Saputo fights for growth through quality, service

by Eric Schroeder
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MONTREAL — Solid revenues and EBITDA gains in the United States during the first quarter of fiscal 2015 have Saputo, Inc. hungry for more, and the Canadian dairy processor still sees room for growth over the remainder of the year in the United States.

“In the U.S., we’ll work towards capitalizing on the Dairy Food Division's national manufacturing distribution footprint and take advantage of our infrastructure,” Lino Saputo Jr., chief executive officer and vice-chairman of the board, said during an Aug. 5 conference call with analysts. “Additionally, in FY15 we will maintain our focus on recuperating lost volume in the Cheese Division USA. The division plans to continue to gain distribution in market share towards premium lines of packed cheeses and flavored blue cheese offerings.”

In the USA Sector, which includes the Cheese Division (USA) and the Dairy Foods Division (USA), Saputo posted EBITDA of C$117.8 million ($107.6 million), up 5% from C$112.6 million a year ago. Revenues increased 23% to C$1,291.9 million ($1,180.2 million) from C$1,053.3 million.

To recoup some of the lost cheese volumes in the United States Saputo has focused on quality and service, Mr. Saputo said.

“Last year Q1 we were faced with quite a bit of competition in the United States,” he said. “And we said very early on that there are two approaches we can take. One could be to fight on price, or the other one to fight on quality and service. We choose to fight on quality and service, and unfortunately it takes a little bit longer to get those customers back, or to look at new customers and a new customer base. And I’d say our patience has really worked in our favor. We have gained some market share in the U.S., both on the food service and on the retail side. And we’ve gained that really by being extremely disciplined and focused on what is important for us. Again, the primary focus for us is to gain our customers, whereby we can have a compelling argument to be a long-term supplier for a high-quality product. And our patience has really paid off for us.”

Saputo also has been patient in its approach to integrating Morningstar Foods, L.L.C. Acquired in January 2013 from Dallas-based Dean Foods Co. for $1.45 billion, Morningstar has been nearly fully integrated into Saputo.

“We unplugged from the Dean Foods system, and we plugged into the Saputo system,” Mr. Saputo said. “We had a few challenges along the way, but nothing that we weren’t able to handle and correct. So from an integration standpoint and systems standpoint, no real issues to date. In terms of culture, the Saputo culture in terms of focusing on raw materials costs and operational efficiencies, I think that a year into this acquisition I can say that as we look at the Dairy Foods business, no different than the way we look at the Saputo Cheese USA business. In fact, as we look at our quarterly reviews and our meetings with management, the discussions, the proactiveness, and the approach is very, very similar between the Cheese and the U.S. business in Dairy Foods.”

As the company moves through fiscal 2015, Mr. Saputo said it will continue to look to capitalize on the Dairy Food Division’s national manufacturing distribution footprint and take advantage of infrastructure.

“We’ve got 10 plants across the U.S.,” he said. “Each of those plants is manufacturing products that are specific to our customer base, but the great thing in terms of capitalizing is now we have a great platform by which we can consider other potential acquisitions. There are some inter-company-related opportunities that we can look at between Cheese and Dairy Foods when you look at our customer base and customer profile, we can share in terms of strategies and ideas. But I think the real catalyst for improved margins in Dairy Foods will come through the next acquisition we do in the Dairy Food space.”

Net earnings at Saputo in the first quarter ended June 30 were C$145.3 million ($132.7 million), equal to C$0.74 per share on the common stock, up 6% from C$136.7 million, or C$0.70 per share, in the same quarter a year ago. Revenues totaled C$2,620.8 million, up 21% from C$2,173.5 million.
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