Saputo’s first quarter results show limited growth

by SUSAN MANN

Milk price increases are eating into consumer demand and spending for dairy products in Canada, says a spokesman for the country’s largest processor.

Lino Saputo Jr., president and CEO of Saputo Inc. says his company has held the position for a number of years that every time there is a raw milk price increase “it would almost encourage consumers to spend less on dairy products or consume less of dairy products.” Saputo made the comment on Tuesday in response to a question asked during a teleconference that followed the release of the company’s 2012 first quarter results.
 
During the teleconference’s question period, one analyst had noted Saputo’s profit growth level in Canada seems to be slowing as higher cheese and fluid milk prices are choking off increases in demand. During the last two quarters there hasn’t been much margin expansion and in fact it has contracted a bit.

The analyst asked what Saputo can do, if anything, to accelerate growth at the Canadian level.

Saputo says they’re seeing demand for fluid and commodity cheeses being curtailed. “We haven’t lost market share but yet our milk intake on the fluid side is down compared to a year ago.”

To mitigate that, Saputo says they’re in value-added, specialty categories. The company has the number one fluid single-serve flavoured milk product in Canada and that’s growing but in comparison to the commodity cheeses the volume is not quite as big.

Saputo described the Canadian market as good and solid with less volatility and disruption in day-to-day business compared to the other markets the company is in, such as the United States, Argentina or Europe. But it’s a lot more competitive and it’s far more challenging to gain market share or growth here.

There is no limitation to growth in the company’s business in the United States, he says. There’s also growth in both Argentina and Europe. In the future, growth will come from outside of Canada.

Louis-Philippe Carriere, executive vice-president, finance and administration, says net earnings for the first quarter totaled $126.6 million, an increase of $14.9 million or 13.3 per cent compared to the same quarter in the last fiscal year. Revenues for the quarter were $1.639 billion, an increase of $202.8 million or 14.1 per cent compared to $1.336 billion for the same quarter in the last fiscal year.

Despite slightly lower sales volumes in the fluid milk category, earnings before interest, income taxes, depreciation and amortization in the dairy product division in Canada increased in the first quarter compared to the same quarter last fiscal year due to cost reductions and favourable dairy ingredients market conditions, he says.

Saputo says the 2012 fiscal year is off to a good start. “Across all of our facilities we strive to reduce costs while maintaining high quality standards as we review overall activities to increase operational efficiencies.”

During the first quarter, the company continued to maximize the benefits of consolidating its manufacturing and distribution activities announced at the end of 2010 fiscal year. In Ontario, the company consolidated its distribution in Vaughan and closed a plant in Brampton last fall. The company now has plans to consolidate its Quebec distribution centres.

The company’s board approved an increase in the quarterly dividend to 19 cents per share from 16 cents. That’s an 18.8 per cent increase. Carriere says the dividend will be payable on Sept. 19 to common shareholders of record on Sept. 8.
 
Saputo is the 12th largest dairy processor in the world and is the largest in Canada. It produces, markets and distributes cheese, fluid milk, yogurt, dairy ingredients and snack cakes. It’s the largest snack cake manufacturer in Canada. BF