Company Reports

We will discontinue analyst coverage of Saputo on or about April 20.

On Feb. 12, Saputo announced an agreement to sell an 80% stake in its dairy division (Argentina) to Gloria Foods (of Grupo Gloria). It will retain 20% ownership and expects to collect about CAD 543 million upon the deal's anticipated first-quarter fiscal 2027 close. Shares are up 3% on the news.

In our view, though Saputo has a broad presence across Canada, the US, Australia, Argentina, and the UK, it has limited control over profitability, tempering its ability to generate excess returns in a highly competitive industry. From where we sit, its commoditized products offer little differentiation from branded and private-label competitors, capping the firm’s ability to set or defend prices. Furthermore, with roughly 85% of its cost of goods sold coming from raw milk—a highly volatile input—unstable operating margins are likely to persist. Consumers, particularly during inflationary or weak economic periods, typically choose the lowest-priced dairy options given abundant substitutes and no switching costs. Saputo’s foodservice (33% of sales) and industrial customers (18%) similarly prioritize value, further constraining pricing power. Supplier consolidation in the US dairy market has also strengthened producers’ influence, which we believe leaves Saputo largely a price taker. As a result, we forecast the company’s average return on invested capital (including goodwill) to remain just under 10% over the next decade, a thin margin relative to our 8% weighted average cost of capital estimate.

Saputo's third-quarter revenue declined 2.1%, driven by lower US dairy commodity prices, partially offset by higher sales volumes across all sectors and higher selling prices in Canada and international markets outside the US. Adjusted operating margin rose 180 basis points to 6.9%.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private-label fails to justify the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has constrained Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our five-year forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

Saputo reported a 0.3% lift in second-quarter revenue, bolstered by higher sales volumes in North America and increased domestic and international selling prices, but largely offset by lower US dairy commodity pricing. Adjusted operating margin increased 120 basis points to 6.2%.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has constrained Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our five-year forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

Saputo reported a 0.5% rise in first-quarter revenue, as growth in Canada (up 5.4%, 27% of sales), the US (up 2.1%, 46%), and Europe (up 20.1%, 6%) offset a massive decline in its international markets (down 13.8%, 21%). The adjusted operating margin increased 80 basis points to 5.9%.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has constrained Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our five-year forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

Saputo closed out the final three months of fiscal 2025 with a nearly 5% increase in revenue, which management attributed to higher selling prices and volumes on its home turf (26% of sales). However, the adjusted operating margin slipped 50 basis points to 4.4%. Shares fell around 3% on the news.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has worsened Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

On the surface, no-moat Saputo posted decent third-quarter results, including a 17% jump in sales, reflective of higher prices and improved volumes. However, this comes on the heels of a 7% downdraft in revenue a year ago, thus tempering our enthusiasm. And in this context, Saputo incurred a CAD 684 million impairment charge related to the more muted prospects that stand to emulate from its UK business (though we admit this is a relatively insignificant piece of the business, with Europe comprising just 6% of consolidated sales).

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has worsened Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset, a particular challenge when consumers face outsize strain on their pocketbooks during periods of macroeconomic malaise. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) has worsened Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

No-moat Saputo’s 9% revenue growth in second-quarter fiscal 2025 appeared impressive at first blush, but it was against an easy comparison with last year’s period in which sales slumped 3% on an 11% shortfall in its international segment. Moreover, Saputo benefited from higher prices and improved volumes in this year’s second quarter, but we’re skeptical that such trends will prove durable. Against a more challenged consumer spending backdrop and given the lack of differentiation in the dairy case, we suspect consumers could opt to trade down to lower-priced private-label options. And even though Saputo chalked up nearly 13% sales growth in Europe (5% of fiscal 2024 revenue), we attribute a portion of this bump to its prior decision to increase its private-label reach in the region. As such, we aren’t altering our long-term top-line outlook for 3% growth annually.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) further exacerbates Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our forecast average return on invested capital (including goodwill) sits just above our 8% weighted average cost of capital estimate.

We don’t expect to make a material change in our CAD 24.50 per share fair value estimate after digesting no-moat Saputo’s first-quarter results, which included 9.5% sales growth and a flat operating margin of 5.1%. While these marks appear quite solid at first blush, our enthusiasm is tempered.

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.

On May 14, no-moat Saputo announced that Lino Saputo would step down from his position as president and CEO on Aug. 9 after 20 years at the helm and 36 years with the business his family founded in 1954. As CEO, Saputo was pivotal in expanding his namesake firm’s geographic footprint, growing its value-added ingredients business, and driving efficiencies by reducing operational costs through automation. Assuming the top spot will be Carl Colizza, current president and COO (North America). In our view, Colizza is well suited to take over the CEO role given his roughly 25 years of experience serving in multiple leadership positions across Saputo’s business functions (spanning engineering, operations, business development, and strategy) and geographic regions (Canada, North America, and Argentina). Encouragingly, Lino Saputo will stay on as executive chair of the board, where he intends to focus on the firm’s strategic oversight and culture; we believe this should afford a seamless transition.

Despite Saputo's extensive portfolio of dairy products spanning the cheese, cooking spray, and spreads aisles, its exposure to a highly commoditized industry means fluctuations in raw material prices (which account for up to 85% of Saputo’s costs) can limit the firm’s control of profitability. More critically, we believe the lack of differentiation between its products and those of branded competitors and private label fails to suggest the existence of a brand intangible asset. The consolidation among dairy producers (that have amassed greater control over the price of raw milk) further exacerbates Saputo's standing, in our view. Suggestive of the firm's lack of competitive edge, our average return on invested capital (including goodwill) sits just a touch above our 8% weighted average cost of capital estimate.