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Saputo blames falling US cheese price for Q1 profits drop

By Mark Astley , 01-Aug-2012

Canadian dairy giant Saputo has reported a profit decrease of more than CAD$6m for Q1 fiscal year (FY) 2013, attributing the result to a fall in the average price of cheese in the United States.

In its financial results for the period 1 April 2012 to 30 June 2012, the Montreal-based company reported consolidated revenue of CAD$1.698bn - an increase of CAD$59.3m (3.6%) on Q1 FY 2012. 

However, earnings before interest, income taxes, depreciation and amortization (EBITDA) suffered a 3.1% decrease on Q1 FY 2012 results – dropping by CAD$6.6m to CAD$203m.

In the US, the average price per pound of cheese decreased fell by US$0.20 from $1.736 in Q1 2012 to $1.539 in Q1 2013. This and other “unfavourable market factors” left a CAD$14m hole in Saputo’s US Dairy Division, the company added.

Elsewhere, the firm’s Argentinian Dairy Division reported a CAD$2.5m inventory write down in accordance with the drop in export market selling prices.

Unfavourable market factors

“A decrease in the average block market per pound of cheese in the USA Dairy Products Sector decreased revenues as compared to the corresponding quarter last fiscal year,” said a statement accompanying the Q1 results.

“This decrease is explained by unfavourable market factors of approximately $14m in the US and an inventory write down of $2.5m in the Argentinian division of the CEA Dairy Products Sector. These were particularly offset by a better dairy ingredients product mix and the favourable impact of increased sales volumes in the Dairy Products Division (Canada),” it added.

US cheese prices and the Argentinian inventory write down were, however, offset by higher selling prices relating to the high cost of milk in Saputo’s Canadian and Argentinian business and the overall result of the firms’ CEA (Canada, Europe, Argentina) Dairy Products Sector.

The firm’s CEA (Canada, Europe, and Argentina) Dairy Products Sector recorded revenue of CAD$1.025bn for the quarter – an increase on the CAD$970.3m recorded in FY 2012. EBITDA hit CAD$127.8m – an increase on the CAD$125.3 recorded in Q1 FY 2012.

CEA results offset the US dairy division, which recorded a drop of more than CAD$8m on the CAD$80.8m EBITDA recorded in Q1 FY 2012.

Looking ahead

Looking ahead, Saputo anticipates a number of challenges across all segments.

Its European division looks set to suffer as milk prices on the continent remain unstable, and the firm’s business in Argentina faces the prospect of remaining competitive in the dairy exports market while raw milk costs continue to increase.

In Canada, the company is looking to capitalise on opportunities in value-added milk and speciality cheese.

Saputo, which manufactures and markets a variety of dairy products including cheese, fluid milk, yogurt and dairy ingredients, is the largest dairy processor in Canada, the third largest in Argentina and among the top three cheese producers in the US.

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