SAPUTO INC. $22 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 207.1 million; Market cap: $4.6 billion; Price-to-sales ratio: 0.8; SI Rating: Average) is Canada’s largest producer of dairy products such as milk, butter and cheese. It also has operations in the United States, Argentina and Europe.
Last December, Saputo bought Neilson Dairy, the dairy division of Weston Foods, for $465 million. Neilson makes a wide variety of dairy products in Ontario, and generates $600 million a year in sales.
Thanks to Neilson, as well as Saputo’s earlier acquisition of a Wisconsin-based cheese maker for $161 million, its revenue rose 14.5% in the fiscal year ended March 31, 2009, to $5.8 billion from $5.1 billion in the prior year.
Saputo earned $278.9 million in fiscal 2009, down 3.2% from $288.2 million. The 2009 earnings included
an $8.4-million inventory writedown caused by weak dairy prices in Europe and Argentina. Earnings per share fell 2.9%, to $1.34 from $1.38.
The company borrowed $340 million to help pay for Neilson. This increased its long-term debt to $403.1 million. However, that’s still low at 9% of its market cap. Saputo also has a long history successfully integrating new operations, which helps offset the risk of its aggressive growth-through-acquisition strategy.
Saputo should earn $1.56 a share in fiscal 2010, and the stock trades at 14.1 times that figure. The $0.56 dividend yields 2.6%.
Saputo is a buy.
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