After a difficult couple of years marked by supply chain and inflationary challenges, Saputo has shifted its emphasis to value above volume.
Since input prices “remain high” throughout the supply chain and labour, president and CEO Lino Saputo, Jr., said the Canadian dairy giant is “focused on achieving cost reductions in addition to pricing actions to offset some of the cost challenges we cannot control”.
“The operational environment remains dynamic,” Mr. Saputo said as he delivered third-quarter results through December 31, with adjusted EBITDA increasing almost 30% to CAD1.16 billion (US$868.3 million) for fiscal 2023 to date. “As a result, we are pursuing our efficiency and productivity measures.”
As part of its four-year strategic strategy, Saputo aims to increase that measure to CAD2.13 billion by the conclusion of the fiscal year 2025. Adjusted EBITDA increased 38% to CAD445 million in the quarter.
“Despite price increases compared to last year, dairy remains an inexpensive, versatile, and accessible alternative relative to other proteins on the market,” Mr. Saputo noted. “But, customers are value aware, so we’re satisfying their demands via specific product choices, pack sizes, and promotions.”
The adjusted EBITDA margin grew to 9.7% in the quarter from 8.3% in the same period in 2022.
Since the strategic plan’s debut in the summer of 2021, Saputo’s CEO has detailed the shifting market dynamics caused by pandemic-related supply chain bottlenecks and inflationary pressures.
“The second factor I would say that has changed substantially from the earlier stages of the strat plan, is we’re not concentrating on the volume objectives anymore, we’re focusing on value above volume. And this is a significant move to ensure that we maintain our margins and continue to offer a valuable product for our consumers in an environment where they’re willing to pay for the added value,” Mr. Saputo told investors on a post-results call.
Consolidation of manufacturing facilities
Despite pricing to offset growing input prices, Saputo’s volumes are largely holding up, while customers in Europe, particularly the United Kingdom, are bearing a greater pain from energy price increases than those in the United States or Canada. Volumes in Europe fell throughout the quarter.
“Our elasticities are only mildly growing, and we see solid market demand,” the CEO added.
He added: “In Europe, amid continued inflationary headwinds and a tough consumer environment in the UK, the firm improved its performance backed by price initiatives resulting into sales and EBITDA growth. Nonetheless, the persistent volatility in the operating environment put more pressure on operating margins.”
After previous statements about facility closures in the United States and Australia, Mr. Saputo hinted that more optimisation around manufacturing capacities might be in the works.
Earlier this month, the business announced plans to establish a new cheese factory in Franklin, Wisconsin, but only after closing three others: the Big Stone plant in South Dakota, the Green Bay facility in Wisconsin, and the South Gate facility in California.
As a consequence, Saputo anticipates “financial gains” beginning in the fourth quarter of fiscal 2024 and “fulfilling its full potential” of roughly CAD74m per year by the end of 2027.
“We’ll continue to close the margin gap as we go on with our global strategic plan activities, which include productivity measures, right-sizing our manufacturing footprint, optimising our plant operating expenses, and cost savings,” Mr. Saputo stated.
Saputo reported third-quarter sales of CAD4.6 billion, an increase of 18%. Thus far this year, it has increased by 20.7% to CAD13.4 billion.
Throughout the relevant quarters, net income almost quadrupled to CAD179m from CAD86m the previous year, and increased to CAD463m from CAD237m year to date.
Chronic labour shortages continue to be an issue for the dairy giant, particularly in the United States, implying that other food businesses are also experiencing employment difficulties.
“Like many other firms, we have been hampered by labour shortages, particularly in the United States,” Mr. Saputo said. “Staffing numbers and the influence on operational throughput have been a serious problem in the previous 18 months. While labour has improved significantly with increased worker stability, we are not yet out of the woods.”
