Earnings call transcript: Saputo Q2 2025 shows EPS beat, revenue miss

Saputo Inc. reported its second-quarter earnings for 2025, revealing an earnings per share (EPS) of $0.48, surpassing the forecast of $0.4566. However, revenue fell short of expectations, coming in at $4.72 billion against a forecast of $4.78 billion. Following the announcement, Saputo's stock rose 2.44% in after-hours trading, closing at $34.90, reflecting positive investor sentiment towards the earnings beat despite the revenue miss.

Key Takeaways

• Saputo's EPS of $0.48 outperformed expectations by 5.12%.
• Revenue of $4.72 billion missed the forecast by 1.26%.
• Stock price increased by 2.44% in after-hours trading.
• Adjusted EBITDA rose 16% year-over-year.
• Continued focus on product innovation and market expansion.

Company Performance

Saputo demonstrated strong performance in Q2 2025, with significant growth in profitability metrics. Adjusted net earnings increased by 26% year-over-year to $198 million, while adjusted EBITDA rose by 16% to $450 million. The company's strategic focus on product innovation and market expansion has been a key driver of this growth, despite facing challenges in meeting revenue expectations.

Financial Highlights

• Revenue: $4.72 billion, flat compared to the previous year.
• Earnings per share: $0.48, up from $0.37 last year.
• Adjusted EBITDA: $450 million, a 16% increase year-over-year.
• Net earnings: $185 million.
• Cash flow from operations: $372 million, a 130% increase year-over-year.

Earnings vs. Forecast

Saputo's EPS beat the forecast by 5.12%, marking a positive surprise for investors. The revenue, however, fell short by 1.26%, which may indicate challenges in market conditions or competitive pressures. This mixed performance contrasts with previous quarters where the company had consistently met or exceeded both EPS and revenue expectations.

Market Reaction

Following the earnings announcement, Saputo's stock rose 2.44% in after-hours trading, closing at $34.90. This increase suggests that investors were encouraged by the EPS beat and the company's strong profit growth, despite the revenue miss. The stock is currently trading near its 52-week high of $35.95, indicating robust investor confidence.

Outlook & Guidance

Looking forward, Saputo anticipates stability in the dairy market for the second half of the fiscal year, with expectations of margin improvements across sectors. The company remains committed to its share buyback program and aims to achieve further operational efficiencies. Future EPS projections for FY2026 range from $1.87 to $1.98 per quarter, with annual forecasts at $8.16.

Executive Commentary

CEO Carl Colizza emphasized the company's strategic focus, stating, "Dairy remains a cornerstone of everyday life, delivering nutrition, versatility, and enjoyment to consumers globally." He also highlighted the company's agility, saying, "We are building on our strengths to becoming increasingly nimble and customer-driven." Colizza expressed confidence in the company's financial position, noting, "Our solid balance sheet and disciplined capital allocation give us the flexibility to invest while continuing to return capital to shareholders."

Risks and Challenges

• Volatile commodity markets could impact pricing and margins.
• Strong milk supply in key markets may lead to pricing pressures.
• Ongoing cost optimization efforts may face execution risks.
• Changes in consumer preferences towards health and convenience need continuous adaptation.
• Potential regulatory changes in international markets could affect operations.

Q&A

During the earnings call, analysts inquired about the potential for margin expansion across different regions and the company's innovation strategy. The management addressed concerns about dairy market volatility and explored the potential impacts of changes to the SNAP program in the U.S. These discussions highlighted the company's proactive approach to navigating market dynamics and enhancing its competitive position.

Full transcript - Saputo Inc (SAP) Q2 2026:

Jean-Louis, Conference Operator: Hello, and welcome to the Saputo Second Quarter 2026 financial results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I'll now turn the conference over to Nick Estrela, Head of Investor Relations. Please go ahead.

Nick Estrela, Head of Investor Relations, Saputo: Thank you, Jean-Louis. Good morning, and welcome to our Second Quarter Fiscal 2026 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded, and the webcast will be posted on our website, along with the Second Quarter investor presentation. Please also note that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings. Please treat any forward-looking information with caution, as our actual results could differ materially. We do not accept any obligation to update this information except as required under securities legislation. I'll now hand it over to Carl.

Carl Colizza, President and Chief Executive Officer, Saputo: Thank you, Nick. Good morning, everyone, and thank you for joining us today. Before we dive into our quarterly results, we have stayed focused on the elements within our control. We are executing our strategy with discipline, advancing key initiatives, and strengthening our company's foundations. Our results reflect that focus with solid performance across sectors. We delivered stronger commercial execution, improved efficiency, and continued cost optimization, driving meaningful margin expansion. We are building on our strengths to becoming increasingly nimble and customer-driven, better positioned to capture opportunities across markets and categories. Our operations generated strong cash flow, both in the quarter and year-to-date, driven by lower capital spending, working capital management, and good cash conversion. We remain focused on generating sustainable growth, maximizing shareholder value, and delivering consistent EPS expansion over time. We are closely monitoring the trade environment and potential tariff impacts across our markets.

At this time, our direct exposure remains limited, and we have plans in place to mitigate potential cost pressures and protect customer relationships. Our diversified footprint and strong local supply chains provide flexibility to adapt quickly. Our ongoing collaboration with industry partners helps us manage the impacts of changes in trade policy. We continue to invest in volume growth through brand marketing, product innovation, and enhanced revenue management capabilities. These efforts are delivering results, with strong consumption trends across key categories, as our brands resonate with consumers and capitalize on growing demand for protein-rich foods. We also continue to diversify our customer base, winning new business, gaining market share, and expanding partnerships with high-growth innovators and private label customers. This multi-pronged approach is enabling us to capture opportunities across all market segments while building resilience. Our strong customer relationships remain a major driver of our success.

Saputo received two significant recognitions that speak to the strength of these partnerships and the dedication of our teams. At a major North American supply summit held in Chicago, we became the first Canadian company to receive a prestigious industry award recognizing suppliers who consistently deliver measurable, high-impact performance. Whether it is enhancing our core product, supporting community events, or helping launch a successful national beverage program, these achievements showcase the customer focus across our organization. At a leading food service event in Canada, Saputo was named top supplier nationwide, recognized for outstanding performance in areas such as fill rates, sales growth, regional engagement, and innovation. These recent achievements reflect the confidence we have earned and underscore how our teams continue to set Saputo apart as a trusted partner. I will now turn the call over to Max for the financial review before providing concluding remarks.

Maxime Therrien, Chief Financial Officer and Secretary, Saputo: Thank you, Carl, and good morning, everyone. The financial highlights of the second quarter are the following. Consolidated revenues were $4.7 billion, which was similar to last year. Revenues include higher sales volume, particularly in North America. Selling prices across domestic and international cheese and dairy ingredient markets were higher, while U.S. dairy commodity pricing was lower when compared to last year. Adjusted EBITDA amounted to $450 million, which was 16% higher when compared to last year. The increase to adjusted EBITDA was supported by strong commercial execution, better volume and service levels, operational efficiencies from recent capital investment, and proactive cost management. Export markets benefited from a favorable international cheese and dairy ingredient market pricing relative to milk costs, while domestic markets saw margin preservation through strategic price increases. Net earnings for the second quarter totaled $185 million.

On an adjusted basis, net earnings totaled $198 million, up $41 million, or 26% when compared to the same quarter last year. Adjusted EPS was $0.48 per share versus the $0.37 last year. The 30% increase in adjusted EPS is primarily attributable to higher net earnings and also reflects common share repurchase under our NCIB program. Cash flow from operating activities was robust at $372 million, up 130% year-over-year, reflecting lower working capital usage and improved adjusted EBITDA. Year-to-date, net cash from operating activities totaled $689 million, a significant improvement when compared to last year. Capital expenditure totaled $84 million in Q2, in line with our plans. As of September 30th, our net debt-to-adjusted EBITDA ratio improved to 1.88. Our balance sheet remains strong, with leverage below our long-term target range, providing ample financial flexibility to support strategic priorities and navigate the current environment.

I'll now take you to key highlights by sector, starting with Canada. Revenues for the second quarter totaled $1.4 billion, an increase of 6% when compared to last year, supported by strong sales volume across retail, food service, and industrial market segments. Growth was led by value-added milk and culture products, as well as butter sales. Revenue also increased due to higher selling prices implemented to mitigate inflationary pressure and the higher cost of milk as raw material. Adjusted EBITDA for the second quarter totaled $179 million, up 11%, with margins at 13%. Adjusted EBITDA was driven by three main elements. First, strong commercial execution, including higher volume, product mix, and pricing. Second, enhanced manufacturing efficiencies from capital investment. Third, G&A cost saving through ongoing optimization efforts. In our U.S. sector, revenues totaled $2.2 billion and were 3% lower versus last year.

Revenues were negatively impacted by lower U.S. dairy commodity market pricing, namely the average cheese block market price and average butter market price. However, higher selling prices implemented to mitigate inflationary pressure contributed positively to revenue. More importantly, revenues benefited from increased sales volume across both retail and food service market segments, driven by strong demand from key customers. Retail growth was led by dairy foods, while food service gain came from core product categories within strategic accounts. Adjusted EBITDA was $167 million, which was up 15% when compared to last year. The increase in adjusted EBITDA reflects higher sales volume and a favorable product mix, driven by our commercial initiatives. Adjusted EBITDA also increased due to operational improvement, driven by efficiencies initiatives linked to our recent capital investment.

We saw benefits from reduced duplicate operating costs related to network optimization, along with disciplined execution in customer fulfillment and proactive cost management that supported margin expansion. Compared to the same quarter last fiscal year, U.S. dairy commodity market conditions were unfavorable, despite reductions in cost of milk stemming from the new Federal Milk Marketing Order formula that was implemented in June this year. During the second quarter, we incurred transitional implementation costs associated with the startup of our new consolidated warehousing facility in Caledonia, Wisconsin. The project is designed to streamline our supply network and deliver long-term improvement in scale and operational leverage. In the international sector, revenues for the second quarter were $871 million, down 5% versus last year. In Australia, our export sales volume decreased, aligning with our product mix optimization strategy. In Argentina, improved economic conditions and milk availability have supported the increase in sales volume.

Higher international cheese and dairy ingredient market prices for our products in our export markets had a favorable impact. Adjusted EBITDA totaled $79 million, up 46% on a year-over-year basis. Second quarter results were positively impacted by favorable international cheese and dairy ingredient market pricing relative to milk costs. In Argentina, lower milk costs stemming from reduced inflation and better currency alignment improved our financial performance. In Australia, our product mix optimization strategy mitigated both higher farm gate milk prices and reduced milk availability, which affected efficiencies and fixed cost absorption. In the Europe sector, revenue was $324 million, or 17% higher when compared to last year, while adjusted EBITDA was $25 million, down $3 million. Adjusted EBITDA reflects a favorable relation between selling prices and input costs. Sector performance was temporarily impacted by a major maintenance shutdown and asset transition tied to our ingredients strategy.

We continued our consolidating operational sites and increased investment in advertising and promotion to support commercial initiatives. Turning to capital allocation, we take a long-term and disciplined approach, always with the goals of creating sustainable value. We plan to continue to actively repurchase shares as part of our effort to return capital and enhance shareholder value. After six months, we have returned $376 million to shareholders through dividend and share repurchases. Subsequent to the quarter, we repurchased 1.3 million shares for approximately $44 million. In closing, our Q2 results demonstrate the strength of our diversified platform and the effectiveness of our strategic initiatives and the benefit of sharp execution. We remain focused on delivering sustainable value to our shareholders and executing with discipline across all market segments. This concludes my review, and with that, I'll turn it back to Carl.

Carl Colizza, President and Chief Executive Officer, Saputo: Thank you, Max. Across our global network, our team delivered strong, focused execution, advancing our strategic priorities and building a more efficient, customer-driven business. In the Canada sector, we delivered another solid quarter, supported by disciplined commercial execution and progress on efficiency initiatives. Adjusted EBITDA increased 11% versus last year, driven by the strong volume and mix and cost optimization. Commercially, our portfolio is performing well across key categories. Armstrong is outperforming in the everyday cheese category, growing ahead of market in blocks, shreds, and snacks. In specialty cheese, our branded portfolio significantly outpaced the industry. This was led by strong results in the feta, bocconcini, fresh mozzarella, and brie categories, with the L'Extra de Parmeuf driving momentum in premium segments. We are seeing positive trends in our fluid milk category as value-added segments offset core milk declines.

Growth in filtered and lactose-free milk was robust, while our ultra-filtered and protein offerings under Dairyland and Neilson are gaining traction through new product launches and expanded distribution. The cottage cheese category is delivering growth thanks to broader distribution and increased brand investment. We are also strengthening our position in high protein innovation, launching new Armstrong protein cheese SKUs and expanding the Dairyland and Neilson protein beverage lineup, including the recently rolled-out 18-gram protein milk across retail and food service channels. In the U.S. sector, our teams are executing on driving volume growth, improving operational efficiencies, and managing costs. While market headwinds limited upside in the quarter, we made meaningful progress across our strategic pillars, positioning the business for a strong performance in the second half of the fiscal year. We are making steady progress with our logistics and warehousing operations.

With our new cold storage distribution facility in Caledonia ramping up, we expect to unlock further efficiencies and lowering third-party logistics costs, contributing to stronger margins. We are also advancing on other key initiatives. Our new Franklin facility is a great example. Its improved performance is driving better plant efficiencies in specialty cheese and helping reduce duplicate costs across our network. From a commercial standpoint, our performance continues to strengthen. In food service, we are building on strong momentum, expanding our presence with leading customers and driving growth through high-performing partnerships. We launched new marketing activations across all core retail brands in the quarter. Specialty brand campaigns are set to scale in the third quarter to capture seasonal demand.

Innovation is also driving growth with the introduction of new products such as Treasure Cave Blue Dips, which is rolling out nationally, and Frigo Cheese Heads Cetarella, which has secured broad retail distribution and is expanding into on-the-go channels. Our Frigo Cheese Head brand is also expanding its reach, tapping into new snacking channels from airports and convenience stores to delivery platforms and corporate offices. Operationally, our teams are effectively navigating input cost volatility, maintaining strong fill rates, and strengthening our ability to consistently meet customer demand, contributing to our performance this quarter. We have made solid progress, but there is still more work to do to grow margins. We know we can go further to drive additional efficiencies, strengthen our commercial performance, and unlock the full potential of our U.S. platform. In the international sector, our teams are showing agility and resilience, translating into year-over-year improvements despite external challenges.

In Argentina, we saw a marked improvement in performance. New product launches and a focused media campaign supported our brands, while private label on exports experienced strong growth. We increased the insourcing of milk this quarter, running our operations at optimal levels while maximizing the value of every liter. At the same time, we continue to diversify our customer base to capture growth opportunities. In Australia, we were able to maintain margins despite the higher cost of milk. Results improved year-over-year, supported by higher international market prices, higher margin domestic and export sales. On the milk side, we are making deliberate sourcing choices to prioritize higher margin products and ensure a balanced, sustainable supply base. While milk intake remains lower than last year due mostly to ongoing seasonal and drought-related conditions, we are seeing early signs of recovery and expect a healthier season ahead.

We are also investing in our brands with the new Cheer and Devondale marketing campaigns, expanded product formats, and a fresh advertising push launching later this month. We introduced two new shredded cheese SKUs under our flagship Devondale brand, further strengthening our presence in the supermarket channel. This launch supports our long-term strategy to grow branded offerings and enhance consumer engagement. In the food service segment, we continue to expand adoption of our IQF mozzarella. This product offers superior convenience and shelf life, and we are seeing strong conversion momentum among pizza operators seeking operational efficiencies. In Europe, performance reflected good commercial execution and disciplined cost management, with higher pricing across our cheese and ingredient portfolio. These benefits were largely offset by planned maintenance expenses to ensure the long-term reliability and efficiency of our operations.

On that note, we have successfully transitioned from D90 to sweet whey powder, with the first shipment processed as we move into the third quarter. This shift ensures our product portfolio is aligned with favorable market trends and supports stronger returns from our ingredients platform. Commodity markets remain volatile, with fluctuations in milk, cream, and bulk cheese prices requiring close daily management of milk inflows, inventory levels, and sales mix. Our teams are managing costs and inventory with discipline as we prepare for potential shifts in market dynamics and milk pricing. On the commercial side, both our private label and branded businesses delivered solid performance. Momentum for our famous Cathedral City cheese brand was supported by a successful omnichannel advertising campaign alongside new SKUs to supplement our ready meals range in both frozen and chilled.

Cathedral City is now the third-largest chilled ready meals brand in the U.K., underscoring the strength and growth trajectory of this iconic brand. While the maintenance shutdown weighed on short-term results, our priorities are clear: strengthen execution, manage through change, and position our European business for long-term profitable growth. As we wrap up Q2, our confidence in the dairy category has never been stronger. Dairy remains a cornerstone of everyday life, delivering nutrition, versatility, and enjoyment to consumers globally. Demand continues to grow across markets, supported by trends in health, convenience, and premiumization. These fundamentals reinforce our bullish outlook and commitment to driving innovation, operational excellence, and sustainable growth. We believe our strategy positions us to capture long-term value for our shareholders while continuing to meet the evolving needs of customers worldwide.

Looking ahead to the second half of the fiscal year, we are managing well through evolving trade conditions and shifts in consumer demand. Our disciplined approach to pricing, customer partnerships, execution, and cost management is directly contributing to our margin recovery efforts. We expect continued benefits from stronger commercial performance, improved operational efficiency, and sharp focus on cash generation. Our solid balance sheet and disciplined capital allocation give us the flexibility to invest while continuing to return capital to shareholders. That concludes our formal remarks. I will now turn the call over for questions.

Jean-Louis, Conference Operator: Thank you. If you have a question, please press Star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press Star 1 again. One moment, please, for your first question. Your first question comes from the line of Irene Nettel of RBC Capital Markets. Your line is open.

Irene Nettel, Analyst, RBC Capital Markets: Thanks, and good morning, everyone. Great quarter. If we look at Canada and the sort of as the North Star in terms of what can happen once the sort of the operational pieces are put into place, as we move through this last, really now, the very last stages of the global strat plan, how should we be thinking about the evolution of margins in each geography? And can we get to the point where we're delivering these double-digit kinds of margins across regions?

Carl Colizza, President and Chief Executive Officer, Saputo: Good morning, Irene. Thanks for the question. Yes, we are equally proud of Canada as well. I think the best way to answer the question is understanding the construct of the Canadian business. The Canadian business is very well diversified across every commercial channel. I would say that in addition to that, what the Canadian team has that realistically none of the other sectors have is a coast-to-coast distribution, refrigerated distribution system. That is also an important part of the Canadian success story in being able to meet and grow with customer demands. That last mile, if you want, or that last leg of delivering to customers is often well within our control in the Canadian environment. That has come through, as you know, acquisitions over the years in the fluid milk category.

The milk business is an important part of why we also have this distribution system. Having said that, in the other sectors, it is not our intention to be bolting that on. Despite that, there are many things that we can do and are doing to grow margin structure in each of those sectors. I think we've articulated in the past where we expect each of our divisions to be. We know that in the U.K., with the continued focus and discipline that they have, we will improve our margin structure. We will get back to those mid-teens in way of margin structure. Same in the international sector, both Argentina and Australia, based on where they sit today, we know that there's percentage points that can be improved with ongoing operational efficiencies. In the U.S., much of the same.

Yes, there is an influence in and around the market conditions and the price we pay for milk and the relationship to selling price of cheese. As I said in my remarks, work is not done. We still expect to see the full benefits of our investments come through by the end of this fiscal year. That is to be kicked off with the final segment of line integrations into Franklin from the closure of Green Bay. Beyond that, we also are ramping up our supply chain initiatives, as well as one that we do not speak all that much about, but we do have a very important project in our facility in Wisconsin and Waupun, whereby we have augmented the overall capacity and output of WPC 80 and other high-value ingredients, which is also in its commissioning stage right now.

Short answer to your question, Irene, is there is upside yet, but the Canadian construct is fairly unique.

Irene Nettel, Analyst, RBC Capital Markets: Understood. Thank you. And then just following up on, you said something about cash flow, working capital. As Max pointed out, the leverage is now below 2.9. The pace of buyback moderated a little bit in Q2. Should we be expecting it to increase again as we move through the back half of the year and into next year?

Maxime Therrien, Chief Financial Officer and Secretary, Saputo: Irene, thanks for the question. The answer is yes. Following the issuance of our Q1 results, we saw an uptick in our stock price, which was welcome. We wanted to sort of see the market calibrate within itself. We definitely see ongoing value in us buying our own stock. We have confidence in our stock. We take a long-term view relative to the allocation to buyback. We do have the cash position in order to respond. Yeah, we have been active. We are still active, and we intend to be active over the course of the next few quarters for sure.

Irene Nettel, Analyst, RBC Capital Markets: Thank you.

Jean-Louis, Conference Operator: Your next question comes from the line of Chris Lee of Desjardins. Your line is open.

Chris Lee, Analyst, Desjardins: Thank you. Good morning, everyone. Carl, in your outlook, you noted that you expect U.S. dairy market volatility to moderate in the second half of the year. I think that's maybe a slightly more constructive tone than before. If that's correct, what is driving that improved outlook?

Carl Colizza, President and Chief Executive Officer, Saputo: Good morning, Chris. The comment was really around the volatility. What we were expecting is that we saw some of the component pricing and market conditions hit some highs and lows throughout the first six months of the year. We expect the back half to be more range-bound, probably on the lower end of where we have seen it in the last six months, but we do expect it to be steady. As we have described in the past, regardless of where that block price is or the value of other components, what we prefer to see is stability. Stability drives also better decision-making from our customer base. They have a better understanding of what their input costs will be, how it is they want to go to market with their promotional activities, and so forth.

We do expect that that's what's going to occur in the back half of the year. That's on the backs of understanding clearly the supply of milk and the quantity of milk that will be readily available, as well as the demand that's coming from the processing industry. I think those variables and those facts are clear to all industry stakeholders, including the buyers. We believe that based also on the futures, so the futures markets that are traded, that band will narrow in.

Chris Lee, Analyst, Desjardins: Okay. That's very helpful. Maybe shifting gear to international market, obviously very strong EBITDA performance. I understand a quarter does not obviously make a trend and there is seasonality and other factors. I'm just wondering, the $79 million that you achieved in Q2, do you think that's a sustainable level for the second half of the year? I'm more asking in the context of, as you noted, Australia, there are still some challenges that they are going through right now. I'm wondering if there is good visibility on what the profitability for international should be for the back half of the year.

Carl Colizza, President and Chief Executive Officer, Saputo: What I can tell you, Chris, is that we feel really good about the second half of the year in the international sector for a number of reasons. The milk recovery in Argentina has been beneficial. We recovered 7-8% of the milk versus last year, which has certainly been welcome in our operations as we run our facilities that are already quite efficient at those optimal levels. Equally important is that the output has found homes at good margins. We also feel strong about the forward-looking contracts that we have both in Argentina and in Australia. Before I leave the Argentinian sector for a second, I also feel quite good about the pricing of milk for the Argentinian supply in the second half of the year. There's an abundance of milk. The milk-to-feed ratio costs have been good to the Argentinian dairy farmers.

We feel good that it's going to be very competitive in the second half. Equally, all signals are pointing to continued relative stability with regards to the economic conditions in Argentina. If I go to Australia, it's still tough with regards to overall milk supply and availability of milk. I'm not going to trivialize that for farming partners. We do, nonetheless, feel good about what we've secured in way of milk supply, the value of the contracts that we have also secured through the end of our fiscal year, and also the inroads that we're making in the domestic market versus that of export. The short answer, once again, is that we feel good about the second half in the international sector.

Chris Lee, Analyst, Desjardins: That's great. Maybe my last question, just also in Australia, Carl, I was wondering, do you have any initial or high-level thoughts around the recent consolidation within that sector with Lactalis and Fonterra? How do you think, how to expect that transaction to impact the industry and perhaps for Saputo?

Carl Colizza, President and Chief Executive Officer, Saputo: The market hasn't realistically consolidated in this space. I say that because I think the acquirer of the assets sold by Fonterra in Oceania wasn't in that space before as far as the cheese sector and some of the other dairy products. In short, I do feel that the market will remain resilient. I feel that the market will continue to do what the dairy industry is poised to continue to do. That is to bring nutritious products to the table every day. I think that it's going to continue to bring innovation. I think that the business that bought those assets certainly has brought innovation to a variety of markets that they have been in. That's only good for the dairy industry.

I don't see any meaningful impacts to milk supply and the dynamics on supply costs, nor anything different than the level of competition that we already have today.

Chris Lee, Analyst, Desjardins: That's very helpful. Thanks and all the best.

Jean-Louis, Conference Operator: Next question comes from the line of Michael Van Aelst of TD Cowen. Your line is open.

Michael Van Aelst, Analyst, TD Cowen: Hi, good morning. Congrats on the quarter. I'd like to focus a bit more on the volume and the mix optimization strategy because it does seem like your improving fill rates back to where it was historically in Canada seem to be driving volumes at a reasonably healthy pace. I'm wondering, are you gaining market share because you seem to be growing in all categories? To what degree is this and other factors driving that, both the volume growth, but also the ability to be disciplined on pricing?

Carl Colizza, President and Chief Executive Officer, Saputo: Thanks, Mike, for the question. Are you specific to Canada or all geographies are you asking for?

Michael Van Aelst, Analyst, TD Cowen: I'd like to know about Canada first because it seems like you're ahead in Canada on this front. And then maybe you could kind of give us an idea of how the other geographies are positioned relative to Canada in terms of these initiatives.

Carl Colizza, President and Chief Executive Officer, Saputo: Okay. If I look at the Canadian marketplace, we are absolutely taking share in a number of areas. That comment also equally applies to the U.S. when you consider the volume improvements that we have made in that platform. In both cases, our high percentage fill rates are allowing us to fill the orders that are there. They are allowing us to be opportunistic in moments when other suppliers are not able to fill the demand. The Canadian marketplace, in particular, was somewhat unique through the, I'll call it the summer period. Fewer Canadians traveled, and we saw the impact of that through the Q2 period with strong demand from the food service sector and really all around.

The short answer is that the combination of the value that we bring with regards to the service quality, product offerings, price proposition, and fundamentally being there when our customers need us for either ideation, innovation, and having the product on time and in full is allowing the Canadian team to win the market share that it is. Demand in the Canadian marketplace has been steady. I'm not going to suggest that demand in the Canadian marketplace is outpacing that of any other sector on dairy. It really is a function of what we bring to the table every day. The same is true in the U.S. Our improved fill rates, and these are at levels that realistically are the best that our U.S. sector has ever seen, are allowing us to capture that moment and those opportunities that exist.

The U.S. market is still highly fragmented versus that of Canada. When you think of the retail sector as an example, whereas by comparison only in the Canadian marketplace, you can say we are coast to coast in just about every single banner that is in the market. We can't say the same of that in the U.S., which is a great opportunity because we were making inroads in a number of regional areas as much as expanding national distribution with our ability to supply. Again, in the U.S. space, demand has been relatively steady. It's not growing at an outpacing any other type of grocery sector or food sector, but we're picking up share.

Michael Van Aelst, Analyst, TD Cowen: Are these fill rates and the service quality and I guess also your innovation, are these the reasons that are allowing you to also improve your mix without a substantial amount of pushback from the competition?

Carl Colizza, President and Chief Executive Officer, Saputo: It is. It's also there, as you know, Mike, there's a lot of people behind this. We have folks that are very dialed in to our customers and ensuring that we service them. Servicing a customer goes well beyond receiving an order and shipping it. It has everything to do to understand what they need to grow and how it is we can participate in that. Our teams do that better than anybody. Even though you guys cover a number of different entities, you hear things about the QSR sector in some areas either slowing down or struggling or, more importantly, looking to put into place value offerings to drive traffic. We are part of those conversations. We are ensuring to the highest degree possible that dairy and our offerings participate in that. I have numerous examples across all channels, including HMR.

Home meal replacements is an area that's seeing an upside as folks choose to remain at home instead of dining out. Those takeouts, if you call them that, in the grocery sector, we're also working at innovating the menu to ensure that there is a dairy offering or an increased amount of it through those areas.

Michael Van Aelst, Analyst, TD Cowen: Excellent. Thank you.

Jean-Louis, Conference Operator: Your next question comes from the line of Mark Petri of CIBC. Your line is open.

Mark Petri, Analyst, CIBC: Good morning. Maybe just following up on some of the topics you've already discussed. I know again, obviously, you're highlighting a more commercial approach to selling. My question for today, which regions do you think have the most ups? What's that?

Michael Van Aelst, Analyst, TD Cowen: Mark, you're cutting in and out a little bit.

Mark Petri, Analyst, CIBC: We could not hear you, the question. I'm sorry, Mark.

Michael Van Aelst, Analyst, TD Cowen: Okay. Is that clear?

Mark Petri, Analyst, CIBC: Try again. If not, we'll move on, and maybe you can retry again later.

Michael Van Aelst, Analyst, TD Cowen: Yeah. Okay. I know we talked about this last quarter, but I want to ask just about the benefits from your more commercial approach to selling. My question is, when you look across your segments, which regions have the most outside benefit from the commercial office and sort of the benefits that this is building in your business?

Carl Colizza, President and Chief Executive Officer, Saputo: Okay. I think I understood because you came up with, at the end of the day, focusing in on the value that our commercial office is now bringing. It is multi-pronged in nature, for sure. Some of it has to do with ensuring that our A&P is dialed in to what the consumers need today. And when you are a brand owner and you have passionate people behind those brands, you absolutely want to support each one, but not all are created equal and not all have the spotlight and/or the opportunity to excel in certain moments of the market. Part of what our team does is ensure that the spend that we put, the effort, the energy is in the right brands.

As an example, there is an absolute focus and incremental spend being put behind our Frigo Cheese Heads brands in the U.S. that is driving household penetration right now, which will fundamentally increase our share and regular pickup in the future. We continue to invest behind the Armstrong brand and, I'll say, tweaking how it is we go to market with our pricing as well as our advertising strategies. In other markets, Devondale and Cheer are also getting a push, and then Cathedral City in the U.K., rather than sprinkling it, if you like, across all the brands that we operate. In many respects, it's a combination of focus on A&P, doing more with fewer brands, also ensuring that from a pricing perspective and revenue management generation, that best practices are shared amongst our division and applied in the business process.

Last, and certainly not least, because it pays typically at a later date, but it is our innovation cycle. Leanne and her team have materially improved what it is we focus in on, what is going to be and is relevant to consumers based on the insights and how it is we need to get to market in the speed which we need to, and learning how to fail fast as well. In a nutshell, I think it answers the question, Mark, that you provided. If not, please ask again.

Michael Van Aelst, Analyst, TD Cowen: Yeah. Yeah. Sorry about that. Hopefully, this is a little bit better. I guess my follow-up question to that topic specifically is, is there a region that you think the opportunity on this shift in approach is more material or there's sort of bigger upside in that region versus the total business?

Carl Colizza, President and Chief Executive Officer, Saputo: Yeah. It's clear. It's the U.S. I would say that the U.S. is the area whereby we have strong brands, but in comparison to, say, the U.K. and Canada, they're not anchored in as well or don't have the same level of awareness necessarily as those two points of reference. They do have the characteristics, the portfolio, the fundamentals, and the relevance with consumers to win. That's part of the reason why also Leanne is right here in the U.S. Leanne's office is here, and it's all about ensuring that we take our fair share, as she reminds us often, of the market that our brands have earned and deserve.

Michael Van Aelst, Analyst, TD Cowen: Yeah. Okay. Thanks. I also wanted to ask about the shift in Europe and your byproduct processing. What's involved in that move, and what would it take to move away from sweet dry whey back to higher value product if the dynamic supported that?

Carl Colizza, President and Chief Executive Officer, Saputo: The short answer is that time and money can do anything. Having said that, more specifically, Mark, we're quite good at providing engineering designs to convert our lines to the final product outputs that we want. In the end, should the market suggest that other value-added ingredients beyond D90, D90 is not a sector in which we believe is considered, to be honest, value-added anymore, okay? Hence the reason why we moved away from it based on the overall cost of operation. If there are other segments whereby the whey solids we generate could be better utilized, better consumed, better margin, we wouldn't hesitate to invest the capital required in those sites. Those cycles are minimum 18 months in nature.

As we sit and look at the dairy ingredients market globally, we have a very, very strong platform in the U.S., Australia, and Argentina to be able to service that growing sector and customer needs.

Michael Van Aelst, Analyst, TD Cowen: Okay. Appreciate all the comments and take care.

Jean-Louis, Conference Operator: Your next question comes from the line of John Zampetto of Scotiabank. Your line is open.

Carl Colizza, President and Chief Executive Officer, Saputo: Thank you. Good morning. I wanted to come back to the outlook. It was incrementally maybe a bit more cautious internationally or perhaps specific to export markets. You called out more challenging supply and demand conditions in the second half. It also sounds, based on your prepared remarks, that you're generally more optimistic on your international business. What are you seeing that led you to include that in the outlook, and how should we see that play out in Saputo's results for the back half?

Thanks for the question, John. What we're seeing right now in the dairy demand and dairy consumption globally is the demand is quite steady, and it's coming from a very broad sector. The supply of milk is also quite strong. We're seeing that strength of milk supply come through in New Zealand, Argentina, the U.S., and a handful of the European common suppliers, both France and Germany. There is a very healthy milk supply right now in the marketplace with a steady demand for dairy products. It is still somewhat chaotic when it comes to the trade front. As we head into the second half of the year, we expect there to be greater clarity on what the trading relationships and policies are across the globe so that the global dairy supply chain can settle in. That's the first thing. The milk supply is strong.

I mean, there's been a thankfully, I'll pick the U.S. as an example. In the U.S., production capacity was put online by a number of industry players, and thankfully, our dairy farming community showed up. They committed to the supply. They've produced the milk. They have the necessary herds to get it done. It's there now. Is there a need for a global reduction, or is demand going to improve? I think that over the next six months, we're going to see that happen naturally. There is a strong outlook in our case for continued, if our industry, for continued dairy demand across different sectors where Saputo is going to play and continue to be successful, and hence why we feel good about the second half of our fiscal is in the diversity of our platform. Not all sectors will excel, but many will.

We have enough flexibility in our platform to be able to ride the waves that will come.

Michael Van Aelst, Analyst, TD Cowen: Okay. That's helpful. Thank you. I wonder if you can quantify the approximate EBITDA impact of the planned maintenance shutdown in Europe and also the transition or implementation costs related to your Caledonia facility.

Carl Colizza, President and Chief Executive Officer, Saputo: It was slightly less than $5 million in the U.K. for that shutdown. As far as Caledonia, John, Caledonia is also a success story for us right now. The consolidation of the three PLs into our site is going better than planned. This is not going to be a scenario or timeline similar to Franklin by any means. We are currently in the ramp-up, about halfway through it, and we expect the efforts behind the consolidation and the duplicate costs that are attached to this, or call it slash inefficiencies, to be tapered off and gone by the end of the fiscal. That is the plan for Caledonia.

Kind of looking forward, and we look at the U.S. and the U.S.'s business and where they're going to continue to drive margin improvements despite, we call it, the milk market conditions, the supply chain side also has a lot of upside for us. What we're seeing in Caledonia is going to provide a blueprint for other parts of the country for us.

Michael Van Aelst, Analyst, TD Cowen: Understood. Okay. Lastly, on the NCIB, you mentioned you plan to renew it. It sounds like this might accelerate. Is it likely to be the same size as your prior program, or will you consider doing a larger buyback given relatively low leverage at the moment?

Carl Colizza, President and Chief Executive Officer, Saputo: I would say at this time, John, we would be looking to a similar size to what we're having. We feel it serves us well, and we do feel that it will also serve us well for a foreseeable future.

Michael Van Aelst, Analyst, TD Cowen: Okay. That's great. I'll pass that on. Thank you very much.

Jean-Louis, Conference Operator: Your next question comes from the line of Scott Marks of Jefferies. Your line is open.

Maxime Therrien, Chief Financial Officer and Secretary, Saputo: Hey, good morning. Thanks so much for taking our questions. The first thing I wanted to ask about, you noted, obviously, strong volume growth across a number of markets, including the U.S. and Canada. Just wondering if you can help us understand maybe where you're seeing the most strength and maybe where you might be running up against capacity issues, let's say, because demand might be so great for certain products. Thanks.

Carl Colizza, President and Chief Executive Officer, Saputo: Good morning, Scott. Maybe I'll start with the U.S. We're seeing and growing our share, as I mentioned earlier. In some cases, we're running countercurrent to where some of the demand is. As an example, our mozzarella is growing as far as an overall percentage of our sales and supply. With regards to other areas of the business, we're making inroads with regards to our specialty cheeses. We're investing behind the brands, and we're continuing to take share. Relatively speaking, it's broadly across the portfolio, including, of course, our ingredients sector. Overall, I would say that it's a very balanced increase within the U.S. sector. If I take a look at the Canadian side—actually, before leaving the U.S., specifically around areas that have capacity constraints, it's no secret in the industry or on the shelves, as you all see.

Products like cottage cheese are in very high demand, and we are certainly running at the upper end of our capacity. We are looking at a number of options to expand that because it is a continued category of growth. That is a good example of a sector that continues to win share of stomach with consumers. That also expands into Canada. It is no different. Our cottage cheese offering and other cultured product offerings are probably the areas of our operations that are seeing the highest rate of utilization. Beyond that, the same commentary applies to Canada. It is a very broad-based improvement of our offering and of our share across the board.

Michael Van Aelst, Analyst, TD Cowen: Appreciate the answer there. Next question for me, obviously, there's been a lot of talk around the capital allocation, the share buybacks, obviously towards the tail end of the GSP. Sounds like you're more involved with organic opportunities and still finding efficiencies in the business. Wondering if you can share any color on how you're thinking about inorganic opportunities moving forward. Thanks.

Carl Colizza, President and Chief Executive Officer, Saputo: Sure. You are right. We are focused on ensuring that, one, we have strong cash generation so that we have options available to us. Our capital allocation program or philosophy has not changed. We are certainly focused on ensuring that we have consistent dividends that are out there. We need to ensure that we maintain our operations and invest in our ability to remain efficient because that is at the core of what it is we do. We transform milk and bring the best to the market. We have to be extremely efficient. Those competencies, expertise, and commitment financially to that are core to who we are. As we continue to evolve our commercial strategy, we are also recognizing areas that will require either further investments in the mechanical capabilities and/or brand assets that we have.

We regularly look at whether or not it's best to invest in ourselves or to go to market and acquire those capabilities, whether it's a brand, whether it's a set of assets, and in which geographies. Certainly, we are highly focused on the North American sector with regards to those types of inorganic opportunities. We are constantly looking at what is the best return on the investment. Is it traditional CapEx, or is it that of acquiring through M&A the capabilities, the adjacencies that we need to stay relevant with consumers and customers?

Michael Van Aelst, Analyst, TD Cowen: Appreciate that. Maybe just if I could sneak in one more. There has been a lot of talk here in the U.S. about changes to the SNAP program. Just wondering if you can give us a sense of how exposed you believe your business is to that and whether you have seen any impacts in any parts of the business because of changes. Thanks.

Carl Colizza, President and Chief Executive Officer, Saputo: Yeah, it's clear based on everything that we've said around dairy, the value proposition of dairy, and the kinds of favors it's in with consumers. It's an important part of the grocery bill for many consumers in the U.S. Certainly, the current SNAP situation is going to impact some of the retailers and some of the choices that consumers make. We still feel good about where dairy will fit into the priority or prioritization of the tough choices consumers are going to have to make. It's still a large portion of the everyday American's grocery list. As we know, there's a relatively important population that rely on SNAP every day. There's going to be some exposure there for sure with regards to our customer base and how that trickles down to us.

We expect that with the diversity of our platform and the offerings that we have, we'll be okay.

Michael Van Aelst, Analyst, TD Cowen: Appreciate it. We'll pass it on. Thank you.

Jean-Louis, Conference Operator: Your next question comes from Vishal Shreedhar of National Bank Financial. Your line is open.

Hi. Thanks for taking my questions and squeezing me in here. Earlier in the call, you mentioned that stability is good for decision-making and for the business. I'm just wondering, within the business, maybe looking at the U.S., for example, is there anything that management can do to insulate itself better against the commodity volatility that we see quarter to quarter, which oftentimes is unpredictable? I know in the past, management's talked about brands, strong brands being a good insulator for that. Just wondering if the thinking has evolved and what management is doing.

Carl Colizza, President and Chief Executive Officer, Saputo: You're right, Michelle. We have mentioned that, and it is still part of our strategy to augment the ratio of products that we bring to the retail side of the business, more specifically branded as the top priority versus that of, call it, industrial channels, which are highly correlated to the markets. Keep in mind that those markets are indices to which pricing protocols are initiated on. The more industrial it is in nature, the supply, the more highly correlated it is on the one end of the spectrum to the other end, which is fully branded on the retail side, which has a greater degree of pricing autonomy or pricing decisions. It is also why we are heavily focused on improving the value, the investments behind a select number of brands that we have, great brands in the U.S.

That is what our commercial office is focused in on. Part of the benefit beyond that of driving growth and brand recognition is obviously helping insulate against some of these market conditions. If I could add, Michelle, aside from the pricing protocol to be optimized and getting into other spaces or more branded or in the retail space, of course, it has to do with operating costs. Lowering operating costs gives us the edge to, despite market volatility, still post results ahead of the year before or increase our profitability. That is why focus on cost control remains high on our radar. That is what I wanted to add.

Jean-Louis, Conference Operator: Thank you for that, Color. With respect to the cost opportunities, in the past, management used to give us pretty granular quantifications of the benefits to come. Could you help us understand from the Wisconsin whey facilities or the closure of Green Bay and the full run rate of Franklin, the materiality of these benefits that we should expect to flow into run rate EBITDA when they're up and running fully?

Carl Colizza, President and Chief Executive Officer, Saputo: What I would say, Michelle, is that when you go back to the commentary we provided around the magnitude of the capital investments we put into the U.S. or globally and in the expected returns, we talked about a $200 million overall lift from that capital investment. We have benefited around $50 million or so a couple of years ago, $100 million last year, and we are chasing sort of the balance of all that this year. We feel strongly that the totality of those returns will come through by the end of the fiscal year. For the investment program, the capital investment program that we put in, I think the last bits and pieces will come from having our whey operation in Waupun, Wisconsin, being fully operationalized and fully out in market come the first half of next fiscal year.

The lion's share of it will come through this year and has been coming through, of course, as evident in our results.

Jean-Louis, Conference Operator: Thank you. Congrats on the quarter.

Carl Colizza, President and Chief Executive Officer, Saputo: Thank you, Michelle.

Jean-Louis, Conference Operator: Your next question comes from the line of Etienne Ricard of BMO. Your line is open.

Chris Lee, Analyst, Desjardins: Okay. Thank you and good morning. Just to circle back on the innovation pipeline, if we look historically, to what extent have new products supported top-line growth prospects? Where I'm getting at is, if your pace of new product introductions is accelerating, how should we think about the revenue impact?

Carl Colizza, President and Chief Executive Officer, Saputo: We will not get into the specifics, Etienne, just in part for competitive reasons. I can give you maybe two examples. On the one hand, if you take the Armstrong Cheese story in Canada, we were starting out at a number four position when we decided to make the pivot to having Armstrong be our national brand. Over the period of a couple of years, through the focus on the brand, but more importantly, the content and the offering of the portfolio, we are able to get to it being the number one brand. From an innovation perspective and why I highlight Armstrong is because although it was a multi-year journey, it is also a multi-pronged approach. It is as much about what the brand and its essence is and how it resonates with consumers, but equally, it is about the offerings, in this case here, on the SKU front.

From the convenience to the flavors to the formats and in the various channel offerings. What I would say is, when we look at our investment and our improvement innovation and our innovation cycle, it is really going to be better related and more closely related to what the insights are telling us about consumers' needs of today and tomorrow and ensuring that both the R&D work, the mechanical capacity, and/or capabilities that we have will allow us to capture those needs. In the end, we do expect it to be a meaningful organic contribution to our revenues as we move forward. Hence why we have committed incremental dollars to the category of commercial initiatives, which includes innovation.

Chris Lee, Analyst, Desjardins: Great. Thank you very much.

Jean-Louis, Conference Operator: With no further questions, this concludes our Q&A session. Thank you for your participation. This concludes today's conference call. You may now disconnect.

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