Rogers Sugar (CA:RSI) reported its Q3 2023 earnings on Aug. 14. The company delivered solid revenue and earnings growth in the third quarter.

However, Canada’s largest sugar producer’s expansion plans put investors in a buying mood. Its shares rose more than 3% on the news.

RSI stock has struggled over the past 12 months, down almost 11% while the S&P/TSX Composite Index is off less than 2% in the same period. Still, with a dividend that’s paying 6.3%, the latest news from Rogers Sugar suggests income investors take a closer look at its stock.

A $200 Million Bet

The company’s board has approved the expansion of production at its Montreal refining operations and the expansion of the distribution and logistics center in Toronto. The approximate construction costs will be $200 million. To help pay for the expansion, it has secured $65 million in secured loans from Investissement Quebec. (All figures in Canadian dollars, unless otherwise specified.)

Once completed, in 24 months, Rogers Sugar’s refined sugar capacity in the Canadian market will increase by 100,000 metric tonnes. In 2022, the company sold nearly 800,000 metric tonnes of sugar for total revenues of $1.0 billion. The expansion will increase production by 13% over 2022.

The company first raised the subject a year ago when it released its Q3 2022 results. At the time, the estimated construction cost was $160 million. Investors should expect the final cost to be higher than $200 million.

“We expect the strong market conditions of our Sugar segment will more than offset the challenges we are experiencing in our Maple segment from current inflationary pressures,” stated CEO Mike Walton in August 2022. “We are also very excited about our expansion project aimed at supporting the growth of the Canadian food manufacturing industry with quality refined sugar.”

As the company said in its 2022 annual report, it is expanding to meet the growing demand for refined sugar in Eastern Canada while reducing the cost of shipping bulk sugar from its Western Canada facilities.

The Quarter That Was

As for the third quarter results, the company’s revenues were $262.3 million, 3.0% higher than Q3 2022. Revenues were higher due to higher prices for #11 world raw sugar and refined sugar. Its adjusted gross margin was 13.3%, 50 basis points higher than a year earlier. Its adjusted net earnings were $8.7 million, 3.9% higher than last year’s third quarter.

“Our business continues to deliver consistent, profitable growth, supported by the strength of the domestic Canadian sugar market, generating improved adjusted EBITDA for the third quarter,” Walton said in the company’s Q3 2023 press release. “We are confident this favourable trend will continue and result in a strong financial performance for 2023.”

In addition to 191,400 metric tonnes during the quarter, Rogers Sugar produced 9.6 million pounds of maple syrup. Sugar accounted for 79% of the company’s revenue in 2022, compared to 21% for its maple syrup products.

The company lowered its sugar volume outlook for 2023 by 5,000 metric tonnes, to 800,000, due to current market conditions and the timing of orders from its large customers. However, it will still be 5,000 higher than in 2022.

Rogers Sugars’ free cash flow for the trailing 12 months ended July 1, 2023, was $47.8 million, down $1.6 million from the same period a year ago, due to costs incurred for the design and planning of its expansion project.

It paid out $37.7 million in dividends in the third quarter, up $248,000 from Q3 2022. Its annual dividend rate of 36 cents yields a high 6.3%.

The future expansion suggests income investors should be interested in Rogers Sugar stock.

This article originally appeared on Fintel

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