Saputo continued to soar in the second quarter; however, the sustainability of these results is far from a slam dunk, in our view. While we intend to adjust our profit forecast to account for the firm's results through the first six months of the fiscal year, we don't expect this change to move the needle on our fair value estimate.
Further, our long-term thesis that volatile commodity costs as well as extreme competitive pressures will hinder sales growth and margin expansion in the long term remains intact.
Second-quarter sales increased 5.3% over the prior-year quarter as a result of a higher cheese prices and increased volume. Improved efficiency and a more favorable commodity cost environment drove a 1.9 percentage point expansion in the operating margin, to 11.8%. The U.S. dairy business was again a standout, generating nearly 11% sales growth and operating margin expansion of 2.3 percentage points to 11.9%. However, we contend that the U.S. market is a highly-competitive arena.
Source: Morningstar
