Saputo offers consistent Dividend Growth…

Saputo Inc. is one of the top ten dairy processors in the world, processing over 10 billion litres of milk into a variety of cheeses and a wide range of dairy products every year. The company engages in the production, marketing, and distribution of a wide array of dairy products such as cheese, fluid milk, extended shelf-life milk and cream products, cultured products and dairy ingredients.

Saputo is the largest cheese manufacturer and the leading fluid milk and cream processor in Canada. The company also has a large international presence with its U.S. operations are the biggest. With 60 manufacturing facilities, Saputo operates its business through three sectors: USA (53% of revenues), Canada (35%) and International (12%). The company sells its products in over 40 countries and enjoys leading market shares in Australia, USA and Argentina.

Saputo operates an umbrella of well-known brand names such as Saputo, Alexis de Portneuf, Armstrong, COON, Cracker Barrel, Dairyland, DairyStar, Devondale, Friendship Dairies, Frigo Cheese Heads, La Paulina etc.

Investment Data

• Opportunity Score: 78%
• Ticker: TSE:SAP
• Sector: Consumer Defensive
• Industry: Consumer Packaged Goods
• Market Cap: 15.14B
• P/E: 19.97
• Dividend Yield: 1.69%
• Dividend Payout Ratio: 33.85%

Revenue Growth & Market Exposure

Saputo sells its products to a wide range of customers like supermarket chains, convenience stores, specialty cheese boutiques, independent retailers, restaurants, food processors etc. The retail segment constitutes 49% of its total revenues, followed by food service (39%) and industrial (12%).

Saputo has successfully established strong relationships with suppliers across the entire value chain. The company is known for its offering of a variety of dairy products recognized for their quality and taste. Customers trust the Saputo brand given its six decades of experience in the food industry. In order to retain and attract new customers, the company also offers a range of organic, low sodium and low sugar dairy products for health conscious consumers.

Saputo ranks among the top three cheese producers in the US, the top dairy processor in Australia and the second largest in Argentina. The company is aggressively expanding its operations in Canada, Australia and Argentina and has invested $6.8 billion since 1997.

In addition to reinforcing its presence in emerging markets, developing new markets and expanding existing ones, the company is growing organically as well as through acquisitions. It has successfully completed 27 acquisitions since 1997. These acquisitions have helped Saputo grow rapidly with the recent Murray Goulburn acquisition making it the leading dairy processor in Australia while the Montchevre acquisition has positively enhanced its US sector revenues.

Saputo has also benefited as a result of the US tax reform to the tune of $178.9 million.

Dividends

Saputo has a history of growing dividends and has increased its payouts at 11% CAGR over the last decade. The stock yields 1.69% but has grown its dividends each year since 1998. The company last paid a quarterly dividend of $0.165 per share to its shareholders, raising it by 3%.

Saputo has a strong balance sheet and enjoys financial flexibility due to a high level of cash flows generated by operations.

Saputo has successfully strengthened its global business and consolidated its position as one of the leading dairy processors in the world. It is investing in a new ERP system and also modernizing its plants. The company is expecting its bottom line to grow in line through operational efficiencies and by reducing costs. Its strategy of acquiring similar businesses across geographies will also bear fruits in the near future. A wide range of diversified products and customers’ trust on Saputo’s products should also support demand growth in future.

Saputo has an objective to return 30%-35% of its net earnings as dividends. A large international footprint, leading brands quality products, and a smart acquisition strategy positions Saputo to be a leader in the dairy space.

Competition

Saputo manufactures approximately 32% of all Canadian natural cheeses. In order to retain its leading position in the challenging dairy industry, the company has a strong focus on cost management and operational efficiency. The food processing industry is extremely competitive, and Saputo is one of Canada’s top players in the dairy industry along with two other major competitors. Several regional, national and multinational players compete Saputo in the USA, Argentina and Australian dairy markets.

Bottom Line

Saputo has a presence across the world through its Canada, USA and International Sectors, with products sold in over 40 countries. The company has smartly diversified across geographies through strategic acquisitions, which have contributed positively to Saputo’s earnings. Given its huge international footprint, decades long existence and large product portfolio, the company should retain its leading position in the industry and continue growing its dividends in the low single digit in future.

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