Q1 2027 Saputo Inc Earnings Call

August 7, 2026

Operator: Hello, and welcome to the Saputo First Quarter 2027 Financial Results Call. All lines have been placed on mute to prevent any background noise. 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 one on your telephone keypad. If you would like to withdraw your question, simply press star one again. I'll now turn the conference over to Nicholas Estrela, Head of Investor Relations. Please go ahead.

Speaker #1: Hello, and welcome to the SAPUTO first quarter 2027 financial results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session.

Speaker #1: If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again.

Speaker #1: I will now turn the conference over to Nick Estrela, Head of Investor Relations. Please go ahead.

Speaker #2: Thank you, Jale. Good morning, and welcome to our first quarter fiscal 2027 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary.

Nicholas Estrela: Thank you, JL. Good morning, and welcome to our first quarter fiscal 2027 earnings call. Our speakers today will be Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded, and the webcast will be posted on our website along with the first quarter investor presentation. Please also note that some of the statements provided during this call are forward-looking. Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Carl.

Speaker #2: Before we begin, I'd like to remind you that this webcast and conference call are being recorded, and the webcast will be posted on our website along with the first quarter investor presentation.

Speaker #2: 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.

Nicholas 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. We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings. Please treat any forward-looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information, except as required under securities legislation. I'll now hand it over to Carl.

Speaker #2: We refer to our cautionary statements regarding forward-looking information in our annual report, press releases, and filings. Please treat any forward-looking information with caution as our actual results could differ materially.

Speaker #2: We do not accept any obligation to update this information except as required under securities legislation. I'll now hand it over to Carl.

Speaker #3: Thank you, Nick. Good morning, everyone, and thank you for joining us. We started the year with a strong first quarter, one that builds directly on the momentum we exited fiscal 2026 with, and reinforces the direction we set out for this business.

Carl Colizza: Thank you, Nick. Good morning, everyone, and thank you for joining us. We started the year with a strong first quarter, one that builds directly on the momentum we exited fiscal 2026 with and reinforces the direction we set out for this business. All four of our operating sectors delivered earnings growth versus the prior year, supported by commercial momentum, higher volumes from expanded ingredients capacity, and the operational efficiencies flowing through from our prior capital investments. Importantly, this performance also reflects our ability to mitigate the cost inflation we continue to manage across our network. What is particularly encouraging is that this performance is broad-based. It reflects the quality of the platform we have built, not the benefit of any single tailwind. On a consolidated basis, adjusted EBITDA grew close to 8%, and our margins expanded.

Speaker #3: All four of our operating sectors delivered earnings growth versus the prior year, supported by commercial momentum, higher volumes from expanded ingredients capacity, and the operational efficiencies flowing through from our prior capital investments.

Carl Colizza: Importantly, this performance also reflects our ability to mitigate the cost inflation we continue to manage across our network. What is particularly encouraging is that this performance is broad-based. It reflects the quality of the platform we have built, not the benefit of any single tailwind. On a consolidated basis, adjusted EBITDA grew close to 8%, and our margins expanded.

Speaker #3: Importantly, this performance also reflects our ability to mitigate the cost inflation we continue to manage across our network. What is particularly encouraging is that this performance has broad-based, it reflects the quality of the platform we have built, not the benefit of any single tailwind.

Speaker #3: On a consolidated basis, adjusted EBITDA grew close to 8%, and our margins expanded. Behind those numbers is a business that is executing with more discipline, converting demand into higher-quality earnings, and benefiting from a more focused portfolio.

Carl Colizza: Behind those numbers is a business that is executing with more discipline, converting demand into higher quality earnings, and benefiting from a more focused portfolio. Nowhere is this clearer than in ingredients, where the investments we have made over the past several years to expand capacity and upgrade our production network are now translating into results. Whey, lactose, and high protein ingredients are performing well. Market conditions are constructive, and our positioning allows us to capture the opportunity while continuing to serve the customer base we have built alongside these platforms. This is precisely why we have invested in assets such as Waupun. Through targeted investments in capacity, capabilities, and product quality, we have strengthened our ability to participate in higher value protein and lactose categories, where we see attractive long-term demand.

Speaker #3: Nowhere is as clear as in ingredients, where the investments we have made over the past several years to expand capacity and upgrade our production network are now translating into results.

Speaker #3: Whey, lactose, and high-protein ingredients are performing well, market conditions are constructive, and our positioning allows us to capture the opportunity while continuing to serve the customer base we have built alongside these platforms.

Carl Colizza: Market conditions are constructive, and our positioning allows us to capture the opportunity while continuing to serve the customer base we have built alongside these platforms. This is precisely why we have invested in assets such as Waupun. Through targeted investments in capacity, capabilities, and product quality, we have strengthened our ability to participate in higher value protein and lactose categories, where we see attractive long-term demand.

Speaker #3: This is precisely why we have invested in assets such as Wapon, through targeted investments in capacity, capabilities, and product quality, we have strengthened our ability to participate in higher-value protein and lactose categories, where we see attractive long-term demand.

Speaker #3: This is a category we believe in, and one where we are committed to building a leadership position over time. More broadly, the consumer backdrop for dairy remains supportive. Protein continues to be a defining theme in how consumers think about food, and dairy is uniquely positioned to meet that demand.

Carl Colizza: This is a category we believe in. One where we are committed to building a leadership position over time. More broadly, the consumer backdrop for dairy remains supportive. Protein continues to be a defining theme in how consumers think about food. Dairy is uniquely positioned to meet that demand across cheese, ingredients, cultured products, and value-added beverages. Beyond its protein content, dairy provides key nutrients, affordability, convenience, and versatility, reinforcing its relevance in consumers' day-to-day food choices and eating habits around the world. We remain optimistic about the runway ahead. Protein consumption is not a passing trend. It is a structural shift that plays to the strengths of our portfolio and reinforces the choices we are making in where to invest. Strategically, our approach is unchanged.

Speaker #3: Frost cheese, ingredients, cultured products, and value-added beverages, beyond its protein content, dairy provides key nutrients, affordability, convenience, and versatility. Reinforcing its relevance in consumers' day-to-day food choices and eating habits around the world.

Speaker #3: We remain optimistic about the runway ahead. Protein consumption is not a passing trend. It is a structural shift that plays to the strengths of our portfolio and reinforces the choices we are making in where to invest.

Carl Colizza: We remain optimistic about the runway ahead. Protein consumption is not a passing trend. It is a structural shift that plays to the strengths of our portfolio and reinforces the choices we are making in where to invest. Strategically, our approach is unchanged. We continue to concentrate on the categories, geographies, and customers where we can win. We are prepared to simplify and act where we cannot.

Speaker #3: Strategically, our approach is unchanged. We continue to concentrate on the categories, geographies, and customers where we can win. And we are prepared to simplify and act where we cannot.

Carl Colizza: We continue to concentrate on the categories, geographies, and customers where we can win. We are prepared to simplify and act where we cannot. That discipline was evident again this quarter with the closing of the sale of a majority stake in our Argentina operations. We are committed to making thoughtful portfolio choices that strengthen our business, sharpen our focus, and support disciplined capital allocation. Our objective is straightforward: concentrate capital and management attention on the areas where we have the clearest path to sustainable growth and value creation. At the same time, we return meaningful capital to shareholders through our share buyback program and a 5% increase to our quarterly dividend, a clear signal of the confidence in the trajectory of the business and the strength of our cash generation.

Speaker #3: That discipline was evident again this quarter with the closing of the sale of a majority stake in our Argentina operations. We are committed to making thoughtful portfolio choices that strengthen our business, sharpen our focus, and support disciplined capital allocation.

Carl Colizza: That discipline was evident again this quarter with the closing of the sale of a majority stake in our Argentina operations. We are committed to making thoughtful portfolio choices that strengthen our business, sharpen our focus, and support disciplined capital allocation. Our objective is straightforward: concentrate capital and management attention on the areas where we have the clearest path to sustainable growth and value creation.

Speaker #3: Our objective is straightforward: concentrate capital and management attention on the areas where we have the clearest path to sustainable growth and value creation. At the same time, we return meaningful capital to shareholders through our share buyback program.

Carl Colizza: At the same time, we return meaningful capital to shareholders through our share buyback program and a 5% increase to our quarterly dividend, a clear signal of the confidence in the trajectory of the business and the strength of our cash generation. Taken together, this quarter reflects where we are on our journey, past the heaviest phase of investment, executing with more consistency, and increasingly able to translate strategy into results. I will now turn the call over to Max for the financial review before coming back with some concluding remarks.

Speaker #3: And a 5% increase to our quarterly dividend, a clear signal of the confidence in the trajectory of the business and the strength of our cash generation.

Speaker #3: Taken together, this quarter reflects where we are on our journey. Past the heaviest phase of investment, executing with more consistency, and increasingly able to translate strategy into results.

Carl Colizza: Taken together, this quarter reflects where we are on our journey, past the heaviest phase of investment, executing with more consistency, and increasingly able to translate strategy into results. I will now turn the call over to Max for the financial review before coming back with some concluding remarks.

Speaker #3: I will now turn the call over to Max for the financial review before coming back with some concluding remarks.

Speaker #2: Thank you, Carl, and good morning, everyone. Before turning to the results, a brief update on the portfolio changes reflected in our reporting this quarter.

Maxime Therrien: Thank you, Carl. Good morning, everyone. Before turning to the results, a brief update on the portfolio changes reflected in our reporting this quarter. On 18 June, we closed the sale of an 80% interest in our Dairy Division (Argentina) to Gloria Foods. We received proceeds of CAD 710 million, representing approximately CAD 612 million after tax. Argentina is presented as a discontinued operation. Prior period results have been presented accordingly. All figures I will discuss today reflect continuing operation, which exclude the Dairy Division (Argentina) results. On 22 June, we announced an agreement to sell our interest in the Danone Saputo Dairy Australia joint venture for approximately CAD 253 million. The transaction is subject to regulatory approval and is expected to close in the H2 of calendar 2026. The related assets have been classified as held for sale as of 30 June.

Speaker #2: On June 18, we closed the sale of an 80% interest in our dairy division, Argentina to Gloria Foods. We received proceeds of $710 million representing approximately $612 million after tax.

Speaker #2: Argentina is presented as a discontinued operation and prior period results have been presented accordingly. All figures I will discuss today reflect continuing operation, which exclude the dairy division, Argentina results.

Maxime Therrien: All figures I will discuss today reflect continuing operation, which exclude the Dairy Division (Argentina) results. On 22 June, we announced an agreement to sell our interest in the Danone Saputo Dairy Australia joint venture for approximately CAD 253 million. The transaction is subject to regulatory approval and is expected to close in the H2 of calendar 2026. The related assets have been classified as held for sale as of 30 June.

Speaker #2: On June 22, we announced an agreement to sell our interest in the Danone Saputo Dairy Australia joint venture for approximately $253 million. The transaction is subject to regulatory approval and is expected to close in the second half of calendar 2026.

Speaker #2: The related assets have been classified as held for sale as of June 30. First quarter results reflect earnings growth and margin expansion, with all four sectors contributing to higher year-over-year profitability.

Maxime Therrien: First quarter results reflect earnings growth and margin expansion, with all four sectors contributing to a higher year-over-year profitability. Adjusted EBITDA increased close to 8%, or CAD 30 million, to CAD 427 million. Margins expanded to 9.7%, up from 9.1% last year. Revenue came in at CAD 4.4 billion, up 1.5%, driven by volume growth in high protein ingredients, higher domestic selling prices, and higher dairy ingredient market prices, partially offset by lower US cheese block and butter market prices. Net earnings from continuing operation were CAD 183 million. On an adjusted basis, net earnings were up 13% at CAD 199 million, and adjusted EPS increased 17% to CAD 0.49, benefiting from stronger earnings and the impact of our share repurchase program.

Speaker #2: Adjusted EBITDA increased close to 8%, or $30 million, to $427 million. Margins expanded to 9.7%, up from 9.1% last year. Revenue came in at $4.4 billion, up 1.5%, driven by volume growth in high-protein ingredients, higher domestic selling prices, and higher dairy ingredient market prices, partially offset by lower U.S. cheese block and butter market prices.

Maxime Therrien: Net earnings from continuing operation were CAD 183 million. On an adjusted basis, net earnings were up 13% at CAD 199 million, and adjusted EPS increased 17% to CAD 0.49, benefiting from stronger earnings and the impact of our share repurchase program. Net cash from operating activities from continuing operation was CAD 151 million in the quarter and reflects higher working capital usage driven by the timing of receivables and payables and higher inventory levels to support customer demand. We feel confident about our cash generation through the balance of the year.

Speaker #2: Net earnings from continuing operation were $183 million. On an adjusted basis, net earnings were up 13% at $199 million and adjusted EPS increased 17% to $49 cents, benefiting from stronger earnings and the impact of our share repurchase program.

Speaker #2: Net cash from our operating activities from continuing operation was $151 million in the quarter, and reflects higher working capital usage. Driven by the timing of receivable and payable, and higher inventory levels to support customer demand.

Maxime Therrien: Net cash from operating activities from continuing operation was CAD 151 million in the quarter and reflects higher working capital usage driven by the timing of receivables and payables and higher inventory levels to support customer demand. We feel confident about our cash generation through the balance of the year. Capital expenditures totaled CAD 57 million in the quarter, in line with our phasing plan. For fiscal 2027, we continue to expect capital expenditures of approximately CAD 515 million, weighted towards high-return projects in our fastest-growing dairy segment, capacity optimization, and operational efficiency. During the quarter, we used proceeds from the Argentina divestiture to repay the CAD 350 million of our Series 8 senior unsecured note. We returned approximately CAD 380 million to shareholders through the repurchases of 7.2 million common shares for approximately CAD 300 million under our NCIB and dividend payment of CAD 80 million.

Speaker #2: We feel confident about our cash generation through the balance of the year. Capital expenditure total $57 million in the quarter, in line with our phasing plan.

Maxime Therrien: Capital expenditures totaled CAD 57 million in the quarter, in line with our phasing plan. For fiscal 2027, we continue to expect capital expenditures of approximately CAD 515 million, weighted towards high-return projects in our fastest-growing dairy segment, capacity optimization, and operational efficiency. During the quarter, we used proceeds from the Argentina divestiture to repay the CAD 350 million of our Series 8 senior unsecured note.

Speaker #2: For fiscal '27, we continue to expect capital expenditure of approximately $515 million, weighted towards high-return projects in our fastest-growing dairy segment, capacity optimization, and operational efficiency.

Speaker #2: During the quarter, we used proceeds from the Argentina divestiture to repay the $350 million of our Series 8 senior unsecured note. We returned approximately $380 million to shareholder through the repurchases of $7.2 common shares for approximately $300 million.

Maxime Therrien: We returned approximately CAD 380 million to shareholders through the repurchases of 7.2 million common shares for approximately CAD 300 million under our NCIB and dividend payment of CAD 80 million. Subject to TSX approval, we intend to increase our NCIB to approximately 24 million shares, representing the maximum 10% of public float permitted under TSX rules. Supported by our strong balance sheet, we expect to remain active in repurchasing shares.

Speaker #2: Under our NCIB and dividend payment of $80 million, subject to TSX approval, we intend to increase our NCIB to approximately 24 million shares, representing the maximum 10% of public float permitted under TSX rules.

Maxime Therrien: Subject to TSX approval, we intend to increase our NCIB to approximately 24 million shares, representing the maximum 10% of public float permitted under TSX rules. Supported by our strong balance sheet, we expect to remain active in repurchasing shares. As announced yesterday, the board also approved a 5% increase in the quarterly dividend from CAD 0.20 to CAD 0.21 per share, effective with the September payment. From a leverage perspective, our net debt to adjusted EBITDA ratio ended the quarter at 1.47 times. Our long-term leverage target remains 2.25 times, providing meaningful capacity to fund growth initiatives and capital projects. We also remain committed to a balanced approach to capital return. Revenue in Canada was CAD 1.4 billion, up 6% year over year, driven by higher sales volume across cheese, dairy food, and milk.

Speaker #2: Supported by our strong balance sheet, we expect to remain active in repurchasing shares. As announced yesterday, the board also approved a 5% increase in the quarterly dividend from $0.20 to $0.21 per share effective with the September payment.

Maxime Therrien: As announced yesterday, the board also approved a 5% increase in the quarterly dividend from CAD 0.20 to CAD 0.21 per share, effective with the September payment. From a leverage perspective, our net debt to adjusted EBITDA ratio ended the quarter at 1.47 times. Our long-term leverage target remains 2.25 times, providing meaningful capacity to fund growth initiatives and capital projects. We also remain committed to a balanced approach to capital return. Revenue in Canada was CAD 1.4 billion, up 6% year over year, driven by higher sales volume across cheese, dairy food, and milk.

Speaker #2: From a leverage perspective, our net debt to adjusted EBITDA ratio ended the quarter at 1.47 times. Our long-term leverage target remains 2.25 times, providing meaningful capacity to fund growth initiatives and capital projects.

Speaker #2: We also remain committed to a balanced approach to capital return. Revenue in Canada was $1.4 billion, up 6% year over year, driven by higher sales volume across cheese, dairy foods, and milk.

Speaker #2: Results also benefited from a favorable product mix reflecting stronger sales of value-added beverages and culture products supported by consumer demand for high-protein offering and supported by targeted ANP investment behind our homestrong and Saputo brands.

Maxime Therrien: Results also benefited from a favorable product mix, reflecting stronger sales of value-added beverages and cultured products, supported by consumer demand for high-protein offerings and supported by targeted A&P investment behind our Armstrong and Saputo brands. Higher domestic selling prices implemented to mitigate inflationary pressures and higher raw milk costs further support top-line growth. Adjusted EBITDA was CAD 175 million, up 3%, driven by higher sales volume and a favorable product mix, with margin at 12.5% compared to 12.9% last year. Manufacturing efficiency from our capital investment in automation and production capability continued to support earnings growth. The benefit was tempered by inflationary pressure on labor, logistics, and packaging costs, as well as continued investment in technology, digital initiatives, and brand support, resulting in modest margin dilution during the quarter. In the US, revenues totaled CAD 2.1 billion, down 1% year over year.

Speaker #2: Higher domestic selling prices implemented to mitigate inflationary pressures and higher raw milk costs further support top-line growth. Adjusted EBITDA was $175 million, up 3%, driven by higher sales volume and a favorable product mix with margin of 12.5% compared to 12.9% last year.

Maxime Therrien: Adjusted EBITDA was CAD 175 million, up 3%, driven by higher sales volume and a favorable product mix, with margin at 12.5% compared to 12.9% last year. Manufacturing efficiency from our capital investment in automation and production capability continued to support earnings growth. The benefit was tempered by inflationary pressure on labor, logistics, and packaging costs, as well as continued investment in technology, digital initiatives, and brand support, resulting in modest margin dilution during the quarter. In the US, revenues totaled CAD 2.1 billion, down 1% year over year.

Speaker #2: Manufacturing efficiency from our capital investment in automation and production capability continued to support earnings growth. The benefit was tampered by inflationary pressure on labor, logistics, and packaging costs, as well as continued investment in technology digital initiatives and brand support, resulting in modest margin dilution during the quarter.

Speaker #2: In the U.S., revenues totaled $2.1 billion, down 1% year over year. The decrease reflects lower average cheese block and butter prices. Higher dairy ingredient market prices and higher selling prices were implemented to mitigate inflationary pressure.

Maxime Therrien: The decrease reflects lower average cheese block and butter prices. Higher dairy ingredient market prices and higher selling prices were implemented to mitigate inflationary pressure. Adjusted EBITDA was CAD 181 million, up 6%, with margin expanding to 8.6%, driven by higher sales volume and a favorable product mix together with higher market prices for our high-protein ingredients. Results also benefited from our recent capital investment at our Waupun facility, alongside operational efficiencies from our consolidated Midwest warehousing facility, the elimination of duplicate operating costs across plants, and disciplined execution on customer fulfillment. These were partially offset by cheese market dynamics and the similar cost pressure experienced in Canada, including ongoing inflation, higher SG&A, and continued investment in brand building and technology. Turning to international, which consists of our Dairy Division Australia, revenue was CAD 635 million, up 8%.

Speaker #2: Adjusted EBITDA was $181 million, up 6%, with margin expansion due to sales volume and a favorable product mix, together with higher market prices for our high-protein ingredients.

Speaker #2: Results also benefited from our recent capital investment at our Waupaca facility, alongside operational efficiencies from our consolidated Midwest warehousing facility, elimination of duplicate operating costs across plants, and disciplined execution on customer fulfillment.

Maxime Therrien: Results also benefited from our recent capital investment at our Waupun facility, alongside operational efficiencies from our consolidated Midwest warehousing facility, the elimination of duplicate operating costs across plants, and disciplined execution on customer fulfillment. These were partially offset by cheese market dynamics and the similar cost pressure experienced in Canada, including ongoing inflation, higher SG&A, and continued investment in brand building and technology. Turning to international, which consists of our Dairy Division Australia, revenue was CAD 635 million, up 8%.

Speaker #2: These were partially offset by cheese market dynamics and the similar cost pressure experienced in Canada including ongoing inflation, higher SG&A, and continued investment in brand building and technology.

Speaker #2: Turning to international, which consists of our dairy division, Australia, revenue were $635 million. Up 8%. Adjusted EBITDA was $38 million, up 46%, with margin at 6%, supported by a more favorable product mix.

Maxime Therrien: Adjusted EBITDA was CAD 38 million, up 46%, with margin at 6%, supported by a more favorable product mix. Higher international cheese and dairy ingredient market prices helped mitigate the impact of higher milk costs, while increased milk availability favorably impacted efficiencies and the absorption of fixed costs. Revenue in Europe was CAD 283 million, down 11%. The decline reflects two factors. First, bulk cheese volume was lower as we reduced milk intake to optimize our production mix. Second, selling prices were lower, in line with milk and cream input costs. Adjusted EBITDA was CAD 33 million, up 10%, with margin expanding to 11.7% from 9.5% last year. Margin expansion was supported by a favorable product mix, operational efficiencies from the consolidation of our cheese packing operation at Nuneaton, and the transition of our ingredients platform.

Speaker #2: Higher international cheese and dairy ingredient market prices helped mitigate the impact of higher milk costs while increased milk availability favorably impacted efficiencies and the absorption of fixed costs.

Speaker #2: Revenue in Europe were $283 million, down 11%. The decline reflects two-factor. First, bulk cheese volume were lower as we reduced milk intake to optimize our products and mix, second, selling prices were lower in line with milk and cream input costs.

Maxime Therrien: Second, selling prices were lower, in line with milk and cream input costs. Adjusted EBITDA was CAD 33 million, up 10%, with margin expanding to 11.7% from 9.5% last year. Margin expansion was supported by a favorable product mix, operational efficiencies from the consolidation of our cheese packing operation at Nuneaton, and the transition of our ingredients platform.

Speaker #2: Adjusted EBITDA was $33 million, up 10%, with margin expanding to 11.7% from 9.5% last year. Margin expansion was supported by a favorable product mix, operational efficiencies from the consolidation of our cheese packing operation at Nuneaton, and the transition of our ingredients platform.

Maxime Therrien: Both international and Europe sector benefits were partially offset by inflationary pressure on input costs and incremental A&P behind our core brands. Overall, Q1 reflects a strong start to fiscal 2027, with earnings growth across every sector and continued balance sheet strengthening. Our capital structure is in a position of flexibility, our leverage is well below our long-term target, and our cash generation continued to support disciplined reinvestment and consistent capital returns to shareholders. With that, I will turn the call back to Carl.

Speaker #2: Both international and Europe sector benefits were partially offset by inflationary pressure on input costs and incremental ANP behind our core brands. Overall, Q1 reflects a strong start to fiscal '27 with earnings growth across every sector and continued balance sheet strengthening.

Speaker #2: Our capital structure is in a position of flexibility; our leverage is well below our long-term target, and our cash generation continues to support disciplined reinvestment and consistent capital returns to shareholders.

Speaker #2: With that, I will turn the call back to Carl.

Speaker #1: Thank you, Max. In Canada, we delivered another quarter of solid broad-based growth with revenues up nearly 6% and continued momentum across our core categories.

Carl Colizza: Thank you, Max. In Canada, we delivered another quarter of solid, broad-based growth, with revenues up nearly 6% and continued momentum across our core categories. This was supported by disciplined execution across retail, food service, and industrial market segments, where we continue to grow with winning customers under long-term commitments that anchor our volume base. Our Armstrong and Saputo brands continued to perform, and we saw particularly strong traction in value-added beverages and cultured products, both categories aligned with the growing consumer focus on protein. This is where our portfolio, our brands, and consumer trends are converging, and we intend to continue investing behind that opportunity. Margins reflect ongoing inflationary pressure on labor, logistics, and packaging, along with continued investment in technology and brand support. The underlying quality of the earnings and the consistency of the platform remain a clear strength.

Speaker #1: This was supported by discipline execution across retail, food service, and industrial market segments, where we continued to grow with winning customers under long-term commitments that anchor our volume base.

Speaker #1: Our armstrong and Saputo brands continued to perform, and we saw particularly strong traction in value-added beverages and cultured products, both categories aligned with the growing consumer focus on protein.

Speaker #1: This is where our portfolio, our brands, and consumer trends are converging, and we intend to continue investing behind that opportunity. Margins reflect ongoing inflationary pressure on labor, logistics, and packaging, along with continued investment in technology and brand support.

Carl Colizza: This is where our portfolio, our brands, and consumer trends are converging, and we intend to continue investing behind that opportunity. Margins reflect ongoing inflationary pressure on labor, logistics, and packaging, along with continued investment in technology and brand support. The underlying quality of the earnings and the consistency of the platform remain a clear strength.

Speaker #1: But the underlying quality of the earnings and the consistency of the platform remain a clear strength. Canada continues to be the steady, demand-driven anchor of the business.

Carl Colizza: Canada continues to be the steady demand-driven anchor of the business. We like the runway ahead. In the US, the story this quarter is about volumes and our investments in higher value categories delivering results. Adjusted EBITDA increased nearly 6%, reflecting strong volume growth and improved utilization of the capacity we have added to support our high-protein ingredients platform. Higher whey ingredient market prices provided an additional benefit, more than offsetting continued pressure from cheese market dynamics compared to the same quarter last year. More importantly, this is fundamentally a volume growth story. The capacity we have added over the last several years is being absorbed by customer demand, driving increased production of higher protein ingredients and supporting earnings growth. In cheese, momentum was driven by mozzarella, full capacity utilization, strong exports, and a cost-competitive milk supply positioning us to compete and win globally.

Speaker #1: And we like the runway ahead. In the US, the story this quarter is about volumes and our investments in higher-value categories delivering results.

Speaker #1: Adjusted EBITDA increased nearly 6%, reflecting strong volume growth and improved utilization of the capacity we have added to support our high-protein ingredients platform. Higher whey ingredient market prices provided an additional benefit.

Speaker #1: More than offsetting continued pressure from cheese market dynamics compared to the same quarter last year. More importantly, this is fundamentally a volume growth story: the capacity we have added over the last several years is being absorbed by customer demand, driving increased production of higher protein ingredients and supporting earnings growth.

Carl Colizza: More importantly, this is fundamentally a volume growth story. The capacity we have added over the last several years is being absorbed by customer demand, driving increased production of higher protein ingredients and supporting earnings growth. In cheese, momentum was driven by mozzarella, full capacity utilization, strong exports, and a cost-competitive milk supply positioning us to compete and win globally.

Speaker #1: In cheese, momentum was driven by mozzarella, full capacity utilization, strong exports, and a cost-competitive milk supply, positioning us to compete and win globally. That momentum extended into our commercial execution.

Carl Colizza: That momentum extended into our commercial execution. Within our specialty cheese portfolio, we expanded our business with a key retail partner, further increasing our household access to premium cheese offerings. We also commercialized new mozzarella items with a major national retailer, broadening our participation beyond pizza-centric occasions and increasing our exposure to the growing at-home cooking segment. We continue to advance our branded growth agenda through innovation, distribution expansion, and targeted marketing. We expanded the rollout of our Frigo Cheese Heads Cheddarella string cheese, strengthening our position in the growing cheese snacking segment and driving incremental household penetration, while distribution gains across strategic brands like Montchevre and Frigo created additional runway for future volume growth. In food service, we expanded Saputo Gold. Saputo Gold's adoption among operators, broadening awareness and usage and deepening our presence in premium cheese. In ingredients, the momentum continues to build. The market backdrop remains constructive.

Speaker #1: Within our specialty cheese portfolio, we expanded our business with a key retail partner, further increasing our household access to premium cheese offerings. We also commercialized new mozzarella items with a major national retailer, broadening our participation beyond pizza-centric occasions and increasing our exposure to the growing at-home cooking segment.

Speaker #1: We continue to advance our branded growth agenda through innovation, distribution expansion, and targeted marketing. We expanded the rollout of our cheese heads, cheddarella string cheese, strengthening our position in the growing cheese snacking segment and driving incremental household penetration while distribution gains across strategic brands like Monchev, and Frigo created additional runway for future volume growth.

Carl Colizza: We expanded the rollout of our Frigo Cheese Heads Cheddarella string cheese, strengthening our position in the growing cheese snacking segment and driving incremental household penetration, while distribution gains across strategic brands like Montchevre and Frigo created additional runway for future volume growth. In food service, we expanded Saputo Gold. Saputo Gold's adoption among operators, broadening awareness and usage and deepening our presence in premium cheese. In ingredients, the momentum continues to build. The market backdrop remains constructive.

Speaker #1: In food service, we expanded Saputo Gold. Saputo Gold's adoption among operators broadening awareness and usage, and deepening our presence in premium cheese. In ingredients, the momentum continues to build, and the market backdrop remains constructive.

Speaker #1: Our WPC-80 ramp-up is a clear example of this inaction. Extending our position in higher value global markets, deepening the customer relationships we have built alongside these platforms, and giving us the capacity and the product capability to capture demand where the returns are most attractive.

Carl Colizza: Our WPC80 ramp-up is a clear example of this in action, extending our position in higher value global markets, deepening the customer relationships we have built alongside these platforms, giving us the capacity and the product capability to capture demand where the returns are most attractive. Together, these businesses are delivering what we designed the US platform to deliver. Scale, category exposure aligned to where consumers are going, a cost structure that supports sustained margin expansion. In our international sector, Australia had a strong quarter with adjusted EBITDA up over 45% and margins expanding by over 150 basis points. Better weather in key milk-producing regions boosted milk availability, allowing us to run our network more efficiently. Our portfolio optimization strategy, focused on growing our domestic and export premium categories while reducing exposure to export commodities, continued to drive a more favorable product mix.

Speaker #1: Together, these businesses are delivering what we designed the US platform to deliver. Scale, category exposure aligned to where consumers are going, and a cost structure that supports sustained margin expansion.

Speaker #1: In our international sector, Australia had a strong quarter with adjusted EBITDA up over 45% and margins expanding by over $150 basis points. Better weather in key milk-producing regions boosted milk availability, allowing us to run our network more efficiently.

Carl Colizza: In our international sector, Australia had a strong quarter with adjusted EBITDA up over 45% and margins expanding by over 150 basis points. Better weather in key milk-producing regions boosted milk availability, allowing us to run our network more efficiently. Our portfolio optimization strategy, focused on growing our domestic and export premium categories while reducing exposure to export commodities, continued to drive a more favorable product mix.

Speaker #1: Our portfolio optimization strategy focused on growing our domestic and export premium categories while reducing exposure to export commodities, continued to drive a more favorable product mix.

Carl Colizza: International cheese and dairy ingredient pricing were constructive. We remain deliberate in how we allocated milk, prioritizing value creation over volume and directing production toward the channels and markets offering the best returns. Against this backdrop, the announced sale of our interest in the DSDA joint venture represents the culmination of years of investment and operational improvements that has significantly enhanced the value of the business. As we consider this next phase of development, we concluded that this transaction offered the best opportunity to realize the value, while reinforcing our focus on areas most aligned with our long-term strategy. It allows us to concentrate capital and management attention on the parts of our platform where we see the clearest path to value creation and to support targeted reinvestment across our network, including in Australia.

Speaker #1: International cheese and dairy ingredient pricing were constructive. And we remain deliberate in how we allocated milk, prioritizing value creation over volume and directing production toward the channels and markets offering the best returns.

Speaker #1: Against this backdrop, the announced sale of our interest in the DSDA joint venture represents the culmination of years of investment and operational improvements that have significantly enhanced the value of the business.

Speaker #1: As we considered its next phase of development, we concluded that this transaction offered the best opportunity to realize the value while reinforcing our focus on areas most aligned with our long-term strategy.

Carl Colizza: As we consider this next phase of development, we concluded that this transaction offered the best opportunity to realize the value, while reinforcing our focus on areas most aligned with our long-term strategy. It allows us to concentrate capital and management attention on the parts of our platform where we see the clearest path to value creation and to support targeted reinvestment across our network, including in Australia.

Speaker #1: It allows us to concentrate capital and management attention on the parts of our platform where we see the clearest path to value creation, and to support targeted reinvestment across our network, including in Australia.

Speaker #1: In our Europe sector, the quarter demonstrated the continued benefits of a more focused branded portfolio. Margins expanded by more than 200 basis points, as we leaned further into branded cheese and stepped back from lower value bulk exposure.

Carl Colizza: In our Europe sector, the quarter demonstrated the continued benefits of a more focused branded portfolio. Margins expanded by more than 200 basis points as we lean further into branded cheese and step back from lower value bulk exposure. Cathedral City remains the engine of that strategy, with branded volume growth reinforcing both category leadership, and consumer relevance. This year, we are proudly celebrating 60 years of Cathedral City with an integrated campaign across every branded touchpoint, delivering scale, consistency, and continued brand equity. Our licensing portfolio also continues to deliver double-digit growth, extending the brand's reach. In parallel, we are making progress in expanding our food service presence. We are deepening relationships with key national food service partners, including new supply agreements that will grow our business in the year ahead.

Speaker #1: Cathedral City remains the engine of that strategy, with branded volume growth reinforcing both category leadership and consumer relevance. This year, we are proudly celebrating 60 years of Cathedral City, with an integrated campaign across every branded touchpoint delivering scale, consistency, and continued brand equity.

Carl Colizza: This year, we are proudly celebrating 60 years of Cathedral City with an integrated campaign across every branded touchpoint, delivering scale, consistency, and continued brand equity. Our licensing portfolio also continues to deliver double-digit growth, extending the brand's reach. In parallel, we are making progress in expanding our food service presence. We are deepening relationships with key national food service partners, including new supply agreements that will grow our business in the year ahead.

Speaker #1: Our licensing portfolio also continues to deliver double-digit growth, extending the brand's reach. In parallel, we are making progress in expanding our foodservice presence.

Speaker #1: We are deepening relationships with key national food service partners, including new supply agreements that will grow our business in the year ahead. Taken together, Europe is a more focused, brand-led platform with stronger earnings quality, and the results this quarter reflect that transformation.

Carl Colizza: Taken together, Europe is a more focused, brand-led platform with stronger earnings quality, and the results this quarter reflect that transformation. As we look ahead, our strategy is consistent, and our conviction is unchanged. We will continue to operate as a low-cost manufacturer of high-quality dairy solutions, focused on driving efficiency, strengthening commercial execution, and capturing the long-term opportunity in dairy. Our approach is grounded in a disciplined category-led strategy, investing behind the brands and customers where we can compete from a position of strength and simplifying where we cannot. The momentum we are seeing in ingredients and the sustained consumer pull toward protein-rich and value-added dairy reinforces the choices we have made about where to invest. These are structural trends, and we intend to continue building around them.

Speaker #1: As we look ahead, our strategy is consistent and our conviction is unchanged. We will continue to operate as a low-cost manufacturer of high-quality dairy solutions, focused on driving efficiency, strengthening commercial execution, and capturing the long-term opportunity in dairy.

Speaker #1: Our approach is grounded in a disciplined category-led strategy investing behind the brands and customers where we can compete from a position of strength and simplifying where we cannot.

Carl Colizza: Our approach is grounded in a disciplined category-led strategy, investing behind the brands and customers where we can compete from a position of strength and simplifying where we cannot. The momentum we are seeing in ingredients and the sustained consumer pull toward protein-rich and value-added dairy reinforces the choices we have made about where to invest. These are structural trends, and we intend to continue building around them.

Speaker #1: The momentum we are seeing in ingredients, and the sustained consumer pull toward protein-rich and value-added dairy reinforces the choices we have made about where to invest.

Speaker #1: These are structural trends and we intend to continue building around them. At the same time, we recognize that the operating environment remains dynamic, with continued uncertainty related to geopolitical developments fluctuations in global milk supply, and the broader inflationary backdrop.

Carl Colizza: At the same time, we recognize that the operating environment remains dynamic, with continued uncertainty related to geopolitical developments, fluctuations in global milk supply, and the broader inflationary backdrop. On capital allocation, we are determined to pursue growth, and we will do so with discipline. We intend to invest where we see attractive returns through organic initiatives, targeted capital projects, and strategic M&A, guided by value creation and our long-term ambitions for this business. Our balance sheet is strong, our cash generation is solid, and we can act decisively when opportunities meet our criteria. Taken together, Saputo today is more focused, more agile, and ready to accelerate its growth, supported by a stronger operating foundation, a clearer set of strategic priorities, and a growing ability to translate them into consistent high-quality results. This concludes our formal remarks. I will now turn the call over for questions.

Speaker #1: On capital allocation, we are determined to pursue growth, and we will do so with discipline. We intend to invest where we see attractive returns, through organic initiatives, targeted capital project, and strategic M&A, guided by value creation and our long-term ambitions for this business.

Speaker #1: Our balance sheet is strong, our cash generation is solid, and we can act decisively when opportunities meet our criteria. Taken together, Saputo today is more focused, more agile, and ready to accelerate its growth, supported by a stronger operating foundation, a clearer set of strategic priorities, and a growing ability to translate them into consistent, high-quality results.

Carl Colizza: Our balance sheet is strong, our cash generation is solid, and we can act decisively when opportunities meet our criteria. Taken together, Saputo today is more focused, more agile, and ready to accelerate its growth, supported by a stronger operating foundation, a clearer set of strategic priorities, and a growing ability to translate them into consistent high-quality results. This concludes our formal remarks. I will now turn the call over for questions.

Speaker #1: This concludes our formal remarks. I will now turn the call over for questions.

Speaker #2: Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again.

Operator: Thank you. If you have a question, please press star one on your telephone keypad. If you wish to remove yourself from the queue, simply press star one again. One moment please for your first question. Your first question comes from the line of Irene Nattel of RBC Capital Markets. Your line is open.

Speaker #2: One moment, please, for your first question. Your first question comes from the line of Irene Natel of RBC Capital Markets. Your line is open.

Irene Nattel: Good morning, everyone. Can we start, please, by focusing on the US? Listening to you, Carl, it sounds as though we're in a much, much stronger position, yes, of course, from a network perspective, but also more balanced volume and revenue across the segments, some new partnerships, et cetera. Can you talk about, or can you expand on some of the key wins and where we can expect to see the most growth in the US from here, let's say, over the next two to three years?

Speaker #3: Good morning, everyone. Can we start, please, by focusing on the US? Because listening to you, Carl, it sounds as though we're in a much, much stronger position.

Speaker #3: Yes, of course, from a network perspective, but also more balanced volume and revenue across the segments, some new partnerships, etc. Can you talk about, or can you expand on, some of the key wins?

Speaker #3: And where can we expect to see the most growth in the US from here, let's say, over the next two to three years?

Speaker #1: Good morning, Irene. Thank you. Yes, the US team has done a great job over the last couple of years, bringing to life the numerous capital projects and platform consolidation that we had put forward.

Carl Colizza: Morning, Irene. Thank you. Yes, the US team has done a great job over the last couple of years, bringing to life the numerous capital projects and platform consolidation that we had put forward. Fundamentally, we're now bearing the fruit of that, and it's anchored in our ability to supply the demand and to grow with our customers. Over the years, we continued to develop our working relationships, continued to focus on innovation with our customer base, both in food service and in retail. We are here today providing those products to the marketplace, growing with those retail champions, as well as growing our food service brand. That's what's anchoring, fundamentally, the volume growth from our US platform. You couple that with the growing demand for protein-rich products.

Speaker #1: And fundamentally, we're now bearing the fruit of that. And it's anchored in our ability to supply the demand and to grow with our customers.

Speaker #1: So, over the years, we continue to develop our working relationships and continue to focus on innovation with our customer base, both in food service and in retail. We are here today providing those products to the marketplace, growing with those retail champions, as well as growing our food service brand.

Carl Colizza: We are here today providing those products to the marketplace, growing with those retail champions, as well as growing our food service brand. That's what's anchoring, fundamentally, the volume growth from our US platform. You couple that with the growing demand for protein-rich products.

Speaker #1: And that's what's fundamentally anchoring the volume growth from our US platform. And you couple that with the growing demand for protein-rich products. And by protein-rich products, yes, we are talking about aspects such as WPC80 that we invested in at Waupun, but we're also talking about products such as cottage cheese.

Carl Colizza: By protein-rich products, yes, we are talking about aspects such as WPC80 that we invested in Waupun, but we're also talking about products such as cottage cheese. Certainly, our two assets in the US, our two facilities and teams are running around the clock, basically producing as much as we can in these areas. At this moment, we're also looking at expanding those capacities. We have announced some interesting capacity additions to our Friendship plant in New York that will see us expand our capabilities and volume offering on cottage cheese, which is centered to consumers' demand right now. We feel very strong about the overall capacity utilization in a number of sectors, including our base dairy foods.

Speaker #1: And certainly, our two assets in the U.S. are two facilities, and teams are running around the clock, basically producing as much as we can in these areas.

Speaker #1: And at this moment, we're also looking at expanding those capacities. So we have announced some interesting capacity additions to our Friendship plant in New York that will see us expand our capabilities and volume offering on cottage cheese, which is central to consumers' demand right now.

Carl Colizza: We have announced some interesting capacity additions to our Friendship plant in New York that will see us expand our capabilities and volume offering on cottage cheese, which is centered to consumers' demand right now. We feel very strong about the overall capacity utilization in a number of sectors, including our base dairy foods.

Speaker #1: So, we feel very strongly about the overall capacity utilization in a number of sectors, including our base dairy foods. Winning with the right customers, committing to them for growth, committing to them for innovation, is fundamentally allowing us to enjoy the moment today.

Carl Colizza: Winning with the right customers, committing to them for growth, committing to them for innovation, is fundamentally allowing us to enjoy the moment today despite some difficult moments for consumers as a whole, as a backdrop in the US.

Speaker #1: Despite some difficult moments for consumers as a whole, as a backdrop in the US.

Speaker #3: That's really helpful. Thank you. And then do you see a way for sort of the profitability on the cheese side to have a better tone to it, or given the demand for the types of protein that we're seeing, are we kind of likely to be stuck in this environment with higher milk production and sort of some dislocation in terms of the products being made?

Irene Nattel: That's really helpful. Thank you. Do you see a way for sort of the profitability on the cheese side to have a better tone to it? Or given the demand for the types of protein that we're seeing, are we kind of likely to be stuck in this environment with higher milk production and sort of some dislocation in terms of the products being made?

Carl Colizza: It's a great question. I would say that certainly as we shared in our remarks, the overall market conditions specific to the block market were not as favorable as last year. Fundamentally, it's not a function of the demand change, percentage demand change versus last year. It's more about the milk supply and the availability of milk. The farming community in the US is very resilient. They are producing lots of milk, lots of components, and accordingly, we have a slight imbalance when it comes to the overall supply of milk versus that of the overall demand of products. Nonetheless, this is also allowing us to be quite opportunistic with our exports. Milk pricing in the US is very competitive on a world stage, and we've taken the opportunity to bring more of our products to the international markets and benefit from that side.

Speaker #1: It's a great question, and I would say that certainly as we shared in our remarks, the overall market conditions specific to the block market, we're not as favorable as last year.

Speaker #1: Fundamentally, it's not a function of the demand change percentage demand change versus last year. It's more about the milk supply and the availability of milk.

Speaker #1: The farming community in the US is very resilient. They are producing lots of milk and lots of components, and accordingly, we have a slight imbalance when it comes to the overall supply of milk versus the overall demand for products.

Carl Colizza: They are producing lots of milk, lots of components, and accordingly, we have a slight imbalance when it comes to the overall supply of milk versus that of the overall demand of products. Nonetheless, this is also allowing us to be quite opportunistic with our exports. Milk pricing in the US is very competitive on a world stage, and we've taken the opportunity to bring more of our products to the international markets and benefit from that side.

Speaker #1: But nonetheless, this is also allowing us to be quite opportunistic with our exports. Milk pricing in the US is very competitive on a world stage.

Speaker #1: And we've taken the opportunity to bring more of our products to international markets and benefit from that side. So we do see better days ahead when it comes to the overall price of the block, which will improve our overall returns coming from our cheese category.

Carl Colizza: We do see better days ahead when it comes to the overall price of the block, which will improve our overall returns coming from our cheese category. We are optimistic about that. It is what it is now, and we feel comfortable with the breadth of our portfolio, providing us the balance, the hedge, and the opportunity to service our customers.

Speaker #1: So we are optimistic about that, but it is what it is now. We feel comfortable with the breadth of our portfolio providing us the balance, the hedge, and the opportunity to service our customers.

Speaker #3: That's great. Thanks. I'll get back into the queue. Thank you.

Irene Nattel: That's great. Thanks. I'll get back into the queue. Thank you.

Speaker #2: Your next question comes from the line of Scott Marks of Jefferies. Your line is open.

Operator: Your next question comes to the line with Scott Marks of Jefferies. Your line is open.

Speaker #4: Hey, good morning. Max, Carl. Thanks very much for taking our questions and congrats on a nice quarter. I wanted to just first ask a little bit about some of the inflationary pressures that you mentioned.

Scott Marks: Hey, good morning, Max, Carl. Thanks very much for taking our questions and congrats on a nice quarter. Wanted to just first ask a little bit about some of the inflationary pressures that you mentioned. Seems like your team was able to manage through some of those dynamics in the quarter. Just wondering if you can help us understand maybe what kind of inflationary pressures you're seeing, where you're seeing them, how much is being managed through price increases versus product mix or other efficiencies throughout the network. Thanks.

Speaker #4: It seems like your team was able to manage through some of those dynamics in the quarter. Just wondering if you can help us understand maybe what kind of inflationary pressures you're seeing, where you're seeing them, and how much is being managed through price increases versus product mix or other efficiencies throughout the network.

Speaker #4: Thanks.

Speaker #1: Thanks, Scott. So, most of the industry—we certainly have seen inflationary pressure on our energy and fuel costs. There are different percentages of impact depending on the type of service we offer, with regards to distribution.

Carl Colizza: Thanks, Scott. Like most industry, we certainly have seen inflationary pressure on our energy and fuel costs. Different percentage of impact depending on the type of service we offer with regards to distribution. Certainly in Canada, it's weighed on us when it comes to our DSD networks or direct store delivery network. When we think about some of the overall costs associated to energy and the inputs such as packaging, we've seen an overall increase in our cost of goods associated to a number of those inputs. From a management perspective, certainly taking a pricing action is always the last option for us. A number of operational improvements and decision-making on demand planning and production planning have been put forward. In some instances, yes, pricing and taking pricing action was part of that solution.

Speaker #1: So certainly in Canada, it's weighed on us when it comes to our DSD networks, or direct store delivery network. And when we think about some of the overall costs associated with energy and the inputs, such as packaging, we've seen an overall increase in our cost of goods associated with a number of those inputs.

Speaker #1: From a management perspective, certainly taking a pricing action is always the last option for us. So a number of operational improvements and decision-making on demand planning and production planning have been put forward.

Carl Colizza: From a management perspective, certainly taking a pricing action is always the last option for us. A number of operational improvements and decision-making on demand planning and production planning have been put forward. In some instances, yes, pricing and taking pricing action was part of that solution. In some cases, it's on a temporary basis, example for fuel. We're not shielded from those realities specific to fuel, and maybe Max has a few comments to add.

Speaker #1: And in some instances, yes, pricing and taking pricing action was part of that solution. In some cases, on a temporary basis—for example, for fuel. So we're not shielded from those realities, specifically fuel.

Carl Colizza: In some cases, it's on a temporary basis, example for fuel. We're not shielded from those realities specific to fuel, and maybe Max has a few comments to add.

Speaker #1: And maybe Max has a few comments to add.

Speaker #5: Well, it's something that we have to monitor every day. Our conversation, whether it's from a supplier perspective, or our customer base, of course, intensify relative to inflation every time we have a touch base, whether it's tariff-related or other element that brings the cost to elevation.

Maxime Therrien: Well, it's something that we have to monitor every day. Our conversation, whether it's from a supplier perspective or our customer base, of course, intensifies relative to inflation every time we have a touch base, whether it's tariff related or other element that brings the cost to an elevation. Yes, pricing is part of the action, but at this time, it's a battle on the field, and we try to take the cost out, first and foremost, and whatever we can mitigate, we will. Otherwise, it's acting as a responsible operator for both our supplier and our customer base.

Speaker #5: Yes, pricing is part of the action. But at this time, I mean, it's a battle on the field. And we try to take the cost out first and foremost, and whatever is we can mitigate, we will.

Speaker #5: Otherwise, it's acting as a responsible operator for both our supplier and our customer base.

Speaker #4: Okay, understood. Appreciate the thoughts there. And maybe secondly, if we just think about profitability within Canada, I think despite some of these pressures, there's still putting up pretty good profitability in the region there.

Scott Marks: Okay, understood. Appreciate the thoughts there. Secondly, maybe if we just think about profitability within Canada. I think despite some of these pressures, you're still putting up pretty good profitability in the region there. As we look ahead, specifically within Canada, how do you think about the margin opportunity? How do you think about incremental upside? Is a lot of that driven by product mix maybe relative to anything else? Just any thoughts you could share on that. Thanks.

Speaker #4: So maybe as we look ahead, specifically within Canada, how do you think about the margin opportunity? How do you think about incremental upside? There's a lot of that driven by product mix, maybe, relative to anything else?

Speaker #4: Just any thoughts you could share on that? Thanks.

Carl Colizza: Nick, the Canadian business is very resilient, and the breadth of its portfolio is second to none. It's what's allowing the Canadian business today to continue to sustain its performance and equally to keep inching forward, month after month and year after year. We focus on innovation. We focus on the products that are most meaningful to consumers and our customers, and we continue to reinvest to make those things happen. We feel very strong about Canada's ability to maintain its market share, its growth, and most importantly, being able to service the customers that rely on us and that are growing. We're making capital investments in a number of areas. More soon to be announced with regards to investments in cultured products that are very much front and center with consumers.

Speaker #1: Nick, the Canadian business is very resilient, and the breadth of its portfolio is second to none. So, it's what's allowing the Canadian business today to continue to sustain its performance and, equally, to keep inching forward month after month and year after year.

Speaker #1: We focus on innovation. We focus on the products that are most meaningful to consumers and our customers. And we continue to reinvest to make those things happen.

Speaker #1: So we feel very strongly about Canada's ability to maintain its market share, its growth, and most importantly, being able to service the customers that rely on us and are growing.

Carl Colizza: We feel very strong about Canada's ability to maintain its market share, its growth, and most importantly, being able to service the customers that rely on us and that are growing. We're making capital investments in a number of areas. More soon to be announced with regards to investments in cultured products that are very much front and center with consumers.

Speaker #1: We're making capital investments in a number of areas. More soon-to-be announced with regards to investments in cultured products, that are very much front and center with consumers.

Speaker #1: So I would say in a very short term, the biggest pressure on Canada will be really associated to some of the inflation associated to fuel.

Carl Colizza: I would say in the very short term, the biggest pressure on Canada will be really associated to some of the inflation associated to fuel. Part of our distinction, part of our offering to the marketplace is our distribution network, our refrigerated distribution network, and today we're seeing some of that pressure translating to the result. Despite that, we're seeing a strong Canada continuing to move forward.

Speaker #1: Part of our distinction part of our offering to the marketplace is our distribution network, our refrigerated distribution network. And today, we're seeing some of that pressure translate into the result.

Speaker #1: But despite that, we're seeing a strong Canada continuing to move forward.

Speaker #4: Appreciate the thoughts. We'll pass it on.

Scott Marks: Appreciate the thoughts. I'll pass it on.

Speaker #2: Your next question comes from Chris Lee of Desjardins. Your line is open.

Operator: Your next question comes the line of Chris Li of Desjardins. Your line is open.

Speaker #6: Hi, good morning, everyone. Carl, there's no question that there's a lot of growth potential for high-protein ingredients. Anything that you can provide to help us better understand the size of the opportunity for SAPUTO would be very helpful.

Chris Li: All right. Good morning, everyone. Carl, there's no question that there's a lot of growth potential for high-protein ingredients. Anything that you can provide to help us better understand the size of the opportunity for Saputo will be very helpful. Thanks.

Speaker #6: Thanks.

Carl Colizza: I won't get into quantifications, but what I can say with confidence is, one, when you think about the investments that we put through our network in the US in particular, and I'll get to some other geographies as well, but in the US over the last couple of years in Waupun. Our asset that is now producing high quality WPC80, as well as lactose, is they're not full. Those assets are not full. They're running efficiently. They're running with basically all of the waste solids available from our cheese make operations. There's still capacity available. I see a runway over time as we continue to do a couple of things. One, grow our cheese business, and provide it additional waste solids to transform.

Speaker #1: I won't get into quantifications, but what I can say with confidence is, one, when you think about the investments that we put through our network in the US in particular, and I'll get to some other geographies as well, but in the US, over the last couple of years, in Waupon, so our asset that is now producing high-quality WPC-80, as well as lactose, is they're not full.

Speaker #1: Those assets are not full. They're running efficiently. They're running with basically all of the waste solids available from our cheese make operations. But they're still capacity available.

Carl Colizza: They're running with basically all of the waste solids available from our cheese make operations. There's still capacity available. I see a runway over time as we continue to do a couple of things. One, grow our cheese business, and provide it additional waste solids to transform.

Speaker #1: So I see a runway over time as we continue to do a couple of things. One, grow our cheese business and provide it additional waste solids to transform.

Speaker #1: And then there's a variety of network optimizations north and south—so, Canada and the US—that we're also looking at to be able to unlock more value, more high-value WPC-80.

Carl Colizza: There's a variety of network optimizations north and south, Canada, US, that we're also looking at to be able to unlock more value, more high-value WPC80. We're also looking at the very same things in other jurisdictions, including Australia. The runway for us to continue to play in this space will come through a few things. One, our continued focus on the capacity and capabilities, some investments in R&D and innovation and, of course, continuing to innovate with our customer base. That's on the ingredient side, and I want to bring it back also to the broader protein movement. It's not just in the ingredient segment. It is in the ready-to-drink format. It's in the higher protein, everyday cheese and/or cultured products. Very much the same.

Speaker #1: But we're also looking at the very same things in other jurisdictions, including Australia. So the runway for us to continue to play in this space will come through a few things.

Carl Colizza: One, our continued focus on the capacity and capabilities, some investments in R&D and innovation and, of course, continuing to innovate with our customer base. That's on the ingredient side, and I want to bring it back also to the broader protein movement. It's not just in the ingredient segment. It is in the ready-to-drink format. It's in the higher protein, everyday cheese and/or cultured products. Very much the same.

Speaker #1: One, our continued focus on the capacity and capabilities. Some investments in R&D and innovation. And of course, continuing to innovate with our customer base.

Speaker #1: But that's on the ingredient side. And I want to bring it back also to the broader protein movement. It's not just in those in the ingredient segment.

Speaker #1: It is in the ready-to-drink format. It's in the higher protein, everyday cheese and/or cultured products. Very much the same. We announced recently a material investment in our friendship facility in upstate New York to expand our cottage cheese operation by 30 to 40 percent in capacity.

Carl Colizza: We announced recently a material investment in our Friendship facility in upstate New York to expand our cottage cheese operation by 30% to 40% in capacity. We feel strongly about being able to bring that to market across our branded products as well as our private label offering. The same thing is being contemplated in Canada. You get into the aspects of beverages. One, we're already the market leader in Canada, with our Dairyland and Neilson offering in higher protein multi-serve. We have also our single-serve capabilities. There's a large runway with the portfolio and the offerings that we have and equally with the innovation that we have in our pipeline. I could go on and on, Chris, but I do feel strongly about our ability to capture the opportunity that exists with this protein demand.

Speaker #1: And we feel strongly about being able to bring that to market across our branded products as well as our private label offering. The same thing is being contemplated in Canada.

Speaker #1: Then you get into the aspects of beverages. So one, we're already the market leader in Canada. With our Dairyland and Nielsen offering in higher protein multi-serve.

Carl Colizza: You get into the aspects of beverages. One, we're already the market leader in Canada, with our Dairyland and Neilson offering in higher protein multi-serve. We have also our single-serve capabilities. There's a large runway with the portfolio and the offerings that we have and equally with the innovation that we have in our pipeline. I could go on and on, Chris, but I do feel strongly about our ability to capture the opportunity that exists with this protein demand.

Speaker #1: We also have our single-serve capabilities, so there’s a large runway with the portfolio and the offerings that we have, and equally with the innovation that we have in our pipeline.

Speaker #1: So I could go on and on, Chris, but I do feel strongly about our ability to capture the opportunity that exists with this protein demand.

Speaker #6: That's very helpful. Thank you. And I was also going to ask, how big of a competitive advantage is it for SAPUTO, the fact that you guys produce a lot of cheese and whey as a byproduct of cheese?

Chris Li: That's very helpful. Thank you. I also was going to ask how big of a competitive advantage is it for Saputo, the fact that you guys produce a lot of cheese and whey is a byproduct of cheese, so you have access to that, maybe versus some of your competitors who don't directly have access. How big of an advantage is that for Saputo, do you think?

Speaker #6: Do you have access to that maybe versus some of your competitors who don't directly have access? How big of an advantage is that for SAPUTO, do you think?

Speaker #1: It's we're certainly in a good position versus some of the competition. And by the competition I'm talking about those who necessarily. So out in the marketplace, there are a number of brands whether you want to call them insurgent brands or newcomers to the marketplace.

Carl Colizza: We're certainly in a good position versus some of the competition, and by the competition, I'm talking about those who aren't dairy processors necessarily. Out in the marketplace, there are a number of brands, whether you want to call them insurgent brands or newcomers to the marketplace, who fundamentally buy ingredients, some of the ingredients that we produce to formulate their products and they go the last mile out to the consumer. We're in a unique space where we certainly control an important amount of the raw material that goes into our own products that we bring to market.

Speaker #1: Who fundamentally buy ingredients some of the ingredients that we produce to formulate their products and they go the last mile out to the consumer.

Speaker #1: We're in a unique space where we certainly control an important amount of the raw material that goes into our own products that we bring to market.

Speaker #1: And we feel strongly about finding the right balance of whether it's cheese make whether it's overall milk processing in order to maintain our ability to bring the WPC-80 or the refined proteins, if I can say it that way.

Carl Colizza: We feel strongly about finding the right balance of whether it's cheese make, whether it's overall milk processing in order to maintain our ability to bring the WPC-80 or the refined proteins, if I can say it that way, because it's not all about WPC-80, but bringing those refined proteins to market. We feel comfortable. It's our area of expertise. Manufacturing always has been, and it's an area that we won't shy away from growing in, and we're not, because we're comfortable with all aspects of the life cycle associated to the milk that goes into production to make these WPCs.

Speaker #1: Because it's not all about WPC-80. But bringing those refined proteins to market. So we feel comfortable. It's our area of expertise, manufacturing always has been.

Speaker #1: And it's an area that we won't shy away from growing in. And we're not. Because we're comfortable with all aspects of the life cycle associated to the milk that goes into production to make these WPCs.

Speaker #6: Perfect. Thank you. I'll get back to the Q and all the best.

Chris Li: Perfect. Thank you. I'll get back to the queue, and all the best.

Speaker #2: Your next question comes from line of Tammy Chen of BMO Capital Markets. Your line is open.

Operator: Your next question comes from the line of Tamy Chen of BMO Capital Markets. Your line is open.

Tamy Chen: Hi. Good morning. Thanks for the questions. Continuing with the cheese and whey dynamic in the US in particular. I'm just thinking about how you're talking of the opportunity on the ingredient side, particularly in whey, Carl. Given that there's the higher supply of milk, there's continued cheese production. I understand whey is of shortage in the US right now. I'm thinking the processing industry will continue to ramp cheese production for that whey byproduct. Is it your view that the potential continued pressures on the block and on the cheese side will be more than offset by the positive from the whey WPC ingredients tailwind?

Speaker #7: Hi, good morning. Thanks for the questions. Continuing with the cheese and whey dynamic in the US, in particular, so I'm just thinking about how you're talking of the opportunity on the ingredient side, particularly in whey, Carl.

Speaker #7: Given that there's the higher supply of milk, there's continued cheese production. I understand whey is of shortage in the US right now. So I'm thinking the processing industry will continue to ramp cheese production for that whey byproduct.

Tamy Chen: I'm thinking the processing industry will continue to ramp cheese production for that whey byproduct. Is it your view that the potential continued pressures on the block and on the cheese side will be more than offset by the positive from the whey WPC ingredients tailwind?

Speaker #7: And is it your view that the potential continued pressures on the block and on the cheese side will be more than offset by the positive from the whey, WPC, ingredients tailwind?

Carl Colizza: What I would say is the following, as we stated that in this quarter in particular, for Saputo, the benefit on the protein side help offset the unfavorable conditions in the block price. What I would say is, if you recollect, over the last several years, the US dairy industry invested over, I believe it's close to CAD 8 billion in dairy processing, with a lion's share of that going to cheese make. Most of those assets have come online, most of those assets are ramping up, and most of those assets are accounted for in many respects with regards to our competitive set. We know that those assets are going to continue. We always knew that those assets were going to continue to grow with their output. I don't foresee there being a flood of cheese investments for the sake of protein.

Speaker #1: What I would say is the following. As we stated, that in this quarter in particular for SAPUTO, the benefit on the protein side help offset the I'll say the unfavorable conditions in the block price.

Speaker #1: But what I would say is, if you recollect, over the last several years the U.S. dairy industry invested over—I believe it's close to $8 billion—in dairy processing, with a lion's share of that going to cheese make.

Speaker #1: Most of those assets have come online. Most of those assets are ramping up. And most of those assets are accounted for in many respects with regards to our competitive set.

Carl Colizza: Most of those assets have come online, most of those assets are ramping up, and most of those assets are accounted for in many respects with regards to our competitive set. We know that those assets are going to continue. We always knew that those assets were going to continue to grow with their output. I don't foresee there being a flood of cheese investments for the sake of protein.

Speaker #1: So we know that those assets are going to continue we always knew that those assets were going to continue to grow with their output.

Speaker #1: So I don't foresee there being a flood of cheese investments for the sake of protein. It's an expensive endeavor to get into, just for the sake of producing a protein.

Carl Colizza: It's a expensive endeavor to get into just for the sake of producing a protein. The inventory cost of carrying, so on and so forth. It absolutely is about demand planning or the overall supply and demand dynamics. What I would tell you is the overall dairy category, more specifically cheese, continues to be on the positive side of the ledger as far as growth rates, but not as strong as protein. There's going to continue to be tension there for quite some time. The barrier to incremental protein is going to be cheese make and/or cheese demand. Those are dynamics that we're going to live with for some time. I go back to the earlier comments I made. We feel that we have better days ahead with the overall block price and how it's going to support our overall earnings.

Speaker #1: The inventory cost of carrying, and so on and so forth. It absolutely is about demand planning or the overall sort of supply and demand dynamics.

Speaker #1: And what I would tell you is the overall dairy category more specifically cheese continues to be on the positive side of the ledger as far as growth rates.

Speaker #1: But not as strong as protein. So there's going to continue to be tension there for quite some time, and the barrier to incremental protein is going to be cheese make and/or cheese demand.

Carl Colizza: There's going to continue to be tension there for quite some time. The barrier to incremental protein is going to be cheese make and/or cheese demand. Those are dynamics that we're going to live with for some time. I go back to the earlier comments I made. We feel that we have better days ahead with the overall block price and how it's going to support our overall earnings. We feel very good about our ability to keep navigating that supply and demand dynamic between cheese, milk, and waste solids.

Speaker #1: But those are dynamics that we're going to live with for some time. So I still I go back to the earlier comments I made.

Speaker #1: We feel that we have better days ahead with the overall block price and how it's going to support our overall earnings. And we feel very good about our ability to keep navigating that supply and demand dynamic between cheese milk and whey solids.

Carl Colizza: We feel very good about our ability to keep navigating that supply and demand dynamic between cheese, milk, and waste solids.

Speaker #7: Okay, I see. And on the whey side, on WPC, is it true that there is currently a shortage, and are there several other processors, not just you, that are going to bring online new capacities starting next year?

Tamy Chen: Okay, I see. On the whey side, on WPC, is it true that there is currently a shortage, and are there several other processors, not just you, that are going to bring online new capacity starting next year? Is that the case?

Speaker #7: Is that the case?

Carl Colizza: There is. Our dairy industry remains very dynamic, very competitive globally. We have a number of peers and competitors out there that are investing in the space for sure. It's not all about net new waste solids being either created or processed. Some of them are moving up the ladder, if you like, from simple sweet whey powder to higher refinements or fractions of proteins. That's what you're hearing and seeing from some of the more recent announcements on investments. It's moving up that ladder more so than it is creating incremental waste solids.

Speaker #1: There is. I mean, our dairy industry remains very dynamic, very competitive globally. And we have a number of peers and competitors out there that are investing in the space, for sure.

Speaker #1: But it's not all about net new whey solids being either created or processed. Some of them are moving up the ladder, if you like, from simple sweet whey powder to higher refinements or fractions of proteins.

Speaker #1: And that's what you're hearing and seeing from some of the more recent announcements on investments. It's moving up that ladder more so than it is creating incremental whey solids.

Speaker #7: Okay, got it. I just want to squeeze one more in here for a second. So, you're generating very good cash, you've upped your buyback, upped your dividend, capex numbers are still the same.

Tamy Chen: Okay, got it. Just want to squeeze one more in here for a second. You're generating very good cash. You've upped your buyback, upped your dividend, CapEx numbers still the same. What is the way now to think about your capital allocation going forward? Would you move some other buckets, possibly M&A a bit higher? Thanks.

Speaker #7: What is the whey now to think about your capital allocation going forward? Would you move some other buckets, possibly M&A a bit higher? Thanks.

Speaker #1: So what I would share on that is that first and foremost, our capital allocation plan and strategy remains based basically on discipline. Balanced in nature.

Carl Colizza: What I would share on that is that first and foremost, our capital allocation plan and strategy remains based basically on discipline, balanced in nature, but we are absolutely looking forward to growth. In order for us to grow, we're going to need to invest in a variety of initiatives, both, call it at the organic level, grassroots, with regards to brand support, and in innovation. That will absolutely trigger the need for continued capital investments into our assets. A number of different projects will be unlocked to be able to meet the consumer where they are today. M&A will absolutely be part of the choices we will make in order to address the market.

Speaker #1: But we are absolutely looking forward to growth. So in order for us to grow, we're going to need to invest in a variety of initiatives, both call it at the organic level, grassroots, with regards to brand support and innovation.

Speaker #1: That will absolutely trigger the need for continued capital investments into our assets. So a number of different projects will be unlocked to be able to meet the consumer where they are today.

Carl Colizza: That will absolutely trigger the need for continued capital investments into our assets. A number of different projects will be unlocked to be able to meet the consumer where they are today. M&A will absolutely be part of the choices we will make in order to address the market.

Speaker #1: And M&A will absolutely be part of the choices we will make in order to address the market. But we've said it before, when it comes to M&A—if we can't build it, and the path to being able to grow and to meet our ambitions and our customers' needs passes through M&A—then we won't shy away from that either.

Carl Colizza: We've said it before, when it comes to M&A, if we can't build it and the path to being able to grow, and to meet our ambitions, and our customers' needs passes through M&A, then we won't shy away from that either. It's not about, when it comes to M&A in particular, there isn't a particular size that is of interest or part of our criteria. It's what meets our needs. Having said that, growth is what will drive most of the decisions of our capital allocation.

Speaker #1: And when it comes to M&A in particular, there isn't a particular size that is of interest or part of our criteria.

Speaker #1: It's what meets our needs. So having said that, growth is what will drive most of the decisions of our capital allocation.

Speaker #7: Thank you.

Tamy Chen: Thank you.

Speaker #3: Your next question comes from line of Derek Lessard of TD Cowan. Your line is open.

Operator: Your next question comes from the line of Derek Lessard of TD Cowen. Your line is open.

Speaker #2: Yeah. Good morning, guys. And really nice start to the year. Just want to stick with the protein theme here and maybe ask it in a different way.

Derek Lessard: Yeah. Good morning, guys. Really nice start to the year. Just want to stick to the protein theme here and maybe ask it in a different way. How do you guys, I guess, think about the durability of these trends to ensure that maybe to keep you guys from over-investing in the business? I'm just thinking or coming at this from the context of the plant-based craze that we saw several years ago.

Speaker #2: How do you guys I guess think about the durability of these trends? So as to ensure that maybe to keep you guys from overinvesting in the business.

Speaker #2: And I'm just thinking or coming at this from the context of the plant-based craze that we saw several years ago.

Speaker #1: Yeah. It's a great question. And I've seen ourselves do a bit of a double take every now and then and say, is this just a trend?

Carl Colizza: Yeah. It's a great question. I've seen ourselves do a bit of a double take every now and then and say, "Is this just a trend? Is it sustainable?" When you take a look at what the fundamentals behind the trend is, sorry, the demand is, it's not a trend. It's rooted really in health and wellness. It's rooted in nutrition. It's rooted in consumers and citizens being fundamentally more focused on their overall health. Dairy as a whole and its combination of nutrients is a great starting point. Then from a protein perspective, you got to look at it on the multiple dynamics. When you think about the options of protein available to you, dairy gives you the biggest bang for the buck.

Speaker #1: Is it sustainable? But when you take a look at what the fundamentals behind the demand are—sorry, it's not a trend, it's the demand.

Speaker #1: It's rooted, really, in health and wellness. It's rooted in nutrition. It's rooted in consumers and citizens being fundamentally more focused on their overall health.

Speaker #1: And dairy as a whole and its combination of nutrients is a great starting point. And then from a protein perspective, you got to look at it on a multiple dynamics.

Carl Colizza: Dairy as a whole and its combination of nutrients is a great starting point. Then from a protein perspective, you got to look at it on the multiple dynamics. When you think about the options of protein available to you, dairy gives you the biggest bang for the buck.

Speaker #1: When you think about the options of protein available to you, dairy is it gives you the biggest bang for the buck. It is absolutely the best option you have.

Carl Colizza: It is absolutely the best option you have, versus some of the alternatives from a value, from an affordability perspective, and so forth. This is a structural change. It's not a trend. We feel comfortable about continuing investing our talents, time, our CAD behind the innovation, about growing the platforms and growing with our customers in this space.

Speaker #1: Versus some of the alternatives from a value from an affordability perspective and so forth. So this is a structural change. It's not a trend.

Speaker #1: And so we feel comfortable about continuing investing our talent's time, our dollars behind the innovation, about growing the platforms and growing with our customers in this space.

Derek Lessard: Awesome. I guess I noticed some subtle changes in your outlook statement compared to the prior quarter. Specifically, you guys called out investments in technology and digital initiatives. Just maybe help us flesh out what these would entail and give us a sense of the cost and what you're looking to generate from the investment.

Speaker #2: Awesome. And then I guess we also I noticed some subtle changes in your outlook statement compared to the prior quarter. Specifically, you guys called out investments in technology and digital initiatives.

Speaker #2: Just maybe help us flesh out what these would entail and give us a sense of the cost and what you're looking to generate from the investment.

Speaker #1: Max will give you a bit of a sense of the overall cost. And I might add some color to the direction. When we Derek, when we refer to technology, we refer to a few items.

Carl Colizza: Max will give you a bit of a sense of the overall cost. I might add some color to the direction.

Maxime Therrien: Derek, when we refer to technology, we refer to a few items. One relative to our IT platform, where some upgrades has to be taken care of. We need to proceed with some changes into the infrastructure of the platform. We also include in there cybersecurity investment that is constant year after year. It's not going away. As well as digital investment, particularly on the commercial aspect. When you put all of those elements that we refer to in terms of technology, we could think about CAD 28 million, CAD 30 million investment in that space.

Speaker #1: One relative to our platform, IT platform, where some upgrades as to be taken care of and we need to proceed with some changes into the infrastructure of the platform.

Speaker #1: We also include in there cyber security investment. That is a constant year after year. And it's not going away. And as well as digital investment, particularly on the commercial aspect.

Speaker #1: So when you put all of those elements that we refer to in terms of technology, we could think about 28, 30 million dollar investment in that space.

Speaker #1: Yeah. And maybe just to add a little bit more color on what types of digital technologies or the areas that are of primary focus to us.

Carl Colizza: Yeah, maybe just to add a little bit more color on what types of digital technologies are the areas that are of primary focus to us. Max referenced the commercial side. To give you examples, a lot of it will be centered around consolidating insights in a manner that's not just digestible, but in a manner that's actionable and that will help feed a number of other digital technologies that we're looking to employ to enhance the efficacy of our promotional activities. All of this is fundamental to how we improve with the notions of revenue growth management. We're looking at the commercial side as one of our priorities.

Speaker #1: So, Max referenced the commercial side. To give you examples, a lot of it will be centered around consolidating insights in a manner that's not just digestible, but in a manner that's actionable.

Speaker #1: And that will help feed a number of other technologies, digital technologies that we're looking to employ to enhance the efficacy of our promotional activities.

Speaker #1: And all of this is fundamental to how we improve with the notions of revenue growth management. So we're looking at the commercial side as one of our priorities.

Carl Colizza: All of this is fundamental to how we improve with the notions of revenue growth management. We're looking at the commercial side as one of our priorities. There are other streams that are moving along. You can certainly expect to see digital technologies and automation being deployed into aspects of our supply chain, especially on the demand planning and production planning side, which we're already seeing and having some traction.

Speaker #1: I mean, there are other streams that are moving along. And you can certainly expect to see digital technologies and automation being deployed into aspects of our supply chain, especially on the demand planning and production planning sides, which we're already seeing.

Carl Colizza: There are other streams that are moving along. You can certainly expect to see digital technologies and automation being deployed into aspects of our supply chain, especially on the demand planning and production planning side, which we're already seeing and having some traction. We're going at this with very specific use cases, and making sure that it simplifies our operation and allows us to be true to our core operating model, being a low-cost manufacturer of high-quality dairy solutions and being true to our customers and providing the agility to make these things happen.

Speaker #1: And having some traction. So we're going at this with very specific use cases. And making sure that it simplifies our operation and allows us to be true to our core operating model, being a low-cost manufacturer of high-quality dairy solutions.

Carl Colizza: We're going at this with very specific use cases, and making sure that it simplifies our operation and allows us to be true to our core operating model, being a low-cost manufacturer of high-quality dairy solutions and being true to our customers and providing the agility to make these things happen.

Speaker #1: And being true to our customers and providing the agility to make these things happen.

Speaker #2: Yeah. Thanks, everybody. I'm looking forward to seeing what you can do in the coming years.

Derek Lessard: Thanks, everybody. I'm looking forward to seeing what you can do in the coming years.

Speaker #3: Your next question comes from the line of Vishal Sridhar of National Bank. Your line is open.

Operator: Your next question comes the line of Vishal Sridhar of National Bank. Your line is open.

Vishal Shreedhar: Hi. Thanks for taking my question. There are many crosscurrents in the quarter. I was hoping you could help me understand, in particular in the US, what is driving the growth between the protein pricing, the volumes, the efficiencies. Maybe you can give me a sense of where that growth is coming from and the commodity prices on the cheese side as well.

Speaker #7: Hi, thanks for taking my question. There are many cross-currents in the quarter. I was hoping you could help me understand, in particular, in the US, what is driving the growth between the protein pricing, the volumes, the efficiencies?

Speaker #7: Maybe you can give me a sense of where that growth is coming from, and the commodity prices on the cheese side as well.

Speaker #1: So I'll say this. I'll start at the basis of our operations. Our operations are performing at a higher level of efficiency than the day before.

Carl Colizza: I'll say this, I'll start at the basis of our operations. Our operations are performing at a higher level of efficiency than the day before. As we look forward, our operations continue to improve their overall cost structure, whether that's labor efficiency, whether that's the overall cost associated to various overheads. That is allowing us to, nonetheless, in the core of our business, sustain our overall margin and grow our margins, despite some of the headwinds. On the protein side in particular, our Waupun facility came off the commissioning phase, is now running efficiently. We're able to deliver on the orders, the strong orders for that matter, that are coming through in protein. The demand in the global markets for whey proteins is extremely strong. We're fulfilling and filling all of the orders that are coming our way.

Speaker #1: So every as we look forward, our operations continue to improve their overall cost structure. Whether that's labor efficiency, whether that's the overall cost associated to various overheads, but what and that is allowing us to nonetheless, in the core of our business, sustain our overall margin and grow our margins despite some of the headwinds.

Speaker #1: On the protein side in particular, so our Wapan facility came off the commissioning phase is now running efficiently. And we're able to deliver on the orders the strong orders for that matter that are coming through in protein.

Carl Colizza: On the protein side in particular, our Waupun facility came off the commissioning phase, is now running efficiently. We're able to deliver on the orders, the strong orders for that matter, that are coming through in protein. The demand in the global markets for whey proteins is extremely strong. We're fulfilling and filling all of the orders that are coming our way.

Speaker #1: So the demand and the global markets for whey proteins is extremely strong. We're fulfilling and filling all of the orders that are coming our way.

Speaker #1: But overall pricing, based on the limited availability globally, is a big driver of the protein profitability for sure in this quarter. Pricing has improved significantly.

Carl Colizza: Overall pricing based on the limited availability globally is a big driver of the protein profitability for sure in this quarter. Pricing has improved significantly, but it's also coming at a time when we're actually able to supply it based on the prior year's choices that we've made in our network.

Speaker #1: But where it's also coming at a time when we're actually able to supply it based on the prior year's choices that we've made in our network.

Speaker #7: Okay. Thank you. Thank you for that. With respect to M&A, maybe you could give us some updated thoughts on how you're thinking and what you're seeing in the market.

Vishal Shreedhar: Okay. Thank you for that. With respect to M&A, maybe you could give us some updated thoughts on how you're thinking and what you're seeing in the market and what investors should expect from Saputo.

Speaker #7: And what investors should expect from SAPUTO.

Speaker #1: I'm going to bring back the answer, Vishal, to our objectives, which are to continue to grow our brands, our business, our offering, at a moment when dairy is in such high regard. And I’ve used this expression before, but in 'share of stomach' with consumers.

Carl Colizza: I'm going to bring back the answer, Vishal, to our objectives are to continue to grow our brands, our business, our offering at a moment when dairy is in such high regards and, I used this expression before, but in share of stomach with consumers. Our growth will be led by choices that we make and investments that we make. We recognize that we're going to need to continue to invest in our assets, and they will absolutely include capital investments, incremental capital investments, to grow in categories that we feel strongly about, the quality of the returns, the longevity, and sustainability of those returns. Many of them are protein-centric. It's not all about absolute highest quantity of protein, but it has a lot to do with wellness and health as well as everyday affordability.

Speaker #1: And so our growth will be led by choices that we make and investments that we make. We recognize that we're going to need to continue to invest in our assets.

Carl Colizza: We recognize that we're going to need to continue to invest in our assets, and they will absolutely include capital investments, incremental capital investments, to grow in categories that we feel strongly about, the quality of the returns, the longevity, and sustainability of those returns. Many of them are protein-centric. It's not all about absolute highest quantity of protein, but it has a lot to do with wellness and health as well as everyday affordability.

Speaker #1: And they will absolutely include capital investments incremental capital investments to grow in categories that we feel strongly about the quality of the returns, the longevity and sustainability of those returns.

Speaker #1: And yes, many of them are protein-centric. It's not all about the absolute highest quantity of protein, but it has a lot to do with wellness and health, as well as everyday affordability.

Speaker #1: I want to emphasize all of that as well because consumers and customers all have sort of different ambitions or a different expectations in their shopping habits.

Carl Colizza: I want to emphasize all of that as well because consumers and customers all have sort of different ambitions or different expectations in their shopping habits. Affordability and value is also very key in this. The choices we will make in those investments will be centered around that, and that in itself will also inform the choices that we will make with regards to M&A and either the assets and/or the brands that we feel would be most useful to our portfolio.

Speaker #1: But affordability is also and value is also very key in this. So the choices we will make in those investments will be centered around that.

Speaker #1: And that in itself will also inform the choices that we will make with regards to M&A. And either the assets and/or the brands that we feel would be most useful to our portfolio.

Speaker #7: Thank you.

Vishal Shreedhar: Thank you.

Speaker #1: And maybe if I sorry, if I could just add one last thing on this to clarify with M&A. One of the things that I want to emphasize is that we're not looking for new milk sheds.

Carl Colizza: Maybe if I could just add one last thing on this to clarify with M&A. One of the things that I want to emphasize is that we're not looking for new milk sheds. I've said this before, but I want to emphasize it again. We feel very comfortable, especially for the export markets, to be producing our products and bringing innovation to market through our US platform as well as our Australian platform. We feel strongly about not only their geographical presence, but most importantly by the quality and cost competitiveness of the milk supply in these regions.

Speaker #1: I've said this before, but I want to emphasize it again. We feel very, very comfortable, especially for the export markets, to be producing our products and bringing innovation to market through our US platform as well as our Australian platform.

Speaker #1: We feel strongly about not only their geographical presence, but most importantly by the quality of and cost competitiveness of the milk supply in these regions.

Speaker #3: Your next question comes to line of George Dumais of Ventum Financial. Your line is open.

Operator: Your next question comes from the line of George Doumet of Ventum Financial. Your line is open.

Speaker #6: Yeah. Hi. Good morning, Carl and Max. You guys have had this 10 to 12 percent EBITDA long-term margin goalpost for the US. I wonder if you think of that any differently perhaps the magnitude or perhaps in terms of timing of how soon we can get there.

George Doumet: Yeah. Hi, good morning, Carl and Max. You guys have had this 10% to 12% EBITDA long-term margin goalpost for the US. I wonder if you think of that any differently, perhaps the magnitude or perhaps in terms of timing of how soon we can get there as a result of all the demand we're seeing from ingredients.

Speaker #6: As a result of all the demand we're seeing for ingredients.

Carl Colizza: It's still our ambition and our target. Certainly, the overall market dynamic for whey proteins has helped the overall margin structure. Our efficiency and our consolidation plans have also contributed positively to this. There'll be more choices that we're going to make with growing volume from the asset base that we have that will further amplify it. Another possible, call it step change in that reaching our objective will come when we see a better pricing balance or spread with regards to our block price and the price of milk. It's still our objective to be in double digits in the US. We do believe it's achievable, and it's going to come from those three specific aspects working in tandem.

Speaker #1: It's still our ambition and our target. And certainly the overall market dynamic for those for whey proteins has helped the overall margin structure. Our efficiency and our consolidation plans have also contributed positively to this.

Speaker #1: There will be more choices that we're going to make, with growing volume from the asset base that we have, that will further amplify it.

Speaker #1: And another possible, call it, step change in reaching our objective will come when we see a better pricing balance or spread with regards to our block price and the price of milk.

Carl Colizza: Another possible, call it step change in that reaching our objective will come when we see a better pricing balance or spread with regards to our block price and the price of milk. It's still our objective to be in double digits in the US. We do believe it's achievable, and it's going to come from those three specific aspects working in tandem.

Speaker #1: So it's still our objective to be in double digits. In the US, we do believe it's achievable and it's going to come from those three specific aspects working in tandem.

Speaker #6: Okay. And Carl, it's pretty impressive that you guys were able to grow the mozzarella volumes in an environment where we're seeing pressure from food service, especially from the feed suppliers.

George Doumet: Okay. Carl, it's pretty impressive that you guys were able to grow the mozzarella volumes in an environment where we're seeing pressure from foodservice, especially from the pizza players. Just wondering how you're doing that, and given the additions in the low-cost capacity that we've seen in that space, do you think we can see maybe some irrational behavior from some of your competitors if things don't get better soon?

Speaker #6: Just wondering how you're doing that and given the additions in the low-cost capacity that we've seen in that space, do you think we can see maybe some irrational behavior from some of your competitors if things don't get better soon?

Carl Colizza: The market remains very competitive, the US market on mozzarella and cheese in general has always been competitive. We're not seeing anything that is different than that very statement to date. What has allowed us to excel here and to fill our assets and be successful has been a combination of things. One, being able to produce day after day, week after week, and be the anchor to important customers on supply and being a reliable supplier of that high-quality product. Yes, some of the backdrop has been a little bit more difficult. You have some winners and some losers when it comes to some of the QSRs. We've been fortunate to be growing and supporting the right banners. Some of those banners are picking up the share, if you want, of others, and we're winning in that space as well.

Speaker #1: The market remains—it's very competitive. And in the US market, mozzarella and cheese in general have always been competitive. And we're not seeing anything that is different from that very statement today.

Speaker #1: What has allowed us to excel here and to fill our assets and be successful has been a combination of things. One, being able to produce day after day, week after week, and be the anchor to important customers on supply and being a reliable supplier of that high-quality product.

Speaker #1: And yes, some of the backdrop has been a little bit more difficult. You have some winners and some losers when it comes to some of the QSRs.

Carl Colizza: Yes, some of the backdrop has been a little bit more difficult. You have some winners and some losers when it comes to some of the QSRs. We've been fortunate to be growing and supporting the right banners. Some of those banners are picking up the share, if you want, of others, and we're winning in that space as well.

Speaker #1: We've been fortunate to be growing and supporting the right banners, and some of those banners are picking up the share, if you will, of others.

Speaker #1: And we're winning in that space as well. So that's allowing us to grow on the mozzarella side, as well as new opportunities and new occasions.

Carl Colizza: That's allowing us to grow on the mozzarella side as well as new opportunities and new occasions. Not all about the QSR/pizzeria space. Our continued push and focus on retail is also allowing us to expand our mozzarella utilization in out-of-home experiences.

Speaker #1: It's not all about the QSR slash pizzeria space. Our continued push and focus on retail is also allowing us to expand our mozzarella utilization in out-of-home experiences.

Speaker #6: Yeah. Thanks for that. I can just squeeze one last one in. I think it's the second quarter in a row where we're seeing margin compression in Canada.

George Doumet: Yeah, thanks for that. If I can just squeeze one last one in. I think it's the Q2 in a row where we're seeing a margin compression in Canada. Is that purely the result of fuel? Should we see margin expansions come back maybe later this year? Or should we just think of Canada in general as more of a kind of EBITDA dollar growth story as opposed to maybe an EBITDA margin expansion story?

Speaker #6: Is that purely the result of fuel? So should we see margin expansions come back maybe later this year? Or should we just think of Canada in general as more of a kind of a EBITDA dollar growth story as opposed to maybe even a margin expansion story?

Speaker #1: Yeah. I'm not going to confirm that it's the second quarter in a row because this quarter is. But what I would tell you is that yes, in Canada, with regards to fuel in particular, there was a disproportionate amount of inflationary pressure.

Carl Colizza: Yeah. I'm not going to confirm that Q2 in a row, because this quarter is, what I would tell you is that, yes, in Canada, with regards to fuel in particular, there was a disproportionate amount of inflationary pressure, an inability for us to mitigate all of it. I would tell you that if you, on an ongoing basis, Canada will continue to grow its business, certainly in a more confined market. We have the innovation, the assets, the footprint in Canada that continue to grow in the right categories, with the right customers, and to see this business continue to move forward. I'm not concerned with Canada's outlook, if I can say it that way. Yes, there is some short-term pressure that they'll continue to mitigate in numerous ways.

Speaker #1: And an inability for us to mitigate all of it. But I would tell you that, if you—on an ongoing basis—Canada will continue to grow its business, certainly in a more confined market.

Speaker #1: But we have the innovation, the assets, the footprint in Canada, and we continue to grow in the right categories with the right customers, and to see this business continue to move forward.

Carl Colizza: We have the innovation, the assets, the footprint in Canada that continue to grow in the right categories, with the right customers, and to see this business continue to move forward. I'm not concerned with Canada's outlook, if I can say it that way. Yes, there is some short-term pressure that they'll continue to mitigate in numerous ways.

Speaker #1: So I'm not concerned with Canada's outlook if I can say it that way. But yes, there is some short-term pressure that they'll continue to mitigate in numerous ways.

Speaker #6: Thank you.

George Doumet: Thank you.

Speaker #3: Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.

Operator: Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.

Speaker #5: Thank you. Good morning. I wanted to come back to the topic of margin goals, in particular, Australia and Europe. You've captured lots of the upside from efficiency and capacity.

John Zamparo: Thank you. Good morning. I wanted to come back to the topic of margin goals, in particular, Australia and Europe. You've captured lots of the upside from efficiency and capacity. I wonder what upside remains, especially from product mix. If you keep getting the benefits from product mix that Saputo's benefit from, how much margin expansion remains in those two sectors?

Speaker #5: I wonder what upside remains especially from product mix. And if you keep getting the benefits from product mix, that's a good benefit from how much margin expansion remains in those two sectors.

Speaker #1: Well, let me start with Europe, and the UK in particular. Certainly, we've been able to grow our branded presence in Cathedral City—very impressive, actually, given the current market dynamics in the UK.

Carl Colizza: Well, let me start with Europe and the UK in particular. Certainly, we've been able to grow our branded presence in Cathedral City. Very impressive, actually, in the current market dynamics in the UK. What I would tell you is that, one, the continued focus on the operational efficiency will continue to deliver incremental margin for that platform. Equally, if you remember one of the choices that we made, probably now over almost coming on a year ago with regards to exiting the D90 and GOS business on the waste side in our main cheese operation in Davidstow, we still have an opportunity to enhance our overall returns from our waste solids in the UK. That will be one of our primary focuses as we move forward.

Speaker #1: But what I would tell you is one, the continued focus on the operational efficiency will continue to deliver incremental margin. For that platform, and equally, if you remember one of the choices that we made probably now over almost coming on a year ago, with regards to exiting the D90 and Goss business on the wayside in our main cheese operation in Davidstone, we still have a an opportunity to enhance our overall returns from our waste solids in the UK.

Carl Colizza: Equally, if you remember one of the choices that we made, probably now over almost coming on a year ago with regards to exiting the D90 and GOS business on the waste side in our main cheese operation in Davidstow, we still have an opportunity to enhance our overall returns from our waste solids in the UK. That will be one of our primary focuses as we move forward.

Speaker #1: And that will be one of our primary focuses as we move forward. When I think about Australia, we're still targeting sort of high single digits as far as an overall margin number for that business.

Carl Colizza: When I think about Australia, we are still targeting sort of high single digits as far as an overall margin number for that business. It is subject to certain volatility, of course, from the international markets, but how it is we are approaching that, it has not changed. We are looking for a better balance for the limited amount of milk, the finite amount of milk that we have in Australia, and moving to a larger share of domestic versus that of international. It is not just about the volume in international, it is about the mix and the quality of the offering. Said differently, we are not looking to just process milk to put into the markets. We are looking to ensure that the products that we bring to the international space out of the Australian platform, examples, of course, will include some of our cream cheese offerings, some of our high-quality, high-value cheddar.

Speaker #1: It is subject to certain volatility, of course, from the international markets. But how it is we are approaching that, it hasn't changed we're looking for a better balance for the limited amount of milk the finite amount of milk that we have in Australia, and moving to a larger share of domestic versus that of international.

Speaker #1: And it's not just about the volume in international, it's about the mix and the quality of the offering. So that differently, we're not looking to just process milk to put into the markets.

Carl Colizza: It is not just about the volume in international, it is about the mix and the quality of the offering. Said differently, we are not looking to just process milk to put into the markets. We are looking to ensure that the products that we bring to the international space out of the Australian platform, examples, of course, will include some of our cream cheese offerings, some of our high-quality, high-value cheddar.

Speaker #1: We're looking to ensure that the products that we bring to the international space out of the Australian platform—examples, of course, will include some of our cream cheese offerings and some of our high-quality, high-value cheddar.

Speaker #1: Those are the things that we will target our limited milk supply to for international markets, improve our overall margin structure, as we're seeing now, and continue down the path of innovating and being a dominant player in the domestic market.

Carl Colizza: Those are the things that we will target our limited milk supply to for international markets, improve our overall margin structure as we are seeing now, and continue down the path of innovating and being a dominant player in the domestic market.

Speaker #5: Okay, thank you for that. And then, on capital returns, you increased the maximum buyback amount. I wonder what we should expect in terms of usage of that program this year.

John Zamparo: Okay. Thank you for that. On capital returns, you took up the maximum buyback amount. I wonder what we should expect in terms of usage of that program this year. You have illustrated your desires for M&A and capital spending sounds like it will have good returns to it, but leverage is already well below your target. You have got the proceeds from the JV sale coming in, I wonder what we should expect from the buyback this year.

Speaker #5: You've illustrated your desires for M&A and capital spending sounds like it'll have good returns to it, but leverage is already well below your target.

Speaker #5: You've got the proceeds from the JB sale coming in, so I wonder what we should expect from the buyback this year.

Speaker #1: Yep. The NCIB—it's a flexible tool. We intend to use it for accessing cash. Of course, valuation will be a key element in our decision-making.

Maxime Therrien: Yeah. The NCIB it is a flexible tool. We intend to use it for excess cash. Of course, valuation will be a key element in our decision-making. Cash generation will definitely be the key driver, of course. The intensity of the buyback will be evaluated against the growth alternatives and opportunity that comes to us, whether it is through M&A or strategic investment. NCIB remains opportunistic and it is going to be benchmarked against our growth ambition. That is it.

Speaker #1: Cash generation will definitely be the key driver, of course. And the intensity of the buyback will be evaluated against the growth alternatives and opportunity that comes to us, whether it's through M&A or strategic investment.

Speaker #1: So NCIB remain opportunistic and it's going to be benchmarked in our growth ambition.

Speaker #5: Okay. That's helpful. Thank you.

John Zamparo: Okay. That is helpful. Thank you.

Speaker #3: Your next question is a follow-up from Irene Natel of RBC Capital Markets. Your line is open.

Operator: Your next question is a follow-up from Irene Nattel of RBC Capital Markets. Your line is open.

Speaker #4: Well, sorry. I should have put down my hand. In the interest of time, we'll let it go. Sorry. Thank you.

Irene Nattel: Sorry, I should have put down my hand. In the interest of time, we will let it go. Sorry. Thank you.

Speaker #3: Thank you. With no further questions, this concludes the Q&A session. We thank you for your participation. This concludes today's conference call. You may now disconnect.

Operator: Thank you. With no further questions, this concludes the Q&A session. We thank you for your participation. This concludes today's conference call. You may now disconnect.

Q1 2027 Saputo Inc Earnings Call

Request DemoDemo

Saputo

Earnings