Q1 2024 Saputo Inc Earnings Call
Greetings and welcome to the Saputo, Inc. First quarter fiscal 2024 results conference call.
The presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.
If any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded on Friday August 11, 2023, I would now like to turn the conference over to Nick. Please go ahead.
Thank you Frank.
Good morning, and welcome to our first quarter fiscal 'twenty 'twenty four earnings call. Our speakers today will be Lino Saputo chair of the board President and Chief Executive Officer, and makes them tagging Chief Financial Officer and Secretary for.
For the question and answer session Leno and makes him will be supported by Carl <unk>, President and Chief Operating Officer, North America, and we end cuts President and Chief operating Officer International and Europe .
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 first 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.
Stepped any obligation to update this information except as required under securities legislation I'll now hand, it over to Liam.
Thank you Nick and good morning, everyone.
Our business delivered strong results in the first quarter, despite facing significant market headwinds and lower consumer demand.
We reported adjusted EBITDA of $362 million, which was 4% higher versus last year on revenue of $4 to $1 billion.
We had a strong overall performance in the Canadian sector significant operational improvements in our Australia division and more operational stability in the U S.
Notwithstanding this there is still more work to be done.
As mentioned on our recent Q4 call. The first quarter began largely as we had anticipated.
We experienced a drop in global demand and significant volatility in the U S and the global commodities markets.
This recent trend has persisted, which confirms our cautious stance on the macro environment and the consumer, particularly as it relates to customer spending levels and behavior.
Well it would be premature to predict when market conditions are expected to stabilize we believe they are transitory.
So we will focus on the long term earnings potential of our business.
To that end, we remain confident in our operating model and global strategic plan initiatives designed to deliver $2.1 billion to $5 billion and adjusted EBITDA annually.
However, given the current environment, we no longer expect to achieve our adjusted EBITDA by fiscal 'twenty five.
We do nonetheless anticipate dairy markets stabilize over time.
Despite these headwinds we made great progress around labor operational performance call.
Cost and margin recovery cost containment measures and the additional advancements within the framework of our global strategic plan.
As a result, we delivered a record year in fiscal 'twenty 23, and the underlying health of our business remains intact.
As always we are focusing on the factors, we can control such as our optimization projects, which are fully on track.
We will not only continue to assess opportunities to accelerate the plan, but also to brought it to build on the strong foundations we have in place.
We expect to see meaningful benefits, notably with our optimization initiatives later this year as expected.
At this point, we are progressing extremely well both in terms of spend and the timing of the various project ramp ups.
As an example in the U S. We're on track with the Mozzarella expansion project at our <unk> facility.
With the production start up on schedule, we transferred mozzarella production to opine from reeds Berg.
Which will be converted to a state of the art goat cheese manufacturing facility later this year.
Our page to Larry plant received the equipment to support its mozzarella monitors and modernization projects and we are now an installation mode with a wrap up scheduled in the second half of this fiscal year.
By this fall the scheduled upgrades and mozzarella will be completed.
And we will start benefiting from the related cost efficacy.
The construction phase of our new $240 million automated cutting rack facility in Franklin is progressing well and we expect to begin operations in Q3.
From there we will begin to carefully transfer production from our Big Stone Belmont and Green Bay manufacturing sites before closing those legacy factories.
In the U K, the previously announced network consolidation aimed at improving operational efficiencies are progressing well.
The development of the expanded Nuneaton packing facility is nearing completion with commissioning of the first new lines underway.
And the Argentina Division, we're installing a new bio digester into your book yield.
The project will be executed over three phases and will benefit our environmental footprint, well treat our organic waste streams to generate biogas and drive cost savings, notably around energy and gas.
And the Australia division, the construction and equipment installation for our new frozen natural cream cheese capabilities is in the final stages of commissioning with the lines due to be up and running by the end of Q2.
While we are focused on ensuring effectively navigating through the current volatility we expect benefits that we expect the benefits.
To represent meaningful improvement opportunities for us these.
These investments are significant in terms of their long term impact on our ability to operate more efficiently.
As we work to create an even stronger more resilient organization that can grow and succeed.
I will reiterate our strategy and our confidence in it remains unchanged.
I will now turn the call over to Max for the financial review before providing my concluding remarks Max.
Thank you Lee and good morning, everyone guns.
Consolidated revenues were $4 $2 billion, a 3% decrease when compared to last year.
While adjusted EBITDA amounted to 362 million a 4% increase.
Higher year over year, adjusted EBITDA was driven by the carryover.
Impact of a higher <unk>.
Average selling prices driven by previously announced pricing initiatives.
Cost containment measures.
Your logistics costs and efficiency and productivity initiatives aimed at minimizing the effect of macro economy condition.
These were partially offset by a $14 million negative impact to U S market factor, mainly due to the unfavorable realization of cheese inventory and a $10 million inventory write down resulting from the decrease in certain market selling prices.
Furthermore, lower sales volume negatively impacted operational efficiencies and the absorption of fixed costs.
Income tax expense for the first quarter of fiscal 'twenty four.
Totaled $37 million, reflecting an effective tax rate of 21% as compared to 24% for the same quarter last year.
The effective income tax rate for both first quarter of fiscal 'twenty four and 'twenty. Three include the favorable effects of approximately five and 3% respectively.
Relating to the tax and accounting treatment of inflation in Argentina.
Adjusted EPS on a diluted basis was 36 cents per share up 6% when compared to the same quarter last year.
Net cash generated from operating activities.
Amounted to $263 million up $136 million from last year.
I'll now take you through key highlights by sector sorry.
Starting with Canada revenues for the first quarter totaled $1 2 billion, an increase of six 6% when compared to last year.
Revenue increased due to higher selling prices in connection with higher cost of milk as raw material.
And the carry over impact of pricing initiatives implemented to mitigate increasing costs in line with inflation.
Sales volume were stable year over year in the retail market segment.
While sales volume in the food and food.
Foodservice market segment were higher.
Adjusted EBITDA for the first quarter totaled $144 million up 9% versus the same quarter last fiscal year.
The improvement was driven by the carryover impact of increased selling prices and favorable product mix with increased cheese sales volume further benefit from our cost containment measures and efficiencies and productivity initiatives.
And lower logistics costs.
In our U S sector revenue totaled $1 $88 billion and were 8% lower versus last year.
Revenue decreased due to the combined effect of lower average block market price and lower average block market price as well as lower sales volume.
Adjusted EBITDA increased 6% to $103 million, despite a $24 million unfavorable impact from lower commodity prices and soft demand.
The year over year improvement was mostly driven by the carryover impact from previously implemented pricing initiatives and the favorable impact of a lower logistics costs, including the effect of lower fuel prices.
In the international sector revenues for the first quarter were $868 million down 5% versus last year, while adjusted EBITDA totaled $77 million down $5 million.
The decline in adjusted EBITDA was mostly driven by lower export sales volume.
This was partially offset by higher milk intake, which positively impacted our inefficiencies and absorption of fixed costs.
And the carryover effect of pricing action.
Previously undertaken to mitigate increasing input costs.
Our results were also positively impacted by previously announced network optimization initiatives and at the end.
Improving our operational efficiencies and strengthening our competitiveness in Australia.
In the Europe sector revenues in the first quarter were $252 million or 12% higher when compared to last year.
While adjusted EBITDA amounted to 38 million a 6% increase.
Revenues and adjusted EBITDA increased due to carry over effect of pricing initiatives previously implemented to mitigate the higher cost of milk as raw material and other input cost increases.
In line with inflation.
Lower sales volume due to lower demand for dairy ingredients.
Mainly in the in the industrial market segment.
<unk> efficiencies and the absorption of fixed costs.
From a balance sheet perspective, it continues to strengthen with our net debt to adjusted EBITDA ratio down to 236 times.
Capital expenditure for the quarter totaled $160 million.
We remain on track with our capital investment plan and.
And year to date spending is in line with our current expectation for the year.
Finally, our board of director approved an increase to our quarterly dividend rate yesterday, two eight and a half cents per share.
<unk> with our September payment.
This concludes my financial review and with that I'll turn the call back delete them.
Thank you Max we are pleased with the improvements we've seen in our business in the U S. Despite market volatility, we're continuing to optimize our existing footprint.
Add new capabilities implement cost containment measures and match our portfolio more closely with customer and consumer needs.
We're moving in the right direction and our business is in a much better position when compared to last year.
Notably our staffing levels have reached pre pandemic levels, we've seen more operational stability and our supply chain is also back on firmer footing.
This stability has been a key driver of our improved fill rates.
Operational stability and expanded capabilities will be key to unlocking future growth in the U S with focus areas being balancing growth market share margins and volume.
From a commercial perspective renewed investments in marketing and innovation in our largest brands, including Frigo cheese heads most head and treasurer cave are driving market share growth.
Our Canada sector had another strong quarter with year over year growth in both revenues and adjusted EBITDA driven by pricing momentum continuous improvement measures and operational initiatives.
The foodservice market segment remained resilient, we posted strong gains, notably in Q S R, which supported our growth in key categories.
On the retail side, we increased share in the everyday cheese category, driven by new listings and steady fluid milk volumes.
During the quarter, we continued to focus on innovation and introducing new products into the market.
We launched nevertheless, flavored snack encourage lactose free feta cheese and later this year, we'll be expanding our support of sliced cheese category.
We've maintained leading positions across most of our categories in Canada by leveraging our diverse portfolio across multiple market segments brands and price points.
This really speaks to the strength of our brands and the way we're positioned within those categories.
In the international sector moderate global demand negatively impacted our export volumes.
In Argentina, some of the export market volatility was offset by operating efficiencies in addition to higher domestic volumes and prices.
In Australia, we benefited from higher domestic prices and improved plant efficiencies, resulting from optimization initiatives offsetting lower export volumes.
On milk intake.
We opened with a strong price for the new milk season, securing a sustainable uplift in our milk volume to ensure high utilization of our plans for the rest of the year.
While the Australia Division still has some challenges to overcome our transformation agenda has continued to make an impact in Q1.
Our network consolidation activities, including the closure of the macro site as well as the streamlining of mellow annually and got that facilities were completed in Q4 and benefits began to be realized in Q1, notably around freight and improve product optimization benefits.
We're executing on brand and SKU portfolio strategy with a range of reductions on track aimed to simplify our portfolio to deliver strong returns.
In our Europe sector pricing momentum offset lower volumes.
Despite the challenging consumer environment in the U K Cathedral city expanded its position as the Uk's number one cheddar brand as it one volume share from other brands during the period.
New product launches are planned for later in the year, which are expected to further continue to drive revenue growth.
Private label volumes continued to grow in the quarter due to new business wins during fiscal 2023.
Turning to our outlook for the remainder of the year as noted in my introductory remarks, the macroeconomic environment remains unpredictable.
So in the meantime, we are pulling multiple levers to drive improvement in our performance, including pricing action continuous improvement measures efficiency initiatives and enhancing our ability to service customers.
Simply we believe the work we are doing now will continue to benefit the business over the long term.
We'll focus on actively managing the items in our control work quickly reacting to dynamic macro trends that come our way.
And on that note I. Thank you for your time and I will now turn the call over to Frank for questions.
<unk>.
Thank you.
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One moment please for the first question.
Our first question comes from Irene <unk> with RBC capital markets. Please proceed.
Thanks, and good morning equity long.
If you could talk for a moment please about the U S results.
The results were really strong, particularly given the magnitude of the headwinds can you outline for us or can you rank for us the relative contribution various factors that you cited and how we should think about those building as we move through the year.
Yeah.
Thank you Irene for that question. So let me highlight the strong work that we've done in all divisions, but particularly in the U S and perhaps that gets lost in some of the noise of of market factors and issues.
Labor has been improved dramatically up.
Our ability to be able to hire and retain talent has been much improved and in fact, you know we've changed some of the practices that we historically have done to ensure.
That number one we're hiring the right people, who want to work in a manufacturing environment.
Two we can retain them because of course that creates a lot of stability for us when it comes to producing high quality products and first pass quality.
On an ongoing basis.
Operational performance has come from some of the investments that we've made that are starting to materialize. In addition to having a stable workforce as well.
We continuously worked on cost containment and continuous improvement initiatives within our U S platform and that along with that's some of the price increases we've taken have improved the margins that we have within the U S platform.
So we're executing really well on the network optimizations and not just in the U S. But in all divisions. So we're in much much better shape.
And it's part of the reason why we were able to mitigate some of the massive headwinds. We had in Q1, you know I'll remind you that we had a 50 cent or so a drop in the block price, which typically is hard to overcome.
But we're in much better shape than we were even pre pandemic. So I feel good about where we sit and not just for the U S platform, but for all of our platforms, we're executing extremely well I'd like call to talk a little bit and and in some detail relative to <unk>.
The strength of the U S platform and and some of the other initiatives that are ongoing there.
Thank you Lena and maybe just to reiterate that you know the the strength that we have seen here in the quarter really comes from the overall supply chain. The stability that we've had in our in our labor has allowed us to improve our first pass quality improve materially or our fill rates and that all comes really with it.
Stability in our workforce.
And as the skills of our augmented and our staff and our teammates are retained I'll say that you know the team is also very focused on delivering the consumer's needs today, but also focused on the initiatives.
Exciting initiatives that we have.
Begun and are in the middle of a commissioning in some cases a lot of the investments that we have planned over the last couple of years are going to come to fruition here beginning in Q3.
And the contribution.
Of that will also be seen beginning in our fiscal 'twenty four so the team is very focused on delivering on the initiatives and on our plan.
All the while focusing on customer service and.
And supplying it to consumer needs of the today.
That's really helpful. Thank you and some of the demand side, where are you seeing the greatest weakness.
And in terms of the volume piece of that.
And in European and what does it take to turn that around and start to see some volume gains.
If you if the question is specific to the U S.
What I would say is that you know, although consumer sentiment is lower than than it had been in and in more recent years.
The demand side in the U S is not as Elsa is is.
Not as soft as it is globally. So if we look if we look truly at overall demand and sort of in sequence global demand is is where we see the the softest that's consumer sentiment.
Specifically in the Chinese sector when it comes down to the U S.
What I would say is the following you know our product portfolio is quite diverse and it.
It allows us to play in a number of different channels. So we service all market segments, whether that'd be retail foodservice and industrial.
And.
With the downturn in some areas there are some bright spots as an example.
Restaurants, despite consumer sentiment are going to win the day over the coming weeks months and quarters and we do supply the sector in large quantities.
Despite.
Softer consumer sentiment, we do believe that there are opportunities in our markets here in the U S.
That's great. Thank you.
Our next question comes from Michael Van <unk> with TD Securities. Please proceed.
Hi, good morning, and good results in a tough environment.
I wanted to.
I guess focus a bit more on that to $1 billion to $5 billion target I mean, you made it clear that you.
We are convinced Youre doing all the right things to achieve that but it's just the timing so.
If we can kind of put aside.
Pricing and spreads in the U S. For example, if we assume that.
Commodity prices normalize that at reasonable levels spreads got back to zero.
And that all happened, let's call it by December what else would have to happen.
For you to achieve that 2.125 billion.
In fiscal 'twenty five or whenever.
Yeah. So Michael there are two parts to the the target of two point went to five by fiscal 'twenty, five one, which you well identified relative to the markets.
But we're not just focused on the U S market, which does help move the needle, but theres also the international markets, which are pricing is a little bit depressed right now because of the international consumer sentiment, there and and China really not being on the buying market and then there's the other half of it which is consumer sentiment.
And growth in consumption of dairy products around the world.
And you know what it is.
It's not just the dairy industry, that's feeling it I think there are a lot of consumer staples as well in other categories of products that are feeling the same kind of a pinch in pain that we're feeling.
Let me say this the the 2.125 its still very very much intact.
We're confident in our plan, we're confident in our ability to be able to execute effectively on those projects and those ideas and those initiatives that we that we set out for ourselves. So that's really not the issue.
And I would also say that at the end of this quarter and.
And going into Q3 and Q4 most of the heavy lifting on those projects will have been done.
So we're extremely confident in our earnings power for the business. It's just the unpredictability of the elements relative to pricing and relative to consumer sentiment are that are creating a pushout of our of our target date, but the target number remains unchanged and our confidence in that is.
Changed.
Okay. So you are on track with the global strategic plan.
So yes, so if it wasn't for market conditions, it sounds like you'd still be comfortable with that fiscal 'twenty five target but.
Yeah, So and nobody has a crystal ball, obviously on the commodity prices, but I'm guessing that base, because you're taking a way to tie it to a fixed timeframe on that target you just don't have enough visibility in the short term to see either.
The commodity prices rebounding that quickly or demand.
Hi Marie.
Rounding that quickly.
That that's precise Uh huh, Mike you know the visibility is the issue.
Look six weeks ago, we were talking about you know our U S block at $1.30 today, we're talking about a U S block $1.96. Those are massive massive swings that we historically, we had never seen before so it's the unpredictability of the markets that create that that.
The reserve for US, let me say this though Mike.
<unk>.
We are putting the pedal to the metal.
There is no stoppage in our our desire and our ability to get things done so our timeline for all intents and purposes is as soon as possible.
With the unpredictability of the market, it's tough to peg that date.
Okay.
And just one other question you said in your outlook statement that you expect input cost inflation to moderate but remain elevated and I'm not quite sure. If you mean that growth is expected to be elevated still are just at the costs won't come down and so if it's growth do you does that mean you expect.
They have to pass these on and when do you expect to see more price increases.
Uh Huh, Mike from a cost perspective, we've seen increases.
That are sticking with input costs, whether its packaging, whether it's other consumable but in other areas on the raw material side, we see a reduction so as that's as much as we're managing inflation on our cost and that includes also labor energy and that sort of.
Thing, we're also managing and monitoring the you know that the raw material costs that are not consistently increasing in all of the market. So it's a combination of both.
So do you feel the need for further price increases at this moment.
Well at the moment we are.
If I could say it this way our heads above water. So we we are we're monitoring all.
All the cars that are coming to us should we feel we need to we will but at this time, we feel comfortable.
We're acting responsibly.
The market.
Okay, great. Thank you very much.
Our next question comes from Mark Petrie with CIBC. Please proceed.
Yeah, good morning, and thanks for all the comments so far I just wanted to follow up further on the U S and specifically on the efficiency front.
Is it fair to say fill rates and service levels are back to targeted levels.
Okay.
Yes, Mark absolutely, so our fill rates and our service level to our customers in all of our channels are back to historical rates.
And that's both a combination of our improvements in efficiencies and overall logistics as well as our manufacturing efficiencies. So the combination of the two are allowing us to service the orders the markets and to keep pace with the demand that is out there today.
Yeah, Okay understood I, just wanted to clarify and when would you say you achieve that was that in Q1 or was that actually in Q4.
We we've been on a on you know a a slow climb but in Q4, we saw a material change in our ability to service the markets that carried through Q1 and that is carrying here today as we speak.
Okay, Okay, perfect and similar sort of question just trying to gauge like trajectory with regards to the the volume pressures in the U S. I mean, it had been recovering you'd been recovering volumes basically through the last year and still in a competitive market. So is the decline in this quarter, you know a matter of sort of.
Tim you know lapping.
That recovery or or incrementally something is more difficult and maybe just comment on the competitive market dynamics overall.
Yes, and thanks for the question Mark and you know, it's not forget that our U S. Business also has a component of export as calculated in our total volume and as we've been you know we talked through in June .
And we've been sharing global demand being soft that has impacted also our export sales. So there's some channels of finished goods on the cheese side that we do export as well as a material amount of our ingredients business is exported.
We have the in the U S business has been impacted by that domestically, though what I would say is we've maintained a ground on.
On our supply the demand in the consumer sentiment remains softer than we would have expected. However.
We're not losing track or share in the U S marketplace.
Okay. Okay. That's helpful. Thank you and then I guess one one final question just with regards to Carla I think you had talked about you know trying to be responsive to you know where there is demand and in which channels. You know demand is is holding in best.
But I know that you know there's also just sort of structural challenges in doing that with regards to package sizing and packaging and so on and so forth. So have.
Have you sort of structurally addressed some of that through these optimization initiatives in and would you say you're in a position to be more responsive than you might've been you know say when the pandemic hit.
That's it's a great question and what I would say is the kinds of shifts in the channels and the market segments that I'm referencing are much less dramatic than it would have been during the pandemic, which was a massive shift to retail versus the food service style of of packaging and sizes.
Despite the.
Despite that comment I would say that today's shifts in the various channels are still very much aligned and in balance with our capabilities.
We are in a much better place Nonetheless should we ever get back to that type of ratio, where you know retail. This is is far stronger than foodservice, we will have better capabilities in those sectors as well. It is part of our initiatives and ongoing plan to augment our capabilities in the.
Retail sector.
Yeah, Okay understood I appreciate all the comments all the west coast.
Our next question comes from George <unk> with Scotiabank. Please proceed.
Yeah, Hi, good morning, guys, just a quick follow up on the volumes in the U S. I'm just wondering how much the decline by in the quarter, maybe domestically or in export and where you sit today when do you expect those volumes to maybe be slot.
Yeah, George I'll, maybe you can just reiterate a little bit here you know that if if I if I take a look at the quarter.
Overall, there isn't really a material decline in any way on the domestic side of our supply are the majority of that decline would have come from our export.
Component.
Being said that we do have good momentum here and the start of Q2 and our outlook.
For the supply side is good as well and we continue to focus in on a number of different channels for supply there are opportunities out there.
I know we've said this historically.
The U S market.
Is still fragmented in many ways and there are still lots of opportunities lots of customers and consumers who are looking for innovation, who are looking for partners for the service and the kind of growth that they are anticipating.
So I would say that from you know quarter over quarter sorry.
Sorry go over last year, it's really an export story are related to the overall global demand, which is a lot softer than anticipated.
And can you share maybe how much export volumes were down, but that's something you guys don't want to share.
We don't want to share that information as it is a sensitive from a competition perspective, so I would like you to respect that.
Okay, No problem and just maybe shifting over to Canada can you give us an outlook over there in terms of maybe volumes and can you talk a little bit about the sustainability of the margins going forward do you think we can maybe see.
A competitive response in the second half.
Yeah sure the the Canadian market.
It.
It is more resilient than I think many many of our of our industry peers would have anticipated the foodservice market remains strong.
There had been some prior outlooks, suggesting a downturn in the second half of the calendar year on the back end of the calendar year and the most recent outlook is suggesting that Oh, we'll probably weather that storm here and and looked to some sort of a potential downturn in that foodservice sector in the new calendar year. So.
As we sit here today the demand in the Canadian side remains strong and numerous channels and most surprisingly in the food service side, we continued to excel.
And Canadian marketplace with service with innovation with brand strength, and we're going to continue to grow with the customers that are growing.
Okay. If I could just one last one for me a massive inventory right down to the U S. I guess pretty small all things considered is that all we should expect to see.
Well, yeah. That's all we expect to see and I was just qualified that this is.
There's a portion of that that is related to ingredients. So it's not only cheese. So there's a portion on a relative to ingredient and done and yes. We believe we're behind them and we should not expect at this time should markets remain the way they are today.
A further write down for the foreseeable future.
Great. Thanks for your answers.
Our next question comes from Tami, Chen with BMO capital markets. Please proceed.
Hi, Good morning, Thanks for the question going back to the withdrawal of the fiscal 'twenty five EBITDA target I guess I just wanted to ask as you thought about that why though withdrawal I mean was there a consideration of maybe lowering the target number for fiscal 'twenty five.
Yeah, Tommy Thank you for the question. So let me reiterate there is no suggestion that they were lowering the target of 2.125 is a solid number.
And we do have plans ideas initiatives behind us achieving that number.
The timeframe of it.
All related to the unpredictability of the market.
Where we sit right now with the international demand and pricing, where we sit right now relative to the swings that we've seen just in the last two months in the U S creates an unpredictable environment things that we have historically hadn't seen.
To be quite honest with you and that's the reason for the timing of it but.
But but there has never been any doubt in management's mind relative to the figure of 2.1 to five we have plans we have ideas.
We have the capital to support those plans and ideas and those projects are we our teams in all geographies are delivering on the projects are as I indicated in an earlier statements. The heavy lifting is done through this fiscal year and Oh, starting in fiscal 'twenty five we're gonna be in great shape.
But where but the markets right now are our heart too hard to predict.
And the Crystal ball is not so clear at this stage.
Understood, Okay and on pricing so I see the results continue to benefit from the carryover of price hikes, you've done before in this sort of environment I wanted to ask if you think there might be risks not priced.
Pricing could go the other way just given globally and I guess, even to some extent in the U S where consumer demand and sentiment.
Yeah, so relative to pricing our Etame, we were first to market in all of our geographies to raise pricing relative to the inflation that we had been facing.
Some of our competitors took them you know almost a six to 12 months to catch up and some of them quite frankly have not caught up so we're pretty proud of the responsible nature that we've taken relative to our pricing.
Given the inflation that we were facing at this stage, we don't see any reduction in pricing other than.
Just the G D T V.
Value of commodities that we're selling into the international markets. So of course, as we look at pricing product to our customers around the world. We use the GTT as our as our barometer for pricing as a G. T comes down then of course naturally pricing will come down, but when we think about our domestic markets in <unk>.
All geographies, whether that would be Canada, United States, Argentina, Australia, and the U K, we don't have the intention of bringing price down.
Okay got it and last one for me is I remember last quarter. When we talk specifically about the U S. There had been a comment that the domestic supply situation was also in a bit of a rough.
Rough spot I think you referenced that.
Some you in some of your other dairy processing competitors had improved fill rates and labor staffing. So there was this increase.
Increase in supply and it was coming at a time, where the market was what it was in terms of demand it kind of sounds like specific to that so it is supply hiccup, where we're kind of through that now this quarter is that fair to say specifically for the U S.
Yeah.
So I you know I think.
What I heard was a question about the imbalance or potential imbalance in the supply and demand in the U S.
Or earlier on and in the AR.
In Q4 and into earlier parts of Q1, what I would say is the following is yes. It was also not forget it was no plush season. So naturally we have a an increase in milk coming off farm at that moment in time and it did it did coincide certainly with a.
We are a demand drop specifically in the export markets that created the situation that you would likely would've read of as well.
In the media about the oversupply of milk.
There has been a much better balance that we've we're seeing today I think the markets.
The block market or the CME is reflecting some of that today as well.
And we don't anticipate we will actually well I'll say it this way, we anticipate a better balance between supply and demand as we move forward.
Yeah that was what I was just fine too got it. Thank you.
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Our next question comes from Vishal sweetheart, with National Bank Financial Please proceed.
Hi, Thanks for taking my questions in your press release last quarter. So put all indicated that for fiscal 'twenty. Four it was focused on organic growth expanding EBITDA EBITDA margins maximizing cash flow and driving operation leverage them.
That language.
Was removed in this press release, just wondering if that's still the focus.
Yeah.
Hi, Vishal mm Theres no.
Let's say, there's no change.
The relative to a <unk> to that I mean, we're focusing on growing our business.
We look at our Q1, where we're happy with the Q1 with what we've been able to put on paper.
And to deliver them. So we're looking at you know in the next few quarters.
If we would take the the market out we feel our business is in a strong position to deliver growth and generate cash flow. So essentially is nothing has changed from that comment that you referred to.
Okay great.
With respect to Canada, and this may have been asked but I just want to.
Underlying that so with respect to Canada, EBITDA number where there any transient items and there are any.
But anything that I should think about as a forecast out for the remainder of the year is that suggest that maybe that that number can't stick for the balance.
Hum shelves Karl no I would say, what you're seeing in the Canadian numbers its the ongoing strength.
Some of it's supply some of the various initiatives that the Canadian team has undertaken as part of its strategic plan that are delivering to the bottom line and.
And continuing to excel at servicing our customers and growing with the customer base that that's growing in the Canadian marketplace.
Okay and.
In the U S. Given that the exports conditions are improving and given that the.
The market factors at least from our standpoint don't look to be as punitive as they were in.
In Q1 should.
Should we anticipate you know.
Of course, you know what.
I'll put the proviso no crystal ball, but should we think of as well, but should we anticipate all else equal that Q2 should mark improvement in U S trends in volume and market factors relative to Q1.
Yeah, what I would say the shadows as you would've heard Lino say earlier the markets are very unpredictable right now it's for first quickly as that market.
And block, specifically dropped and the various inter relationships between the block the barrel and the way price would've also change in that time frame. We saw you know a positive swing here in the last five to six weeks.
So you know if we were to use today's market conditions and extrapolate that yeah.
Yes, those are the older conditions in which we would consider as being normal and and and favorable to us.
But again that that predictability and volatility is something that we're in we're not prepared to model out a as you know on the underlying sentiments.
Our steel softer global demand and so I Wanna maybe.
Correct one of the statements you made around you.
You know the export situation is improving.
Global demand isn't necessarily improving and what we're seeing is still some some tough conditions out on the on that landscape.
But despite that what I would say is the domestic U S market.
<unk>.
Still has growth capabilities for us growth capacity and that's what we're focused in on with not only our initiatives, but also with and maybe the initiatives I mean, the capital initiatives I'm also saying that we are also focused on our brands.
On the brand campaigns that are active in the market space today and growing our share in in a variety of market segments.
Yes, so vishal I would just add to that to answer your specific question relative to all things being equal.
Should the market remain where it is yes, you should anticipate higher EBITDA in the next quarter than we saw this quarter.
Given a stable market at these levels.
Okay, and then you know.
You know as a company that's been around for a long time and it seems slowdowns in the past so you know.
What do you think is causing this unprecedented volatility is there something you can point to or is it difficult to put your asking Ross.
Yeah. It's you know the market uncertainty really is not a good thing a lot of speculation too much access to too much information I think is creating some behavior that we historically had not seen before you know anyone can open up the internet now and read what's going on in different markets are whether there's.
A potential recession coming whether there's a you know a China a looming economic turmoil a whether it's a you know a different climate patterns going on in different countries. I mean, there's just so much going on in the world right now.
Not to mention.
You know also interest rates that are rising there is a lot of speculation.
In the markets and we see that also in the commodity markets. You know buyers will buy based on where they think the markets are going to be or they'll stay on the sidelines based on where they think that the.
Supply is going to be.
This is the world that we live in today.
And that increased volatility we see in the stock market is very very similar to the increased volatility we're seeing in the commodities markets and it's perhaps you know a new world we're living in a what we look at it. So poodle is really the balance between supply and demand in the end the strength of what we can bring to market.
And that's the only thing that we can control you know how we can process effect effectively and efficiently. How we can service our customers in a way that makes us their number one supplier for Gary goods. That's what we're good at that's what we're specialized in and I will say that once we.
Come out of the Strat plan in fiscal 'twenty twenty-five our network within every single one of our geographies is going to be second to none in our industry.
And so you know there was a little bit of pain that we went through through the pandemic, perhaps some delays in and some of the lift that we would have anticipated because of market uncertainty, but fundamentally are coming out of this dry plant going into you know fiscal 'twenty five and into fiscal 'twenty six N.
Beyond our infrastructure is going to be second to none and all geographies in the dairy space. So going back to yes. The 70 years of experience that you referred to we are shining in the things that we know we can control and that's the confidence we have in our ability for future growth.
And for our future optimism.
Thank you.
Yes.
Our next question comes from Chris Li with Dish are debt Securities. Please proceed.
Hello, Good morning, everyone, maybe just starting with one on just on capital allocation you know notwithstanding the current market volatility and your balance sheet. Your leverage continues to improve and I'm. Just wondering you know at some point if it does get to your leverage target and conditions start to improve and you'd be able to share patients remains where it is.
Given your confidence in your long term EBITDA target do you envision a scenario, where you might actually start maybe buying back some shares.
Hi, Chris.
Sure.
So you know the focus on the capital allocation is certainly to support Aldi initiatives all of our Strat plan.
The second piece is around our dividend and as you.
Notice, we've just increased the dividend rate starting next our next our next payment and finally, it's a debt reduction. So for this year. This is the primary focus not that the share buyback.
It is completely out of the radar.
But we simply want to get our debt level to a lower level.
And reduced the financing costs associated with it so that's kind of the way we're looking at the cash all location right now.
Okay that makes a lot of sense, thanks for that and they know it.
I think we covered this in your opening remarks, but anything.
So the update in terms of what you're seeing in the M&A market since we last spoke.
Yeah. So there you know there are companies in our space that are that are definitely are feeling the pain and the pinch of of.
In this context.
And of course, our M&A team is always aware of what's available in the market, but I want to reiterate that statement that I made in the you know the last quarter and a quarter before that our primary focus is delivering on the strapline. The use of funds for us are going to be to support those are those projects that.
We have from a Capex perspective, and then of course to pay down debt. So at this stage. It is not a priority I will tell you that their most urgent requirement. Our most urgent needs are relative to delivering on the strat plan and that's what our focus is going to be moving forward.
Okay that makes a lot of sense and maybe Matt just maybe one follow up for you.
We're only halfway through the quarter and obviously there are a lot of moving parts right now, but I just wanted to sort of take a temperature in terms of Q2 EBITDA.
Do you expect growth in Q2, EBITDA, given where things are right now.
And do you expect the rate to be higher than what you achieved in Q1, just based on what are you seeing right now.
In the Meanwhile, Yep, so Chris I'll piggyback on that comment that maybe we are we did why he did last call.
We ended up the Q1.
With a 4% increase year over year we.
We did qualify that as a modest and it was a modest because of the market factor we had to.
Had to deal with during the quarter.
So should we remove the the market factors are that and I'm, referring to the 24 million dollar we're calling out.
Now we would not be into the modest zone from our perspective, and that's what we're looking for in fiscal 'twenty four we're looking to grow our business aside.
Aside from our from the market factors so.
We're not going to look at Q2 differently then what can we look at Q1.
Okay. Thanks for colors and all the best.
There are no further questions at this time I will now turn the call back to Nick Please continue with your presentation or closing remarks.
Thank you Frank and we thank you for taking part in the call and webcast. Please note that we will release, our second quarter fiscal 'twenty 'twenty four results on November 10th 2023.
Thank you and have a nice day.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect. Your line have a great day everyone.
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