TSE:SAP Saputo Q2 2025 Earnings Report C$34.33 +0.13 (+0.38%) As of 08/28/2025 04:00 PM Eastern ProfileEarnings HistoryForecast Saputo EPS ResultsActual EPSC$0.37Consensus EPS C$0.39Beat/MissMissed by -C$0.02One Year Ago EPSC$0.43Saputo Revenue ResultsActual RevenueN/AExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ASaputo Announcement DetailsQuarterQ2 2025Date11/7/2024TimeAfter Market ClosesConference Call DateFriday, November 8, 2024Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckInterim ReportEarnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Saputo Q2 2025 Earnings Call TranscriptProvided by QuartrNovember 8, 2024 ShareLink copied to clipboard.Key Takeaways Canada delivered a standout quarter with consolidated revenue up 4% and adjusted EBITDA up 10%, driven by operational efficiencies, supply chain automation and strong Saputo and Armstrong brand performance. In the U.S., revenue rose 14% to $2.2 billion but adjusted EBITDA remained flat due to a negative milk-cheese spread and $10 million in duplicate network optimization costs; the company still targets $100 million in annualized savings by year-end. Europe posted its third consecutive quarter of EBITDA improvement, with margin expansion and volume growth led by higher branded cheese sales and a rebound in the ingredients business following a direct-to-customer strategy shift. Argentina’s results were pressured by high inflation, peso devaluation and $17 million in hyperinflation accounting adjustments, contributing to a $29 million year-over-year EBITDA decline in the international segment. Saputo announced a normal course issuer bid to repurchase up to 2% of outstanding shares, aiming to optimize its capital structure and demonstrate commitment to long-term value creation. AI Generated. May Contain Errors.Conference Call Audio Live Call not available Earnings Conference CallSaputo Q2 202500:00 / 00:00Speed:1x1.25x1.5x2xThere are 9 speakers on the call. Operator00:00:00you for standing by. I would like to welcome everyone to the Saputo Inc. 2nd Quarter 2025 Financial Results. I would now like to turn the call over to Nick Estrella, Senior Director of Investor Relations. Please go ahead, sir. Speaker 100:00:16Thank you, Dustin. Good morning, and welcome to our Q2 fiscal 2025 earnings call. Our speakers today will be Carl Culica, President and Chief Executive Officer and Max Sinterrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded and the webcast will be posted on our website along with the Q2 investor presentation. Please also note that some of the statements provided during this call are forward looking. Speaker 100:00:46Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward looking information in our annual report, press releases and filings. Please treat any forward looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information except as required under securities legislation. I'll now hand it over to Carl. Speaker 200:01:14Thank you, Nick, and good morning, everyone. Q2 marked another quarter of progress for Saputo, both in the execution of our long term strategy and with the achievement of important milestones on the innovation, efficiency and network optimization front. Leveraging our global capabilities, we are also generating savings across our value stream, including in manufacturing and distribution. Before we dive into the quarter, I would like to share a few thoughts and organizational updates with you. With over 25 years of experience at Saputo, I was able to hit the ground running when I took over as President and CEO in August. Speaker 200:01:54The first thing I want to say is that I am very encouraged by what I am seeing within the business. While there is still much work ahead of us to achieve our full potential, we have a great foundation and a clear opportunity to excel. My goal is to build upon Saputo's already solid core, but also to significantly improve on it, so we can thrive in an increasingly complex and competitive global environment. To that end, I am confident in the strength of our executive leadership team, which has recently been reinforced through several internal promotions. Frank Guido, who was our President and COO of the U. Speaker 200:02:33S. Sector has been appointed Global Chief Operating Officer and will play a key role in the company's continuous efforts to drive growth and operational results. Lianne Cutts, who was previously President and COO for International in Europe has been appointed to the newly created position of Chief Commercial Officer, where she will be responsible for driving commercial strategy, more specifically by amplifying sales in global markets and channels and overseeing marketing, brand management, innovation and market insights functions for all divisions. Dominic Bombino, who has held both operational and commercial leadership positions in Canada and the U. S. Speaker 200:03:16Over the past 25 years has been appointed President and COO Dairy Division USA. Steve Douglas, who most recently served as Senior Vice President of Operations and Supply Chain in our U. S. Dairy Division has been appointed President and COO Dairy Division UK. He has been with Saputo for more than 30 years. Speaker 200:03:38Through their expanded roles, each of these accomplished executives will now further leverage their experience and expertise to drive long term growth and promote operational excellence across the organization. Turning now to the Q2. We delivered a strong quarter of both volume and pricing growth and steady cash flow generation. However, our strong execution, cost containment efforts and returns from strategic initiatives were overshadowed by commodity and macroeconomic volatility. Across the world, we are leveraging our scale and local expertise to navigate varying local market dynamics. Speaker 200:04:18In Canada, we generated robust top line and EBITDA growth. Leading brands like Saputo and Armstrong grew both in volume and market share. In the U. S, we are clearly seeing the benefits from the bold actions we have taken. Our base business is strengthening across core categories and in new channels. Speaker 200:04:39We have several commercial initiatives in flight that will continue to drive this performance. In Europe, we improved EBITDA for the 3rd consecutive quarter. Despite challenging market dynamics, we are now approaching a more normalized margin level. In international, we saw continued pressure on the export business in Argentina, but the alignment between farm gate and commodity prices are improving in Australia with the start of the new contract year. Taking a global perspective, consumers continue to look for value. Speaker 200:05:13However, demand for dairy remains important given its relevance as part of a nutritious diet. In this dynamic environment, our investments in technology, supply chain, brands, capabilities and our people have put us in a stronger position to meet the changing needs of our customers and consumers. By accelerating innovation and commercial execution, we are growing our share across key categories and markets. Steady cash generation has also enabled us to achieve a pivotal capital allocation milestone. Yesterday, we announced our intention to make a normal course issuer bid. Speaker 200:05:52We believe a share buyback program will optimize our capital structure and underscore our commitment to drive long term value creation. Before I turn it over to Max, I'd like to thank the entire Saputo team for their hard work and commitment in finding ways to deliver in an ever evolving consumer environment. Our collaborative working style continues to be a strong differentiator that is enabling us to deepen relationships with our customers, attract and retain the best talent and operate as a socially responsible and sustainable company. The efforts and passion of our talented team are why Time Magazine recently recognized Saputo as one of the world's best companies. This paired with a tremendous progress we've made in transforming Saputo's business paves the way for a very exciting new chapter in our history. Speaker 200:06:46I will now turn the call over to Max for the financial review before providing my concluding remarks. Speaker 300:06:53Karl, thank you and good morning everyone. I'll begin by going over financial highlights of the Q2. Consolidated revenue were $4,700,000,000 while adjusted EBITDA amounted to $389,000,000 Adjusted EBITDA was impacted by unfavorable U. S. Dairy commodity markets, higher cost of production in Argentina, including higher mill costs as peso devaluation has not kept pace with inflation, and unfavorable effects and application of hyperinflation accounting in the international sector. Speaker 300:07:34On the positive side, favorable adjusted EBITDA drivers included a significant year over year improvement in adjusted EBITDA in our Canada sector operational improvement driven by our global strategic plan initiatives in the U. S. Sector lower mill cost in Australia and an improved performance from our Europe sector led by higher branded cheese sales volume. We reported net earnings of $126,000,000 in the quarter. And on an adjusted basis, our net earnings were $157,000,000 or $0.37 per share. Speaker 300:08:18Take you to key highlights by sector, starting with Canada. Revenue for the Q2 totaled $1,300,000,000 an increase of 4% compared to last year. Revenue increased due to a favorable product mix and higher selling price in connection with the higher cost of mill as raw material. Adjusted EBITDA for the Q2 totaled $162,000,000 up approximately 10% versus the same quarter last fiscal year. Our improved performance reflected the benefit derived from operational efficiencies, including from our continuous improvement program, our supply chain optimization and automation initiatives. Speaker 300:09:06Our results also include the positive impact from cost saving initiatives notably around SG and A reduction. In the U. S. Sector, revenue totaled $2,200,000,000 and were 14% higher versus last year. Revenue increased due to the combined effect of the higher average cheese block, butter and dairy ingredient market prices and a favorable volume and mix. Speaker 300:09:38Adjusted EBITDA was $145,000,000 which was relatively close to last year at $147,000,000 Our results include $18,000,000 in benefit derived from capital investment in our cheese assets, operational improvement including increased capacity utilization, higher productivity which resulted in increased cheese sales volume, supply chain initiatives, cost reduction and lower SG and A. Our results also include $17,000,000 unfavorable impact from U. S. Market factor mainly due to the negative milk cheese spread. The negative milk cheese spread was partially mitigated through the favorable impact of our pricing protocols for our dairy food products. Speaker 300:10:33Finally, duplicate operating costs incurred to implement previously announced network optimization initiatives amounted to $10,000,000 during the quarter. Year to date, the USA sector is performing well with adjusted EBITDA 23% higher versus last year despite the negative impact from a persistent negative milk cheese spread, a testament to the progress we're making around operational and commercial execution. In the international sector, revenues for the 2nd quarter were $912,000,000 up 4% versus last year, despite the lower volume following the sales of our 2 Australian fresh milk processing facility during the Q1. Adjusted EBITDA totaled $54,000,000 down $29,000,000 The year over year decline in adjusted EBITDA was mostly driven by our Argentina division, which results were impacted by inflation and the lower FX devaluation, leading to higher production costs, including higher mill costs. Reduced mill availability in Argentina further contributed to higher mill costs. Speaker 300:11:57The less favorable effect of currency fluctuation on export sales denominated in U. S. Dollar and the negative impact of $17,000,000 due to the application of hyperinflation accounting to the results for our Argentine business. The Australia performance was in line with our expectation, following a better alignment between milk costs and commodity prices. In the Europe sector, revenue were $277,000,000 while adjusted EBITDA amounted to $28,000,000 We benefited from a higher branded cheese sales volume supported by incremental spend in advertising and promotion. Speaker 300:12:44We're pleased with the continued recovery in Europe sector with notable progress in this quarter around margin expansion, volume growth and our ingredient business. With these indicators moving in the right direction, we expect further sequential improvement through the balance of the year. Net cash generated from operating activities in the quarters amounted to $162,000,000 while CapEx totaled $90,000,000 in line with our plans. Finally, as Carl mentioned, we announced our intention to proceed with a normal course issuer bid allowing us to purchase up to 2% of share outstanding. The level and timing of stock repurchases under the NCIB will be driven by cash flow generation. Speaker 300:13:43On that note, this concludes my financial review and I'll turn the call back to Carl. Speaker 200:13:49Thank you, Max. In Canada, we delivered what I would call a stellar performance with adjusted EBITDA increasing 10% from last year, led by another strong quarter of operational efficiencies, cost savings and cheese sales volumes. Our retail platform drove year over year revenue growth with our core portfolio as well as our new products performing well. Everyday Cheese outperformed category growth with our Saputo brand gaining high single digit share, driven by strong mozzarella sales in the discount channel. We also see strengthened our Armstrong Brands national leadership position with gains in slices and snacking categories. Speaker 200:14:37Volume growth in Everyday Cheese reflects our focus on accelerating innovation, recent customer investments and expanding distribution. Examples include our new small format cheese shreds and bar listings and new lactose free specialty cheeses. Foodservice sales volumes were stable year over year. Although we have seen a recent slowdown in that market segment, our foodservice volumes benefited from our customer diversity and relationships. Our direct selling organization is key in times of industry slowdown. Speaker 200:15:12Our team can connect directly with operators to find strategic solutions for their challenges, lower their costs and create meaningful relationships. Taken together, our foodservice teams are exceptionally well positioned to drive innovation, value and operator engagements. In the U. S, we grew total cheese volumes by mid single digits supported by positive macro trends and capacity expansion across our cheese network. Volume growth was broad based and we gained share within our snacking, blue, cheddar and Italian cheese categories in the domestic market. Speaker 200:15:51In dairy foods, volume declined in certain categories mostly due to a slowdown in some of the QSR markets. However, we have seen early evidence of U. S. Restaurant traffic trends improving. The dairy commodity environment remains volatile, notably with the milk cheese spread. Speaker 200:16:12That being said, the fundamentals that drive our business are strong with balanced milk supply, low inventory levels and stable demand. Our strategic initiative benefits are growing and the work streams continue to mature. We are on track to reach our target of $100,000,000 of savings from our operational initiatives by the end of the fiscal year. And we are also pleased to see duplicate costs continuing to decrease. We are unlocking additional production capacity and realizing cost savings across our network. Speaker 200:16:46These wins as well as our focus on continuous improvement across all our facilities are resulting in the highest levels of cheese productivity since the launch of our capital investment cycle. Our productivity and commercial performance are also providing the flexibility to increase investments behind our brands. A good example is Monchevre, our leading U. S. Goat cheese brand. Speaker 200:17:11We launched the Monchevre Mike's Hot Honey Goat Cheese, a collaboration with Mike's Hot Honey to bring the sweet heat flavor to our award winning goat cheese. Our Treasure Cave brand expanded its portfolio to include a creamier version of our traditional blue, creating an approachable entry point for consumers that may be apprehensive of the sharper flavors associated with Blue Cheese. In the international sector, our results were lower than last year. In Argentina, currency devaluation has not kept pace with inflation, which has impacted export margins, operational costs, including milk. Still, domestic cheese volumes were higher and we're gaining share, a good performance given the dynamic economic situation in Argentina. Speaker 200:18:01In Australia, our performance in the quarter showed continued improvement compared to the challenging environment we faced last year. Domestic volumes were steady and we strategically increased our export volumes as international prices were moving higher. Our teams have also made significant efforts to reduce costs and respond to the changing marketplace, particularly from a capacity and a milk supply standpoint. On that note, milk supply in Australia is improving and milk costs have come down since July 1, which marked the start of the new milk year. Our milk intake so far this fiscal is ahead of plan, resulting in increased capacity utilization, which will be an additional tailwind in a lower milk cost environment. Speaker 200:18:49We're very pleased with the current state of the business in Australia and optimistic about the balance of the year. In Europe, our financial performance continues to improve. Cathedral City had a strong momentum with double digit volume growth in the quarter. We continue to focus on affordable price points, value packages, tailored promotions and premium offerings to drive our demand. We expect this improvement to continue into the second half of the fiscal year fueled by innovation and selective investments in advertising and promotions. Speaker 200:19:23Equally important, we saw a rebound in our ingredients business with better pricing and a significant volume increase. The increase in volume is mostly due to the transition to direct to customer marketing and selling strategy. Looking ahead to the balance of the year, our fiscal 2025 outlook remains largely unchanged. We are focused on delivering on our priorities and we're hopeful that the markets will move in our favor as the year progresses. Heading into Q3, we expect further improvements in all our divisions. Speaker 200:19:59It's likely premature to forecast how Argentina will trend given the currency fluctuations. But overall, we see good momentum building in our business. We expect the consumer environment to remain dynamic. Our proven ability to navigate this type of environment gives us confidence that we can drive further volume across our business. We are focusing on managing the elements within our control and taking actions that position us for long term success. Speaker 200:20:28Our strategy provides a roadmap for achieving strong and consistent results over a multi year period and we aim to incrementally advance our strategic pillars every quarter. The long term potential of the business to create value continues to be very exciting. That concludes our formal remarks. I will now turn the call over to Dustin for questions. Operator00:20:52Thank you, sir. Our first question comes from the line of Mark Petrie from CIBC. Your line is open. Speaker 400:21:19Yes, thanks. Good morning. Thanks for all the comments. I'm hoping you could just expand maybe on what you're seeing in the U. S. Speaker 400:21:26Specifically, the selling environment there, specifically the competitive dynamics And then how you're balancing sort of your investments in price with volume growth? Speaker 200:21:41Thanks, Mark, for the question. The U. S. Had seen early in coming off the tail of Q1 into Q2, we had seen some slowdowns in the QSR market in particular. And as you're likely aware, there has been some investments that were made in value meals, if you like, value offerings. Speaker 200:22:03And we're starting to progressively see the benefits of that. Although we may not play directly in what is being offered in these value offerings, foot traffic is improving And with foot traffic, we're starting to see our numbers in that sector improve as well. But beyond that, we continue to have quite a diverse portfolio. We're selling into numerous different channels. So if your traditional pizzerias are on the slower end of things, some of the industrials who are producing frozen pizzas or other for the retail sector have some tailwinds. Speaker 200:22:41So the diversity of our portfolio across the channels we service continue to put us in a good position for what we see as continued volume growth. Speaker 400:22:53Okay. And is that any different sort of across other channels and I guess across sort of cheese and dairy ingredients or dairy foods? Speaker 200:23:06It's across the board. Like I said, the both of those segments of our business, call them cheese and dairy foods, play in all spaces, whether that's retail, whether that is in private and or branded products, food service, quick service restaurants as much as full service. So at the end of the day, we're seeing that momentum building as some of the consumer confidence improves. Speaker 400:23:35Okay, fair enough. And so it's helpful to sort of hear your perspectives on sort of the U. S. Commodity landscape, the supply demand balance. And then I guess related to that, but a bit of a separate question, I know one of the challenges in the U. Speaker 400:23:51S. Commodity picture is the whey price and sort of the puts and takes on the different sort of refinements or types of whey. And I'm just wondering if there's any way to sort of add flexibility to your network. I know it's difficult because those are long cycle investments and big ticket items. But just wondering sort of big picture if there's a way to address some of those challenges when it comes to waste sort of specifically? Speaker 200:24:25Where I would start with Mark, is that some of the fundamentals in the U. S. Sector, dairy sector are good. And by that specifically, the balance between supply and demand is in a good place. Some of the most recent information in and around cheese inventories across the nation are also showing that they're relatively low. Speaker 200:24:49So that puts us in a general good place when it comes to that supply and demand dynamic. Yes, the current price of whey, which is sweet whey powder, basically the most basic of the commodities in the whey space is high today that has an influence on the price of milk influencing our spread. But we also believe it's somewhat transitory. It's not a sector that necessarily has seen any real meaningful investments over the last 5 to 10 years. And it's partly the reason for why that whey price is as high as it is. Speaker 200:25:29There has been a increase in demand, steady demand for that product, but with very little inventory available that has driven sort of the pricing to where it is today. But it is not a, I'll say, a value added ingredient that we believe long term will be the source of whey protein for customers and consumers. The diversification we have today in higher fractions, 1st and foremost are also benefiting from that whey price. And we continue to believe that that is the right balance of product offerings and the tools that we have within our U. S. Speaker 200:26:13Business match that for our long term success. Speaker 400:26:18Yes. I mean, I understand it's not a value add ingredient and I'm not suggesting you would make big investments to focus in that area. But at the same time, clearly there is an imbalance in supply and demand. So are you you're saying you believe it's transitory. Are you seeing supply come into that space? Speaker 400:26:34Or do you have a reason to believe that demand would fall off or move to other areas of the protein market? Speaker 200:26:43So there is supply and some people are being opportunistic including Saputo. We do still have sweet way capabilities. So that basic commodity, we do still manufacture that and we too will shift some of our production to that category as long as we're balancing our customer needs across the board. So yes, there is flexibility. It's not a complete 100% capability from one to another. Speaker 200:27:13And it will take a little bit here for that demand to be satisfied and we expect that pricing to subside at that point. Speaker 400:27:27Okay. Appreciate all the comments. I'll pass the line and all the best. Speaker 200:27:32Thank you, Mark. Operator00:27:35Thank you. Our next question comes from the line of Michael Van Aelst from TD Securities. Your line is open. Speaker 500:27:45Hi, thank you. So you had a pretty impressive growth rate in Canada's EBITDA up 10%. And the investments there are a little bit more mature. You're they Canada got the investments in technology and automation and capacity earlier than the U. S. Speaker 500:28:08Did. And I'm wondering, is that part of the reason why we're seeing an acceleration of your EBITDA growth and your margin expansion? And is this a precursor of what you think could happen in the U. S? Speaker 200:28:25For sure. So in the Canadian sector, they have been on a multiyear journey for some time now to optimize their platform, equip themselves with the various tools to be successful and to support the brands that we have. And what we're seeing today comes from a combination of things, but a high percentage of it is from operational efficiencies, whether that be in automation, whether that is in maximizing the throughput in the various facilities that we have, as well as having the appropriate equipment to be able to supply the innovation, the demand in the marketplace for our products. So the short answer is yes. Our reduction in operating costs in part associated to the capital expenditures that we put there through numerous years as well as the Canadian team ability to reduce its other costs like SG and A, have also assisted us in delivering the results that we have today. Speaker 500:29:30So where do you think you are in the U. S. With respect to achieving the same type of operational improvements as you are in Canada? What's the timeline? Speaker 200:29:43Well, I would say that in some sectors of products that we manufacture, we're already there. And mozzarella could be one of those elements that we point to where we feel with the most recent investments, for the most part, we are where we want to be from an efficiency perspective and very translatable to the Canadian comparative. When it comes associated to what we can bring to the retail market, the investments in Franklin and what we would have coined the network optimization will be the key to unlocking that continued penetration in the retail sector, efficiencies and diversity in what we bring to market, which will emulate to a greater degree what the Canadian business has. So our timelines associated to network optimization still see us into the next fiscal year before we're able to complete that and have all of the tools that we expected to and line started up needed to support the brands and our offerings in the retail sector. Speaker 500:30:56Okay. All right. And then just on those duplicate overhead costs, when do you see those falling off? Speaker 200:31:05Every week, we're seeing these falling off. We expect another important reduction in Q3 followed by a continuing reduction into Q4. So those duplicate costs right now is really a function of the timeline I described whereby we expect to complete our network optimization sometime in 2026. But we should see the large share, the lion's share of those duplicate costs come off by the end of the fiscal. Speaker 500:31:36Okay. And then Max, on the NCIB, can you explain what's behind the decision to limit it to 2% of shares outstanding, given that your balance sheet is deleveraging? You seem to be comfortable where your operations are and the valuation is so low on your share price historically? Speaker 300:31:58Well, Mike, we are committed. We want to continue to maintain a balanced approach as it regards to capital allocation. We've highlighted priorities relative to the dividend. We highlighted that we want to maintain with protect and we did increase last quarter. From a CapEx perspective, a lower pace. Speaker 300:32:25So this year is lower than the prior year. And so we intend to maintain to a lower level than historical last 3, 4 years. Certainly, I want to take care of the debt. So debt reductions continue to be in our priorities. Sort of February. Speaker 300:32:57And now where we sit is based on our cash flow generation, it certainly opens the door to do different things. And one of those different things is to proceed with some share repurchase with the NCIB as we did in the past and NCIB will continue to be part of our future. There's no really change in the approach. And the 2% really is what could be realistically purchased within the next 12 months. Should we see cash generation exceeding or those type of level, nothing would prevent us to augment it or to push that limit. Speaker 300:33:44So in reality, we just want to have a consistent balanced approach and want to be calibrated and continue to build some financial flexibility to support our growth organically and through various investment. Speaker 500:34:02Great. Thanks for that, Max. Operator00:34:09Thank you. Our next question comes from the line of Chris Lee from Desjardins. Your line is open. Speaker 600:34:18Thanks. Good morning, everyone. My first question is, I noticed there was a subtle wording change in your 2025 outlook and I just want to see if I'm reading too much into it. So in one of the line items you noted that cash flow generation should increase as you harvest the benefits from operational improvements. I think the previous outlook, the wording was driven by improvements in adjusted EBITDA. Speaker 600:34:43So I was just wondering is that just more semantics or did you kind of intentionally try to flag some sort of outlook in terms of what the EBITDA growth should look like for the balance of the year? Thanks. Speaker 200:34:58Thanks, Chris, for the question. And yes, you're reading too much into it. We did say in the very first bullet, in fact, of our outlook, we talk about expectations for steady improvements and being able to maintain or be able to remain on course for delivering our long term goals. So that has not changed in any way. So we still feel very strong about the fundamentals in each of the operating sectors that we have. Speaker 200:35:31As Max and I both described, there's some very good momentum occurring across the board and that has not changed our confidence in our near term and long term outlook. Speaker 600:35:45Okay, that's great to hear. And maybe I'll just take the opportunity to ask you a follow-up on this then. I guess so far in the first half of the year, your EBITDA has been flattish for obvious reasons you highlighted. As we look into the second half, can you at least on a high level talk to us about, do you expect second half to be a bit of an inflection point in terms of EBITDA growth assuming kind of the current conditions remain where they are? Speaker 200:36:10I think the best way to answer that is to give you some sort of some clarity on what is occurring in each sectors. And let me start with Canada without taking it for granted by any means, but we do expect there to be continued stability and performance in that sector with the fundamentals of our team are offering our customers being favorable. If I move to the U. S, when we take a look at where we're at with our returns from our capital investments and the various initiatives, We do believe that in Q3, Q4, we're going to see a continued improvement. The sum of the first half was about a $44,000,000 improvement in the U. Speaker 200:37:00S. We're confident that we will be able to meet the $100,000,000 target that we set for ourselves. This will translate fundamentally by increased performance in Franklin as well as the rest of our base business. So we feel good about that. We feel good about the demand as well. Speaker 200:37:24And right now, the signs with regards to the market conditions, So more specifically milk, cheese spread. Although we don't expect it to be positive by any means, we do expect it to be better than what we have seen to date. And then if we move on into Europe, the European sector continues its recovery. I think we all know by now the story in and around the high cheese cost inventory is behind us. The UK consumers in a better place. Speaker 200:38:02I certainly don't want to underestimate the inflationary pressures that they all went through and there's still some inflation there that they need to contend with. The Cathedral City continues to make share gains and is in a very good place. Our ingredients business is performing better as well as the rest of the product that we produce in that sector. And then if I move over to Australia, Australia continues to be right where we wanted Australia to be following the capital investments we've put in there, the network optimization, very hard work that has gone on with the team to deliver the platform we have to match the demand both domestically and internationally. And we do believe that with the better balance between the milk price and that of the international selling prices, which are holding steady. Speaker 200:39:01We also expect the Australian platform to perform quite well. That leads me to our Argentinian team, who continue to do extremely well under the circumstances that they operate in. But I'm certainly not going to venture into what kind of monetary policy or changes in the inflationary rates or the value of the peso and the impact that might have. So overall, it is some very good momentum across the board and has to will deliver on results. Speaker 600:39:40Thanks, Scott. That's very, very fulsome answer. Really appreciate it. Maybe I can squeeze another question. I know it's still very early days, but I would love to get your comments on your thoughts on the U. Speaker 600:39:50S. Election and what the implications could be for you guys and for the sector maybe looking back what happened the last time Trump was in office? Thanks. Speaker 200:40:02Very early to tell. There are a lot of potential implications to the overall consumer. Let me start with that. But overall, I'm going to say neutral when it comes to the consumer. I don't expect the consumer to overnight have higher confidence and discretionary income to spend and for it to have tailwinds in our business. Speaker 200:40:29But I think the question is more pointed to whether or not it may either impede our ability to export and or have implications on various trade deals. And if I go to those 2 in particular, if we take USMCA, yes, it's a very open agenda item And we do expect there to be a re questioning of each other's obligations within that trade deal, dairy being an element that will be discussed. Speaker 300:41:01But I also don't want Speaker 200:41:02to overplay it. It isn't the most meaningful, if you want, of implications to our Canadian business and or U. S. For that matter, should there be a change. We operate in a number of different jurisdictions for milk, a number of different rules of imports and allocations and quotas. Speaker 200:41:24Whatever decision the Canadian government and that of the U. S. Make, we'll be able to adapt to. So it isn't something that we're overly concerned with by any means. And when it comes to exports and the potential trade war, tariff wars that might exist, the demand for dairy isn't necessarily going to change. Speaker 200:41:45So the beauty of our platform is that we have the ability to supply customers from different bases. So should there be some sort of impediment for us to export from the U. S, to which let's not forget our export platform is not extremely large from the U. S, especially not with the core products. More meaningful than our ingredients sector, but it's also the sector by which we've got the most redundancy globally. Speaker 200:42:10So we can adapt where we need to should that come to fruition. And so having said that in the end, I'll say it's a fairly neutral as far as potential impact of what has been presented by the Republican government. Speaker 600:42:28Thanks very much. Appreciate that. And yes, all the best to you too. Thanks. Speaker 200:42:32Thanks, Chris. Operator00:42:36Thank you. Our next question comes from the line of Irene Thao from RBC Capital Markets. Your line is open. Speaker 700:42:45Thanks and Speaker 800:42:46good morning everyone. Really appreciate all of the color and the detail you provided. So you addressed most of my questions, but one thing I just want to ask explicitly, haven't heard the two letters M and A in any of the answers today, Just if you could, as you're reaching this cash flow inflection point, can you just please update us on your current views on potential for M and A? Speaker 200:43:09Thank you, Irene. Excellent question. And I think in part, MAX sort of addressed it with the desire to maintain a balanced capital allocation approach. Part of the reason why we are not we didn't pick a number higher than 2% for the NCIB is to ensure that we remain flexible. We will continue to look at opportunities for growth in our business in different geographies, whether that is to complement some of the portfolios that we have or whether that is potentially in different geographies. Speaker 200:43:45So M and A is still on the table for us, but it's a I'll say a priority by which comes secondary to delivering on what it is our current capital deployed is supposed to deliver to our bottom line. But we do have a dedicated team of individuals who are constantly looking at what would be complementary for our growth strategy, our commercial strategy as well as what is available in the market. So I think by being balanced in what it is we allocate our cash generation to will allow us to remain flexible as well as being opportunistic should it be required. Speaker 800:44:30That's very helpful. Thank you. Operator00:44:38Thank you. Our next question comes from the line of Vishal Surajal from National Bank. Your line is open. Speaker 800:44:47Hi, thanks for taking my questions. Wondering if you could just give us your updated color on the proposed USDA changes on the federal milk marketing orders. How should we expect that to enroll? When and what will the impact be to Saputo? Speaker 200:45:05Thank you, Vishal, for the question. As we understand it today, the USDA final recommendation should be published by November 12. And following that, there needs to be a farmer ag sector vote, referendum that occurs either in December or January. Once that election or that process is completed, and if accepted, we would probably see an implementation of the changes in various pricing mechanisms occur in June of 2025. We remain optimistic that the final proposal by USDA will be voted upon favorably and therefore accepted. Speaker 200:46:00And as it's currently drafted, it would be beneficial to Saputo. One thing I can point to as an example would be the components associated to the block and barrel spread. If we just look at it over the last 6 to 12 months, the way the current draft of the proposal is written, the barrel will be removed from the milk pricing formula. That removal, considering the disconnect that existed between the block and the barrel, would yield a favorable impact by comparison to the last 6 to 12 months for Saputo. So at the end of the day, we do feel that what is proposed what will be proposed by the USDA helps bridge the gap from the last time this was done in 2,008 with regards to a variety of make allowances and fundamentally positions the ag sector closer to today's market realities. Speaker 800:47:13Okay. Thank you for that color. And just a high level question here as you settle into your role. And you know there's so much volatility in Saputo's results, seemingly more so more recently than it has been over the longer term. So when you look at your business and you look at the year and you say, hey, these are the metrics I look at to define whether my company has been successful or not, whatever they are, market share, EBITDA or earnings. Speaker 800:47:39I was hoping you could give us an insight into your preferred metrics to deem whether the company has Speaker 600:47:45been successful in any timeframe? Speaker 200:47:50I would say that if I look at it purely on a financial basis, certainly our cash generation and our continued EBITDA performance are 2 top metrics from that perspective. But you're right, with the kind of volatility that we have today in some of the, I'll use the word, uncontrollable environments, We have to continue to understand clearly the things that are in our control. And some of the things that we do look at as well is our market shares, our brand penetration numbers, because these in part are things that will help us mitigate the influences of these sectors or market conditions that we're faced with. So we have internal benchmarks and expectations on lowering our input costs, on improving with regards to the percentage of our business that is in the retail sector as well as the performance of our brands. And if I can check those 4, 5, 6 things off at the end of the year, I think we'll be able to say that we've created value for our shareholders and that we are well positioned for continued success. Speaker 800:49:12Okay. And just one more quick one here for Max. In terms of the buyback, given the approach for a balanced capital allocation, is this something that we should summon for the remainder of our forecast? Or should we just take it as it comes year by year? Speaker 300:49:28Well, you I mean, it's going to be part of our priority as we're looking the next 12 months. But like I said, I mean, the timing and I'm not going to commit on any timing and so on. But yes, you could factor it in within the next 12 months, that's for sure. Speaker 800:49:49Thank you. Operator00:49:55Thank you. Our next question comes back from the line of Michael Van Aelst from TD Securities. Your line is open. Speaker 500:50:04Thank you. Just a few clarifications. First, Carl, you talked about the you're being optimistic on the farmer vote in the U. S. Is that an all or none type vote? Speaker 500:50:18Are they voting on components of the formula individually? Or are they voting on take it or leave it just one vote? Speaker 200:50:29No. They don't vote on the components of the formula. They do vote on the package that is recommended. But there's also regions. So there could be a scenario whereby one region chooses not to vote for it favorably and are no longer part of the federal milk marketing order. Speaker 200:50:52And I kind of bring you back to another referendum that was held post 2010 when California, who was not part of the federal milk marketing order, decided to enter that ring, if you like. So there could be some regional differences in where the vote goes. But again, we're prepared to adapt to whatever those circumstances are. Speaker 500:51:20Okay. And then on your M and A comments, in the past, I think Lino had been saying that whatever if you were to do M and A, it has to be immediately accretive. Is that what you were trying to get out when you talked about, has to be consistent with your other or do at least better than what your other options are? Speaker 200:51:44Absolutely. I mean, we always look at it on the basis of, if we were to invest our own capital and you look at the kind of timelines associated to it coming to fruition, delivering to our bottom line versus that of a potential, whether it's a tuck in nature or something larger, it has to be accretive in nature. We're not looking for, I'm going to use the word a fixer upper that is going to distract us from what we're currently focused on. We'd be focused on ensuring that whatever comes our way and whatever we have an interest in delivers to the bottom line today and puts us in a position to deliver on what our commercial expectations and obligations not obligations, but our commercial objectives are. Speaker 500:52:40Okay, perfect. Thank you. Operator00:52:47Thank you. Seeing as there are no more questions in the queue, that concludes our question and answer session. I will now turn the call back over to Nick Estrada for closing remarks. Speaker 100:52:59Thank you, Dustin. Please note that we will release our Q3 fiscal 2025 results on February 6, 2025. We thank you for taking part in the call and webcast and have a great day. Operator00:53:15Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.Read morePowered by Earnings DocumentsSlide DeckInterim report Saputo Earnings HeadlinesCF Montreal adds DP Ivan Jaime as first transfer window of rebuild closesAugust 22, 2025 | msn.comCF Montréal sign Ivan Jaime as designated playerAugust 22, 2025 | msn.comINVESTOR ALERT: Tiny “$3 AI Wonder Stock” on the Verge of Blasting OffRight now, we’re witnessing a monumental shift in the world.August 29 at 2:00 AM | Traders Agency (Ad)Why CF Montreal Fans, MLS Have No Reason To Trust Joey Saputo And SonsAugust 20, 2025 | forbes.comSaputo Inc. (SAP.TO) Income Statement - Yahoo FinanceAugust 12, 2025 | finance.yahoo.comSaputo First Quarter 2026 Earnings: EPS Beats Expectations, Revenues LagAugust 9, 2025 | finance.yahoo.comSee More Saputo Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Saputo? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Saputo and other key companies, straight to your email. Email Address About SaputoSaputo (TSE:SAP) is a global dairy processor domiciled in Canada (28% of fiscal 2022 sales) with operations in the United States (43%), the U.K. (6%), and other international markets (23%). It sells cheese, cream, fluid milk, and other dairy products. In the retail segment (50% of revenue), its mix of brands include Saputo, Armstrong, Cheer, Cathedral City, and Frylight. Saputo also competes in food service (30% of revenue) and industrials (20% of revenue), which houses its ingredients business.View Saputo ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles NVIDIA's Earnings Show a Green Light for Taiwan Semiconductor After Earnings Miss, Walmart Is Still a Top Consumer Staples PlayRoyal Caribbean Earnings Beat Fuels Strong 2025 OutlookDLocal Stock Soars 43% After Earnings Beat and Raised GuidanceGreen Dot's 30% Rally: Turnaround Takes Off on Explosive EarningsElbit Systems Jumps on Record Earnings and a $1.6B ContractBrinker Serves Up Earnings Beat, Sidesteps Cost Pressures Upcoming Earnings Salesforce (9/3/2025)Broadcom (9/4/2025)Oracle (9/8/2025)Synopsys (9/9/2025)Adobe (9/11/2025)FedEx (9/18/2025)AutoZone (9/23/2025)Cintas (9/24/2025)Micron Technology (9/24/2025)Costco Wholesale (9/25/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 9 speakers on the call. Operator00:00:00you for standing by. I would like to welcome everyone to the Saputo Inc. 2nd Quarter 2025 Financial Results. I would now like to turn the call over to Nick Estrella, Senior Director of Investor Relations. Please go ahead, sir. Speaker 100:00:16Thank you, Dustin. Good morning, and welcome to our Q2 fiscal 2025 earnings call. Our speakers today will be Carl Culica, President and Chief Executive Officer and Max Sinterrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded and the webcast will be posted on our website along with the Q2 investor presentation. Please also note that some of the statements provided during this call are forward looking. Speaker 100:00:46Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward looking information in our annual report, press releases and filings. Please treat any forward looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information except as required under securities legislation. I'll now hand it over to Carl. Speaker 200:01:14Thank you, Nick, and good morning, everyone. Q2 marked another quarter of progress for Saputo, both in the execution of our long term strategy and with the achievement of important milestones on the innovation, efficiency and network optimization front. Leveraging our global capabilities, we are also generating savings across our value stream, including in manufacturing and distribution. Before we dive into the quarter, I would like to share a few thoughts and organizational updates with you. With over 25 years of experience at Saputo, I was able to hit the ground running when I took over as President and CEO in August. Speaker 200:01:54The first thing I want to say is that I am very encouraged by what I am seeing within the business. While there is still much work ahead of us to achieve our full potential, we have a great foundation and a clear opportunity to excel. My goal is to build upon Saputo's already solid core, but also to significantly improve on it, so we can thrive in an increasingly complex and competitive global environment. To that end, I am confident in the strength of our executive leadership team, which has recently been reinforced through several internal promotions. Frank Guido, who was our President and COO of the U. Speaker 200:02:33S. Sector has been appointed Global Chief Operating Officer and will play a key role in the company's continuous efforts to drive growth and operational results. Lianne Cutts, who was previously President and COO for International in Europe has been appointed to the newly created position of Chief Commercial Officer, where she will be responsible for driving commercial strategy, more specifically by amplifying sales in global markets and channels and overseeing marketing, brand management, innovation and market insights functions for all divisions. Dominic Bombino, who has held both operational and commercial leadership positions in Canada and the U. S. Speaker 200:03:16Over the past 25 years has been appointed President and COO Dairy Division USA. Steve Douglas, who most recently served as Senior Vice President of Operations and Supply Chain in our U. S. Dairy Division has been appointed President and COO Dairy Division UK. He has been with Saputo for more than 30 years. Speaker 200:03:38Through their expanded roles, each of these accomplished executives will now further leverage their experience and expertise to drive long term growth and promote operational excellence across the organization. Turning now to the Q2. We delivered a strong quarter of both volume and pricing growth and steady cash flow generation. However, our strong execution, cost containment efforts and returns from strategic initiatives were overshadowed by commodity and macroeconomic volatility. Across the world, we are leveraging our scale and local expertise to navigate varying local market dynamics. Speaker 200:04:18In Canada, we generated robust top line and EBITDA growth. Leading brands like Saputo and Armstrong grew both in volume and market share. In the U. S, we are clearly seeing the benefits from the bold actions we have taken. Our base business is strengthening across core categories and in new channels. Speaker 200:04:39We have several commercial initiatives in flight that will continue to drive this performance. In Europe, we improved EBITDA for the 3rd consecutive quarter. Despite challenging market dynamics, we are now approaching a more normalized margin level. In international, we saw continued pressure on the export business in Argentina, but the alignment between farm gate and commodity prices are improving in Australia with the start of the new contract year. Taking a global perspective, consumers continue to look for value. Speaker 200:05:13However, demand for dairy remains important given its relevance as part of a nutritious diet. In this dynamic environment, our investments in technology, supply chain, brands, capabilities and our people have put us in a stronger position to meet the changing needs of our customers and consumers. By accelerating innovation and commercial execution, we are growing our share across key categories and markets. Steady cash generation has also enabled us to achieve a pivotal capital allocation milestone. Yesterday, we announced our intention to make a normal course issuer bid. Speaker 200:05:52We believe a share buyback program will optimize our capital structure and underscore our commitment to drive long term value creation. Before I turn it over to Max, I'd like to thank the entire Saputo team for their hard work and commitment in finding ways to deliver in an ever evolving consumer environment. Our collaborative working style continues to be a strong differentiator that is enabling us to deepen relationships with our customers, attract and retain the best talent and operate as a socially responsible and sustainable company. The efforts and passion of our talented team are why Time Magazine recently recognized Saputo as one of the world's best companies. This paired with a tremendous progress we've made in transforming Saputo's business paves the way for a very exciting new chapter in our history. Speaker 200:06:46I will now turn the call over to Max for the financial review before providing my concluding remarks. Speaker 300:06:53Karl, thank you and good morning everyone. I'll begin by going over financial highlights of the Q2. Consolidated revenue were $4,700,000,000 while adjusted EBITDA amounted to $389,000,000 Adjusted EBITDA was impacted by unfavorable U. S. Dairy commodity markets, higher cost of production in Argentina, including higher mill costs as peso devaluation has not kept pace with inflation, and unfavorable effects and application of hyperinflation accounting in the international sector. Speaker 300:07:34On the positive side, favorable adjusted EBITDA drivers included a significant year over year improvement in adjusted EBITDA in our Canada sector operational improvement driven by our global strategic plan initiatives in the U. S. Sector lower mill cost in Australia and an improved performance from our Europe sector led by higher branded cheese sales volume. We reported net earnings of $126,000,000 in the quarter. And on an adjusted basis, our net earnings were $157,000,000 or $0.37 per share. Speaker 300:08:18Take you to key highlights by sector, starting with Canada. Revenue for the Q2 totaled $1,300,000,000 an increase of 4% compared to last year. Revenue increased due to a favorable product mix and higher selling price in connection with the higher cost of mill as raw material. Adjusted EBITDA for the Q2 totaled $162,000,000 up approximately 10% versus the same quarter last fiscal year. Our improved performance reflected the benefit derived from operational efficiencies, including from our continuous improvement program, our supply chain optimization and automation initiatives. Speaker 300:09:06Our results also include the positive impact from cost saving initiatives notably around SG and A reduction. In the U. S. Sector, revenue totaled $2,200,000,000 and were 14% higher versus last year. Revenue increased due to the combined effect of the higher average cheese block, butter and dairy ingredient market prices and a favorable volume and mix. Speaker 300:09:38Adjusted EBITDA was $145,000,000 which was relatively close to last year at $147,000,000 Our results include $18,000,000 in benefit derived from capital investment in our cheese assets, operational improvement including increased capacity utilization, higher productivity which resulted in increased cheese sales volume, supply chain initiatives, cost reduction and lower SG and A. Our results also include $17,000,000 unfavorable impact from U. S. Market factor mainly due to the negative milk cheese spread. The negative milk cheese spread was partially mitigated through the favorable impact of our pricing protocols for our dairy food products. Speaker 300:10:33Finally, duplicate operating costs incurred to implement previously announced network optimization initiatives amounted to $10,000,000 during the quarter. Year to date, the USA sector is performing well with adjusted EBITDA 23% higher versus last year despite the negative impact from a persistent negative milk cheese spread, a testament to the progress we're making around operational and commercial execution. In the international sector, revenues for the 2nd quarter were $912,000,000 up 4% versus last year, despite the lower volume following the sales of our 2 Australian fresh milk processing facility during the Q1. Adjusted EBITDA totaled $54,000,000 down $29,000,000 The year over year decline in adjusted EBITDA was mostly driven by our Argentina division, which results were impacted by inflation and the lower FX devaluation, leading to higher production costs, including higher mill costs. Reduced mill availability in Argentina further contributed to higher mill costs. Speaker 300:11:57The less favorable effect of currency fluctuation on export sales denominated in U. S. Dollar and the negative impact of $17,000,000 due to the application of hyperinflation accounting to the results for our Argentine business. The Australia performance was in line with our expectation, following a better alignment between milk costs and commodity prices. In the Europe sector, revenue were $277,000,000 while adjusted EBITDA amounted to $28,000,000 We benefited from a higher branded cheese sales volume supported by incremental spend in advertising and promotion. Speaker 300:12:44We're pleased with the continued recovery in Europe sector with notable progress in this quarter around margin expansion, volume growth and our ingredient business. With these indicators moving in the right direction, we expect further sequential improvement through the balance of the year. Net cash generated from operating activities in the quarters amounted to $162,000,000 while CapEx totaled $90,000,000 in line with our plans. Finally, as Carl mentioned, we announced our intention to proceed with a normal course issuer bid allowing us to purchase up to 2% of share outstanding. The level and timing of stock repurchases under the NCIB will be driven by cash flow generation. Speaker 300:13:43On that note, this concludes my financial review and I'll turn the call back to Carl. Speaker 200:13:49Thank you, Max. In Canada, we delivered what I would call a stellar performance with adjusted EBITDA increasing 10% from last year, led by another strong quarter of operational efficiencies, cost savings and cheese sales volumes. Our retail platform drove year over year revenue growth with our core portfolio as well as our new products performing well. Everyday Cheese outperformed category growth with our Saputo brand gaining high single digit share, driven by strong mozzarella sales in the discount channel. We also see strengthened our Armstrong Brands national leadership position with gains in slices and snacking categories. Speaker 200:14:37Volume growth in Everyday Cheese reflects our focus on accelerating innovation, recent customer investments and expanding distribution. Examples include our new small format cheese shreds and bar listings and new lactose free specialty cheeses. Foodservice sales volumes were stable year over year. Although we have seen a recent slowdown in that market segment, our foodservice volumes benefited from our customer diversity and relationships. Our direct selling organization is key in times of industry slowdown. Speaker 200:15:12Our team can connect directly with operators to find strategic solutions for their challenges, lower their costs and create meaningful relationships. Taken together, our foodservice teams are exceptionally well positioned to drive innovation, value and operator engagements. In the U. S, we grew total cheese volumes by mid single digits supported by positive macro trends and capacity expansion across our cheese network. Volume growth was broad based and we gained share within our snacking, blue, cheddar and Italian cheese categories in the domestic market. Speaker 200:15:51In dairy foods, volume declined in certain categories mostly due to a slowdown in some of the QSR markets. However, we have seen early evidence of U. S. Restaurant traffic trends improving. The dairy commodity environment remains volatile, notably with the milk cheese spread. Speaker 200:16:12That being said, the fundamentals that drive our business are strong with balanced milk supply, low inventory levels and stable demand. Our strategic initiative benefits are growing and the work streams continue to mature. We are on track to reach our target of $100,000,000 of savings from our operational initiatives by the end of the fiscal year. And we are also pleased to see duplicate costs continuing to decrease. We are unlocking additional production capacity and realizing cost savings across our network. Speaker 200:16:46These wins as well as our focus on continuous improvement across all our facilities are resulting in the highest levels of cheese productivity since the launch of our capital investment cycle. Our productivity and commercial performance are also providing the flexibility to increase investments behind our brands. A good example is Monchevre, our leading U. S. Goat cheese brand. Speaker 200:17:11We launched the Monchevre Mike's Hot Honey Goat Cheese, a collaboration with Mike's Hot Honey to bring the sweet heat flavor to our award winning goat cheese. Our Treasure Cave brand expanded its portfolio to include a creamier version of our traditional blue, creating an approachable entry point for consumers that may be apprehensive of the sharper flavors associated with Blue Cheese. In the international sector, our results were lower than last year. In Argentina, currency devaluation has not kept pace with inflation, which has impacted export margins, operational costs, including milk. Still, domestic cheese volumes were higher and we're gaining share, a good performance given the dynamic economic situation in Argentina. Speaker 200:18:01In Australia, our performance in the quarter showed continued improvement compared to the challenging environment we faced last year. Domestic volumes were steady and we strategically increased our export volumes as international prices were moving higher. Our teams have also made significant efforts to reduce costs and respond to the changing marketplace, particularly from a capacity and a milk supply standpoint. On that note, milk supply in Australia is improving and milk costs have come down since July 1, which marked the start of the new milk year. Our milk intake so far this fiscal is ahead of plan, resulting in increased capacity utilization, which will be an additional tailwind in a lower milk cost environment. Speaker 200:18:49We're very pleased with the current state of the business in Australia and optimistic about the balance of the year. In Europe, our financial performance continues to improve. Cathedral City had a strong momentum with double digit volume growth in the quarter. We continue to focus on affordable price points, value packages, tailored promotions and premium offerings to drive our demand. We expect this improvement to continue into the second half of the fiscal year fueled by innovation and selective investments in advertising and promotions. Speaker 200:19:23Equally important, we saw a rebound in our ingredients business with better pricing and a significant volume increase. The increase in volume is mostly due to the transition to direct to customer marketing and selling strategy. Looking ahead to the balance of the year, our fiscal 2025 outlook remains largely unchanged. We are focused on delivering on our priorities and we're hopeful that the markets will move in our favor as the year progresses. Heading into Q3, we expect further improvements in all our divisions. Speaker 200:19:59It's likely premature to forecast how Argentina will trend given the currency fluctuations. But overall, we see good momentum building in our business. We expect the consumer environment to remain dynamic. Our proven ability to navigate this type of environment gives us confidence that we can drive further volume across our business. We are focusing on managing the elements within our control and taking actions that position us for long term success. Speaker 200:20:28Our strategy provides a roadmap for achieving strong and consistent results over a multi year period and we aim to incrementally advance our strategic pillars every quarter. The long term potential of the business to create value continues to be very exciting. That concludes our formal remarks. I will now turn the call over to Dustin for questions. Operator00:20:52Thank you, sir. Our first question comes from the line of Mark Petrie from CIBC. Your line is open. Speaker 400:21:19Yes, thanks. Good morning. Thanks for all the comments. I'm hoping you could just expand maybe on what you're seeing in the U. S. Speaker 400:21:26Specifically, the selling environment there, specifically the competitive dynamics And then how you're balancing sort of your investments in price with volume growth? Speaker 200:21:41Thanks, Mark, for the question. The U. S. Had seen early in coming off the tail of Q1 into Q2, we had seen some slowdowns in the QSR market in particular. And as you're likely aware, there has been some investments that were made in value meals, if you like, value offerings. Speaker 200:22:03And we're starting to progressively see the benefits of that. Although we may not play directly in what is being offered in these value offerings, foot traffic is improving And with foot traffic, we're starting to see our numbers in that sector improve as well. But beyond that, we continue to have quite a diverse portfolio. We're selling into numerous different channels. So if your traditional pizzerias are on the slower end of things, some of the industrials who are producing frozen pizzas or other for the retail sector have some tailwinds. Speaker 200:22:41So the diversity of our portfolio across the channels we service continue to put us in a good position for what we see as continued volume growth. Speaker 400:22:53Okay. And is that any different sort of across other channels and I guess across sort of cheese and dairy ingredients or dairy foods? Speaker 200:23:06It's across the board. Like I said, the both of those segments of our business, call them cheese and dairy foods, play in all spaces, whether that's retail, whether that is in private and or branded products, food service, quick service restaurants as much as full service. So at the end of the day, we're seeing that momentum building as some of the consumer confidence improves. Speaker 400:23:35Okay, fair enough. And so it's helpful to sort of hear your perspectives on sort of the U. S. Commodity landscape, the supply demand balance. And then I guess related to that, but a bit of a separate question, I know one of the challenges in the U. Speaker 400:23:51S. Commodity picture is the whey price and sort of the puts and takes on the different sort of refinements or types of whey. And I'm just wondering if there's any way to sort of add flexibility to your network. I know it's difficult because those are long cycle investments and big ticket items. But just wondering sort of big picture if there's a way to address some of those challenges when it comes to waste sort of specifically? Speaker 200:24:25Where I would start with Mark, is that some of the fundamentals in the U. S. Sector, dairy sector are good. And by that specifically, the balance between supply and demand is in a good place. Some of the most recent information in and around cheese inventories across the nation are also showing that they're relatively low. Speaker 200:24:49So that puts us in a general good place when it comes to that supply and demand dynamic. Yes, the current price of whey, which is sweet whey powder, basically the most basic of the commodities in the whey space is high today that has an influence on the price of milk influencing our spread. But we also believe it's somewhat transitory. It's not a sector that necessarily has seen any real meaningful investments over the last 5 to 10 years. And it's partly the reason for why that whey price is as high as it is. Speaker 200:25:29There has been a increase in demand, steady demand for that product, but with very little inventory available that has driven sort of the pricing to where it is today. But it is not a, I'll say, a value added ingredient that we believe long term will be the source of whey protein for customers and consumers. The diversification we have today in higher fractions, 1st and foremost are also benefiting from that whey price. And we continue to believe that that is the right balance of product offerings and the tools that we have within our U. S. Speaker 200:26:13Business match that for our long term success. Speaker 400:26:18Yes. I mean, I understand it's not a value add ingredient and I'm not suggesting you would make big investments to focus in that area. But at the same time, clearly there is an imbalance in supply and demand. So are you you're saying you believe it's transitory. Are you seeing supply come into that space? Speaker 400:26:34Or do you have a reason to believe that demand would fall off or move to other areas of the protein market? Speaker 200:26:43So there is supply and some people are being opportunistic including Saputo. We do still have sweet way capabilities. So that basic commodity, we do still manufacture that and we too will shift some of our production to that category as long as we're balancing our customer needs across the board. So yes, there is flexibility. It's not a complete 100% capability from one to another. Speaker 200:27:13And it will take a little bit here for that demand to be satisfied and we expect that pricing to subside at that point. Speaker 400:27:27Okay. Appreciate all the comments. I'll pass the line and all the best. Speaker 200:27:32Thank you, Mark. Operator00:27:35Thank you. Our next question comes from the line of Michael Van Aelst from TD Securities. Your line is open. Speaker 500:27:45Hi, thank you. So you had a pretty impressive growth rate in Canada's EBITDA up 10%. And the investments there are a little bit more mature. You're they Canada got the investments in technology and automation and capacity earlier than the U. S. Speaker 500:28:08Did. And I'm wondering, is that part of the reason why we're seeing an acceleration of your EBITDA growth and your margin expansion? And is this a precursor of what you think could happen in the U. S? Speaker 200:28:25For sure. So in the Canadian sector, they have been on a multiyear journey for some time now to optimize their platform, equip themselves with the various tools to be successful and to support the brands that we have. And what we're seeing today comes from a combination of things, but a high percentage of it is from operational efficiencies, whether that be in automation, whether that is in maximizing the throughput in the various facilities that we have, as well as having the appropriate equipment to be able to supply the innovation, the demand in the marketplace for our products. So the short answer is yes. Our reduction in operating costs in part associated to the capital expenditures that we put there through numerous years as well as the Canadian team ability to reduce its other costs like SG and A, have also assisted us in delivering the results that we have today. Speaker 500:29:30So where do you think you are in the U. S. With respect to achieving the same type of operational improvements as you are in Canada? What's the timeline? Speaker 200:29:43Well, I would say that in some sectors of products that we manufacture, we're already there. And mozzarella could be one of those elements that we point to where we feel with the most recent investments, for the most part, we are where we want to be from an efficiency perspective and very translatable to the Canadian comparative. When it comes associated to what we can bring to the retail market, the investments in Franklin and what we would have coined the network optimization will be the key to unlocking that continued penetration in the retail sector, efficiencies and diversity in what we bring to market, which will emulate to a greater degree what the Canadian business has. So our timelines associated to network optimization still see us into the next fiscal year before we're able to complete that and have all of the tools that we expected to and line started up needed to support the brands and our offerings in the retail sector. Speaker 500:30:56Okay. All right. And then just on those duplicate overhead costs, when do you see those falling off? Speaker 200:31:05Every week, we're seeing these falling off. We expect another important reduction in Q3 followed by a continuing reduction into Q4. So those duplicate costs right now is really a function of the timeline I described whereby we expect to complete our network optimization sometime in 2026. But we should see the large share, the lion's share of those duplicate costs come off by the end of the fiscal. Speaker 500:31:36Okay. And then Max, on the NCIB, can you explain what's behind the decision to limit it to 2% of shares outstanding, given that your balance sheet is deleveraging? You seem to be comfortable where your operations are and the valuation is so low on your share price historically? Speaker 300:31:58Well, Mike, we are committed. We want to continue to maintain a balanced approach as it regards to capital allocation. We've highlighted priorities relative to the dividend. We highlighted that we want to maintain with protect and we did increase last quarter. From a CapEx perspective, a lower pace. Speaker 300:32:25So this year is lower than the prior year. And so we intend to maintain to a lower level than historical last 3, 4 years. Certainly, I want to take care of the debt. So debt reductions continue to be in our priorities. Sort of February. Speaker 300:32:57And now where we sit is based on our cash flow generation, it certainly opens the door to do different things. And one of those different things is to proceed with some share repurchase with the NCIB as we did in the past and NCIB will continue to be part of our future. There's no really change in the approach. And the 2% really is what could be realistically purchased within the next 12 months. Should we see cash generation exceeding or those type of level, nothing would prevent us to augment it or to push that limit. Speaker 300:33:44So in reality, we just want to have a consistent balanced approach and want to be calibrated and continue to build some financial flexibility to support our growth organically and through various investment. Speaker 500:34:02Great. Thanks for that, Max. Operator00:34:09Thank you. Our next question comes from the line of Chris Lee from Desjardins. Your line is open. Speaker 600:34:18Thanks. Good morning, everyone. My first question is, I noticed there was a subtle wording change in your 2025 outlook and I just want to see if I'm reading too much into it. So in one of the line items you noted that cash flow generation should increase as you harvest the benefits from operational improvements. I think the previous outlook, the wording was driven by improvements in adjusted EBITDA. Speaker 600:34:43So I was just wondering is that just more semantics or did you kind of intentionally try to flag some sort of outlook in terms of what the EBITDA growth should look like for the balance of the year? Thanks. Speaker 200:34:58Thanks, Chris, for the question. And yes, you're reading too much into it. We did say in the very first bullet, in fact, of our outlook, we talk about expectations for steady improvements and being able to maintain or be able to remain on course for delivering our long term goals. So that has not changed in any way. So we still feel very strong about the fundamentals in each of the operating sectors that we have. Speaker 200:35:31As Max and I both described, there's some very good momentum occurring across the board and that has not changed our confidence in our near term and long term outlook. Speaker 600:35:45Okay, that's great to hear. And maybe I'll just take the opportunity to ask you a follow-up on this then. I guess so far in the first half of the year, your EBITDA has been flattish for obvious reasons you highlighted. As we look into the second half, can you at least on a high level talk to us about, do you expect second half to be a bit of an inflection point in terms of EBITDA growth assuming kind of the current conditions remain where they are? Speaker 200:36:10I think the best way to answer that is to give you some sort of some clarity on what is occurring in each sectors. And let me start with Canada without taking it for granted by any means, but we do expect there to be continued stability and performance in that sector with the fundamentals of our team are offering our customers being favorable. If I move to the U. S, when we take a look at where we're at with our returns from our capital investments and the various initiatives, We do believe that in Q3, Q4, we're going to see a continued improvement. The sum of the first half was about a $44,000,000 improvement in the U. Speaker 200:37:00S. We're confident that we will be able to meet the $100,000,000 target that we set for ourselves. This will translate fundamentally by increased performance in Franklin as well as the rest of our base business. So we feel good about that. We feel good about the demand as well. Speaker 200:37:24And right now, the signs with regards to the market conditions, So more specifically milk, cheese spread. Although we don't expect it to be positive by any means, we do expect it to be better than what we have seen to date. And then if we move on into Europe, the European sector continues its recovery. I think we all know by now the story in and around the high cheese cost inventory is behind us. The UK consumers in a better place. Speaker 200:38:02I certainly don't want to underestimate the inflationary pressures that they all went through and there's still some inflation there that they need to contend with. The Cathedral City continues to make share gains and is in a very good place. Our ingredients business is performing better as well as the rest of the product that we produce in that sector. And then if I move over to Australia, Australia continues to be right where we wanted Australia to be following the capital investments we've put in there, the network optimization, very hard work that has gone on with the team to deliver the platform we have to match the demand both domestically and internationally. And we do believe that with the better balance between the milk price and that of the international selling prices, which are holding steady. Speaker 200:39:01We also expect the Australian platform to perform quite well. That leads me to our Argentinian team, who continue to do extremely well under the circumstances that they operate in. But I'm certainly not going to venture into what kind of monetary policy or changes in the inflationary rates or the value of the peso and the impact that might have. So overall, it is some very good momentum across the board and has to will deliver on results. Speaker 600:39:40Thanks, Scott. That's very, very fulsome answer. Really appreciate it. Maybe I can squeeze another question. I know it's still very early days, but I would love to get your comments on your thoughts on the U. Speaker 600:39:50S. Election and what the implications could be for you guys and for the sector maybe looking back what happened the last time Trump was in office? Thanks. Speaker 200:40:02Very early to tell. There are a lot of potential implications to the overall consumer. Let me start with that. But overall, I'm going to say neutral when it comes to the consumer. I don't expect the consumer to overnight have higher confidence and discretionary income to spend and for it to have tailwinds in our business. Speaker 200:40:29But I think the question is more pointed to whether or not it may either impede our ability to export and or have implications on various trade deals. And if I go to those 2 in particular, if we take USMCA, yes, it's a very open agenda item And we do expect there to be a re questioning of each other's obligations within that trade deal, dairy being an element that will be discussed. Speaker 300:41:01But I also don't want Speaker 200:41:02to overplay it. It isn't the most meaningful, if you want, of implications to our Canadian business and or U. S. For that matter, should there be a change. We operate in a number of different jurisdictions for milk, a number of different rules of imports and allocations and quotas. Speaker 200:41:24Whatever decision the Canadian government and that of the U. S. Make, we'll be able to adapt to. So it isn't something that we're overly concerned with by any means. And when it comes to exports and the potential trade war, tariff wars that might exist, the demand for dairy isn't necessarily going to change. Speaker 200:41:45So the beauty of our platform is that we have the ability to supply customers from different bases. So should there be some sort of impediment for us to export from the U. S, to which let's not forget our export platform is not extremely large from the U. S, especially not with the core products. More meaningful than our ingredients sector, but it's also the sector by which we've got the most redundancy globally. Speaker 200:42:10So we can adapt where we need to should that come to fruition. And so having said that in the end, I'll say it's a fairly neutral as far as potential impact of what has been presented by the Republican government. Speaker 600:42:28Thanks very much. Appreciate that. And yes, all the best to you too. Thanks. Speaker 200:42:32Thanks, Chris. Operator00:42:36Thank you. Our next question comes from the line of Irene Thao from RBC Capital Markets. Your line is open. Speaker 700:42:45Thanks and Speaker 800:42:46good morning everyone. Really appreciate all of the color and the detail you provided. So you addressed most of my questions, but one thing I just want to ask explicitly, haven't heard the two letters M and A in any of the answers today, Just if you could, as you're reaching this cash flow inflection point, can you just please update us on your current views on potential for M and A? Speaker 200:43:09Thank you, Irene. Excellent question. And I think in part, MAX sort of addressed it with the desire to maintain a balanced capital allocation approach. Part of the reason why we are not we didn't pick a number higher than 2% for the NCIB is to ensure that we remain flexible. We will continue to look at opportunities for growth in our business in different geographies, whether that is to complement some of the portfolios that we have or whether that is potentially in different geographies. Speaker 200:43:45So M and A is still on the table for us, but it's a I'll say a priority by which comes secondary to delivering on what it is our current capital deployed is supposed to deliver to our bottom line. But we do have a dedicated team of individuals who are constantly looking at what would be complementary for our growth strategy, our commercial strategy as well as what is available in the market. So I think by being balanced in what it is we allocate our cash generation to will allow us to remain flexible as well as being opportunistic should it be required. Speaker 800:44:30That's very helpful. Thank you. Operator00:44:38Thank you. Our next question comes from the line of Vishal Surajal from National Bank. Your line is open. Speaker 800:44:47Hi, thanks for taking my questions. Wondering if you could just give us your updated color on the proposed USDA changes on the federal milk marketing orders. How should we expect that to enroll? When and what will the impact be to Saputo? Speaker 200:45:05Thank you, Vishal, for the question. As we understand it today, the USDA final recommendation should be published by November 12. And following that, there needs to be a farmer ag sector vote, referendum that occurs either in December or January. Once that election or that process is completed, and if accepted, we would probably see an implementation of the changes in various pricing mechanisms occur in June of 2025. We remain optimistic that the final proposal by USDA will be voted upon favorably and therefore accepted. Speaker 200:46:00And as it's currently drafted, it would be beneficial to Saputo. One thing I can point to as an example would be the components associated to the block and barrel spread. If we just look at it over the last 6 to 12 months, the way the current draft of the proposal is written, the barrel will be removed from the milk pricing formula. That removal, considering the disconnect that existed between the block and the barrel, would yield a favorable impact by comparison to the last 6 to 12 months for Saputo. So at the end of the day, we do feel that what is proposed what will be proposed by the USDA helps bridge the gap from the last time this was done in 2,008 with regards to a variety of make allowances and fundamentally positions the ag sector closer to today's market realities. Speaker 800:47:13Okay. Thank you for that color. And just a high level question here as you settle into your role. And you know there's so much volatility in Saputo's results, seemingly more so more recently than it has been over the longer term. So when you look at your business and you look at the year and you say, hey, these are the metrics I look at to define whether my company has been successful or not, whatever they are, market share, EBITDA or earnings. Speaker 800:47:39I was hoping you could give us an insight into your preferred metrics to deem whether the company has Speaker 600:47:45been successful in any timeframe? Speaker 200:47:50I would say that if I look at it purely on a financial basis, certainly our cash generation and our continued EBITDA performance are 2 top metrics from that perspective. But you're right, with the kind of volatility that we have today in some of the, I'll use the word, uncontrollable environments, We have to continue to understand clearly the things that are in our control. And some of the things that we do look at as well is our market shares, our brand penetration numbers, because these in part are things that will help us mitigate the influences of these sectors or market conditions that we're faced with. So we have internal benchmarks and expectations on lowering our input costs, on improving with regards to the percentage of our business that is in the retail sector as well as the performance of our brands. And if I can check those 4, 5, 6 things off at the end of the year, I think we'll be able to say that we've created value for our shareholders and that we are well positioned for continued success. Speaker 800:49:12Okay. And just one more quick one here for Max. In terms of the buyback, given the approach for a balanced capital allocation, is this something that we should summon for the remainder of our forecast? Or should we just take it as it comes year by year? Speaker 300:49:28Well, you I mean, it's going to be part of our priority as we're looking the next 12 months. But like I said, I mean, the timing and I'm not going to commit on any timing and so on. But yes, you could factor it in within the next 12 months, that's for sure. Speaker 800:49:49Thank you. Operator00:49:55Thank you. Our next question comes back from the line of Michael Van Aelst from TD Securities. Your line is open. Speaker 500:50:04Thank you. Just a few clarifications. First, Carl, you talked about the you're being optimistic on the farmer vote in the U. S. Is that an all or none type vote? Speaker 500:50:18Are they voting on components of the formula individually? Or are they voting on take it or leave it just one vote? Speaker 200:50:29No. They don't vote on the components of the formula. They do vote on the package that is recommended. But there's also regions. So there could be a scenario whereby one region chooses not to vote for it favorably and are no longer part of the federal milk marketing order. Speaker 200:50:52And I kind of bring you back to another referendum that was held post 2010 when California, who was not part of the federal milk marketing order, decided to enter that ring, if you like. So there could be some regional differences in where the vote goes. But again, we're prepared to adapt to whatever those circumstances are. Speaker 500:51:20Okay. And then on your M and A comments, in the past, I think Lino had been saying that whatever if you were to do M and A, it has to be immediately accretive. Is that what you were trying to get out when you talked about, has to be consistent with your other or do at least better than what your other options are? Speaker 200:51:44Absolutely. I mean, we always look at it on the basis of, if we were to invest our own capital and you look at the kind of timelines associated to it coming to fruition, delivering to our bottom line versus that of a potential, whether it's a tuck in nature or something larger, it has to be accretive in nature. We're not looking for, I'm going to use the word a fixer upper that is going to distract us from what we're currently focused on. We'd be focused on ensuring that whatever comes our way and whatever we have an interest in delivers to the bottom line today and puts us in a position to deliver on what our commercial expectations and obligations not obligations, but our commercial objectives are. Speaker 500:52:40Okay, perfect. Thank you. Operator00:52:47Thank you. Seeing as there are no more questions in the queue, that concludes our question and answer session. I will now turn the call back over to Nick Estrada for closing remarks. Speaker 100:52:59Thank you, Dustin. Please note that we will release our Q3 fiscal 2025 results on February 6, 2025. We thank you for taking part in the call and webcast and have a great day. Operator00:53:15Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.Read morePowered by