Saputo has flipped its focus to value over volume after a challenging couple of years characterised by supply chain and inflationary pressures.
As input costs “remain high” across the supply chain and wages, president and CEO Lino Saputo, Jr., said the Canadian dairy major is “focused on executing cost savings in addition to pricing initiatives to offset some of the cost pressures we cannot mitigate”.
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“The operating environment remains dynamic,” Mr. Saputo said as he presented third-quarter results to 31 December, with adjusted EBITDA moving up almost 30% to CAD1.16bn (US$868.3m) for fiscal 2023 to date. “Consequently, we are advancing our efficiency and productivity initiatives.”
Saputo is aiming to boost that metric to CAD2.13bn by the end of the 2025 financial year as part of its four-year strategic plan, which includes “optimisation” initiatives. Adjusted EBITDA rose 38% in the quarter to CAD445m.
“Despite increasing prices compared to last year, dairy remains an affordable, flexible, and accessible option relative to other proteins on the market,” Mr. Saputo argued. “That said, consumers are value conscious, so we’re meeting their needs through tailored product offerings, pack sizes and promotions.”
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The adjusted EBITDA margin increased to 9.7% in the quarter from 8.3% in the corresponding three months of 2022.
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By GlobalDataSaputo’s chief outlined the changing market dynamics linked to pandemic-related supply chain constraints and inflationary headwinds since the strategy plan launched in the summer of 2021.
“The other element I would say that has changed dramatically from the initial phases of the strat plan, is we’re not focusing on the volume targets anymore, we’re focusing on value over volume. And this is a substantial shift to make sure that we keep our margins intact and that we continue to create a valued product for our customers in an environment where they’re prepared to pay for the incremental value,” Mr. Saputo told analysts on a post-results call.
Factory consolidation
Despite pricing to offset rising input costs, Saputo’s volumes are generally holding up, although consumers in Europe, and especially in the UK, are facing more of a burden from energy price hikes than the US or Canada. Volumes in Europe declined during the quarter.
“Our elasticities are only moderately increasing and we see good market demand, but we are closely monitoring for signs of changing consumer behaviours, the CEO said.
He added: “In Europe, despite persistent inflationary headwinds and a challenging consumer environment in the UK, the business improved its performance supported by pricing actions translating into revenue and EBITDA growth. The ongoing volatility in the operating environment, however, further pressured operating margins.”
Further optimisation around manufacturing capabilities could also be on the cards, Mr. Saputo suggested following recent announcements around plant closures in the US and Australia.
Earlier this month, the company revealed plans to build a new cheese factory in Franklin, Wisconsin, but replete with the closure of three others: the Big Stone plant in South Dakota, the Green Bay facility in Wisconsin, and the South Gate site in California.
As a direct result, Saputo expects to reap “financial benefits” from the final quarter of fiscal 2024 and “reaching its full potential” of around CAD74m annually by the end of 2027.
“We’ll continue to narrow the margin gap as we advance on our global strategic plan initiatives, which include productivity initiatives, right-sizing our manufacturing footprint, optimising our plant operating costs and cost savings,” Mr. Saputo explained.
Saputo reported third-quarter revenue of CAD4.6bn, up 18%. For the year so far, it rose 20.7% to CAD13.4bn.
Across the respective periods, net income almost doubled to CAD179m from CAD86m a year earlier, and climbed to CAD463m from CAD237m year to date.
Persistent labour shortages remain another headwind for the dairy giant, especially in the US, suggesting other food manufacturers are also facing the same challenges around hiring.
“Like many other businesses, we have been constrained by labour shortages, especially in the US,” Mr. Saputo said. “Staffing levels and the impact on operational throughput have been a major challenge in the past 18 months. Although labour has improved notably with greater workforce stability, we’re not out of the woods just yet.”
