MONTREAL — Saputo Inc. says cross-border shopping and higher dairy prices at home have caused a continued reduction in its milk and cheese sales volumes in Canada.
For the second consecutive quarter, Canadian per capita milk volumes declined in the second quarter, CEO Lino Saputo Jr. said Wednesday during a conference call by the Montreal-based cheese and dairy giant.
“That is a reality of the Canadian market today.”
The declines, which he declined to enumerate, have been in cheese and fluid milk categories beyond specialty products such as flavoured single-serve offerings.
The reduction was first noticed in April, following the latest price increase put in place a month earlier.
“We have seen that the overall market is shrinking. Either consumers are consuming less products or consumers are sourcing products from other areas which would be possibly as well cross-border shopping,” he told analysts.
Saputo (TSX:SAP) reported Wednesday that its earnings increased one per cent to $127.1 million in the second quarter of its fiscal year even though revenues surged 15.5 per cent.
It earned 61 cents per diluted share for the period ended Sept. 30, one cent higher than in the prior year.
Despite the lower sales volumes, Saputo said the company has grown its market share in Canada.
While Canadians are barred from bringing meat and some foods back into the country, visitors to the United States are allowed to import up to 20 kilograms per person of cheese and milk with a value of $20 or less.
Those returning from countries other than the United States can bring back cheese but not milk products, including whey, cream and butter oil, according to a Canadian government website.
The high Canadian dollar has prompted many Canadians to cross the border in search of discounts for clothes and electronics. Rarely has there been any suggestion of higher purchases of food.
It’s not the first time that Saputo has warned about the negative impact of higher prices. It said a 2008 federal regulation altering the composition of cheese would increase consumer prices and affect demand.
The change required cheese makers to use more full-fat milk and less of the ingredients typically labelled as milk solids.
Saputo said the company will continue to seek additional operating efficiencies to offset the impact of lower sales volumes on its results.
The company was expected to report 60 cents per diluted share in earnings on $1.78 billion of revenues during the second quarter, according to analysts polled by Thomson Reuters.
Mark Petrie of CIBC World Markets said the results were “short of expectations” due to lower profitability in the United States.
“The main factors for the shortfall in the U.S. were a tighter margin between cheese and milk prices, and a declining cheese price through the quarter,” he wrote in a report.
Canadian operations were in line with forecasts.
Revenues increased by $240.7 million to $1.8 billion mainly due to its DCI acquisition in the United States, higher average block market per pound of cheese, increased sales volumes and a more favourable dairy ingredients in the U.S.
On the Toronto Stock Exchange, its shares fell 89 cents to $40.41 in Wednesday trading.