Swiss Water Decaffeinated Coffee Q2 Earnings Call Highlights

Key Points

• Strong operating performance: Second-quarter processing volumes rose 17%, while gross profit nearly doubled to CAD 10.2 million. Net income reached CAD 1.9 million, adjusted EBITDA surged 191% to CAD 5.3 million, and operating cash flow increased to CAD 10.7 million.
• Revenue declined despite higher volumes: Revenue fell 3% to CAD 66 million, primarily because lower New York coffee futures prices reduced pass-through revenue and tariff costs. Management said customers began replenishing inventories as prices fell and market inversion eased, although volatility remains.
• Debt reduction and potential expansion: Swiss Water repaid CAD 15.3 million of debt in the first half and plans to seek approval for a share buyback of up to 600,000 shares. The company is also evaluating investments that could add 5%–10% of capacity, potentially coming online in the second quarter of 2027.

Swiss Water Decaffeinated Coffee TSE: SWP reported higher processing volumes, profitability and operating cash generation for the second quarter of 2026 as coffee customers replenished inventories amid lower futures prices and a less-inverted market.

President and CEO Frank Dennis called the period “a very strong quarter,” citing a solid order book, high capacity utilization at the company’s Delta facility and a lower debt balance. The company said its forward order book now extends into the first quarter of 2027.

Processing volumes increased 17% from a year earlier in the second quarter and were up 8% for the first six months of 2026. Dennis said demand came from established customers, spot orders and new customers, while production lines operated at very high utilization levels.

Shipments to importers rose 26% during the quarter, while shipments to roasters increased 5%, according to CFO Iain Carswell. Specialty and commercial volumes each increased 17%.

Revenue Declines as Coffee Prices Fall

Second-quarter revenue was CAD 66 million, down 3% from CAD 67.7 million in the prior-year period, despite the volume increase. Revenue for the first six months was CAD 123.4 million, down 5% from CAD 129.9 million a year earlier.

The company attributed the revenue decline primarily to lower New York coffee futures prices and reduced tariff costs passed through to customers. The New York “C” coffee price averaged $2.78 per pound during the quarter, down 23% from $3.59 per pound in the second quarter of 2025. For the first half, the average price was $2.97 per pound, down 19% year over year.

Dennis said revenue can fluctuate because green coffee costs move through both revenue and cost of sales. He said management focuses instead on processing volumes, gross profit, adjusted EBITDA, cash generation and recovery of coffee-carrying costs.

Cost of sales declined 11% to CAD 55.8 million. The reduction reflected lower coffee futures prices, the elimination of U.S. tariff expense, direct labor efficiencies and lower utility usage and rates. Those benefits were partly offset by higher volumes and increased activity in green coffee logistics and storage services at Seaforth.

Profitability and Cash Flow Improve

Gross profit nearly doubled to CAD 10.2 million, up CAD 4.9 million, or 94%, from a year earlier. Gross profit for the first six months increased 44% to CAD 18.1 million.

The company cited stronger volumes, improved recovery of inversion expenses, labor efficiencies, lower utility costs and reduced foreign-exchange losses as contributors to the improvement.

Operating expenses increased 53% to CAD 5.9 million. Administrative expenses rose 47% to CAD 4.4 million, mainly due to increased non-cash share-based compensation linked to a higher share price and higher professional fees. Sales and marketing expense increased 70% to CAD 1.5 million, reflecting the earlier timing of sales and marketing activities in 2026.

Swiss Water posted second-quarter net income of CAD 1.9 million, compared with a CAD 400,000 net loss a year earlier. First-half net income was CAD 2.3 million, compared with CAD 100,000 in the prior-year period.

Adjusted EBITDA rose 191% to CAD 5.3 million in the quarter and climbed 151% to CAD 9.6 million in the first half. Trailing 12-month adjusted EBITDA reached CAD 17.1 million, which the company said was its highest level in history.

Net cash generated from operating activities was CAD 10.7 million in the quarter and CAD 16.2 million for the first half, compared with CAD 2 million generated in the second quarter of 2025 and CAD 9.4 million used during the first half of last year.

Debt Reduction, Buyback Plans and Capacity Review

During the first half, Swiss Water repaid CAD 12 million on its operating credit facility, CAD 2.8 million of construction debt and CAD 500,000 on its EDC credit facility. The operating credit facility balance stood at CAD 27.5 million at June 30, down from CAD 38.4 million at the end of 2025. The company extended the facility’s maturity to June 23, 2028.

Inventory decreased CAD 10.5 million, or 23%, from Dec. 31, reflecting both lower coffee values and fewer pounds held. Carswell said the company expects inventory volumes to remain at or near current levels to support spot demand.

Dennis said Swiss Water intends to seek Toronto Stock Exchange approval for a normal course issuer bid. He said the company could apply to repurchase up to 600,000 shares, though he did not commit to using the full amount. Management views a buyback as more flexible than a dividend because it can be turned on or off while the company considers other capital needs.

The company is also assessing targeted capital investments that could add roughly 5% to 10% of incremental instantaneous capacity if pursued. Dennis said a potential project would likely be evaluated during the second half of 2026 and, if executed, could come online in the second quarter of 2027. He said the investment would be funded with internally generated cash flow and some debt.

Market Outlook

Dennis said customers became more willing to rebuild inventories as coffee prices retreated from late-2025 highs and inversion eased. However, he cautioned that customers are not yet fully stocked and that the coffee market remains volatile.

He said the company expects to maintain its inventory levels and cautioned against assuming the working-capital benefit seen in the second quarter would repeat, noting that coffee prices had moved higher in the five weeks after June 30.

Swiss Water also said it continues to expand its sourcing capabilities in Brazil, Colombia and Peru to improve supply visibility and ensure consistent coffee availability for its 24-hour production facility. Dennis said regulatory scrutiny of solvent-based decaffeination processes in the U.S. and Europe has increased interest in chemical-free alternatives, though he said large customers require an orderly transition process.

About Swiss Water Decaffeinated Coffee (TSE:SWP)

Swiss Water Decaffeinated Coffee Inc is a specialty coffee company, that offers green coffee decaffeination and Seaforth Supply Chain Solutions Inc providing green coffee handling and storage services. It is a premium green coffee decaffeinator located in the Canadian state of British Columbia. It employs the proprietary Swiss Water Process to decaffeinate green coffee without the use of chemicals, leveraging science-based systems and controls to produce coffee. The company's sales are primarily generated in a single segment of decaffeination of green coffee.

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