Saputo's CEO Discusses Q3 2012 Results - Earnings Call Transcript

Saputo (SAPIF.PK)

Q3 2012 Earnings Call

February 07, 2012 2:30 pm ET

Executives

Lino Anthony Saputo - Vice Chairman of the Board, Chief Executive Officer and President

Sandy Goldberg -

Louis-Philippe Carrière - Executive Vice President of Finance & Administration and Secretary

Analysts

Irene Nattel - RBC Capital Markets, LLC, Research Division

Martin Landry - GMP Securities L.P., Research Division

Michael Van Aelst - TD Securities Equity Research

Peter Sklar - BMO Capital Markets Canada

Mark Petrie - CIBC World Markets Inc., Research Division

Presentation

Operator

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Ladies and gentlemen, thank you for standing by, and welcome to Saputo's Inc. Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Tuesday, February 7, 2012. It is now my pleasure to introduce Mr. Lino Saputo, Jr., chief Executive Officer and Vice Chairman of the Board. You may begin, sir.

Lino Anthony Saputo

Thank you, Franz.

Sandy Goldberg

Good afternoon, everyone, and thank you for joining us today. A press release detailing our fiscal 2012 third quarter results was issued earlier today, and is also available as we speak on our website at www.saputo.com. This call is being recorded and will be posted on our website for future reference. I would like to underline that our Internet listeners, as well as journalists are on a listen-only mode. Members of the media are invited to ask their questions by phone after this call.

Before we proceed, I'll remind you that certain information that will be discussed during this call may constitute forward-looking information within

[Audio Gap]

The speakers today are Mr. Louis-Philippe Carrière, our Executive Vice President, Finance and Administration; and Mr. Lino A. Saputo, Jr., our President and Chief Executive Officer, and Vice Chairman of the Board. After a brief presentation, we will conclude the call with your questions. Louis-Philippe will now begin the conference followed by Lino Jr.

Louis-Philippe Carrière

Thank you, Sandy, and good afternoon. I will now present the highlights of our results for the third quarter of fiscal 2012 in comparison to those of the corresponding quarter last fiscal year. Net earnings totaled $129.8 million, an increase of $17.7 million. Earnings before interest, income taxes, depreciation and amortization, EBITDA totaled $207.3 million, an increase of $16.2 million.

EBITDA for Canada, Europe and Argentina Dairy Products Sector totaled $131.9 million, an increase of $5.9 million. In the Dairy Products Division in Canada, favorable dairy ingredients and market conditions contribute to the EBITDA increase. EBITDA for the Dairy Products Division in Europe and division in Argentina remained stable. EBITDA for the U.S. Dairy Products Sector totaled $72.7 million in comparison to $61.4 million.

Initiative undertaken in current and prior fiscal years with regards to operational efficiencies, the inclusion of EBITDA derived from the DCI acquisitions and higher sales volumes offset increased operational costs and the Canadian impact of higher milk costs resulting from the revised milk pricing formula in California. These factors combined increased EBITDA by approximately $22 million.

During the quarter, the combined market factors had an indicative impact of approximately $8 million on EBITDA. These market factors include a less favorable spread, a better inventory realization and better fixed cost absorption. Also inventory was written down by $3.9 million in accordance with the sudden drop in the block market at the end of the quarter.

EBITDA for the Grocery Products Sector amounted to $2.7 million, a $0.9 million decrease. Consolidated revenue has totaled $1,796,000,000, an increase of 17.1%, mainly due to the inclusion of revenue was derived from the DCI acquisition, a higher average block market per pound of cheese, increased sales volume and a more favorable dairy ingredients market in the U.S. Dairy Products sector. Higher selling price in relation to the higher cost of milk in the Canadian and Argentinian divisions, and higher sales volume in the Argentinian division also increased revenues.

Cash generated by operating activities amounted to $218.8 million, a 5% increase. The company purchased share of capital totaling $49.6 million in accordance with its normal course of issuer bid and paid $38.1 million in dividends.

Finally, the Board of Directors approved a dividend of $0.19 per share payable on March 16, 2012 to common shareholders of record on March 5, 2012.

Lino Jr. will now proceed with the presentation of our outlook.

Lino Anthony Saputo

Thank you, LP, and good afternoon to you all.

In our third quarter, we've increased revenues and sales volumes in certain markets. We've strengthened operational efficiencies and experienced a more favorable dairy ingredients market. And customary to our character, we pursued our efforts at finding ways to increase operational efficiencies and to reduce operational costs. Specifically this quarter, we continued to focus on maximizing synergies from our consolidation activities. We continued our investment strategy in product categories offering growth potential such as specialty cheeses and value-added milk products in Canada's stable markets. We continued to promote our leading retail brands and we deployed our efforts to maintain current volumes in the export market. Additionally, we continued to focus on evaluating opportunities related to the DCI acquisition. As well in our ongoing effort to increase sales volumes in the Grocery Products Sector, we pursued sales development in the U.S.

During this quarter, we also announced changes to our senior management structure. Effective April 1, 2012, Dino Dello Sbarba, who has been with our company for over 22 years, will hold the position of President and Chief Operating Officer, Saputo Inc. In his new role, he will continue to report to me. With this change, Lorenzo Spinelli will be named President and Chief Operating Officer, Dairy Products Division Canada. Lorenzo joined the company in 1998 and has held various senior management positions in operations. We also welcome Kai Bockmann to the position of President and Chief Operating Officer, Dairy Products Division International, formerly known as the Dairy Products Division Europe and Argentina. Our last structural change to senior management was in 2001 and has served us well over the years. We are confident this new structure will support our current and future developments. This said, we will continue to concentrate our efforts on providing dairy products to meet and exceed customer demand, domestically and internationally, with the overall objective to maintain our flexibility and our capacity as we adapt to market shifts and to pursue growth. On that note, I thank you for your time, and we will now proceed to answer your questions. Franz?

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