STKL Q3 Deep Dive: Volume Growth Outpaces Capacity, Margin Expansion Delayed

Plant-based food and beverage company SunOpta (NASDAQ:STKL) announced better-than-expected revenue in Q3 CY2025, with sales up 16.6% year on year to $205.4 million. The company’s full-year revenue guidance of $872.5 million at the midpoint came in 7.9% above analysts’ estimates. Its non-GAAP profit of $0.05 per share was $0.02 above analysts’ consensus estimates.

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StockStory’s Take

SunOpta’s third quarter results showed strong revenue growth, but the market responded negatively as operational challenges weighed on profitability. Management attributed the 17% volume growth to broad-based demand in plant-based beverages, fruit snacks, and foodservice channels, with CEO Brian Kocher noting, “Our categories are roaring. Our customers are voting with their business, and they are voting for us.” However, Kocher also acknowledged that the rapid pace of growth strained the company’s production network, leading to higher maintenance and overtime costs, and delays in margin improvement initiatives.

Looking forward, SunOpta’s guidance is underpinned by expanding production capacity and recovery plans for operational inefficiencies. Management sees continued momentum in plant-based beverages and fruit snacks, expecting incremental benefits as additional lines and wastewater improvements come online. CFO Greg Gaba cautioned that temporary cost pressures will persist into the first half of next year but emphasized, “Once we get the new line in [Midlothian] with the fixed cost leverage, we expect to see some huge margin improvement.” The company is focused on executing these plans to achieve its long-term growth and margin targets by 2027.

Key Insights from Management’s Remarks

Management explained that exceptional demand from both existing and new customers drove robust volume growth, but this also created short-term operational bottlenecks and higher costs that pressured margins.

• Strong customer demand: SunOpta experienced broad-based gains across its portfolio, with significant volume increases from its top six customers. Plant-based milk and foodservice channels outperformed, as new menu innovation and expanded distribution with leading coffee chains fueled demand.
• Club and foodservice momentum: The company saw accelerated growth in the club channel and continued strength in foodservice, where its products are now present in eight of the ten largest North American coffee chains. This diversification positioned SunOpta to capture demand from high-growth retail and out-of-home segments.
• Operational challenges surfaced: Meeting the surge in demand required SunOpta to stretch its manufacturing network, resulting in production inefficiencies, higher overtime, and increased maintenance. Temporary limitations at the Midlothian facility, particularly wastewater constraints, exacerbated these cost pressures and delayed planned margin expansion projects.
• Strategic customer wins: Management highlighted several large customers advancing their supplier decisions in SunOpta’s favor. The company prioritized onboarding this volume—sometimes at the expense of short-term efficiency—believing these relationships would provide long-term benefits and recurring revenue.
• Capacity expansion investments: To address ongoing supply-demand imbalance, SunOpta announced a new aseptic processing line at its Midlothian facility, to be synchronized with wastewater upgrades. This investment is expected to boost capacity by 10% and unlock both operational efficiencies and further growth potential in beverages and broths.

Drivers of Future Performance

SunOpta’s outlook is shaped by ongoing investments in production capacity, near-term operational recovery plans, and continued category growth in plant-based beverages and fruit snacks.

• Production network recovery: Management expects temporary inefficiencies and elevated costs to persist into the first half of next year as new customer volume is absorbed. Corrective actions, including maintenance schedule changes and labor rebalancing, are underway, with a return to margin expansion initiatives targeted by mid-2026.
• Capacity additions driving upside: The company’s new aseptic line and wastewater improvements at Midlothian, along with previously announced fruit snack capacity, are expected to resolve bottlenecks. Once operational in late 2026, these projects should enable SunOpta to meet demand and improve fixed cost leverage, supporting higher long-term margins.
• End-market resilience: Despite broader consumer caution in packaged foods, management believes category trends in plant-based beverages, coffee shop channels, and better-for-you snacks will continue to drive revenue. CEO Brian Kocher stated that SunOpta’s diversified channel presence positions it to benefit from shifting consumer preferences and channel migration.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will be watching (1) the pace and effectiveness of operational recovery measures, particularly at the Midlothian facility; (2) the on-time installation and ramp-up of the new aseptic processing line and wastewater management systems; and (3) continued volume growth in key categories such as plant-based beverages and fruit snacks. Successful execution in these areas will be crucial for SunOpta to deliver on its margin and growth targets.

SunOpta currently trades at $5.05, down from $5.27 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free for active Edge members).

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