Food: Montreal-based cheesemaker's Q2 profits surge 37 per cent to $94.5 million on Neilson contribution

B4

Ross Marowits
THE CANADIAN PRESS

Stumble Upon

del.icio.us

Digg

Facebook

Print

Email

Speak Up

MONTREAL - Saputo (TSX:SAP) expects a strong holiday season as consumer confidence in the United States appears to be slowly rebounding from recessionary spending constraints.

Enlarge Photo

The Canadian Press

Lino Saputo Jr.

The Montreal-based cheesemaker has benefited in recent quarters from strong demand for its products that can be eaten at home as consumers have opted to eat out less often.

But, chief executive Lino Saputo Jr. said Tuesday he expects demand will increase at restaurants this Christmas too.

"Consumer confidence is coming back, it's coming back very slowly and we're hopeful that the upcoming quarter will be a positive one in terms of positive demand," he said in a conference call with analysts.

Saputo's profits surged 37 per cent to $94.5 million in the second quarter as the cheesemaker continued to benefit from last year's Neilson Dairy acquisition and improving profitability at its U.S. operations.

The company said it earned 45 cents per diluted share for the quarter ended Sept. 30, up from $69 million or 33 cents in the year-ago period.

Revenues increased two per cent to $1.48 billion from $1.45 billion.

Analysts polled by Thomson Reuters had on average expected earnings of 41 cents on $1.556 billion in revenues.

Gains from last December's purchase of Neilson were partially offset by lower average block cheese prices in the United States.

However, improved efficiencies helped the U.S. operations to boost its earnings to $58.1 million from $31.1 million despite a 21 per cent revenue decrease to $477.3 million.

Lower revenues were partially offset by contributions from a new California facility and the weaker Canadian dollar.

"We have made leaps and bounds in our U.S. division over the course of the last three or four years," Saputo told analysts.

He said at least half of the profit gains are sustainable.

Part of the success is related to specific initiatives regarding new products and recipe control. Acquisitions have also added volume and helped to lower overhead expenses.

Analyst James Durran of National Bank Financial attributed much of the improvement to strong margins in the United States.

"Though many of the positive factors in the U.S. are expected to continue, we don't expect the same benefit from inventory realization going forward," he wrote in a report.

Canadian dairy revenues increased 18.9 per cent to $963.6 million due mainly to the inclusion of Neilson, and increased selling prices and some volume increases. Earnings from the sector grew to $58.1 million from $31.1 million a year earlier.

The grocery sector was virtually unchanged, with revenues flat at $41.8 million and earnings of $4.3 million. However, the bakery segment included a $900,000 charge relating to the closure of 22 of 29 Rondeau stores in Quebec where seconds and surplus products were sold.

Saputo said the company continues to look for accusations and would need to spend at least $100 million to enter a new market, such as Australia or New Zealand.

"There aren't a whole lot of deals out there that would be too big for us to be able to entertain."

Meanwhile, the company said it and two other dairy processors are considering the launch of an appeal after the Federal Court of Canada dismissed their challenge of regulations establishing new cheese standards.