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Foreign acquisitions on the agenda when Saputo reports results

Saputo, steered by CEO Lino Saputo Jr., has grown to its current $10-billion size through a series of increasingly ambitious acquisitions.<., president and chief executive officer of Saputo Inc., poses in their offices in Montreal, November 14, 2013.

Christinne Muschi/The Globe and Mail

Fresh from its takeover of Australia's oldest dairy, Saputo Inc. continues to map out a course pushing it further away from its mature domestic market and toward new higher-growth territory far from home.

Canada's largest dairy processor – and the third largest in North America – has grown to its current $10-billion size through a series of increasingly ambitious acquisitions since going public in 1997.

Much of this merger-and-acquisitions activity was focused on the United States, but chief executive officer Lino Saputo Jr. has been going further afield, with operations in Argentina and now Australia.

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How the integration of Australia's Warrnambool Cheese and Butter is proceeding as well as other potential takeover targets are likely to be discussed when Saputo unveils fourth-quarter earnings results Thursday.

Mr. Saputo has previously stated that there are solid acquisition opportunities in Brazil, the still highly fragmented U.S. market, and Australia and New Zealand.

Australia is the ideal platform from which to export to China and Taiwan, where milk and dairy-product consumption is rising, as well as to Japan and South Korea, where demand continues to grow at a good clip.

For the upcoming quarter, Warrnambool is not expected to do much for Saputo's earnings, given its recent integration and a traditional pattern of losses in the January-to-June period.

Closer to home, Canada is particularly problematic, with stiff competition hurting results.

"Canada is one area of weakness, where divisional EBITDA [earnings before interest, taxes, depreciation and amortization] is expected to fall 5 per cent in the face of continued irrational competitive pressures," TD Securities Inc. analyst Michael Van Aelst wrote in a recent research note.

"The near-term outlook for organic profit growth remains very challenging in Canada," he said, adding that he believes "the worst will be mostly behind Saputo" after the fourth quarter of 2014. "So we argue that it will be up to international (13 per cent of profits), the U.S. (46 per cent of profits) and acquisitions to deliver profit growth in [fiscal] 2015."

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Analyst Mark Petrie of CIBC World Markets Inc. said strong cheese prices and improved international results should drive EBITDA growth of 12 per cent in the quarter, on slightly lower margins.

He's anticipating earnings per share of 74 cents, while Mr. Van Aelst is looking for 76 cents. The analysts' average estimate is 76 cents.

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About the Author
Quebec Business Correspondent

Bertrand has been covering Quebec business and finance since 2000. Before joining The Globe and Mail in 2000, he was the Toronto-based national business correspondent for Southam News. He has a B.A. from McGill University and a Bachelor of Applied Arts from Ryerson. More

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