Saputo eyes Brazil for acquisitions

Reuters — Saputo Inc., one of Canada’s largest dairy producers, has an eye on Brazil for possible acquisitions, and could make deals worth as much as $3.5 billion, its CEO said Thursday.

The struggling global dairy industry is fragmented, potentially yielding opportunities, Lino Saputo Jr. said.

The company would like to buy cheesemaking plants in Brazil, instead of continuing to move cheese into the market from Argentina, he said.

“You have hundreds and hundreds of dairy players” in Brazil, Saputo said in an interview. “If we found an interesting platform on the cheese side in Brazil that would allow us to be a consolidator, that’s essentially what we’re looking for.”

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He declined to say if Saputo was in serious negotiations with any company.

Brazil is one of the world’s biggest milk producers and has a large number of domestic consumers.

After Brazil, Saputo is also interested in deals in the U.S., Australia and New Zealand, he said.

Saputo last year bought Ontario goat cheese firm Woolwich Dairy. Through its Australian subsidiary Warrnambool, it also bought the “everyday cheese” business of Australian dairy and beverage firm Lion.

Montreal-based Saputo’s shares were up 0.1 per cent at $39.17 in Toronto in Thursday afternoon trading, and have gained about 18 per cent in 2016.

The stock is trading above historical averages as investors anticipate further acquisitions, said Brittany Weissman, an analyst at Edward Jones. Even so, strong competition is pushing acquisition prices higher and deals may be hard to achieve, she said.

Saputo, whose products include Dairyland milk and Armstrong cheese, reported lower quarterly earnings on Thursday, citing weaker pricing around the world for dairy ingredients.

In the fourth quarter ended on March 31, net income dropped to $141.2 million, or 36 cents a share, from $157.4 million, or 39 cents a share, a year earlier.

Excluding one-time items, earnings were 41 cents a share, just above analysts’ average estimate of 40 cents, according to Thomson Reuters I/B/E/S.

Revenue climbed nine per cent to $2.7 billion, in line with expectations.

Saputo’s Canadian business reported higher sales in the fourth quarter in its cheese and cream categories, but lower sales in its “traditional” milk and butter categories.

Looking ahead, the company said in its fourth quarter report that its Canadian production capacity “continues to be evaluated” with the aim of reducing excess.

Excess capacity as of March 31 sits at 26 per cent and 36 per cent in its Canadian cheese and milk businesses respectively, the company said.

Rod Nickel is a Reuters correspondent covering the agriculture and mining sectors from Winnipeg. Includes files from AGCanada.com Network staff.

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