Saputo’s international operations suffer from price volatility

Dairy processor Saputo revealed results below analysts’ expectations while its international operations were hit by falling prices for milk, butter and block cheese.

“We are still exposed to commodity prices,” explained President and CEO Lino A. Saputo during a conference call Friday with analysts. This is the world we live in in the dairy industry, with the exception of Canada. The Canadian market is stable with supply management. »

The fall in the price of milk is eating into the profitability of the company’s European activities, which must sell its acquired stocks at higher prices. In the United States, the drop in the price of butter and block cheese had an unfavorable impact of $27 million on operating profit.

During the call, Mr. Saputo mentioned that conditions are difficult for dairy producers around the world. “Milk production is decreasing in all countries. Economic conditions are difficult. […] Companies that are not efficient abandon production. »

If the company “cannot escape” international market variations, Mr. Saputo reiterated that it focuses on the “elements it controls” in order to improve its operational efficiency.

“I feel very good about our activities and our ability to be competitive, but there will be volatility, ups and downs,” defended the manager. This is the nature of our industry. We can’t escape it. »

Despite the macro-economic context, Mr. Saputo promised momentum for the company with the end of the 2025 strategic plan. “We already have a large part of the work done. Just think about capital expenditure, we will return to a normal threshold. […] In at least three regions where we have optimization plans, you can assume that there will be less expense to produce the same volume, or a little more. »

The chief financial officer, Maxime Therrien, specified that he forecasts that investment expenditures would be between $200 million and $250 million lower during the 2025 fiscal year, which will begin in April 2024. “We should finish fiscal year 2024 at $650 million. You can anticipate a figure a little higher than $400 million for 2025.”

Mr. Saputo, however, did not want to comment on when the company will be able to generate earnings before interest, taxes, depreciation and amortization (EBITDA) of $2.1 billion. Management is still committed to achieving this goal, but last August it abandoned the fiscal year 2025 deadline (ending at the end of March). “We should be in a more normal situation for raw materials. […] I cannot give a deadline, but we are getting closer to it from quarter to quarter. »

Disappointed investors

The Montreal company revealed a net loss of $124 million, compared to a net profit of $179 million for the same period last year. She specifies that the deficit is mainly attributable to an accounting charge with no effect on cash flow.

Adjusted earnings, for their part, fell 26% to $163 million, or 38 cents diluted per share. Revenues fell 7% to $4.27 billion.

Before the results were released, analysts expected adjusted earnings per share of 39 cents and revenue of $4.4 billion, according to financial data firm Refinitiv.

“The third quarter figures are relatively close to expectations, but the results are still disappointing while headwinds mask progress in productivity and efficiency,” summarizes analyst Irene Nattel, of RBC Capital Markets.

Analyst Michael Van Aelst of TD Securities believes the third quarter’s difficulties were expected. “We believe it is still reasonable to believe that earnings will improve in fiscal 2025 as most of the benefits of the strategic plan resurface. »

Saputo shares lost $1.46, or 5.22%, to $26.49 on the Toronto Stock Exchange in the morning.

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