One of the largest dairy producers in Canada, Saputo (TSX:SAP), is continuing to underperform the broader market by a wide margin in 2024. After shedding 20% of its value in 2023, SAP stock has lost nearly 2.2% of its value so far this year, while the TSX Composite Index has rallied by 19.2% year to date. After the recent weakness, the stock now trades at $26.24 per share with a market cap of $11.1 billion.
While rising costs and inflationary pressures have challenged Saputo’s growth, could declining inflation and lower interest rates provide some breathing room for its profitability down the line? In this article, I’ll highlight some main fundamental factors that could have an impact on Saputo stock’s performance over the next three years and help you understand where this dividend-paying stock might be headed.
Saputo’s recent challenges
If you don’t know it already, Saputo is a Montréal-based company that manufactures and sells a wide range of dairy products, including cheese, milk, cream, butter, and lactose-free alternatives. Geographically, its businesses are well-diversified, with a large portion of its revenue coming from the United States and other international markets.
In its fiscal year 2024 (ended in March 2024), the company faced significant challenges as inflationary pressures pushed up costs across its supply chain. As a result, its annual revenue slipped by 2.8% YoY (year over year) to $17.3 billion, while its adjusted earnings for fiscal 2024 dived by 14.4% to $1.54 per share. Besides volatility in dairy commodity markets, higher input costs and unfavourable pricing dynamics in the U.S. market affected its results, hurting investors’ sentiments and leading to a selloff in Saputo stock.
Emerging early signs of sales recovery
Saputo’s revenue growth trend has shown early signs of improvement in the latest quarter. In the second quarter (ended in September) of its fiscal year 2025, the dairy giant posted revenue of $4.7 billion, reflecting an 8.9% YoY increase and surpassing Street analysts’ expectations. This growth was driven by higher sales volumes and increased domestic selling prices across all its key segments.
Despite these gains, the company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) for the quarter dipped slightly by 2.3% YoY to $389 million, reflecting its ongoing struggles in the U.S. market and macroeconomic headwinds in international markets like Argentina. Even as some factors, including lower milk costs in Australia and increased efficiencies in Canada, supported its profitability, Saputo’s adjusted EBITDA and adjusted earnings for the quarter fell as inflationary pressures continued to weigh on its margins.
Where will Saputo stock be in three years?
Clearly, higher costs and shrinking profit margins have affected Saputo stock’s price movement in the last couple of years. However, we shouldn’t forget that central banks in the United States and Canada have already started reducing interest rates, which could ease cost pressures and improve consumer demand in the coming years.
Moreover, Saputo’s focus on network optimization, cost efficiencies, and expanding into dairy alternatives has the potential to boost its profitability further in the long run. If the company manages to successfully capitalize on these initiatives, patient investors could see a notable upside in Saputo stock in the next three years as it regains profitability and strengthens its market position. In addition, its decent annualized dividend yield of 2.9% makes it even more attractive for income-focused investors.
