Stock of the Week: Saputo Inc.Stock of the Week: Saputo Inc.
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Saputo Inc. (TSX-SAP) did well in the first half of fiscal 2008.
Despite some challenges, we expect it to keep doing well as it
integrates recent acquisitions and reinvests in its operations. The
shares remain a buy for long-term gains and rising dividends. If you
buy by December 5, you'll receive the upcoming stock dividend. It has
the same effect as a two-for-one stock split.
In the six months to September 30, Saputo earned $134 million, or
$1.29 a share, excluding a one-time tax charge. That's up by more than
a fifth from $112 million, or $1.07 a share. Earnings per share rose
more than total earnings because the company bought back 2,325,020
shares in the year to November 12. It can buy back up to 5,136,424 (or
five per cent) of its shares over the next 12 months.
In the first half, Saputo's revenue rose by 27.4 per cent, to $2.5
billion. This largely reflects the acquisitions of Land O'Lakes West
Coast in the U.S. on April 2 and operations in the United Kingdom on
March 23. The company now sells its products in over 30 countries.
Higher prices and volumes also raised revenue.
All costs rose by a marginally-lower 27.3 per cent. This raised
Saputo's pre-tax profit margin by seven basis points, to 7.87 per cent
(a basis point is a hundredth of one per cent).
The higher profit is confirmed by a 26 per cent jump in first-half
cash flow, to $184 million. This greatly exceeded net capital spending
of $39.6 million and dividend payments of $45.1 million. It also
covered net share buybacks of $59.9 million. The remaining $39.3
million helped finance acquisitions of $253 million.
With low debt and rising cash flow, Saputo is likely to keep raising
your dividend. It now pays 96 cents a share, up every year since
2000.
Saputo faced challenges in the first half. One is higher milk prices
in Europe and Canada. A second challenge is the rising loonie. It cut
the company's revenue by $38 million and reduced profit by about $2
million.
Still, Saputo's outlook is good. It'll keep integrating its
acquisitions in the U.S., the U.K., Germany and Canada (Rondeau's
baking operations). The company will also keep reinvesting in its
operations. In Canada, for instance, it's automating a facility.
Saputo expects to finish this project by March 31. It's also investing
in Land O'Lakes West Coast. The company says this will "strengthen the
financial performance of this acquisition and optimize synergies
within this division". In fact, Saputo constantly seeks ways to raise
its efficiency.
Saputo remains a buy for long-term gains and rising dividends.
Click below for a profile of this week's stock.
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