Primo Brands outlines $1.45B EBITDA target for 2025 while accelerating premium growth and integration recovery

Earnings Call Insights: Primo Brands Corporation (PRMB) Q3 2025

MANAGEMENT VIEW

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Dean Metropoulos introduced Eric Foss as the new Chairman and CEO, highlighting his experience in leading global consumer businesses and emphasizing, “He is known for his people-first leadership philosophy, brand-building experience, operational and executional expertise and the ability to drive long-term growth through customer focus, innovation and creating a winning culture.” Metropoulos will remain on the board during the transition.

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CFO David Hass reported, “For the third quarter, we generated net sales of $1.766 billion, a 1.6% comparable year-over-year decline, but a 90 basis point improvement from the 2.5% comparable year-over-year decline in the second quarter.” Hass also noted, “We delivered profitability ahead of expectations with comparable adjusted EBITDA growth of 6.8% year-over-year to $404.5 million for a margin of 22.9%.”

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Hass indicated integration efforts are progressing, stating, “Service levels are now back to pre-integration levels” and “Our delivery service rate, or DSR, is currently back to approximately 95%, consistent with historical levels.” He reinforced the synergy plan is on track to achieve $200 million and $300 million run rate targets by 2025 and 2026.

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Eric Foss, in his initial remarks as CEO, reaffirmed the company’s long-term investment thesis and focus on premium brands: “We have a diversified portfolio with the potential to serve people when they want, where they want and how they want to hydrate. From iconic regional spring brands to pure and premium offerings, we give consumers a choice.” Foss emphasized plans to build on brand strength, expand premium offerings, and improve customer service.

OUTLOOK

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Hass stated, “We now expect a net sales decline in the low single digits versus the prior year. This shift in guidance is solely related to the recovery path of the home and office delivery business, within the direct delivery disclosure channel.”

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Adjusted EBITDA guidance was updated to “approximately $1.45 billion or 21.8% margin, up 180 basis points from prior year.” Hass reiterated adjusted free cash flow guidance between $740 million and $760 million.

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Looking to 2026, management outlined investments over $66 million in a new facility for Mountain Valley and a new bottling factory for Saratoga to support double-digit premium growth and distribution expansion, particularly with recent gains in Sam’s Club and other major retail partners.

FINANCIAL RESULTS

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Comparable adjusted EBITDA for Q3 rose 6.8% to $404.5 million, with margins up 180 basis points year-over-year to 22.9%.

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Premium water portfolio (Mountain Valley and Saratoga) net sales increased more than 44% year-over-year in Q3, while the branded retail business delivered 2% net sales growth and expanded distribution by 12% in total points of distribution.

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Direct delivery comparable net sales declined 6.5% (about $47 million), primarily due to integration disruptions and the wind-down of the office coffee services business.

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At quarter end, gross debt stood at $5.2 billion, with total liquidity of approximately $1 billion and a net leverage ratio of 3.37x. Cash flow from operations was $283.4 million, with adjusted free cash flow of $311.1 million.

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The company completed the sale of its Israel business post-quarter for $42 million in net proceeds, with proceeds to be included in year-end results.

Q&A

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Derek Lessard, TD Cowen: Asked about fundamental changes leading to the leadership transition and integration challenges. CFO Hass responded, “Fundamentally, no…this was the time for a change,” and Foss added, “the long-term investment thesis here is still fully intact…We have an issue that…started a quarter ago that we’ve got to get our hands around, which is really around last mile direct delivery.”

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Dan Moore, CJS Securities: Inquired about whether integration disruptions were self-inflicted and if cost surges would persist. Foss explained, “I think most of the direct delivery disruption has been self-inflicted…we probably moved too far too fast on some of the various integration work streams.” Hass said, “We’ve had some surges in costs to both handle call center and the routes…those things will start to unwind as we exit the year.”

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Eric Serotta, Morgan Stanley: Questioned Q4 guidance and long-term margin targets. Hass clarified retail and premium businesses are on track, while direct delivery is still recovering, and confirmed, “We are not changing our synergy capture targets.”

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Bonnie Herzog, Goldman Sachs: Probed the sequential deterioration in direct delivery. Hass indicated, “July was basically the peak disruption…As we’ve exited Q3 and entered into October, that has largely stabilized.”

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Stephen Powers, Deutsche Bank: Sought details on customer adds and value per customer. Hass said, “In the closing months here of 2025, we’ll be at the monthly level we believe we’ll be back to an add position.”

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Andrea Teixeira, JPMorgan: Asked about consumer dynamics and premium segment distribution. Foss responded, “Premium has been on fire…Saratoga and Mountain Valley have tremendous upside and runway ahead, good growth on our regional spring water.” Hass noted Mountain Valley supply constraints will ease in 2026 with new capacity.

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Andrew Strelzik, BMO: Asked about regional fulfillment issues. Hass explained, “Some of the more slow-to-recover areas have been in the Southeast and the Mid-Atlantic, but those are within 93%, 94%,” while the overall mean is 95%.

SENTIMENT ANALYSIS

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Analysts pressed on integration disruptions, cost structure, and the timeline for recovery, with a tone that was slightly negative but showed cautious optimism as management detailed stabilization progress and reiterated synergy and margin targets.

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Management maintained confidence in the investment thesis and improvement trajectory, with phrases like “we are confident,” “the long-term algorithm is also doable,” and “multiple value creation levers available to us.” During Q&A, the tone shifted to more defensive and explanatory, particularly when addressing direct delivery recovery and cost management.

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Compared to the previous quarter, analyst focus intensified on integration impacts and customer retention, while management’s tone remained confident but with heightened emphasis on operational fixes and recovery timelines.

QUARTER-OVER-QUARTER COMPARISON

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Guidance shifted from flat to 1% net sales growth to a low single-digit decline, reflecting a more conservative outlook on direct delivery recovery.

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Adjusted EBITDA guidance moved from $1.5 billion at a 22.2% margin to $1.45 billion at a 21.8% margin, with management attributing changes to the “recovery path of the home and office delivery business.”

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Analysts’ questions became more focused on the speed of integration, cost surges, and specific channel performance, compared to prior quarter’s broader integration and synergy capture queries.

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Management’s tone was confident in the prepared remarks but more defensive and detailed in Q&A, repeating commitments to synergy and recovery.

RISKS AND CONCERNS

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Ongoing challenges in the direct delivery channel due to integration disruptions and customer retention were highlighted, with management prioritizing service recovery and stabilization.

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Temporary cost increases for routes, call centers, and product supply management were acknowledged, with plans to unwind these costs as operations stabilize.

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Regional fulfillment issues persist in the Southeast and Mid-Atlantic but are improving.

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Tariff headwinds in 2025 were noted, but management expects a more favorable environment in 2026.

FINAL TAKEAWAY

Management emphasized a clear path to recovery and growth, with integration stabilization progressing and premium brands driving robust top-line expansion. The company reaffirmed its commitment to synergy targets, margin improvement, and disciplined capital allocation, projecting a return to its growth algorithm as operational issues in direct delivery are addressed and investments in premium capacity and distribution mature through 2026 and beyond.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/prmb/earnings/transcripts]

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