COVID-19 pandemic creates M&A opportunities: Saputo CEO
The dairy processor's fourth quarter profits were hit by a COVID-related shift in consumer demand
MONTREAL — Saputo Inc. believes the COVID-19 pandemic may present “great opportunities” for mergers and acquisitions, though travel restrictions present some difficulty in finalizing any possible deals, the chief executive said.
Typically, the Montreal-based dairy processor has three to four files on the table for possible acquisitions at any given time, said Lino Saputo during a conference call with analysts after the company released its fourth-quarter financial results.
“You can add more files to the table because our phone has been ringing,” he said.
The company is prepared to move forward on an acquisition that’s at the right value and fits its strategic development and orientation, he said.
“The only complication, I would say, in executing a file would be the due-diligence process because we are hands-on people.”
The company can _ and in many cases is _ performing virtual due diligence, but what it calls phase three of visiting manufacturing facilities presents challenges.
“That right now is going to be a bit more challenging,” said Saputo, noting travel restrictions may ease up at the end of the month.
“So the normal course of due-diligence process can continue,” he said. “So nothing is stopping us right now from continuing to move on in these files.”
As far as product categories, he said, Saputo is interested in cheese production, dairy powders and byproducts, but not necessarily yogurt and ice-cream for retail. Saputo is also interested in plant-based opportunities, he said.
The commentary on acquisitions came as the company saw earnings fall in its fourth quarter, missing analyst expectations, as the coronavirus caused a shift in consumer demand late in the quarter.
“This was a solid year for us, and the pandemic only started to impact our results late in our fourth quarter,” said Saputo.
Net earnings for the three-months ended March 31 totalled $88.7 million or 22 cents per share, compared with $124.2 million or 32 cents per diluted share for the same time the previous year.
Adjusted net earnings excluding one-time items were $98.8 million, or 24 cents per share, down from $125.8 million or 32 cents per share in the fourth quarter of 2019.
Revenue increased almost 15% to $3.72 billion from $3.24 billion.
The inclusion of acquisitions, currency changes, and higher international selling prices of cheese and dairy ingredients positively contributed to revenues, Saputo said. It noted the pandemic did not affect revenues significantly, but that it saw consumer demand shift globally for its products in the last two weeks of the fiscal year.
It saw an increase in retail demand, while orders from food service and industrial customers started to fall.
“We expect sustained retail sales in all of our geographies, but we cannot predict how long or how significant the increased demand levels will remain,” Saputo said.