Saputo, a Canadian dairy major, is facing challenges in achieving its key 2025 profit target due to waning consumer demand and ongoing market headwinds in the food and beverage industry.
Despite implementing pricing initiatives, Saputo’s revenue in the first quarter of the 2024 financial year decreased by 2.8% to C$4.2bn ($3.1bn). The company’s president and CEO, Lino Saputo Jr., had previously expressed commitment to achieving an annual adjusted EBITDA target of C$2.125bn by fiscal 2025, but now it seems unlikely to be accomplished as planned.
Although there was a 4.3% increase in adjusted EBITDA, reaching C$362m in the three months ending 30 June, Lino Saputo Jr. expressed a pessimistic outlook due to “significant market headwinds and lower consumer demand”.
In a recent presentation of the financial results, he stated, “We experienced a drop in global demand and significant volatility in the US and the global commodities markets. This recent trend has persisted, which confirms our cautious stance on the macro-environment and the consumer, particularly as it relates to customer spending levels and behavior. While it would be premature to predict when market conditions are expected to stabilize, we believe they are transitory. We will focus on the long-term earnings potential of our business.”
Although the exact timeline for meeting the EBITDA profit target was not provided, Lino Saputo Jr. mentioned, “We remain confident in our operating model and global strategic plan initiatives designed to deliver C$2.125bn in adjusted EBITDA annually. However, given the current environment, we no longer expect to achieve our adjusted EBITDA fiscal 2025. We do nonetheless anticipate dairy markets to stabilize over time.”
Maxime Therrien, the finance chief, explained during the analyst call that the growth in first-quarter EBITDA was driven by various factors, including higher average selling prices, cost containment measures, logistics cost reduction, and efficiency initiatives. However, these gains were partially offset by negative impacts, such as unfavorable realization of cheese inventory in the US market and lower sales volume affecting operational efficiencies and fixed costs absorption.
“Depressed” pricing
When asked about the impact of waning consumer sentiment, Lino Saputo Jr. highlighted that international pricing is depressed, particularly due to low demand from China. He emphasized the company’s confidence in its earnings power and the unchanged target number. However, he acknowledged the unpredictability in pricing and consumer sentiment that creates challenges in meeting the target within the set timeline.
CFO Therrien added, “At the moment, we are monitoring all the costs that are coming to us and acting responsibly on the market. We do not have the intention of bringing prices down in our domestic markets.” He also mentioned that consumer sentiment in the US is relatively stronger compared to global demand, which is particularly impacted in China.
Saputo’s first-quarter revenues varied by region. Revenues in Canada increased by 9% to C$1.2bn, while in Europe, they rose by almost 12% to C$252m. However, the US experienced a decline of 6.8%, reaching C$1.9bn, and the international segment saw a decrease of 5.2% to C$868m.