Saputo Inc. disappointed the market by earning less in fiscal 2021. But its international operations are growing. Saputo remains a buy.
Saputo Inc. (TSX—SAP) earned a little less in fiscal 2021, which ended March 31. In the fourth quarter, it earned 30 cents a share. This was far below the 39 cents a share the market had expected. The market knocked down Saputo’s share price by 12.6 per cent. This makes it cheaper and we believe its long-term outlook is favourable. Saputo remains a buy for long-term share price recovery and a modest dividend yield of 1.9 per cent. Its dividends are growing.
Saputo is one of the top 10 dairy processors in the world, a leading cheese manufacturer and fluid milk and cream processor in Canada, the top dairy processor in Australia, and second-largest in Argentina. In the USA, Saputo ranks among the three largest producers of cheese and is one the largest producers of extended shelf-life and cultured dairy products. In the UK Saputo is the largest manufacturer of branded cheese and a top manufacturer of dairy spreads.
Saputo disappointed the market
In fiscal 2021, Saputo earned an adjusted $715 million, or $1.74 a share, excluding the amortization of intangible assets related to business acquisitions. This was down by 3.3 per cent from adjusted earnings of $724 million, or $1.80 a share, the year before. Chair and chief executive officer Lino Saputo said: “The pandemic cost us a year of potential growth.”
Saputo is investing for future growth. On May 25 it invested $187 million in two acquisitions. One was Bute Island Foods Ltd. in the UK. It makes dairy alternative cheese products for the retail and food-service markets. Mr. Saputo said this acquisition “will allow us to accelerate our growth in this area globally”. Some Asian-Canadians have trouble digesting milk products. This market could pay over time.
Saputo also acquired the Reedsburg, Wisconsin facility of Wisconsin Specialty Protein LLC. This firm makes “value-added” ingredients such as goat whey, organic lactose and other dairy products.
Saputo’s global strategic plan has five “pillars”: to strengthen its core business; accelerate product innovation; optimize and improve operations; raise the value of its ingredients portfolio; and “create enablers to fund investments”.
Saputo’s profits are expected to go up by 3.4 per cent, to $1.80 a share. We think it could grow faster. Its larger Australian and British operations will contribute across fiscal 2022. This global blue chip stock remains a buy for share price recovery and modest growing dividends.
This is an edited version of an article that was originally published for subscribers in the June 18, 2021, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.
The Investment Reporter, MPL Communications Inc.
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