Q4 2024 Saputo Inc Earnings Call
Jeanne: Thank you for standing by. My name is Jeanne, and I will be your conference operator today. At this time, I would like to welcome everyone to the Saputo Inc. fourth quarter and fiscal year 2024 financial results conference call. All lines have been placed on mute to prevent any background noise.
Thank you for standing by my name is Jamie and I will be your conference operator today.
At this time I would like to welcome everyone to the Superdome, Inc, fourth quarter and fiscal year 'twenty 'twenty four financial results conference call.
All lines have been placed on mute to prevent any background noise.
Jeanne: After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star 1 again. Thank you. I would now like to turn the conference over to Nick Estrela. You may begin.
After the Speakers' remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Unknown Attendee: If you would like to withdraw your question Press Star one again. Thank you I would now like to turn the conference over to Nick Australia, you may begin.
Nicholas Estrela: Thank you, Jeanne. Good morning, and welcome to our fourth quarter and fiscal 2024 earnings call. Our speakers today will be Lino Saputo, Chair of the Board, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. For the question and answer session, Lino and Maxime will be supported by Carl Colizza, President and Chief Operating Officer, North America, and Leanne Cutts, President and Chief Operating Officer, International and Europe.
Jamie: Thank you Jamie good morning, and welcome to our fourth quarter and fiscal 2024 earnings call.
Speaker Change: Our speakers today will be Lino Saputo chair of the board, President and Chief Executive Officer, and Mexican Ted Young Chief Financial Officer and Secretary.
Speaker Change: For the question and answer session Lidl and Maxim will be supported by Carl <unk>, President and Chief Operating Officer, North America, and Leon cuts, President and Chief operating Officer International in Europe.
Nicholas Estrela: 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 fourth 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 uncertainty. We refer to our cautionary statements regarding forward-looking information in our annual reports, press releases, and filings.
Speaker Change: 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 fourth quarter investor presentation.
Speaker Change: He's also note that some of the statements provided during this call are forward looking such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward looking information in our annual report press releases and filings.
Nicholas Estrela: 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 will now hand it over to Lino.
Please treat any forward looking information with caution as our actual results could differ materially did.
Speaker Change: We do not accept any obligation to update this information except as required under securities legislation.
Speaker Change: I hand, it over to Neil.
Lino Anthony Saputo: Thank you, Nick, and good morning, everyone. Before we jump into our fiscal 2024 financial results, I'd like to comment on the recently announced leadership transition, which is effective August 9.
Neil: Thank you Nick and good morning, everyone.
Neil: Before we jump into our fiscal 2024 financial results I'd like to comment on the recently announced leadership transition.
Speaker Change: Effective August nine.
Lino Anthony Saputo: I will be transitioning to the role of executive chairperson, and Carl Colizza will become our president and CEO. This succession is the result of a careful and thoughtful planning process led by the Board of Directors to ensure a rigorous candidate review and seamless CEO transition. Carl joined the team in 1998 and has held key leadership positions in engineering, operations, business development, and strategy. He has served as president and COO of North America since 2019.
Speaker Change: We'll be transitioning to the role of executive chair.
Speaker Change: And Karl <unk> will become our president and CEO.
This succession is the result of a careful and thoughtful planning process led by the board of directors to ensure a rigorous candidate review and seamless CEO transition.
Speaker Change: Karl joined the team in 1998.
Speaker Change: And has held key leadership positions in engineering operations business development and strategy.
Speaker Change: It served as president and CEO of Old North America since 2019.
Lino Anthony Saputo: Over the past 25 years, he has played an integral role in both building and executing our strategic vision. Carl and I have worked in close collaboration for many years, and I'm confident he is the ideal successor to lead Saputo for the next chapter.
Speaker Change: Over the past 25 years. He has played an integral role in both building and executing our strategic vision.
Speaker Change: Carl and I have worked in close collaboration for many years and I'm confident he is the ideal successor to lead so put off for the next chapter.
Lino Anthony Saputo: Carl's leadership style exemplifies our culture and values. He's passionate about the business, and his collaborative approach and long-term vision inspire our team. I look forward to continuing to work closely with him and our strong leadership team as executive chair. While I move away from day to day, I'm excited about my new role, more focused on strategic oversight and continuing to promote the Saputo vision and values.
Speaker Change: Carl's leadership style exemplifies our culture and values.
Speaker Change: About the business and.
Speaker Change: And his collaborative approach and long term vision inspires our team.
Speaker Change: I look forward to continuing to work closely with him and our strong leadership team as executive chair.
Speaker Change: While I move away from day to day I'm excited with my new role more focused on strategic oversight and continuing to promote disapproval vision and values.
Lino Anthony Saputo: Now, turning to our financial results, fiscal 2024 was a year of resilience. Our financial performance throughout the year reflects our ability to stay the course in a dynamic macroeconomic environment, including commodity price volatility, a challenged consumer, and ongoing inflationary pressure. If you look past the market noise, our core business performs very well. Our teams remain focused on the elements within our control to accelerate growth once market dynamics begin to improve. As a case in point, we generated over $1.1 billion of cash from operating activities, a testament to our diversified global platform. Fiscal 2024 was also a year of progress.
Speaker Change: Now turning to our financial results.
Speaker Change: Fiscal 2024 was a year of resilience.
Speaker Change: Our financial performance throughout the year reflects our ability to stay the course, and a dynamic macroeconomic environment, including commodity price volatility a challenged consumer and ongoing inflationary pressures.
Speaker Change: If you look past the market noise, our core business performed very well.
Speaker Change: Our teams remain focused on the elements within our control to accelerate growth once market dynamics begin to improve.
Speaker Change: Case in point, we generated over $1 $1 billion of cash from operating activities, a testament to our diversified global platform.
Speaker Change: Fiscal 2024 was also a year of progress.
Lino Anthony Saputo: Following three years of investments and optimization of our global network, we completed the bulk of the capital projects under our global strategic plan, and we are now ramping up commercial production at several facilities. We are leveraging unique capacity and capabilities that will support organic growth. Our initiatives are already taking root. And we're seeing positive results across the entire business. The investments we've made have delivered operational efficiency. Cost-saving. Plant Productivity Improvements and Enhanced Margin.
Speaker Change: Following three years of investments and optimization of our global network, we completed the bulk of the capital projects under our global strategic plan.
Speaker Change: We are now ramping up commercial production at several facilities.
Speaker Change: We are leveraging the unique capacity and capabilities that will support organic growth.
Speaker Change: Our initiatives are already taking root.
Speaker Change: We're seeing positive results across the entire business.
Speaker Change: The investments we've made have delivered operational efficiencies cost savings plan.
Speaker Change: Plant productivity improvements and enhanced margins.
Lino Anthony Saputo: We have more operational stability and sustained improvements in customer fill rate. We've improved labor efficiencies and utilization in our plant. We are a more agile and collaborative business. And we have a long runway of opportunities in front of us. Over the balance of fiscal 2025, now underway, you will continue to see the results of our efforts.
Speaker Change: We have more operational stability and sustained improvements in customer fill rates.
Speaker Change: We've improved labor efficiencies and utilization in our plants.
Speaker Change: We are a more agile and collaborative business.
Speaker Change: And we have a long runway of opportunities in front of us.
Speaker Change: Over the balance of fiscal 2025 now underway you will continue to see the results of our efforts.
Speaker Change: While I'm pleased with our performance with.
Lino Anthony Saputo: We still have more work ahead of us, and we're laser focused on achieving what we set out to do this year. Even though the work around the Global Strategic Plan has been at the forefront of much of our previous discussions, we have also been working behind the scenes to re-energize what we do best. Invest in innovation, build our brands, and drive distribution gains across our categories around the world, across our brands and products, both for food service and retail.
Speaker Change: We still have more work ahead of us.
Speaker Change: And we're laser focused on achieving what we set out to do this year.
Even though the work around the global strategic plan has been at the forefront of much of our previous discussions we.
Speaker Change: We have also been working behind the scenes to Reenergize, what we do best.
Speaker Change: Invest in innovation build our brands and drive distribution, great gains across our categories around the world.
Speaker Change: Across our brands and products, both for foodservice and retail.
Lino Anthony Saputo: We have a broad portfolio of offerings at a range of price points to meet consumers where they are. This is why our market position remains healthy, despite a more challenging macro environment where consumers are more cautious with their discretionary spending. In retail, we expect investments to ramp up as our teams activate our brand marketing, advertising, and innovation. In food service, we are focusing on providing solutions to operators seeking efficiencies and menu simplification.
Speaker Change: We have a broad portfolio of offerings at a range of price points to meet consumers where they are.
Speaker Change: This is why our market position remains healthy despite a more challenging macro environment, where consumers are more cautious on their discretionary spending.
Speaker Change: In retail, we expect investments to ramp up as our teams activate our brand marketing advertising and innovation plans.
Speaker Change: In foodservice, we are focusing on providing solutions to operators seeking efficiencies and menu simplification.
Lino Anthony Saputo: As we grow our business, we also want to play a key role in caring for our employees and the communities where we operate. In addition, we strive to mitigate our impact on the planet, working in partnership with farmers, suppliers, and other industry partners while offering products that contribute to a healthy life. These goals are integral to our business and guide our everyday actions. To update you on our progress, we issued our fiscal 2024 Saputo promise report yesterday. We're proud of what we've accomplished, yet recognize there is still a lot more to be done. I will now turn the call over to Max for the financial review before providing my concluding remarks.
Speaker Change: As we grow our business. We also wanted to play a key role in caring for our employees and the communities where we operate.
Speaker Change: In addition, we strive to mitigate our impact on the planet working in partnership with farmers suppliers and other industry partners, while offering products that contribute to a healthier lifestyle.
Speaker Change: These goals are integral to our business and guide our everyday actions.
Speaker Change: To update you on our progress we issued our fiscal 2020 for Saputo promise report yesterday.
Speaker Change: We're proud of what we've accomplished yet recognize there is still a lot more to be done.
Speaker Change: I will now turn the call over to Max for the financial review.
Max: Before providing my concluding remarks.
Speaker Change: Thanks.
Maxime Therrien: Thank you, Lino, and good morning, everyone. Let's begin by going over the financial highlights of the quarter. Consolidated revenues were $4.5 billion, while adjusted EBITDA amounted to $379 million. Lower year-over-year adjusted EBITDA was driven by unfavorability from volatile commodity markets in the U.S. sector and a negative impact from the continued disconnect between international cheese and dairy ingredient market prices and the cost of milk in
Max: Thank you Elena and good morning, everyone.
Max: Let's begin by going over the financial highlights of the quarter.
Consolidated revenues were $4 $5 billion, while adjusted EBITDA amounted to $379 million.
Max: Lower year over year, adjusted EBITDA was driven by unfavorable city from volatile commodity markets in the U S sector.
Max: <unk> impact from the continued disconnect between international cheese, and dairy ingredients market prices and the cost of milk in the international sector.
Maxime Therrien: And the sell-off of inventory produced at higher milk prices in the European sector. The positive driver included higher sales volume in both domestic and export markets, benefit from our ongoing cost containment measure implemented to minimize the effect of inflation, along with lower logistics costs, mainly in North America, and continued operational improvement in the USA. We reported net earnings of $92 million in the fourth quarter. On an adjusted basis, our earnings were $156 million, for $0.37 per share.
Max: And the sell off of inventory produced at high higher milk prices.
Max: In the Europe sector.
Max: The positive drivers included higher sales volume in both domestic and export market.
Max: Benefits from our ongoing cost containment measures implemented to minimize the effects of inflation, along with lower logistics costs, mainly in North America.
Max: And continued operational improvement.
Max: In the U S sector.
Max: We reported net earnings of $92 million in the fourth quarter.
Max: On an adjusted basis, our earnings were 156 million.
Max: <unk> 37.
Max: Sure.
Max: Fourth quarter results also included a restructuring cost of $15 million after tax in severance cost from cost efficiency efforts.
Maxime Therrien: Fourth quarter results also included a restructuring cost of $15 million after tax in severance costs from cost efficiency efforts. I'll now take you through key highlights by sector, starting with Canada. Revenue for the fourth quarter totaled $1.2 billion, an increase of 3% when compared to last year. The increase was due to higher selling prices in connection with the higher cost of milk as a raw material. Sales volume was higher in the retail market segment.
Speaker Change: I'll now take you through key highlights by sector, starting with Canada.
Speaker Change: Revenue for the fourth quarter totaled $1 2 billion, an increase of 3% when compared to last year.
Speaker Change: Revenue increased due to higher selling prices in connection with the higher cost of milk as raw material.
Sales volumes were higher in the retail market segment.
Maxime Therrien: Adjusted EBITDA for the fourth quarter totaled $138 million, up 3% versus the same quarter last fiscal year. Our performance reflected the benefit from ongoing cost containment measures and lower logistics. In our U.S. sector, revenue totaled $1.9 billion and were 7% lower versus last year. Revenue decreased due to the commodities market, more specifically because of the combined effect of the lower average cheese block, order, and dairy ingredient market price. Sales volume or higher, driven mostly by export sales volume.
Speaker Change: Adjusted EBITDA for the fourth quarter totaled $138 million up 3% versus the same quarter last fiscal year.
Speaker Change: Our performance reflected benefits from ongoing cost containment measures and lower logistics costs.
Speaker Change: In our U S sector revenue totaled $1 $9 billion and were 7% lower versus last year.
Speaker Change: Revenue decreased due to the commodities market more specifically.
Speaker Change: The combined effect of the lower average cheese block.
Butter and dairy ingredient market prices.
Speaker Change: Sales volume were higher.
Speaker Change: Given by most mostly by export sales volume.
Maxime Therrien: Adjusted if it does decline 4% to $138 million. The decrease was mostly driven by a $61 million negative impact from U.S. market factors led by the unfavorable cheese milk spread and unfavorable realization of inventory due to lower ingredient market prices.
Speaker Change: Adjusted EBITDA declined 4% to $138 million.
Speaker Change: The decrease was mostly driven by a $61 million negative impact from U S market factor led by the unfavorable cheese milk spread and unfavorable realization of inventories.
Speaker Change: Lower ingredient market prices.
Maxime Therrien: And a $15 million cost incurred to implement previously announced network optimization initiatives, mostly from our new Franklin, Wisconsin facility. These factors were partially mitigated by continued operational improvement, higher sale volume, and lower logistics costs. In the international sector, revenue for the fourth quarter was $1.1 billion, up 18% versus last year, mostly driven by higher export sales volume and the favorable effect of currency fluctuation on sales denominated in U.S. dollars. I just said they bid the total $88 million, up $4 million versus last year.
Speaker Change: And the $15 million cost incurred to implement previously announced network optimization initiatives, mostly from our new Franklin, Wisconsin facility.
Speaker Change: These factors were partially mitigated by continued operational improvement.
Speaker Change: Higher sales volume and lower logistics cost.
Speaker Change: India International sector revenue for the fourth quarter were $1 $1 billion.
Speaker Change: Up 18% versus last year, mostly driven by higher export sales volume and the favorable effect of currency fluctuation on sales denominated in U S. Dollar.
Speaker Change: Adjusted EBITDA totaled $88 million up $4 million versus last year Sim.
Maxime Therrien: Similar to revenue, the improvement was mostly driven by increased export sales volume, the positive effect of the fluctuation of the U.S. dollar on export sales denominated in U.S. dollars, and also higher milk intake, improved operational efficiencies, and benefits from the previously announced network optimization initiative. Still, our adjusted EBITDA was partially offset by the discontinued disconnect between the international cheese and dairy ingredient market prices and the cost of milk as a raw material. In the European sector, revenue was $290 million, while adjusted amounted to $15 million.
Speaker Change: Similar to revenue the improvement was mostly driven by increased export sales volume.
Speaker Change: The positive effect of fluctuation of the U S. Dollar on export sales denominated is denominated in U S and also higher milk intake improved operational efficiencies and benefit from previously announced network optimization initiatives.
Speaker Change: Still our adjusted EBITDA was partially offset by.
Speaker Change: By the discount the continued disconnect between the international cheese, and dairy ingredients market prices and the cost of milk as raw materials.
Speaker Change: In the Europe sector revenue were $290 million, while adjusted EBITDA amounted to $15 million.
Maxime Therrien: The decline in adjusted EBITDA was due to the continued negative impact from the selling of inventory produced at high mill prices through ball cheese sales volume and lower international dairy ingredient market prices. Net cash generated from operating activities for the fourth quarter amounted to $371 million. For the full year, this cash generation amounted to $1.2 billion.
Speaker Change: The decline in adjusted EBITDA was due to the continued negative impact from the selling of inventory produced a high milk prices through <unk> sales volume and lower international dairy ingredients market prices.
Speaker Change: Net cash generated from operating activities for the fourth quarter amounted to $371 million.
Speaker Change: For the full year this cash generation amounted to $1 2 billion.
Maxime Therrien: CapEx for the quarter totaled $203 million, while the full year was at $654 million, in line with our expectations. Over time, we expect CAPEX to return to a level similar to our depreciation and amortization expense range. We continue to expect an improvement in our cash flow generation as we'll be harvesting the benefits of the Global Strategic Plan. Our leverage ratio should progressively come down and is anticipated to be below our target of 2.25 times.
Speaker Change: Capex for the quarter totaled $203 million, while the full year, what was it $654 million in line with our expectation.
Speaker Change: Overtime, we expect Capex, returning to a level similar to our depreciation and amortization expense range.
Speaker Change: We continue to expect an improvement in our cash flow generation as we'll be harvesting the benefits from our global strategic plan.
Speaker Change: Our leverage ratio should progressively come down and is anticipate to be below our target of 225 times.
Maxime Therrien: Net debt has adjusted a bit, and cash flow generation improved during fiscal 25. We expect to build momentum into fiscal 26, with the ramp-up of network optimization benefits, improved U.S. cheese prices, sales volume growth, potentially much lower Australian milk costs starting July 1st, and the lapping of high-cost inventory in the UK. With that, I'll turn the call back to Lino.
Speaker Change: Net debt to adjusted EBITDA as adjusted EBITDA and cash flow generation improved during fiscal 'twenty five.
Speaker Change: We expect to build momentum into fiscal 'twenty five.
Speaker Change: With the ramp up of network optimization benefits.
Speaker Change: Improved.
Speaker Change: U S cheese prices.
Speaker Change: Sales volume growth.
Potentially even much lower Australia mill cost starting July 1st.
Speaker Change: And the lapping of high cost inventory in the U K.
Speaker Change: This concludes my financial review and with that I'll turn the call back to Lina.
Lina: Thank you Max.
Lino Anthony Saputo: In the fourth quarter, the operating backdrop differed greatly across our markets once again, but we continue to execute with discipline. We reported adjusted EBITDA of $379 million on revenues of $4.5 billion. Volatile global dairy markets continue to unfavorably impact our results. However, this was partially offset by higher sales volumes, coupled with the operational benefits from our capital spending program, as well as our emphasis on cost management and continuous improvement. In Canada, revenue was 3% higher versus last year.
Lina: In the fourth quarter, the operating backdrop differed greatly across our markets once again, but we continue to execute with discipline.
Lina: We reported adjusted EBITDA of $379 million on revenues of $4 $5 billion.
Lina: Volatile global dairy markets continued to unfavorably impact our results.
Lina: This was partially offset by higher sales volumes, coupled with the operational benefits from our capital spending program as well as our emphasis on cost management and continuous improvement.
Lina: In Canada revenue was 3% higher versus last year.
Lino Anthony Saputo: Our ongoing cost containment measures and lower logistics costs had a favorable impact on adjusted EBITDA, and in May, we implemented price increases to reflect the recent cost of milk increase in Canada, which will flow through in Q1. From a commercial perspective, our marketing capabilities and product innovations continue to be recognized. Armstrong Nibblers won Best New Product, while the Saputo Cheese Fries won Best New Product in the Cheese Snack category. In addition, several of our specialty cheeses won gold or silver at the World Cheese Competition with our Sauvagen brand. Bring home the Super Gold Award.
Lina: Our ongoing cost containment measures and lower logistics costs had a favorable impact on adjusted EBITDA.
Lina: And in May we implemented price increases to reflect the recent cost of milk increase in Canada.
Lina: Which will flow through in Q1.
Lina: From a commercial perspective, our marketing capabilities and product innovations continue to be recognized.
Speaker Change: Armstrong Nibbler one.
Speaker Change: <unk> new product, while the support cheese Fries won best new product in the cheese snack category in.
Speaker Change: In addition, several of our specialty cheeses, one gold or silver at the World cheese competition with are still Virgin brand, bringing home the Super Gold Award.
Lino Anthony Saputo: During the fourth quarter, we marked an important milestone with our Armstrong brand becoming second in terms of market share in the Everett 8 cheese category. In the US, our performance was in line with the prior year, despite $61 million in negative market factors and $15 million of duplicate operational costs. Commodity prices, while still volatile, now appear to be starting to show the sequential improvements that we expected in time, supported by a better balance between milk supply and dairy demand.
Speaker Change: During the fourth quarter, we marked an important milestone with our Armstrong brand, becoming second in terms of market share in the everyday cheese category.
Speaker Change: In the U S. Our performance was in line with the prior year, despite $61 million of negative market factors and $15 million of duplicate operational costs.
Speaker Change: Commodity prices, while still volatile now appear to be starting to show the sequential improvements that we expected in time supported by a better balance between milk supply and dairy demand.
Lino Anthony Saputo: Volume momentum was also strong, with higher sales volume, notably in cheese. We're pleased to report several capital projects in support of our U.S. growth, including new plants and new capacity, and key product categories are now either fully operational or ramping up to full operational capacity in the coming months. Another priority is the optimization of our footprint and network. We expect to close four of the six planned facilities by the end of the month.
Speaker Change: Volume momentum was also strong with higher sales volume, notably in cheese.
Speaker Change: We're pleased to report several capital projects in support of our U S growth, including new plants and new capacity in key product categories.
Speaker Change: Now either fully operational or ramping up to full operational capacity in the coming months.
Another priority is the optimization of our footprint and network.
Speaker Change: We expect to close four of the six planned facilities by the end of the month.
Lino Anthony Saputo: This is part of our efforts to reallocate resources to nearby more efficient plants, improving the mix and better serving our customers. Our investment program has progressed at pace with a relentless focus on automation, adding scale and delivering further quality, capacity, and efficiency. I'm proud of what our employees are achieving. The executive team and I recently visited several of the plants that are part of our capital investment program. We left those facilities feeling inspired by the quality and the commitment of our people.
Speaker Change: This is part of our efforts to reallocate resources to nearby more efficient plants, improving mix and better serving our customers.
Our investment program has progressed at pace with a relentless focus on automation, adding scale and delivering further quality capacity and efficiency improvements.
Speaker Change: I'm proud of what our employees are achieving.
Speaker Change: The executive team and I recently visited several of the plants that are part of our capital investment program.
Speaker Change: We left those facilities feeling inspired by the quality and the commitment of our people there.
Lino Anthony Saputo: They're enthusiastic, passionate, and fully aligned with our business goals. And we intend to keep building on this momentum as the year progresses in the International Sector. Dairy market prices remain subdued.
Speaker Change: They are enthusiastic and passionate and fully aligned with our business goals and we intend to keep building on this momentum as the year progresses.
In the international sector.
Speaker Change: Every market prices remain subdued.
Lino Anthony Saputo: But our performance has improved sequentially year on year. In Australia, although we continue to benefit from higher milk intake, which positively impacts our efficiencies and absorption of fixed costs, our results continue to be impacted by the disconnect between the cost of milk and international prices. Last week, however, we announced a competitive opening milk price for the 24-25 season. The current milk price now better reflects the shift in market dynamics with global demand for dairy products remaining moderate alongside subdued international prices.
Speaker Change: But our performance has improved sequentially and year on year.
Speaker Change: In Australia, although we continued to benefit from higher milk intake, which positively impacts our efficiencies and absorption of fixed costs. Our results continued to be impacted by the disconnect between the cost of milk.
Speaker Change: And international pricing.
Speaker Change: Last week, However, we announced a competitive opening milk price for the 'twenty four 'twenty five season.
The current milk price now better reflects the shift in market dynamics with global demand for dairy products remaining moderate alongside subdued international prices.
Lino Anthony Saputo: As we narrow the gap between farm gate milk prices and global commodity prices, we expect profitability to improve. In Europe, adjusted EBITDA was driven by the impact of the continued sell-through of our high-cost inventory from last year, albeit at a more modest rate than last quarter.
Speaker Change: As we narrow the gap between farm gate milk prices and global commodity prices, we expect profitability to improve.
Speaker Change: In Europe, adjusted EBITA was driven by the impact from the continued sell through of our high cost inventory from last year, albeit.
Speaker Change: At a more modest rate than last quarter.
Lino Anthony Saputo: Our aggressive plan to return to normalized inventory levels over the past few quarters will continue playing a critical role in strengthening the sector's performance. It's encouraging to see this work start to pay off in working capital and inventory. We anticipate earnings will further improve sequentially as we work through high-cost inventory and as the retail branded channel recovers. We will also benefit from our recent site consolidation. In February, Heinz teamed up with Cathedral City to launch their new Cheesy Beans flavor. Initially launched exclusively at Tesco, the UK's largest supermarket, it has now been rolled out in some of the country's largest regions.
Speaker Change: Our aggressive plan to return to normalized inventory levels over the past few quarters will continue playing a critical role in strengthening the sector's performance.
Speaker Change: It's encouraging to see this work starting to pay off and working capital and inventory position.
Speaker Change: We anticipate earnings will further improve sequentially as we work through high cost inventory and at the retail branded channel recovers.
Speaker Change: We will also benefit.
Speaker Change: From our recent site consolidation efforts.
In February <unk> teamed up with Cathedral city.
Speaker Change: To launch their new cheesy beans flavor.
Speaker Change: Initially launched exclusively at Tesco, the Uk's largest supermarket.
It has now been rolled out.
And some of the country's largest retailers.
Lino Anthony Saputo: It has been very well received and marks further progress in helping expand the Cathedral City brand beyond the chilled aisle and into other areas within the supermarket. Another example is our partnership with retailer Iceland, which has brought Cathedral City into the frozen products category. Just this month, we launched the range of Cathedral City Chilled Ready Meals across our, Our teams have worked tirelessly to reach this inflection. The business is poised for growth and focused on margin improvement, cash flow generation, and debt reduction.
Speaker Change: It has been very well received and marks further progress in helping expand the cathedral city brand beyond the chilled aisle and into other areas within the supermarket.
Speaker Change: Another example is our partnership with retailer Iceland.
Speaker Change: Which has brought cathedral city into the frozen products category.
Speaker Change: Just this month, we launched the range of Cathedral city chilled ready meals.
Speaker Change: Across our sectors.
Speaker Change: Our teams have worked tirelessly.
Speaker Change: To reach this inflection point.
Speaker Change: The business is poised for growth and focused on margin improvement.
Speaker Change: Cash flow generation and debt reduction.
Lino Anthony Saputo: We also remain focused on what we can control. Our priority is to execute with excellence. Our operations have improved across the business, and we have a long runway of opportunities ahead of us. Turning now to our, we expect to see steady improvements in fiscal 2025. Cash flow generation should increase, driven by improvements in adjusted EBITDA and a reduction in capital expenditure. We are closely tracking a number of near-term themes, including continuing inflation, geopolitical challenges, and commodity price volatility, to name a few. We are also closely monitoring consumer sentiment and traffic trends between at home and away from home consumption.
Speaker Change: We also remain focused on what we can control.
Speaker Change: Our priority.
Speaker Change: Is to execute with excellence.
Speaker Change: Our operations have improved across the business and we have a long runway of opportunities ahead of us.
Speaker Change: Turning now to our outlook.
Speaker Change: We expect to see steady improvements in fiscal 2025 cash.
Speaker Change: Cash flow generation should increase driven by improvements in adjusted EBITDA.
Speaker Change: And a reduction in capital expenditures.
Speaker Change: We are closely tracking a number of near term themes, including continuing inflation geopolitical challenges and commodity price volatility to name a few.
Speaker Change: We are also closely monitoring consumer sentiment and traffic trends between at home and away from home consumption.
Lino Anthony Saputo: In any respect, we are well positioned to address these challenges, and we are confident we can deliver on our long-term plan. I continue to be pleased with our team's ability to control the controllables, including managing our supply chain and in-market execution. We see a strong, dynamic global dairy market, even amid a challenging geopolitical and macroeconomic environment. Against this backdrop, we are successfully executing on the strategy we laid out over three years ago with momentum across our core categories and wins in the many significant opportunities we are pursuing.
Speaker Change: In any respect we are well positioned to address these challenges and we are confident we can deliver on our long term plan.
Speaker Change: I continue to be pleased with our team's ability to control the controllable, including managing our supply chain and in market execution.
Speaker Change: We see a strong dynamic global dairy market, even amid a challenging geopolitical and macroeconomic environment.
Speaker Change: In this backdrop, we are successfully executing on the strategy, we laid out over three years ago with momentum across our core categories and wins in the many significant opportunities we are pursuing.
Lino Anthony Saputo: Fiscal 2024 was a critical year. Last year, we evolved our business, Capacity, Distribution, and Capability Investments that better position us to reach our full potential as we celebrate our 70th anniversary. I look forward to continuing to partner with Carl and the broader team as executive chair and could not be more confident in their stewardship of Saputo and its bride. And on that, I will now turn the call over to Jeannie.
Speaker Change: Fiscal 2024.
Was a critical year for us.
Speaker Change: Last year, we evolved our business through capacity distribution and capability investments that better position us to reach our full potential.
Speaker Change: As we celebrate our 70 yester year anniversary.
Speaker Change: I look forward to continuing to partner with Carl.
Speaker Change: And the broader team as executive chair and could not be more confident in their stewardship.
Speaker Change: And so kudos bright future.
And on that note I will now turn the call over to Jamie.
Jamie Good: For your questions.
Jamie Good: Jenny.
Jeanne: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you are called upon to ask your question and are listening via loud speaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. Again, press star 1 to join the queue. Your first question comes from the line of Irene Nattel with RBC Capital Markets. Please go ahead.
Jenny: Thank you the floor is now open for questions.
Speaker Change: If you have dialed in and we'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: If you would like to withdraw your question simply press Star one again.
Speaker Change: If you are called upon to ask your question and our listening via loud speaker on your device. Please pickup your handset and I'm sure that your phone is not on mute when asking your question.
Speaker Change: Again press star one to join the queue.
Speaker Change: And your first question comes from the line of Irene <unk> with RBC capital markets. Please go ahead.
Irene Ora Nattel: Good morning, everyone. Before we get into the quarter, I just really wanted to ask about the timing of, you know, the shift in leadership. So, I guess, Lino, you know, what gives you the confidence that now is the right time? And, you know, you mentioned you'll have more time to focus on, I think, strategic oversight. So, what is it that's been going on, what is it that you feel like you haven't had enough time to focus on that you will now be able to?
Irene: Good morning, everyone before we got into the quarter I, just wonder Ron Okay.
Speaker Change: First of all the time.
Speaker Change: Your distressed and leadership, so it's absolutely not.
Speaker Change: What gives you the contents that now is the right time.
Speaker Change:
Speaker Change: You mentioned you will have more time to focus on strategic oversight. So what is it that sprinkle. It what is it that you feel like you haven't had enough time to focus on that you will now be able to.
Lino Anthony Saputo: Yes, Irene, thank you for the question. So, from a good governance perspective, it always makes sense to have a split function between the chair and the CEO. I felt that before the pandemic, we were poised for that. And unfortunately, as we went into our strategic plan execution and a global pandemic, I felt that the time was not right for us to make such a big change from a leadership perspective.
Speaker Change: Yes, Irene Thank you for the question so.
Speaker Change: From a good governance perspective, it always makes sense.
To have a split function between the chair and the CEO.
Speaker Change: I felt that.
Speaker Change: Before the pandemic, we were poised for that and unfortunately, as we went into our strat plan execution and a global pandemic I felt at that time was not right for us to make such a big change.
Speaker Change: From a leadership perspective.
Lino Anthony Saputo: Over the course of the last three years, I think we've navigated extremely well through the pandemic and all of its challenges. We've mapped out the course extremely well and executed, I think, flawlessly in terms of the plans and the projects we had in our network optimization. And we're coming to the end of the investments, and we're coming to the beginning of the benefits that should be derived from those investments. So, as far as I'm concerned, a large part of the heavy lifting has been done.
Speaker Change: Over the course of the last three years I think we've navigated extremely well through the pandemic and all of its challenges.
Speaker Change: We've navigated extremely well and executed.
Speaker Change: I I think flawlessly in terms of.
Speaker Change: The plans and the projects we had in our network optimization and we're coming to the end of the investments that we're coming to the beginning of the benefits that we should be derived from those investments so as far as I'm concerned.
Speaker Change: A large part of the heavy lifting has been done a I know that Carl and the team are completely focused in delivering the numbers that we we expect of ourselves.
Lino Anthony Saputo: I know that Carl and the team are completely focused on delivering the numbers that we expect of ourselves. And I thought it was a really good time for Carl now to start taking over and starting to understand what the next evolution for Saputo should be and would be, from my perspective.
Speaker Change: And I thought it was a really good time for call now to start taking over.
Speaker Change: And starting to understand what the next evolution for saputo, it should be and would be.
Speaker Change:
Speaker Change: From from my perspective.
Lino Anthony Saputo: What this does for me is it allows me to be able to tour our facilities with a lot more flexibility without having to be tied down to some of the responsibilities related to day-to-day because Carl will be taking care of that. I'll have a lot more time to travel the world and see our employees, the 18,000 that we have in five different countries, to meet with some of our key stakeholders, partners, whether they would be dairy farmers or clients on a need basis.
Speaker Change: What this does for me it allows me to be able to tour our facilities.
Speaker Change: With a lot more flexibility.
Speaker Change: Without having to be tied down to.
Speaker Change: Some of the responsibilities related to day to day cause Karl will be taking care of day to day.
Speaker Change: Have a lot more time to travel the world and see our employees. The 18000 that we have in five different countries to meet with our some of our key stakeholders partners, whether they would be dairy farmers and or clients are on on unearned underneath basis.
Lino Anthony Saputo: And so it provides me with so much more flexibility in my responsibilities to be able to focus on the vision, the values, and the culture of Saputo, making sure that our character and our identity for the next generation continues to be as strong as it is now, all the while focusing on my functions as chair of the board with strategic oversight, making sure that, as a company, our governance structure is up to date and is as stellar as it has been over the So my focus moving forward is going to be growth and value creation in all of its forms, supporting the team and shaping its long-term strategy, helping develop new talent, and guiding Carl and his leadership group in terms of making sure that we continue to progress.
Speaker Change: So it provides me so much more flexibility in my responsibilities to be able to focus on the vision the values and the culture of <unk>, making sure that our character and our identity for their next generation continues.
Speaker Change: To be as strong as it as it is now all the while focusing on my functions as chair of the board with strategic oversight, making sure that as a company. Our governance structure is up to date and is as stellar as it has been over the course of last 70 years.
Speaker Change: Including the discipline that we've applied to our business on an ongoing basis. So my focus moving forward is going to be growth and value creation and all of its forms and supporting the team.
Speaker Change: Shaping its long term strategy and helping develop new talent and guide Karl and his leadership group in terms of making sure that we continue to progress. So I'm excited about the move I think the timing is right heavy lifting is done.
Lino Anthony Saputo: So I'm excited about the move. I think the timing is right. The heavy lifting is done. Carl is fully engaged and fully focused on the evolution of our business, and I'm delighted to be able to support Carl in his new responsibilities.
Carl It is fully engaged and fully focused on.
Speaker Change: The evolution of our business and I'm I'm I'm delighted to be able to support Carl.
Speaker Change: In his new responsibility.
Irene Ora Nattel: Thank you very much for that, Lino. I really appreciate it, and it sounds very exciting. Moving back to the quarter, if I may, just focus on the US for a second, although, you know, obviously, a lot of moving parts in the quarter. If you scratch the surface and think about the magnitude of the headwinds that you had in the quarter, it would appear that the underlying business is making significant progress. So I guess the question is, A, is that in fact the case? And then B, what has to happen for us to actually see that build on the P&A?
Speaker Change: Thank you very much for that I mean, I really appreciate all that sounds very exciting.
Speaker Change: Moving back to the quarter, if I may.
Speaker Change: Just focused on the U S for a second although obviously a lot of moving parts in the quarter.
Speaker Change: If you scratch the surface and you think about the mine located in the headwinds that you had in the quarter. It would appear that the underlying business is making significant progress. So I guess the question is and is that impacting the case and then b what has to happen for us to actually see that build on the P&L.
Carl Colizza: Thank you, Irene. For the question is Carl.
Carl: Thank you Erin for the question it's Carl.
Speaker Change:
Carl: Youre absolutely right. The underlying business is performing very well, we did have negative market factors in the quarter.
Carl: But we were focused on the things that we can control and that always comes back to our efficiency.
Carl: Our volumes supporting our customers with their needs providing solutions that we can grow the business.
Carl Colizza: You're absolutely right; the underlying business is performing very well. We did have, you know, negative market factors in the quarter, but we are focused on the things that we can control. And that always comes back to our efficiency, our volumes, supporting our customers with their needs, and providing solutions so we can grow the business.
Carl Colizza: The team was very successful through Q4 with the ongoing momentum. Our capital plans are on track, both in spend and largely in line with schedule. So we are going to be able to harvest some of that as we go through fiscal 25. So we're very optimistic about the fundamentals in the U.S. despite the market factors. And our outlook on this would be quite positive when we look at the ability of the U.S. to service the market, do it efficiently, and capitalize on the investments and the focus that have been here for the last two and a half years.
Carl: And the team was very successful through Q4, but with the ongoing momentum.
Carl: Our capital plans are on track both in spend and largely in line on schedule. So we are going to be able to harvest some of that as we go through here fiscal 'twenty five so we're very optimistic about the very the fundamentals in the U S. Despite the market factors.
Carl: And you know our.
Carl: Our outlook on this would be quite positive when we take it when we look at the ability for the U S to service the market.
Do it efficiently and capitalize on the investments and the focus that has been here for the last two and a half years.
Speaker Change: That's great. Thank you.
Michael Van Aelst: Your next question comes from the line of Michael Van Elst with T.D. Cowan. Please go ahead.
Speaker Change: Your next question comes from the line of Michael Van <unk> with TD Cowen.
Speaker Change: Please go ahead.
Michael Van Aelst: Thank you. Just a quick one to start. You talked about closing the next six remaining facilities planned by the end of June. How many of those, Can you give it more specifically for the U.S. market?
Speaker Change: Hi, Thank you.
Speaker Change: Just a quick one to start.
Speaker Change: You talked about closing for the night.
Speaker Change: Six remaining facilities planned by the end of June.
Speaker Change: How many of those.
Speaker Change: Can you just give us more specific for the U S market.
Carl Colizza: Mr. Chair, Michael, so we've closed two of the six facilities that are planned. We've closed Belmont, as well as Big Stone, and Big Stone being the most recent one. And by the end of the first quarter, the next two facilities that have been announced for closure will be Lancaster. Um, and and Bardsley, excuse me. By the start of sometime in the early calendar year, we'll also get into the last two facilities, which are Green Bay, followed by Southgate.
Michael: Sure Michael So we've we've closed two facilities of the six that are planned and we've closed the Belmont.
Michael: As well as big stone and the biggest one being the most recent one and by the end of the first quarter of the next two facilities that had been announced for closure will be Lancaster.
Michael: And.
And our barge lease excuse me.
Michael:
Michael: By the start.
Michael: Sometime in the early calendar year, we'll also get into the last two facilities, which are Green Bay, followed by our South gate. So four of the six will be closed by the end of the first quarter.
Carl Colizza: So four of the six will be closed by the end of the first quarter, you know, continuing to contribute to reducing our duplicate costs in our network and continuing to optimize the scenario in Franklin, which is the facility that is primarily at the center of absorbing this consolidation.
Michael: <unk> to contribute to reducing our duplicate costs in our network and continuing to optimize the scenario in Franklin, which is the facility that is primarily at the center of absorbing this consolidation.
Michael Van Aelst: Okay, right, so should we be seeing a material drop in duplicate overhead costs as early as Q1 or when will we see that?
Okay right. So so should we be seeing a material drop in the duplicate overhead costs as early as Q1 or when do we see that.
Maxime Therrien: Well, Mike, so duplicate costs amounted to about $36 million. It is expected to be lower in fiscal 2025. I would give you an estimate of about $15 million lower than the $36 million that we call out this year.
Michael: Well.
Mike: Mike So duplicate costs amounted to about <unk> 6 million it anticipate to be lower in fiscal 'twenty five.
Speaker Change: That would give you a an estimate of about $15 million lower than the 36 that we called out this year.
Michael Van Aelst: Okay, and then when you look at the GSP and the progress you've made, a lot of it you said the bulk of the cap, or the vast majority of the cap, the heavy lifting has been done, the CapEx is done. Where would, like, where would you say the run rate returns are now versus where you expect them to be at the end of fiscal 25 and the end of fiscal 26, just so we have an idea of how you, you know, what you've achieved to date and how much is still to come and at what, roughly what pace?
Speaker Change: Okay and then.
Speaker Change: So when you look at the GST and the progress you've made a lot of it you said the bulk of the cap or the vast majority of the cap or the heavy lifting has been done in the Capex is done.
<unk>.
Speaker Change: We're we like where would you say the run rate returns are at now versus where you expect them to be at the end of fiscal 'twenty five and the end of fiscal 2016. So we have an idea of how you what you've achieved to date and how much is still to come in at what roughly what pace.
Speaker Change: Okay.
Carl Colizza: So, Michael, what I would say is, you know, provided that the current dynamics between supply and demand remain and that, you know, our volumes, which we were quite positive and bullish about with regard to the outlook here in 2025. Providing those things stay in line, we're quite confident that we'll be able to achieve about 50% of the savings from the initiatives that were previously announced for the U.S. in this fiscal year.
Michael: So Michael what I would say is you know and.
Michael: Providing that the current dynamics between supply and demand.
Michael: Remain.
And that Oh.
Michael: Our volumes, which we were quite positive and bullish with with regards to the the the outlook here in 'twenty five.
Michael: Providing those things stay in line, we're quite confident that we'll be able to to achieve about 50% of the savings from the initiatives that were previously announced for the U S.
Carl Colizza: So, you know, it is the majority of the savings and initiatives that we expect to translate here in fiscal 25. And we feel strongly about being able to do that as the timelines are here now, and our facilities and our teams are performing really well.
Michael: In our in this fiscal year. So you know it is the are the majority of our of the savings initiatives that we expect to translate here in fiscal 'twenty, five and Oh, we feel strongly about being able to do that as the timelines have R. R.
Michael: Here now and our facilities and our teams are performing really well.
Michael Van Aelst: So, would that have been close to zero in Fiscal 24?
Speaker Change: So would that have been close to zero.
Speaker Change: In fiscal 'twenty four.
Carl Colizza: No, we certainly had some improvements in our bottom line that were associated to the investments that we have made. Now, we know we're very focused on the US. Let's not forget that capital investment programs have been put in place across the globe, including Canada. Canada has been benefiting as well from the investments that they've made, particularly in the space of automation. In the US, we would have had some savings from various initiatives that we would have implemented, for example, in the mozzarella space. So, some of the contributions from our strategic investments in mozzarella were part of 24, but it is not the lion's share by any means. And Mike, by calling
Speaker Change: No there there we certainly had some some improvements in our in our bottom line there were associated to the investments that we have made now we know we're very focused in on the U S. It's not forget that capital investment programs will put across the globe, including Canada. So Canada has been benefiting as well from.
Speaker Change: The investments that they've made in particularly in the space of the automation in the U S. A we would've had some savings from various initiatives that we would have implemented example, and the mozzarella space. So some of the contributions from our strategic investments in mozzarella.
Speaker Change: We're part of 'twenty four but it is it is not the lion's share by any means.
Maxime Therrien: And Mike, by calling out some elements relative to the market, that gives a bit of a flavor as to the run rate of the business or the controllable element of our performance. So we do have some benefits that flow through our ISCO24 numbers.
Speaker Change: And Mike by calling out some.
Speaker Change: Some elements are rather relative to market.
Speaker Change: That gives a bit of a flavor as to the run rate of that business or that translate the controllable elements of our performance. So we do have some benefit that flowed through our fiscal 'twenty four.
Speaker Change: Numbers.
Speaker Change: Okay alright, thank you.
Christopher Li: Your next question comes from the line of Chris Lee with Desjardins. Please go ahead.
Speaker Change: Your next question comes from the line of Chris Lee with Taser, Dan. Please go ahead.
Christopher Li: Oh, thanks everyone and good morning. I'm sorry, maybe just a quick follow-up on Michael's question. Carl, when you said that assuming your volume outlook pans out the way you expect, you'll be able to achieve about 50% of the savings that you previously announced in fiscal 25, could you just remind us what that was?
Speaker Change: Oh, thanks, everyone and good morning, I'm, sorry, it maybe just a quick follow on Mike Michaels question.
Speaker Change: Karl when you said that you're assuming your volume outlook pans out the way you expect youll be able to achieve about 50% of the savings that you previously announced in fiscal 'twenty. Five can you just remind us what is that.
Maxime Therrien: 50% of what savings? What is that number? 200 million, if I remember right. Yeah, if you can just provide some clarity on that, that would be great. Thank you.
Speaker Change: 50% of what savings what is that number is that.
Speaker Change: $200 million, if I remember right you can just provide some clarity on that that'll be great. Thank you.
Maxime Therrien: So, Chris, Carl is referring to the various, you know, press releases that we've issued over the course of the last few years, considering the fact that there's some benefit into Fiscal 24. There will be another chunk of 50% of the benefit that we called out or that we were saying that we were calling out are still valid, still believe we will be able to materialize. And that's the relation that Carl is making.
Christopher Li: So so Chris.
Speaker Change: This call is referring to the various press releases that we've issued over the course of the last few years.
Considering the fact that there is some benefit.
Speaker Change: Into fiscal 'twenty four it wouldn't be another chunk of 50% of the benefit that we called out or that we.
Speaker Change: We're saying that we're calling out is are still valid.
Speaker Change: Still believe we will be able to materialize and that's a that's a relation that's called is making.
Christopher Li: Okay, but you won't be able to sort of quantify in dollars terms what the lift to Even that would be for this year. Yeah, sorry, you know.
Speaker Change: Okay, but you wont able to sort of quantify in dollars terms in terms of what's the <unk>.
Speaker Change: Lift too.
Speaker Change: EBITDA would be for this year so.
Speaker Change: Yeah, sorry.
Maxime Therrien: The previously announced initiatives in the U.S. amounted to close to $200 million, and based on what we've just shared, that would translate into close to $100 million in savings, which we'd anticipate to see by the end of Fiscal 25.
Speaker Change: The previously announced initiatives in the U S amounted to close to $200 million and based on what we've just shared.
Speaker Change: That would translate into close to $100 million in savings is what we would anticipate to see by the end of fiscal 'twenty five.
Christopher Li: Okay, and from a timing perspective, is it going to be more spread out through the quarters or more skewed towards the back half?
Speaker Change: Okay and from a timing perspective is it going to be more spread out through the quarters or more skewed towards the back half.
Carl Colizza: It's not going to be just a late half, so you know, we're not pushing and kicking the can down the road by any means. With the closures that are imminent here, the last... Two more closures, excuse me, that are imminent here by the end of the month. The consistent progress we're seeing in Franklin. It's not like we're waiting for volume to come our way to be able to achieve it. We have some good momentum on that front, so we should be able to see that here midway through the fiscal year, seeing some of that run rate translate to the numbers we've just discussed.
Speaker Change: It's not going to be the just the late half. So you know, we're not we're not pushing or kicking the can down the wrong by any means.
Speaker Change: You know with the closures that are eminent here the last week.
Speaker Change: Two more closures excuse me that are eminent here by the end of the month are the consistent progress we are seeing in Franklin.
Speaker Change: It's not like we're waiting on volume to come our way to be able to achieve it we have some some good momentum on that front. So we should be able to see that here midway through the fiscal year are seeing some of that run rate translate to the numbers. We just shared.
Speaker Change: Okay. Thanks for that that's helpful and maybe one for you you know when you mentioned about shifting more to your traditional oversight I wanted to ask specifically where does M&A fit in to that oversight.
Christopher Li: Okay. Thanks for that. That's helpful. And Lino, maybe one for you. You know, when you mentioned about shifting more to your strategic oversight, I wanted to ask specifically, where does M&A fit in that oversight? Maybe a broader question is, you know, from a capital allocation perspective, where does M&A fit in on that totem pole?
Christopher Li: Thank you.
Speaker Change: Maybe a broader question as you know from a capital allocation perspective, where does M&A fit in in that.
Paul: And that taught them Paul Thank you.
Lino Anthony Saputo: Yeah, so right now, Chris, you know, we're really focused on cash generation, paying down debt, supporting the dividend, and taking care of our shareholders for eventually some buyback programs that will come. M&A, as you know, Chris, has been the DNA of our growth as an organization since we went public in 1997. And at some point, we'll get back to the M&A market, although right now, I would say it's on the back burner.
Paul: Yeah. So right now Chris you know, we're really focused on cash generation paying down debt supporting the dividend and taking care of our shareholders to eventually some buyback programs that would that ultimately will come.
Paul: M&A.
Speaker Change: You know Chris has been the.
Speaker Change: DNA of our growth as an organization since we went public in 1997 and at some point, we'll get back to the M&A market, Although right now I would say its on the backburner, where we need to be prudent.
Lino Anthony Saputo: We need to be prudent, but that doesn't mean that we're not looking at files. We definitely have our M&A team engaged in understanding the assets that are available on the market and how they would fit with us. But our criteria is very, very narrow. We need to make sure that it is going to be profitable day one. We're not looking at buying any fixer uppers. We're not looking at further getting into, you know, heavily commoditized spaces.
Speaker Change: Not to say that we're not looking at files are we we definitely have our M&A team engaged in understanding the assets that are available in the market and how they would fit with us but our criteria is very very narrow we need to make sure that it is going to be accretive day, one we're not looking at.
Speaker Change: Buying any fixer uppers, we're not looking at a further getting into.
Speaker Change: You know a heavily commoditized spaces.
Lino Anthony Saputo: And so for us, it has to add value for the geographies and the platforms that we have. I would say that even with the files we have on our table right now, nothing right now meets our criteria that will give us a green light to move ahead. So for now, there is no urgency on M&A, although we need to be mindful of what's available. Cash generation for us, paying down debt is important, and being able to take care of our shareholders is our top priority.
Speaker Change: So for US it has to add value for our for the geographies and the platforms that we have.
Speaker Change: I would say that even with the files, we have on our table right now nothing right now meets our criteria that will give us a green light to move ahead. So for now.
Speaker Change: No urgency on M&A, although we need to be mindful of what's available cash.
Speaker Change: Cash generation for us paying down debt is important and being able to take care of our shareholders as our top priority.
Christopher Li: Okay, that's very clear. Thanks, Lino. And maybe the last question is, I know it's not set in stone yet, but it does look like the farm gate milk price in Australia will decline fairly meaningfully this year compared to last year. I mean, do you expect this to have a meaningful impact, a positive impact on EBITDA if you in fact get the mill price that you have kind of put out there, or are there other factors that could maybe mitigate that positive impact, because it does seem like it's going to be a fairly meaningful reduction starting in Q2?
Speaker Change: Okay, that's very clear thank Nino and maybe last question is I know, it's not set in stone yet, but it does feel like that the farm gate mill pricing, Australia will declined fairly meaningfully this year compared to last year.
Speaker Change: I mean do you expect this to have a meaningful impact positive impact on EBITDA. If you in fact get the price that you you have to kind of put out there or are there other factors that could maybe mitigate that positive impact because it does seem like it's going to be fairly meaningful reduction starting in Q2.
Leanne Cutts: Morning, Chris. It's Leanne here. Yes, you know, we've opened the new milk year in Australia with a competitive milk price. A reminder that our fiscal Q1 doesn't include this low milk price. It's still possible that our fiscal Q1 would include last year's milk year price and lower commodity prices. So we'll begin to see the impact of that low milk price in our fiscal Q2 at the beginning of that new milk year from July. And yes, we do expect to see an improved run rate in Q2, which will be closer to our historical levels of profitability.
Speaker Change: Good morning, Chris It's Jay it's Leann yet, yes. So you know we've opened up an email care in Australia with the competitive not price.
Speaker Change: I reminded that our fiscal Q1 doesn't include this nominal price it's still.
Speaker Change: Our fiscal Q1 would include last year.
Speaker Change: Nokia price and allow them to commodity prices.
Speaker Change: We will begin to see the impact of that that low milk price in our fiscal Q2 at the beginning of that email care from July.
Speaker Change: And yes, we do expect to see an improved run rate from Q2, which will be closer to our historical levels of profitability.
Christopher Li: Okay, that's helpful. And Carl and Lino, congrats on your new roles and all the best. Thank you.
Speaker Change: Okay. That's helpful and the Carlin Lino congrats on your new roles and all the best Thank you.
Speaker Change: Yeah.
Christopher Li: Thank you very much Chris.
Tamy Chen: Your next question comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.
Speaker Change: Your next question comes from the line of Tami Chen with BMO capital markets. Please go ahead.
Tamy Chen: Hi, good morning. Thanks for the question. I just wanted to go back, Lino, to your comment about capital allocation and the buyback. I mean, should we think about once your leverage is back below the target, which I think is 2.25 times? At that point, does the idea of a buyback come higher up in your capital allocation priorities?
Tamy Chen: Hi, Good morning. Thanks for the question I just wanted to go back to your comment about capital allocation.
Buybacks I mean should we think about one.
Speaker Change: Once your leverage is low.
Speaker Change: Target, which I think is 2.25 times at that point that the.
Speaker Change: Do you have a buyback kind of higher up in your capital allocation priorities.
Maxime Therrien: Tamy, it's Max. So at this time, from the capital allocation perspective, there are no changes from the last time we spoke. Priorities remain, you know, from a dividend perspective, either to protect and grow the dividend, certainly maintain our capex at a lower pace as we get into fiscal 25. And also the debt reduction. And don't forget, we do have a maturity that comes our way in November.
Speaker Change: Tommy.
Mac: It's Mac so at this time from a capital allocation there's no changes.
Mac: Last we spoke priorities remain you know from the dividend either to protect and to grow the dividend certainly maintain our capex at.
Mac: Certainly at the lower pace as we as we get into fiscal 'twenty five.
Mac: And also the debt reduction and don't forget we do have a maturity that comes in Norway in November.
Maxime Therrien: So that said, we're confident in the cash generation, considering that lower CapEx, but also from an EBITDA growth perspective, building flexibility on our balance sheets will allow us to do different things. Buybacks have been part of the story in our story in the past, and can very likely be part of our future. Now, we made a first step last quarter when we got out of the DRIP program. We need to see, we anticipate cash generation, we need the cash to come in, we need to see it, and put us in a position where we can do different things and consider a buyback program.
Mac: So so that said we're confident in the cash generation considering that lower capex, but also an EBITDA growth perspective building.
Mac: Flexibility on our balance sheet will allow us to do different things.
Mac: But buybacks have been part of the story and our story in the past and can vary like the.
Mac: Be part of our future now we've made a first step last quarter when we remove a we got out of the drip program.
Mac: We need to we need to see we anticipate our cash generation.
Mac: Generation, we need the cash to come in we need to see it and.
Mac: Putting us in a position, where we could do different things and consider a buyback program.
Speaker Change: Okay got it.
Tamy Chen: Okay, got it. And then, with respect to the outlook for the US, could you lay out or remind us again, in terms of volumes, because that is one of the factors you mentioned. If you assume your volume outlook does stay in line, then you talked about the 50% of savings from the Global Strat Plan. Can you remind us what outlook you are currently assuming for volumes?
Speaker Change: And then with respect to the.
Speaker Change: The outlook for the U S.
Speaker Change: Could you play out or remind us again kind of volatile because that is one of the factors you mentioned.
Speaker Change: Volume does stay in line and you talked about 50% of favorable so I like all the short time I'm. Just curious can you remind us what outlook you are currently for all four of them.
Speaker Change: Volume.
Carl Colizza: Well, I mean, when we Over the I'm going to reference, you know, a few years ago, we had between dairy foods and cheese. Pre-pandemic, we were at a material rate versus that of what we had over the last three years, probably in the vicinity of 5% higher than what we were operating at over the last couple of fiscal years. We've slowly regained some of that, and we're beginning to climb back into the same ranges as where we were. I'll call it the pre-pandemic era.
Speaker Change: Well I mean when.
Speaker Change: When we go.
Over the I'm Gonna and then I'm going to reference a few years ago.
Speaker Change: We ate between dairy foods and cheese.
Speaker Change:
Speaker Change: Pre pandemic, we were at a a material rate versus that of what we had over the last three years, probably in the vicinity of a 5% higher than what we were operating at over the last couple of fiscal years.
Speaker Change: We slowly regain some of that and where are beginning to climb back into the same ranges of where we were I'll call. It the pre pandemic era and more importantly, it's not just volume for volume. It's the volume in the categories that we feel are most important to us and have the highest degree of.
Carl Colizza: And more importantly, it's not just volume for volume; it's the volume and the categories that we feel are most important to us and have the highest degree of growth and sustainability. Of course, mozzarella is core to who we are, very important in our portfolio, and we're making some material and significant gains in this space, post-investments that we've made, a number of other categories in retail, and specialty items as well. Our flagship Cheesehead brand is also growing its market share meaningfully, as well as some of our other branded products such as MoChev and Treasure Cave.
Speaker Change: Of growth and sustainability of course mozzarella is core to who we are a.
Speaker Change: Very important in our portfolio and we're making some material and significant gains in the space.
Speaker Change: Post investments that we've made a number of other categories in retail specialty items as well our flagship cheese head brand is also growing its market share meaningfully.
Keith: As well as some of the other branded products such as more Chevon treasurer, Keith So we're confident that the tactics that we're utilizing in the marketplace today.
Carl Colizza: So we're confident that the tactics that we're utilizing in the marketplace today, and then the investments that we've put in for capacity and the ones that are yet to come, will continue to put us in a great position for us to capitalize on the demand for these products. That's where the optimism comes from. Yes, we understand that some of the food service sectors have seen slower traffic, but there's also an upside in retail. And unlike prior years, we were very well positioned to be able to capitalize on that across the portfolio, both branded and private label as well. So that's where the optimism on the volume comes from.
Keith: And then the investments that we've put in for capacity and the ones that are yet to come we will continue to put us in a great position.
Keith: For us to capitalize on the demand for these these products. So it's it's where the optimism comes from.
Speaker Change: Yes, we've we are we understand that some.
Speaker Change: Some of the foodservice sectors are have seen slower traffic.
But there's also the upside in retail and unlike prior years, we're very well positioned.
To be able to capitalize on that across the across the portfolio, both branded and private label as well.
Speaker Change: So that's where the optimism on the volume front control.
Tamy Chen: Okay, that's helpful. And one last one for me is, you know, just reading your outlook language with respect to the commodity factors in the US, and even hearing you this morning, it does sound cautiously or incrementally more optimistic than prior quarters. We have seen a pretty strong and quick rally in the block price as an example, and I'm just curious what gives you that incremental degree of positivity or confidence that we're getting into more sustainable, normalized dynamics in the factors here, because it's just been so volatile recently.
Speaker Change: Okay. That's helpful and one last one for me.
Speaker Change: Just reading your outlook language with respect to the commodity factors any new languages and even hearing. This morning, just sounds that sounds cautious they are incrementally more optimistic than prior quarters will have fall pretty strong quick rally in the block price as an example, and I'm just curious.
What gives you that incremental degree of positivity.
Kevin: Kevin do you have confidence that we're getting into more sustainable normalized dynamics and the factors just being so volatile recently and I asked because I I think domestic demand in the U S. Friction doesn't exactly I don't know that that's really meaningfully better. So I'm just curious why.
Tamy Chen: And I ask because I think domestic demand in the US for cheese, as an example, I don't know that that's really meaningfully better. So I'm just curious why you feel we are starting to see that proper, more sustained improvement in US commodity prices. Thank you.
Speaker Change: I feel we are starting to see that proper on a more sustained improvement in U S commodities. Okay. Thank you.
Lino Anthony Saputo: Yeah, Carl will talk about the sustainability of the commodity factors in the U.S. and perhaps what we're seeing globally as well. But what I can say, Tamy, is from an infrastructure perspective, we have never been as solid as we are today. If I look at the investments we've made around the world, increasing our ability to produce more in facilities that are sophisticated and automated, being able to reduce our costs and shrink the number of sites that we have to operate just on that basis, we feel much, much better about our ability to execute and deliver to customers more than we have in the past.
Speaker Change: Yeah. So.
Speaker Change: Karl who will talk about the sustainability of the commodity factors are in the U S and perhaps what we're seeing globally as well, but what I. What I can say time. He is from an infrastructure perspective, we have never been as solid as we are today, if I look at the investments we've made around the world.
Speaker Change: Increasing our ability to produce more and the facilities that are sophisticated and automated.
Speaker Change: Being able to reduce our costs and shrink the.
Speaker Change: The amount of sites that we have to operate a just on that basis, we feel much much better about our ability to execute and deliver to customers more than we've done in the past and the flexibility between a retail and a foodservice as Carl alluded to.
Speaker Change: It is part of that plan. So from an infrastructure perspective, we've done a lot of heavy lifting over the last three years and I would say credit to the board that they allowed us to continue to.
Lino Anthony Saputo: And the flexibility between retail and food service, as Carl alluded to, is part of that plan. So from an infrastructure perspective, we've done a lot of heavy lifting over the last three years. And I would say credit to the board that they allowed us to continue to focus on improving our network and spending the money at a time when, you know, the outlook was not so clear, and clouds were looming.
Speaker Change: Our focus on improving our network and spending the money at a time when.
Speaker Change: You know the the outlook was not so clear and and the clouds were looming.
Lino Anthony Saputo: They allowed us to execute on our plan, which puts us in a much, much better position starting fiscal twenty-five. So, irrespective of the market, we feel much better about our ability to process high-quality products at an even lower cost today than we ever have in the history of our company, maybe going to markets. Sure.
Speaker Change: They allowed us to execute on our plan, which puts us in a much much better position starting in fiscal 'twenty five so irrespective of the markets.
Speaker Change: We feel much better about our ability to process high quality products at an even lower cost today than we ever have in the history of our company now maybe going to markets sure.
Carl Colizza: So really, when we look at the US and where some of our, I'll say, our confidence comes from, when we take a look at cheese inventories as a whole in the US coming out of a flush season, we're not seeing a material growth in those inventories. So there isn't an imbalance there that's been created. We also know that from the most recent numbers, the number of milking cows in the US has not increased dramatically.
Speaker Change: So really when we look at the U S, a and where some of our I'll say our confidence comes from is when we take a look at the cheese inventories as a whole in the U S coming out of a flush season, we're not seeing a material growth in those inventories. So there isn't an imbalance there that's been created we also know that.
Speaker Change: The most recent numbers the number of milking cows in the U S. If not increased dramatically.
Carl Colizza: In fact, it's on the decline to some degree, which basically puts us in a better position with supply versus tempered demand. So yes, demand is not through the roof in any way, but it's still on the positive side. And despite its shifting channels, we're still seeing some pretty solid growth on the retail side. Dairy and cheese, in particular, on the dairy side, are still growing in the 3% range. And part of that is fundamental to two things.
Speaker Change: Dramatically in fact that its on the decline to some degree which basically puts us in a.
Better position with supply versus the tempered demand. So yes demand is not through the roof and any meat you know in any way, but it's still on the positive side and despite its shifting channels, we're still seeing some pretty solid growth on the retail side dairy and cheese in particular.
Speaker Change: On the dairy side is still growing in the 3% range and part of that is as is fundamental to two things one the value offering of dairy overall is as a part.
Carl Colizza: One is the value offering of dairy overall as part of a nutritious diet. The other piece is that dairy, unlike many other foods in the US, in particular, last year didn't see as much of an inflationary pressure as other foods have. And that's a direct function of what the CME values were. So it's remained on the shelf, a generally affordable product for consumers. So we're optimistic that with our brand, with our channel penetration, with the portfolio playing in all sorts of different spaces, from value products to indulgence, to everyday cheese, we've got a winning recipe here for fiscal 25.
Speaker Change: Part of the nutritious diet the other piece.
Speaker Change: Is that dairy unlike.
Speaker Change: Many other foods in the U S in particular.
Speaker Change: Last year it didn't see as much of an inflationary pressure as it did on his other foods have as and that's a direct function of what the CME values were so it's remained on shelf, a and affordable products generally affordable product for consumers. So we're optimistic.
Speaker Change: Stick that with our brand with our channel penetrations with our portfolio playing in all sorts of different spaces from value products to indulgence to everyday cheese, we've we've got a a winning recipe here for fiscal 'twenty five.
Tamy Chen: Great, thank you.
Speaker Change: Great. Thank you.
Robert Frederick Dickerson: Your next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Speaker Change: Your next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.
Robert Frederick Dickerson: Great, thanks so much. Maybe just a quick follow-up to that last response on the U.S. and the value proposition. I'm just curious, I guess, one, kind of what you're seeing in the competitive backdrop. You know, we're hearing from a lot of food companies that you might need to lean in a little bit more on pricing, but at the same time, you do have a nice value proposition. Maybe there hasn't been as much, you know, price inflation for the consumer, but that's the case. It also seems like maybe the, you know, the competitive risk at this point might be a bit more rational relative to the total retail store. Any comments on that would be helpful.
Great. Thanks, so much maybe just a quick follow up to that last response on the U S and the value proposition I'm, just curious I guess, one kind of what you're seeing in the competitive backdrop.
Speaker Change: We're hearing a lot of food companies that you might need to wait a little bit more pricing, but at the same time, you do have a nice value proposition, maybe there hasn't been as much price inflation of consumer.
Speaker Change: But that's the case it also seems like maybe the.
Speaker Change: The competitive risk at this point might be a bit more rational relative to their total retail store any comments on that would be helpful.
Carl Colizza: Yeah, I think that we're, we're staying close to the numbers, working with all of our partners, both in the retail space, as much as it is the National Accounts and Food Service, to make sure that we are one, connected with what their needs are, and what they're seeing in their particular stores, what they're seeing in the potential shifts between branded and private label, and ensuring that we have the right products, the right recipes One of the things that we're constantly looking at and adapting is the amount of investment we put behind consumer marketing versus promotional spend.
Speaker Change: Yeah.
Speaker Change: We're staying close to the numbers are working with all of our partners both in in retail space as much as it is the national accounts in foodservice to make sure that we are one connected with what their needs are and what they're seeing in their particular stores and what they're seeing in the <unk>.
Speaker Change: Potential shifts between branded and private label and ensuring that we have the right products, the right recipes and inventory in and ready to supply one of the things that that were constantly looking at and adapting is you know the amount of investment we put behind consumer marketing versus promotional spend.
Carl Colizza: And depending on the channels in question, as some of the discount channels are winning the day in retail, some of it may require us to look at more trade spend in lieu of consumer marketing. But again, it's data-driven. We're continuing to support our customers and their needs, and they all have a bit of a different tactic. And as far as how to continue to appease the consumer, we're able to respond to that with the breadth of the scope of our portfolio.
Speaker Change: And depending on the channels in question is as some of the discount channels.
Speaker Change: Our winning the day and retail some of it may require us to look at a more trade spending in lieu of consumer marketing, but again, it's it's data driven we're continuing to to support our customers and their needs and they all have a bit of a different tactic and oh.
Speaker Change: As far as how to continue to a piece the consumer and we're able to respond to that.
Speaker Change: With the breadth of the scope of our portfolio.
Robert Frederick Dickerson: Okay, great. And then I guess just, you know, in terms of the overall spread, You know, kind of some of the commentary, you know, you provide up front, it sounds like you're, you know, again, maybe I don't say extremely confident, but you know, you're, you're, you're encouraged as to where the market is headed. So, you know, if the market continues to head that way, you know, speaking more to the U.S., and then there also are the cost savings that should be coming through, you know, and then combined with my first question, it doesn't really seem like there's necessarily some kind of like, you know, missing piece here such that you would have to like materially increase trade spend or marketing or what have you, because it sounds like the demand environment is somewhat stable, right?
Speaker Change: Okay, Great and then I guess just in terms of the overall spread.
Speaker Change: Yeah.
Speaker Change: Some of the commentary.
Speaker Change: You provided upfront made it sounds like here.
Again, maybe I don't say.
Extremely confident but you're you're you're encouraged as to where the market is headed.
Speaker Change: So if the market continues to head that way.
Speaker Change: Now speaking more to the U S. And then there also are the cost savings that should be coming through.
You know and then combined with my first question. It doesn't really seem like there's necessarily some kind of like you know missing piece here such that you would have to like materially increased trade spend or marketing or what have you because it sounds like the demand environment is somewhat stable.
Robert Frederick Dickerson: So I'm, you know, the longer-term question is, well, you should clearly then be able to get, you know, not back to where you were on a profitability basis relative to pre-pandemic in the U.S., but you should be able to get, you know, somewhat nicely ahead of that, all things considered. There's a lot in there, but hopefully that makes sense.
Speaker Change: So I'm kind.
Speaker Change: Kind of you know the longer term question is or you should clearly then be able to get you know not back to where you were on a profitability basis relative to pre pandemic in the U S. But you should be able to get you know somewhat nicely ahead of that all things considered.
Speaker Change #100: There's a lot in there but.
Speaker Change #101: That makes sense [laughter].
Carl Colizza: Yeah, no, it did. And, you know, as we sit here on June 7, yes, we are, from, you know, the overall market factors that influence our business, we're generally in a good place in a good zone. No one has a crystal ball, but if we look at the fundamentals that tend to drive the market factors in the CME, in particular, a lot of that is really about the balance between supply and demand.
Speaker Change #102: Yeah, No no. It did and you know as we sit here June 7th Yes, we are from the overall market factors that influence our business. We're generally in a good place in a good zone.
Speaker Change #103: No one has a crystal ball, but if we look at the fundamental that tend to drive.
Speaker Change #103: The the market factors in the CME in particular, a lot of that is really about the balance between supply and demand and as we sit here today.
Carl Colizza: And as we sit here today, the majority of the data would suggest that we're going to remain in that kind of good balance, if you like. And so we expect that those market factors will continue to be favorable for us as we move forward. Now, we don't control them, of course. We'll continue to focus on the things that are within our control. And that is continuing to deliver on what we've engaged in and what we've committed to with our operational excellence and our network transformation. And that will help mitigate should there be something different on our horizon.
Speaker Change #103: The majority of the data would suggest that we're going to remain in that kind of.
Speaker Change #103: Good balance if you like and so we expect that those market factors will will continue to be a favorable for us.
Speaker Change #103: As we as we move forward now we don't control them of course, we will continue to focus on the things that are within our control and that is continuing to deliver on what we've.
Speaker Change #103: We engaged in and what we've committed to with our operational excellence in our network transformation.
Speaker Change #103: And that will help mitigate a it.
Speaker Change #103: Should there be a something different on our horizon.
Robert Frederick Dickerson: Okay, fair enough. And then just quickly and pretty simplistically, within Europe, right? You've cycled through the higher cost inventory now. You know, like, how should we be thinking about profitability in that region? You know, near term, and I guess kind of as we get through the year. Is this a, you know, we've cycled through, and therefore we can get back to acting? Just trying to figure out how we should be modeling that.
Speaker Change #104: Okay Fair enough and then just quickly pretty simplistically within Europe, right, you've cycled through now the higher cost inventory.
Robert Frederick Dickerson: That's all. Thanks so much.
Speaker Change #105: Like how should we be thinking about profitability in that region.
Speaker Change #105: Near term and I guess kind of as we get through the year or is this a we've cycled through and therefore, we can get back to ask.
Speaker Change #105: Just trying to figure out how we should be modeling that that's all thanks so much.
Leanne Cutts: Hi Rob, it's Leanne.
Leann: Hi, Rob it's Leann, yes, our excess inventory has been clear that we're still selling through some regular inventory that was produced at high milk prices.
Speaker Change #107: That will continue to a much lesser extent than we've seen in previous quarters. So that chase product mix is on.
Speaker Change #107: On track to being fully corrected shall we expect continued sequential improvement quarter on quarter throughout F. 'twenty five.
Speaker Change #107: For the U K in particular.
Leanne Cutts: Yes, our excess inventory has been cleared. We're still selling through some regular inventory that was produced at higher milk prices, but that will continue to a much lesser extent than we've seen in previous quarters. So that cheese product mix is on track to being fully corrected. So we expect continued sequential improvement quarter on quarter throughout F25 for the UK, in particular.
Speaker Change #108: Okay Super Thank you so much.
Robert Frederick Dickerson: Okay, great. Thank you so much.
Speaker Change #109: Your next question comes from the line of Mark Petrie with CIBC. Please go ahead.
Mark Robert Petrie: Your next question comes from the line of Mark Petrie with CIBC. Please go ahead.
Mark Robert Petrie: Yeah, thanks. Good morning. Just to follow up on a bunch of the comments or a few of the comments that you've already made, I understand that the long-term EBITDA target is predicated on normalized commodity conditions, and I know there are a lot of different pieces to consider in assessing the conditions and their impact, but can you just give us a rough sense of how you're looking at today's markets or the markets that you've assumed for Fiscal 20 Just give us a sense of how much progress you think you're seeing in the market today.
Yeah. Thanks, Good morning, just a follow up on a bunch of the comments or a few of the comments that you've already made I understand the long term EBITDA target is predicated on normalized commodity conditions and I know, there's a lot of different pieces to consider in assessing the conditions and their impact, but can you just give us a rough sense.
Speaker Change #109: Of how youre looking at today's markets or the markets that you've assumed for fiscal 'twenty five versus the trough I guess of last year, and then that normalized level just give us a sense of how much progress you think you're seeing in the market today.
Carl Colizza: Well, maybe I'll speak about the US in particular. But, as I think you were alluding to, the market factors go beyond the US. There are a variety of influences on the international side, particularly in Australia, that, you know, you use the word normalized. And I don't think we can call that normal.
Speaker Change #110: Well, maybe I'll I'll I'll speak about the the U S. In particular, but as you I think you were alluding to.
At the market factors go beyond that of the U S. There. There are there are a variety of of influences on the international side.
Speaker Change #110: Particularly in Australia, as well that you know you used the word normalized and.
Carl Colizza: So we'll elaborate on that in a second. But when it comes to the US in particular, I think maybe the best way to look at it is that we're in the zone now. We're in the zone of on multiple variables that constitute the market factors that we consider as being more normal in nature. We are in that zone today. Again, I'm going to emphasize June 7th. But we are in that zone today. And provided that we don't have a lot of volatility, you know, volatility also has an impact on overall results and market factors. But we're in the zone today.
Speaker Change #110: And I don't think we can call that normal so will will elaborate on that in a second but when it comes to the U S. In particular are the I think maybe the best way to look at it is we're in the zone now we're in the zone of.
Speaker Change #110: On multiple variables that that constitute the market factors that we consider.
Speaker Change #110: As being a more normal in nature, we're in that zone today again, I'm going to emphasize June 7th.
Speaker Change #110: But we are in that zone today, and providing that we don't have a lot of volatility.
Speaker Change #110: You know the volatility.
Speaker Change #110: Also has an impact on overall results and market factors, but we.
Speaker Change #110: We're in the zone today.
Speaker Change #111: When it comes to international I'll hand, it off to Leann here to kind of give you a better sense of what normal is.
Leanne Cutts: When it comes to international, I'll hand it off to Leanne here to kind of give you a better sense of what normal is.
Leanne Cutts: Yes, Mark, you know, commodity pricing we're still seeing in our international markets as being volatile, especially in some of the lower protein ingredient categories. Demand is still soft. And that also reflects, you know, Chinese demand as well, that continues to be relatively soft. Higher specialized ingredients pricing continues to be stable, although it's at lower prices versus last year. And in particular, in Australia, as we have mentioned, there continues to be a disconnect between the international cheese and dairy ingredient prices and our local Australia Farmgate milk price, although we have seen that gap narrow considerably at the moment with our opening milk price.
Speaker Change #112: Yeah, So mark you know what.
Leann: The pricing, we're still saying in our international markets as being volatile, especially in some of the lower protein ingredient categories can and is still soft and that also reflects you know China demand as well that continues to be relatively soft.
Speaker Change #113: Hi, especially I think really it's pricing continues to be stable, although at lower prices versus last year.
Speaker Change #113: And in particular in Australia as we have mentioned there continues to still be a disconnect between the international cheese, and dairy ingredients pricing and local Australia farm gate milk price, although we have seen that gap narrow considerably at the moment with they are opening milk price.
Mark Robert Petrie: And then maybe another one that's sort of higher level. You know, it's interesting that in Fiscal 24, all of your regions saw retail penetration rise year over year, and I know the dynamics vary greatly by region, but how much of that would you say is just sort of market dynamics versus how, you know, your sort of intentional work to reshape sales?
Speaker Change #114: Yeah understood. Okay that those comments were helpful. Thanks, guys.
Speaker Change #115: And then maybe another one that's sort of a higher level.
Speaker Change #116: Resting that in fiscal 'twenty for all of your regions saw retail penetration rise year over year and I know the dynamics vary greatly by region, but how much of that would you say is just sort of market dynamics.
Speaker Change #116: Versus how you know your sort of intentional work to to reshape reshaped sales mix.
Carl Colizza: We have to give credit to the team, especially on the commercial side of things. They have always been working in close collaboration with our customers across all channels.
Speaker Change #117: Hey, you know, we got to give the credit to the team because they are.
Speaker Change #117: Our our especially on the commercial side of things. The they have always been working in close collaboration with our customers and in all channels. We went through a couple of years of not being able to supply. The way. We would have had done historically and would've liked to through those periods for for all those reasons.
Carl Colizza: We went through a couple of years of not being able to supply the way we would have done historically and would have liked to during those periods for all the reasons that we have described in the past around labor and a variety of supply chain disruptions, but the majority of all that is behind us. We're executing and firing on all cylinders, and our commercial team is able to execute the vision and the tactics that they've wanted to do for so long. The credit goes out to the team for being able to do that in a variety of markets.
Speaker Change #117: We have described in the past around labor and and and a variety of supply chain disruptions.
Speaker Change #117: But the majority of all of that is behind us and we're executing and firing on all cylinders and our commercial team is able to execute division.
Speaker Change #117: And the tactics that they wanted to do for so long so the credit goes out to the team for being able to do that in a variety of markets.
Carl Colizza: In particular, we've seen in the UK, Cathedral City is growing share, the cheese categories are growing, both volume and value, and we're actually growing and taking share from both brands and private labels. Similarly, in Argentina, where we're the number one brand there, and Australia, where we're continuing to hold or grow share across our core brands.
Speaker Change #118: Okay in particular in a week, let's see we see yet in the U K.
Speaker Change #119: Angel City is growing share in the cheese category isn't Corey.
Speaker Change #119: Both volume and value and we're actually growing and taking share from nice brands and private label. Similarly, Argentina, where we're the number one brand in there.
Speaker Change #119: And Australia, where we're continuing to to haul it'll grow share across our core brands.
Mark Robert Petrie: Yes, understood. Okay. And I guess it would be fair to say that your expectation or, certainly, your plans would be that the retail sales mix would continue to rise. Is that fair?
Speaker Change #120: Yeah understood, Okay, and I guess, then fair to say that your expectation or certainly your plans would be that retail sales mix would continue to rise suffer.
Carl Colizza: It could vary by sector for sure, but I would say that, absolutely, in the US, it is squarely in our priorities and is part of its composition, a component of our strategic growth plan. So, yes, we would expect it to continue to grow in that sector. It is really no different for Canada. If you looked at it purely on a numbers basis with the continued kind of declines in fluid milk, those things might shift, but the things that are of the highest value to us in the retail space continue to be the focus and have some growth targets associated with them.
Speaker Change #121: Are you thinking.
Speaker Change #122: They do vary by by sector for sure.
Speaker Change #123: But I would say that absolutely in the U S. It is square in our priorities and as part of its composition a component of our strategic growth plan. So yes, we would expect it to continue to grow in that sector.
Speaker Change #123: Really no different for Canada, if you looked at it purely on a on a numbers basis with the continued.
Speaker Change #123: Declines in fluid milk, those things might shifts, but are the things that are of the highest value to us.
Speaker Change #123: In the retail space.
Speaker Change #123: Continue to be the focus and have some some growth targets associated to it.
Mark Robert Petrie: Okay, perfect. Thanks for all the comments and all the best.
Speaker Change #124: Okay perfect. Thanks for all the comments and all of us.
Vishal Shreedhar: Your next question comes from the line of Vishal Shreedhar with the National Bank. Please go ahead.
Speaker Change #125: Your next question comes from the line of the childish radar with National Bank. Please go ahead.
Vishal Shreedhar: Hi, thanks for taking my question. Most of my questions have already been asked, but I was just wondering about DNA.
Speaker Change #126: Hi, Thanks for taking my questions.
Speaker Change #127: Most of my questions have been asked asked but I was just wondering about the DNA. It stepped up quite a bit year over year, and even sequentially and is that step up related to the Franklin cut rag facility and as facilities close should we expect some relief on that line or is that Q4.
Vishal Shreedhar: It's stepped up, you know, quite a bit year over year and even sequentially. And is that step up related to the Franklin cut-and-wrap facility? And as facilities close, should we expect some relief on that line, or is that Q4 number a good number to extend forward?
Number a good number to extend point.
Maxime Therrien: No, the Q4 number is a good run rate to work with, as the CapEx project gets to a close, depreciation starts, so we have a bit of an incremental on that front. So Q4 would be a good base to work with this.
Speaker Change #128: No. The Q4 number is a good run rate to our two to work with as a Capex project gets a gets to a close the depreciation starts. So we have some a bit of an incremental on that front. So Q4 would be a good base for two.
Speaker Change #128: Work with full fiscal 'twenty five.
Vishal Shreedhar: Okay, and a similar question for interest expense. You know, a bit of a step up there year over year. It said that there was, when you looked into it, it was the other financing costs that were the increase or the cause of the increase? No, no. The incremental financing costs refer to credit lines in geographies such as the UK and Australia. So as cash generation improves, that line should come down during the fiscal year.
Speaker Change #129: Okay and a similar question for interest expense.
Speaker Change #129:
Speaker Change #129: A bit of a step up there year over year.
Don: It said that there was yes, it looked into it it was the other financing costs that were really the increase or the causes you know Don I'm, just wondering if the incremental finance the incremental financing cost refers to credit line in the geographies such as the UK and Australia. So.
Don: In the past cash generation improve that line should come down.
Don: During the fiscal 'twenty five.
Vishal Shreedhar: Okay, okay, that's it for me. Thanks for squeezing me in.
Speaker Change #131: Okay. That's it for me Thanks for squeezing me in thanks, guys.
Speaker Change #131: Yeah.
Christopher Li: And your last question comes from the line of Chris Lee with Desjardins. Please go ahead.
Speaker Change #132: And your last question comes from the line of Chris Lee with danger down. Please go ahead.
Christopher Li: Just maybe a few quick follow-ups. Max, on CapEx, you invested about $650 million in Fiscal 24. What is your expectation for F25?
Speaker Change #133: Oh, sorry, just maybe a few quick follow ups at Max.
Christopher Li: Capex. So you invested about $650 million in fiscal 'twenty four what are you sort of expectation for F. 'twenty five.
Maxime Therrien: Fiscal 25, we nailed down a number of $418-$420 million, so that's about $230 million lower than this fiscal, and that's what I've been signaling, I believe, last quarter for sure. So this would be much lower, and this is part of our cash generation story that we alluded to earlier. And I would point you to the AIF, so we have some details on the CAPEX section of our AIF that we released yesterday. Okay, very helpful.
Speaker Change #134: Our fiscal 'twenty five we nail down a number of 418 for 'twenty.
Speaker Change #135: Okay. So that's about $230 million lower than than this physical and that's what we are I've been signaling I believe last quarter for sure.
Speaker Change #135: So this would it would be a much lower.
Speaker Change #135: And this is part of our cash generation the story, though we eluded too earlier.
Speaker Change #135: And I would point you to the Aif.
Speaker Change #135: So we have some of the details are on the Capex section of our E. L. F that we released yesterday.
Christopher Li: Okay, very helpful. And then Leanne, just a quick one for you. I know you predicted that international dairy prices would remain subdued for this year, but we're seeing some gradual improvement in the GDT in the last few trading sessions. I know it's still early, but if that trend is sustained, do you think there's some upside, perhaps, to your pricing outlook for this year?
Speaker Change #136: Okay very helpful and then and just a quick one for you I know you mentioned you expect every mark international dairy prices to remain subdued for this year.
Speaker Change #137: We're seeing some gradual improvement in the GTT. The last few trading sessions I know, it's still early but is that kind of sustained do you think there's some upside perhaps to your to your pricing outlook for this year.
Leanne Cutts: Yeah, of course, we are seeing some progressive incremental improvements in GDT, but as you reference, it is still very modest and still significantly lower, depending on the category. So we're, you know, we're continuing to be cautious around our outlook for commodity prices.
Speaker Change #138: Yeah of course, yeah, we are seeing some progressive incremental improvements on J D. T. As you reference it is still very modest and still significantly lower incentive fees, depending on the category.
So we're you know we are continuing to be cautious around our outlook for commodity prices.
Christopher Li: Okay, and Carl, maybe the last one for you, when you talk about the commodities market being kind of quote-unquote in the zone, I'm just curious, specifically when you are budgeting for fiscal 25, what kind of new, what kind of new spread assumption are you making? I know in the past, Lino mentioned that you don't need to have a neutral spread to make your numbers. So I'm just wondering, like, you know, what's your best estimate right now for the full year, for F25, in your budgeting?
Speaker Change #139: Okay and May Carl maybe the last one for you.
Speaker Change #140: Can you talk about the commodities market being kind of quote unquote in the zone and I'm. Just curious specifically when you are budgeting for fiscal 'twenty five what kind of knew what kind of cheese, new spread assumption are you, making I know in the past you mentioned that you don't need to have a mutual spread to make your numbers. So I'm just wondering like what's your best estimate right now for the full.
Speaker Change #141: So that's 25 when you're budgeting.
Carl Colizza: So I just want to clarify a few things, you know, the market factors. There are a number of components in there. So there's the value of the butterfat, there's the spread, and, of course, there's the value of the selling prices of ingredients. So those are, you know, the overall kind of market factors we referenced. But you know, in the neutral range, on either side of the plus or minus of being neutral or spread is generally healthy for us. So that's kind of what we work with and what some of the foundations of the strategic growth plan targets were based on. But over the last several years, we've rarely been there.
Speaker Change #142: So I just wanted to clarify a few things you know the the the market factors are there there are a number of components in there. So there's the value of the butterfat, there's the spread of course, there's the value of the selling prices of ingredients. So there's those.
Speaker Change #142: Or if you know the overall kind of market factors, we referenced but you know in the neutral range.
Speaker Change #142: Either side of the plus or minus of being neutral for spread is is generally healthy for us. So that's kind of what it is we work with them and what some of the foundations of the strategic growth plan targets were based on.
Speaker Change #142: But over the last several years, we've rarely been there.
Christopher Li: Okay, thanks very much.
Speaker Change #143: Got you okay. Thanks very much.
Nicholas Estrela: That concludes our Q&A session. I would now turn the conference back over to Nick Estrela for closing remarks.
Speaker Change #143: That concludes our Q&A session I would now turn the conference back over to Nick Estrela for closing remarks.
Nicholas Estrela: Thank you, Jeanne. Please note that we will release our first quarter fiscal 2025 results on August 8, 2024. We thank you for taking part in the call and webcast and have a great day.
Jeanie: Thank you Jeanie. Please note that we will release, our first quarter fiscal 2025 results on August eight 2024, we thank you for taking part in the call and webcast and have a great day.
Unknown Attendee: This concludes today's call. You may now disconnect.
Speaker Change #145: This concludes today's call you may now disconnect.
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