(Montreal) Saputo has quadrupled its net profit over the winter, but consumers have shown less appetite for dairy products for “five to six weeks”, warns the boss of the Montreal company. The stock lost 11%.
The Montreal-based company announced results that exceeded analysts’ expectations in the fourth quarter of its 2023 fiscal year, which ended on March 31, but conditions have since deteriorated.
“I would highlight two risks: the first is demand, which is weaker than anticipated, and I would say the same goes for prices in the United States and internationally,” comments the President and Chief management, Lino A. Saputo, on Friday, during a conference call with financial analysts.
In the United States, the average block price has seen a “significant” drop, explains Mr. Saputo. “It was close to US$1.85 when we started the quarter (April) and it’s now at US$1.43. »
The situation is improving, however, in relation to the difficulties in recruiting, according to the chief operating officer for North America, Carl Colizza. In February 2022, the company reported that 10% of its positions were unfilled in the United States. “We have improved recruitment and retention. […] We benefit from this stability that we see in our operations. »
The other side of the coin is that Saputo’s competitors have done the same. “Our competitors have also invested in their businesses,” notes Colizza. We find ourselves in an environment where they are performing better than before at a time when demand is weakening. »
Forecast maintained
Despite the headwinds, management is maintaining its financial forecast, but adjusting its strategy to achieve it by the end of its fiscal year 2025 (ended March 31, 2025). It now believes that more of its growth will come from optimizing its network.
Optimization makes it possible to produce more products in fewer factories, explains Mr. Saputo. This increase in volumes brings a “challenge” when demand weakens, but the leader believes that this trend is temporary. “Demand will come back, and when it comes back, we will have the infrastructure to generate the value we anticipated. »
He says the company should reap the rewards of certain investments. These efficiency gains point to “modest” growth in profitability in the first quarter (ended June 30), despite a drop in demand, he said.
The increased emphasis on business optimization leads analyst Irene Nattel of RBC Capital Markets to believe that the objectives of the 2025 strategic plan are achievable. “The deterioration of the dairy market makes us cautious, but the decision to adjust the main elements of the plan towards what is controllable is timely and shrewd. »
Mr. Saputo also mentioned that the time was not right for acquisitions at a time when the company is concentrating on executing its 2025 strategic plan in a difficult business environment. “Our plate is full,” he replied.
Results above expectations
Management’s comments overshadow results that beat analysts’ expectations for the fourth quarter ended March 31.
The Montreal company quadrupled its net profit in the last three months of its 2023 financial year to 159 million. Revenues, for their part, rose by 12.9%, to 4.47 billion.
Analysts on average had expected adjusted earnings per share of 42 cents, along with revenue of $4.40 billion, according to forecasts compiled by financial data firm Refinitiv.
Mr. Saputo points out that commodity prices and international market demand have been favourable. Improvements in the supply chain have also allowed for increased production, “which has allowed us to further improve our ability to supply our customers, particularly in the United States”.
Saputo shares ended the session down $3.89, or 11.2%, at $30.93 on Friday on the Toronto Stock Exchange.
