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Saputo Q2 profit falls despite higher revenues

Montreal company says acquisitions contributed to revenue increases

Saputo Inc. reported a lower profit in a challenge-filled quarter, the company's CEO said, sending the company's shares falling.

The Montreal-based company's net income fell $22.1 million or 11.9% to $163.1 million for the second quarter ending Sept. 30, 2018.

Analysts surveyed by Thomson Reuters Eikon expected a net profit of about $178.6 million.

The company's shares fell $1.38 or 3.44% to $38.73 in afternoon trading on the Toronto Stock Exchange.

The earnings "reflect the challenges we anticipated," said Lino Saputo, chief executive officer, during a conference call with analysts Thursday.

Saputo faced depressed dairy markets, increased warehousing and logistical costs, increased competition and other challenges during the quarter ending Sept. 30, 2018, he said.

The company focused on initiatives to mitigate these factors, like gearing up efforts to integrate its recent acquisitions, Saputo said, highlighting the benefits of Shepherd Gourmet, which it acquired in mid-June, and Motchevere, which it acquired in late 2017.

Saputo's revenue increased mostly due to the contributions of recent acquisitions, rising about $536 million or 18.6% to $3.42 billion in the quarter.

The company recently announced an agreement to acquire the activities of F&A Dairy Products Inc., a manufacturer of natural cheeses, earlier this month and expects the transaction to close by the end of this year.

Saputo said the manufacturer would continue to make acquisitions and act as a consolidator in the dairy market, pointing to several unnamed acquisition targets that he said would get the company into a new geographical area or give it a new platform somewhere it already operates.

"We're extremely excited about the fact that the pipeline remains full," he said.

Saputo also expressed surprise at some aspects of the new U.S.-Mexico-Canada-Agreement announced about a month ago. The deal will grant an expanded 3.6% market access to the domestic dairy market and eliminate two milk price classes, including the controversial Class 7.

Saputo expected the Class 7 elimination, but was surprised to see the amount of access Canada has granted the U.S. into its market through the USMCA and other trade agreements.

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