Saputo hopes to benefit from Mexican dairy tariffs, after drop in profits

TORONTO — Canadian cheese and dairy giant Saputo Inc. is hoping to use its international operations to milk the Mexican market in the wake of impending tariffs.

The Montreal-based company doesn’t have a large Mexican presence yet, but could see opportunities in the country crop up if U.S. dairy producers retreat from Mexico because of tariffs of up to 25 per cent on U.S. cheese exporters, said chief executive officer Lino Saputo in a conference call on Thursday.

“Mexico might look at other parts of the world to service their dairy needs,” he said, noting that Saputo now owns Australian milk processor Murray Goulburn Co-operative and has operations in Argentina.

“There might be some great opportunity for us to find Mexico a decent market for us for a long time to come.”

Despite the potential opportunities in Mexico, Saputo believes the upsides and downsides of the tariffs — a response to U.S. President Donald Trump’s tariffs on steel and aluminum from Mexico and Canada — will be equal because some dairy companies will send less or no product to Mexico and instead, funnel their surplus inventory back into the U.S., where Saputo does a lot of business and might face heightened competition.

Nonetheless, Saputo appeared to be optimistic about how the company will fare in coming months, revealing that it has “financial flexibility” of at least $3 billion that it could use for acquisitions.

“Our pipeline remains extremely full,” he said. “I think within this fiscal year, we have the potential to materialize a few more acquisitions that I think are going to help platforms like Saputo Cheese USA, perhaps platforms in international…Canada also can be well served with acquisitions.”

He also said the company will build a “state-of-the-art” facility in Port Coquitlam, B.C. to serve the western Canadian market, but sell its Koroit dairy plant in the state of Victoria and another plant in Burnaby, B.C. in 2019.

Saputo’s remarks came as the company announced its profit dropped sharply in its latest quarter due to a combination of higher costs, exchange rates, and lower selling prices in export markets compared with last year.

Its net income for the fourth quarter ended March 31 was $130.0 million, down 21.3 per cent from $165.2 million a year earlier.

Net income per diluted share was 33 cents, down from 42 cents, and adjusted net earnings dropped 18.1 per cent to $135.3 million.

Revenue edged up 0.9 per cent to $2.744 billion from $2.720 billion in last year’s fiscal fourth quarter. However, a fluctuation in the value of Canada’s dollar compared with other currencies had a $93-million negative impact on revenue.

Revenue from the United States fell to $1.435 billion, from $1.487 billion, while revenue from other international markets dropped to $328.4 million from $373.5 million. Canadian revenue increased to $980.9 million from $959.8 million.

The company’s earnings were also negatively affected by a combination of a higher cost of milk as a raw material, lower selling prices in export markets, higher transportation costs, and other expenses including a higher tax rate.

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