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Saputo reports lower than expected earnings amid Trans Pacific free trade concerns
Shares of Saputo (TSE:SAP) have been trading 1.2 percent lower in Toronto today, continuing a down trend prompted by the company’s failure to meet analysts’ expectations for the quarter that ended on March 31, despite the company reporting earnings of C$157.3 million or C$0.39/share.
The earnings represent 31.3 percent increase compared to C$119.8 million or C$0.31 per share in the same period last year.
The results include a non-recurring gain of C$25.9 million related to the sale of a business and adjusted earnings were C$127.2 million or C$0.32 per share, down 16.8% from C$152.8 million or $ 0.39 per share, a year earlier.
The market has reacted to the fact that the adjusted earnings missed analysts’ target of C$0.40 per share. Nevertheless, the Montreal based multinational did see revenues increase by 1.1%, reaching C$2.5 billion.
But while revenue increased by about C$56 million in Canada and the United States combined, it dropped by a C$28 million in other countries. In the US – the largest company’s market – operating income rose 9% to 141 million, thanks to sales volumes and sales prices. International sales dropped to 8.7 million, down 78%, due to lower prices in export markets, which have had an especially negative impact in Argentina and Australia.
Finally, in Canada, a delay in completion of the new distribution center in the Montreal borough of Saint-Laurent has added to logistics costs, lowering operating profits by at least 24%.
For the full year, Saputo‘s revenues reached C$10.6 billion, corresponding to an increase of 15.4%.
As for guidance, Saputo’s Ceo, Lino Saputo Jr., said during an earnings call on Friday that it is difficult for the company to consider major investments in its Canadian facilities as long as there is uncertainty in negotiating the Trans-Pacific Partnership: “We only want to know the rules of the game. In the current context, it’s hard to plan long-term for our Canadian division,” Saputo said.
Saputo’s concerns about the TPP are shared by others in the Canadian dairy and agricultural sector, which has been tightly regulated and isolated from the rest of the world. Very high tariffs have been enforced to protect local producers.
The TPP involves Canada, the United States, Mexico, Australia, Chile, Malaysia, New Zealand, Peru, Singapore, Vietnam and Brunei.
Not surprisingly, Canada’s TPP negotiators are not thrilled by the prospect of suddenly opening up the dairy sector to foreign competition and they have been demanding for the dairy sevtor to be exempted from the TPP. In late May, the Union of Agricultural Producers, flanked by the Quebec Minister of Agriculture, Pierre Paradis, and representatives of the Quebec food industry had again called Ottawa to fully preserve Canada’s dairy supply management system.
Saputo Jr. said that the best scenario for his company, Canada’s largest dairy producer, would be for the company to have access to the global market through its Canadian platform. “We have extensive knowledge of several international markets. We are able to process, distribute and move products to consumers.”
According to a government reported cited by the Globe & Mail ‘designer dairy ingredients’ such as a highly concentrated milk protein, imported duty free from the US and Mexico, have challenged the current milk pricing system The paper notes that imports of milk protein isolates, which come in duty free from the United States and Mexico over the past decade, have created unwanted competition for higher price Canadian milk.
Dairy producers want a new “world-price ingredient class” of milk, one costing less than the world price instead of the inflated Canadian price. Canadian dairy processors such as Saputo would then have access to cheaper Canadian milk, which would serve as an incentive to produce and create higher margin export products.
The lower priced Canadian milk incentive would face obstacles in passing the scrutiny of TPP partners because it acts in the same way as a subsidy.
Story by ProactiveInvestors
Source: http://www.proactiveinvestors.com/companies/news/61846/saputo-reports-lower-than-expected-earnings-amid-trans-pacific-free-trade-concerns-61846.html
