Scotia commentsQ2/F22 Continues to See Negative Impact from Unfavourable Market Conditions
OUR TAKE: Mixed. Nov 4. C/C 2;30p.m. ET; (888)221--1894.
We forecast EPS of $0.31 (-31.1% y/y) vs consensus of $0.35. Q2 continued to be challenged by inflationary pressures leading to increased input costs in all divisions, the ongoing competitive intensity in the U.S. mozzarella market, heightened competitive activity around milk intake in Australia, and lower y/y export sales. Additionally, FX headwinds and negative market factors materially impacted U.S. segment results in the quarter.
However, in SAP's Canadian segment, we estimate revenue and EBITDA increased moderately y/ y as volumes gradually increased through the quarter.
Discussion on the C/C is likely to focus on inflationary pressures and supply chain disruptions faced by SAP. Also, we anticipate an update on the Company's four-year strategic plan and possible M&A opportunities. While the duration of the current labour and supply chain challenges is still unknown, a long-term view sees SAP well-positioned, and we believe the Company will emerge even stronger, more flexible, and more agile, having learned many important lessons in the context of operating in this challenging environment.
We forecast Q2 consolidated revenue of $3,713M (consensus $3,620M), +0.3% y/y, and consolidated EBITDA of $314M (consensus $339M), -15.1% y/y.
Canada: We forecast revenue of $1,096M (+3.0% y/y), fueled by higher sales volumes as well as higher selling prices related to the cost of milk. We forecast EBITDA of $122M, implying a margin expansion of 10 bp y/y to 11.1%, due to leverage on increased sales volumes.
U.S.: We forecast revenue of $1,638M, -0.7% y/y, (+5.1% ex-FX) on FX headwinds and fluctuations in the average block market price. We forecast EBITDA of $84M (-40.3% y/ y), with the margin contracting 340 bp y/y to 5.1%. The decline in EBITDA was primarily due to adverse market factors, including an unfavourable milk cheese spread.
International: We estimate revenue of $790M, -2.0% y/y, on supply chain challenges and reduced milk availability in Australia from intensified competition. We forecast EBITDA of $73M, -7.0% y/y, due to the relationship between international cheese and dairy ingredient market prices and the cost of milk as a raw material. The decline was partially offset by improved operational efficiencies.
Europe: We forecast revenue of $189M (+3.0% y/y) and EBITDA of $36M (+4.1% y/ y) due to higher industrial market segment sales volumes.