael Glen: And are you able to just remind us the amount of subordinated debt there is outstanding with Clearwater you have?
Will Kalutycz: Yes, it's about a little over $0.5 billion, $500 million -- a little over $500 million.
Operator: And the next question comes from the line of MacLeod Stephen with BMO Capital Markets.
Stephen MacLeod: Just wanted to circle around on a couple of things. Just with respect to the large launch that you have in the market for Q4 that you're going through now. I was just curious if you can just -- if you're able to give any color on the dynamic of the launch in Q3 and how it's evolved into Q4?
Will Kalutycz: Well, I'll start and then maybe hand over to George. In terms of Q3, there was virtually no impact in Q3. I think we had -- we were just doing some test stores at that point, and I think it was about less than $1 million of sales in Q3. It really ramped up in Q4.
George Paleologou: Yes. Again, as you've seen from our balance sheet, Stephen, we've built a lot of inventory for the launch. It was a big bang type of a launch, a national launch in the U.S. first. And so the product now can be found all across the U.S. And then we are shipping to the customer in December for the Canadian launch. And so it will probably be in the stores in January '26 in Canada.
Will Kalutycz: But the product itself, Steve, is performing very well, and it's exceeding original expectations by both us and the customer.
Stephen MacLeod: Okay. That's great. That's great to hear. And then maybe just -- I just want to clarify on the sales capacity when you talk about it being at $1.6 billion today, you mentioned in response to one of the other questions that you were -- I think you executed on $250 million this quarter. Is the $1.6 billion, is that to be thought of as unfulfilled sales capacity opportunity rather than $1.6 billion is what you have and you've already filled [ ex ] of it?
Will Kalutycz: Yes. So the $1.6 billion is relative to our 2024 sales, and it's the capacity that has been brought online. Once we're finished with the balance of the projects in our major CapEx cycle, which we referred to in the comments, it's about $92 million left to spend on that. There's 4 major projects in there. It will bring us to about $2 billion of potential sales capacity relative to 2024. So that's what's going to -- that's supporting our growth in '25 and then what it's going to support through '26, '27. Incremental to that, Steve, is just the general capacity we still had in the system. Not every plant was running at full capacity by any means. So our capacity is more than that $2 million. And again, it's leveraging all that, that gets us to that $9 billion -- $9 billion to $9.5 billion in sales by end of 2027.
Stephen MacLeod: Right. Okay. Okay. That's helpful. And then just as you think about like the bridge between $1.6 billion to $2 billion, is that incremental $400 million focused on one of your 3 core U.S. sales initiatives and a higher proportion than others?
Will Kalutycz: It is more weighted towards -- let me think about that for a second, Steve. It's across all 3 platforms, but it's more weighted towards protein slightly. But sandwich and bakery both have unique initiatives in them as well still.
Stephen MacLeod: Okay. Okay. That's great. And then maybe just finally, I don't want to get too hung up on the Q4 outlook. But if I'm reading between the lines, it sounds like you're kind of -- the setup is strong and accelerating top line, improved gross margin as you get some of those price increases, but maybe a little bit of gross margin headwind from the overhead. Is that the way to think about it?
Will Kalutycz: Yes. Beef is still expected to be a bit of a headwind in Q4, Steve. We'll see what happens. That's the potential upside. If something does get -- something positive does happen with beef prices, then certainly, that's going to put us at the top end or higher in our targeted EBITDA guidance for the year. But if it continues as it is today, then yes, that will still be a bit of a headwind in Q4 as well.
Stephen MacLeod: Okay. Okay. That's great. And congrats on the strong -- very strong sales performance in the U.S.
Operator: And the next question comes from Ty Collin with CIBC.
Ty Collin: So just a quick question to start on the leverage that ticked up a little bit this quarter. I think on some FX movement and some elevated inventory levels, which you mentioned are related to that large program launch. Where are you expecting leverage to be at exiting this year? And what are your expectations in terms of working capital specifically?
Will Kalutycz: Yes. Good question, Ty. In terms of Q3, just -- we did expect to make a little bit of progress in Q3 on our debt to leverage ratios. But as we talked about between FX and inventory, that was a bit of a headwind. Going into Q4, definitely, we expect to make progress, a lot of it driven by improving inventory. A lot of the inventory is not only this major program we've been talking about, but there's a variety of things launching that we had built inventory up for. So as those launch, obviously, that inventory will fall through. So that should help. We should continue to see solid year-over-year growth in our EBITDA. So that's going to help. The FX is an unknown. It's an anomaly. It's just arithmetic. It's not anything fundamental in the business. So that could go against or for us in the Q4. But overall, we will show solid progress in our debt-to-EBITDA ratio in Q4. We don't have a specific target, though we're giving the market.
Ty Collin: Okay. That's really helpful color. And then just for my follow-up, it seems like you've been finding more opportunities within the U.S. foodservice channel. George, you mentioned some more opportunities within coffee specifically. Has that become more of a focus for premium brands? And what do you like about the opportunities that you're seeing in that foodservice channel specifically?
George Paleologou: It's always been a focus, Ty. I would say that should accelerate because we have available capacity, right? A lot of the products that are conducive to that channel, we -- obviously, we were lacking capacity, and we had to prioritize our legacy customers. But now with the build-out of the Tennessee facility, obviously, we have more capacity to focus in that channel. We've got 6 lines operating as we speak in that facility, and we have room to get up to 10 lines potentially. So anyway, yes, we will do more business in that channel, and we're leveraging our capacity to do that.
Operator: And the next question comes from the line of Vishal Shreedhar with National Bank.
Vishal Shreedhar: Just wanted to get your perspective on the organic volume growth. So the total SF organic volume growth was $142 million and the U.S. core organic volume growth was $146 million. And given that Canada had OVGR of 1%, I was just hoping to understand the delta and what that business constitutes and how we should think about that delta going forward?
Will Kalutycz: Yes, sure. So in terms of -- Canada was up about 1%. It translated to dollars, that was about $4 million of growth. So you add the U.S. growth, the Canada growth. The offsetting factor was the jerky category. It was down about $7 million to $8 million in the quarter. So that should work -- make your math work, Vishal. And the jerky category was 2 factors. One is, and generally, we've seen that product category struggling. It's a young male consumer is the typical buyer of that product. And you've got a situation with very high beef prices driving very high shelf prices. So you've got that headwind in the category. Then on top of it, we actually had a major product launch in the third quarter of 2024. So it was a very tough comparative. So that's what led to the bigger-than-normal contraction in jerky sales on a year-over-year basis.
Vishal Shreedhar: I see. And is it correct to say that jerky category, you consider that to be a noncore business internally?
Will Kalutycz: Yes. It's certainly not what we're investing in, Vishal. It's sort of legacy business. Business largely that came with our Oberto's acquisition. Our focus is on the stick category. That's where we've been investing in all the capacity. That's where we've been seeing all the growth.
Vishal Shreedhar: Okay. So if I were to reflect -- that noncore jerky category in your specialty business and the organic volume growth would be closer -- would be around 21%. Is that correct in terms of math?
Will Kalutycz: I'd have to do the math, Vishal. But again, all the investment we've made, all that's driving the accretion in our margins and our cash flow in the protein group has been in categories outside of jerky, sticks, cooked protein, kebabs, things like that.
Vishal Shreedhar: Okay. And with respect to the growth delta between Canada and the U.S., given that the products are the same, is it really the capacity that you've added in the U.S. and that's the delta? Just hoping you can reconcile that.
Will Kalutycz: Yes. No, the product category -- the sales mixes aren't the same just because in Canada, we are in the European deli meats, the largest player in Canada. It's a major category. We are not a major player in that category in the U.S. And that category in recent years has been growing at a slower rate than these other ones that we're in, such as sticks and cooked protein. So you have that factor. And then we have seen a little bit softer of an economy in Canada relative to the U.S.
George Paleologou: The only other difference, Vishal, between Canada and the U.S. is that in the U.S., we have a very limited amount of large SKUs where in Canada, our legacy business involves a lot of SKUs, a much bigger number of SKUs that do a lot less volume, right? It's a very different business overall.
Will Kalutycz: Well, and also, Vishal, we're very mature in Canada. We are in all the markets. We have solid market share positions in all the markets. In the U.S., we are at such early stages and such a small portion of the market. And so you've got -- a lot of the growth is being driven by new customers, new geographies, things like that as well as new product innovation.
George Paleologou: I guess we've proven out, Vishal, and we've talked about it before. You have one SKU in the U.S., and it's a very large dollar number if we launch it across the U.S. In the U.S., we talk about launching SKUs for $50 million to $100 million of potential sales, and that's unheard of in Canada.
Operator: And the next question comes from John Zamparo with Scotiabank.
John Zamparo: I wanted to ask about the trade comments on beef. Maybe the right way to frame the question is, can you say what percent of your beef is imported currently? It would be helpful to get a sense of a potential tailwind to margins if you saw some relief on the trade front.
George Paleologou: Yes. Again, we don't disclose that, John, but it's a large number. Basically, historically, the balance between supply and demand is filled with imports. Imports from Australia and New Zealand or South America, especially Brazil and Mexico. I think they're talking about Argentina as well as we speak, right? So we're a large buyer of North American beef, but we also buy imported beef as well. So at times, the percentage varies, but we're talking large numbers.
Will Kalutycz: Yes. And John, we've tried tracking in the past. The thing is our buying groups are so dynamic and it's constantly shifting. So it's really not a meaningful metric other than like George says, import is a major component of our buy.
George Paleologou: And I would say it's a significant component of the inputs for all value-added processors in Canada and the U.S.
John Zamparo: Right. Okay. Okay. That's good. On the product launches over the next couple of years, we've talked lots about the meat sticks starting now and into Q1. I wonder if perhaps without signaling what product is coming when, can you share -- are there any quarters in '26 or even '27 that you expect will be more impactful for your business?
George Paleologou: Yes. As Will said earlier, John, we're working on a number of initiatives that will involve large launches across all of our groups, specialty bakery. I can think of a few as we speak, cook protein, protein in general, sticks. Again, yes, I would say nothing specific. All of the groups are leveraging the new capacity to be working with customers to -- for growth. Again, lots in the pipeline, as Will said earlier.
John Zamparo: Right. Okay. On the Tennessee facility, I appreciate the color on the product lines. Can you give a sense of what capacity that facility is operating at right now? And ultimately, when -- can you remind us when do you need those additional 4 lines, do you think?
Will Kalutycz: Yes. So again, we don't talk in terms of the plant just because it's not like the plant was started up and all new business that all business it produces is new business. There was a reshuffling of capacity around our sandwich group's networks to optimize freight and customer demands. So it's not really a good metric for measuring how much new incremental capacity is in there. So it has taken on business and freed up capacity at our Phoenix facility, our Reno facility and our Columbus facility. In terms of the additional lines, I would suspect early 2026, they'll come on.
John Zamparo: Okay. That's helpful. And then 2 others. One is kind of broad, maybe I'll start with that one. I wonder why you think there are such significant challenges in jerky and it's a much healthier or more favorable environment in other beef products. Is it primarily related to the channel more than anything else? I would love to get your thoughts on that.
George Paleologou: Yes. Just again, John, as Will said earlier, a lot of jerky is sold in the C-store channel, which is frequented by 14- to 26-year-old males, right, and that are price sensitive. And given the price of beef, we've seen a decline in demand. Secondly, this is a legacy type of product. And it's a very competitive space. There's a lot of competition in that space. So if you go back to the announcement of our investment in Oberto and our partnership with Oberto, we said at the time that our focus was going to be sticks, and it has been. When we invested in Oberto, they had a very limited amount of stick business. And today, it far exceeds their jerky business based on us identifying this area for growth in demand, right? So it's really a much more price-sensitive category only because of the market that it serves.
John Zamparo: Right. Okay. I appreciate that insight. And then lastly, on the balance sheet, is there other real estate that you own that you could potentially look at for sale leasebacks in the future? Or do you figure you've exercised those opportunities already?
Will Kalutycz: Yes. Well, we have one more definitive piece of property in our plan, and that will be in 2026 is our GTA facility project, which is the consolidation of 3 facilities into a single modern facility with increased capacity. So that's due to be completed Q2 next year, and we'll do a sale leaseback around that. That's the only definitive one in our plan today. We have other facilities that are potential, but nothing definitive planned for.
Operator: [Operator Instructions]. The next question comes from Ryland Conrad with RBC Capital Markets.
Ryland Conrad: Could you just talk a bit to what channels or segments of your business would be under cost-plus arrangements? I'm just trying to get a better sense of the overall commodity exposure.
Will Kalutycz: Yes. Again, in general terms, a big differentiator between our specialty food businesses and our Premium Food Distribution group businesses is largely pricing models. In our distribution group, a lot of the pricing is either cost plus or very dynamic pricing, i.e., as some businesses are setting their pricing weekly. So that's why you tend to see pretty stable gross margin dollars in distribution. Sometimes you see erosion in the percent margins because of -- if you have accelerated inflation, they're just really covering gross profit dollars in the interim. Longer term, they'll get their margins back to percentage-wise. But very, very stable gross profit dollars there because of the pricing models. If you switch over to the Specialty Foods side, and I'll go through the 3 major groups in that. So bakery is pretty well all your traditional retail pricing, where when they have cost inflation, then they have to sit down with the customer and negotiate a price, there's a waiting period, et cetera. That's the bakery group. The protein group is a mix. The vast majority of it is that traditional retail pricing model. But they are, over time, more and more developing cost-plus structures as they develop strategic relationships with customers. For instance, this major stick initiative we're on now is a cost-plus structure. So it's a blend, but it's certainly weighted towards retail -- traditional retail pricing model. And then the sandwich group, they're more weighted to a cost-plus structure. It works much better in the strategic relationships they've developed with their customers over the year, but they do have a little bit of retail pricing in their model as well, but more cost plus.
Ryland Conrad: I appreciate that. That's really good color. And I guess on the retail model, what's the traditional kind of timing lag...
Will Kalutycz: Yes. So the way it works, Ryland, is this is typical. You'll have a situation where a business is experiencing some cost inflation. And it needs to make a decision, is this something temporarily, i.e., weeks or maybe a month? Or is this something longer term? So that's the first delay. So they need to come to a conclusion that they need to put a price increase through. They try to avoid having to put price increases through because it's always a tough negotiation with the customer. Customers don't like price increases. And so if they have some things going down and some things going up, then they'll take a little expanded margin on one product, give it up on another. But after a while, they come to the conclusion they need to put a price increase through just to keep -- because the balance of the portfolio is undergoing cost inflation. And it does seem to be more than just temporary. So then the next step is to sit down with the customer, explain what the dynamics are, why they need the price increase. We're very transparent with our customers. We show exactly why we need the price increase. And there's a negotiation and 99% of the time, we get our price increase through. And then the third step, the third delay is then most retailers have a wait period until the price increase takes effect. That can be anywhere from 60 to 90 days. So that's why in inflationary periods, we do see some margin erosion as we go through these processes. But as we've shown time and time again, we ultimately always get our margins back to those normal standard levels. And we just need some stability in commodity pricing to do that. We don't need low prices. We just need stability. The other end of the equation is just how inelastic demand has shown itself to be for our products. We've gone through some incredibly inflationary times. And despite that, have rarely seen any demand destruction or minimal demand destruction in consumer demand.
George Paleologou: The only thing I would add here, guys, is that it's not as if our customers, if, let's say, the retailers don't buy beef commodities or pork commodities or chicken commodities. They're very well aware of what's going on with regards to their commodities. Obviously, if it affects them, it affects us. So these conversations tend to be very constructive.
Ryland Conrad: Okay. That's great. And then I appreciate the prepared comments around cost reduction initiatives. Just curious, are there any formal cost-saving programs underway? Or is that just more of a general statement?
Will Kalutycz: Yes. It's continuous improvement, Ryland. We -- a focus of all our businesses, and we're constantly challenging them is continuous improvement. Investment in automation, investment in better processes. We have corporate resources that help with automation, help with sharing best practices. So it's really that. We don't come out with these grand deal statements that we're going to save X amount of dollars through this initiative. No, it's a very grassroots cultural-based initiative.
George Paleologou: And the way we view these is basically on a business-by-business basis or a plant-by-plant basis. I think that we purchased a certain facility in Oklahoma this year. It was losing money when we purchased it. We've invested in new lines in there, in new equipment, in efficiencies. We've moved some production into that facility, leveraging the new capacity we created. It's running a lot better, and it's generating positive cash flow as we speak. Again, better mix, more efficiencies, more focus and bigger volumes, right? And you can apply that to all of our facilities in the system.
Ryland Conrad: Okay. Understood. And then just the last one for me on the distribution from Clearwater in the quarter, is $15 million to $16 million per quarter still a reasonable run rate for investment income? Or should we expect to see that come down in Q4 and into next year?
Will Kalutycz: Yes. For the next several quarters, it's going to remain at that level until we see some liquidity come through that will help pay that down meaningfully.
Operator: And I'm showing no further questions at this time. I would like to turn it back to George for some closing remarks.
George Paleologou: I'd like to thank everybody for attending. Thank you very much.
Operator: Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.