Canadian Manufacturing

Price war hurt Saputo’s Q3 results

by Ross Marowits, The Canadian Press   

Canadian Manufacturing
Environment Exporting & Importing Financing Manufacturing Operations Sales & Marketing Supply Chain Food & Beverage Agropur cheese dairy parmalat price war

CEO Lino Saputo Jr. singled out Agropur, a co-operative of dairy farmers, and Italian multinational Parmalat for starting a price war

MONTREAL—A year-long price war led by two large Canadian rivals has benefited consumers, but hurt Saputo Inc.’s profitability, the cheese and dairy processor says.

“You’ve got Canada that is a very stable market, very little growth and the only way our competitors are able to pickup marketshare is to steal that volume from someone else,” CEO Lino Saputo Jr. said February 5 after releasing the company’s third-quarter results.

The company’s profits increased 7.3 per cent from a year ago despite a 12 per cent drop in Canada caused by heightened competition and the delayed opening of a new distribution centre in the Montreal area.

Saputo singled out Agropur, a co-operative of dairy farmers, and to a lesser extent Italian multinational Parmalat for leading the price war.


“You wonder where the end game is. If you’re not making money can you really invest in your business so is that good for consumers, I don’t know,” he said, adding he hopes the battle will soon end.

Saputo said the company will take “all necessary actions” short of layoffs and closures to improve the profitability of the Canadian division.

Saputo (TSX:SAP) earned $154.6 million or 38 cents per diluted share for the three months ended Dec. 31. That was up from $144.1 million or 37 cents per share a year earlier.

Revenue increased 20 per cent to $2.82 billion, above analyst estimates of $2.66 billion. However, analysts had estimated 41 cents per share of adjusted earnings and 39 cents per share of net income.

Canadian revenues increased five per cent to about $1 billion, including a contribution from the bakery division which has since been sold Canada Bread Co. for $120 million.

The United States was Saputo’s biggest market, generating $1.39 billion of revenue and earnings that grew 15 per cent. Revenues from international markets grew by $172.5 million to $422 million, while earnings increased 63 per cent to $37 million, despite a $6.8-million writedown due to lower export prices.

With 35 to 39 per cent marketshare in Canada, Saputo has few opportunities for acquisitions in Canada.

But Saputo told analysts the company is focused on the United States, Australia, New Zealand and Brazil, where a deal could range between US$500 million and US$3 billion.


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