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Saputo CEO Lino Saputo Jr.

Paul Chiasson

Dairy company Saputo Inc. says it's not done seeking cost savings from its recently acquired Neilson Dairy business even though the purchase has already helped to diversify its operations and boost its first-quarter results.

The Montreal-based company reported net earnings of $84.8-million, or 41 cents per share, for the quarter ended June 30, up 2.2 per cent from year-earlier profits of $83-million, or 40 cents.

Quarterly revenue climbed 6.2 per cent to $1.45-billion from $1.36-billion a year ago.

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Saputo attributed the boost in sales in part to contributions from Neilson, which the company acquired from food producer George Weston Ltd. in December for $465-million.

"We will continue our ongoing analysis of cost structures and activities, which include manufacturing, distribution, warehousing and handling in order to further identify new ways to improve efficiencies while we remain a low-cost producer," chief executive officer Lino Saputo Jr. said in a conference call.

He said the Neilson acquisition allowed Saputo to add capacity and diversify its range of products to smaller formats not produced at its Brampton, Ont., facility.

"The two additional plants [in Ottawa and Toronto]really gave us a lot more breathing room and a lot more flexibility within our system," Mr. Saputo told analysts.

Dairy revenues in the United States were also helped by the relative weakness of the loonie to the U.S. dollar, offset somewhat by a 79-cent decline in the average block market per pound of cheese.

The U.S. dairy business has seen volumes remain stable despite more people eating at home.

Meanwhile, Saputo wouldn't rule out departing Britain altogether as it struggles to improve underutilization of its facilities after reduced milk prices caused farmers to switch to other processors.

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As a result, it reduced the number of jobs at the plant until world dairy prices adjust to more normal levels.

Mr. Saputo said the company has taken the same approach to Britain as it did in turning around its German facilities nearly two years ago.

"We're optimistic that we can take the right course for the U.K. business and hopefully that U.K. business will be around for a long time to come," he said.

Saputo also announced a half-penny increase in its quarterly dividend, raising it from 14 cents per share to 14.5 cents per share.

Irene Nattel of RBC Capital Markets said the 2010 fiscal year is off to a good start with the first-quarter results.

Earnings per share of 41 cents was ahead of the 36 cents consensus as Saputo "continued its unrelenting drive to improve productivity."

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The improvement reflects the early benefits from the Neilson acquisition and lower operating costs, she wrote in a report. Operating earnings for the Canada, Europe and Argentina business rose 17 per cent to $112.5-million. Sales increased 25.3 per cent to $945.7-million.

James Durran of National Bank Financial added that the results "affirm Saputo's ability to drive profitability in tough operating conditions."

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