Saputo is confident the Canadian dairy major is on a “clear path to recovery” in its new fiscal year, with a key profit target still in sight.
President and CEO Lino Saputo, Jr. admitted the results for the 12 months to the end of March were “disappointing” as net income and EBITDA both dropped amid persistent challenges around labour, supply-chain disruptions and inflationary input costs.
The CEO is partly resting his assumptions on pricing across Saputo’s main markets in North America, Europe – prominently the UK – and Australia, as well as cost and productivity initiatives. However, while pricing actions supported an increase in revenues in fiscal 2022, they were not enough to recover costs in full, with supply bottlenecks limiting the “ability to fully meet growing consumer demand”.
“Although inflation and supply-chain disruptions are likely to persist, we nonetheless expect a recovery in fiscal 2023, and we see a clear path towards it,” Mr. Saputo told analysts on a post-results call. “We’ve taken significant pricing actions throughout 2022 to offset inflation, and we expect these initiatives to be fully reflected in our results next year.”
While full-year adjusted EBITDA fell 22% to CAD1.16bn (US$901.3m), Mr. Saputo said the Cathedral City cheese maker is “aggressively working our plan, keeping a view on maximising long-term value creation”.
He added: “We’re poised for a recovery in fiscal 2023. And we are well underway with the full-scale rollout of our growth, cost and productivity initiatives. Together, this should set the stage for accelerated growth in the back half of our strategic plan, with a clear line of sight to our adjusted EBITDA target of $2.125 billion by the end of fiscal 2025.”
Australia and the US were especially challenging markets. A declining milk pool weighed on results in Australia, to the effect the supply “significantly impacted efficiency and costs”.
Mr. Saputo was questioned on the long-term plan for Australia given the suggestion the business has not performed as anticipated, but the CEO insisted the Asia-Pacific country is part of the “clear path to recovery”.
“What we’re looking at, in terms of our Australian platform, is not volume. It’s value,” the CEO countered. “And I believe that there is a way with the amount of milk that we’re processing, or we expect to process, to still drive very healthy profitability.”
In the US, Saputo as a company “faced the most adversity”, the chief executive said, “where challenges have been more acute in terms of labour, inflation and the supply chain”.
Mr. Saputo added: “We expect improved staffing levels in the US in fiscal 2023, following our aggressive hiring and retention initiatives and assuming lower Covid-19 related absenteeism. This should translate into better output, improved productivity and the beginning of a return to more normal sales volume levels.”
He said a new round of prices increases should get Saputo back to 2021 profitability. A new wave is about to be implemented in the UK and another round in Australia in the second quarter of the new fiscal year.
Saputo, meanwhile, is also in discussions to add to February’s increase in milk prices in Canada, most likely in August, with a “high” likelihood assigned to that probability.
Pricing in the US became effective in April with a further round planned to come in on 5 July.
“What you’re seeing is a little bit of a change from last fiscal year where we were playing defence. Now, we’re playing offense,” Mr. Saputo said. “We are progressive, and we’re proactive at passing the increases that we need to pass, irrespective of what impact that might have on volume, but we don’t suspect that volume will be impacted greatly.
“We are continuously monitoring input costs and are preparing ourselves and our customers to possibly go for further pricing rounds should we need it. Critical to improving our profitability is maximising our fixed-cost leverage and being staffed to our usual levels to run our plants full, specifically in the US.”
Saputo’s fiscal 2022 revenues rose 5.2% to CAD15bn. Adjusted EBITDA fell 22% to CAD1.16bn, while net income slid 56% to CAD274m.
Mr Saputo wrapped up: “The tone, the focus, the understanding of where our business is at is so much more clear this year. If you recall last year, when the economies were opening up, many companies were looking for labour, many companies had to get product to market in terms of supply chain and distribution, and it seems like everybody was looking for the same resources, all at the same time.
“This year, our sites are clear about our realistic headwinds, but also very clear about our mitigating factors and what we need to do to make sure that we have success.”