Bakers Journal

News
Saputo loses $2.6 million in fourth quarter


June 6, 2012
By The Canadian Press

June 6, 2012, Montreal – Despite stagnant snack cake sales, Canadian dairy and cheese giant
Saputo says it has no plans to sell its struggling bakery division after
taking a $125-million writedown that pushed its overall fourth quarter
to a loss.

"Our focus right now is to continue
to improve that division and it is not for sale," CEO Lino Saputo Jr.
said Tuesday in a conference call.

Efforts over the last two to three years have allowed the small division to at least keep its "head above water," he added.

Montreal-based
Saputo said it continues to work hard on increasing sales volumes to
the United States, but the non-cash goodwill impairment reflects
stagnating market growth for snack cake sales.

Advertisement

Saputo operates Vachon, Canada's top snack cake brand, and the maker
of such desserts as Jos. Louis, May West, Passion Flake and Ah Caramel.

The
bakery division's $134 million of annual sales last year represented
less than two per cent of the $6.9 billion of revenues dominated by
Saputo's dairy operations in Canada, the United States and Argentina.

The writedown caused Saputo to lose $2.6 million in the final quarter of its fiscal year.

Excluding
the one-time move, Saputo's earnings dipped to $122.4 million from
$126.6 million of profits in the year-earlier quarter.

The adjusted earnings amounted to 61 cents per share — a penny below analyst estimates compiled by Thomson Reuters.

Revenues increased four per cent to $1.7 billion, from $1.6 billion a year ago.

Saputo
said Tuesday that its earnings in Canada, Europe and Argentina
increased by $9 million during the quarter due to favourable dairy
markets and volume increases in South America, partially offset by
higher ingredient costs in Canada.

The
division's revenues increased by nearly 10 per cent to $1 billion. It
was helped by price increases resulting from the higher cost of milk in
Canada and Argentina.

A decrease
in the average "block" market for cheese and higher cost of milk was
largely responsible a decline in U.S. dairy earnings to $75.3 million
from $81.4 million a year ago. However, it benefited from operational
efficiencies and the acquisition of DCI Cheese Company, which helped to
add $131 million in revenues to $658.9 million.

Earnings
in Saputo's grocery segment increased by $3.6 million, mainly from
higher sales volumes and lower operating costs. Revenues grew 9.7 per
cent to $35 million.

For the
full year ended March 31, Saputo earned $380.8 million on $6.9 billion
of revenues, down from $450.1 million on $6 billion of sales a year
earlier.

Adjusting for the
writedown, earnings increased 9.8 per cent to $505.8 million or $2.47
per share, compared to $461.7 million or $2.21 per share in fiscal 2011.

The
results were largely in line with forecasts. The company was expected
to earn 62 cents per share in adjusted earnings in the quarter on $1.65
billion of revenues, and $2.46 per share on $6.8 billion of revenues for
the year.

"Despite challenging market factors we had a good year," the chief executive told analysts.

Saputo said he expects fiscal 2013 to continue to be challenging.

It
plans to target volume growth in Canada in the cheese and dairy
ingredient categories and pursue opportunities in the value-added milk
market such as adding flavoured products. Saputo plans to invest in
specialty cheeses to "maximize exposure across Canada, with
coast-to-coast distribution capabilities."

Saputo
said it continues to evaluate ways to reduce excess production capacity
at its plants in Canada, Europe and Argentina. But he told analysts
there is limited opportunity to consolidate manufacturing production in
Canada.

"In terms of
manufacturing presence we're pretty well as good as we can be given the
limitations of the quota system that we have in Canada," he said.

"Where
there might be some further opportunities for consolidation perhaps
might be in logistics, warehouse distribution and those are the types of
ideas and plans that we're discussing."

He
didn't specify where changes could take place. In an interview last
August, Saputo said the company was looking at consolidating its Quebec
distribution centres, much like it did a year earlier in Ontario.

Saputo and third-party companies operate five distribution centres in Quebec.

Irene Nattel of RBC Capital Markets said Saputo's results were "solid" in light of commodity headwinds.

"U.S.
segment EBITDA ahead of forecast which should be good news for capital
markets that typically focus more on US segment results," she wrote in a
report.

On the Toronto Stock Exchange, Saputo's shares closed up one cent at $41.73 in Tuesday trading.