Saputo revenues up despite coronavirus impact

Consolidated revenues for the three-month period ending March 31, 2020, totalled C$3.719bn (US$2,776bn), an increase of 14.9%. The inclusion of both the Dairy Crest acquisition and the Specialty Cheese Business acquisition contributed positively to revenues.

The combined effect of a higher average block market per pound of cheese and a lower average butter market per pound increased revenues by approximately C$74m (US$55.2m) despite the sharp market downward pressure that occurred in the last two weeks of the quarter.

The devaluation of the Argentine peso and the Australian dollar versus the US dollar in the export market had a positive impact on revenues. Additionally, higher international selling prices of cheese and dairy ingredients, as well as higher domestic selling prices in the Canada and international sectors, due to the increased cost of milk as raw material, positively impacted revenues.

These increases were partially offset by lower sales volumes as a result of competitive market conditions in the cheese category in the US and the decline of raw milk availability in Australia. Also, the fluctuation of foreign currencies versus the Canadian dollar decreased revenues by approximately C$10m (US$7.5m), mainly in the international sector.

The coronavirus pandemic was declared late in the quarter and did not affect revenues significantly, the company said.

In fiscal 2020, revenues were C$14.944bn (US$11.153bn), an increase of C$1.442bn (US$1.076bn) on the last fiscal year. Revenues increased due to the contribution of recent acquisitions, including C$765.9m (US$571.6m) generated by the Dairy Crest acquisition for the 50-week period ended March 31, 2020.

The combined effect of a higher average block market per pound of cheese and a lower average butter market per pound increased revenues by approximately C$351m (US$262m). The devaluation of the Argentine peso and the Australian dollar versus the US dollar in the export market had a positive impact on revenues. Additionally, higher international selling prices of cheese and dairy ingredients, a favourable product mix, as well as higher domestic selling prices in the Canada and international sectors, due to the increased cost of milk as raw material, positively impacted revenues.

The increases were partially offset by lower sales volumes as a result of competitive market conditions, mainly in the fluid milk category in Canada and the cheese category in the US, and the decline of raw milk availability in Australia. The fluctuation of foreign currencies versus the Canadian dollar decreased revenues by approximately C$231m (US$172m).

Consolidated adjusted EBITDA for the three-month period ended March 31, 2020, was C$298.4m (US$222.7m), up 8.5%. The contribution of the Dairy Crest acquisition increased adjusted EBITDA by C$46.6m (US$34.8m), and the Specialty Cheese Business acquisition also contributed positively to adjusted EBITDA.

The COVID-19 pandemic had a negative impact on adjusted EBITDA caused by the shift in consumer demand, mainly in North America, during the last two weeks of the quarter. This includes a C$26.9m (US$20.1m) loss from unsellable inventory destined to foodservice customers and other expenses in the Canada and the US, and an inventory write-down of C$17.9m (US$13.4m) a result of the decrease in certain market selling prices in the US sector.

In fiscal 2020, consolidated adjusted EBITDA was C$1.468bn (US$1.095bn), a 20.2% increase on the previous year. The contribution of the Dairy Crest acquisition for the 50-week period ended March 31, 2020, increased adjusted EBITDA by C$143.1m (US$106.8m).

The COVID-19 pandemic negatively affected adjusted EBITDA late in the fourth quarter of the fiscal year.

Acquisition and restructuring costs for the three-month period and fiscal year ended March 31, 2020, amounted to C$13.8m (US$10.3m) and C$46m (US$34.3m), respectively. For the three-month period ended March 31, 2020, the company incurred severance and closure costs, and impairment charges for property, plant and equipment relating to the previously announced plant closures in Trenton, Ontario, and Saint-John, New Brunswick.

In fiscal 2020, acquisition costs were incurred for the Dairy Crest acquisition and the Specialty Cheese Business acquisition, which included approximately C$18m (US$13.4m) of stamp duty taxes.

Coronavirus

In March 2020, the coronavirus outbreak was declared a pandemic by the World Health Organization. The related confinement measures and government-imposed closures significantly impacted consumer demand, the company said. In the last two weeks of fiscal 2020, the company said it witnessed a shift in consumer demand on a global scale for its products. Orders from customers in the foodservice and industrial segments began to decrease while an increase was felt in the retail segment. The company also started to face a decrease in export sales as a result of local lockdowns in some of its export markets.

Saputo said it expects sustained retail sales in all its geographic markets but is unable to predict how long or how significant the increased demand levels will remain. The positive impact on EBITDA resulting from increased retail sales volumes will not offset decreased sales volumes in the foodservice and industrial market segments.

Efforts dedicated to the foodservice and industrial channels will be aligned and deployed with the objective of responding to customer demand from those segments when such demand begins to recover, although the timing and magnitude of such a recovery of volume are hard to predict.

Currently, it said, all divisions continued to experience sustained retail market segment demand and began to observe signs of a slight recovery of demand in the foodservice and industrial segments, which represented approximately 51% of the company’s consolidated revenues in fiscal 2020. Also, several countries where export customers are located slowly began easing COVID-19 lockdown measures since the beginning of May 2020.

The return to the financial performance levels of fiscal 2020 will likely take more than 12 months and will be gradual and dependent on the recovery of volume in the foodservice and industrial market segments.

However, it said despite lower sales and production volumes in North-America and sales into export markets, it guaranteed no lay-offs related to the COVID-19 crisis throughout the company until further notice.

Saputo said it aims to continue to achieve profitable long-term growth and is well positioned to continue to grow through targeted acquisitions and organically through strategic capital investments, innovation and product portfolio diversification.

The company added it is also committed to diversifying its product portfolio by pursuing plant-based opportunities through a series of investments in manufacturing, sales and distribution.