Saputo's Adjusted EBITDA Climbs 14% to CAD 438 Million in Q2

Adjusted EBITDA from continuing operations rose roughly 14% to CAD 438 million in Saputo's fiscal 2027 second quarter, with the margin (operating profit as a share of revenue) expanding to 10.3% from 9.4% a year earlier. Revenue grew about 4% to CAD 4.3 billion, the company (TSE:SAP) reported, as demand and pricing for high-protein dairy ingredients offset weaker U.S. cheese markets and rising costs.

Adjusted net earnings jumped 24% to CAD 221 million, and adjusted earnings per share climbed 28% to CAD 0.55. Net earnings from continuing operations came in at CAD 213 million, or CAD 0.53 per share.

President and CEO Carl Colizza said high-protein ingredients were the primary driver of earnings growth and margin expansion, supported by capacity investments and operational improvements, particularly in the U.S. CFO and Secretary Max Therrien said share repurchases contributed to the per-share improvement.

What's behind the protein demand?

Colizza said demand for high-protein ingredients continues to outpace supply growth, and customers are absorbing Saputo's added capacity. The company has created a dedicated ingredients division, led by Steve Douglas, to sharpen its commercial focus and expand opportunities in global markets.

Some ingredient prices have eased from their highs, the CEO acknowledged. Certain contracts will still reflect peak pricing in coming months, while some volume sells on a spot basis (immediate-delivery market pricing). Contracts typically run no longer than three or four months, though terms vary by country.

Colizza said Saputo does not base its investment return assumptions on peak prices. Asked whether returns could exceed the assumptions made when the capital plan launched in fiscal 2022, he said some areas could outperform — ingredients likely among them.

He also said whey-based ingredient pricing has moved to a structurally higher level. Some customers are reformulating products in response to peak prices, using different dairy protein fractions or blends, but Saputo has seen no overall weakening in ingredient demand over the past 12 months.

The company declined to quantify ingredients' contribution to year-over-year EBITDA growth or disclose product-level profitability. Colizza noted its ingredients facilities have varying degrees of flexibility to adjust production to market needs.

In plain terms: protein is carrying the quarter, and management thinks that's a durable shift, not a spike.

Where did growth come from?

The U.S. and Australia led the way. U.S. adjusted EBITDA rose 23% to CAD 205 million, with the margin expanding to 9.6% from 7.8%. Revenue slipped about 1% to CAD 2.1 billion, as lower cheese block and butter prices were largely offset by higher ingredient and selling prices.

Therrien credited high-protein ingredient prices and capacity investments, plus warehouse consolidation and the elimination of duplicate costs across plants and customer fulfillment. Colizza said demand for cottage cheese and string cheese is running ahead of capacity: new string cheese capacity at Las Cruces is starting up, and an expansion at the Friendship cottage cheese operation is moving forward.

Canada's revenue rose 3% to CAD 1.4 billion, while adjusted EBITDA held steady at CAD 179 million. Its margin narrowed to 12.7% from 13%, as inflation and higher selling, general and administrative costs offset benefits from ingredient prices, product mix and investments.

The Australian dairy division — Saputo's international segment — posted revenue up 20% to CAD 701 million and adjusted EBITDA up 39% to CAD 54 million. Therrien attributed that to greater milk availability, improved volume and better fixed-cost absorption. Australia has now delivered year-over-year adjusted EBITDA growth for eight consecutive quarters.

What's happening with divestments and capital?

The proposed sale of Saputo's Dairy Division UK to Lactalis is expected to close in the second half of fiscal 2027, with estimated proceeds of about CAD 1.7 billion. The U.K. division is reported as a discontinued operation, as is the Argentine division, whose sale closed in June. The sale of Saputo's interest in the Danone Saputo Dairy Australia joint venture is expected to close in the third quarter for roughly CAD 250 million.

Net debt stood at 1.55 times adjusted EBITDA (leverage ratio) at quarter-end. Including estimated net proceeds from the U.K. transaction, the ratio would fall to 0.52 times, Therrien said — well below the long-term target of 2.25 times.

Saputo repurchased about 5.3 million shares for CAD 216 million during the quarter and paid CAD 83 million in dividends. It expects to stay active in buybacks and will seek renewal of its normal course issuer bid (a regulatory framework for share repurchases). The board declared a quarterly dividend of CAD 0.21 per share, payable Dec. 11.

Capital spending guidance holds at roughly CAD 500 million for continuing operations in fiscal 2027. Colizza said Saputo plans incremental investment in cultured products, value-added beverages and ingredients, while also considering acquisitions and other strategic investments.

On trade restrictions, Colizza said the effect on Saputo hasn't been material to date — including the recent U.S. ban on Canadian whey solids. The restriction has complicated optimization of the ingredients platform, he said, but Saputo continues to add value to those whey solids in Canada.

By Grace Kim