SunOpta (STKL)

Plant-based food and beverage company SunOpta (NASDAQ:STKL) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 10.3% year on year to $201.6 million. The company’s full-year revenue guidance of $796.5 million at the midpoint came in 0.7% above analysts’ estimates. Its non-GAAP profit of $0.04 per share was $0.02 above analysts’ consensus estimates.

Company Overview

Committed to clean-label foods, SunOpta (NASDAQ:STKL) is a sustainability-focused food and beverage company specializing in the sourcing, processing, and packaging of organic products.

As America industrialized and moved away from an agricultural economy, people faced more demands on their time. Packaged foods emerged as a solution offering convenience to the evolving American family, whether it be canned goods or snacks. Today, Americans seek brands that are high in quality, reliable, and reasonably priced. Furthermore, there's a growing emphasis on health-conscious and sustainable food options. Packaged food stocks are considered resilient investments. People always need to eat, so these companies can enjoy consistent demand as long as they stay on top of changing consumer preferences. The industry spans from multinational corporations to smaller specialized firms and is subject to food safety and labeling regulations.

Competitors include private companies Organic Valley and Nature’s Path along with public companies Oatly (NASDAQ:OTLY), Conagra (NYSE:CAG), and General Mills (NYSE:GIS).

Reviewing a company’s long-term sales performance reveals insights into its quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years.

With $742.7 million in revenue over the past 12 months, SunOpta is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers.

As you can see below, SunOpta struggled to generate demand over the last three years. Its sales dropped by 4.2% annually despite consumers buying more of its products. We’ll explore what this means in the "Volume Growth" section.

This quarter, SunOpta reported year-on-year revenue growth of 10.3%, and its $201.6 million of revenue exceeded Wall Street’s estimates by 3.7%.

Looking ahead, sell-side analysts expect revenue to grow 8.2% over the next 12 months, an acceleration versus the last three years. This projection is noteworthy and implies its newer products will spur better top-line performance.

Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.

SunOpta’s average quarterly volume growth of 13.2% over the last two years has beaten the competition by a long shot. This is great because companies with significant volume growth are needles in a haystack in the stable consumer staples sector.

In SunOpta’s Q1 2025, sales volumes jumped 12.2% year on year. This result was in line with its historical levels.

All else equal, we prefer higher gross margins because they usually indicate that a company sells more differentiated products, has a stronger brand, and commands pricing power.

SunOpta has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 16.1% gross margin over the last two years. That means SunOpta paid its suppliers a lot of money ($83.93 for every $100 in revenue) to run its business.

This quarter, SunOpta’s gross profit margin was 15%, down 2.5 percentage points year on year and missing analysts’ estimates by 2.6%. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

SunOpta was profitable over the last two years but held back by its large cost base. Its average operating margin of 2.4% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

Looking at the trend in its profitability, SunOpta’s operating margin might fluctuated slightly but has generally stayed the same over the last year, meaning it will take a fundamental shift in the business model to change.

In Q1, SunOpta generated an operating profit margin of 5.2%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

SunOpta’s full-year EPS flipped from negative to positive over the last three years. This is encouraging and shows it’s at a critical moment in its life.

In Q1, SunOpta reported EPS at $0.04, up from $0.01 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects SunOpta to perform poorly. Analysts forecast its full-year EPS of $0.15 will hit $0.20.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

SunOpta has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.3%, subpar for a consumer staples business.

Taking a step back, an encouraging sign is that SunOpta’s margin expanded by 6.1 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat.

SunOpta’s free cash flow clocked in at $9.55 million in Q1, equivalent to a 4.7% margin. Its cash flow turned positive after being negative in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

SunOpta historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 1%, lower than the typical cost of capital (how much it costs to raise money) for consumer staples companies.

SunOpta reported $2.30 million of cash and $384.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $90.6 million of EBITDA over the last 12 months, we view SunOpta’s 4.2× net-debt-to-EBITDA ratio as safe. We also see its $13.75 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly SunOpta blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also glad it raised its full-year revenue guidance. Overall, we think this was a solid quarter with some key metrics above expectations. The stock traded up 7.9% to $4.90 immediately following the results.

Updated: June 14, 2025 at 10:42 PM EDT

Before investing in or passing on SunOpta, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

SunOpta’s business quality ultimately falls short of our standards. For starters, its revenue has declined over the last three years. And while its volume growth has been in a league of its own, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer staples businesses. On top of that, its brand caters to a niche market.

SunOpta’s P/E ratio based on the next 12 months is 30.2x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $9.40 on the company (compared to the current share price of $5.96).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.