Saputo posts higher year-end profits, eyes cost cuts

A “more favourable” dairy ingredients market helped boost year-end sales and profits for Canada’s biggest dairy processor, but bigger bills have Saputo looking at ways to contain its operating costs in 2011.

The Montreal company on Tuesday booked net earnings of $451.12 million on $6.025 billion in revenues for the year ending March 31, up from $382.71 million on $5.811 billion in its previous fiscal year.

Earnings before interest, taxes, depreciation and amortization (EBITDA) in Saputo’s fourth quarter rose in the company’s U.S. dairy products business on an increase in the average block market per pound for cheese and an improved market for dairy ingredients.

However, the company noted, a “less favourable relationship between the average block market per pound of cheese and the cost of milk as raw material,” along with the rising Canadian dollar, partly offset those costs compared to the previous Q4.

The company’s combined Canadian, European and Argentinian (CEA) dairy products business also gained on the improved market for dairy ingredients, but saw lower EBITDA in Q4 “explained mainly by lower efficiencies and higher costs.”

Among those were “certain products downgraded in value for having failed to meet the required specifications” — mould issues, according to various media reports — “and the resulting replenishment of these products through co-packing arrangements.”

Full-year EBITDA for the CEA dairy products business rose seven per cent to $490.1 million, compared to a 31.6 per cent increase in EBITDA for the U.S. business, to $287.4 million.

Saputo booked EBITDA of $12.6 million, meanwhile, in its grocery products sector for the full year, down $3.2 million from the previous year. Grocery products revenue in Q4 alone dropped about $4 million on “lower sales volumes and higher trade programs.”

“Operational efficiencies”

In its Q4, Saputo reported it also had to eat about $3.4 million in costs relating to the closure of its Brampton, Ont. fluid milk plant and consolidation of its distribution operations in Toronto.

Looking ahead, Saputo said its CEA arm “will continue to invest in projects to increase specialty cheese manufacturing capacity in order to bolster its presence in the growing specialty cheese category.”

Moreover, it said the division “will also continue to review overall activities in an effort to improve operational efficiencies and decrease operational costs.”

Saputo also booked a write-down of $13.6 million before taxes in fiscal 2011, which it said stems from an independent valuator’s report on the market value of the company’s portfolio investment. Saputo said it “intends to contest this outcome and to pursue all recourses and remedies available under the law.”

In other legal matters, Saputo and Kraft Canada’s joint legal challenge against new standards for composition of cheese manufactured in Canada was dismissed in February by the Federal Court of Appeal.

The two companies have filed a request for leave to appeal before the Supreme Court of Canada “and the matter is pending,” Saputo said.

Related stories:

Appeal court upholds milk minimums in cheesemaking, March 7, 2011

Saputo to shut Brampton dairy processing plant, March 30, 2010

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