Saputo sees signs of life in U.S. economy as food services sales increase in Q3

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The corporate logo for Saputo is shown. THE CANADIAN PRESS/HO

MONTREAL - Canadian cheese and dairy giant Saputo is beginning to see benefits from the U.S. economic recovery as sales of food services to restaurants south of the border are showing signs of life.

"There is more disposable income in the United States and it's reflecting in more consumption of our types of products within the U.S. quick service restaurant categories," CEO Lino Saputo Jr. said Tuesday during a conference call.

The Montreal-based company saw its revenues and profits grow in the third quarter of its fiscal year, in part due to increased activity south of the border.

Saputo's overall profits increased by nearly 16 per cent to $129.8 million, or 64 cents per share for the period ended Dec. 31.

That compares with 54 cents a year earlier when profits totalled $112.1 million.

Revenues grew 17 per cent to $1.8 billion, up from $1.53 billion in the year-ago period.

Saputo (TSX:SAP) was expected to report 63 cents per diluted share in earnings on $1.75 billion of revenues in its third quarter, according to analysts polled by Thomson Reuters.

The chief executive said the increased food services revenue, which it didn't not quantify, took some pressure off retail sales. During the recession, sales of dairy for consumption at home increased as people ate out less.

"It's not because the food service category is growing that we're not focusing on retail products," Saputo told analysts.

The multinational company operates in Canada, the United States, Germany and Argentina. It produces milk, cheese, yogurt and snack cakes under well-known consumer brands such as Saputo, Armstrong, Baxter, Dairyland, Dragone, Frigo, Nutrilait, Neilson, Stella and Vachon.

Sales were up mainly due to the inclusion of revenues from the U.S. acquisition of DCI, higher average block market per pound of cheese, increased sales volumes and a more favourable dairy ingredients market in the United States.

Irene Nattel of RBC Capital Markets described the quarter as "solid and in line" with expectations.

U.S. profit margins continued to be lower than forecast due to the lower level of profitability at DCI, but revenues exceeded, she wrote in a report.

Higher selling prices and sales volumes in Canada and Argentina also boosted revenues.

The dairy giant's Canadian operations generated $131.9 million of earnings, up nearly five per cent from the prior year as revenues surpassed $1 billion.

U.S. earnings grew 17.9 per cent to $72.5 million as acquisitions increased revenues to $722.7 million from $502.9 million in the prior-year period.

The grocery segment continued to struggle. Profits fell by 25 per cent to $2.7 million, from $3.6 million as revenues were down $5.2 million or 14 per cent to $31.6 million.

The dairy firm has announced a corporate shakeup that will see long-time company executive Dino Dello Sbarba taking over in April as president and chief operating officer.

Lino Saputo Jr. will remain CEO and vice-chairman, while other executives will take over the Canadian and international dairy operations.

The company's structure will also be altered to separate the Canadian operations from Europe and Argentina.

The move will allow the company to "get a little bit more aggressive at being an international player," Saputo Jr. said.

The company expects dairy demand in emerging countries such as China and India will increase as their growing middle classes seek to add dairy proteins.

In addition to looking for new acquisitions, the company's current global network will allow it to meet this increased demand.

And, if ever Canada alters its supply management system, the company would be in a great position to service markets from operations in Argentina, the U.S., Canada and Europe, Saputo Jr. said.

"I believe we're sitting on very good portfolios to be able to feed the world," he said.

"There's very few companies that are set up the way we're set up and...I think we'll be ahead of the curve" if Canadian regulations change.

Saputo voluntarily recalled one of its milk products sold in Ontario and Aylmer, Que., recently because it may contain a cleaning solution.

Saputo is the world's 12th-largest dairy processor and Canada's largest with more than 10,200 employees producing and marketing cheese, milk, yogurt and dairy products from 47 plants around the world. It is also Canada's largest snack cake producer.

On the Toronto Stock Exchange, its shares closed at $41.48, up 56 cents in Tuesday trading.