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Dairy giant Saputo doubles profit despite ‘fast and furious’ inflationary pressures

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An Ontario dairy farmer was criticized by other milk producers after releasing a video showing thousands of litres of raw milk being thrown away. As Sean O’Shea reports, experts say this is what happens when farmers produce more milk than their quotas. – Feb 3, 2023

Canadian dairy processor Saputo Inc. more than doubled its profit in its latest quarter amid higher prices, improved productivity and strong sales, company executives said Friday.

“Consumer demand for our products in the third quarter was strong despite increasing prices,” Saputo CEO Lino A. Saputo said during a call with analysts.

Shoppers are increasingly value conscious as food inflation remains high and Saputo is “meeting their needs with tailored product offerings, pack sizes and promotions,” he said.

Saputo’s net earnings for its third quarter ended Dec. 31 hit $179 million, more than double the $86 million posted a year earlier.

The company said earnings per diluted share were 43 cents, up from 21 cents in the same quarter last year.

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The Montreal-based dairy processor, behind popular products like Armstrong cheese, Scotsburn ice cream and Baxter, Neilson and Dairyland milk brands, said revenue was $4.6 billion, up 17.6 per cent from $3.8 billion a year earlier.

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Saputo said the uptick in revenues reflects “pricing initiatives” across all its sectors, higher prices in the U.S. sector, and higher international dairy prices.

The company has taken steps to mitigate inflation but has also implemented “necessary pricing actions across our portfolio as needed” to keep up with rising costs, chief operating officer for Saputo’s North American division Carl Colizza said.

“If you roll back 18-plus months, there was lots of catching up to do as the inflationary pressures were coming in fast and furious,” he told analysts. “I would say that we’re effectively caught up at this point.”

In Canada, the company is benefitting from operational efficiencies, including from consolidation projects and automation introduced in previous years, Colizza said.

“Some of that has finally come to fruition and we’re seeing that in our results today,” he said.

Saputo has also recorded a “channel shift” from retail to food service in Canada that has been favourable for the company’s margins, Colizza said.

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The dairy processor’s Canadian operations have also fared better than other markets with labour attraction and retention, with fewer vacancies than in the U.S., he said.

Saputo recently announced major changes to its U.S. operations, including permanently closing three facilities, building a new packaging facility and expanding its string cheese operations.

“We will increase operating efficiencies translating into lower costs, further consolidate our production capacity in world class facilities and increase capacity and capabilities for higher margin value-added products to meet growing demand,” Saputo said.

“This more focused footprint aims to strengthen the competitiveness and long-term performance of our U.S. operations.”

The dairy company’s third-quarter results beat expectations and suggest Saputo is finding its “whey back,” RBC Dominion Securities Inc. analyst Irene Nattel said in a client note.

The results indicate that the company’s strategic plan has put the company on a path to sustained earnings and growth, she said.

In 2021, Saputo announced a four-year global strategic plan to drive growth and improve efficiency across the organization.

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