Q1 2021 Saputo Inc Earnings Call
Sure.
Greetings and welcome to the support or access code 2021 first quarter results.
Presentation, all participants will be no listen only mode. Afterwards, we'll conduct a question answer session.
I'm, even have a question to cross the one bite afford on your telephone differently turn the conference you need to each operator, it's supposed to start for but is there.
Somebody to today's call is really quick Thursday August six 2020, no electrochromic harvest to lean also put a junior discovered that.
Thank you very much told me good afternoon, everyone and thanks for joining us taking part in our call today are those the junior makes in San Diego and probably Bachman before answering questions from our analysts Lino will begin by providing an overview of our fiscal 2021 first quarter results.
Before we begin I will remind you of is call it being recorded and we posted on our website. Please also be reminded that some of these statements provided during this call our for.
Such statements are based on assumptions are subject to risks and uncertainties, we refer to our cautionary statement regarding forward looking information interim report press releases and filing.
Any forward looking information, we caution as our actual results could differ materially we like that they obligations of the this information except as required under securities legislation I'll now hand, although recently.
Thank you Sandy and good afternoon to all I.
I hope everyone is keeping safe.
Thoughts I would those affected by the pandemic.
Our fiscal 2021 first quarter results were released this morning, now I am delighted with our performance.
However, the simply no getting around it cobot 19 has impacted our business.
Compared to the corresponding quarter last fiscal year consolidated revenues decreased 7.6%.
Net earnings however were up 16.6%, while adjusted net earnings were down by 2.4% and our adjusted EBITDA increased by 2.4%.
The quarter began during one of the lowest point of the pandemic, which directly impacted global economic conditions supply chains.
And business productivity.
As things progress.
We saw economic indicator start to improve as governments began using restriction.
As such we've continued to experience fluctuating shifts in consumer demand impacting all our sectors to varying degrees.
During the quarter, we witnessed strong volatility.
Sales volumes in the foodservice and industrial market segments remained at low levels.
While retail market sales volumes increased.
More specifically the Canada sector benefited from higher sales volumes, mainly in the fluid milk category.
And the U.S. sector lower sales volumes that had been deficiencies and the absorption of fixed cost.
On the positive side, you watch market factors and the fluctuation of U.S. and Canadian currencies helped to offset this decrease.
We're happy to announce today that are to U.S. divisions have merged into a combined and more agile dairy division USA.
This milestone marks an important step towards procuring further synergies in all aspects of our U.S. fitness.
This will allow the two divisions the benefit from a streamlined organizational structure and a solid solid leadership team with calc Lisa at the helm of operations.
We firmly believe this will make the entire platform stronger, allowing our employees to work collectively had to serve our markets even better.
And the international sector decreased milk availability in Australia lifted our results.
Good contributions from the Lion dairy and drink specialty cheese business acquisition.
And our Europe sector, we experienced the surge in the retail segment as our sales volumes increased mainly as a result of the pandemic.
Building on the success of its well loved Cathedral City, Brian. We recently introduced our fellow Canadians to Britain is most favored chatter by importing it across the pond.
During the quarter. Despite the many challenges Oh, the pandemic, we did not waiver in our corporate responsibility commitment.
We continue to do the right thing.
With a long term perspective on the future of our business.
Our priorities remained intact.
We focused on progressing and each of our seven pillars.
When it comes to our business ethics, we reinforced our stance to combat racism.
At this important topics sparked conversations around the globe, we were proud to be one other companies, who signed the business Council of Canada statements denouncing racism.
We strongly believe.
Oh share in the responsibility to eliminate racism in all its forms.
Standing firmly behind that we recently confirmed we will retire that Kuhn cheese brand name from our Australian portfolio.
We're now working to develop a new name.
That will honor the brand affinity felt by our valued consumers, while aligning with current attitudes and perspectives.
We also celebrated the fifth anniversary of our animal welfare policy in June.
Therefore, we took the opportunity to enhance it to broaden its scope that to reinforce our about.
To bring stakeholders together to make positive contribution on this topic.
We also advanced and our environmental pledge to make sustainable progress regarding our climate water and waste performance.
Various projects aimed at reducing our annual energy consumption.
Two emissions.
And water usage globally have now been identified.
In terms of our community pillar.
From the onset of Cobot 19, we've committed to helping the communities, where we operate focusing on food security for the most vulnerable through donations to local food banks.
With numerous initiatives undertaken globally.
Okay, and financial donations amounted to over $5 million to date.
And this action complements our assurance to our people know layoffs as a result of the cobot 19 pandemic until further notice.
And these unprecedented times, we are writing a pivotal chapter in our history.
It is one filled with challenges and uncertainty, but also one which has opened the possibilities and opportunities.
Until this pandemic is behind US we remain focused on managing through its effects.
And we will keep safeguarding the health and safety of our employees, while adapting to consumer demand.
Our results reflect our strength and resilience as an organization.
And we have our employees to thank once again for continued success.
They're camaraderie and their commitment to our business reinforce the vitality of our culture every single day and for this I'm so proud of our remarkable team.
On that note.
Hi, Thank you for joining our call and we will now proceed to answer your questions Tommy.
Thank you very much.
And if you like to registry question just crossed the one followed by the forward on your telephone.
Three tone prompt technology requests.
That's a question has been asked her to draw your frustration is the one.
Yes.
One moment. Please her first question.
And well get to our first question I'm, a lifetime Peter are with BMO could happen.
Thank you.
You are seeing.
Problematic area for pseudo has been the fluid milk business in Canada that for quite a period of time now, but you're calling it out is up.
Right spot is that just demand in the retail channel as people were staying home and consuming more fluid milk at home or is there another dynamic at play.
So Peter if you listen to the <unk> comments that Max made at the age yen.
We're talking about growing and are a profitable category.
We did in the past walk away from some business because that prices that were being offered in the market. We felt were unrealistic and not sustainable.
Define that our competitors were not able to service those markets effectively and some of that volume came back they came back under better terms and better condition.
And so for.
Fluid milk has been a I bright spot in this last.
Quarter, specifically, because we got back some volume that we had one slot.
But also because they've got to back at a better pricing and also I became a comfort food for consumers.
The pandemic.
Started to take shape.
So for all those counts fluid milk in this quarter has been a benefit to the hit to the Canadian platform.
And ladies has that changed your view long term.
How you feel about the category I know at times, you've been quite frustrated about the performance of the categories that change your mind or you think this is just a temporary thing.
Absolutely not it has a temporary thing.
There's a lot of trends.
And a lot of patterns that we're seeing through cobot that quite frankly, I don't think are going to be sustainable. So if you're asking would reinvest in fluid assets through acquisitions, a I will tell you. The answer is no. Our capex allocation. However for the Porthcawl curriculum plant still continues.
Because we do have a solid business here in Canada, even though the market isn't growing.
But beyond the Porthcawl investments, we are not considering further development in the fluid category I think that this is a more of a blip that is a trend.
Okay and the other positive development or what are the other positive developments you called out was.
Strictly a what's been problematic to its been the shrink in the milk supply, but you call about called out that there was more milk availability. So is there more mill coming out of the farms or are you capturing a bigger share the mill.
Versus your competitors.
So they're slightly more mill coming out of the fires so I think that the.
The erosion at the farm level has stopped in fact, it's actually turned around but a very positive thing happened to us through cobot 19, as well in Australia is that some of our competitors were not able to process there mill because.
They were mostly foodservice or industrially oriented we had the capacity we had the ability to service customers domestically and internationally and we gladly took on that mill and I think that that has secured a lot of farmers.
In Australia.
That we are the right home for their milk and so.
A good portion of that milk I think is going to stick with us.
And so I'm I'm still optimistic about our outlook.
For the production capacity that we laid out to our three year.
We're not far from that number now.
And I think that that is very very positive sign and a testament to the quality of the team we Havent, Australia that represents US every single day.
Okay, and then just lastly could you explain maybe a little more depth why you decided to merge the U.S. divisions from.
From a product standpoint, one one is cheese and the other one.
Cream products.
Things like cream and ice cream mix and you know I kind of it just seems to me those are two completely different channel.
Yes go through that.
Yes, Peter it's not that different from a when we first acquired dairy land back in 2001.
We operated the fluid milk separate from the cheese until such time that we got comfortable with both of those division.
And thought that there were some great synergies to bring them together.
Same thing could be set for the U.S., but I'm going to tie to go into a bit more detail I think we've got a great leadership.
Group out there and kind of got them real great ideas and plans for that division with car fleet about I'm going to tie go into more detail would that be sure. Thank you laid off so essentially what we need to do in the marketplace. We need to have one voice with our customers. We don't want to have our customers having to deal with multiple.
Sales representatives.
To to get the solutions that are looking for for their business. So one voice with those key customers is critical.
We.
There are a lot of strengths within the SDN platform in terms of go to market strategy. There their insights work, they're very strong in fact, you don't have a lot of brass. So they are all about providing solutions to.
Customers and consumers screws has very strong operationally.
And we feel that bringing the two divisions together, we'll be able to leverage the strength of each of the divisions to benefit overall you overall newly created some cool USA and we also believe that there's going to be a lot of synergies that will be able to garner from the business, whether it's on the manufacturing side raw material procurement supply chain and so.
So on and if you look at.
If you look at the makeup of the team. It's it's a very experienced group, we're taking a the best of the two divisions to create a senior leadership team for the one USA.
Combined amongst the 10 numbers are looking out over two centuries of dairy experience and over over 125 years of screw experience. So a very seasoned group and.
We're very confident that we're going to be able to take that business to the next level, creating a bigger better stronger USA.
And the gentleman, who runs Scf I believe his name is Paul see stake.
All corny has retired.
And if you recall a car completes that took over that position no as an interim role and I believe last conference.
We had with the analyst.
Somebody asked the question if we are having trouble finding a leader for as the yet.
The reality is that Karl once you've gotten involved in running the north American platform had in the back of his mind potentially unifying SDF and SCUSA.
And he wanted to know more about the division.
Prior to pulling the trigger on that.
Carl.
Has understood that platform extremely well spend most of this time there.
And with Paul's retirement, we didn't think it was prudent to higher anyone, especially if those two divisions what comes together.
But Terry Brochmann still stays with the platform in a different capacity.
But still very valuable to the U.S.
Eloping its its network its business and its infrastructure.
Okay. Thank you.
Thanks very much.
Our next question on the line is from Irene Nattel from RBC capital markets. Please go ahead.
Thanks, and good afternoon just.
Following up on the U.S. Pds, if you don't mind.
So what she'd be willing to quantify for us what types of synergies or benefits you expect to get in the you asked or how many positions might be eliminated or anything you can take on that subject.
This is tied up we're going to have the leadership group is going to be tasked with identifying opportunities again, we're trying to leverage as friends length of each of the divisions, but what we're looking to do is create enable us to fuel future investments. So this isn't a cost cutting exercise. This isn't this isn't a business that's in trouble.
The business, that's performed quite well for us, especially FDF. So we're looking to.
Turning to fuel future growth with with the synergies that we uncover.
With respect to your question on positions eliminated at this stage, we don't see any positions eliminated in fact.
Since we've got into coal that 19.
We had a halt on any new free any new hiring in any one of our platform. So we want the guaranteed.
That there would be no layoffs and all of our employees were paid but we were not feeling any position right now we have at various levels.
Just two or three to 400 positions that are open. So our hope is that we can redeploy the personnel there, but the real value is going to find some of those synergies and bringing the units together servicing our clean on telling the market.
That's that's very helpful. Thank you.
The second question that I had on on the U.S. segment really comes down to this inline with all the challenges that you were facing in terms of your mix and what was going on in the market. Your financial performance was met with nothing short of ROA. So wondering essentially how did you do I mean, what.
Changes did you make what did you focus on how did you manage it how did you do.
Okay.
I rather than trying to manage.
Of course, but more more granularly.
[laughter] as you recall, a irene in past quarters, we have some incremental spending with regards to warehousing delivery logistics.
When we.
We set up one line that we have to go to market and tried to recoup some of those costs and those cost when you try to recruit those don't don't come back to price initiative.
Immediately or the next quarter. It takes some time so during the quarter, we definitely benefited from pricing action.
To mitigate the incremental cost of warehousing and logistics.
Obviously from.
The volume affected us.
In the us.
Our efficiencies overall are definitely not the same level as past quarter.
But to do the extent we could.
Reducing our spending whether it's on the as Ginny front.
And all other the elements of the of the spend.
Helped to drive some some positive that's on top of the the market's factor that with the no. We're all the directed positively for us during the quarter.
That's great. Thank you and men.
You'd be very disappointed we know what they didnt ask about I'll address can you. Just can you just just spend a couple of minutes talking about your current thinking around M&A, what youre seeing in the marketplace and the different geographies and where you might be seeing the most interesting opportunity.
Yeah. So we definitely do have a focus on acquisitions. We've got a pipeline that is actually quite full I would say that legitimate files, we would probably be upwards 567 legitimate files. Although there is a lot of.
Underperforming assets or what I would deem as junk on the market that we certainly don't want to be part of the processes and we've signaled to the sellers that we are not going to be part of those kinds of processes and we have signal to the sellers of the high valued assets that we do want to be part of approach.
Yes.
So I will tell you that.
Given our financial flexibility our de leveraging initiative.
The talent that we have that is eager to do more we're definitely looking at acquisitions. We're active in files. Despite the fact that there is cobot, we still have the opportunity to perform due diligence.
That would be through the virtual rooms, as well as we have deployed some of our teams.
Into different facilities to perform a physical inspection of some assets. So that is still ongoing however.
It's not the same teams that are being deployed.
Because of travel restrictions, but it's given an opportunity to some of our talent to perhaps do things that they want normally do.
So the the will continue to turn on acquisitions.
Im optimistic.
That that we will materialize or one or perhaps multiple acquisitions over the course of this next fiscal year, but again, we do that with a lot of prudence.
We do that with a lot of discipline I am just like we can walk away from some business that is not profitable we're happy to walk away from some acquisition.
Where we think that neither the conditions aren't right or the price is not in our sweet spot.
But I'm I'm still quite optimistic that despite covidien and some of the limitations there that we can get something done over the course of this fiscal year.
That's great. Thank you.
Thank you very much.
Our next question on the line.
The line or Mike over an hour with TD Securities go ahead.
Hi, Thanks, and I just want to follow up all that I think on some of our inspection, but you're.
Your last outlook.
We did a pretty tough thanks for the near term financials, given all the changes in the channel.
Channels and the challenges in adjusting production levels. So.
Were you able to do anything differently than that you didn't think you were going to be able to do heading into Q1, and you still expect earnings to be lower year over year and Cisco Connie.
So Michael if you recall that last call. We had there was a lot of uncertainty and a lot of.
Volatility in the markets.
And so it was it's very difficult even now it's very difficult to predict what the future is going to look like.
However, I would say that based on the experience we had coming in through a March April May June.
We feel like we're in a good position to be able to navigate well.
Or perhaps better moving forward than we did.
Getting into it.
We.
As Max alluded to there are certain things that we tried to do to mitigate some of the inefficiencies in terms of overall volume.
And deferrals that was something that our teams focused on trade promotion travel spend.
Cost containments changing shifts.
Within our facilities.
Adding machinery, where we needed to add machinery to be able to deliver a the volumes that that were being called for.
These are all things that now we have under our belt.
We feel quite comfortable that our team has responded well and that they can respond well moving forward, but that uncertainty and volatility still exists.
If there is going to be a second wave, how that's going to impact us we don't know depending on how severe the governments are going to be at shutting down economies.
So there still is a lot of uncertainty, but I feel very very good about the spot that we're in.
I feel good that we've got the right foundations, our balance sheet is clean our employees are engaged.
Even in the hot spots, where we you know some communities had some massive outbreaks or where we had to cope with noncompliance for a week or to send people out for testing as soon as our employees got their tech back. It out were negative they were ready to come back to work and so the energy really is amazing and perhaps that might be why our outlook.
As a little bit more.
A positive then it may have been going into the October 19, So that's a general tone that I'm, saying, we have in the organization I'm going to ask Max to speak a bit more specifically in terms of.
Maybe some financial the numbers that he's thinking well just a mike in terms of the sector per se.
Items that we called out whether it's in China, the relative to the additional fluid milk volume, helping to lift or results. This is there to stay we don't see this.
Going going back.
Same thing with regards to the milk.
Availability in Australia. So we feel that this milt that we've been able to attract is going to be sustainable and from the Europe perspective.
Yes, definitely the no signs too.
Tells us that to the performance would start to decline whatsoever. So it leaves us with the U.S.
And when we talked last time, you recall the early on in April or so probably the 23 million market factor favorable for the quarter was looking more into maybe a negative 23 million.
So there is a continuous improvement in the market condition.
That's allowed us to ended up the quarter positively and that that would be the wildcard for us to say Oh, we're going to be whether better than last year lower than last year and so on his report.
This time for this Q1.
All the way up to June.
We were unsure that these market conditions would be favorable to us there was unprecedented.
Volatility so we're still calling it in the us to be volatiles.
And and as you saw the block the last few days significant decline.
So we'll see how this all turns out.
Over this this particular quarter. So hopefully that's helpful for you I would add back yet.
Mastic market, but it's also if you look at the international markets GDT. This week has dropped significantly for some of the our commodity products. So volatility is going to the continued seen for for this quarter.
Okay. That's all very helpful and I was just I was also trying to understand in those market factor comments for the you asked I think in your question. When you you pointed out.
As ingredient price increase had a positive effect.
Price fluctuations had a negative impact on realization that inventories why why was that Mccain is when you saw big Big run up for the most part of the quarter I know one down initially with the cheese prices ran up for most of quarter and hit record highs.
The inventory realization for the quarter was positive so as the spreads for the quarter. So.
The combined adult all those elements of were was favorable.
As early on in the quarter it was negative or some point will reach a point of.
At midpoint or a point mall, and then ended up being positive so.
As we're looking into this quarter coming to us with block going down so the realisations of our inventory will be.
We'll be stress.
And.
Although we had a very good started in Q2 will see held this hopefully though so.
Okay. That's helpful. Thank you.
And just just finally on the competitive activity you're pointed out.
In the past several times in both Canada.
For milk and U.S., so our mozzarella it seems like milk is not so much in issue.
Any more in <unk> and Canada about what's the status of the competitive environment in the U.S.
So right now, it's pretty well balanced we don't see any.
Irresponsible behavior on the market.
And that is a very good thing there is however, an oversupply of mozzarella in in the U.S. and that's still does exist and that's putting pressure on prices not because you know our competitors or are getting a irrational, but because it's an oversupply.
And people are trying to lock in.
Some some of business.
Favorable rates, which is.
Comment when you have an oversupply situation, but I would say.
For the for the the a.
A large part I would say that theres piece in the valley right now, we're hoping that that will be sustained for.
Sometime to come.
Thank you ma'am.
Thank you Michael.
I will get her next question on the line.
From a lot of a mark Petrobras NBC correct ahead.
Hi, good afternoon. Thank you.
Sorry, just a follow up again could you just be a bit more specific with regards to the dairy ingredients.
That were favorable for you in the U.S. because like I know that the wing prices was pretty stable all things considered so just wondering if you can be a bit more specific was it some of the higher grade way that you guys do good volume it.
Well, yes definitely refers to a high protein powders, namely WPC 80 product.
However, we're seeing okay.
As we're moving into the next quarter there is pressure on the higher proteins, but we are seeing favorable.
More favorable outlook when it comes to the low teen commodities.
Yes, okay. Okay. Thank you I'm.
Just and then coming back to Canada, as well with regards to the comments around volume and then and then fluid milk being the key driver there separating some of that fluid milk volumes that that came back to you.
Returning contracts and then also the spike in retail demand can you talk about the volume performance.
In Canada separating that fluid milk.
Component out.
Yes, so I'll give you a general ships of what we saw and then kind of opened in the blanks with some more specificity but.
But that retail volume was actually quite strong.
There was a boost of about 20% in overall volume at the retail level.
And that and I'm talking besides the fluid milk, we're looking at that she's categories and cheese products.
So that was a very favorable for us we saw a drop in the food service early on in the pandemic drop in foodservice.
And industrial business by a rate of maybe 30 or 40% and then since I came back probably 10 or 15%.
Two.
Although its normal levels.
So that's what we saw in the Canadian platform can you want to give a bit more color there sure. What we're seeing on the horizon from a foodservice perspective is continuing recovery on the food service side.
Retail is kind of stabilizing so looking at flat relative to last year, we are running full out and seeing very strong demand, especially on the matson share sites.
Okay. Thanks, Yeah. That's very helpful. Can you give sort of a similar commentary for the U.S. so possible.
Yes, so in terms of overall channel sales, we've seen very much the same kinds of pattern. So decline in foodservice an ingredient a rise in retail however, I will say this that our retail business is not as robust or in terms of percentage.
Impact in the U.S. as it is in Canada.
So what we found ourselves in a in some areas with the capacity surplus and most of our plans and capacity limitations. Another plan. So in a sense. We had some plants were really busy and other plants were idle.
And that was the nature of the makeup of our U.S.
Platform business started to take off when we saw the opening up of the economies and then maybe I can give you a little bit of a perspective on the outlook there sure. So foodservice wise for the U.S., we're looking at sort of 70% to 80% of normal levels retail is leveling off and just out in the food service component.
We're seeing some weakening in national accounts and the QSR segment.
Again, those that are well set up for takeout.
Deliveries are performing well and those that aren't adapting to the new normal are obviously not doing so well.
After 11, California Pizza kitchen, there's a lot of examples of casual diners have gone out of business.
And then on the industrial sites, but a mixed bag for us in a in.
Who is our industrial volumes go to retail processors, and thats for and quite well because a pick up in retail, but on the flip side for SDF lot of our industrial volumes go to more of food service type items like coffee Creamers as an example, and that's that's been down quite a bit over the last year.
Okay. Thanks, and then I guess on that sort of topic I mean, you guys have.
You know in Boston put a lot of effort and invested you're going to capital in terms of adding brands into your business.
Cross across a number of geographies could you just sort of run down.
The extent to which.
Those brands are kind of number one or number two in their respective categories, and then or or.
And then the component of your brand portfolio, where maybe there are more or like number three year number four.
Yeah, Hi, sure I'll go around the horn.
So we'll start with the UK because that's an easy one.
Market, leading retail Cheddar brand Cathedral city, performing phenomenally well in fact, we're ahead of plans in terms of our expansion operations in that part of the world. So doing very well I would also call on Friday light, it's a smaller part of the business, but we never talk about it and thats doing extremely well, it's a market leading.
Frying oral spread for the retail segment, if we move over to Argentina, we have a variety of brands.
Probably not as a predominant Brad and as a market leader in a variety of achieves categories and in Australia are tuned brand, which will be renamed next year is a market leading brand from an everyday cheese perspective, and we have solid brands and or the the other spaces. We do have.
Market, leading positions in our specialty cheese.
Our business that we recently acquired from Lyon.
And if we move over to Canada, we have a lot of market leading brands.
Retail as well as foodservice mozzarella lot of the Italian specialty products as you look at our fluid milk brands dairy land is number one on Wes Nielsen is number one in Ontario neutrally.
So strong probably number three number four Claire Armstrong is moving up the ranks to performing very well, especially in light of the fact is the recent.
New product launches.
So that's kind of a high level sort of.
Our market position around the geographies.
Okay. Thanks, I'll pass on it.
Thank you very much.
Great for minor dental registration your questions were follow ups and it's the one for by before on your telephone.
Okay next question on the line from Chris Lee from there is that correct.
Hi, good afternoon, everyone I'm.
Just wondering maybe push to get your thoughts on Ken's his decision to allocate a lot of the daily import licenses to to that to the Devry processors I know that's something that the industry has been advocating for and now you guys have it I'm just wanted to get your thoughts on that and maybe the impact on chipotle.
Yeah.
Yeah. Thank you very much crystal the a free trade agreement the last two free trade agreements had been favorable for the dairy industry.
With respect to the allocation of those import licenses. So what do you think about the the CP TPP and the U.S.M.C.A., 85% all the allocation have gone to dairy industry players stake holders of the industry and so I.
I had gone to auto a number of times to petition and lobby for on behalf of the dairy industry as well as the on behalf of sudol or that this is the best thing maintain value in the space.
Our objective as an industry our objective as an organization, it's the important value added products.
And not the bring in commodity products that are going to take value out of the space and out of the category and now it's up to us to live up to the commitments that we made the governments of using 100% of those licenses that were located.
So I feel very good about.
The the resolution of these trade agreements and how a dairy stakeholders can now control their own destiny. So I feel very very good about about where we are.
That's great and I guess Im am I correct. That's one of the reasons you saw that important because the growth.
From from the UK into Canada.
That's absolutely correct. So we.
Has the ability through licensing the bring value category products into a this country that are going to be selling for a higher than what the domestic product is.
And so again this is one of the commitments we made the government and shortly thereafter, we bought a lived up to that commitments. So cathedral city a highly valued brand now is in this country for consumers to consume of course at a higher price than domestic product.
And do you see that as a big opportunity going forward to grow that brand in Canada, It's maybe some numbers.
Hello.
Well, maybe not that brand specifically, because I think they're sort of a electricity in terms of overall consumption or all of our value add cheddar, but perhaps we could do the same thing with other products that were manufacturing I'll give you. Another example, we've got a treasure cave about blue cheese, there in the U.S.
Now with the U.S.M.C.A. why not bring that blue cheese high valued product into Canada and brought in our portfolio of products that we can bring to market. So there are other examples. So we don't always have to go to the same wealth. They get the water. There's a bunch of different wells that we can use.
That they get a wider range of value added products into Canada and on on store shelves.
Okay. That's very helpful and maybe just one question on one one Canada.
As you know I mean, it's been reported that Walmart is looking to increase the supplies fees to help cover some other store renovations and online initiatives.
So little perspective is that going to be meaningful headwind to you guys will do you have initiatives to offset some of those cost increases.
Well you have to understand that were also incurring additional costs in relation to dealing with this call the crisis, whether its protecting our employees, whether it's a additional labor.
So we will be.
In discussions with our retailer partners in terms of what is the right thing for.
So more to come more to come on that from a front I don't think that the story isn't that right there.
Yes, not for sure not.
Maybe in the U.S. you mentioned services.
70% to 80% of normal sales I just wanted just to come from was that during the quarter or is it excitement exiting the quarter.
That is currently in the month that we're in.
At quarter end over crisis, we're looking at 50% and thats recover to depending on the geography between 70%.
And have you seen that improvement kind of solidly CMBS some states start to shut down again.
There could be an actual retraction, but what we're seeing as it stabilize to that 70% to 80% of normal levels, but if there is a wider shutdown specifically in United States, We would expect to see contractions and also service numbers.
Okay, and so you mentioned earlier in the US your retail channel is starting to kind of.
Stabilize a little bit or less growth in Canada, what is it different about the U.S. Where's the candidate that causes that.
In the retail channel.
Yeah. My reference there Chris was a is that the portion of our retail business in the U.S. relative to the total business is smaller than that of the out of Canada.
So even though retail is growing in the U.S.. We don't have the same lift in percentage as we might have found in Canada. So I apologize if there was some confusion there although thanks for the clarification just a couple of more quick ones.
You mentioned.
Merger of the two divisions is there going to be an opportunity to have perhaps we corpus some of the consumers facilities to maybe retail.
As the demand continue to shift to retail longer term.
We're not going to.
Move away from our foodservice customers, our industrial customers. If there are opportunities on the retail side definitely we'll look at capex allocation to increase capacity there, but it will not be at the expense of foodservice or industrial we believe that those markets are going to come back to levels that they were once where it's just a matter.
Uptime, and I will be patient that way.
Perfect and my last question just on M&A, you mentioned give six or seven which it is 1000 looking at can you give us a sense of size from like range, how small to how big and maybe what geographies or product areas.
Yeah. So there are number of different and you're going to appreciate this through covert 19, or perhaps some companies are in a more difficult situation than others. Some have had some strategic orientation changes a away from a either cheese or dairy.
And so.
Typically when there are files available where one of the first companies to be approach and so those files would range anywhere from $200 million and failed to $2 billion entails.
The ranges it really is that wide.
Gotcha. Thanks, so much launches and Joe the rest of this summer.
Thank you very much Chris that's very nice of you.
Pretty much we've got her next question on the line.
Vishal Shreedhar from National Bank financial Curet ahead.
Hi, This is Ryan Lee in for additional thank you for taking my questions.
Maybe just wanted to start off.
With regards to the direct to consumer website that was on line.
What how did this come about and what are the plans for this business going forward as there is it more of a short term play or is there any longer term.
Dziedzic implications here.
Yeah, well I'm glad that you brought that up you know the E. Commerce play is something that we had been contemplating.
For quite some time and and you know I you know I've said this to our team here covert is giving us a license.
To change to consider things that we never would have considered before.
And so with this license we need to take advantage of the opportunities that are presented to us.
Going back in time, there was a home service a business that we inherited through the dairy land acquisition, where we were going door to door to consumers houses selling them milk. While this is you know still selling to consumers direct let's through a different platform.
We had a problem.
Not too much inventory in some cases in some categories of products and those those products were being a requested by consumers and so we put that two things together and develop this approval fridge, which is an ecommerce business where consumers can buy a product that is posted the end the shelf life.
But at discounted prices and delivered directly to home, it's something that we toyed with a one to understand that consumer behavior, but to also to perfect. Our E. Commerce type business that we could either do direct to consumers or perhaps leverage with some of the retailers that we're going down that way.
Got it to me what that was a great experience. Despite the fact that you know some journalist couldn't understand our strategy I can get that journalists are not typically entrepreneurs. We are entrepreneurs and so we found that this has been great little niche that we can tap into and we're going to be expanding at each.
Commerce business, I'd like kind of speak a little bit or.
Some of the other initiatives that we have ongoing that are creating go quite a bit of energy within the organization in terms of just thinking outside the box.
We're committed to a robust ecommerce strategy is not going away.
Through the insights for at our teams have done.
Consumers are going to be increasing their E commerce their online purchasing of grocery items and when we look at some of the opportunity for Super going forward. We've got to look at ways to develop solutions to make whole meals more convenient or interesting. So as an example with our.
This legal.
Launched a pizza kits, so it's an opportunity for people to.
Because we are ready supply all the main ingredients to piece operators, we thought we would provide the the home meal solution for our consumers. So it's a it's a way of trying out new innovative ideas.
Platform that we know is going to be a is going to continue to grow and the important for us.
But.
I'll be very honest with you a Ryan if we stand still we're not going to progress and so we've got to try different things and some things are going to stick and other things won't but.
That's a.
That's what being an entrepreneur is all about and I'm. So delighted I'm. So excited about the ideas that our teams are coming up with I'm, we're providing them that latitude to really a spread there wings and try out different things.
Thank you that's sounds like a very interesting opportunity. Thanks, thanks for the color in that.
And then my last question, it's a two parter.
You mentioned during the quarter that there were some obviously promotion activity was limited kind of mitigated some of the pressures how is that shaped out now that we're into July into Q2, and then second part is somewhat related theres been media reports it some.
In.
Grocery retailers are looking to reduce cost and looking to suppliers to do that and can you comment on that.
Sorry can you repeat the second to start with the first half and then you'll get to the second answer so in terms of Oh, we talked about a retail volume sort of normalizing and as these volumes get back down to Earth. We are looking to reintroduce some of our trade spend two or two.
To introduce promotions and then get back to levels, where we were so we will have to it to push that as we move into the next couple of quarters. The second question I, sorry, I Didnt I didnt quite catch what you're asking so Ryan it became.
The second question please.
Yep, Yeah. The second question relates to there's there's been some media reports about.
Some Canadian grocery retailers looking to reduce some of their costs and they're looking at suppliers to do that in terms of increasing some of the fees ecommerce fees.
Has that has that impacted you guys has has there been any of that kind of action in some of your markets.
Well I talk to that point earlier and that.
And this coated prices, we have incurred additional cost in terms of servicing our customers and achieving the fill rates that we out. So we will be having these strategic discussions with our retailers to find a way to find a suitable and fair okay.
If I can.
Let the Ryan when we talk about competitive market environment well.
Sure fits right into it.
Okay. Okay. Thank you so much.
Thank you.
And our next question on the last home I remember from crush them right, a mark Petrie from Cibcs Red hat.
Yes. Thanks.
I wanted to ask one of the themes that sort of been consistently covered through the most difficult parts of the clean nemec.
And with the strain on supply chains, you know many food food manufacturers narrowed production on to focus on their higher volume skews I'm just wondering if that's something that you did.
And sort of coming out of the most volatile are challenging part of the pandemic does it does it affect how are you thinking about your portfolio are present certain opportunities or challenges over the course in the next the.
Six to 18 months.
Absolutely again or through our insights worked out as you know we've got some highly capable groups are working together, we found out on the foodservice side, especially more or less so it's it's about.
Making every SKU work harder and funny equilibrium between assortment profitability.
And efficiency. So we are revisiting that we can offer.
All the hundreds of skews that we have in the past we have to streamline our operations, especially in our foodservice dedicated facilities that are not running at the same level that they were on the path. So we're going to have to become more efficient and that means less excuse and what we found too early on in the pandemic is that a lot of the retail.
Colors and also foodservice.
Distributors were very accommodating to the types of runs that we can have in our plants and.
They were working with us to minimize the number of SK use or we can get the maximum amount of volume out.
So.
We have had a very good collaborative.
Collaborative approach.
With our customers and a good healthy discussion and I suspect that that will continue.
And did you experience that in the retail channel as well or was it more mostly prevalent in foodservice.
No. We smoke was also in the retail channel.
And I think everyone put on their solution oriented hat to try to see how we can best service consumers first and foremost that was everybody's priority.
Okay. Thanks, a lot less book.
Thanks Mark.
Thank you very much I must put over there are no further questions at the time I'll turn it back to your.
Thank you very much Tommy.
Pardon.
We hope will join us.
Sure.
Anyone.
On November.
[noise]. Thank you very much and that does conclude the conference call for today. We thank you for your participation after just come back yard.
Good day everyone.
[music].