Saputo Reports Surge in Q2 Earnings

Consolidated earnings before interest, income taxes, depreciation and amortization (EBITDA) for the first quarter of fiscal 2011 amounted to $190.8 million, an increase of $32.3 million or 20.4% in comparison to $158.5 million for the same quarter last fiscal year.

Aug 4 2010 --- Dairy company Saputo has reported that consolidated revenues for the quarter ended June 30, 2010 amounted to $1.436 billion, a decrease of $10.3 million or 0.7% in comparison to the $1.446 billion for the corresponding quarter last fiscal year. The strengthening of the Canadian dollar compared to the US dollar and Argentinean peso negatively affected revenues. This was partially offset by a higher average block market per pound of cheese, a more favourable dairy ingredients market and the addition of the activities of F&A Dairy of California, Inc. acquired on July 20, 2009 (F&A Dairy Acquisition) in the US. Finally, slightly lower sales volumes in the CEA Dairy Products Sector were partially offset by volume increases in the USA Dairy Products Sector.

Consolidated earnings before interest, income taxes, depreciation and amortization (EBITDA) for the first quarter of fiscal 2011 amounted to $190.8 million, an increase of $32.3 million or 20.4% in comparison to $158.5 million for the same quarter last fiscal year. The EBITDA increase is explained by operational efficiencies and more favourable market conditions in the USA Dairy Products Sector. The CEA Dairy Products Sector contributed to increase EBITDA by continued operational efficiencies in addition to the decrease in cost of ingredients and packaging and favourable selling prices from the Argentinean international and domestic markets.

Depreciation and amortization for the first quarter of fiscal 2011 totalled $26.1 million, a decrease of $2.3 million compared to the same quarter last fiscal year. The strengthening of the Canadian dollar in the first quarter of fiscal 2011 compared to the same quarter last fiscal year mainly contributed to decrease the depreciation expense.

Net interest expense decreased by $1.4 million for the quarter ended June 30, 2010 in comparison to the same quarter last fiscal year. The decrease is mainly due to lower debt levels as compared to the corresponding period last fiscal year.

Income taxes for the first quarter of fiscal 2011 totalled $46.7 million, reflecting an effective tax rate of 29.5% compared to 30.5% for the same quarter last fiscal year. The income tax rates vary and could increase or decrease based on the amount of taxable income derived and from which source, any amendments to tax laws and income tax rates and changes in assumptions and estimates used for tax assets and liabilities by the Company and its affiliates.

Net earnings totalled $111.4 million for the quarter ended June 30, 2010 compared to $84.8 million for the same quarter last fiscal year. These reflect the various factors analyzed in this report.

In terms of outlook, Saputo said that the Dairy Products Division (Canada) will continue to invest in projects in order to increase capacity to strengthen its presence in the growing specialty cheese category. The Division has announced plans to relocate the Brampton, Ontario milk and cream production to other facilities in the current fiscal year. Additionally in Ontario, the Division will consolidate distribution in the Greater Toronto Area within the new distribution center. These measures were announced on March 30, 2010 with expected completion in the fall of 2010. Also, the Division will continue to review overall activities in order to achieve additional operational efficiencies and decrease operational costs.

The Dairy Products Division (Europe) continues to cope with a challenging environment with respect to obtaining milk supply at prices competitive with the selling price of cheese. The Division continues to work towards increasing volumes while improving manufacturing efficiencies.

The Dairy Products Division (Argentina) continues to seek volume growth in the domestic market. Ongoing challenges are the increasing cost of milk as raw material and remaining competitive with the export market selling price. The Division will also continue to focus on improving operational efficiencies in efforts to improve results.

In the USA Dairy Products Sector, capital expenditures at our Midwest facilities acquired in fiscal 2009 are nearing completion. These capital expenditures should increase our capacity, reduce operational costs, as well as improve the management of our dairy ingredients from our Midwest facilities. Capital expenditures at our California facility acquired in fiscal 2010, as part of the F&A Dairy Acquisition are also progressing as planned. They should be completed during the following quarters.

The Bakery Division will continue to review certain aspects of its operations, such as lower volume stock-keeping units (SKU) and the standardization of packaging and ingredients. Also, the Division will focus on further plant automation in the current fiscal year. In addition, the Division will continue to expand its product offering such as new product lines geared towards the frozen category.