Q3 2024 Saputo Inc Earnings Call

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Greetings and welcome to diesel Poodle incorporated third quarter fiscal 2024 results conference call. During 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 <unk>.

Operator: Greetings and welcome to the Saputo Incorporated third quarter fiscal 2024 results conference call. During the presentation, all participants will be in a listen-only mode.

Operator: Afterward, we will conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0.

<unk> on your telephone.

If at 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 February 19, 2024, I would now like to turn the conference over to Nick. Please go ahead.

Operator: As a reminder, this conference is being recorded on Friday, February 9, 2024. I would now like to turn the conference over to Nick. Please do so.

Thank you Frank.

Nick: Thank you, Frank. Good morning, and welcome to our third quarter fiscal 2024 earnings call. Our speakers today will be Lino Saputo, chair of the board, president and chief executive officer, and Maxim Terrien, chief financial officer and secretary. For the question and answer session, Leon and Maxim will be supported by Karl Kalitsa, President and Chief Operating Officer, North America, and Leanne Cutts, President and Chief Operating Officer, International Airlines. 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 third 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.

Good morning, and welcome to our third quarter fiscal 2024 earnings call. Our speakers today will be Lino Saputo chair of the board, President and Chief Executive Officer, and <unk>, Chief Financial Officer and Secretary for.

The question and answer session Leland Maxim will be supported by Carl <unk>, President and Chief Operating Officer, North America, and Leon <unk>, President and Chief operating Officer International in 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 a second along with the third 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 you 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.

Nick: 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 accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Lisa.

We do not accept any obligation to update this information except as required under securities legislation.

I'll now hand, it over to you.

Lisa: Thank you, Nick, and good morning, everyone. In the third quarter, we continue to execute with discipline and advance a long-term strategy in a dynamic macroeconomic environment. We reported an adjusted EBITDA of $370 million on revenues of $4.3 billion. Our Canadian sector continues to show its enduring strength, while our U.S. sector also made good progress, notably supported by our capital project and higher sales volumes. The operational benefits of our capital spending program, as well as our emphasis on cost management and continuous improvement, had a favorable impact on our results. Importantly, operating cash flow during the third quarter was strong.

Thank you Nick and good morning, everyone.

In the third quarter, we continued to execute with discipline and advanced our long term strategy.

Dynamic macroeconomic environment.

We reported adjusted EBITDA of $370 million on revenues of $4 $3 billion.

Our Canadian sector continues to show its enduring strength, while our U S sector also made good progress, notably supported by our capital projects.

Higher sales volumes, coupled with the operational benefits of our capital spending program.

As well as our emphasis on cost management and continuous improvement had a favorable impact on our results.

Importantly.

Operating cash flow during the third quarter was strong.

Lisa: Volatile Global Dairy Commodity Markets and a Challenged Consumer were persistent themes in the third quarter, much like in the fiscal year to date. But while the consumer is still shopping with value-seeking behavior, we are seeing clear progress in volume recovery across our business segments. As macroeconomic drivers impact the global economy and continue to drive commodity price volatility, we remain focused on managing the factors within our control and stabilizing the business. Our priority areas include operational excellence, successfully executing the major capital projects underway, cost containment, and cash flow generation. We are making material progress in advancing the key initiatives of our strategic plan and continue to build confidence in the next stage of our growth. We reached a critical juncture in the implementation of our global strategic plan during this quarter.

Volatile global dairy commodity markets and a challenged consumer where persistent themes in the third quarter much like in the fiscal year to date.

But while the consumer is still shopping with value seeking behavior. We are seeing for your progress in volume recovery across our business segments.

At macroeconomic drivers impact the global economy, and continued to drive commodity price volatility we remain focused on managing the factors within our control and stabilizing the business.

Our priority areas include operational excellence.

<unk> fully executing the major capital projects underway cost containment and cash flow generation.

We are making material progress in advancing the key initiatives of our strategic plan and continue to build confidence in the next stage of our growth.

We reached a critical juncture in the implementation of our global strategic plan during this quarter.

Lisa: I'm delighted with how projects are advancing and the impact of the actions completed to date. I expect these investments to contribute to our results starting in early fiscal 2025. With most of the heavy lifting behind us, I remain very confident in our long-term strategy and am optimistic about the future. Our focus on execution will position us well to enter fiscal 25 with much momentum. I will now turn the call over to Max for the financial review before providing my concluding remarks. Thank you, Lino, and good morning, everyone.

I'm delighted with how projects are advancing and the impact of the actions completed to date.

I expect these investments to contribute to our results starting in early fiscal 2025.

With most of the heavy lifting behind us I remain very confident in our long term strategy and I'm optimistic about the future.

Our focus on execution will position us well to enter fiscal 'twenty five with much momentum.

I will now turn the call over to Max for the financial review before providing my concluding remarks.

Thank you Leo and good morning, everyone.

Max: Going over financial highlights for the quarter, consolidated revenues were $4.3 billion, while adjusted EBITDA amounted to $370 million, down 16.9% versus last year. Lower year-over-year adjusted EBITDA was driven by lower international cheese and dairy ingredient market prices. The negative impact from the U.S. market factor. Also, a negative impact from the selling of inventory produced at high milk prices in the UK and an unfavorable foreign exchange impact when converting foreign currency to the Canadian dollar, mainly due to the significant devaluation of the Argentinian peso in December. Positive drivers include higher sales volume in both domestic and export markets, as well as ongoing cost containment measures. And benefits derived from our global strategic plan, including continuous improvement, supply chain optimization, and automation initiatives. We reported a net loss of $124 million in the third quarter.

Going over our financial highlights for the quarter consolidated revenues were $4 $3 billion, while adjusted EBITDA amounted to $370 million down 16, 9% versus last year.

Lower year over year, adjusted EBITDA was driven by lower international cheese, and dairy ingredients market prices.

The negative impact from the U S market factor.

Also negative impact from the selling of inventory produced at high milk prices in the UK.

And an unfavorable foreign exchange impact when converting.

Foreign currency to the Canadian dollar mainly due to the significant devaluation of the Argentinian peso in December.

Positive drivers include higher sales volume in both domestic and export market.

Ongoing cost containment measure.

Lower logistics cost.

And benefits from the derived from our global strategic plan, including continuous improvement supply chain optimization and automation initiatives.

We reported a net loss of $124 million into third quarter.

On an adjusted basis, our earnings were $163 million or <unk> 38 per share.

Max: On an adjusted basis, our earnings were $163 million, or $0.38 per share. Third quarter results include a non-cash impairment charge of $265 million related to the Australia Division for performing our annual goodwill impairment testing. Our Dairy Division Australia Cash Generated Unit, CGU, estimate of future discounted cash flow will reduce due to the increasing disconnect in the relationship between international cheese and dairy ingredient market prices and farm gate milk price in a context of declining milk supply in Australia. As a result, the estimated recoverable value of the Australia CGU was determined to be lower than its carrying value, and a non-cash goodwill impairment charge of $265 million was recorded in the third quarter, representing the total value of the goodwill for the Australia CGU.

Third quarter results include a noncash impairment charge of $265 million relative to the Australia Division.

In performing our annual goodwill impairment testing.

Our dairy Division, Australia cash generated unit CDU estimate of future discounted cash flow were reduced due to the increasing disconnect in the relationship between international cheese, and dairy ingredients market prices and farm gate milk price in a context of declining milk.

Cool.

In Australia.

As a result, the estimated recoverable value of the Australia, <unk> was determined to be lower than its carrying value and a noncash goodwill impairment charge of $265 million was recorded in the third quarter, representing the total value.

Of the goodwill for this <unk>.

Third quarter result, also includes a closure and restructuring costs of $6 million.

Max: The third quarter result also includes closure and restructuring costs of $6 million. I'll now take you through key highlights by sector, starting with Canada. Revenues for the third quarter totaled $1.3 billion, an increase of 5% when compared to last year.

I'll now take you through key highlights by sector, starting with Canada revs.

Revenues for the third quarter totaled $1 3 billion, an increase of 5% when compared to last year.

Max: Revenue increased due to higher selling prices in connection with the higher cost of milk as raw material and the carryover impact of pricing initiatives, mostly in the first half of 2024, implemented to mitigate ongoing inflationary pressures on our input costs. Sales volume was stable year over year in the retail market segment, while sales volume in the food service segment were higher. Adjusted EBITDA for the third quarter totaled $150 million, up 1% versus the same quarter last fiscal year.

Revenue increased due to higher selling prices in connection with the higher cost of milk as raw material.

And the carryover impact of pricing initiatives, mostly in the first half of 'twenty 'twenty four implemented to mitigate ongoing inflationary pressures on our input costs.

Sales volume were stable year over year in the retail market segment, while sales volume in the foodservice or higher.

Adjusted EBITDA for the third quarter totaled $150 million up 1% versus the same quarter last fiscal year or stable performance reflected benefits from our cost containment measured lower logistics costs and benefits derived from our global strategic plan, which reached their stable run rate.

Max: Our stable performance reflected benefits from our cost containment measure, lower logistics costs, and benefits derived from our global strategic plan, which reached its stable run rate. In our U.S. sector, revenue totaled $2.1 billion and was over 5% lower versus last year. Revenue decreased due to the combined effect of the lower average cheese block, butter, and dairy ingredient market prices. However, sales volume was stable with higher domestic sales volume despite ongoing competitive market conditions, whereas export sales volume were lower. Adjusted EBITDA declined 9% to $133 million.

In our U S sector.

<unk> totaled $2 $1 billion, and or 5% lower versus last year.

Revenue decreased due to the combined effect of the lower average cheese block butter and dairy ingredients market prices.

Sales volume was stable with higher domestic sales volume despite ongoing competitive market condition, whereas.

Export sales volume were lower.

Adjusted EBITDA declined 9% to $133 million.

Max: The year-over-year decrease was mostly driven by a $27 million negative impact from U.S. market factors, driven by the combined effect of the cheese-milk spread, inventory realization, and Dairy Ingredient Market Prices. Also, $10 million of costs incurred to implement a previously announced network optimization initiative was recorded in the quarter. These factors were partially mitigated by operational improvement and lower logistics costs in the international sector. However, revenues for the third quarter were $636 million, down 31% versus last year.

The year over year decrease was mostly driven by a $27 million negative impact from U S market factor driven by the combined effects of the cheese milk spread the inventory realization.

And dairy ingredients market prices.

Also $10 million.

Of cost incurred to implement previously announced network optimization initiative was recorded in the quarter.

These factors were partially mitigated by operational improvement and lower logistics cost.

In the international sector.

Revenues for the third quarter were $636 million.

Down 31% versus last year.

Max: Adjusted for it, with the total $85 million down $26 versus last year. The performance of the sector was negatively impacted by the unfavorable relation between the international cheese and dairy ingredient market prices and the cost of milk as raw material, and also an unfavorable FX impact from the conversion of the functional currencies used in the international sector to the Canadian dollar, mainly due to the significant devaluation of the Argentinian pes The impact of the FX conversion amounted to $305 million in revenue and $36 million in EBITDA. A decrease in certain market selling prices also resulted in an inventory write-down of $14 million.

Adjusted EBITDA totaled $85 million down 26% versus last year.

The performance of the sector was negatively impacted by the unfavorable a relation between the international cheese and dairy ingredients market prices and the cost of milk as raw material.

And also an unfavorable FX impact from the conversion of the functional currencies used in the international sector to the Canadian dollar mainly mainly due to the significant devaluation of the Argentinian peso.

The impact of the FX conversion amounted to $305 million on revenue and $36 million on EBITDA.

A decrease in certain market selling price also resulted in an inventory write down of $14 million.

This was partially offset by higher milk intake.

Max: This was partially offset by higher milk intake, increased export sales volume, and the carryover effect of previously announced pricing action in our domestic market. Our results were also positively impacted by previously announced network optimization initiatives aimed at improving our operational efficiencies and strengthening our competitiveness in Australia. In the Europe sector, revenue was $304 million, while adjusted dividends amounted to $2 million.

Increased export sales volume.

And the carryover effect of previously announced pricing action in our domestic market.

Our results were also positively impacted by previously announced network optimization initiatives aimed at improving our operational efficiencies and strengthening our competitiveness in Australia.

In the Europe sector revenue were $304 million, while adjusted EBITDA amounted to $2 million.

Max: The decline in adjusted EBIT was due to the selling off, the selling-off of inventory produced at high milk prices the last fiscal year. Lower international dairy ingredient market prices also had a negative impact. Net cash generated from operating activities for the third quarter amounted to $388 million as compared to $134 million for the same period last year.

The decline in adjusted EBITDA was due to the selling off.

The sell off of inventory and produce at high milk prices last fiscal year.

Lower international dairy ingredient market price also had a negative impact.

Net cash generated from operating activities for the third quarter amounted to $388 million as compared to 134 for the same period last year.

Max: The increase was driven by ongoing working capital and inventory management initiatives. We remain on track with our capital investment plan. CapEx for the quarter totaled $140 million, and the year-to-date spending is in line with our expectations. We continue to expect a significant improvement in our cash flow generation over time, as will be our vesting benefits from the Global Strategic Plan and our CAPEX returning to a level similar to our depreciation and amortization expense range. Finally, we announced yesterday the suspension of the dividend reinvestment plan.

The increase was driven by ongoing working capital and inventory management initiatives.

We remain on track on our capital investment plan.

Capex for the quarter totaled $140 million.

And a year to date spending is in line with our expectation.

We continue to expect a significant improvement in our cash flow generation over time as will be our vesting benefits from the global strategic plan and our Capex returning to a level similar to our depreciation and amortization expense range.

Finally, we announced yesterday the suspension of the dividend reinvestment plan.

Lino: The suspension of the drip is the result of our leverage position as well as our expectation of cash flow generation going forward. This concludes my financial review. And with that, I'll turn the call back to Lino.

The suspension of the drip is the results of our leverage position position as well our expectation on cash flow generation going forward.

This concludes my financial review.

And with that I'll turn the call back delete them.

Lino: Thank you, Max. In Canada, our results reflect our relentless focus on commercial and operational execution with a diversified portfolio that offers consumers variety, convenience, and value. Our global strategic plan delivered continuous improvement, supply chain optimization, and automation initiatives; volume improved on the strength of the food service market segment, notably with QSR customers. Our retail market segment also benefited from a busy holiday season with everyday cheese volumes supported by increased brand investments, particularly with Armstrong, in the U.S.

Thank you Mac in Canada, our results reflect our relentless focus on commercial and operational execution with a diversified portfolio that offers consumers variety convenience and value.

Our global strategic plan delivered continuous improvement supply chain optimization and automation initiatives.

Volume improved on the strength of the foodservice market segment, notably with <unk> customers.

Our retail market segment also benefited from a busy holiday season with everyday cheese volume supported by increased brand investments, particularly with Armstrong.

In the U S.

Lino: The business is building momentum. We have seen more operational stability and sustained improvements in customer fill rates. Volume trends in our domestic market continue to recover, while our broad-based capital investment plan is on track, with several major projects well underway. Dairy commodity markets remain volatile during the third quarter.

The business is building momentum.

We haven't seen more operational stability and sustained improvements in customer fill rates.

<unk> trends in our domestic market continued to recover while our broad based capital investment plan is on track with several major projects well underway.

Dairy commodity markets remained volatile during the third quarter.

Lino: U.S. dairy market pressures were only partially mitigated by higher sales volumes and lower logistics costs. But if you look past this market noise, The core business has performed well so far this year. The quality of our top-line momentum has improved, with a healthier balance across price, volume, and mix. While these temporary market dynamics have certainly lasted longer than we had anticipated, markets are expected to stabilize over time. However, the speed of the recovery remains unknown.

U S dairy market pressures were only partially mitigated by higher sales volumes and lower logistics costs.

But if you look past this market noise.

The core business has performed well so far this year the.

The quality of our topline momentum has improved with a healthier balance across price volume and mix.

While these temporary market dynamics have certainly lasted longer than we had anticipated markets are expected to stabilize over time. However is the speed of the recovery that remains unknown.

Lino: We have also been making progress on our strategic plan in the U.S., with advancements in network optimization and automation, and with better visibility on our savings opportunities. New Qi Shred lines are in startup mode at our Tulare page plant, and we are meeting customer demand. The planned closure of our Big Stone, Green Bay, and Southgate facilities by the end of fiscal 2025 should further support CHI's network optimization plan. In the third quarter, we closed our Belmont facility, and benefits from the recently converted Reedsburg goat cheese manufacturing plant should continue to increase in Q1 of fiscal 2025 once our Lancaster facility is permanently closed. The new automated cut-and-wrap facility in Franklin is currently running, with benefits expected to begin by the end of this quarter.

We have also been making progress on our strategic plan in the U S with advancements on network optimization, and automation and with better visibility on our savings opportunity.

New Chief Red lines are in startup mode at our collateral page plant and we are meeting customer demand.

The planned closure of our Big Stone Green Bay, and South gate facilities by the end of fiscal 2025 should further support cheese network optimization plans.

In the third quarter, we closed our Belmont facility and benefits from the recently converted reads Berg go cheese manufacturing plant should continue to increase in Q1 of fiscal 2025 once our Lancaster facility is permanently closed.

The new automated cutting wrapped facility in Franklin is currently running with benefits expected to begin by the end of this quarter.

Lino: The targeted investments made position us well to operate more efficiently and do more for our customers than we ever had before. This is expected to drive momentum going into fiscal 25. In the international sector, global dairy markets remain challenging due to unfavorable dairy commodity prices. In Australia, our results were in line with the previous quarter.

The targeted investments made position us well to operate more efficiently and do more for our customers than we ever had before.

This is expected to drive momentum going into fiscal 'twenty five.

In the international sector Global dairy markets remained challenging due to unfavorable very commodity prices in Australia. Our results were in line with the previous quarter.

Lino: We benefitted from higher milk intake resulting in better operating efficiencies offset by unfavorable dairy commodity prices. Based on the milk decline and current challenging market conditions, we reviewed our estimates of future cash flow for our Australian division. This resulted in a non-cash impairment of $265 million on the value of the goodwill for the Australian Division recorded in the third quarter.

We benefited from higher milk intake, resulting in better operating efficiencies offset by unfavorable dairy commodity prices.

Based on the milk declined and current challenging market conditions, we reviewed our estimates of future cash flow for Australia Division. This resulted in a noncash impairment of $265 million on the value of the goodwill for the Australia Division recorded in the third quarter.

Lino: While there is still uncertainty in the near-term market dynamics, we are dedicated to doing everything we can to maximize the results of the division. Our strategy remains unchanged. We continue to advance our network optimization, and we are benefiting from the positive impact from several streamlining activities completed over the last few quarters. The business remains focused on its domestic market, with select key customers in the export market playing an important role.

While there is still uncertainty in the near term market dynamics, we are dedicated to doing everything we can to maximize the results of the division.

Our strategy remains unchanged.

We've continued to advance our network optimization and we are benefiting from the positive impact from several streamlining activities completed over the last few quarters.

The business remains focused on its domestic market.

<unk> selected customers in the export market, playing an important role.

Lino: We are maintaining our disciplined approach to managing the business, and we are confident we will be in a much better position with the actions we are taking. In Argentina, weakness in export commodity prices and the recent devaluation of the Argentinian peso impacted our results, but our domestic business remains strong with higher pricing and volume, and the European sector. The selling of inventory produced at higher milk prices continued to be a headwind in the quarter, as expected.

We are maintaining our disciplined approach to managing the business and we are confident we will be in a much better position with the actions we are taking.

In Argentina weakness in the export commodity prices and the recent devaluation of the Argentinean peso impacted our results, but our domestic business remains strong with higher pricing and volumes.

In the Europe sector.

The selling of inventory produced at higher milk prices continue to be a headwind in the quarter as expected.

Lino: Moving forward, our performance should improve sequentially as we cycle through high-cost inventory and as we begin to ship new value-added private label contracts. Efficiency benefits from the expanded Nuneaton packing facility are also expected to accelerate once the closure of the Froome plant is completed in Q1 of fiscal 2025. We are also pleased with the rate of volume recovery in the retail branded channel and our progress around optimization initiatives. Now, to our outlook for the remainder of the year. We anticipate many of the trends from the third quarter will carry over into the fourth, including in the international sector, notably in Australia, where there is an ongoing disconnect between international cheese and dairy ingredient prices and farm gate milk prices. We expect the environment to remain volatile and challenging in the near term, from input costs to currencies to consumer and geopolitical dynamics. While global dairy commodity markets are not where we would like them to be, we remain focused on the factors within our control. Nonetheless, our confidence in the overall health of the business and our growth drivers remains unchanged.

Moving forward, our performance should improve sequentially as we cycle through high cost inventory and as we begin to ship new value added private label contracts.

Efficiency benefits from the expanded Nuneaton packing facility are also expected to accelerate once the closure.

The from plant is completed in Q1 of fiscal 2025.

We are also pleased with the rate of volume recovery in our retail branded channel and our progress around optimization initiatives.

Turning now to our outlook for the remainder of the year, we anticipate many of the trends from the third quarter will carryover into the fourth including in the international sector, notably in Australia.

Where there is an ongoing disconnect between the international cheese, and dairy ingredient prices and farm gate milk prices.

We expect the environment to remain volatile and challenging in the near term from input cost to currencies to consumer and.

The political dynamics.

While global dairy commodity markets are not where we would like them to be we remained focused on the factors within our control.

Nonetheless, our confidence.

Overall health of the business and our growth drivers remain unchanged.

Lino: We are proactively reducing costs and maximizing cash flow while maintaining a broad focus on financial flexibility and operating decisions. When we embarked on our global strategic plan initiative nearly three years ago, my priority was to steward the company through one of the most important phases in our history and to see through the completion of our capital investment. We've had to realign and adjust to many challenges, and we have adapted to an ever-changing environment. And now we are approaching the end of our multi-year capital expansion plan with a clear line of sight to project benefits by the end of this investment cycle. We will have built a resilient business with strong growth and earnings potential. As I look back over the past three years... and our journey through an unprecedented time, I'm often reminded of the passionate, purposeful people who make us who we are today.

We are proactively reducing costs and maximizing cash flow, while maintaining a broad focus on financial flexibility and operating discipline.

When we embarked on our global strategic plan initiatives nearly three years ago. My priority was to steward the company through one of the most important phases in our history.

And to see it through the completion of our capital investments.

We've had to realign and adjust to many challenges and we have adapted to an ever changing environment.

And now we are approaching the end of a multi year capital expansion plan with a clear line of sight to project benefits.

By the end of this investment cycle.

We will have built a resilient business with strong growth and earnings potential.

As I look back over the past three years.

Our journey through an unprecedented time I'm often reminded of the passionate purposeful people, who make us who we are to date.

Frank: I can say with confidence that our foundations are solid, our infrastructure is unique, and our team is focused. Simply, our best days lie ahead. And on that note, I thank you for your time. And I will now turn the call over to Frank for questions. Frank?

I can say with confidence our foundations are solid.

Our infrastructure is unique and our team is focused.

<unk>.

Our best days lie ahead.

And on that note I. Thank you for your time.

And I will now turn the call over to Frank for questions.

Frank.

Frank: Thank you. If you would like to register a question, please press the 1-4 on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the 1 followed by the 3.

Thank you.

If you would like to register a question. Please press the one four on your telephone you will hear at <unk> technology a request.

If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three one moment. Please for the first question.

Irene Natal: One moment, please for the first question. Our first question comes from Irene Natal with RBC Capital Markets. Please proceed. Thanks, and good morning everyone.

Our first question comes from Irene <unk> with RBC capital markets. Please proceed.

Thanks, and good morning, everyone.

Lino: As you outlined in your comments, there's a lot that's going to come together in F25 from, you know, let's call it the productivity and efficiency side as a result of so many projects coming on stream. If we assume that nothing changes in the commodity backdrop, how should we think about the financial benefits as we move through 2025 and 2026 of all of these initiatives? Some of the things, Irene, that we need to keep in mind going into Fiscal 25. A lot of the heavy lifting has been done.

As you as you outlined in your comments.

There is a lot that's going to come together and that's 25 from let's call it the productivity and efficiency side.

As a result of.

So many projects coming on stream.

If we assume that nothing changes in the commodity backdrop, how should we think about the financial benefits as seen in Q2, 25% and 26 of all of these initiatives.

Yes, so some of the things Irene that we need to keep in mind going into fiscal 'twenty five a lot of the heavy lifting lifting has been done. So when you think about just simple things like capex spend we're going back to our normal normalized level. So you can expect a much reduced capital expenditure.

Lino: So when you think about just simple things like CapEx spend, we're going back to our normalized level, so you can expect a much reduced capital expenditure. You can also assume that within at least three of our geographies where we've got network optimization plans in place, there will be less overall overhead expenses relative to the division with the same amount of volume or a little bit more volume than we're currently processing. So all of those factors, in addition to, you know, what we call the enabler bucket. Enabler bucket is beyond network optimization.

You can also.

Assume that within at least three of our geographies, where we've got a network optimization plans in place that there is going to be less.

Overall overhead expenses.

Relative to the division with the same amount of volume or a little bit more volume.

Then we are currently processing so all of those factors in addition to what.

What we call the enabler bucket enabler bucket is beyond network optimization all of that as G&A expense that we have similar to what we've talked about in the past relative to the.

Lino: All of that SG&A expense that we have, similar to what we've talked about in the past relative to the consolidation of our two U.S. businesses, we have a network that we are going to be servicing that is smaller in footprint than what we had before. So, by the nature of that, there are going to be some reductions in SG&A as well. So all of these elements, you know, the things that we've been talking about for the last three years and that we've executed on pretty effectively and efficiently through an unprecedented time on budget and on time, will start to deliver benefits for us in fiscal 25. So I'm extremely excited about going into the next fiscal year with the infrastructure and the focus that we have. And I think that there are going to be benefits beyond, you know, just the network optimization in terms of us delivering incremental value for our shareholders. That's very helpful; thank you.

The consolidation of our two U S businesses.

We have a network that we are going to be servicing that are smaller and footprint than what we had before so by the nature of that.

There are going to be some reductions in SG&A as well. So all of these elements you know the things that we've been talking about for the last three years and that we've executed on a pretty effectively and efficiently through an unprecedented time on budget and on time will start to deliver benefits for us in fiscal 'twenty.

So I am extremely excited about going into next fiscal year with the infrastructure and the focus that we have and I think that there are going to be benefit beyond.

Just the network optimization in terms of us delivering.

Incremental value for our shareholders.

<unk>.

That's very helpful. Thank you.

Lino: And, you know, switching to more sort of near-term elements, can you talk through what you're seeing out there in the various regions in terms of consumer behavior and demand and the impact that that's having on your mix and margins? Yeah, so I'll just talk about the macro environment, and then perhaps Carl and Leanne can jump into each division. We are seeing a slowing of milk production around the world, and we see this in just about every dairy producing country around the world. The economics for dairy farmers are challenged, and there are a lot more pressures relative to environmental sustainability as well as on dairy farmers and the laws that they have to contend with. So the dairy farming community is resilient, but the folks that are not as well invested or as efficient are dropping off in terms of dairy farms and their contribution to milk production.

And switching to more near term element.

Can you talk through what Youre seeing out there in the various regions in terms of consumer behavior and demand and the impact that that's having on your mix and margin.

Yeah. So I'll just talk about the macro environment and then perhaps carlin Leann can jump into each division, we are seeing a slowing milk production around the world.

And we see this in just about every dairy producing country around the world.

The economics for dairy farmers are challenged.

And there.

There are a lot more pressures relative to ESG as well on dairy farmers and laws that they have to contend with.

So the dairy farming community.

It is resilient.

The folks that are not as well invested or as efficient or dropping off in terms of our dairy farms and their contribution to milk production.

We are seeing that.

Lino: We are seeing that the consumer is resilient as a whole in our domestic markets, but the international market still remains a big question mark. We're not quite sure when the buyers are going to come back, although we have seen signs on the GDT that have been encouraging. There's still nothing sustainable for us to say that there's going to be certainty that buyers are coming back to the market. As a whole, there is a good balance between supply and demand, so that should hold up prices to at least where they are now, with perhaps some slight improvement, but the focus that we have as a business is more to understand what we can control, deliver on the goods and the investments that we've made, and make sure that we continue to drive value.

The consumer is resilient as a whole.

In our domestic market, but the international markets still remains a big question Mark.

We're not quite sure when the buyers are going to come back. Although we have seen signs on the GDT that had been encouraging there is still nothing that is sustainable for us to say that there is going to be certainty.

That buyers are coming back to the market as a whole there is a good balance between supply and demand so that should hold up prices at least where they are now with perhaps some slight improvement.

The focus that we have as a business it's more to understand what we can control deliver on the goods and the investments that we've made and make sure that we continue to drive value.

Lino: So perhaps I'll have Karl start off with a more domestic feel for what we're seeing within each of our Canadian and U.S. businesses. Maybe I'll start with our U.S. business. So certainly, we're seeing, you know, some challenges with consumer spending capabilities with some of the economic pressures. But nonetheless, over the last couple of periods, we've seen consumer sentiment tick up. So very encouraging from that standpoint.

So perhaps I'll have Carl.

I'll start off with.

More domestic.

Feel for what we're seeing within each of our Canadian and U S.

Countries.

Maybe I'll start with our U S business. So certainly we're seeing.

Some challenges with the consumer.

Spending capabilities with some of the economic pressures, but nonetheless over the last couple of periods, we've seen consumer sentiment tick up so very encouraging from that standpoint.

Karl: We have certainly seen a shift from full-service restaurants down to QSRs. So, the consumer is, I'll say, trading down in some cases, as well as the shift from some areas of branded business down to private labels. But all in all, for Saputo, I think there are nonetheless two bright spots, and that is the scope in which we play in the U.S., the categories, and the sectors.

We have.

Certainly <unk> seen a shift from full service restaurants down to <unk>.

The consumer is Allstate trading down in some cases as well as the shift from some areas of branded business down to private label, but all in all for <unk> I think there is nonetheless, too bright bright spot and that is the scope in which we play in the U S.

The categories in the sectors, we supply voltage both on our branded business as well as private label, So we're well positioned to be able to capture.

Karl: We supply both ends, both our branded business as well as private label, so we're well positioned to be able to capture whatever gains there may be in each of those sectors. If there's a more pronounced shift from the food service sector to retail, we're also much better positioned than we were a couple of years ago when that shift occurred during the early days of the pandemic. So from that perspective, we are seeing some shifts in the mindset, but I would say that overall, whether that be U.S. or Canada, dairy is still in very good standing with consumers. So it is a very good value proposition for the consumer, as well as a value proposition for elements of the food service menu agenda. So that would be from a U.S. perspective. In Canada, it is not much different.

Whatever gains or may be in each of those sectors.

There is a more pronounced shift from the foodservice sector. It to retail and we're also much better position than we were a couple of years ago when that shift occur during the early days of the pandemic.

So from that perspective, we are seeing some shift in the mindset, but I would say that overall, whether that'd be U S or Canada dairy is still in very good standing with consumers. So it is a very good value proposition for the consumer as.

As well as the value proposition for elements of the foodservice.

Menu agenda, so that would be from a U S perspective in Canada not much different.

Karl: Consumers are a challenge, as you certainly would have seen and heard from other peers in the industry. But I would say, nonetheless, the strength of our brands, the strength of our value proposition, and our service, in particular in Canada, has seen us continue to see share gains, both in retail and in food service, and continue to make penetration. We're still very optimistic about our ability to navigate these challenging consumer times. And Irene, it's Leanne. I'll build on that.

Consumers are challenges as you certainly would have seen and heard.

From other peers in the industry, but I would say nonetheless, the strength of our brands the strength of our value proposition and our service in particular in Canada.

<unk> seen us continue to see share gains both in retail and in foodservice and continue to make penetrations and different market segments.

Still very optimistic about our ability to navigate these challenging consumer base.

And Irene it's Liana I'll build on that we're also seeing in the U K, although the macroeconomic conditions. There has been more challenged for the consumer we are still see good demand for <unk> and in fact achieve category is now growing in both value and volume over the last quarter and we are lapping significant.

Leanne: We're also seeing in the UK, although the macroeconomic conditions there have been more challenging for the consumer, we are still seeing good demand for cheese. In fact, the cheese category is now growing in both value and volume over the last quarter. We are lapping significant increases in our prices, but what we're seeing now with Cathedral City is that we're now growing share. We're taking share from both other brands and private labels. Our price gap to private label is now quite narrow, and it's stable. So we are seeing consumers in the category, and that is really good for our business in the UK. And in Australia, similarly, but the value and our volume for our cheese categories are stable. So we are seeing consumers; they're coming into the category and continuing to buy. That's very helpful. Thank you. Sorry, I was just going to ask Leanne if she had any other comments on Argentina, which is also a very good story, despite the volatility that's there and the change in government and such.

Increases in our price, but what we're seeing now cathedral city is that we are now growing share we're taking share from those other brands and private label our price gap to private label is.

Is now quite stable.

Stable. So we are seeing consumers in the category and then it's really good for it for our business in the U K and Australia. Similarly, the value and volume for all the trial cheese categories is stable. So we are seeing consumer it can be.

Within the category and continuing to buy.

That's fair enough anyone do you want to answer.

Yeah.

Yes, Yes, I was just.

Sorry, I was just going to add again, if he has any other comments on Argentina, which is also a very good story. Despite the volatility that's there and the change in government and such that's right.

Leanne: We have a very excellent management team there, and we're used to successfully navigating some of the conditions there, so despite the new government, and in fact, we've seen no impacts on our business. In fact, we're continuing to grow our export business in volume, and also our domestic consumption remains robust. Thank you. Our next question comes from George Dumais with Scotiacapital. Yeah, good morning, Lino Max.

Alvin very extra management team there I used to successfully navigating some of the conditions there so despite.

The.

The new government and in fact, we have seen you know in textile pieces and in fact actually we continuing to grow our export business in volume and also our domestic consumption remains robust.

Thank you.

Our next question comes from George <unk> with Scotia Capital. Please proceed.

Yeah, Hi, good morning, immuno Max I was wondering if you could talk a little bit about the higher volumes in the U S domestic market, what's driving that and maybe how sustainable is that in the face of the <unk>.

George Dumais: I was wondering if you could talk a little bit about the higher volumes in the US domestic market. What's driving that? Maybe how sustainable is that in the face of the commodity market? Well, George Sklar, I'll take that one.

RT market.

Well, George as Karl I'll take that one.

Karl: I think that it's good news all around and it's a testament to the choices that we've made in our capital, as well as our improved position when it comes to our turnover. So we've materially reduced our turnover quarter over quarter, and that puts us in a much better position to be able to supply the demand that has been present in the marketplace. And that demand is coming in a number of channels; one in the mozzarella space. We're in a better position today than we were certainly last year, so some strengths in that area. We've reaffirmed some of our market-leading positions in goat and blue cheese, as well as some of our hard Italian positions, and as well as our dairy foods items.

I think that the.

Good news all around.

So a testament to the choices that we've made in our capital plan.

As well as our improved position when it comes to.

Our turnover, so we've materially reduced our turnover.

Quarter over quarter and that puts us in a much better position to be able to supply the demand that has been present in the marketplace for us and that demand is coming in a number of channels. One in the mozzarella space. We're in a better position today than we were certainly last year. So some strengths in this area.

<unk>.

Reaffirm some of our market leading positions.

In gold and Blue cheese.

As well as some of our Hardy Italian positions.

As well as our dairy foods items.

Karl: Heavy whipping creams and other high fat products are also in the market, and there is good demand, and we're in a great position to be able to supply that with the asset base that we have. From that perspective, we've been able to serve the market well. Our fill rates, now it's been at least three to four quarters where our fill rates are in a great position, and we're doing that also with better management of our overall inventory. So we've certainly got the right products in the right buildings for appropriate distribution. We're also doing that with fewer pounds, and also fewer pounds of waste overall. So all this to say that the domestic market, we're cautious about the consumer, of course, but we're very confident in our ability to supply the various segments and the shift in the demand that Yeah, thanks for that. Maybe switching gears to Canada. I believe Q3 is seasonally the strongest quarter, but we saw even margins in Canada kind of compressed. Thank you.

Have you been creams.

And the other high fat products are also in good demand and we're in a great position to be able to supply that with the asset base that we have so from that perspective, we've been able to service the market well our fill rates now us it's been at least three to four quarters, whereby our fill rates.

We're in a great position and we're doing that also with a better management of our overall inventory. So we've got certainly the right products and the right buildings for appropriate distribution. We're also doing that with fewer pounds and also fewer pounds of waste overall, so all of this to.

Say that.

The domestic market.

We're cautious about the consumer of course, but we're very confident in our ability to supply the various segments.

And the shifts in the demand that may occur.

Yeah, Thanks for that and maybe switching gears to Canada.

Q3 is seasonally the strongest quarter, but what we've talked EBITDA margins in kind of that kind of compressed sequentially is that just a question of timing of pricing or is there anything else kind of going on there.

Karl: No, I would say that in the Canadian business, there's been a little bit of a shift in some of the mix. One of the things that we don't talk about a lot but is... Beginning to creep in just a little bit in the Canadian business is also the commodities markets. And that's really associated to the byproducts that it produces.

No I would say that in the Canadian business has been a little bit of a shift.

In some of the mix certainly.

One of the things that we don't talk about a lot but as is.

Beginning to creep in just a little bit in the Canadian business is also the commodities markets and that's really associated to the <unk>.

The way byproducts that produces so Canada is not fully sheltered from the value of the commodity space. When it comes to weigh byproducts. So some of that had a negative impact in Q3, but overall I would say that.

Karl: So, Canada is not fully sheltered from the value of the commodity space when it comes to its byproducts. So, some of that had a negative impact in Q3. But overall, I would say that we're in a strong position when it comes to the investment that we've put in. They are contributing almost to their fullest extent to date.

We're in a strong position when it comes to the investments that we've put in.

They are contributing almost to their fullest of degrees to date.

And the future outlook for the Canadian platform as for the.

Karl: And the future outlook for the Canadian platform is for the strong Canadian team to continue with the value proposition that they bring to the various segments that we service. We have various innovations still to come, various cost-out initiatives as well. So, we still expect to have some..., some growth in the Canadian economy. Okay, thanks.

The strong Canadian team to continue with the.

The value proposition that they bring in the various segments that we service.

We have various innovations still to come.

<unk> cost out initiatives as well so still expect to have some.

Some some growth in the Canadian sector.

George Dumais: Maybe last one for me, for me, you know, I think there's obviously an expectation for strong free cash flow generation and good deleveraging over the next 12 months, probably positioned just below our balance sheet comfort zone. So I guess given where the stock is today, what do you think is the priority maybe for capital deployment kind of over the next 12 to 18 months? Yeah, first and foremost for us, we are focused on a strong operating cash flow, and that is in all divisions, in all categories, you know, just as simple as right-sizing our inventories as well, making sure that working capital is in line, of course, with inflation coming back down to more normalized levels. Working capital inventories, accounts receivables are coming back to more normalized areas, and CapEx is slowing down as well We're looking at a much reduced CapEx spend for Fiscal 25.

Okay. Thanks, and then maybe last one for me from you May not think there is obviously an expectation for strong free cash flow generation and good deleveraging over the next 12 months.

Probably because isn't just below our balance sheet comfort is also I guess, given where the stock is today. What do you think is the priority for capital deployment kind of over the next 12 to 18 months.

Yeah first and foremost for US we are focused on strong operating cash flow.

And that is in all divisions and all categories, just as simple as right sizing our inventories as well, making sure that working cap is in line of course with inflation coming back down to more normalized levels.

Working cap inventories accounts payable accounts receivables are are coming back to a more normalized areas.

Capex is slowing down as well, we're looking at a much reduced capex spend for fiscal 'twenty five.

Lino: So, free cash flow is going to be a big priority for us as we get into Fiscal 25. We're looking at priorities for us, yes, dividend, debt repayment, and continuing to execute on the development of our businesses as short-term goals. And then, of course, as we look at the longer term, creating value for shareholders through buybacks and such, but I think we might be a few quarters away from that yet. The primary focus is dividend and debt repayment. Great, I appreciate it.

So free cash flow is going to be a big priority for us as we get into fiscal 'twenty five we're looking at priorities for us yet.

Dividend debt repayment.

And are continuing to execute on the development of our businesses.

As a short term goals and then of course as we look at more long term.

Creating value for shareholders through buybacks and such but I think we're.

Well it might be a few quarters away from that yet.

Our primary focus is.

Dividend and debt repayment.

Great I appreciate it thank you.

Michael Van Alst: Thank you. Our next question comes from Michael Van Alst with TD Securities. Please proceed. Hi, good morning.

Our next question comes from Michael Van <unk> with TD Securities. Please proceed.

Hi, good morning, Thank you.

Michael Van Alst: Thank you. Can you just clarify what that CapEx number is that you expect it to be in fiscal 25? Okay, so, Mike, this is Max. So we're looking, you know, about 200 to 250 million lower than what it is this year. We should be finishing the year around 650-ish, so around, like, just slightly north of 400 would be a number that you could work with.

Can you just clarify what that Capex number is that you expect it to be in fiscal 'twenty five.

Okay. So Mike this is Mike So we're looking at you know.

About two.

$102 million to $150 million lower than what it is the run rate. This year, we should be finishing the year around the 650 ish.

So in and around just slightly north of 400 would be a number that you could work with.

Max: So it's a, you know, a 200-plus million reduction in capex that would fit us within our depreciation of our asset level. Okay, great. And then, so looking at Australia, with the write-down that you had to take, what can you tell us about the long-term EBITDA generation potential in that division, and to what degree would that now affect your ability to hit your $2.125 billion at some point in the future when the market and volume stay normalized? Yeah, so the 2.125 is still very achievable within the structure of what we have, regardless of the context of a shrinking milk pool in One of the things that perhaps get overlooked is the initiatives that our Australian division has executed on over the course of the last year.

With 200 plus million a reduction in capex that would fit us.

Our depreciation.

All of our asset levels.

Okay, Great and then so looking at Australia with the write down that you had to take.

What can you tell us about the long term EBITDA generation potential in that division and to what degree would that now affect your ability to hit your $2 <unk> 5 billion at some point in the future when the market and volumes normalize.

Yeah. So the $2 125 is still very achievable within the structure of what we have irregardless of.

The context of a milking.

Shrinking milk pool in Australia.

So.

That's it.

One of the things that perhaps gets overlooked is the initiatives that our Australian.

Division has executed on over the course of the last year I mean, there are.

Lino: There are tens of millions of dollars of cost reductions that we've done that have only been swallowed up by negative commodity pricing in the international market relative to the milk price that we have. Moving forward, one of the big priorities for us is to get a better balance between the milk price and the international dairy markets, and that will only happen once the new milk year starts. But when you've got that balance between milk price and commodity prices, then we would be returning to normalized EBITDA levels in Australia. And then, of course, with a shrinking milk pool, we have to prioritize what categories of products we want to go into and look at more value-added categories that will derive a better return for us. So we're still very optimistic about our Australian platform, even though it will be a much smaller platform for us from a milk intake and a milk process perspective. But I'm really proud of the efforts and the energy that our Australian team has put in. I mean, talk about resiliency; this is a really resilient group.

Tens of millions of dollars of cost reductions that we've done that have only been swallowed up by <unk>.

Negative commodity pricing in the international market relative to the the milk price that we have.

Moving forward one of the big priority for Us is to.

Get a better balance between the milk price and the international dairy markets and that will only happen once the new midyear starts, but when you've got that balance between.

Milk price and the commodity prices.

But then we wouldn't be returning back to normalized EBITDA levels in Australia.

And then of course with a shrinking a milk pool, we have to prioritize what categories of products, we want to go in.

And looking at more value added categories.

That will derive a better return for us. So we're still very optimistic about our Australian platform, even though it will be a much smaller platform for us from a milk and taken them no process.

Our perspective, but I'm really proud of the efforts and the energy that our Australian team has deployed I mean.

About resiliency. This this is a really resilient group.

Lino: And Michael and Leanne, we're already seeing the financial benefits from the network optimisation that Lino referenced there. As you know, we've moved from 11 down to six sites, and we obviously have a couple of strategic reviews still underway. However, the important thing is that we've still got more benefits to go with the financial benefits from that optimisation. And most recently, with the investments we made in our system facility, we're already shipping new products from that, and we're on track with the benefits from that facility. So although we've got good milk this year, it's stabilizing the milk pool.

Michael.

We're already seeing the financial benefits from the network optimization that I referenced that we as you know we've moved from 11 to six slots and.

She has a couple of strategic review still underway.

The important thing is that we still got more benefits to go with.

The financial benefits from that optimization.

And most recently with the investments we made in assistance I feel if you were already shipping new product from that we're on track with the benefits from that facility. So although.

Stable good mills this year.

It's it's stabilizing the mill full.

Leanne: We know that there continues to be a significant disconnect between international cheese and their ingredient prices and what we're paying for local Australian farm gate milk. So we need to carefully review that situation as we head into the new milk year, but we are very confident that we have the right, most efficient portfolio and the most efficient network utilisation in Australia. And Mike, just to compliment you on this impairment charge, one of the elements is referring to the discount rate or the interest rate that has increased, and when you put that in the model and you use the... This is a really important piece of accounting ruling to make. It's part of the story as to how we came up with 265.

We know that as it continues to be a significant disconnects between these national chasing their ingredient process and what we're paying and local Australian farm gate.

So we need to carefully review that situation as we head into the new milk here, but we are very confident that we have the right most efficient portfolio in the most efficient network utilization in Australia.

And Mike just to complement.

With.

This impairment charge.

One of the element is referring to the discount rate or the <unk>.

Interest rate increase and when you put that in the model and you use the accounting ruling to make it.

As part of the story as to how we'd come up with a 265. So it doesn't mean that we are shying away from the two 1% to five or would put in jeopardy.

Max: So it doesn't mean that we are shying away from the 2125 or putting it in jeopardy. There's that piece that needs to be understood. Okay, that's helpful.

The piece that needs to be.

Understood.

Okay. That's helpful and then.

Karl: And then on the US side, you talked about, I think you've said a number of times that you expect 90 or 95% of the global strategic plan benefits there to kick in in April. How do I square that up with the fact that three of the plants are not going to be closed until later sometime later in fiscal 25? Yeah, Michael, it's Karl, and I think maybe we want to kind of clarify the position of the contribution from those capital investments in Fiscal 25. We're going to see that ratio of 90-95% of the benefits kick in in Fiscal 25, not necessarily in Q1. When we take a look at the investments that have been made and the contributions to date, most of that is coming from the mozzarella modernization aspects, which for the most part, the lion's share is going to start to kick in in Q4. But there are some other aspects like Franklin, which does require the permanent closure of Big Stone, Lancaster, and Green Bay to fully contribute and take advantage of the capacity utilization that is in Franklin.

On the U S side, you talked about I think you've said number of times that you expect.

90, or 95% of the global strategic plan benefits there to kick in in April.

How do I.

Square that up with the fact that three of the plants are not going to be closed until later sometime later in fiscal 'twenty five.

Yes, Michael it's Carl I think maybe we wanted to kind of.

Clarify the physician of the contribution from those capital investments in fiscal 'twenty five.

We're going to see that ratio of 90% to 95% of the benefits kick into fiscal 'twenty, five and not necessarily out of Q1, when we take a look at the investments that have been made in the.

The contributions to date most of that is coming from the mozzarella modernization aspects.

And which for the most part the lion's share is going to start to kick in in Q4.

But there are some other aspects like Franklin, which does require the permanent closure of big Stone Lancaster.

Green Bay two to fully contribute.

And take advantage of the capacity utilization that.

Karl: So we're talking more about that kind of a ratio sometime throughout fiscal 25. And I think the best way to anchor it when the savings come online is closer to the dates by which we have the closures. So keep in mind that we have a couple more closures by the end of the fiscal year in Lancaster and Big Stone, and then we've got Southgate and Green Bay later in the year.

As in Franklin, So we're talking more about that kind of a ratio.

Sometime throughout fiscal 'twenty, five and I think the best way to to anchor and when the savings come online.

<unk> is closer to the dates by which we have the closures. So keep in mind that we have a couple more closures by the end of the fiscal year and then in Lancaster and in.

And then we've got Southgate and.

Green Bay later on in the year that that will help sort of.

Max: That will help sort of pace, if you like, the returns that we expect to see, as well as the removal of some of the duplication costs that we have in our segment. And Mike, the 95% that we voiced was around the completion of the project itself; it was not so much related to the benefits, so yeah, 95% of the project being completed by the end of this fiscal year to set the pace for the benefits to kick in in fiscal 2015. All right, thank you. Our next question comes from Mark Petrie with CIBC. Please proceed.

Pace, if you like the returns that we expect to see as well as the removal of some of the duplicate costs that we have in our segment today.

That might be a 95%.

We voice was around the completion of the project itself.

So much related to the benefits so yes, 95% of the project being complete by the end of this fiscal to set the tone.

The pace for the benefits to kick in in fiscal 'twenty five.

Yeah.

Alright, thank you.

Our next question comes from Mark Petrie with CIBC. Please proceed.

Mark Petrie: Yeah, thanks. I just wanted to keep sort of following up on the 2.125 and maybe two specific questions. One, specific to Europe, obviously some very difficult conditions there.

Thanks, I just wanted to keep sort of following up on the on the <unk>.

2125, and maybe two specific <unk>.

Questions one.

Specific to Europe, obviously, some very difficult conditions there.

Mark Petrie: You're saying it should begin to be improving next quarter or this current quarter. Can you just give us a better sense of the pace of improvement that you expect? And then what do you see as an achievable sort of steady state EBITDA margin or dollar level for that segment? Hi, it's Leanne.

You are saying it should be begin to be improving next quarter or this current quarter can you just give us a better sense of the pace of improvement that you expect and then what you see is an achievable sort of steady state EBITDA margin or dollar level for that segment.

Well.

Leanne: We're still sailing through the inventory that we've produced at high milk prices, given the maturation profile of our business in the UK. And the outlook with a year to go, this will continue, but to a lesser extent than we've seen in Q3 as that cheese product mix is being corrected. And we do expect continued improvement quarter on quarter as that inventory rebalances. We're also starting to ship significant new private label volume now, so we can foresee a much more steady state. I would add that the situation in the UK is transitory in nature. We're dealing with that inventory that we have to, let's say, liquidate on the market. Once that is over, yes, we're looking for Fiscal 25 to be, let's say, a recoup year. And when you compound that with the volume that we received from a private label, a cost structure review relative to our consolidation in Dunedin from the front, a cost out initiative. You know, our branded cheese that Leanne talked about is healthy here in Cathedral City.

We're still selling through the inventory that we produced at high milk prices given the maturation profile of all of that business in the U K.

That look to you to go and it will continue but to a lesser extent than we've seen in Q3 has that changed the product mix is being corrected and we do expect continued improvement quarter on quarter as that inventory rebalancing.

Also starting to ship significant new private label volume now so we can foresee a much more steady state.

Yes, I would I would add to that.

The situation in the UK is transitory in nature, we're dealing with that inventory that were have to let's say liquidates on the market. Once that is over yes, we're looking for fiscal 'twenty five to be let's say, a recoup here and when you compound.

With the volume that we received we got from private label.

Cost structure review relative to our consolidation in Nuneaton from deferral of cost out initiatives are branded cheese.

<unk> talked about this healthy.

City, and don't forget that the butter and spread of the business is doing quite well for us. So we definitely have a line of sight to growth in.

Max: And don't forget that, you know, the butter and spread business is doing quite well for us. So we definitely have a line of sight to grow for us in the UK. We have to go through this transitional period in nature.

For us in the UK.

Have to go through this transitory in nature.

Mark Petrie: We definitely feel we have the answer to the challenge ahead once the inventory is back. Okay, thanks. That's helpful.

We feel that we have the answer to the challenge ahead once the inventory is behind us.

Okay. Thanks, that's helpful. I mean, I guess just to ask it a bit differently.

Mark Petrie: I mean, I guess just to ask it a bit differently, you know, when in the early days, you were reporting sort of high teens EBITDA margins, is that still achievable? Yes, if you look at the return to historical levels as being our baseline and then the improvements that we're making in network optimization and other investments in brands and categories, yes, that is very achievable, Mark. Okay, perfect. Thank you for that. And then just sort of coming at the 2.125 in a bit of a different way.

In the early days, you were reporting sort of high teens EBITDA margins.

Is that still achievable.

Yes.

If you look at the return to our historical levels as being our baseline and then the improvements that we're making in network optimization and other investments in brand and categories.

Yes that is very achievable mark.

Okay perfect. Thank you for that.

Then just sort of coming out the $2 125, and a bit of a different way I mean, if we look at the LTM sort of run rate, it's about 600 million below that target.

Max: I mean, if we look at the LTM sort of run rate, it's about 600 million below that target. And obviously, the commodity is severely against you. But can you just give us a sense, you know, at a high level, how much of that gap do you feel like is in your control and a payoff from all of the efficiency initiatives and network optimization, and how much of that is commodity driven? Well, I would say that the whole bucket relative to network optimization, we feel this is under our control. Obviously, a lot of the savings that we're tabling for fiscal 2025, we feel confident that they're going to flow through, so we're not going to share guidance as it is for, you know, specifically, the next year or so.

And obviously the commodity.

Severely against you, but can you just give us a sense at a high level how much of that gap do you feel like is in your control and the payoff from all of the efficiency initiatives and network optimization and how much of that is is commodity driven.

Well I would say that the whole bucket relative to network optimization, we feel that this is a our ore control is under our control.

Obviously.

A lot of the savings that we're tabling for fiscal 'twenty five.

We feel confident that the deal could garner flow through.

We're not going to share our guidance.

As it is for specifically the next year or so timing links to various thing relative to the execution you referred to market volume, we feel we're in a good spot.

Max: Timing links to various things relative to the execution, you refer to the market, the volume we feel we're in a good spot, we have the right infrastructure in place, the right people, and we are comfortable with all the various announcements that we've made over the last couple of years with the benefits that were tagged to each of those that we'll throw through. Now it's a matter of getting in that fiscal year, completing our project, and getting them started. Relative to the other pillar, other than network optimization, Lino talked about the enabler one.

We have the right infrastructure in place with the right people and we are.

Comfortable with all of the various announcements that we've made over the last couple of years.

With the benefit that were tied to each of those that will flow through.

Now as a matter of getting in that fiscal year.

Completing our projects and get them and get them started.

Relative to the other pillar then the network optimization Lino you talked about the enabler one yeah. There's other elements in the <unk> plan that has been worked off we put a lot of focus on on the network optimization.

Tammy Chen: Yeah, there's other elements in the strap plan that have been worked on. We put a lot of focus on the network optimization, but nonetheless, there's other pillars that have been worked on, and we're still working towards that line, and if the market's on our side, it's going to accelerate. If not, we will continue our pace on things that we can control. Okay, I appreciate the comments and all the best. Thank you, Mark. Our next question comes from Tammy Chen with BMO Capital Markets. Please proceed. Hi, good morning. This is Riyad on for Tammy Chan.

Nonetheless, there is other pillar thats been worked on.

We're still working.

Working towards that.

That that line and if markets on our site that is going to accelerate if not we continued our basin on things that we.

We can we.

We can.

Joel.

Okay I appreciate the comments and all of us.

Thank you Mark.

Our next question comes from Tami, Chen with BMO capital markets. Please proceed.

Hi, Good morning. This is we are the encore climate challenge.

Riyad: So, I have a couple of questions. So, my first question would be, if you could please explain why the international segment revenues declined so much, but the EBITDA dollars were stable this quarter. Were there any unusual events that affected revenues, but not EBITDA? Thank you. Yes, yes. So, I'll take that one.

I had a couple of questions. So my first question would be if you could please explain why the international segment revenues declined so much but the EBITDA dollars were stable. This quarter were there any onetime unusual but it affected revenues.

Thank you, yes, yes.

So I'll take that one.

Max: Okay, let's see. According to the international standard... When an economy reaches 100% over a three-year period, it's defined as a hyperinflationary economy. Since Argentina has been experiencing over 100% inflation over several years, since 2018, we're using here at Saputo hyperinflation accounting standards. So, quickly, Standard indexed our P&L and our balance sheet per a specific index that is applied, that is known in Argentina, and this is typically a positive for us, indexing for inflation. But the Standard, the accounting Standard, also converts all of our year-to-date Argentinian operations at the spot rate at the end of the reporting period, at the end of December.

Okay, let's say according to the international standard.

When an economy reached 100% over three year period, it's defined as hyper.

I've heard inflation economy.

Argentina has been over 100% inflation over a several year since 2018, we're using here, it's a poorly hyper inflation accounting standard.

So quickly.

Quickly standard index, our P&L and our balance sheet per specific index that is applied that is known in Argentina and this is typically a positive for us indexing for inflation, but the standard the accounting standard also.

Convert all of our year to date.

Argentinian operation at the spot rate at the end of the reporting period at the end of December.

Max: So that significant devaluation that took place in December definitely negatively affected our results operations in EBITDA, but also on the revenue side, bringing that to a spot rate. In normal circumstances, the high inflation impact and the FX devaluation typically offset each other on an annual basis. You know, one goes against the other. However, in the short term, during a major event like the devaluation of 59% to 60% in a single day, we could expect some timing differences. And that's what we're seeing right now in Q3. That's accounting one. Relative to the transaction per se, The lower value.

With that significant devaluation that took place in December now its definitely negatively affected our results of operation for the in the EBITDA, but also on the revenue side, bringing that to spot rate.

In normal circumstances, the high for inflation.

And the FX devaluation typically offset each other on an annual.

Basis, one goes against the other.

However in the short term.

During a major events like we like the devaluation of 59% to 60% in a single day, we could expect some timing differences and that's what we're seeing right now in Q3.

Accounting wise relative to the transactions per se the lower value.

Max: PESO positively helps our export business in Argentina, as it is mainly transacted in USD, and this helps to mitigate the negative effect of the pricing on the international market. So, in a nutshell, the devaluation in December is not usual, and it did negatively impact the R-result due to the spot rate going down that much in December. Okay, and just to rebound on that, so then why did the dollars remain stable? Compared to a quarter of a quarter.

Pizzled positively helps our export business in Argentina.

As it is mainly transacted in USD and this helped to mitigate the negative effects or the pricing on the international market. So in a nutshell. The devaluation in December is not usual and it didn't negatively impacted our result due to the spa.

<unk> spot rates going down that much in December.

Okay.

Just to rebound on that so then why did the EBITDA remained stable.

Compared to second quarter.

What is.

The dollar value why did they beat their dollar value remained stable.

Max: Why did the dollar value remain stable? Because the devaluation of the peso forces us to retroactively for Q1, Q2, and Q3 to use the spot end rate. So the devaluation kicks in for the whole year from day one, April 1st. So it kind of saves us 50% of our revenue year to date. That's the $300 million we're talking about. Okay, great. And my second question was, in Europe, revenues increased by 6.7% this quarter. Could you elaborate a bit more on what drove this?

Because the devaluation of the peso forces us to retroactively, where Q1 Q2, and Q3 to use us and rate. So so the devaluation kicks in for the whole year since they once in April the first so it kind of shapes up 50% of our revenue revenue year to date.

That's the $300 million, we're talking about.

Yes.

Okay, Great and my second question.

In Europe revenues increased by six 7% this quarter.

Could you elaborate a bit more on what drove this.

Max: And if those private label contracts are already coming in, or do we have to expect them to come in more in Q4 of Fiscal 24? Yeah, well, revenue in Europe was impacted by the volume that we had to sell as a bald cheese rather than through a bald cheese company. It was, you know, obviously at a lower price.

It's built by the naval contracts are already like.

Coming in or where we have to expect them to come in more in Q4 of fiscal 'twenty one.

Yeah, well it revenue in Europe, there were impacted by.

On the volume that we have to sell.

Bulk cheese routers.

More of the volume that we sold through bulk cheese.

Obviously at the lower price.

Leanne: And there's also a piece of the ingredient market that impacted revenue. I don't know, Leanne, if you have another comment on that? Yeah, so as we said, we're still selling through that inventory that was produced at higher prices, which is going to affect our revenue and our EBITDA. Similarly, with our ingredient business, we have got good volumes. We're actually seeing recovering volumes around ingredients, but pricing is still significantly lower versus a year ago due to the overall, you know, soft demand for our ingredients and for ingredients worldwide. As we said, though, we do expect continued improvement quarter on quarter as that inventory rebalances. Importantly, you asked about the private label. We are shipping that new private label volume now, and we expect to see a significant ramp-up as we go through the end of Q4 and into Q1 next year. Great, thank you. Our next question comes from Vishal Shreedhar with National Bank Financial. Please proceed.

And there is also a piece of the ingredient market that impacted that.

I don't know if you have other comment on that.

So as we sit here, we're still selling through that inventory that was produced at high milk prices, which is kind of effect.

Revenue.

And our EBITDA are affiliated.

Stimulated with our ingredient business, we have got good volumes, we are actually seeing recovering volumes around ingredients, but pricing is still significantly lower versus a year ago due to the overall.

Soft demand for our ingredients for ingredients.

Good.

As we said, though we do expect continued improvement quarter on quarter.

Inventory rebalancing importantly, you also have the private label, we are shipping that new private label volume now and we expect to see a significant ramp up as we go through to the end of Q4 and into Q1 next year.

Great. Thank you.

Our next question comes from Vishal shrewd Hart with National Bank Financial. Please proceed.

Vishal Shreedhar: Hi, thanks for taking my question. You know, obviously, a lot of facility improvements coming in over the next several quarters, just what I was hoping to get your comments on Saputo's ability to increasingly insulate itself from commodity price volatility. It's seemingly becoming a bigger part of the conversation, quarter after quarter. And do you anticipate that some of the initiatives that have been implemented will help you to help insulate against commodity price volatility? And if not, what are some tactics that Saputo could employ to insulate itself?

Hi, Thanks for taking my question.

Obviously, a lot of facility improvements coming on over the next several quarters.

I was hoping to.

Get your comments on <unk> ability to increasingly insulate itself from commodity price volatility seemingly becoming a bigger part of the conversation.

Quarter after quarter end.

Do you anticipate that some of the initiatives implemented will help you help insulate against commodity price volatility and if not what are some tactics. That's a poodle can employ to insulate yourself.

Lino: Yeah, Vishal, we're always exposed to commodity markets. It's the world that we live in, in dairy, with the exception of Canada. Canada's got a very stable market with the milk supply managed system. But when you look at the way that milk is priced around the world, and there are different regulatory environments in Europe versus Australia versus the United States, but we are heavily dependent on a favorable milk price in order to derive value, especially in international markets, from a selling perspective. So that is part of our world.

Yes, Vishal, we're always exposed to commodity markets.

The world that we live in and dairy with the exception of Canada, Canada has got a very stable market with the milk supply managed system.

But when you look at the way that milk is priced around the world and there are different regulatory environments.

In Europe versus Australia versus.

The United States.

So.

But we.

We are heavily dependent on a favorable milk price in order to derive the value, especially in the international markets.

From a selling perspective so.

So that that is part of our world now some of the mitigating factor is some of the things that we can do it.

Lino: Now, some of the mitigating factors, some of the things that we can do is to create value brands where we're, in some cases, I guess, insulated from moving prices on the milk and or commodity side, as well as in the case of Australia, as an example, trying to sell more of our volume into the domestic market and less into the international market, trading up in terms of categories of product from pure commodities like skim milk powder into more value-a So there are going to be shifts into value-added categories because of the investments that we have made and some of the energy that we have around marketing and innovation. But we will never get away from a commoditized environment.

Create value brands.

Where we're in some cases.

Hum.

I guess are insulated from.

Moving prices on on the milk and or commodity side.

As well.

In the case of Australia as an example are.

Trying to sell more of our volume into the domestic market and less into the international market.

Trading up in terms of categories of product from pure commodity like skimmed milk powder into more value added categories of product like infant formula and and other.

Very good.

So there there are going to be shifts.

Into value added categories because of the investments that we made in some of the energy that we have around marketing and.

And innovation.

We will never get away from a commoditized environment. This is part of our world and the more we've grown outside of Canada. The more that we become exposed to that that's just the nature of our business.

Lino: This is part of our world. And the more we've grown outside of Canada, the more that we have become exposed to it. That's just the nature of our business. What we can do is produce the highest quality product at the lowest cost and compete with anybody around the world. I will tell you that once this infrastructure network optimization is completed, we will be, I will say, the most efficient dairy processors in Canada, among the top dairy processors in the United States, and perhaps the most efficient in some key categories of products. There's no one that comes close to us in Argentina, and no one that comes close to us in Australia.

What we can do is produce the highest quality product at the lowest cost compete with anybody around the world I would tell you that once this.

Infrastructure network optimization is completed we will be I will say.

Most efficient dairy processors in Canada, among the top dairy processors in the United States and perhaps the most efficient in some key categories of product there.

There is no one that comes close to us in Argentina, No. One that comes close to us in Australia, and I will tell you what the value of the brand that we have in the U K.

Lino: And I will tell you that with the value of the brand that we have in the UK and our efficient network, very few cheddar companies can come close to us. So I feel really good about the infrastructure we have, even in a commoditized world. I feel very, very good about us competing, but there is going to be volatility. There's going to be ups, and there are going to be downs. And that's just the nature of our business. We can't get away from that.

And our efficient network, a very few cheddar companies can come close to us. So I feel really good about the infrastructure, we had even in a commoditized world I feel very very good about us competing but theres going to be volatility, there's going to be up I know, there's going to be down and that's just the nature of our business, we can't get away from that.

Vishal Shreedhar: Okay, thank you for that. And maybe just on the back of that comment about the 2.125 billion target. Obviously, the timeline was removed, but the actual numerical figure was maintained. And now that you're getting closer to many of the initiatives that you've been planning for many years now, do you have a line of sight, at least internally, as to when that target can be achieved?

Okay. Thank you for that and maybe just on the back of that comment that the $2 $1 5 billion target.

Obviously, the timeline was removed the actual numerical figure was maintained and now that youre getting closer to many of the initiatives that you're planning for for many years now.

Do you have line of sight at least internally as to when that target can be achieved and what are the key what are the key factors, preventing you from giving us a timeline as it is a commodity price volatility.

Vishal Shreedhar: And what are the key factors preventing you from giving us a timeline? Is it commodity price volatility? Is it the enablers that you talked about?

Volatility of the enablers that you talked about.

Vishal Shreedhar: And maybe you can describe that a bit as well. Part of it is the commodity markets. We need to be at more normalized levels, which we're not. We're looking today at a block of $160 when more normalized levels are $180. We're not talking about a stretch of $220.

Maybe you can describe that a bit as well.

Yeah, So part of it is.

The commodity.

Commodity markets I mean, we need to be in a more normalized at more normalized levels, which we're not you know were looking today at a block of 161 more normalized levels of 180, I mean, we're not talking about a stretch of 220 <unk>.

Lino: We're talking about a $1.80 market price, which is, if you look at historical data, that's typically where the U.S. has been. I look at the same thing in the international markets. We're probably about 20% or 30% below what the normalized levels are. We need some of that to come back.

Talking about the you know.

$1 80, a market price, which is well if you look at historically.

That's typically where the U S has been I look at the same thing in the international markets. You know, we're probably about 20 or 30% below what the normalized levels are I mean, we need some of that to come back.

Lino: But then there's also consumer sentiment. Right now, although there are some meaningful signs of improvement, we're still dependent on consumers' disposable income and their ability to be able to spend money on value items like dairy. So there are a number of different factors, and this is why it's hard to give a timeline because there is no clarity as to when things will become more normalized, but we know that we are inching closer and closer and closer to that number every week, every month, and every quarter behind us. So, again, I feel very good about the business. I'm not at all concerned about the infrastructure that we've built. I love the team that we have, the focus, and the energy.

But then there's also a consumer sentiment.

Right now there's still a lot of.

Although there are some meaningful signs of improvement.

We are still dependent on our consumers' disposable income and their ability to be able to spend money on value items like like Derrick.

There are number of different factors and this is why it's hard to give a timeline because there is no clarity as to when things will become more normalized.

But we know that we are inching closer and closer and closer to that number as we get every week and every month and every quarter.

Find us so again I feel very good about the business I'm not at all concerned about the infrastructure that we've built.

I love the team that we have the focus the energy.

Lino: There are certain things in our world that we can't control, and we can't lose too much sleep over the stuff we can't control, but we will press hard on the things that we can. Thank you. Copyright Australian Broadcasting Corporation. Our next question comes from Chris Lee with Desjardins Securities. Please proceed. Good morning, everyone.

There are certain things in our world that we can't control and we can't lose too much sleep over this stuff we can control.

But we will press hard on the things that we can.

Thank you.

Okay.

Our next question comes from Chris Li with these yard. Thanks Securities. Please proceed.

Good morning, everyone and thanks for squeezing me in just a few follow up questions, maybe starting from Canada.

Chris Lee: And thanks for squeezing me in. Just have a few follow-up questions, maybe starting from Canada. I think, as George asked before, you know, good, solid revenue growth, but EBITDA dollars were relatively flat. I think Carl, you gave some reasons as to why I just want to confirm going forward, do you expect EBITDA dollars to remain kind of flattish in the foreseeable future? Or do you expect some reacceleration in growth based on some of the initiatives that you're working on in Canada? I think in Canada, the Canadian team will continue to grow EBITDA, and by growth, we're talking about more subtle and steady growth like you would have seen in prior years, and that really comes from continuing with the grind, and by grind, I mean winning market share in various sectors. There's still some cost-out opportunities that are in the works through some level of automation as well that's going into some of our facilities.

I think George asked before.

Good solid revenue growth, but EBITDA dollars were relatively flat I think Carl you gave some reasons as to why I just wanted to come from going forward, you expect EBITDA dollars to remain kind of flattish.

Could you or do you expect some reacceleration in growth based on some of the initiatives that you're working on in Canada.

I think in Canada, the Canadian team will continue to.

To grow the EBITDA and <unk> growth were talking about more more.

Subtle and steady growth like you would have seen in prior years and that really comes from continuing with the grind and by the growing I mean, winning market share in <unk>.

Various sectors, there's still some cost out opportunities that are in the works.

Through some level of automation as well as going into some of our facilities.

Chris Lee: We have some products on the retail front that are going to hit the market with some line extensions and so forth, so certainly Canada is not going to be static. Canada will remain nonetheless dynamic; there will be some growth in the overall EBITDA, but probably more modest in nature as we deal with the Canadian consumer and the consumer challenges that are ahead. Okay, that's helpful. And then maybe switch to Europe. And again, appreciate all the colors on the drivers there.

Have some products on the retail front that are going to hit the market with some line extensions and so forth. So.

Certainly Canada is not.

We're going to be static Canada's Kendall remains nonetheless dynamic that we'll see some some growth in the overall.

EBITDA.

But probably more modest in nature as we navigate.

The Canadian consumer and the consumer challenges that are ahead.

Okay. That's helpful. And then maybe switching quickly to Europe and again I appreciate all the colors on the drivers there I guess my question is.

Chris Lee: I guess my question is, you know, if all goes as planned, you know, what is your best guess in terms of by which quarter do you expect profitability to return, more or less, to historical levels? Well, it'd be, you know, starting Q1, fiscal 25. We still have to run through the inventory within the current quarter, Q4 of fiscal. So we feel we'll be in a much better position starting fiscal 25 from an inventory perspective. So, yeah, you should see a much more normal number for the UK starting.

All goes as planned.

What is your best guess in terms of which quarter do you expect profitability to train.

More or less back to historical level.

Well it would be part in Q1 fiscal 'twenty five.

Still have to run through the inventory within the current quarter Q4 of fiscal <unk>.

So we feel we'll be in a much better position starting the fiscal 'twenty five from an inventory perspective.

So yeah, you, whether you should see a much more normal.

It is on number four UK starting in Q1.

Chris Lee: Okay, and then maybe another one is when you do your budgeting for fiscal 25, what do you kind of pencil in for the USA market factors? Do you expect it to be neutral, or do you factor in some negative impact? That's a very good question.

Okay, and then maybe another one when you do you are you budgeting for fiscal 'twenty five what do you kind of pencil in for USA market factors do you expect it to be neutral or do factor in some negative impact.

That's very very good question.

Karl: Right now, there's not a lot of clarity, so we're getting a host of mixed signals when it comes to milk supply. So, you know, the availability of milk in demand are the two factors that would drive outlooks on the block price. On the one hand, we've seen overall milk production start to decline, and overall herd sizes and total counts have actually declined.

Right now there's not a lot of clarity so we're getting a host of mixed signals when it comes to <unk>.

Supply so the availability of milk and demand are the two factors that would drive outlooks on the block price on the one hand, we've seen the overall milk production start to decline in the overall.

Herd sizes in total total accounts.

Has actually declined so.

Karl: So that would, in one respect, suggest that we're getting to a better place with regard to milk supply versus matching demand, which would potentially augment the overall outlook on the block price. But there are some competing elements to that. Despite that milk outlook, if the international marketplace and the commodities market are on that front, if demand remains soft, it may not have the same effect. It may not have the beneficial effect in the U.S. because the U.S. does have a growing component of export and overall production from U.S. operations. And that impacts the overall selling price, the block price of U.S. Manufacturers who ship in and out of exports and come back to the domestic markets can then influence the domestic price. So in many respects, we're not expecting anything close to a $2 block. We are expecting something slightly ahead, and if you look at the futures markets, they're sitting somewhere in the range of $1.75, which is sort of the peak point for the next calendar year. Okay, that's very helpful.

That more than one respect to suggest that we're getting to a better place with regards to the milk supply versus matching demand which would potentially.

Potentially augment the overall outlook on block price.

But there are some competing elements to that despite that milk outlook.

If the international marketplace in the commodities market on that front if demand remains soft.

May not have that same effect in the may not have the beneficial effect in the U S. Because the U S does have.

Growing component of export and the overall production from U S operations and that impacts as well the overall selling price on the block price in the U S.

Manufacturers, who ships in and out of the exports and come back to the domestic markets can then influence the domestic price.

No.

In many respects, we're not expecting anything close to a $2 block we are expecting something slightly ahead, and if you look at the futures and the futures market. So they're sitting somewhere in the range of $1 75.

It's sort of at the peak point for the next calendar year.

Got it okay, that's very helpful.

Chris Lee: My final question is just on the network optimization benefits. Just based on, you know, what you said about anchoring the benefits, anchoring to the plant closures, just given the fact that most of these plants are closing at the end of fiscal 25, is it fair to assume we should expect, really, it's really towards the end of fiscal 25 that we should see some more meaningful pickup in these EBITDA benefits, not so much in the first half? I think, nonetheless, when you take a look at the coming closures, so by the end of this fiscal year, we're going to have two other planned closures. So I think the first half will have meaningful improvements from network optimization, and certainly the back half of the year with the subsequent closures, and then I'll call it the compounding effect of full volume entering some of the sites that we consolidate into, such as Franklin. You'll see a little bit of an acceleration in the back half of the year with the overall contributions from those capital investments. So it's not all back-end loaded.

My question is just on the network optimization benefits just based on what you said about we shouldn't really anchored the benefits anchoring to the plant closures just given the fact that most of these plants are closing at the end of fiscal 'twenty. Five is it fair to assume we should expect really really towards the end of fiscal 'twenty. Five then we should see some more meaningful pick.

In these EBITDA benefits not so much in the first half.

Oh.

Nevertheless, when you take a look at the the.

Coming closures so by the end of this fiscal.

We're gonna have to other plant closures. So I think the first half we will have.

Meaningful improvements from network optimization, and certainly the back half of the year with the subsequent closures and then the I'll call. It the compounding effect of full volume entering some of the sites that we consolidated into such as Franklin.

You'll see a little bit of an acceleration in the back half of the year with the overall contributions from those capital investments. So it's not all backend loaded.

Karl: Considering that we do have some eminent closures here, we'll be removing some of those duplicate costs, I'll say, in a hurry. But certainly, the rate will improve in the second half of the year. Thanks very much.

Considering that we do have some some eminent closures here.

Be removing some of those duplicate cost I'll see you in a hurry.

But.

Certainly the rate will improve in the second half.

Great. Thanks very much.

Rob Dickerson: Our next question comes from Rob Dickerson with Jeffries. Please proceed. Great. Thanks so much.

Our next question comes from Rob Dickerson with Jefferies. Please proceed.

Great. Thanks, so much good morning, everyone.

Rob Dickerson: Good morning, everyone. A couple of questions, circling back to other questions. I guess my first question was just going back to your comments on futures prices. Chris, supply, demand, exports, etc. It does look currently, you know, in the futures markets, like, the expectation is for cheese prices to, block, increase kind of materially, let's say, as we get through this calendar year, milk prices may be kind of the same but a little bit less. So, you know, kind of where you sit today, if you think through the next 12 months, like, would you say there's, You know, a low probability, maybe That's the first question. I think, you know, despite the mixing.

Couple of questions circling back to other questions.

My first question was just going back to the comments on the futures prices.

So supply demand.

Exports et cetera.

It does look currently.

In the futures markets like.

Expectation is for cheese prices too.

Block to increase kind of materially let's say.

As we get through this calendar year.

Milk prices may be kind of the same but a little bit less so kind of where you sit today. If you think through the next 12 months would you say there's.

<unk>.

A low probability.

To be kind of in the middle because youre not really sure or maybe there is like a decent probability that we actually can get back to that positive spread dynamics that you would see last quarter. That's the first question.

I think.

Despite the mixed signals.

Karl: There is a reasonable chance that we're going to see the block price overall improve. The spread has a couple of other factors in there, the block being one of the most important. There are elements of weight and weight components. But there is a reasonable chance that with the increase in the overall block price that is projected, we will see a better spread situation. And if that also occurs...

There is a reasonable chance that we're going to see the block price overall improve.

The spread has a couple of other factors in their block being one of the most important theres elements of Wayne we components.

There is a reasonable chance that with the increase in the overall block price that is projected.

We will see a better spread situation.

And if that also occurs.

Karl: It's also because demand still remains on the positive side of the ledger, so I think those two things combined, there's a reasonable chance that we're going to see some positivity in the U.S. business from those two factors. All right, that'll be super. And then, especially given you just touched on the demand piece, just to kind of ask about that. You know, I realize you don't kind of break out price volume for the company or, you know, per segment. So I guess kind of the first simple question is, you know, are there areas where you're seeing a little bit better demand? I mean, it sounds like, you know, Europe's a little weaker, but, you know, there's some offsets given your contract, etc. And then I guess, just secondly, you know, when we look at a lot of different categories, you know, specifically in the U.S., volumes actually seem to still be doing pretty well, you know, relative to a lot of other categories that are, you know, clearly, you know, experiencing kind of a pocket of pressure.

It's also because demand still remains on the positive side of the ledger. So I think those two things combined.

A reasonable chance that we're going to see some positivity in the U S business from those two factors.

Alright Super and then.

Especially given you just touched on the demand piece.

Just to kind of ask about that.

Realize you don't kind of break out price volume for the company or per segment. So I guess kind of first simple question is are there areas, where youre seeing a little bit better demand I mean, I understand it sounds like we're Europe's a little weaker but theres.

Small cells, given your contracts et cetera.

And then I guess.

Just secondly.

When we looked at a lot of different categories, specifically in the U S.

The volumes actually seem to still be doing pretty well relative to a lot of other categories that are clearly experiencing kind of a pocket of pressure. So maybe if you could just kind of speak regionally on the volume side and then maybe just some rationale as to why why.

Karl: So, you know, maybe if you could just kind of speak, you know, regionally on the volume side, and then maybe just some rationale as to why the cheese category is actually doing better than a lot of other categories. Yeah, it's interesting. I think it goes back to the comment I made earlier. Dairy continues to be a very good value proposition for consumers. From the nutritional perspective, the overall cost per pound, and from an overall share of the stomach, it offers a lot.

Why is the cheese category actually doing better than a lot of other categories.

Yeah, It's interesting I think it goes back to Collin I mean earlier, you know very continues to be a very good value proposition for consumers and you know from the nutritional perspective of the overall cost per pound in and from an overall share of stomach.

Karl: But it also offers a lot of opportunities and capabilities in the food service sector. The dairy foods portfolio we have is almost second to none in the US in that we compete in all areas. And we focus a lot here on cheese, but there is a whole other side of our business called the dairy food sector, which is really not influenced much by commodity prices. And we're talking about things like ice cream mixes, we're talking about heavy whipping creams, aerosols, and other dairy solutions that we bring to the food service sector. And that supply also crosses a lot of channels. Not only retail, of course, but all aspects of food service, from full-service restaurants to quick service.

It offers a lot but it also offers a lot of.

Opportunities and capabilities in the foodservice sector.

Dairy foods portfolio, we have is almost second to none in the in the U S and that we play in all areas and we focus a lot here on cheese, but.

There is a whole other side of our business is call. It the dairy foods sector, which is.

Really not influenced as much by commodities pricing and we're talking about things like ice cream mixes we're talking about heavy we've been creams aerosol.

And other solution the <unk> solution that we bring to the foodservice sector.

And.

That sorry, that's supply also crosses a lot of channels and not only retail of course, but all aspects of foodservice from full service restaurants, two quick service and I think that with the.

Karl: And I think that, you know, with the U.S. consumer being fairly resilient and having a positive outlook, we're still going to see some growth in those sectors, and we have great partnerships with a lot of national brands, and we do expect to capture that continued growth, albeit smaller than in previous years, we do still expect there to be demand for our products. All right, great. And then, I guess, just lastly. Kind of annoying.

Call it the U S consumer being fairly resilient and having a positive outlook, we're still going to see some.

Growth in those sectors.

And we have great partnerships with a lot of.

National National Brandon.

We do expect to capture on that continued growth, albeit.

Smaller than in historical years, we do still expect there to be a demand for our products in the U S.

Alright, Super and then I guess just lastly.

Kind of annoying way.

Max: Just want to circle back to the Argentina dynamic on the FX side. You know, I understand, I guess, conceptually, you know, hyperinflationary, you know, accounting regulation. We also have had, you know, other larger U.S.-based multinationals go through that same process recently, you know, while at the same time, some companies historically, like, decide to kind of adjust the results out. So, you know, I guess the, you know, the simple question is, you know, clearly there's an impact in the third quarter, you know, as we think kind of forward, you know, the next few quarters until, you know, basically that dynamic ends.

Just wanted to circle back to the Argentina dynamic on the FX side.

I understand.

I guess conceptually.

Hyperinflationary accounting.

<unk>.

We also have had other.

Larger U S based multinationals.

Go through that same process recently.

While at the same time, some companies historically like decided to kind of adjust the results out so.

I I guess.

The simple question is clearly there is the impact in the third quarter.

You know as we think kind of forward.

Next few quarters until basically that dynamic would lap is is there anything.

Max: Is there anything, you know, we should be thinking about kind of just given how the accounting kind of works? Such that, you know, there shouldn't be as much of a dynamic on the FX side going forward, or, you know, maybe it is just kind of more of a stare at issue year over year, you know, drag because of the devaluation. Try and understand kind of the puts and takes of how you mark to market and then the delta and the hyper, you know, inflationary accounting rules, and then kind of what that implies on the go forward. And that's it.

We should be thinking about kind of just given how the accounting works.

Such that you know.

There shouldnt be as much of a dynamic on the FX side going forward or maybe it is just kind of more you kind of just.

Third issue year over year drag.

Drag because of the devaluation.

Trying to understand kind of the puts and takes of how you mark to market and the delta into hyper finished.

Shneur, you're accounting rules, and then kind of what that implies on the go forward. That's it. Thanks so much.

Max: Okay, so just to provide some comments or try to answer your question. So, hyperinflation accounting, you know, requires you to index your balance sheet, your P&L, so typically, we're running a profitable business; typically, this is a positive for us, boosting our financials. On the other hand, you know, yes, you do have to convert the report into Canadian and you typically use the lowest rate, which is the spot rate at the end of the period. It tends to be lower.

Okay. So just to provide some comments or tried to answer your question.

So the hyper inflation.

Inflation accounting.

You know requires you to index your.

Your balance sheet through our P&L. So typically we're running a profitable business. Typically this is a positive for us boosting our financials on.

On the other hand, yes, you do have to convert that report into Canadian and you use like the typically the lowest rate, which is a spot rates at the end of the period it tends to be lower the two offset each other so when you say how should we think moving forward well if you would have in <unk>.

Max: The two offset each other, so when you say, you know, how should we think moving forward, well, if you had a peso that would, you know, be sustainable, that would maintain itself over the course of the next future, but the high inflation that's been going on in the country continued to rise, then yes, this would be a positive for us, you know, from an accounting perspective. That said, you know, some economists, some, you know, rational people tend to say that there is hyperinflation because of the significant devaluation of the peso, and some would also say, well, there's some significant devaluation of the peso because of hyperinflation. Those are linked really close together and tend to be offset from an accounting perspective.

That would be.

Sustainable that would maintain itself over the course of the next future, but they're high inflation that's been going on in the country continue to rise then yes. This would be a positive for us.

From an accounting perspective.

That said.

You know some.

<unk> has some rationale tends to say that there is a hyper inflation because of the significant devaluation of the peso and some would also say well theres some significant devaluation of the physical because of the hyperinflation those arent linked really close together intends to offset from an accounting perspective.

Max: This is pure straight accounting, converting and so on. On the field, transactionally, when we sell, and we try to be competitive in the market, a lower value of the peso is positive for us. We pay our milk in pesos, we pay our employees, we pay all the expenses in pesos, but we do sell in USD. So from a transactional perspective, this is a plus, and that serves us sort of as a hedge for the international pricing volatility that we've seen. Apart from an accounting, which is a non-cash piece, there are limits that we can put in place to protect ourselves. It's just the nature of accounting principles. Okay, so, kind of simplistically, you know, given operations are all kind of intra-country, it sounds like... What you're saying is they have kind of very limited transactional dynamics, hence the EBITDA result, even though you're taking the translational, you know, impacts on the top line. Is that kind of a fair, broad comment?

This is pure straight accounting converting and so on.

On the field transaction only when we sell and we try to be competitive on the market at a lower value of fizzle is positive for us.

<unk> milk in Israel, we pay our employees they are all of them.

<unk> expenses in Pizzled, but yes, we do sell in USD. So from a transactional perspective. This this is a plus and that serves us sort of as a <unk>.

As a hedge.

For the international pricing volatility that we've seen.

Apart from an accounting, which is a noncash piece theres limit that we can do to protect herself is just the nature of the accounting principle.

Okay. So I mean kind of Simplistically given operations are all kind of intra country it sounds like.

What youre, saying is they're kind of very limited transactional dynamics, hence the.

EBITDA result, even though youre, taking the translational.

Impacts on the top line.

Does that is that is that kind of a fair broad comment.

Max: Yeah, yeah, fair, yeah, I agree. Okay, and then I guess just lastly, you know, kind of with that currency dynamic, and I ask out of ignorance because, you know, if you look at other categories globally, usually, a lot of companies will try to raise prices at least some to offset some of the currency pressure. I mean, it sounds like for you, especially given there's not much of a transactional impact, there probably isn't as much of a need, you know, outside of like reporting information to the public market, let's say, which you should have to do, right? There really isn't much of an incremental need to have to price intra Argentina, which keeps the price down, helps global exports, and, you know, intercountry demand.

Yes for yeah I agree.

And then I guess just lastly.

Kind of with that currency dynamic.

Ask out of ignorance because.

If you look at kind of other categories globally, usually pick up a lot of companies will try to price at least some to offset some of the currency.

Pressure.

It sounds like for you, especially given theres not much of a transactional impact.

There probably isn't as much of a need.

Outside of like reporting optics to the public market, let's say, which is direct path to do right Brett.

Correct, they realize that much of an incremental need to have to price intra.

Argentina, which keeps the price down helps global exports and intra country demand.

Max: Yeah, correct. So, you know, transactionally, you know, domestically, we have a solid, solid business domestically in Argentina, paying our, you know, our expenses, our input costs in pesos, we sell in pesos, no concern there. And on export, yes, it's a positive, but the issue we're dealing with this quarter is the accounting principle to convert to Canadian dollars, due to hyperinflation. Right. But I just want everyone to understand it, too. It's like, it's optics because you're oviductally strong.

Yeah, correct, so transaction Lilly domestically with solid solid business domestic in Argentina.

Our expenses are input costs in basal cell pizzo no concerns there and on the export yes, it's a positive.

The issue we're dealing with this quarter is the.

The accounting principle to convert to Canadian into the hyperinflation accounting standard.

Right, but I just want everyone to understand it to its like its optics because your EBITDA is so strong it's all major countries. So it's almost the Caribbean alright. Thank you Suraj I appreciate it thank you.

Max: It's all intercountry, so it's almost a non-event. All right, thank you so much. I appreciate it. Thank you. There are no further questions at this time. I will now turn the call back to Nick. Thank you. Thank you, Frank. Please note that we will release our fourth quarter and full year fiscal 2024 results on June 7, 2024.

There are no further questions at this time I will now turn the call back to Nick Thank you.

Thank you Frank Please note that we will release, our fourth quarter and full year fiscal 2024 results on June seven 2024. Thank you for taking part in the call and webcast have a nice day.

Nick: Thank you for taking part in the call and webcast. Have a nice day. We thank you for your participation and ask that you please disconnect your line. Have a great day, everyone.

We thank you for your participation and ask that you. Please disconnect your line have a.

Good day everyone.

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