Saputo upbeat on price elasticity as earnings squeezed: ‘Consumer trends in key categories remain positive’

By Katy Askew contact

- Last updated on GMT

Saputo expects retail demand to remain above pre-COVID levels despite price pressure / Pic: GettyImages-barmalini
Saputo expects retail demand to remain above pre-COVID levels despite price pressure / Pic: GettyImages-barmalini

Related tags: saputo, Dairy prices

Canadian dairy giant Saputo has said that it expects a ‘meaningful earnings improvement’ in 2023 and was bullish on the consumer outlook in dairy across core markets, despite some analysts warning of a possible demand slow-down.

Reporting fourth quarter earnings, the group said that it navigated ‘challenging’ conditions, particularly in the US. Forth quarter revenue totalled C$3.96bn, up 15.1% on the prior year. Net earnings, however, dropped to C$37m, compared to $103m in Q4 of last year, and adjusted EBITDA stood at C$108m versus C$124m.

“Our fourth quarter was challenging, notably in the US, as we navigated through commodity price volatility, increases in input and logistics costs, and labour and supply constraints, made even tougher by the Omicron surge,”​ said Lino Saputo, Chairman, President and CEO. “Nevertheless, our Canada, Argentina, and UK businesses continued to perform well and were in line with our expectations,”​ he added.

‘We have the right strategies in place to deliver’

Saputo cited a number of factors hitting its earnings, particularly in the US market where it produces brands including Black Creek and Frigo. The group felt the impact of supply chain and labour disruption, as well as higher logistics and input costs. It conceded that pricing action taken in the US was not enough to offset these expenses, and the market had a negative impact of C$19m on adjusted EBITDA. Currency exchange and restructuring costs also weighed on earnings.

Nevertheless, despite the significant fall in fourth quarter profit, Mr Saputo insisted the company is ‘laser-focused’ on tackling short-term challenges while delivering long-term goals. He said the dairy company is addressing external headwinds by balancing ‘price, volume, and costs’ as it works to improve margin. “We expect a meaningful earnings improvement in fiscal 2023.”

The company, whose brands also include Cathedral City and Vitalite, forecast input costs will remain at elevated levels moving into the coming year. However, it expects to offset this through pricing. “We expect further price increases to be implemented over the course of the fiscal year,”​ it said.

Analysts at Rabobank recently warned that higher prices could result in lower global demand for dairy products​ and warned that consumers in richer economies are not immune from the downturn. 

Inflationary pressures are likely to trigger lower demand as consumers face inflation levels not seen since the 1970s, they said. “While developed country consumers are usually more resilient to higher prices, this time around the impact on energy and fuel prices are severe and are resulting in changing consumer behavior,”​ Rabobank noted in a recent research report. 

Nevertheless, Saputo remained upbeat on demand outlook for retail dairy across its primary markets of the US, Canada and UK.

“Current consumer trends in key categories remain positive and price elasticity will continue to be closely monitored as the year progresses. We anticipate the retail market segment to remain strong as at-home food spending should remain elevated versus pre-pandemic levels, while the foodservice market segment is expected to remain competitive, particularly in the USA.”

The company said its positioning as a high-quality, low-cost processor will be leveraged to manage profitability and support the top line.

“We remain committed to executing on our strategic objectives and believe we have the right strategies in place to deliver sustainable, profitable growth over the long-term,”​ Mr Saputo concluded.

Related topics: Manufacturers

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