Saputo sees decline in cheese sales in US and international markets but expects recovery

By Mary Ellen Shoup

- Last updated on GMT

Saputo said it will continue to expand and modernize its plants, with investments in equipment and processes designed to increase efficiency.
Saputo said it will continue to expand and modernize its plants, with investments in equipment and processes designed to increase efficiency.

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Canadian dairy company Saputo reported total revenue of C$11.16bn (US$8.29bn) for fiscal 2017, a 1.56% increase from C$10.99bn (US$8.16bn) for 2016 with the company’s fourth quarter decreasing by 0.5% due to lower sales in its cheese division in the US and international sectors. 

Net earnings for the fourth quarter increased by C$24m (US$17.8m) or 17% to C$165.2m (US$122.6m) due to the company adding C$76.4m (US$56.7m) in property, plants, and equipment.

 “Overall fiscal 2017 was a good year,”​ CEO Lino Saputo said during the company's Q4 earnings call.

“However, our fourth quarter proved to be more challenging than expected.”

Saputo added that lower volume sales and revenues in the fourth quarter matched years past as the holiday season is over and back-to-school promotions come to an end.

“The holiday hangovers is affecting us,”​ Saputo said. “I'm not overly concerned about the result of the fourth quarter.”

Lowered cheese demand in US

The company’s US and international sectors declined by 1% and 2.7%, respectively, impacted by the lower demand for cheese.

The average price for a pound of cheese decreased three quarters in a row hitting C$1.52 (US$1.13) per pound and Saputo explained that this affected the number of orders from its customers.

“They [customers] are trying to hold off on orders until they understand where the bottom is and then they replenish their inventories,”​ he said.

Saputo plans to regain some its losses in the US cheese division through its strategic capital project regarding the enhancement of its blue cheese production capacity.

“While we expect additional expenses relating to the start-up of this new facility, this capital expenditure project will allow the division to strengthen its position within the blue cheese category,” ​the company said in a statement.

Canada experiences growth

Canada grew revenues by C$10m/US$7.4m (1%) for the quarter compared to the same period last year due to higher selling prices related to the rising cost of milk as a raw material.

Unlike the US, Canada’s cheese category experienced a slight upturn, which was helped by a year-long marketing plan to relaunching the Saputo Cheese brand, which involved unifying its cheese packaging with one color to differentiate it on the shelf.

However, this increase was partially offset by lower sales volumes of juices, as Saputo exited that product category and traditional milk categories.

Saputo also mentioned that the company’s solid performance in Canada had to do with shutting down its Princeville, Quebec, and Sydney, Nova Scotia, operations and transferring production to more efficient facilities.

Positive outlook

Despite low single digit decreases in revenue and volume sales, Saputo remains optimistic moving into the next fiscal year.

“There's been no erosion of our customer base neither in the US or in Canada or in the international markets,”​ Saputo added.

“We still outpaced the market and we will always do that very responsibly, we will never be the lowest price product out there.”

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