Earnings Call Transcript
SunOpta Inc. (STKL)
Earnings Call Transcript - STKL Q4 2020
Operator, Operator
Good morning and welcome to SunOpta's Fourth Quarter Fiscal 2020 Earnings Conference Call. By now, everyone should have access to the earnings press release that was issued this morning and is available on the Investor Relations page on SunOpta's website at www.sunopta.com. This call is being webcast and this transcription will also be available on the company's website. As a reminder, please note that the prepared remarks which will follow contain forward-looking statements and management may make additional forward-looking statements in response to your questions. These statements do not guarantee future performance and therefore undue reliance should not be placed upon them. We refer you to all risk factors contained in SunOpta's press release issued this morning. The Company's Annual Report filed on Form 10-K and other filings with the Securities and Exchange Commission for more detailed discussion of the factors that could cause actual results to differ materially from those projections and any forward-looking statements. The Company undertakes no obligation to publicly correct or update the forward-looking statements made during the presentation to reflect future events or circumstances, except as may be required under applicable securities laws. Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during this teleconference. A reconciliation of these non-GAAP financial measures was included with the company's press release issued earlier today. Also, please note that unless otherwise stated, all figures discussed today are in U.S. dollars and are occasionally rounded to the nearest million. I'd now like to turn the conference call over to SunOpta's CEO, Joe Ennen.
Joseph Ennen, CEO
Good morning and thank you for joining us today. With me on the call is Scott Huckins, our Chief Financial Officer. Before we begin unpacking the results, let me offer three key takeaways from the quarter and the full year results. Number one, strong Q4 results were fueled by strong execution from continuing operations; both our plant-based and fruit-based segments had a great quarter and year. Number two, very strong margin performance in Q4 with a 15.5% gross profit margin and a 10% EBITDA margin reflects all our business optimization efforts and strong execution across both operating segments. Third, solid progress in our new business development efforts as we seek to add $100 million of plant-based revenue in the next two years. With this call being our full year 2020 results, before we unpack the details of Q4, I would like to summarize for shareholders just how much progress we have made in 2020. As it relates to the balance sheet, we entered 2020 with 10 times leverage. We enter 2021 with 1.2 times leverage. In 2020, we faced an annual interest expense of over $30 million. In 2021, we expect an annual interest expense of approximately $10 million. In 2020, we had limited remaining term on our debt instruments, but now we have five years on our debt instruments. We entered 2020 with approximately $40 million of aged inventory. We entered 2021 with $5 million of aged inventory. We entered 2020 with a CCC credit rating, and we entered 2021 with a B or B minus rating, and we are trending up. When reflecting on our fruit business, we began 2020 with a gross margin of 1.9%, too much capacity, too many non-strategic customers, a Mexico operation that was not firing on all cylinders, and a very new management team across the board. By the end of 2020, we had delivered our goal of a 10% gross margin in the fourth quarter. We grew year-over-year gross profit by $22 million compared to 2019, and we entered 2021 looking to build on this momentum with positive overlaps expected in each quarter. We streamlined our operations in California to improve our cost structure, and we have made material progress in streamlining our customer base; this will, in the short term, mute sales growth, but will allow us to deliver better quality, better service, and more profitability. We have stood up a new team in Mexico and we are projecting that Mexico will become our largest fruit operation in the not too distant future. Importantly, we enter 2021 with a more experienced team committed to driving improved profitability. In our plant-based segment, we certainly had momentum coming into 2020, but it was a capacity constrained network. This constraint also limited our business development efforts. We enter 2021 with capacity in plant-based beverages, with a whole new capability in oat milk that is creating partnerships with new customers from ice cream to yogurt to refrigerated plant-based milk manufacturers. We enter 2021 with more customer diversity, a very strong customer pipeline, and optimism that as COVID-19 concerns decline, a food service business recovery will deliver significant upside in the second half of 2021. Perhaps it is most important to note that we entered 2020 managing two very different businesses: one being a global organic ingredient company headquartered in Amsterdam, the other a predominantly North American based consumer packaged goods business. We divested the global ingredients segment in December for approximately €330 million. The proceeds of the sale provided additional funds to invest strategically in our competitively advantaged plant-based food and beverage platform, reduced our exposure to a commodity trading business, delevered our balance sheet, and significantly reduced our working capital needs. We also signed a long-term supply agreement with Acomo, the new owner, to ensure continuity of supply of organic raw materials for the foreseeable future. As we enter 2021, we have clarity of focus and purpose as we seek to help fuel the future of food. For the sake of completeness, I will comment briefly on the combined results of ongoing and discontinued operations in terms of revenue and EBITDA for the year and the quarter. Revenue for the full year 2020 was $1.29 billion, a $102 million or 8.6% increase versus 2019. Revenue for the quarter was $330 million, a $35 million or 11.7% increase versus the prior year. EBITDA for the full year was $94.1 million, a $47 million or nearly 100% increase. For the quarter, EBITDA was $26.5 million, a $10 million or 62% increase versus the prior year. Of the $102 million of revenue growth and $47 million improvement in EBITDA, 75% of the revenue growth and 84% of the EBITDA growth came from continuing plant-based and fruit operations. With the divestiture of global ingredients in December, unless otherwise noted, all of the results referenced from here forward will be for continuing operations, meaning the aggregation of our plant-based and fruit-based operating segments. Fourth quarter results were better than expected, reflecting solid execution by the entire organization and a continuation of strong underlying demand for our products. The fourth quarter also marked an important inflection point for the company as we completed a major multiyear operational turnaround and portfolio optimization. Entering 2021, the entirety of our efforts will now be focused on driving growth and profitability in businesses where we have a demonstrable competitive advantage. Total revenue from continuing operations increased 10.4% on an as-reported basis in the fourth quarter. Adjusting for commodity price variances and the impact of a 53rd week, total revenue was up 5.4% driven by 6.6% growth in plant-based and 3.9% growth in the fruit segment. After four consecutive quarters of doubling EBITDA versus the prior year, adjusted EBITDA in Q4 increased a mere 84.3% on a year-over-year basis to $20.6 million. We are pleased with this result as this is 84% growth compared to a year ago number that was more than six times the 2018 results. As a percent of revenue, adjusted EBITDA improved by 400 basis points to 10%, which had been our previously communicated long-term financial target for EBITDA margin. It was helped by higher gross margins in both segments, including a sharp recovery in the fruit business, reflecting productivity and pricing initiatives. Turning to our segment results, let me begin with our plant-based segment, where we continue to experience strong trends throughout the year. Full-year revenue was $415 million, an increase of $54 million or 14.9%. Gross profit for the year was $80 million, growing by $22 million or 37%. For perspective, our plant-based segment is now approximately 75% of the company's total gross profit. For the fourth quarter, revenue increased 11.1% or 6.6% on an adjusted basis, as we cycled a 25% increase from last year's fourth quarter. Our capacity additions helped deliver this increase as we were effectively at capacity in Q4 of 2019, and without our added capacity, we would not have achieved material growth in the quarter. Our food service sales channels remain challenged due to COVID-19, especially as portions of the country moved back into heightened lockdown in the fourth quarter. Gross margins improved 310 basis points for the year and 70 basis points in Q4 driven by higher volume, as well as continued productivity gains. Our new business pipeline remains encouraging as our recognized expertise and expanding capacity makes SunOpta a desired partner for leading CPG companies focused on plant-based foods and beverages. To that end, during the fourth quarter, we completed the expansion of our extraction capability as well as new beverage production and packaging capability. Additionally, last month, we announced another capacity expansion at our Allentown, Pennsylvania facility, all of which provides ample runway to support our plant-based growth plans through 2022. As previously communicated, we want to strategically use SunOpta owned brands as a vehicle to bring innovation to market faster. As an example of this thinking, we saw a gap in the market for an organic oat milk coffee creamer and so we launched our first branded offering in plant-based beverages under a SunOpta created brand called SOWN. Please feel free to log on to sown.com for additional information on this exciting new growth initiative. SOWN organic oat milk coffee creamer is currently available nationally at Whole Foods, Sprouts, and Amazon, along with other regionally relevant customers as we look to grow distribution throughout 2021. As we have been saying for the past several quarters, we plan to have an agnostic go-to-market strategy, quickly bringing innovation to market through a combination of branded, co-manufactured, and private label offerings. We see brands as augmenting our current customer focus and we remain committed and focused on co-manufacturing and private label as our primary business. As a proof point of our agnostic orientation, we are also launching oatmeal creamers with a CPG customer, as well as with a leading retailer's own private label brand. In the fruit segment, we have repeatedly communicated that our key area focus has been improving profitability and margins, and results in the fourth quarter demonstrated significant progress against this goal. Revenue grew 6.9% for the full year, and 9.6% or 3.9% on an adjusted basis in the fourth quarter versus last year. Importantly, gross margin increased an impressive 720 basis points in Q4 to 10.1%, helping to drive positive segment level operating income for the first time in over three years. Gross margins benefited from volume pricing and mix factors, as well as the previously discussed successful automation and productivity initiatives. Over the near term, we expect to continue focusing on improving profit and margin in the fruit-based segment. As we've discussed in the past, not all customers are equal in terms of profitability. As such, we have endeavored to rationalize our customer portfolio in the fruit segment and while we recognize that we may be compromising some near term revenue, we believe this will allow us to build a much stronger foundation for the future. We strongly believe that a tighter, more focused, and more cost-efficient business will give us the opportunity to continue to strengthen margins and grow strategically and profitably. In conclusion, the fourth quarter and full-year results were exceptionally strong and continued to show solid progress in executing on our key initiatives, including expanding margins and significant growth in adjusted EBITDA. We've successfully transformed the company to be in an optimal position to capitalize on the number one global food trend: plant-based foods and beverages. Our goal is to double our plant-based business over the next five years. SunOpta’s technical expertise across the full process spectrum, from formulation to production, is widely recognized by leading CPG companies. In turn, this has helped us develop very strong relationships with our customers as they view us as an essential partner in operating and growing their plant-based businesses. Finally, the geographic diversity of our supply chain provides cost efficiencies while also mitigating risk through operational redundancies. I'm optimistic about our future and believe 2021 will be another strong year for SunOpta as we execute our plan, continue ramping up growth, and leveraging the power of our platform. Now I'll turn the call over to Scott to take us through the rest of the financials.
Scott Huckins, CFO
Thank you very much, Joe. And good morning, everyone. We're excited to report another solid quarter. As Joe discussed, we saw 10.4% revenue growth in continuing operations and nearly doubled EBITDA with 84.3% growth. Gross profit from continuing operations was $31.8 million for the fourth quarter of 2020, an increase of $9.6 million, or 43%, compared to $22.2 million during the fourth quarter of 2019. The fruit-based segment was responsible for $6.5 million of the gross profit improvement, reflecting revenue growth, pricing efforts, and a favorable mix of higher margin retail versus food service sales, as well as ongoing productivity improvements in our plants. The plant-based segment accounted for $3.1 million of the increase in gross profit, primarily due to revenue growth and increased production volumes of plant-based beverages and plant-based ingredients, along with improved plant productivity. On a full-year basis, the plant-based segments generated $80.5 million of gross profit, up $21.7 million or 37% from 2019. The fruit-based segment generated $28.6 million of gross profit, up $22.1 million or 340% from 2019. During the quarter, we continued to make progress with gross margin expansion. As a percentage of revenues, fourth quarter gross margin was 15.5% compared to 11.9% last year, a 360 basis point increase. On a full-year basis, gross margin was 13.8%, up 470 basis points, with both segments contributing to the improvement. In the fourth quarter, gross margin expanded 720 basis points in the fruit segment and 70 basis points in the plant-based segment. Operating income was $6.8 million, or 3.3% of revenues in the fourth quarter, compared to a loss of $0.5 million last year. SG&A increased to $25.6 million, compared with $20.6 million in the fourth quarter last year. The savings initiatives previously implemented are being offset primarily by variable compensation expense, resulting from the significant improvements made in operating results. Earnings attributable to common shareholders for the fourth quarter were $17.2 million or $0.78 per diluted share, compared to a loss of $7.6 million or $0.09 per diluted share during the fourth quarter of 2019. These results include discontinued operations for global ingredients, which produced a $112 million pre-tax gain on sale. Given the global ingredients divestiture, broader refinance of the balance sheet, and the closure of a large fruit plant, let me unpack the impact these activities had on earnings from continuing operations for the fourth quarter. The reported loss from continuing operations was $34.3 million driven by non-recurring items, including a $12.7 million foreign currency hedging loss on the global ingredients sale, $11.2 million of exit costs, impairment charges, and severance primarily associated with the exit of our Santa Maria fruit plant and an $8.9 million charge associated with the retirement of the second lien notes. The loss also reflects a full year's interest expense on the old capital structure, or an approximately $440 million debt load and existence before year-end. On an adjusted basis, consolidated earnings were $1.2 million, or $0.01 per diluted share. The adjusted loss from continuing operations was $2.5 million, or $0.03 per diluted share, compared to a loss of $7.1 million or $0.08 per common share in the prior year. As Joe mentioned earlier, for the fourth quarter of 2020, adjusted EBITDA from continuing operations was $20.6 million compared to $11.2 million in the prior year. On a consolidated basis, adjusted EBITDA was $26.5 million, up 62% versus the prior year. I'd like to remind listeners that adjusted EBITDA and adjusted earnings are non-GAAP measures, and a reconciliation of these measures to GAAP can be found toward the back of the press release issued earlier this morning. Turning to the balance sheet and cash flow. At January 2, 2021, total debt was $69.7 million, down approximately $410 million from December 28, 2019. Total debt reflects $47.3 million drawn on our asset-based credit facility, with a balance representing smaller credit facilities, lease, and other financing arrangements. Leverage has improved to well under two times from ten times as we entered 2020. As a reminder, we refinanced our previous ABL with a new five-year ABL and delayed draw term loan at lower interest rates. The new facility is not due until December of 2025. We do expect the debt balance to grow as we recognize lease obligations on the balance sheet associated with capital projects and the use of the revolver for our customary seasonal build of inventory. From a cash flow perspective during the quarter, cash generated from operating activities of continuing operations was $19.8 million compared to cash generated of $33.2 million during the fourth quarter of 2019. As a reminder, we drove down our working capital last year by nearly $30 million and therefore entered 2020 on a much leaner basis. Cash generated from investing activities was $352.3 million compared with the use of $9.2 million in the fourth quarter of 2019. The increased cash flow was driven by the sale of our global ingredients business. Let me close by offering some perspective on what we are seeing in terms of Q1 and full-year 2021 results. From a top-line perspective, our current view is that growth in plant-based will approach double digits in Q1, noting that we have a strong comp to hurdle of plus 30% from the prior year quarter. For perspective, we are forecasting the largest quarter in our history in Q1 for plant-based. Beyond Q1, our current outlook suggests low-to-mid-teens growth for the balance of the year. In fruit, as a reminder, we closed the facility and shared that we would be rationalizing customers and SKUs, and therefore forecast high single-digit revenue declines in Q1 as a result. In addition, we are rebuilding inventories following light fruit supply due to COVID-19 and hurdling a strong comp of plus 14% from the prior year quarter. Beyond Q1, we currently forecast low-to-mid single-digit revenue decline while producing improved year-over-year margins. From a margin perspective, we would expect plant-based to remain in the high teens area and fruit to make year-over-year improvements each quarter from a more efficient portfolio of plants and customers. Finally, from an adjusted EBITDA perspective, we expect solid double-digit growth in 2021. With that, I'd ask the operator to please open up the call to questions.
Operator, Operator
Thank you. Your first question comes from Brian Holland at D.A. Davidson & Company. You are now free to ask your question.
Brian Holland, Analyst
Yes. Thanks. Good morning, gentlemen. So, I guess, a lot to dig into. So just on the plant-based growth side, I appreciate the guidance here. Obviously, tough comps on the at-home side, but I've inferred customer demand currently outstrips your supply. So is the math basically for 2021 that you take the 2020 base, plus the pace at which you can onboard capacity expansion?
Scott Huckins, CFO
Morning, Brian, it's Scott. Yes. I think if you reflect on the comments about the outlook, I think we've given a fairly decent view of the pacing of the development of that realization of revenue toward our $100 million target.
Brian Holland, Analyst
Yep, perfect. Timing and consideration set for further capacity expansion in plant-based. Obviously, there’s a $75 million delayed draw at your disposal. Can you just talk about how you are thinking about adding to that base? And maybe, what's going to play into that?
Joseph Ennen, CEO
Yes, Brian. Good morning. It's Joe. We've stated many, many times our aspiration and ambition to double this business. Clearly at some point in that five-year journey, we're going to need to add additional capacity. But as I indicated on the call here, we have sufficient capacity to drive through 2022. I would expect sometime in, call it, 2023, we would need to onboard additional capacity.
Brian Holland, Analyst
To clarify, the $75 million delayed draw expires after 18 months, and a timeline of 12 to 18 months would likely be reasonable for developing a new facility. Are those timeframes reasonable?
Scott Huckins, CFO
Yes.
Brian Holland, Analyst
Okay. And then anything to read from the closing of the Santa Maria facility and further customer rationalization, as it pertains to whether you might ultimately consider divesting versus holding on to the fruit business?
Joseph Ennen, CEO
Our view is that we're pleased with the performance of the fruit business. This year, we improved gross profit by $22 million, which is a really solid year. We're confident in our ability to continue adding value and growing profitability in that business. We're also looking forward to a good strawberry season in California and Mexico and continuing to achieve strong results.
Brian Holland, Analyst
I appreciate the insights. I have one last question before I let others speak. There's been much discussion about acquiring new customers for the oat milk creamer. Additionally, you're running with the SOWN brand. Could you provide some context? We've discussed this before, but I'd like to understand how you manage the pipeline for private label customers while also introducing your own products. It seems there might be more sensitivity when launching your own brand compared to working with other CPG brand customers. Can you elaborate on how you balance these aspects?
Joseph Ennen, CEO
Sure. It's really oriented around innovation. Brian, we would not be foolish enough to launch products directly on top of our existing customers' products that we're manufacturing for them. This is an opportunity for us to continue to drive the business through innovation and access innovation opportunities more quickly. So this is really about expanding the portfolio of products, not launching products on top of our customers.
Brian Holland, Analyst
Appreciate all the color. Best of luck.
Joseph Ennen, CEO
Thank you.
Scott Huckins, CFO
Thanks, Brian.
Operator, Operator
Your next question comes from line of Alex Fuhrman from Craig-Hallum Capital. Your line is open.
Joseph Ennen, CEO
Good morning, Alex.
Alex Fuhrman, Analyst
Great. Thanks very much for taking my question. Yes. Likewise, good morning, and congratulations on a really transformative year in 2020.
Joseph Ennen, CEO
Thank you.
Alex Fuhrman, Analyst
Wanted to ask more about the brand. I mean, this seems like a huge opportunity. I was lucky enough to get to pick up some of your SOWN product at the Whole Foods in my neighborhood. Can you tell us a little bit about the pipeline of what we could expect to see from SOWN and from perhaps other brands that you could launch? I mean, is this considering that your business has been capacity constrained in the past? I mean, is this an area you'd like to get kind of as much product into your own cartons if you can? I'd love to just hear more about that. And obviously, I would imagine it's much higher margin. What should we be expecting in terms of the investment in sales and marketing and whatever else it takes to get a brand off the ground?
Joseph Ennen, CEO
Yes. So again, our focus here is really creating a platform for us to pursue innovation; our addition of brands as a growth lever for us really comes from the desire to be able to quickly and surgically attack market opportunities that we see. So, for example, the plant-based creamer category is a $335 million segment at retail growing over 30%. There was not an organic offering in oat milk. We saw that as a key opportunity. We don't make a product like that for any of our existing customers. And so, we thought it was a great opportunity for us to capitalize on that market opportunity and launch our own brand. Our approach to building these will be really starts with one core principle, which is to build unique, differentiated products in the marketplace. We don't want to be the seventh, eighth, or ninth offering in a category. This is really an opportunity for us to drive innovation. If and when we can see those market opportunities where no one else is playing in it, we'll use either our brand or a combination of our brand along with a CPG command to really go and develop a market and develop a category.
Alex Fuhrman, Analyst
Great. That's really helpful. And then, if I could also just ask about the mix of your business on the plant-based side, and obviously your food service customers were under a lot of pressure in 2020. And it sounds like you're looking for there to be a pretty strong recovery there beginning in the second half of this year. What are the margin and growth implications as the business presumably shifts a little bit more into food service as we kind of enter this post-COVID recovery? Is that somewhere that you see as being a big kind of long-term growth engine over the next couple of years?
Joseph Ennen, CEO
Yes. So, we don't break out margin by sales channel. But as it relates to broadly our plant-based businesses, I would call it a 50/50 split between food service and retail. We all know what has happened within the overall food service landscape related to COVID. We would expect strong recovery as consumers and shoppers return to those channels. One only needs to look at some of their publicly reported same-store comps to see where we see the upside in kind of Q2, Q3 forward.
Alex Fuhrman, Analyst
Okay. That's really helpful. Thank you very much.
Joseph Ennen, CEO
Thanks.
Operator, Operator
Your next question comes from line of Jon Anderson from William Blair. Your line is open.
Jon Anderson, Analyst
Good morning, everybody.
Joseph Ennen, CEO
Hey, good morning, Jon.
Scott Huckins, CFO
Good morning, Jon.
Jon Anderson, Analyst
Hi. Congratulations on a fun, dynamic, and fluid year. There are many different topics I could ask about. Starting with the plant-based food and beverage business, as you evaluate the pipeline, the new capacity, and the new business activity that is expected to drive an additional $100 million over the next couple of years, can you describe the likely make-up of that new business? How much do you expect will be from your own branded products compared to co-packing for other CPG companies or retail private label?
Joseph Ennen, CEO
Yes. We would expect the lion's share of that growth to come from co-manufacturing of CPG brands, then probably private label growth, and then our own brand. Again, we're managing our ambitions with brands relative to our capabilities, and our focus on being a great co-manufacturer for our branded partners. As I mentioned to Alex, I mean, our intent is really to do this surgically where we can really bring true innovation to market. So, I would see it as a very similar go-forward model supplemented by us really using brands as an innovation accelerator.
Jon Anderson, Analyst
Okay. That's helpful. Does that mean that, taking SOWN as an example, you've identified an opportunity in the organic creamer market? Should we consider the possibility of SOWN evolving into a brand that competes in the traditional milk or oat milk category? Or do you think it will remain more focused and targeted in areas where you can introduce something innovative? Additionally, could you potentially bring something new to the broader oat milk market due to the high-quality capabilities you have developed?
Joseph Ennen, CEO
Yes. We see this as having a very strong innovation orientation, as opposed to let's launch the ninth almond milk into the store 20 years after the first almond milk was launched. I mean, that's not how we see the opportunity here. And I think it's really important to understand, we're not going to launch products on top of our customers where we're currently manufacturing an identical or similar product to what we're doing for them today. That certainly would not be a partner-like move, and we're very kind of clear about the boundaries and the guardrails. I could certainly see the brand going outside of some of our traditional capabilities and helping us expand into adjacency categories, just like this being the creamer space is a bit of an adjacency expansion for us.
Jon Anderson, Analyst
That makes sense. That kind of leads into my next question. You mentioned that it was interesting. You mentioned ice cream and yogurt specifically. I think, with respect to the pipeline, can you tell us a little bit more about that, how meaningful those products could be in terms of allocating some of your new capacity to them? Those are areas I don't think you play in today. I may be wrong on that. And then correct me if I'm, But ice cream and yogurt would be kind of new categories for you, I think, right?
Joseph Ennen, CEO
Correct. Just to clarify, we're supplying oat milk to manufacturers in those categories, as opposed to us manufacturing ice cream or yogurt. We're manufacturing oat milk or selling that oat milk to yogurt manufacturers or ice cream manufacturers who are turning it into a finished product. Just to clarify, we haven't stood up a yogurt plant since we've last talked, Jon. But the core focus there, and the thing that's exciting for us is our extraction capability and the unique way in which we're packaging, allows us to really work with a much more expansive customer base. Again, referencing kind of yogurt and ice cream as the type of customers who we wouldn't have been able to work with in the past, but for this new capability. So it's exciting. If you reflect on the projected 2021 growth rates that we've outlined, you'll see the progress we're projecting against that $100 million target pretty clearly in the numbers. A lot of these new oat milk products are exciting and they are growing fast. We're hopeful and optimistic that the consumers in those respective categories adopt them and love them as much as we do, because we think they're fantastic.
Jon Anderson, Analyst
Absolutely. On the capacity and plant-based foods and beverages, you have a new program for 2021, I can't recall. Have you talked at all about the timing of that new capacity and the size of it? We know that the capacity you brought on at the end of 2020, it was about $100 million or more in incremental sales capacity. Any boundaries you can put around the new program in Allentown? And then, if I can throw a follow on to that. Can you continue to add lines, add capacity to the three facilities you have now; California, Minnesota and Pennsylvania? Or at some point, do you need a new location, a new footprint and a new plant? And when might that be?
Joseph Ennen, CEO
So, we did not break out a granular forecast for the Allentown addition. We were comfortable when we were executing three projects to lump those together and give some line of sight to what that might mean in terms of incremental capacity. But we don't want to get into kind of individual projects and individual kind of rates of return on that. It's a bit too granular. But it'll represent a significant chunk of business for us; I mean, it's meaningful or we would not have shared the news. Your second question about what's our expansion potential within existing facilities versus the new facility? We have a little bit of wiggle room to add a little bit more to the existing network. But I would say, yes, at some point in the near to mid-term future, we will need to consider standing up a new facility. Obviously, we would love to do that as soon as possible because that gives us indication in line of sight that we're developing our pipeline, and we need to stay ahead of that. So that's a good problem to have, so to speak.
Jon Anderson, Analyst
Absolutely. For my last question, I want to switch to fruit. You mentioned customer rationalization and how it's helping you move towards a more profitable business. In the near term, this will affect revenue, as you indicated. Could you explain what you mean by rationalization? Are you referring to a change in the business mix, such as focusing more on retail and less on food service or away-from-home segments? Or is it about client rationalization within those segments? I'm curious about the direction we're taking the business from a customer perspective. Any additional details on that would be appreciated.
Joseph Ennen, CEO
Yes. And remember, fruit is comprised of fruit ingredients, frozen fruit, and fruit snacks. There is some swing or delta within that mix of fruit specific. Some of it was related to the closing of Santa Maria, and some of it was just us continuing to look for optimization opportunities in the other two segments of the fruit business. But not a wholesale shift in any channel strategy. We're really just trying to work to optimize the footprint of the business and the customers that we're serving so that we're positioned to deliver great cost to them, great service, and great quality. I think the moves we're making in Mexico and diversifying our network, we've talked about that extensively, almost going back to the middle of 2019 about diversification as a core strategy. We're doing a much better job of sourcing fruit out of South America. Mexico will become, as I mentioned, a very significant business for us, and California will always be a significant part as well. Again, what you're seeing from us on fruit is very consistent with what we outlined as a core strategic driver, which was diversification.
Jon Anderson, Analyst
Makes sense. Actually, as you were talking, I have to squeeze one more in if I can. So, the base EBITDA for 2020, continuing ops is about $59 million excluding the Tradin. And then we're thinking we can grow that double digits in 2021, fair statement?
Joseph Ennen, CEO
Correct.
Jon Anderson, Analyst
Okay. Terrific. Thanks so much. And congrats on a really wonderful year.
Joseph Ennen, CEO
Thanks, Jon.
Scott Huckins, CFO
Thanks, Jon.
Operator, Operator
Your next question comes from line of Mark Smith from Lake Street. Your line is open.
Mark Smith, Analyst
Hey, good morning guys. First, just wanted to talk a bit about competitive landscape in plant-based beverages. Can you talk about how strong your position is today? Or do you really view this as a rising tide that lifts all ships? Or what is your opportunity to really take share?
Scott Huckins, CFO
We identified three core competitive advantages within plant-based, which in combination, we think gives us a really strong position. First is the strength of our operational and R&D technical capabilities. That is an absolute differentiator in this plant-based co-manufacturing space. Second is the strength of our strategic partnerships with our customers. We have many, many multi-year long-term contractual partner-oriented agreements. Then the third is, relative to many of the people that we compete with, we have a diverse manufacturing network that is East Coast, West Coast, and Midwest; in combination, that affords us the opportunity to work coast to coast with national customers who prioritize product consistency, product quality, and the simplicity of working with one partner. So those three things in combination really afford us what we view as a strong competitive moat.
Mark Smith, Analyst
Okay. And then back to the branded products, can you quantify it all or give us an idea on what the mix is today in plant and fruit on kind of branded products?
Joseph Ennen, CEO
Our strategy will focus almost entirely on private label and co-manufacturing. The push for our branded products is designed to lead innovation. We introduced our organic oat creamer to the market, and thanks to prior development work, we secured a co-manufacturing agreement with a national brand looking to launch a similar product, as well as a retailer's private label interested in a comparable offering. This approach allows us to act quickly since we can launch it under our own brand. However, we remain committed to being agnostic, meaning we will share our product innovations with both our private label customers and co-manufacturing partners. We will pursue bringing individual product innovations to market through the best vehicles available, whether that's one of these options or a combination of both.
Mark Smith, Analyst
Okay. And then last one for me. Just looking at food service, you guys sounds like we're pretty optimistic as you look at food service primarily in the second half of the year. But can you just update us on what you're seeing today in food service versus maybe two or three months ago?
Joseph Ennen, CEO
If I reflect on the fourth quarter, it was quite similar to the third quarter regarding the overall performance of the food service channel. In the early days of Q1, we're noticing some improvement. However, I personally believe that this channel won’t fully recover until we have a significant number of commuters stopping by their favorite coffee shops to grab their soy milk lattes on their way to the office every day.
Mark Smith, Analyst
Okay, great. Thank you.
Operator, Operator
Your next question is a follow-up from Brian Holland from D.A. Davidson & Company. Your line is again open.
Brian Holland, Analyst
Yes. Joe and Scott, thank you for the follow-up. I have a question regarding the expansion of your plant-based business. It seems that you may have been somewhat less focused on extraction in the past. As we look ahead at your capacity, will there be a greater emphasis on extraction? This could potentially broaden the categories and customer base you can serve, and I believe it may also offer a higher margin compared to the packaging side of your business. Could you elaborate on this?
Joseph Ennen, CEO
Yes, I think quite a while ago, we articulated that the extraction facility that we built in Alexandria, Minnesota allows us a four times increase in the amount of basically kind of oat milk or soy milk that we can make out of that. So yes, to the first part of your question, the mix should benefit; you should see the extraction side grow certainly as a percent of the mix relative to say 2020. Just in terms of the margin profile, we don't break out the margin components between the individual lines of business.
Operator, Operator
There are no further questions at this time. I'll turn the call back to the presenters for closing remarks.
Joseph Ennen, CEO
Okay. Thank you, operator and thank you everyone for participating in our fourth quarter conference call. I look forward to speaking to you in the future and appreciate your interest and support in SunOpta. Have a great day.
Operator, Operator
Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.