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SunOpta, Inc. (NASDAQ:STKL)
Q2 2019 Earnings Call
Aug. 7, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to SunOpta's second-quarter Fiscal 2019 earnings conference call. By now, everyone should have access to their 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 its 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 10K 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 other 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 security laws.

Finally, we would like to remind listeners that the company may refer to certain non-GAAP financial measures during the 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 US dollars are occasionally rounded to the nearest million. And now, I would like to turn the conference over to SunOpta's CEO, Joe Ennen.

Joseph D Ennen -- Chief Executive Officer

Good morning and thank you for joining us today. With me on the call is Rob McKeracher, our Chief Financial officer.

When I spoke on the first-quarter call in May, I'd only been in the role for a month. I've now been leading the business for approximately 120 days and it has given me more time to evaluate our strategies, operations, competitive positioning, and capabilities. I've spent considerable time meeting with most of our top customers across all channels, visiting almost all of our production facilities, and meeting with our associates and our investors. I can tell you that I am more optimistic today than the day I joined about our core businesses and our ability to deliver strong top- and bottom-line results. We are well-positioned for growth because our business aligns with what consumers are focused on, health and wellness and the sustainability of our planet. We have a wealth of talented people in the company and I am confident we will unlock the potential of our on-trend category while driving margin enhancement and consistent operational excellence.

Given the multitude of businesses SunOpta has, it's sometimes easy to overlook that three businesses represent over 90% of our sales. These three businesses are Plant-based Beverages, Healthy Fruit, and Tradin Organic. Within these businesses, we have some very strong competencies and capabilities. However, it is clear that we have not fully leveraged the potential to operate synergistically. We have significant opportunities to further integrate our operations, expand our sales activities, and better utilize our sourcing capabilities. We must also be relentless about driving cost out of the business.

As I discussed last quarter, we have been developing three priorities: portfolio prioritization, speed of customer-centric innovation, and productivity and pricing realization in frozen fruit. Let me touch on each of these priorities and the early progress we have made.

First, on portfolio prioritization, we are positioning the company in categories where it can excel. We are taking a more focused approach toward evaluating what businesses we want to be in and what businesses we don't want to be in. We are developing clear, long-term points of difference for how we're going to win in each of our businesses. We are taking action on these opportunities with increased speed and decisiveness while prioritizing capital and human resources to focus on the opportunities that deliver the best returns first. As an example of our current portfolio prioritization efforts, at our board meeting last month we approved a significant 2020 capital investment project that will expand our plant-based extraction capabilities by 4x, allowing us to further capitalized on the rapid growth of oat-based beverages. We are excited to announce this expansion which leverages a core competency of ours and enables SunOpta to be a leader in oat-based beverage and oat food products.

Plant-based foods and beverages are an on-trend category and a category where we have a history of leadership, strong assets, and technical know-how. We will leverage our innovation capabilities and expanded capacity to lean into oat-based beverage opportunities. While running a portfolio business, there's a natural tendency to place a disproportionate focus on the red numbers, focus on the red numbers or the parts of the business that are underperforming. I want to assure everyone that while we're focusing our efforts toward fixing Fruit, we're being just as aggressive investing time, energy, and financial resources in our Plant-based Beverage portfolio to drive long-term value.

We are also announcing the completion of our Allentown beverage facility expansion which began shipping product in July. The processing and filling expansion in Allentown increases our capacity to package large-format aseptic plant-based beverages that are well-suited to foodservice customers. With this new capacity online, we are converting existing food services customers to the larger, more efficient format. Converting foodservice customers to 64 ounce will free up much-needed capacity on our high-volume 32-ounce line enabling us to keep up with growing demand for plant-based beverages that serve the retail channel. The incremental Allentown capacity also allows us to rebalance and optimize our national production network to drive greater cost efficiencies and support our continues growth in broad.

Our second priority is the speed of customer-centric innovation. We are uniquely positioned to provide an array of solutions addressing high-growth segments of the food and beverage industry. We have significant product development capabilities that we can leverage and we are accelerating innovation in categories such as oat-based beverages, oat-based for ice cream, bone broths, plant-based creamers, ready-to-drink smoothies, smoothie kits, frozen novelties, and innovative juices that leverage our access to millions of pounds of fruit. Importantly, innovation will also allow us to create margin accretive products that leverage our diverse access to supply.

Finally, we remain laser-focused on our initiative to improve productivity and pricing in Fruit. This priority is focused on increasing gross profit in Fruit which presents the company's greatest near-term opportunity to drive improved EBITDA performance. As we have discussed, returning the Healthy Fruit business to its historic double-digit margin profile is a two-year journey due to the seasonal nature of the business and the time horizon required to complete capital projects. We will unpack in much greater detail the impact of the 2019 California crop shortfall but suffice it to say it's not pretty. While you may be feeling Fruit fatigue, I can share that some of the elements of our Fruit margin optimization work focused on cost reduction have performed as expected. While not a key feature of the previous Fruit recovery plan, during the last 60 days we have undertaken the difficult task of rebuilding rational pricing architectures with our customers. As a result, we have made significant progress in creating sustainable pricing positions for the future.

This progress, however, will be masked over the coming quarters with a significant weather-related shortage to strawberries that are in the Freezer market from Mexico and especially California. In California, the volume of strawberries that were directed to the Freezer segment is trending to be 100 million pounds or over 20% below 2018 levels. For competitive reasons, we won't discuss our specific impact to SunOpta, but I can tell you we have experienced a material shortfall to our planned production volume. The strawberry shortage weighed on gross margin due to increased field prices and lower overhead absorption as we packed significantly less fruit than planned. In addition, due in part to the shortage of Fruit and also our aspiration to reduce aged inventory, we intend to accelerate the rework of bulk inventory. This will help set us up for a cleaner start to the 2020 pack season.

Despite these negatives, during the second quarter, we hit our targets to reduce variable labor through automation and enhanced management of our operations. Giving us increased confidence that our Fruit margin optimization plan can and will deliver structural improvements to the business. Additionally, we have demonstrated over the last 120 days that we can do the following. We can take the price which we expect to drive meaningful revenue and margin enhancement in the second half of the year. We are showing that we have the courage to walk away for unprofitable business which is already occurring. We're showing that we have the ability to flex our facilities and adapt to changing capacity utilization. We have demonstrated that expanding production in Mexico lowers cost. We are leveraging Tradin's sourcing capabilities to partially offset for the fall in supply by contracting raw materials from counter-cyclical growers in places such as South America.

These structural improvements will persist long after we have sold through the 2019 inventory and will improve our long-term Fruit operations, cost structure, and profitability outlook. Additionally, I am pleased with our fast, and flexible response to the strawberry shortage to help limit the impact on availability in the margin. Make no mistake, we still have a lot of work to do on Frozen Fruit, but we're demonstrating that some of the core components of our margin optimization plan are yielding benefits.

To round out my update on our three priorities, portfolio prioritization, speed of customer-centric innovation, and productivity and pricing realization in Frozen Fruit, let me further unpack eight key strategies that we have developed.

  1. Double our plant-based beverage business to roughly $500 million in revenue within five years via rapid expansion of our manufacturing, packaging, go-to-market capabilities.
  2. Deliver the Fruit margin optimization plan on time by the end of 2020 through automation, diversification, and rational pricing.
  3. Create and bring to market margin-accretive innovation in both our Fruit and Plant-based Beverage businesses.
  4. At Tradin Organic, continue to identify and develop new sources of organic ingredients to maintain our position as a leader in sourcing on-trend ingredients and to drive sustained, high single-digit top-line growth over the next five years.
  5. Further, invest in manufacturing as a mechanism to add value to Tradin Organic's overall value proposition and support attainment of an overall 14% gross margin profile net business.
  6. Quickly identify and leverage both sales and margin synergies by viewing our Fruit businesses as one synergistic operation as opposed to operating Global Fruit Sourcing, Fruit Snacks, Fruit Juice, Frozen Fruit, and Fruit Preps as five independent operations.
  7. Further, diversify our Fruit Sourcing by expanding our operations in Mexico while simultaneously strengthening our California grower relationships and expanding our global reach to de-risk the impact weather can have on fruit supply.
  8. Finally, streamline the organization for faster decision making, clearer accountability, and more empowerment.

These strategies will be activated through a culture that is faster and more agile, focused on the big priorities, and fanatical about the customers and their needs. I've already begun to see some of these cultural attributes materialize across the organization.

Now, let me turn to the second quarter and run through the highlights of our commercial activities. For the second quarter of 2019, we generated $293 million of revenue which on an adjusted basis represents a 2.4% year over year growth rate. The growth was driven by our Consumer Products and Global Ingredients segments. In Consumer Products, revenue in Healthy Beverages accelerated to a 9.3% adjusted growth during the second quarter, up from 6% in the first quarter of 2019. The Plant-based Beverage category continues its decades-long growth trend because it offers the consumer real value around sustainability, taste, and nutrition. Our growth reflects higher volumes across the business as well as favorable customer product mix. The adjustment to revenue reflects a profit-neutral change to a co-man agreement with one of our customers.

As I noted, we have commissioned the expansion of our Allentown beverage facility and began shipping from the expanded capacity in July. We continue to have a very strong sales pipeline and the added capabilities and capacity in Allentown will support this additional growth. We anticipate further revenue growth acceleration in the second half of 2019 and beyond. Growth in the Healthy Snacks platform accelerated to 21.2% adjusted for the exit from Bars and Pouches last year. The growth partially benefited from some sales to a key customer that was pulled into the second quarter from the third quarter. Encouragingly, we are seeing more opportunities for everyday items and private label which should reduce quarter to quarter volatility and continue the high growth in this business. Again, consumers and customers are seeing the value in our organic products and our products that have significantly cleaner lists than our competition.

Revenue in the Healthy Fruits platform declined 4.9% on an adjusted basis reflecting reduced demand for fruit ingredients from yogurt customers and a modest decline in revenue in Frozen Fruit as a result in the company's aggressive pricing actions in 2018 that we continue to lap. The late Mexican harvest we discussed last quarter was exacerbated by a significant shortfall of California strawberries as the season progressed. By June, our pack volumes were significantly below planned, and we started to encounter increased field prices. Rob will detail the impacts to the second quarter and outline our expectations for the upcoming three quarters. We are in the process of implementing corrective actions to address the higher input prices and lower supply and the impact it will have on our top line.

Moving to Global Ingredients, sales on an adjusted basis increased 1.4% excluding commodity and currency changes and the impact of disposed and acquired businesses. The growth was driven by higher volumes of oils including post-acquisition growth at Sanmark as well as growth in Nuts, Coffee, and Cocoa. These gains were partially offset by the timing of shipments of fruits and vegetables and lower volumes of grains, sugar, and liquid sweeteners. Our Organic Cocoa processing facility realized improved throughput toward the end of the quarter which we expect will support continued growth in the business in the back half of 2019.

We also expect to see stronger volumes of organic fruits and vegetables. The recent acquisition of Sanmark performed well during the quarter and integration efforts are right on track. Domestically, revenue in the Sunflower and the Roasted Ingredient business declined 5.5% on an adjusted basis primarily reflecting lower demand for in-shell and kernel sunflower products partially offset by higher Roasted Snack volumes.

In summary, it's been a productive 120 days since I joined SunOpta. We have established our strategic priorities for each of our operations. We've also demonstrated that we can execute critical components of our plan to enhance Fruit margins, and we are taking the necessary actions to address the shortfall. We are developing a more agile and customer-centric culture and focusing on the areas of our business where we have a right to win. We are excited about the momentum in our Healthy Beverage and Global Ingredient Sourcing platforms.

Now, let me turn the call over to Rob to discuss the financials in more detail. Rob.

Robert McKeracher -- Vice President and Chief Financial Officer

Thanks, Joe. Let me walk through gross profit and the rest of the income statement given Joe's discussion of the commercial activities and revenue during the quarter. I'll also cover our balance sheet and cash flow results.

Gross profit was $27.3 million for the second quarter of 2019, a decrease of $7 million compared to $34.3 million during the second quarter of 2018. Consumer Product accounted for $5.3 million of the decrease in gross profit mainly reflecting the impact of the weather-related supply shortfall from the Freezer Fruit harvest in central Mexico and California. The supply shortfall resulted in unfavorable purchase price, substitution and material usage variance due in part to rework the bulk inventories to meet customer demand. In addition, we experienced unfavorable production variances and inefficiencies as a result of a significant drop in plant utilization. The year over year decrease in gross profit also reflected a $1.2 million gain related to a claim recovery from a third-party supplier that was recognized in the second quarter of 2018.

Overall, all the Healthy Fruit platform contributed close to zero gross profit during the second quarter of 2019. The gross profit decline in the Healthy Fruit platform during the second quarter of 2019 was partially offset by increased gross profit within the Healthy Beverage and Snacks platforms due mainly to increased sales and production volumes and productivity-driven cost savings. In addition, during the second quarter, we recognized a $0.9 million expense in cost of goods sold related to an isolated raw material spoilage event in our aseptic beverage operations.

As Joe mentioned, we expect this season's strawberry shortfall to continue to impact gross profit in the next three quarters. Given the unprecedented effect of the 2019 crop shortage, we are sharing details in a range on the estimated impact to our income statement to our next three quarters. In the second of 2019, the negative impact to gross profit from the weather-related shortfall was $3.6 million up from $1.6 million in the first quarter. We expect the full impact of this issue to be between $20 million and $30 million overall. The $20 million to $30 million estimate is inclusive of the year to date results and is comprised approximately $11 million to $15 million due to production inefficiencies in our US plants from a significant drop in production volumes. Approximately $7 million to $11 million related to costs incurred to compensate for the Mexican crop shortfall, and approximately $2 million to $4 million related to reworking the bulk inventories. We expect approximately $12 million to $18 million to be recognized in the back half of 2019 and approximately $4 million to $6 million to carry into the first half of 2020 as we sell through 2019 strawberry inventory.

At this point, we estimate the crop shortage will impact the third quarter more unfavorably than the fourth quarter. This is because we're taking steps to extend our season to capture incremental fruit from more northern regions of California and expect to incur rework of bulk stock to augment supply while the prime fruit season remains open. Both the third and fourth quarters will be impacted by the sell-through of inventories carrying inefficient production variances from earlier this year. Partially offsetting these headwinds, we anticipate generating increased per-unit revenue as a result of recently completed pricing initiatives with Retail and Food Service customers as well as new bids. We expect the effect of pricing to start to show up in the P&L in the third quarter of 2019 but become more meaningful in the fourth quarter.

Let me provide some additional color into how we expect the crop shortage, net of structural cost improvements and pricing actions to impact gross margin in the Healthy Fruit platform over the coming quarters. In the third quarter, we expect gross profit in Healthy Fruit to be in a negative position as a result of the cost pressures I previously mentioned, and because most of the customer pricing isn't expected to arrive until the fourth quarter. That effectiveness leads to an expected drop in the third quarter Healthy Fruit gross margin of approximately 400 to 600 basis points compared to the second quarter of 2019. Our 2019 California strawberry pack season is expected to conclude during the third quarter and as a result, we expect lower rework and other period costs in the fourth quarter. This, combined with additional customer pricing, is expected to drive gross profit back to positive territory in the low single-digits as a percentage of revenue.

Looking ahead to the first quarter of 2020, we expect continued margin pressure as we sell through the inventory that carries the burden of the 2019 costs. However, the full effect of our pricing efforts is expected to have taken hold and assuming a more typical Mexican strawberry harvest, the Fruit platform is expected to generate mid-single-digit margins. Once we get into the second quarter of 2020 and enter a new crop cycle in California, we expect to be in a position to build new crop inventory, continue to drive cost reduction through productivity, and continue to benefit from improved pricing optimization in support of our targeted 2020 exit rate of low double-digit margins in Healthy Fruit.

Global Ingredients accounted for $1.7 million of the decrease in gross profit primarily due to the sale of the Soy and Corn business which more than offset increased gross profit in International Organic Ingredients. Excluding the impact of the sale of the Soy and Corn business, gross profit in Global Ingredients increased by $1.1 million which reflected the stabilization of our Sunflower and Roasting operations combined with increased margin in International Organic Ingredients. This improvement was driven by a $4.3 million reduction in foreign exchange loses on US dollar to nominated raw material purchase contracts offset by a $3.1 million unfavorable swing in commodity hedging results primarily related to our Cocoa hedging activities.

As a percentage of revenue, second-quarter gross was 9.3% compared to 10.8% last year. Excluding the gross profit impact of disposed businesses, plant expansion, start-up, and other transition costs, and a $1.2 million claim recovery in the prior year, the gross profit percentage for the second quarter of 2019 would have been approximately 9.5% compared to 10.7% for the second quarter of 2018.

Operating loss of $2.5 million or 0.9% of revenues in the second quarter compared to operating income of $4.6 million or 1.5% of revenues last year. The decrease in operating income year over year reflects $7 million lower gross profit and a $0.3 million increase in consolidated SG&A expense. The increase in SG&A reflects a higher overall employee compensation-related costs offset by reductions related to the sale of the Soy and Corn business and rationalize overhead together with other cost reduction measures.

Excluding the operating results of disposed businesses, as well as expenses related as value creation plan and other items affecting gross profit that I just mentioned, operating loss would have been $1.5 million in the second quarter of 2019 compared with operating income of $2.8 million in the second quarter of 2018.

Lost attributed to our common shareholders for the second quarter was $11.1 million or $0.13 per common share compared to a loss of $5.1 million of $0.06 per common share during the second quarter of 2018. On an adjusted basis, net loss was $9 million of $0.10 per common share compared to $5 million or $0.06 per common share during the second quarter of 2018.

For the second quarter of 2019, adjusted EBITDA excluding disposed of operations was $10.1 million compared to $12.7 million in 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 the of the press release issued earlier this morning.

At the end of the second quarter, total debt was $498.5 million down $10.7 million from December 29, 2018, mainly as a result of the net proceeds generated from the sale of the Soy and Corn business offset by our seasonal debt increase related to the strawberry harvest. Total debt June 29, 2019, reflects $217.7 million net of issuance cost of 9.5% senior secured second lean notes due in 2022, $265.2 million drawn on our first lean global asset-based credit facility, with the balance representing smaller credit facilities, lease, and other financing arrangements. The global asset-based credit facility is a syndicated credit agreement maturing in February of 2021 with an aggregate commitment of up to $367.7 million.

From a cash flow perspective, during the second quarter cash used in operating activities was $31.7 million compared to cash used of $34.2 million during the second quarter of 2018. The $2.6 million decrease in cash used in operating activities reflects lower cash used to fund working capital partially offset by increased consolidated losses. As a reminder, seasonally, our working capital levels peak during the second quarter and through the summer months as this is when the majority of the fruit is harvested. Similar to years past, we expect operating activities to generate cash in the back half of 2019 and working capital levels to decrease, especially in the fourth quarter.

Cash used in investing activities was $12.9 million in the second quarter of 2019 compared with $10 million in the second quarter of 2018. An increase in cash used of $2.9 million due mainly to the acquisition of Sanmark in April 2019. For 2019 we continue to anticipate capital expenditures of approximately $25 million.

Before we open up the call for questions, I'll turn it over to Joe to provide some closing remarks.

Joseph D Ennen -- Chief Executive Officer

While we've spent a significant portion of this call providing details on the challenges on Frozen Fruit and our commitment to correct the business, I want to remind everybody that approximately 70% of our portfolio is healthy, growing, structurally advantaged, and on-trend. We are a leader in plant-based beverages. We are a leader in global organic sourcing, and these businesses are poised for accelerated growth in the back half of 2019 and beyond.

With that, I'd like to ask the operator to open it up for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you have a question at this time, please press * then 1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. To prevent any background noise, we ask that you mute your line once your question has been stated. Again, ladies and gentlemen, that is *1 to ask a question.

And our first question comes from Amit Sharma from BMO Capital Markets. Your line is now open.

Amit Sharma -- BMO Capital Markets -- Analyst

Hi. Good morning, everyone.

Robert McKeracher -- Vice President and Chief Financial Officer

Good morning.

Amit Sharma -- BMO Capital Markets -- Analyst

I have a couple of questions for you and then two for Joe. You gave a really good commentary on the Frozen Fruit gross margin. Can you talk about the top line as well? We saw around a 5% decline in Frozen Fruit in the quarter. As you look to Q3 and Q4 how will the top line be?

Robert McKeracher -- Vice President and Chief Financial Officer

Yeah, sure. I mean, obviously, your question is in response to the crop shortage. One of the things that we're actively working on now and Joe made mention of this in his prepared remarks, looking for substitution fruit in places like South America, counter-cyclical supply. That's important because that's what would help us be in a position to kind of maintain those sales right now. So, as we think about the impact of the shortage potentially hitting the top line, it's probably more into the first quarter, maybe the start of the second quarter of next year. There could be some pressure depending on the amount of fruit we're able to service our customers with. We aren't seeing too big of an impact here in the back half necessarily. There's some seasonal business with a large foodservice customer that would lead me to believe that the fourth quarter would be a bit lighter. But that's not to do with the crop shortage.

So, we're working hard to make sure we can maintain but there obviously is a risk in that in a shortage climate for revenue pressure. I think that would be more in Q1 and Q2 next year.

Amit Sharma -- BMO Capital Markets -- Analyst

Great. And the ingredient shortage that you cited, is that just a quarterly phenomenon that could read into the second half as well?

Robert McKeracher -- Vice President and Chief Financial Officer

Yeah. The ingredient shortage is more on the Fruit Prep business where we provide the inputs that go into yogurt applications. That's a market that hasn't been growing. I'd assign that more to a demand phenomenon than anything to do with the shortage.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And then on the aseptic side, really solid growth in the quarter and Joe did talk about seasonal business coming in, acceleration in the back half. Most of the broth business still is yet to ship or maybe it will ship in Q3. So, you should see a bigger ramp-up in sales?

Robert McKeracher -- Vice President and Chief Financial Officer

Correct. Yeah. Correct. We're expecting accelerated growth into the double digits here in Q3 and Q4 over last year as a result of the wrap-around of a lot of that broth business as well as growth in our quarter plant-based operation.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. And then, Joe, I think the tone is unmistakably upbeat for what is to come, right? You listed eight priorities that may seem like a lot but if you go through them, they all kind of make sense. What I want to get a little bit deeper from you is how much of that is aspirational versus something that you truly believe in the next two years or three years we will start to see tangible benefits both in top line and margins from some of these initiatives?

Joseph D Ennen -- Chief Executive Officer

I absolutely believe we can make progress on everything that I outlined.

Amit Sharma -- BMO Capital Markets -- Analyst

Okay. And that should start to come within the next two years or so? I mean, we can talk about specific things but generally speaking, you do see an inflection in margins not just in Frozen Fruit but aseptic beverages as well?

Joseph D Ennen -- Chief Executive Officer

Yeah. If you think about our plant-based beverage business and our ability to drive capacity utilization in that business, we're seeing basically a business where demand is outstripping supply. We're able to maximize our production facilities and we expect that in the short- to mid-term that that reality will continue to exist.

Amit Sharma -- BMO Capital Markets -- Analyst

And the vital question is as you continue to exceed expectations on the aseptic side and you have really planned to delve deeper into it, maybe this is a difficult question to answer. But if Frozen Fruit remains challenged because of weather or other dynamics, is there a thought to maybe monetize the parts of businesses that are actually performing really well?

Joseph D Ennen -- Chief Executive Officer

Are you referring to basically selling off pieces of the business? Is that the --

Amit Sharma -- BMO Capital Markets -- Analyst

Yeah. Look, the stock price is indicating that the market isn't willing to give you credit for parts of the business that are actually performing well and are on a really good trajectory. To you unburden then by displacing some of the businesses that are dragging the overall results down?

Joseph D Ennen -- Chief Executive Officer

What I would say to that, Amit, is we've formed, and it's been in place for a period of time pre-dating me a strategic review committee of the board. That is an active committee where we're evaluating all the potential moves for the portfolio both in terms of what businesses we want to be in and what businesses we don't want to be in.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. I'll get back in the queue. Thanks so much.

Operator

Thank you. Our next question comes from Jon Anderson from William Blair. Your line is now open.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

Good morning, everybody.

Joseph D Ennen -- Chief Executive Officer

Hey, Jon.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

I'm just trying to get a little bit better understanding of your expectations for the full year. The crop issue it sounds like has led to about $5 million in headwind to gross profit through the first half of the year. You expect kind of a full impact of $20 million to $30 million, the bulk of which will affect 2019 as I think I understand it as you laid it out. I guess my question is as we think about 2018 the EBITDA base was around $53 million. We've got a $20 million to $30 million headwind from Fruit it sounds like. So, on an adjusted base, it would be closer to $20 million to $30 million. Is that the right way to think about the year?

I guess I'm not accounting for profit improvement in other parts of the business which should help to mitigate some of that Fruit margin headwind. But help us think through that a little bit more how you're seeing the full-year earnings power of the company playing out in 2019 and then also your expectations for Fruit next year. Let's assume it's a more normal crop next year. Given the automation that you've put in place, I think you're standing up that new facility next to the Santa Maria processing facility next year. Do we see the full realization of the Fruit margin optimization program next year as opposed to a balanced step this year and next year? I know there is a lot there, but I'd appreciate any color.

Robert McKeracher -- Vice President and Chief Financial Officer

Let me start with that and then Joe if want to follow-up, go ahead. What you're seeing and I think we commented last quarter that we were anticipating second-quarter EBITDA to be roughly in line, give or take, with first. Obviously, we hit some headwinds in Fruit which we've described. It's not difficult to do the math to see that the benefits coming from the other parts of the portfolio help to offset that. I think that as a general theme is something we should expect moving forward as I think about either sequential and/or -- Let's just talk sequentially. We're going to have additional headwinds. We've somewhat quantified it inside of the prepared remarks with the revenue in Fruit obviously deduced that it would be a gross margin loss in the third quarter and come back to positive in fourth.

We are expecting that the growth in both revenue and profitability in Beverage and Snacks and Tradin Organics helps to offset a big piece of that possibly in the third quarter, not the entire amount. Which would put us into a spot where the third quarter could be a little pressured relative to where we just finished the second quarter. But then as we turn the corner into the fourth and we start getting the benefit to some of the pricing, I made the comments that the costs related to the crop shortfall we're not expecting them to be as heavy in the fourth quarter as it was the third. That's a start then to put us into a position where we can be delivering improved results on a sequential basis. I think that that's going to continue to next year.

You asked, Jon, how do you step back and think about some of the ranges, the $20 million to $30 million overall cost which is of course part of this year. We talked about a carryover expectation into next year. As I step back and look at the business and all things equal, which is maybe a big statement, but in a situation where you've got a more typical harvest in California and more typical volume and timing in Mexico, the cost that we're referring to we wouldn't see as costs that continue. So, as I think about 2019 and 2020, I think that's the way to view the potential is if we can get back to normal and that on top with -- Normal of course on the harvest -- and that on top of our productivity efforts and our pricing efforts the ability to generate the margin we're talking about in Fruit is there.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

Okay. So, EBITDA -- Sorry for the detailed questions. EBITDA in the quarter was $10.1 million. That was down $3.7 million year over year. I think you said that the issues related to Fruit, the crop, cost about $3.6 million in the quarter. That would kind of bridge the gap between last year's EBITDA and this year's and it wouldn't suggest that there was much positive contribution from other parts of the business. Am I missing something there?

Robert McKeracher -- Vice President and Chief Financial Officer

Keep in mind that our EBITDA reported last year has the Soy and Corn business in it which was profitable. So, in our prepared remarks, the last year EBITDA if you remove that you're starting point at Q2 of 2018 would be $12.7 million of EBITDA. So, compare that to the $10.1 of this year and you see the growth in the other parts of the business.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

Okay. Maybe one for Joe. Joe, it sounds like the leadership team and the board has made a significant commitment to increase capability and capacity in the Beverage business. Could you talk a little bit more about what some of the dollars and cents are there? How much of a capital investment we're talking about? What kind of capacity and capability you plan to bring online and what timeframe and how that would be utilized?

Joseph D Ennen -- Chief Executive Officer

Yeah. So, just to unpack that a little bit further, we're making an investment in the extraction step which will allow us to basically take whole oats and convert it into oat milk. Also, importantly, as a product of that, you end up with oat solids which we also think there's a market for. That component ends up being 50% protein, 15% fiber and we have had initial discussions with many interested parties in the oat protein powder component of this as well as just the oat beverage side of it. We continue to see rapid growth in the oat beverage business.

I believe there were 19 new oat beverage product launches in the first half of the year. So, we think there is a significant opportunity to capitalize on that. The investment that we're making represents a four-fold increase in our ability to basically produce oat milk. In terms of the total cost, we're in the kind of mid $20 million range for the total cost. We're still kind of finalizing some of the details there so there're some moving parts. But that would be a broad component of the cost. The vast, vast, vast majority of that will be expenses that hit in 2020 versus this year.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

In what kind of capacity would that provide sales capacity for either oat milk or some of the solids, the protein, and the fiber?

Joseph D Ennen -- Chief Executive Officer

When fully ramped up, we think it represents north of $50 million of revenue.

Jon Andersen -- William Blair & Co. -- Partner and Analyst

Okay.

Joseph D Ennen -- Chief Executive Officer

And that would be just on the base. That would be just the value of the base. There's also then margin and profitability if we turn that oat base into oat milk and we sell both the concentrate, the base, as well as turning that base into oat milk. Some customers we supply the base, they add the water and package it themselves. Some customers we add the water and package it. So, there's the additional margin that isn't embedded in that $50 million that I just referenced if we're the ones who basically package and add the water. Does that make sense?

Jon Andersen -- William Blair & Co. -- Partner and Analyst

Yeah. It does. That's helpful. I appreciate all the color. Okay. That's all I had for now. Thanks.

Operator

Thank you. And we have another follow-up question from Amit Sharma from BMO Capital. Your line is now open.

Amit Sharma -- BMO Capital Markets -- Analyst

Thank you so much for taking the follow-up. Rob, I just want to cycle back on the second half ramp up for the aseptic beverage. Can you just remind us how much of incremental sales are we looking for? And generally, what's the margins for to occur on that so that as we look to offset the decline, we can be a little bit more accurate with our assessment for the back half?

Robert McKeracher -- Vice President and Chief Financial Officer

Sure. I'll give you some direction. At the end of last year, we had commented about commercializing roughly $50 million of new broth business. I think we shipped somewhere between $15 million to $20 million of it in the fourth quarter of last year. So, the biggest piece of the revenue ramp you'll see is related to that. So, 50 minus that and you get $35 million overall across the two quarters is kind of the bump which should help you gage when I say we're in double-digit growth territory. That's the primary reason there.

Amit Sharma -- BMO Capital Markets -- Analyst

And generally, what's the gross margin profile of this business?

Robert McKeracher -- Vice President and Chief Financial Officer

It would be in the high teens.

Amit Sharma -- BMO Capital Markets -- Analyst

And this is on top of whatever growth that you're seeing on your plant-based aseptic business, right?

Robert McKeracher -- Vice President and Chief Financial Officer

Correct.

Amit Sharma -- BMO Capital Markets -- Analyst

And that should continue in the back half as well?

Robert McKeracher -- Vice President and Chief Financial Officer

Yes. We expect that to continue.

Amit Sharma -- BMO Capital Markets -- Analyst

Got it. That's all I have. Thank you so much.

Operator

Thank you. And I'm showing no further questions at this time. I would now like to turn the call back to CEO Joe Ennen for any further remarks.

Joseph D Ennen -- Chief Executive Officer

Thank you, operator. And thank you all of you for participating in the second-quarter conference call. I look forward to speaking with you in the future and appreciate your interest and support in SunOpta. Have a great day.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.

Duration:47 minutes

Call participants:

Joseph D Ennen -- Chief Executive Officer

Robert McKeracher -- Vice President and Chief Financial Officer

Amit Sharma -- BMO Capital Markets -- Analyst

Jon Andersen -- William Blair & Co. -- Partner and Analyst

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