Q2 2025 Saputo Inc Earnings Call

Speaker Change: Thank you for standing by. I would like to welcome everyone to the Saputo Inc. Second Quarter 2025 Financial Results. I would now like to turn the call over to Nick Estrela, Senior Director of Investor Relations. Please go ahead, sir.

Nick Estrela: Thank you, Dustin. Good morning and welcome to our second quarter fiscal 2025 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary.

Nick 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 a second quarter investor presentation.

Nick Estrela: Please also note that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties.

Nick Estrela: We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings.

Speaker Change: Please treat any forward-looking information with caution, as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Carl.

Thank you, Nick, and good morning, everyone.

Carl Colizza: Q2 marked another quarter of progress for Saputo, both in the execution of our long-term strategy and with the achievement of important milestones on the innovation, efficiency and network optimization front.

Carl Colizza: Leveraging our global capabilities, we are also generating savings across our value stream, including in manufacturing and distribution.

Carl Colizza: Before we dive into the quarter, I would like to share a few thoughts and organizational updates with you.

Speaker Change: With over 25 years of experience at Saputo, I was able to hit the ground running when I took over as President and CEO in August.

Speaker Change: The first thing I want to say is that I am very encouraged by what I am seeing within the business.

Speaker Change: While there is still much work ahead of us to achieve our full potential, we have a great foundation and a clear opportunity to excel.

Speaker Change: My goal is to build upon Saputo's already solid core, but also to significantly improve on it, so we can thrive in an increasingly complex and competitive global environment.

Speaker Change: To that end, I am confident in the strength of our executive leadership team, which has recently been reinforced through several internal promotions.

Speaker Change: Frank Guido, who was our President and COO of the U.S. sector, has been appointed Global Chief Operating Officer and will play a key role in the company's continuous efforts to drive growth and operational results.

Speaker Change: Leanne Kutz, who was previously President and COO for International in Europe, has been appointed to the newly created position of Chief Commercial Officer, where she will be responsible for driving commercial strategy.

Speaker Change: More specifically, by amplifying sales in global markets and channels, and overseeing marketing, brand management, innovation, and market insights functions for all divisions.

Speaker Change: Dominic Bombino, who has held both operational and commercial leadership positions in Canada and the U.S. over the past 25 years, has been appointed President and COO, Dairy Division USA.

The End of the World

Speaker Change: Steve Douglas, who most recently served as Senior Vice President of Operations and Supply Chain in our U.S. Dairy Division, has been appointed President and COO, Dairy Division UK. He has been with Saputo for more than 30 years.

Speaker Change: Through their expanded roles, each of these accomplished executives will now further leverage their experience and expertise to drive long-term growth and promote operational excellence across the organization.

Turning now to the second quarter.

Speaker Change: We delivered a strong quarter of both volume and pricing growth and steady cash flow generation.

Speaker Change: However, our strong execution, cost containment efforts, and returns from strategic initiatives were overshadowed by commodity and macroeconomic volatility.

Speaker Change: Across the world, we are leveraging our scale and local expertise to navigate varying local market dynamics.

In Canada, we generated robust top-line and EBITDA growth.

Speaker Change: Leading brands like Saputo and Armstrong grew both in volume and market share.

Speaker Change: In the U.S., we are clearly seeing the benefits from the bold actions we have taken. Our base business is strengthening across core categories and in new channels.

Speaker Change: We have several commercial initiatives in flight that will continue to drive this performance.

Speaker Change: In Europe, we improved EBITDA for the third consecutive quarter. Despite challenging market dynamics, we are now approaching a more normalized margin level.

Speaker Change: In international, we saw continued pressure on the export business in Argentina.

Speaker Change: But the alignment between Farmgate and commodity prices are improving in Australia with the start of the new contract year.

Speaker Change: Taking a global perspective, consumers continue to look for value, however, demand for dairy remains important given its relevance as part of a nutritious diet.

Speaker Change: In this dynamic environment, our investments in technology, supply chain, brands, capabilities and our people have put us in a stronger position to meet the changing needs of our customers and consumers.

We are growing our share across key categories and markets.

The End of the World

Speaker Change: Steady cash generation has also enabled us to achieve a pivotal capital allocation milestone.

Speaker Change: Yesterday we announced our intention to make a normal course issuer bid.

Speaker Change: We believe a shared buyback program will optimize our capital structure and underscore our commitment to drive long-term value creation.

Speaker Change: Before I turn it over to Max, I'd like to thank the entire Saputo team for their hard work and commitment in finding ways to deliver in an ever-evolving consumer environment.

Speaker Change: Our collaborative working style continues to be a strong differentiator that is enabling us to deepen relationships with our customers, attract and retain the best talent, and operate as a socially responsible and sustainable company.

Speaker Change: The efforts and passion of our talented team are why Time Magazine recently recognized Saputo as one of the world's best companies.

Speaker Change: This paired with the tremendous progress we've made in transforming Saputo's business paves the way for a very exciting new chapter in our history.

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

Carl, thank you and good morning everyone.

Max: I'll begin by going over the financial highlights of the second quarter. Consolidated revenue of $4.7 billion while adjusted amounted to $389 million.

Max: Just a little bit though was impacted by unfavorable U.S. dairy commodity markets.

Max: Higher cost of production in Argentina, including higher milk costs, as peso devaluation has not kept pace with inflation, and unfavorable effects and application of hyperinflation accounting in the international sector.

Max: On the positive side, favorable adjusted EBITDA drivers included a significant year-over-year improvement in adjusted EBITDA in a Canada sector.

Max: Operational improvement driven by our global strategic plan initiatives in the U.S. sector.

Lower milk costs in Australia.

Max: and an improved performance from the Europe sector led by a higher branded cheese sales volume.

Max: We reported net earnings of $126 million in the quarter. And on an adjusted basis, our net earnings were $157 million, or $0.37 per share.

Speaker Change: Thank you to key highlights by sector, starting with Canada. Revenue for the second quarter total $1.3 billion, an increase of 4% compared to last year.

Speaker Change: Revenue increased due to a favorable product mix and higher selling price in connection with the higher cost of mill as raw material.

Speaker Change: Adjusted EBITDA for the second quarter total $162 million, up approximately 10% versus the same quarter last fiscal year.

Speaker Change: Our improved performance reflected the benefit derived from operational efficiencies, including from our continuous improvement program.

our Supply Chain Optimization and Automation Initiatives.

Speaker Change: Our results also include the positive impact from cost-saving initiatives, notably around SG&A reduction.

Speaker Change: In the U.S. sector, revenue total $2.2 billion and were 14% higher versus last year.

Speaker Change: Revenue increased due to the combined effect of the higher average cheese block, butter, and dairy ingredient market prices, and a favorable volume and mix.

Speaker Change: Adjusted EBITDA was $145 million, which was relatively close to last year at $147 million.

Speaker Change: Our results include $18 million in benefits derived from capital investment in our cheese assets, operational improvement including increased capacity utilization,

Speaker Change: higher productivity, which resulted in increased cheese sales volume, supply chain initiatives, cost reduction, and lower SG&A.

Speaker Change: Our results also include $17 million unfavorable impact from U.S. market factor mainly due to the negative milk cheese spread.

Speaker Change: The negative milk cheese spread was partially mitigated through the favorable impact of our pricing protocols for our dairy food products.

Speaker Change: Finally, duplicate operating costs incurred to implement previously announced network optimization initiatives amounted to $10 million during the quarter.

Speaker Change: Year-to-date, the USA sector is performing well with adjusted EBITDA 23% higher versus last year, despite the negative impact from a persistent negative milk cheese spread.

Speaker Change: a testament to the progress we're making around operational and commercial execution.

Speaker Change: In the international sector, revenues for the second quarter were $912 million, up 4% versus last year, despite the lower volume following the sales of our two Australian fresh milk processing facilities during the first quarter.

Speaker Change: Adjusted EBITDA total $54 million down $29 million. The year-over-year decline in Adjusted EBITDA was mostly driven by our Argentina division which results were impacted

Speaker Change: by inflation and a lower FX devaluation leading to higher production costs, including higher milk costs.

Speaker Change: Reduced milk availability in Argentina further contributed to higher milk costs.

Speaker Change: The less favorable effect of currency fluctuation on export sales denominated in US dollar and the negative impact of 17 million dollars due to the application of hyperinflation accounting to the results for our Argentine business.

Speaker Change: The Estrela performance was in line with our expectation, following a better alignment between mill costs and commodity prices.

Speaker Change: In the Europe sector, revenue were $277 million while adjusted amounted to $28 million.

Speaker Change: We benefited from a higher branded cheese sales volume, supported by incremental spend in advertising and promotion.

Speaker Change: We're pleased with the continued recovery in the Europe sector, with notable progress in this quarter around margin expansion.

volume growth, and our ingredient business.

Speaker Change: With these indicators moving in the right direction, we expect further sequential improvement through the balance of the year.

total $90 million in line with our plans.

Speaker Change: Finally, as Carl mentioned, we announce our intention to proceed with a normal course issuer bid, allowing us to purchase up to 2% of share outstanding.

Speaker Change: The level and timing of stock repurchases under the NCIB will be driven by cash flow generation.

[inaudible]

Speaker Change: On that note, this concludes my financial review and I'll turn the call back to Carl.

Thank you, Max.

Carl Colizza: In Canada, we delivered what I would call a stellar performance with adjusted EBITDA increasing 10% from last year, led by another strong quarter of operational efficiencies, cost savings and cheese sales volumes.

Carl Colizza: Our retail platform drove year-over-year revenue growth with our core portfolio as well as our new products performing well.

Carl Colizza: Everyday cheese outperformed category growth with our Saputo brand gaining high single-digit share driven by strong mozzarella sales in the discount channel.

Carl Colizza: We also see strengthened our Armstrong Brand's national leadership position with gains in slices and snacking categories.

Carl Colizza: Volume growth in everyday cheese reflects our focus on accelerating innovation, recent customer investments, and expanding distribution.

Carl Colizza: Examples include our new small format cheese shreds and bar listings.

and you lactose-free specialty cheeses.

Food service sales volumes were stable year over year.

Carl Colizza: Although we have seen a recent slowdown in that market segment, our food service volumes benefited from our customer diversity and relationships.

Carl Colizza: Our direct selling organization is key in times of industry slowdown.

lower their costs, and create meaningful relationships.

Carl Colizza: Taken together, our food service teams are exceptionally well positioned to drive innovation, value, and operator engagement.

Carl Colizza: In the U.S., we grew total cheese volumes by mid-single digits, supported by positive macro trends and capacity expansion across our cheese network.

Carl Colizza: Volume growth was broad-based and we gained share within our snacking, blue, cheddar and Italian cheese categories in the domestic market.

and Dairy Foods.

Carl Colizza: Volume declined in certain categories mostly due to a slowdown in some of the QSR markets.

Carl Colizza: However, we have seen early evidence of U.S. restaurant traffic trends improving.

Carl Colizza: The dairy commodity environment remains volatile, notably with the milk cheese spread.

Carl Colizza: That being said, the fundamentals that drive our business are strong, with balanced milk supply, low inventory levels, and stable demand.

Carl Colizza: Our strategic initiative benefits are growing and the work streams continue to mature.

Carl Colizza: We are on track to reach our target of $100 million of savings from our operational initiatives by the end of the fiscal year.

Carl Colizza: And we are also pleased to see duplicate costs continuing to decrease.

Carl Colizza: We are unlocking additional production capacity and realizing cost savings across our network.

These wins.

Carl Colizza: as well as our focus on continuous improvement across all our facilities are resulting in the highest levels of cheese productivity since the launch of our capital investment cycle.

Carl Colizza: Our productivity and commercial performance are also providing the flexibility to increase investments behind our brands.

Carl Colizza: A good example is Mon Chèvre, our leading U.S. goat cheese brand.

Carl Colizza: We launched the MonChef Mike's Hot Honey Goat Cheese, a collaboration with Mike's Hot Honey to bring the sweet heat flavor to our award-winning goat cheese.

Carl Colizza: Our Treasure Cave brand expanded its portfolio to include a creamier version of our traditional blue.

Carl Colizza: creating an approachable entry point for consumers that may be apprehensive of the sharper flavors associated with blue cheese.

Carl Colizza: In the international sector, our results were lower than last year.

Carl Colizza: In Argentina, currency devaluation has not kept pace with inflation, which has impacted export margins.

Operational costs, including milk.

Carl Colizza: Still, domestic cheese volumes were higher and were gaining share, a good performance given the dynamic economic situation in Argentina.

Carl Colizza: In Australia, our performance in the quarter showed continued improvement compared to the challenging environment we faced last year. Domestic volumes were steady and we strategically increased our export volumes as international prices were moving higher.

Carl Colizza: Our teams have also made significant efforts to reduce costs and respond to the changing marketplace, particularly from a capacity and a milk supply standpoint.

Carl Colizza: On that note, milk supply in Australia is improving, and milk costs have come down since July 1, which marked the start of the new milk year.

Carl Colizza: Our milk intake so far this fiscal is ahead of plan resulting in increased capacity utilization which will be an additional tailwind in a lower milk cost environment.

The

Carl Colizza: We're very pleased with the current state of the business in Australia and optimistic about the balance of the year.

In Europe, our financial performance continues to improve.

Carl Colizza: Cathedral City had a strong momentum with double-digit volume growth in the quarter. We continue to focus on affordable price points, value packages, tailored promotions, and premium offerings to drive our demand.

Carl Colizza: We expect this improvement to continue into the second half of the fiscal year, fueled by innovation and selective investments in advertising and promotions.

Equally important, we saw a rebound in our ingredients business.

with better pricing and a significant volume increase.

Carl Colizza: The increase in volume is mostly due to the transition to a direct-to-customer marketing and selling strategy.

Looking ahead to the balance of the year.

Carl Colizza: Our fiscal 2025 outlook remains largely unchanged. We are focused on delivering on our priorities and we're hopeful that the markets will move in our favor as the year progresses.

Carl Colizza: Heading into Q3, we expect further improvements in all our divisions.

Carl Colizza: It's likely premature to forecast how Argentina will trend given the currency fluctuations.

But overall, we see good momentum building in our business.

Carl Colizza: We expect the consumer environment to remain dynamic. Our proven ability to navigate this type of environment gives us confidence that we can drive further volume across our business.

Carl Colizza: We are focusing on managing the elements within our control and taking actions that position us for long-term success.

Carl Colizza: Our strategy provides a roadmap for achieving strong and consistent results over a multi-year period, and we aim to incrementally advance our strategic pillars every quarter.

Carl Colizza: The long-term potential of a business to create value continues to be very exciting.

Speaker Change: That concludes our formal remarks. I will now turn the call over to Dustin for questions.

Speaker Change: Thank you sir. As a reminder, if you'd like to ask a question, please press star and the number 1 on your telephone keypad.

Speaker Change: We will pause for just a moment to compile the roster.

https://www.youtube.com

And we will begin the question and answer session.

Speaker Change: Our first question comes from the line of Mark Petrie from CIBC.

The line is open.

Speaker Change: Yeah, thanks. Good morning. Thanks for all the comments. I'm hoping you could just expand maybe on what you're seeing in the U.S. specifically, the selling environment there, specifically the competitive dynamics.

Speaker Change: and then how you're balancing sort of, you know, your investments in price with volume growth.

Thanks Mark for the question.

Speaker Change: The U.S. had seen early in, you know, coming off the tail of Q1 into Q2

Speaker Change: We have seen some slowdowns in the QSR market in particular And as you're likely aware, there has been some investments that were made in value meals, if you like, value offerings

Speaker Change: and we're starting to progressively see the benefits of that. Although we may not play directly in what is being offered in these value offerings, foot traffic is improving. And with foot traffic, we're starting to see our numbers in that sector improve as well.

Speaker Change: So, if your traditional pizzerias are on the slower end of things...

Speaker Change: Some of the industrials who are producing frozen pizzas, or rather for the retail sector, have some tailwinds. So the diversity of our portfolio across the channels we service continue to put us in a good position for what we see as continued volume growth.

Speaker Change: Okay and is that any different sort of across other channels and I guess across sort of cheese and and and dairy ingredients?

for Dairy Foods.

Speaker Change: Across the board, like I said, both those segments of our business, call them cheese and dairy foods, play in all spaces, whether that's retail, whether that is in private and or branded products, food service, quick service restaurants, as much as full service.

Speaker Change: So, at the end of the day, we're seeing that momentum building as some of the consumer confidence improves.

Speaker Change: Okay, fair enough. And so it's helpful to sort of hear your perspectives on sort of the US commodity landscape, the supply-demand balance.

Speaker Change: And then I guess related to that, but a bit of a separate question.

Speaker Change: You know, I know one of the challenges in the U.S. commodity picture is the way price and sort of the puts and takes

Speaker Change: on the different sort of refinements or types of way. And I'm just wondering if there's any way to sort of add flexibility to your network. I know it's difficult because those are long cycle.

Speaker Change: investments and big-ticket items, but just wondering, sort of big picture, if there's a way to, you know, address some of those challenges when it comes to weight, sort of specifically.

Speaker Change: What I would start with, Mark, is that some of the fundamentals in the U.S. sector, dairy sector, are good.

Speaker Change: And by that, specifically, the balance between supply and demand is in a good place.

Speaker Change: Some of the most recent information in and around cheese inventories across the nation are also showing that they're relatively low. So that puts us in a general good place when it comes to that supply and demand dynamic.

Thank you. You're welcome.

Speaker Change: is high today that has an influence on the price of milk influencing our spread.

Speaker Change: but we also believe it's somewhat transitory. It's not a sector that necessarily has seen any real meaningful investments over the last 5 to 10 years, and it's partly the reason for why that weight price is as high as it is.

Speaker Change: There has been an increase in demand, steady demand for that product, but very little inventory available that has driven sort of the pricing to where it is today. But it is not...

Speaker Change: I'll say a value-added ingredient that we believe long-term will be the source of whey protein for customers and consumers. The diversification we have today in higher fractions

Speaker Change: first and foremost are also benefiting from that way price and we continue to believe that that is the right balance of product offerings and the tools that we have within our U.S. business match that for our long-term success.

Speaker Change: Yeah, I mean, I understand it's not a value-added ingredient, and I'm not suggesting you would make big investments to focus in that area, but at the same time, clearly there is an imbalance in supply and demand. So, you're saying you believe it's transitory. Are you seeing

Speaker Change: supply come into that space or do you have a reason to believe that demand would fall off or move to other areas of the protein market?

Speaker Change: So there is supply and some people are being opportunistic including Saputo. We do still have sweet way capabilities So that basic commodity

We do still manufacture that.

and we too will shift.

across the board. So, yes, there is...

Speaker Change: flexibility. It's not a complete 100% capability from one to another and it it'll take a little a little bit here for that demand to be satisfied and we expect that pricing to subside at that point.

Speaker Change: Okay, appreciate all the comments. I'll pass the line and all the best.

Thank you, Mark.

Speaker Change: Thank you. Our next question comes from the line of Michael Van Elst from TD Securities. The line is open.

Speaker Change: You had a pretty impressive growth rate in Canada's EBITDA of 10% and the investments there are a little bit more mature.

Canada got the investments in technology and

Speaker Change: automation and capacity earlier than the U.S. did. And I'm wondering, is that part of the reason why we're seeing an acceleration of your FDA growth and your margin expansion, and is this a precursor of what you think could happen in the U.S.?

The End.

For sure, so in the Canadian sector

Speaker Change: They have been on a multi-year journey for some time now to optimize their platform, equip themselves with various tools.

Speaker Change: to be successful and to support the brands that we have. And what we're seeing today comes from a combination of things, but a high percentage of it is from operational efficiencies.

whether that be in, you know, automation.

Speaker Change: whether that is in maximizing the throughput in the various facilities that we have, as well as having the appropriate equipment to be able to supply the innovation, the demand in the marketplace for our products.

Speaker Change: So, the short answer is yes, our reduction in operating costs...

Speaker Change: in part associated to the capital expenditures that we've put there through numerous years, as well as the Canadian team's ability to reduce other costs like SG&A, have also assisted us in delivering the results that we have today.

Speaker Change: Our timelines associated to network optimization still see us into the next fiscal year before were able to complete that.

Speaker Change: And have all of the tools that we expected to in line started up.

Speaker Change: Needed to support the brands and our offerings in the retail sector.

Speaker Change: Okay.

Speaker Change: Alright, and then just on those duplicate overhead costs and when do you see those falling off.

Speaker Change: There every week, we're seeing these fallen off we expect another.

Speaker Change: Important reduction in Q3, followed by.

Speaker Change: Continuing reduction into Q4, so those duplicate costs right now.

Speaker Change: Is really a function of the timeline that described whereby we expect to complete our network optimization sometime in 2006, but we should see a.

A large share of the lion's share of those duplicate costs come off by the end of the fiscal.

Speaker Change: Okay.

And then Max Omnia in CIB.

Speaker Change: Can you explain what's behind the decision to limit it to 2% of shares outstanding given that your balance sheet is deleveraging you seem to be comfortable where they are or your operations are.

Speaker Change: And the valuation is.

So low on your share price historically.

Speaker Change: Well.

Speaker Change: Mike We are committed we want to.

Speaker Change: To maintain our balanced approach is.

Speaker Change: As it regards to capital allocation.

Speaker Change: <unk>.

We've highlighted priorities.

Speaker Change: As to the dividend, we highlighted that we want to maintain with protection did increase last quarter.

Speaker Change: So on the Capex perspective.

Speaker Change: At a lower pace. So this year is lower than the prior year and.

So we intend to maintain a lower level than historical less three or four years.

Speaker Change: Certainly I want to take care of the of the depths so debt reductions continue to be.

Speaker Change: And our priorities.

Speaker Change: So we moved on and very.

Speaker Change: Consistent and balanced approach, we removed a drift back last winter in sort of February and now where we sit is.

Speaker Change: Based on our cash flow generation. It certainly opens the door to do different things.

Speaker Change: One of those different thing is to proceed with some share repurchase.

Speaker Change: With the with the in CIB as we did in the past and CIB will continue to be part of our future. There is no really change in the approach and the 2% really is what could be realistically.

Speaker Change: Purchase within the next 12 months should we see.

Speaker Change: And cash generation.

Heating or.

Speaker Change: <unk> type of level nothing would prevent us too.

Speaker Change: To augment it.

Push that limit so in reality. It was just wanted to have a consistent balanced approach.

Speaker Change: We want to be calibrated.

Continue to build that some financial flexibility to support our growth organically and <unk>.

Speaker Change: Through our various investments.

Speaker Change: Alright, thanks for that.

Speaker Change: Yes.

Speaker Change: Thank you.

Our next question comes from the line of Chris Lee from Visa open.

Speaker Change: Your line is open.

Speaker Change: Thanks, Doug good morning, everyone.

Speaker Change: My first question is.

Speaker Change: I noticed there was a subtle wording change in your 2025 outlook and then I just wanted to see if I'm reading too much into it. So in one of the line items you'd noted that.

Speaker Change: Cash flow generation should increase as you harvest benefits from operational improvements I think the previous outlook. The wording was driven by improvements in adjusted EBITDA. So I'm just wondering that.

Speaker Change: Is that just more semantics or.

Speaker Change: Could you kind of retention you tried to.

Speaker Change: Flag, some sort of outlook in terms of what the EBITDA growth should look like.

Speaker Change: For the balance of the year. Thanks.

Speaker Change: Thanks, Chris for the question and yes, Youre reading too much into it.

Speaker Change: We didn't say, yes, we did say in the very first bullet in fact of our outlook we talk about.

Speaker Change: Expectations for steady improvements.

Speaker Change: And being able to maintain.

Speaker Change: Are you able to.

Speaker Change: Remain on course for delivering our long term goals. So that has not changed in any way. So we still feel very strong about the fundamentals in each of the operating sectors that we have.

Speaker Change: And I both described.

Speaker Change: There are some very good momentum occurring across the board.

Speaker Change: And that has not changed our confidence in.

Speaker Change: Our near term and long term outlook.

Speaker Change: Okay, that's great to hear and maybe I'll just take the opportunity to ask you a follow up on this and I guess so far in the first half of the year you EBITDA has been flattish for obvious reasons you highlighted as we look into the second half can you at least on a high level talk to US about do you expect second half to be a bit of an inflection point in terms of the EBITDA growth assuming.

Speaker Change: Kind of the current conditions remain where they are.

Speaker Change: And.

Speaker Change: I think the best way to answer that is to give you some sort of some clarity on on what is occurring in each of the sectors.

Speaker Change: Let me start with Canada without taking it for granted by any means but we do expect there to be continued stability.

Speaker Change: <unk> performance in that sector with the fundamentals of our team are offering our customers.

Speaker Change: Being favorable.

Speaker Change: If I move to the U S.

Speaker Change: When we take a look at where we're at with our returns from our capital investments and the various initiatives.

Speaker Change: We do believe that in Q3, Q4 or going to see continued improvement.

Speaker Change: Some of the first half.

Speaker Change: It was about a $44 million improvement in the U S.

We're confident that we will be able to meet the $100 million target that we set for ourselves.

Speaker Change: This will translate fundamentally.

Speaker Change: By increased performance in Franklin.

Speaker Change: As well as the rest of our of our base business. So we feel good about that we feel good about the demand as well and right now the signs with regards to the market conditions.

Speaker Change: So more specifically.

Speaker Change: Look.

Speaker Change: Cheese spread.

Speaker Change: Though we don't expect it to be positive by any means.

We do expect it to be better than what we have seen to date.

Speaker Change: And then if we move on into Europe, the European sector continues.

Speaker Change: Its recovery.

Speaker Change: I think we all know by now the story in and around.

Speaker Change: The high cheese costs inventory is behind us.

Speaker Change: The UK consumers in a better place I, certainly don't want to underestimate the inflationary pressures that they all went through and there is still some inflation there that they need to contend with the cathedral city continues to make.

Speaker Change: Share gains and is in a very good place our ingredients business is performing better as well as the rest.

Of the.

Speaker Change: <unk> product that we produce in that sector.

Speaker Change: And then if I move over to Australia, Australia continues to be right, where we wanted Australia to be following the capital investments we've put in there the network.

Speaker Change: Optimization.

Speaker Change: Hard work that has gone on with the team.

To deliver the platform we have to match the demand both domestically.

Speaker Change: And internationally and.

Speaker Change: And we do believe that with the better balance between the milk price and that of <unk>.

Speaker Change: The international selling prices, which are holding steady.

Speaker Change: We also expect the Australian platform to perform quite well.

Speaker Change: That leads me to Argentinian team, who continue to do extremely well under the circumstances that.

Speaker Change: That they operate in.

I am certainly not going to venture into.

What kind of monetary policy or changes in the inflationary rates.

Speaker Change: Or the value of the peso and the impact that might have.

Speaker Change: So overall it is some very good momentum across the board in half two.

Speaker Change: We will deliver.

On results.

Speaker Change: Thanks Scott.

Speaker Change: Fulsome answer really appreciate it and maybe if I can squeeze another question.

Speaker Change: It was still very early days, but I'd love to get your comments on your thoughts on the U S election.

Speaker Change: And what the implications could be for you guys and so sector, maybe so looking back what happened the last time Trump was in office.

Speaker Change: Very early to tell there are a lot of.

Speaker Change: A lot of.

Speaker Change: Potential implications to the overall consumer let me start with that.

Speaker Change: But overall I'm going to say neutral when it comes to the consumer I don't expect it to the consumer to overnight have higher confidence.

Speaker Change: And then discretionary income to spend.

Speaker Change: And for it to have tailwind in our business.

Speaker Change: But I think the question is more pointed to whether or not a main.

Speaker Change: Either impede our ability to export.

Speaker Change: <unk> have implications on various trade deals.

And if I go to those two in particular, if we take U S. MCA.

Yes, it's a very open agenda item and we do expect there to be a.

Speaker Change: A re questioning of each other's obligations within that trade deal dairy being an element that will be discussed.

Speaker Change: But I also don't want to overplay it.

Speaker Change: Isn't the most meaningful if you want of implications to our Canadian business.

Speaker Change: <unk> U S for that matter should there be a change.

Speaker Change: We operated a number of different jurisdictions for milk, a number of different rules of imports and allocations and quotas.

Speaker Change: Whatever decision the Canadian government and that is the U S make.

Speaker Change: We'll be able to adapt to so it isn't something that we're overly concerned with by any means and then when it comes to exports and the potential trade war tariff wars that might exist.

Speaker Change: The demand for dairy isn't necessarily going to change so.

Speaker Change: The beauty of our platform is that we have the ability to supply customers from different basis. So should there be some sort of impediment for us to export from the U S to which just not forget our export platform.

Speaker Change: Is not extremely large from the U S, especially now with the core products.

Speaker Change: Meaningful in our ingredient sector, but it's also the sector by which we've got the most redundancy globally. So we can adapt where we need to should that come to fruition and so having said that in the end.

Speaker Change: I'll say, it's a fairly neutral as far as the potential impact of <unk>.

Speaker Change: What has been presented.

Speaker Change: By the Republican government.

Speaker Change: Thanks, very much appreciate your thoughts and all the best to you two things.

Speaker Change: Thanks, Chris.

Speaker Change: Thank you.

Speaker Change: Our next question comes from the line of Irene <unk> from RBC capital markets. Your line is open.

Speaker Change: Thanks, and good morning, everyone really appreciate all the color and the detail you provided.

Speaker Change: Just most of my questions, but one thing I just wanted to ask explicitly.

Speaker Change: The two letters and in any of the answers today, just if you could as you reaching this cash flow inflection point.

Can you just please update us on your current views on potential for M&A.

Speaker Change: Thank you Irene excellent question.

Speaker Change: And I think in part Max sort of addressed it with the desire to.

Speaker Change: Maintaining a balanced capital allocation approach part of the reason why.

We are not.

Speaker Change: We didn't pick a number higher than 2% for the CIB is to ensure that we remain flexible.

Speaker Change: We will continue to look at opportunities.

Speaker Change: For growth in our business in different geographies, whether that is the complement some of the portfolios that we have or whether that is potentially in different geographies. So M&A is still on the table for us.

Speaker Change: Yeah.

Speaker Change: I'll say a.

Speaker Change: Priority by which comes secondary to delivering on what it is our current capital.

Speaker Change: Cloyd is supposed to deliver to our bottom line, but we do have a dedicated team of individuals who are constantly looking at.

Speaker Change: What would be complementary for our growth strategy, our commercial strategy as well as what is available in the market.

Speaker Change: So I think by being balanced and what it is we allocate our cash generation to will allow us to remain flexible as well as being opportunistic should it should it be required.

Speaker Change: That's very helpful. Thank you.

Speaker Change: Thank you.

Our next question comes from the line.

Speaker Change: Charles Zhang.

Speaker Change: From National Bank.

Speaker Change: Your line is open.

Hi, Thanks for taking my questions I was wondering if you could just give us your updated color on the proposed USDA changes on the actual milk marketing orders.

Speaker Change: How should we expect that to enroll when and what would the impact pieces.

Speaker Change: Thank you Vishal for the question as we understand it today.

Speaker Change: The USDA final recommendation should be published by November 12.

Speaker Change: Following that there needs to be.

Speaker Change: A farmer AG sector vote.

Speaker Change: Referendum that encourage either in December or January.

Speaker Change: Once that election or that.

Speaker Change: That process is completed.

Speaker Change: And if accepted we would probably see an implementation.

Speaker Change: Of the changes.

Speaker Change: In various pricing mechanisms occur in June of 2025.

We remain optimistic that the final proposal by USDA will be voted upon favorably.

Speaker Change: And therefore accepted.

And as it's currently drafted.

Speaker Change: It would be beneficial to <unk>, one thing I can point to as an example.

Speaker Change: Would be the <unk>.

Speaker Change: Components associated to the block and barrel.

Speaker Change: Red.

Speaker Change: If we just look at it over the last six to 12 months.

Speaker Change: The way the current draft.

Of the proposal was written the barrel will be removed from the milk pricing formula.

Speaker Change: That removal considering the disconnect that existed between the block in the barrel would yield a favorable impact by comparison to the last six to 12 months for <unk>.

Speaker Change: So.

At the end of the day, we do feel that what is.

Bose what will be proposed by the USDA helps bridge the gap.

Speaker Change: From the last time this was done in 2008.

With regards to a variety of make allowances and fundamentally positions.

The AG sector closer to today's market realities.

Speaker Change: Okay. Thank you for that color and just a high level question here as you settle into your role.

Speaker Change: And there's so much volatility and kudos results can we more so more recently than it has been over the longer term so.

Speaker Change: So when you look at your business and you look at the year and you say Hey. This is these are the metrics.

Speaker Change: Look at to define within my company has been successful or not.

Speaker Change: Whatever they are a market share you retire earnings I was hoping you could give us an insight.

Speaker Change: Your <unk>.

Speaker Change: Your preferred metrics to team whether the company has been successful in any timeframe.

I would say that if I look at it purely on a financial basis, certainly our cash generation.

Speaker Change: And our continued EBIT dull performance, our two top metrics from that perspective.

But youre right with the kind of volatility that we have today in some of the.

Speaker Change: I'll use the word uncontrollable environments.

Speaker Change: Have to continue to to understand clearly.

Speaker Change: The things that are in our control and some of the things that we do look at as well.

Speaker Change: Our market shares are Brent our brand penetration numbers because these in part are things that will help us mitigate.

Speaker Change: The influences of these sectors are market conditions.

Speaker Change: That we're faced with so we have internal benchmarks and expectations on lowering our input costs.

Speaker Change: On improving with regards to the percentage of our business that is in the retail sector as well as the performance of our brands and if I can check those 456 things off at the end of the year.

Speaker Change: I think we'll be able we'll be able to say that.

Speaker Change: We've created value for our shareholders.

Speaker Change: And that we are well positioned for continued success.

Speaker Change: Okay, and just one more quick one here for Max in terms of the buyback given the approach for our balanced capital allocation is this something that we should come in for the remainder of our forecasts or should we just take it as it comes to you by year.

Speaker Change: Well.

Speaker Change: I mean is.

It's going to be part of our priority is we're looking to next 12 months.

Speaker Change: But like I said I mean, the timing.

Speaker Change: I'm not going to commit on any timing and so on but yes.

Speaker Change: Factored in within the next 12 months Swisher.

Speaker Change: Thank you.

Okay.

Speaker Change: Thank you.

Speaker Change: Our next question comes back from the line of Michael Van <unk> from TD Securities.

Speaker Change: Your line is open.

Speaker Change: Thank you just a few clarifications first Carl <unk>.

Talked about the.

You're being optimistic on the farmer vote.

Speaker Change: Is that an all or none type.

Speaker Change: Voters are they voting on this on components of the formula individually or are they voting on.

Speaker Change: Take it or leave it just won one vote.

Speaker Change: No.

Speaker Change: They don't vote on the components of the Formula.

Speaker Change: They do vote on the package that is recommended but.

Speaker Change: Theres also regions. So there could be a scenario whereby one region chooses.

Speaker Change: Not to hold forward favorably and are no longer part of the federal milk marketing order and I kind of bring you back to.

Speaker Change: Another referendum that was held.

Post 2010, when California.

Speaker Change: Who was not part of the federal milk marketing order.

Speaker Change: Guided to two to enter that ring, if you like so there could be some regional differences.

Speaker Change: Where the volt goes.

Speaker Change: But again we're.

Speaker Change: We are prepared to adapt to whatever the circumstances are.

Speaker Change: Okay.

Speaker Change: And then on your M&A comments in the past.

Speaker Change: I think lino I had been saying that whatever.

Speaker Change: If you were to do M&A. It has to be immediately accretive is that what you are trying to get out when you talked about.

Speaker Change: It has to be consistent with your other.

Speaker Change: Or at least better than what your other options are.

Speaker Change: Yes.

Speaker Change: Absolutely I mean, we always look at it on the base itself.

If we if we were to invest our own capital.

Speaker Change: And when you look at the kind of timelines associated to it coming to fruition delivering to our bottom line versus out of a potential.

Speaker Change: Whether it's a tuck in in nature or something larger.

Speaker Change: Has to be accretive in nature.

Speaker Change: We're not we're not looking for.

Speaker Change: We're going to use the word.

Speaker Change: <unk> fix or upper.

That that is going to distract us from what we're currently focused on.

Speaker Change: We'd be focused on ensuring that whatever comes our way and whatever we have an interest in and delivers to the bottom line to date.

Speaker Change: And puts us in a.

Speaker Change: Position to deliver on what our commercial XP.

Speaker Change: Expectations and obligations not obligations, our commercial objectives are.

Speaker Change: Okay perfect. Thank you.

Speaker Change: Thank you.

Speaker Change: As there are no more questions in the queue that concludes our question and answer session. I will now turn the call back over to Nick Estrela for closing remarks.

Nick Estrela: Thank you Dustin. Please note that we will release, our third quarter fiscal 2025 results on February six 2025, we thank you for taking part in the call and webcast and have a great day.

Nick Estrela: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Speaker Change: Please wait the conference will begin shortly.

Okay.

Speaker Change: Yes.

Okay.