Low cheese price bites into Saputo profits
Saputo Inc. has taken a hit from the decline in global cheese prices and says it may have to ride out the tough times until at least the end of the year.
“Results were not close to our level of expectation and typically we see bigger improvements on a year over year basis than what we saw,” said CEO Lino Saputo Jr. in an interview Thursday. “I can’t be overly satisfied with the results but there were some factors that were beyond our control and other factors that were within our control.”
The Montreal-based dairy company released its fiscal 2015 report Thursday, reporting slightly higher earnings over the past year with an adjusted EBITDA of $582.8 million, up just 2.8 per cent from 2014.
In the fourth quarter ending March 31, adjusted net earnings were $127.2 million, down 16.8 per cent from the third quarter, and falling short of estimates.
At one point early Thursday afternoon, Saputo shares were on pace for their biggest single-day drop since Aug. 5, 2011, later paring some of those losses to close 4.7 per cent lower at $32.55.
The company reports that in the last quarter the average price for a pound of cheese was about 30 per cent lower than the same period a year before, along with double-digit declines in other dairy products.
Saputo attributes this to a decrease in dairy imports in China and Russia that could continue into 2016.
“We’re going through a blip here where the dairy solids pricing is depressed. We’re not overly concerned about that kind of stuff,” said Saputo in a conference call. “We’re in this for the long term.”
Saputo says the biggest challenge of the past year came in the Canadian market where competition was the most “intense” he had seen in the past decade.
Saputo said some of the local challenges were internal to the company, such as a delay in the completion of the new distribution centre project located in St Laurent, Que., which increased warehousing and logistical costs during the quarter.
“I’m disappointed in our level of execution last year in Canada. There are certain things we could have done better to mitigate the competition we had,” said Saputo. “Quite frankly, we didn’t deliver.” Saputo says the company will try to improve margins by focusing on controlling costs and increasing efficiency at its 55 plants.
The company made global acquisitions in 2014, winning control of Australian dairy company Warrnambool Cheese and Butter Factory Co. last January.
The company says this contributed to better performance in its international division, with adjusted EBITDA up 31.2 per cent to $122.3 million.
In May 2015, Saputo also acquired Australia’s Lion-Dairy & Drinks Pty Ltd. cheese company for $134 million.
Saptuo says he sees the most future growth coming out of opportunities in the international division, particularly in developing countries. “Our balance sheet is very good, we’re very profitable, we have a lot of flexibility to make acquisitions,” he said.