Saputo Earnings: Efforts to Harvest Higher Profits Unlikely to Defy Commodity Headwinds Long Term

No-moat Saputo closed its fiscal 2024 books with better-than-expected fourth-quarter results—CAD 4.5 billion in revenue (including negative CAD 114 million from foreign exchange rate) and CAD 0.37 in EPS topped our CAD 4.2 billion and CAD 0.26 preprint estimates, respectively. Although we view these marks as a byproduct of solid execution and capital investments bearing fruit, we believe closer examination points to the firm’s inability to fend off factors outside of its control. Notably, the adjusted EBITDA margin fell 50 basis points to 8.3% as inflationary headwinds outside its home turf trumped higher volumes and operational improvements. Specifically, while the firm chalked up 30 basis points of EBITDA margin improvement (to 7.2%) in its US segment (42% of sales), Saputo’s international (25%) and European (6%) arms recorded 90- and 560-basis-point margin declines (to 7.8% and 5.2%), respectively, drawing to light the commodity market pressures that we anticipate will plague its margin profile over time.