Saputo Q2 Earnings Call Highlights

Key Points

• Saputo’s fiscal Q2 results strengthened: Revenue rose 4% to CAD 4.3 billion, adjusted EBITDA increased 14% to CAD 438 million, and the margin expanded to 10.3%. Adjusted net earnings grew 24% to CAD 221 million.
• High-protein dairy ingredients drove growth amid demand that Saputo says continues to outpace supply. U.S. adjusted EBITDA rose 23%, while Australia’s increased 39%; weaker U.S. cheese prices and higher costs partly offset gains elsewhere.
• Saputo expects its UK dairy division sale to close in the second half of fiscal 2027 for about CAD 1.7 billion. It plans to remain active in share buybacks and maintained its fiscal 2027 capital spending outlook of approximately CAD 500 million.

Saputo TSE: SAP reported higher earnings and wider margins in its fiscal 2027 second quarter, as demand and pricing for high-protein dairy ingredients helped offset weaker U.S. cheese markets and rising costs.

Adjusted EBITDA from continuing operations rose approximately 14% to CAD 438 million, while the margin expanded to 10.3% from 9.4% a year earlier. Revenue increased about 4% to CAD 4.3 billion, driven by ingredient prices, volume growth and selling price increases.

President and CEO Carl Colizza said high-protein ingredients were the primary driver of earnings growth and margin expansion. He also pointed to capacity investments and operational improvements, particularly in the U.S., as contributors to the quarter.

Adjusted net earnings rose 24% to CAD 221 million, and adjusted earnings per share increased 28% to CAD 0.55. CFO and Secretary Max Therrien said share repurchases contributed to the per-share improvement. Net earnings from continuing operations were CAD 213 million, or CAD 0.53 per share.

Protein demand and pricing

Colizza said demand for high-protein ingredients continues to outpace supply growth, while customers are absorbing the company’s added capacity. Saputo has created a dedicated ingredients division led by Steve Douglas to sharpen its commercial focus and expand its opportunities in global markets.

The CEO acknowledged that some ingredient prices have eased from their highs. Certain contracts will continue to reflect peak pricing in the coming months, while some volume is sold on a spot basis, he said. Pricing contracts typically run no longer than three or four months, although terms vary by country.

Colizza said Saputo does not base its investment return assumptions on peak prices. Asked whether returns could exceed assumptions made when the company embarked on its capital plan in fiscal 2022, he said some areas could outperform, with ingredients likely among them.

He also said he believes whey-based ingredient pricing has moved to a structurally higher level. Some customers are reformulating products in response to peak prices, using different dairy protein fractions or blends, but Saputo has not seen an overall weakening in ingredient demand over the past 12 months, he said.

Saputo declined to quantify ingredients’ contribution to year-over-year EBITDA growth or disclose product-level profitability. Colizza said the company’s ingredients facilities have varying degrees of flexibility to adjust production to market needs.

U.S. and Australia lead growth

In the U.S., adjusted EBITDA rose 23% to CAD 205 million, and the margin expanded to 9.6% from 7.8%. Revenue fell approximately 1% to CAD 2.1 billion, as lower cheese block and butter prices were largely offset by higher ingredient and selling prices.

Therrien said high-protein ingredient prices and capacity investments drove the improvement. The business also benefited from warehouse consolidation, the elimination of duplicate costs across plants and customer fulfillment. Colizza said demand for cottage cheese and string cheese was running ahead of Saputo’s capacity. New string cheese capacity at Las Cruces was starting up, while an expansion at the Friendship cottage cheese operation was moving forward.

Canada’s revenue rose 3% to CAD 1.4 billion, while adjusted EBITDA held steady at CAD 179 million. Its margin narrowed to 12.7% from 13%, as inflation and higher selling, general and administrative costs offset benefits from ingredient prices, product mix and investments.

International revenue, consisting of the Australian dairy division, rose 20% to CAD 701 million. Adjusted EBITDA increased 39% to CAD 54 million. Therrien attributed the improvement in part to greater milk availability, improved volume and better fixed-cost absorption. Colizza said Australia had delivered year-over-year adjusted EBITDA growth for eight consecutive quarters.

Divestments and capital allocation

Therrien said the proposed sale of Saputo’s Dairy Division UK to Lactalis is expected to close in the second half of fiscal 2027, with estimated proceeds of approximately CAD 1.7 billion. The U.K. division is reported as a discontinued operation, as is the Argentine division, whose sale closed in June. The sale of Saputo’s interest in the Danone Saputo Dairy Australia joint venture is expected to close in the third quarter for approximately CAD 250 million.

Saputo ended the quarter with net debt equal to 1.55 times adjusted EBITDA. Including estimated net proceeds from the U.K. transaction, the ratio would be 0.52 times, Therrien said. The company’s long-term target remains 2.25 times.

Saputo repurchased approximately 5.3 million shares for CAD 216 million during the quarter and paid CAD 83 million in dividends. It expects to remain active in share repurchases and intends to seek renewal of its normal course issuer bid. The board declared a quarterly dividend of CAD 0.21 per share, payable Dec. 11.

The company maintained its fiscal 2027 capital spending expectation of approximately CAD 500 million for continuing operations. Colizza said Saputo plans incremental investment to support growth in categories including cultured products, value-added beverages and ingredients, while also considering acquisitions and other strategic investments.

Asked about trade restrictions, Colizza said the effect on Saputo had not been material to date, including from the recent ban on Canadian whey solids entering the U.S. The restriction has complicated optimization of the ingredients platform, he said, but Saputo continues to add value to those whey solids in Canada.

About Saputo (TSE:SAP)

Saputo, one of the top ten dairy processors in the world, produces, markets, and distributes a wide array of dairy products of the utmost quality, including cheese, fluid milk, extended shelf-life milk and cream products, cultured products, and dairy ingredients. Saputo is a leading cheese manufacturer and fluid milk and cream processor in Canada and a leading dairy processor in Australia. In the USA, Saputo ranks among the top three cheese producers and is one of the top producers of extended shelf-life and cultured dairy products.

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