Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Saputo Inc (SAPIF, Financial) delivered strong volume and pricing growth in the second quarter, with steady cash flow generation.
- The company achieved significant year-over-year improvement in adjusted EBITDA in the Canada sector, driven by operational efficiencies and cost-saving initiatives.
- In the US, Saputo Inc (SAPIF) saw benefits from strategic initiatives, with a 23% increase in adjusted EBITDA year-to-date, despite challenges in the dairy commodity market.
- The Europe sector showed continued recovery with improved financial performance, driven by higher branded cheese sales volume and margin expansion.
- Saputo Inc (SAPIF) announced a normal course issuer bid, indicating strong cash generation and a commitment to optimizing capital structure for long-term value creation.
Negative Points
- Saputo Inc (SAPIF) faced challenges from unfavorable US dairy commodity markets, impacting adjusted EBITDA.
- Higher production costs in Argentina, including increased milk costs due to inflation and currency devaluation, negatively affected results.
- The international sector experienced a decline in adjusted EBITDA, primarily due to economic pressures in Argentina.
- The US market faced a persistent negative milk-cheese spread, impacting profitability despite strategic initiatives.
- Saputo Inc (SAPIF) incurred duplicate operating costs related to network optimization initiatives, affecting financial performance.
Q & A Highlights
Q: Can you expand on the US selling environment and competitive dynamics, and how you're balancing investments in price with volume growth?
A: The US market saw some slowdowns in the QSR sector, but investments in value meals are starting to show benefits. Foot traffic is improving, which is positively impacting our numbers. Our diverse portfolio across various channels positions us well for continued volume growth. Both cheese and dairy foods segments are seeing momentum as consumer confidence improves. - Carl Colizza, President, Chief Executive Officer
Q: What are your views on the US commodity landscape, particularly regarding whey prices, and is there flexibility in your network to address these challenges?
A: The US dairy sector fundamentals are strong, with a good supply-demand balance. Current high whey prices are seen as transitory due to increased demand and low inventory. We have flexibility in our production to shift towards sweet whey as needed, balancing customer needs. - Carl Colizza, President, Chief Executive Officer
Q: Canada's EBITDA growth was impressive. Is this due to earlier investments in technology and automation, and is this a precursor for the US?
A: Yes, Canada's growth is largely due to operational efficiencies from past investments in technology and automation. The US is on a similar path, with some sectors like mozzarella already achieving desired efficiencies. Full benefits in the US will be realized as network optimization completes next fiscal year. - Carl Colizza, President, Chief Executive Officer
Q: Can you explain the decision to limit the NCIB to 2% of shares outstanding?
A: We aim to maintain a balanced capital allocation approach, prioritizing dividends, CapEx, and debt reduction. The 2% limit reflects realistic purchase expectations over the next 12 months, with flexibility to increase if cash flow generation allows. - Maxime Therrien, Chief Financial Officer, Secretary
Q: What is your current view on M&A opportunities?
A: M&A remains on the table, but secondary to delivering on current capital deployment. We continue to explore opportunities that align with our growth strategy and commercial objectives, ensuring any acquisition is accretive and complements our existing portfolio. - Carl Colizza, President, Chief Executive Officer
Q: What is the expected impact of the proposed USDA changes on Federal Milk Marketing Orders?
A: The USDA's final recommendation is expected by November 12, with potential implementation in June 2025 if accepted. The changes, such as removing barrels from the milk pricing formula, would be beneficial to Saputo, aligning the sector closer to market realities. - Carl Colizza, President, Chief Executive Officer
Q: What metrics do you use to define company success amid volatility?
A: Key metrics include cash generation, EBITDA performance, market share, and brand penetration. These help mitigate uncontrollable market conditions and ensure value creation for shareholders. - Carl Colizza, President, Chief Executive Officer
Q: Should the buyback be factored into forecasts for the remainder of the year?
A: Yes, the buyback is part of our priorities for the next 12 months, though timing specifics are not committed. - Maxime Therrien, Chief Financial Officer, Secretary
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
