Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Saputo Inc (SAPIF, Financial) reported strong revenue and EBITDA growth in Q1 2025, with consolidated revenues of $4.6 billion and adjusted EBITDA of $383 million.
- The company saw significant operational improvements in the US sector, with adjusted EBITDA increasing by 57% year-over-year.
- Saputo Inc (SAPIF) achieved higher sales volumes across all sectors, contributing to overall revenue growth.
- The company successfully completed several capital projects in the US, enhancing productivity and capacity utilization.
- Saputo Inc (SAPIF) announced a 2.7% increase in its quarterly dividend, reflecting confidence in its financial stability and future growth prospects.
Negative Points
- The international sector faced challenges due to unfavorable relations between international cheese and dairy ingredient market prices and the cost of milk.
- The Europe sector experienced a decline in adjusted EBITDA due to high-cost inventory and lower international dairy ingredient market prices.
- Saputo Inc (SAPIF) anticipates continued volatility in the dairy commodity environment, particularly with the cheese and milk price spread.
- The company is still dealing with duplicate operating costs in the US, which are expected to persist due to lower capacity utilization during the ramp-up phase.
- Argentina's macroeconomic volatility led to margin pressure in the export business, with no immediate signs of improvement in Q2.
Q & A Highlights
Q: Can you talk about the key building blocks of the strong performance in the US and how sustainable is the current run rate?
A: The success in the US is largely due to our strategic initiatives, including the completion of our mozzarella modernization and the consolidation of various sites. Four of the six planned site closures have been completed, and we are making sequential progress in Franklin. Our focus remains on maintaining high fill rates and on-time deliveries to our customers.
Q: Given the changes since 2021, do you still believe the $2.25 billion EBITDA target is attainable?
A: We believe in the earnings power of our strategic plan, but the conditions today are very different from when the target was set. Factors such as the cost of milk, international demand, and inflation have changed significantly. While the absolute number may be challenging under current conditions, our investments will continue to serve our business well.
Q: Can you elaborate on the dynamics in Australia and Argentina and their impact on profitability?
A: In Australia, the new milk season price should restore our margins to historical levels. In Argentina, the disconnect between inflation and Peso devaluation has pressured margins, particularly in our export business. We expect this dynamic to continue into Q2.
Q: What are the guideposts you are waiting for before acting on your share buyback?
A: Our capital allocation priorities remain consistent: maintaining and growing dividends, managing CapEx, and addressing debt maturities. We are building financial flexibility and are one quarter closer to considering share buybacks, with a focus on dealing with our November debt maturity first.
Q: Can you provide more details on the progress and timing of the Franklin facility and its impact on duplicate costs?
A: Four of the six planned site closures are complete, with the remaining two on schedule for the first half of the next calendar year. We are balancing the ramp-up at Franklin with maintaining high fill rates for our customers. We expect to see continued improvements in operational efficiencies and a reduction in duplicate costs.
Q: How is the profitability of your European business outside of cheese evolving?
A: Our spreads and oils businesses remain stable, and we are seeing sequential improvements in our cheese business as we clear excess high-cost inventory. Our ingredients business is recovering in volume but still faces lower pricing compared to last year.
Q: Can you expand on the positive mix impact in your Canadian segment?
A: Our Canadian team has made significant progress in brand development, particularly with Armstrong Cheese. We are also improving our share in value-added milks and remain healthy in both foodservice and retail channels. Our brands and private label offerings are well-positioned to succeed in the current market.
Q: What is your outlook on the potential changes in the US federal marketing orders and their impact on your business?
A: The proposed changes address make allowances, which have not changed in 16 years. If implemented, these changes would be favorable for us by offsetting inflationary pressures. However, the proposal is still in draft form and far from being finalized.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
