5 Reasons to Love Saputo’s Expansion Strategy

Here are five reasons why you should take stock in Saputo’s business savvy.

| More on:
The Motley Fool

Saputo (TSX: SAP), Canada’s largest dairy processor, is continuing to set its sights on markets outside of Canada. Here’s why this is good for investors.

1. It provides new opportunities to build market share

Saputo sees the need to build its business beyond its home base. There’s only so much growth potential in the Canadian market. As TD Securities analyst Michael Van Aelst said, “The near-term outlook for organic profit growth remains very challenging in Canada.”

2. It enables the company to focus on new U.S. opportunities

In 2013, Saputo acquired Morningstar Foods. Lino Saputo Jr., Saputo’s CEO,  has said that strong acquisition opportunities exist in the American market. The Morningstar Foods acquisition, now called Saputo Dairy Foods (USA), complements the company’s cheese operations in the U.S. The dairy foods division produces a broad variety of dairy and non-dairy extended shelf-life products.

3. It gives it a position in Australia

In February 2014, Saputo announced that its offer for all the issued shares in Warrnambool Cheese and Butter in Australia closed. Under the offer, Saputo acquired a relevant interest of 87.9% of Warrnambool’s shares. A supplier of low-cost raw milk, Warrnambool operates two manufacturing plants and produces a range of dairy products for Australian and export markets.

4. The Australian acquisition positions the company for exports to China and Taiwan

Warrnambool is close to Asia, one of Saputo’s chief export markets. As Saputo noted in its 2013 annual report, “We believe in the importance of embracing a global perspective for long-term growth.”

5. Saputo has the capacity for more foreign expansion

Saputo’s CFO, Louis-Philippe Carriere, previously stated, “With low debt levels and almost no off-balance-sheet arrangements, and taking into account the profitability of businesses to be acquired, I estimate we could add about $2.7 billion in additional debt while continuing to comply with our existing covenants.”

Consider that other Canadian food processing companies are looking beyond Canada to gain market share. High Liner Foods (TSX: HLF) acquired American Pride Seafoods in 2013. This acquisition strengthens and complements its market leadership rank in the value-added frozen seafood industry. In 2011, High Liner acquired the U.S. subsidiary and Asian procurement operations of Icelandic Group.  Icelandic is one of the largest suppliers of value-added seafood to the U.S. food service market.

Gaining market share via foreign acquisitions is a good strategy for Saputo. I believe Saputo’s bold strategy is a good long-term play for the company and its shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Michael Ugulini owns shares in High Liner Foods.

More on Investing

grow money, wealth build
Dividend Stocks

3 Stocks That Will Make You Richer in 2024

When it comes to creating riches in 2024, these companies offer the best, most solid chance while providing dividends while…

Read more »

oil and gas pipeline
Dividend Stocks

Is it Too Late to Buy TC Energy Stock?

TC Energy is up 17% in recent months. Are more gains on the way?

Read more »

dividends grow over time
Dividend Stocks

If You Invested $1,000 in goeasy Stock in 2014, This Is How Much You Would Have Today

When it comes to growth, it's hard to beat goeasy (TSX:GSY) stock. But what should investors consider for future growth,…

Read more »

Utility, wind power
Energy Stocks

Brookfield Renewable Partners Stock: Buy, Sell, or Hold?

BEP stock (TSX:BEP.UN) now trades at half its share price back in 2021. So what should investors do with this…

Read more »

Supermarket aisle with empty green shopping cart
Stocks for Beginners

3 Retail Stocks to Buy Hand Over Fist in February

These retail stocks offer huge growth for those getting in now and holding long term, especially after earnings demonstrate their…

Read more »

Value for money
Dividend Stocks

Better Buy in February 2024: Magna Stock vs. BCE Stock

Both Magna stock (TSX:MG) and BCE stock (TSX:BCE) have faced troublesome stock prices of late, but which is offering value?

Read more »

Growing plant shoots on coins
Dividend Stocks

3 No-Brainer Dividend Stocks to Buy With $1,000 Right Now

These three dividend stocks look like an excellent addition to your portfolio.

Read more »

Technology
Energy Stocks

2 No-Brainer Energy Stocks to Buy With $5000 Right Now

Cenovus Energy is one of two high quality energy stocks that are undervalued and well-positioned for long-term success.

Read more »