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Primo Water Corp /CN/ (PRMW)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 continuing operations delivered revenue of $438.7M (+8% YoY), gross margin of 64.7% (+330 bps YoY), and Adjusted EBITDA of $94.9M (+7% YoY); Adjusted EPS was $0.12, while GAAP diluted EPS from continuing ops was $0.08 .
  • Management issued FY 2024 guidance: revenue $1.84B–$1.88B, Adjusted EBITDA $402M–$422M, and Adjusted FCF $170M–$180M; Q1 2024 guidance: revenue $435M–$445M and Adjusted EBITDA $85M–$91M .
  • Strategic pivot to North America accelerated: closed sale of significant portion of international businesses for $575M cash; repaid $132M revolver and ended Q4 with $508M cash and net leverage ~2.1x, with plan to remain below 2.5x longer-term .
  • Capital returns stepped up: quarterly dividend increased to $0.09 and buyback authorization increased to $75M post divestiture—share repurchases to continue in 2024 .

What Went Well and What Went Wrong

  • What Went Well

    • Solid top-line and margin execution: Q4 revenue +8% YoY to $438.7M; gross margin +330 bps to 64.7%; Adjusted EBITDA +7% YoY to $94.9M .
    • Channel growth: Water Direct/Exchange +8% and Water Refill/Filtration +15% YoY in Q4, driven by pricing and demand across residential and business customers; management highlighted execution in route density and OTIF .
    • Strategic focus and cash strength: $575M international sale closed; revolver fully repaid, cash $507.9M; CEO emphasized North American pure-play growth platform and operational optimization, including automation and AI/data analytics for forecasting and S&OP (“we are leveraging artificial intelligence and data analytics…”), supporting long-term margin expansion .

  • What Went Wrong

    • Profit dilution on reported basis: GAAP net income from continuing ops fell to $13.3M (from $34.8M) and GAAP diluted EPS to $0.08 (from $0.22), reflecting higher SG&A and prior-year gains, while Adjusted EBITDA margin dipped 30 bps YoY to 21.6% .
    • SG&A pressure: Q4 SG&A up 13% YoY to $250M; SG&A as % of revenue increased to 57.0% vs 54.6% in Q4 2022 on higher selling and operating costs including delivery commissions .
    • Conservative tone on 2024: Analysts questioned conservative guidance; management cited pricing cadence (first-half weighted) and volume ramp (second-half) with focus on high-value customers and tuck-in M&A timing .

Financial Results

Metric (Continuing Ops)Q4 2022Q4 2023
Revenue ($M)$405.1 $438.7
Gross Margin %61.4% 64.7%
Adjusted EBITDA ($M)$88.6 $94.9
Adjusted EBITDA Margin %21.9% 21.6%
GAAP Net Income – Continuing Ops ($M)$34.8 $13.3
Diluted EPS – Continuing Ops ($)$0.22 $0.08
Adjusted Net Income – Continuing Ops ($M)$20.6 $18.6
Adjusted Diluted EPS ($)$0.13 $0.12
Free Cash Flow ($M)$22.9 $29.3
Adjusted Free Cash Flow ($M)$31.4 $36.7
FY (Continuing Ops)FY 2022FY 2023
Revenue ($M)$1,693.2 $1,771.8
Gross Margin %60.2% 64.2%
Adjusted EBITDA ($M)$343.8 $380.7
Adjusted EBITDA Margin %20.3% 21.5%
GAAP Net Income – Continuing Ops ($M)$58.7 $63.8
Diluted EPS – Continuing Ops ($)$0.36 $0.40
Adjusted Net Income – Continuing Ops ($M)$86.8 $99.8
Adjusted Diluted EPS ($)$0.54 $0.62
Free Cash Flow ($M)$69.5 $141.5
Adjusted Free Cash Flow ($M)$85.4 $157.8
Q4 2023 Channel Mix (Continuing Ops)Q4 2022 ($M)Q4 2023 ($M)
Water Direct/Water Exchange$309.3 $333.8
Water Refill/Water Filtration$49.9 $57.3
Other Water$8.0 $15.1
Water Dispensers$14.1 $11.6
Other$23.8 $20.9
Total Revenue$405.1 $438.7
Q4 2023 KPIsQ4 2022Q4 2023
Dispenser Sell-Through (Units)n/a~264,000
North America Water Direct Retention~85% ~85% (slightly higher YoY)
Units per Route per Day (North America)baseline+~5% YoY
Revenue per Route (North America)baseline+>8% YoY
Adjusted FCF ($M)$31.4 $36.7

Note: Consensus estimate comparisons were unavailable from S&P Global for PRMW this quarter.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Revenue ($M)Q1 2024N/A$435 – $445 New
Adjusted EBITDA ($M)Q1 2024N/A$85 – $91 New
Revenue ($M)FY 2024N/A$1,840 – $1,880 New
Adjusted EBITDA ($M)FY 2024N/A$402 – $422 New
Adjusted EBITDA Margin (Implied)FY 2024N/A~22.2% midpoint New
Cash Taxes ($M)FY 2024N/A$30 – $40 New
Cash Interest ($M)FY 2024N/A$30 – $50 New
CapexFY 2024N/A~7% of revenue + $22.5M strategic New
Adjusted Free Cash Flow ($M)FY 2024N/A$170 – $180 New
Dividend per Share (Quarterly)Current$0.08 (Nov-23) $0.09 (Feb-24) Raised

Earnings Call Themes & Trends

TopicQ2 2023 (Previous Mentions)Q3 2023 (Previous Mentions)Q4 2023 (Current Period)Trend
AI/Technology & DigitizationEnhanced mobile app; new customer experience tools (Medallia) Route optimization (ARO) gains; digital focus Leveraging AI/data analytics for forecasting and S&OP; Salesforce, Tagetik Expanding scope and impact
Supply Chain & Route DensityPrivate fleet investment; ARO efficiencies Units/route +4%, revenue/route +7% YoY; record margins Units/route +~5%, revenue/route +>8% YoY; continued ARO gains Sustained improvement
Tariffs/MacroTariff reclassification; refunds began (YTD $4M) Tariff refunds ~$5.1M YTD; cautious Israel outlook Tariff refunds totaled ~$8.2M in 2023; low single-digit inflation expected Refunds increasing; inflation moderating
Product/Channel PerformanceWater Direct/Exchange +7%; Refill/Filtration +18% Water Direct/Exchange +7%; Refill/Filtration +19% Water Direct/Exchange +8%; Refill/Filtration +15% Broad-based growth with pricing/demand
Regional StrategyEurope improving; sell dispenser in Europe early-stage Announced sale of significant international ops Sale closed; pivot to North America pure-play Strategic focus crystallized
Regulatory/Legaln/aTransaction approvals required SPA details; conditions, approvals; closing complete Regulatory path executed
Sustainability/ESG2022 ESG report; 2030 targets ESG risk score improved; governance strength ESG commitment reiterated (circularity, stewardship) Ongoing progress

Management Commentary

  • “We have a strong platform for growth with a unique value proposition...which gives me confidence in our future” – CEO Robbert Rietbroek .
  • “We intend to use the gross proceeds of $575 million...to pursue growth...reduce leverage, and return capital to shareholders via share repurchases and dividends” .
  • “We are leveraging artificial intelligence and data analytics in areas like forecasting...part of a broader effort that will allow us to reduce cost, increase working capital efficiency, and improve our return on invested capital” .
  • “We are forecasting adjusted free cash flow of between $170 million and $180 million in 2024...solely from our continuing operations” – CFO David Hass .

Q&A Highlights

  • Guidance conservatism: Mgmt framed FY24 as 4–6% revenue growth, with pricing ~3.5% at midpoint and volume contributing in 2H; tuck-in M&A not included in guidance .
  • Free cash flow: 2023 adjusted FCF of $184M (combined), with continuing ops ~$158M; 2024 guide $170–$180M excludes optimization, additional tariff refunds, and discontinued ops sales timing .
  • Margins/overhead: NA Q4 EBITDA margin down ~25 bps YoY largely due to repatriation of shared services overhead post divestiture; implied margin expansion in Q1 2024 and FY 2024 .
  • M&A pipeline: Prioritized high-value tuck-ins in faster-growing geographies; robust pipeline with focus on route density and household penetration .
  • Capital returns: Board increased buyback authorization to $75M and lifted quarterly dividend to $0.09; potential to further optimize capital allocation given valuation vs transaction multiple .

Estimates Context

  • S&P Global consensus estimates for PRMW (EPS, revenue, EBITDA, target price) were unavailable via our data interface this quarter. As a result, beats/misses versus Street consensus cannot be assessed. Values would normally be retrieved from S&P Global; unavailable for PRMW in this instance.
  • Near-term estimate revisions may consider: strong gross margin trajectory (+330 bps YoY in Q4) , conservative FY24 revenue growth (4–6%) , implied EBITDA margin expansion (midpoint ~22.2%) , and higher dividend/buyback signaling confidence .

Key Takeaways for Investors

  • Q4 execution was solid on revenue and gross margin, with modest Adjusted EBITDA growth and strong adjusted free cash flow; GAAP EPS declined YoY due to higher SG&A and prior-year gains, but non-GAAP profitability remains healthy .
  • FY24 setup is conservative but credible: pricing-led first half and volume ramp second half, with incremental upside from tuck-in M&A not baked into guidance .
  • Strategic North American pure-play simplifies the story, improves leverage and cash conversion, and enables more targeted capex (automation, fleet) and digital initiatives (AI/data) to drive ROIC .
  • Route density and retention continue to improve, supporting margin durability even as SG&A pressures persist; watch the cadence of overhead absorption post divestiture .
  • Capital returns provide an additional pillar: higher dividend and ongoing buybacks, funded by stronger FCF and divestiture proceeds .
  • Tactical catalysts: execution on business optimization ($20M run-rate by YE24), additional tariff refunds timing, and the pace of tuck-in M&A in high-growth geographies .
  • Near-term trading: stock likely sensitive to sequential volume inflection, confirmation of margin expansion in Q1/Q2, and visibility on remaining international asset sales; medium-term thesis centers on recurring revenue, margin accretion, and disciplined capital deployment .