Saputo (TSX:SAP) held its fourth-quarter earnings conference call on Friday. Below is the complete transcript from the call.
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The full earnings call is available at https://edge.media-server.com/mmc/p/r5ocrznt/
Summary
Saputo Inc. reported strong fourth-quarter and full-year fiscal 2026 results, highlighting substantial progress in operational and strategic initiatives.
Revenues for the quarter were $4.2 billion, down 6% due to lower U.S. dairy commodity market pricing, while adjusted EBITDA increased by 5% to $386 million with a margin expansion to 9.2%.
The company has signed an agreement to sell an 80% stake in its Argentinian division, expected to close in fiscal 2027, and plans to reinvest in high-growth dairy segments globally.
Capital expenditures are expected to increase to approximately $515 million in fiscal 2027, focusing on high-return investments in the fastest-growing dairy segments.
Management emphasized a disciplined approach to capital allocation, with a focus on organic growth and potential strategic M&A in protein, better-for-you offerings, and tailored nutrition.
Saputo highlighted improvements in operational efficiencies, particularly in the U.S. and Europe, with a focus on reducing costs and optimizing product mix.
The company is investing in brand awareness and commercial initiatives, with plans to increase advertising and promotional spending by approximately 20% in fiscal 2027.
Future outlook includes continued focus on high-quality growth, margin expansion, and capital redeployment with strong cash generation and balance sheet flexibility.
Full Transcript
Jean Louis (Conference Operator)
Thank you for standing by. My name is Jean Louis and I will be your conference operator today. At this time, I would like to welcome everyone to the Saputo fourth quarter 2026 financial results call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session.
If you would like to ask a question during this time, simply press STAR followed by the number one on your telephone keypad. If you would like to withdraw your question, simply press Star one again. I would now like to turn the conference over to Nick Estrella, Head of Investor Relations. You may begin.
Nick Estrella (Head of Investor Relations)
Thank you. Good morning and welcome to our fourth quarter and full year fiscal 2026 earnings call. Our speakers today will be Carl Kaliza, President and Chief Executive Officer, and Max Interien, Chief Financial Officer and Secretary. Before we begin, I'd like to remind you that this webcast and conference call are being recorded and the webcast will be posted on our website along with the fourth quarter investor presentation. Please also note that some of the statements provided during this call are forward looking.
Such statements are based on assumptions that are subject to risks and uncertainties. We refer to our cautionary statements regarding forward looking information in our annual report, press releases and filings. Please treat any forward looking information with caution as our actual results could differ materially. We do not accept any obligation to update this information except as required under securities legislation. I'll now hand it over to Carl.
Thank you, Nick. Good morning, everyone and thank you for joining us. We delivered a strong close to the year reflecting continued progress in how we are shaping the business commercially, operationally and strategically.
Carl Kaliza (President and Chief Executive Officer)
While the environment remains dynamic, we see clear structural demand momentum across the dairy category driven by growing consumer focus on protein and a renewed trust in dairy which is supporting innovation and reinforcing demand for higher value offerings. Our top line reflects the momentum growth is increasingly coming from higher quality sources, better mix, stronger channel positioning and a more deliberate alignment between pricing and value delivered.
This reflects a more disciplined and targeted approach to how we are driving the business. On margins, we are making clear progress.
Operational improvements and warehouse optimization supported by cost management are driving structurally better profitability even as we navigate ongoing cost pressure.
While the quarter includes some non operational costs that impacted reported performance, the underlying trajectory of the business is firmly improving. Over the past several years, we have strengthened our network, improved our cost structure and repositioned the business to operate effectively. Today, those investments are embedded in our results, driving better margins, stronger execution and a greater consistency across the organization. This is translating into a more consistent performance across our key markets and improving profitability in the US Normalization in Europe and efficiencies flowing through our broader cost structure.
This progress reflects where we are in our journey, moving beyond the core investment phase and into a stage of growth and capital redeployment. From a strategic standpoint, our direction is clear. We are simplifying the portfolio and reallocating capital toward the categories and markets where we see the strongest returns while building a more resilient and competitive business. This is also reflected in our cash generation. Strong cash flow is the result of solid execution and a more efficient operating
model, and it provides us with the flexibility to reinvest in the business, pursue targeted growth, and return capital to shareholders. I will now turn the call over to Max for the financial Review before coming back with some concluding remarks.
Max Interien (Chief Financial Officer and Secretary)
Thank you, Carl and good morning everyone. Before turning to the results, a brief portfolio update In February, we signed an agreement to sell an 80% stake in our Argentinian division. The transaction is expected to close the first half of fiscal 27, subject to customary conditions and regulatory approvals. The Dairy Division Argentina results are now presented as discontinued operation and prior periods have been restated accordingly. All figures I will discuss today reflects continuing operation which excludes the Dairy Division Argentina results.
After the disposal, we will account for its remaining 20% interest as an investment using the equity method. Fourth quarter results underscore the sustained execution momentum we delivered throughout the year across both commercial initiatives and operational delivery. Sales volume increased, supported by targeted commercial initiatives and consistent high quality service level that supported customer demand. This was complemented by a favorable product mix with growth in value added and dairy food categories as well as core branded products.
Margin performance improved, underpinned by ongoing operational enhancement and efficiency gains, including tangible progress in in warehousing, optimization and ongoing cost control initiatives in domestic markets. Our pricing action remain effective in offsetting inflationary pressures across key categories, preserving margin integrity. At the same time, the quarter reflects higher operating costs, including increases in wages and compensation, driven in part by by a $33 million increase in stock based compensation related to share price appreciation.
The quarter also reflects a continued and targeted investment in advertising and promotional activities. To support volume momentum adjusted EBITDA increased 5% to $386 million to $386 million. Margin expanded to 9.2%, up from 8.3 last year, reflecting solid operational performance. Revenues came in at $4.2 billion, down 6% from last year, largely due to the effect of lower US Dairy commodity market pricing. Net earnings from continuing operation were 157 million on an adjusted basis.
Net earnings were up 17% at $169 million and adjusted EPS increased 21% to $0.41, benefiting from stronger earnings and the impact of our share repurchase program
in Q4 we generated over $500 million of operating cash from continuing operation, up $170 million year over year. The improvement was driven primarily by $147 working capital tailwind alongside higher EBITDA generation. This reflects our underlying strong cash conversion and disciplined balance sheet management. Full year net cash flow from operation was $1.5 billion, $314 higher when compared to last year. Full year CapEx totaled $339 million. We expect capital expenditure to step up in fiscal 27 to approximately $515 million as we lean into disciplined high return investments.
These will be focused on fastest growing dairy segment, improving capacity and driving efficiency across the network. Importantly, spend will remain tightly managed with phasing and returns links to execution From a leverage perspective, our net debt to adjusted EBITDA ratio improved to 1.7 times including estimated net proceed from the sale of 80% of the dairy division Argentina. Our leverage ratio on a pro forma basis reached 1.37 times underscoring the strength and the flexibility of our balance sheet.
In fiscal 26 we returned approximately $1 billion to shareholders via dividend and share repurchases including the repurchase of 19.2 million shares under our NCIB. The Canada sector delivered solid results with revenue up 4% and full year growth of 5. Revenue increased driven by solid volume growth across retail, food, service and industrial segment supported by a favorable mix shift towards butter value added category, particularly high protein beverages and cultured products.
Targeted pricing action to offset inflationary pressures and higher milk input costs further supported top line growth on profitability. Adjusted EBITDA was up 1% reaching $159 million. Adjusted EBITDA increased driven by volume growth and a favorable mix with additional upside from manufacturing efficiencies but partially offset by higher wages related costs including higher stock based compensation and brand support initiative. For the U.S. sector, revenue came in at $1.9 billion down 13% from last year reflecting lower U.S.
dairy commodity prices, particularly butter and cheese. Underlying top line performance remained solid with continued volume growth and favorable mix across the portfolio. Growth was led by strength across cheese, dairy foods and value added dairy ingredient including mozzarella as well as contribution from string cheese, export cheese and cream cheese categories. We also continue to outperform the market with cheese volume growing ahead of Industry benchmarks reflecting ongoing share gains across the category.
Adjusted EBITDA in the US was broadly in line with last year while underlying business performance continued to improve. Our performance remained solid supported by higher volume and a favorable product mix. Alongside continued execution of our commercial initiatives. We also realized benefit from ongoing operational improvement including efficiencies from our Midwest consolidated warehouse facility. These factors were offset by a higher logistics expenses driven by elevated transportation and fuel costs as well as ongoing increases in wages and also higher stock based compensation.
We also continue to invest in targeted advertising, promotion and promotional activity to support our brand. Overall results reflect a balanced profile of operational progress, disciplined investment supporting stable earnings in a dynamic cost environment. Turning to international sector which consists mainly of the Dairy Division Australia revenue were supported by stronger export pricing with higher international cheese and dairy ingredient markets and also supported by growth in value added ingredient.
Domestic demand remained solid reinforcing our strategic focus on domestic market opportunities. With higher domestic volumes more than offsetting our export volume reduction, International EBITDA was stable year over year. Higher dairy ingredient and cheese prices provided were largely offset by elevated milk input costs. Operationally, tighter milk availability created some pressure on efficiencies and fixed cost absorption, though this was partially mitigated by disciplined product mix optimization.
We also absorbed higher labor and strategic A and P investment in the quarter alongside increased stock based compensation. Despite input cost inflation and operational constraint, the business demonstrated solid margin discipline and cost control for the UROP sector. Revenue were $290 million down 13% from last year. This primarily reflecting reduced volume in bulk cheese due to lower milk intake and lower dairy ingredients volume. Following the continued execution of our ingredient strategy, retail remained more resilient with strength in branded cheese, partially offsetting softer non cheese categories.
Pricing action helped mitigated inflationary pressure. Adjusted EBITDA came in at $37 million up 54% with margin improving to 13%. The lift was primarily driven by a more favorable product mix and the consolidation of our cheese packing operation and continued progress on our ingredient strategy, both of which delivered meaningful operational efficiencies and cost saving. In closing, we delivered a record year in Canada and were capturing the benefit of our investment in the U.S.
we also made a significant portfolio decision with the divestiture of Argentina, reinforcing our focus on value creation. Throughout the year we remained disciplined advancing our commercial initiatives while maintaining strong financial position. This supports a consistent approach to capital allocation and enabling us to invest for growth while continuing to return capital to shareholder. On that note, I'll turn the call back to Carl.
Carl Kaliza (President and Chief Executive Officer)
Thank you Max. In Canada Our performance this quarter continues to reflect the underlying strength and resiliency of our domestic platform. We delivered broad based volume growth across retail, food service and industrial market segments supported by sustained demand in dairy foods, particularly in value added and higher protein offerings. This is an area where consumer trends are aligned with our portfolio and where we see Runway for value creation.
As an example, Armstrong, continues to perform as a leading brand within the everyday cheese category, reinforcing our position in core household staples. Our our approach in Canada remains deliberate. We are investing behind our portfolio, strengthening in store execution and refreshing our offering to stay relevant. This includes a 360 degree media campaign in Quebec and targeted packaging upgrades across Saputo shredded cheese and Nielsen Value added beverages to enhance shelf presence and drive conversion.
These actions are not one off, they are part of a scaled repeatable commercial model that is driving consistent engagement and supporting growth across key categories. At the same time, we are building out our higher protein platform which represents a clear opportunity to extend our relevance in evolving consumption occasions and capture incremental volume within the category. From a profitability standpoint, we benefited from operating leverage on higher volumes, improved mix and the ongoing contribution from prior capital investment.
Pricing actions have been disciplined and aligned with the input cost realities, ensuring we protect margins while maintaining competitiveness. Overall, Canada reflects what we are focused on delivering across the organization a stable demand driven earnings base supported by strong brands and a portfolio evolution in the US Our performance this quarter continues to demonstrate the strength of a scaled commercially driven platform. With momentum building, we are outpacing the market and gaining market share across our key categories, reflecting strong execution in both cheese and dairy foods as well as the advantage of operating across multiple
channels and end markets. What differentiates this business is not just volume growth but but our ability to translate that growth into higher quality earnings through mix and portfolio management. We continue to see strong traction in structural growth areas particularly in high protein snacking and value added ingredients supported in part by the ramp up of our Waupun facility. Additional capacity is driving incremental volumes in whey and high value dairy ingredients and improving utilization as sustained demand in these categories continues to support scale.
At the same time, we are extending that scale into underpenetrated channels while unlocking white space opportunities. Frago Cheesehead is expanding beyond lunchbox into adult and on the go snacking. We are also increasing our presence in convenience and food away from home channels where distribution remains underpenetrated, providing further growth opportunities. These efforts are supported by targeted investments in commercial capabilities providing us with the tools and customer activation programs required to scale these emerging platforms sustainably.
In parallel, our brand investments are beginning to compound increased marketing and promotional activity in including the extension of our Cheeseheads media campaign to reach new snacking audiences beyond its traditional base is driving new consumer acquisition, strengthening engagement and enhancing our digital and e commerce presence as key enablers of long term growth. At the same time, we are extending the Chiputo brand, building on its strength as a well established Canadian brand across the US as a solutions oriented food service platform, deepening customer relationships and expanding our relevance across a broader set of dairy applications.
From an operational standpoint, the most recent phase of network optimization and transformation is largely behind us, allowing us to pivot toward the next set of initiatives to further enhance the network. We are now operating from a more efficient footprint with benefits from our consolidated Midwest warehousing facility in Caledonia. Together with ongoing third party logistics consolidation, these initiatives are improving fill rates, enhancing efficiency and strengthening execution consistency, supporting continued margin expansion.
As a result, the US business is entering the next phase from a position of strength. With scale category exposure aligned to consumer trends and a more efficient operating model, we see a clear path to sustained high quality growth and further margin progression over time in our international sector. Australia's performance this quarter reflects both improving market conditions and and the strategic value of our footprint. As pricing strengthened across global dairy markets, we were positioned to capture the upside, selectively directing volumes to the markets and channels offering the best returns.
This is a key advantage of our model. We are not constrained to a single market dynamic demand patterns remained uneven and we were intentional in how we responded. Rather than pursuing volume for its own sake, we prioritize value creation, optimizing mix aligning pricing and actively managing where and how we deploy our production capacity. On profitability, Improving market conditions provided a tailwind, but what is more important is how we executed within that environment.
Despite constraints on milk availability in certain regions, we continue to optimize our portfolio in real time, ensuring we are consistently allocating milk to higher value opportunities. This reflects a shift to a more flexible broader platform. It gives us the ability to manage volatility, act on opportunities and create value over time. In our Europe sector, the quarter underscores the strength of our strategy and our ability to drive structural margin improvement.
We are seeing a clear and deliberate shift in the portfolio from commodity exposure to our branded higher value products. This is not just mix improvement, it reflects how we are repositioning the business to capture more value across the category. Our Cathedral City branded business remains central to that strategy. It continues to outperform its category and gain share supported by by a fully integrated marketing approach that is reinforcing both household penetration and consumer relevance.
What is increasingly important is the breadth of that platform. Cathedral City is no longer limited to core cheese. It is extending into adjacent categories through licensing where we are seeing strong momentum and incremental growth opportunities beyond the traditional shelf. Operationally, the work we have executed over the past year is translating into tangible structural benefits. Network optimization and strategic shifts in our ingredients approach are simplifying the business, improving efficiency and supporting margin expansion.
Stepping back, Europe is evolving into a more focused platform with stronger, stronger earnings quality. As we look ahead, we remain committed to operating as a low cost manufacturer of high quality dairy solutions by driving efficiency, strengthening commercial execution and capturing a long term opportunity in dairy in a dynamic and at times unpredictable environment. We continue to concentrate on what is within our control, positioning the business to create value across market cycles and not just through them.
Our approach is grounded in a disciplined category led strategy, being selective in where we participate, prioritizing returns over volume and investing behind the customers, products and brands that strengthen our long term position. Structural demand drivers, particularly growing consumer interest in protein rich and value added dairy, continue to reinforce the attractiveness of the category across products, channels and geographies. Operationally, we are entering the next phase of our transformation.
As recent investments scale, we expect to unlock further efficiencies, improve absorption and reinforce our cost position. Capital deployment remains disciplined and unchanged. We will invest where we see attractive returns through organic initiatives and strategic investments including ma focused on value creation and the right opportunities, not the fastest ones. All of this is supported by continued cash generation and a balance sheet strength ensuring we act decisively where we see value.
Taken together, Saputo is today a more focused and agile business supported by a stronger operating foundation and a clearer path to consistent high quality value creation over time. This concludes our formal remarks. I will now turn the call over for questions.
Jean Louis (Conference Operator)
Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press Star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press Star one again. And if you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking your question.
Your first question comes from the line of Irene Nattel of RBC Capital Markets. Your line is open.
Irene Nattel (Analyst at RBC Capital Markets)
Thanks and good morning everyone and congratulations on a great year in F26. I want to focus for A second on some shift in tone in this release, in this call really around capital allocation and targeted investments, can you give us an idea of where the incremental capex is going to go? And when you talk about targeted strategic ma, can you give us an idea of order of magnitude and what types of geographies and product categories that might be?
Carl Kaliza (President and Chief Executive Officer)
So thank you Irene for the question. And what I would say to start is that we continue to be focused on growth and of course growing where consumers are pulling demand from in our dairy category. And hence we are looking at ensuring that we invest for organic growth. And we have some very interesting opportunities that we're unlocking right now, both in fact in most of our geographies they're all really centered around products and I'm going to give you sort of a general perspective.
Those would be cultured in nature such as cottage cheese or value added beverages, as well as continuing on our investment journey in our ingredients sectors. So these are very exciting categories for us and we are pleased and excited to be able to invest behind these to keep growing our relevance with consumers. But as we've said in the recent past, we'll continue to look at what is the best route to market to making that happen. Whether that's an investment in ourselves organically or whether that is through looking at an acquisition of sorts to either bring on a brand, a capability and possibly even a route to market.
These are always put into sort of the balance. But considering where our balance sheet is
at today and the strength of it, we feel quite confident that a mix of those two is in our horizon and we will be able to remain the dairy solutions provider for our customers and continue to be relevant with our consumers with a disciplined investment in both segments.
Irene Nattel (Analyst at RBC Capital Markets)
That's great. Thank you. Really appreciate it. And you know, you did mention the balance sheet and clearly on a pro forma basis at 1, you know, just around 1.3, 1.4 times, you have ample capacity. How should we be thinking about potential magnitude of M and A? Is this sort of. Because you've done all ranges historically. So what should we kind of be expecting here and is anything imminent?
Carl Kaliza (President and Chief Executive Officer)
You know, we're very focused in what it is we want to acquire and we're not looking for a new milk shed. So we've also shared that in the recent past. We're very comfortable with where it is we are manufacturing in today and the opportunities that some of those platforms present for us to continue to service our international markets and to capture either emerging markets And I'll say that those two platforms in particular are certainly the US and Australia, which is the engine behind our international supply.
So closing that part up, we're not
looking for new milk sheds, but what we are looking for is a real fit. So we're looking for things that will allow us to keep growing in the protein sector, better for you offerings, tailored nutrition.
And quite frankly, the criteria must meet things like adding capabilities, strengthening our route to markets.
And it's not about the size because there are a number of things that we require that either could be sort of a tuck in size in nature or something that is more substantial. But again, we continue to review things that are adjacencies that are core to our strategy and not just what's available in the marketplace.
Irene Nattel (Analyst at RBC Capital Markets)
That's really helpful, thank you.
Michael Van Elst (Analyst at TD Cowan)
Your next question comes from the line of Michael Van Elst of TD Cowan. Your line is open.
Hi, good morning. So looking at the EBITDA and if I back up that incremental stock based
comp, it was up 14%, which is pretty impressive. I was hoping that you could unpack the three or four largest drivers of this growth in the quarter. And then which do you still see having the most juice and boosting profits further in fiscal 27?
Carl Kaliza (President and Chief Executive Officer)
Thank you, Mike.
And I would say that volume will be number one on the list. So we continue to fire on all cylinders in all our geographies and volume is certainly continuing to drive absorption costs, returns, all of the above. I would also say that Q4 is a quarter where we've been able to capture the real full extent, almost the full extent of all of the prior capital investments that we've made in ourselves over the last couple of years.
We've also made some significant inroads with regards to our ingredients business and being able to unlock the value that comes with the demand in that market space today. And all of this is supported by second to none service levels. So our business, in addition to growing with the demand in the marketplace, we've also been able to have excellent service levels and fill rates to make that happen.
So I would say that in a nutshell, volume, execution, excellence is driving that momentum, supported by some historical investments that we've made, including the investments we made in A and P. So we began that journey earlier in the year and we're beginning to see the benefits of that flow through. And that's especially true with maybe two specific brands being Cathedral City and Frigo cheesehead in the U.S.
Michael Van Elst (Analyst at TD Cowan)
okay, thanks, that's helpful. When you look at these, I understand that most of them seem to be going on all cylinders in Q4, but how much of that ramped up during the year and therefore has room to continue to drive growth as you cycle through those improvements in fiscal 27, we
Carl Kaliza (President and Chief Executive Officer)
feel good about the momentum and the ongoing performance. So without taking anything for granted, we're feeling really good about the business continuing to optimize. And through our continuous improvement programs, I do believe that we are going to continue to see improvements in our overall operating costs.
We're very disciplined with regards to our inventory management and our overall supply and demand planning process, keeping our working capital as low as possible, yet not sacrificing our service levels. The A and P investments that we made in fiscal 26, of course that momentum will carry through.
And as we mentioned, we will also be stepping up A and P investments in this fiscal year to support a very targeted sector of growing demand from the consumer space in a handful of our brands. And we are also, you know, we have continued CAPEX programs that are driving incremental efficiencies, and we see that as an ongoing engine for our growth. We're certainly mindful of inflation.
Everyone is subject to some of the geopolitical turmoil that we have today. So we're going to continue to do what we need to do to protect margins. But at the same time, we want to make sure that we remain competitive and accordingly, we continue to be focused on growth.
Michael Van Elst (Analyst at TD Cowan)
Great. That's helpful. Thank you.
Scott Marks (Analyst at Jefferies)
Your next question comes from the line of Scott Marks of Jefferies. Your line is open.
Hey, good morning. Thanks so much for taking our questions. First thing I wanted to ask about, just following up on some of the last comments you made there about inflation. I think, you know, you noted that in the quarter you had some headwinds from fuel and transportation costs.
As we look ahead to fiscal 27, can you help us frame kind of how you're thinking about magnitude of impact from those and if we walk around the world, how we should be thinking about impacts?
Carl Kaliza (President and Chief Executive Officer)
Thank you for the question.
And I would say that the impact of the inflationary pressures specifically associated to either energy or fuel is quite even across the globe. There isn't one sector that we feel is necessarily more exposed than another. They've been, I'll use the word manageable to date. We are certainly looking to mitigate as many as we can through either operational changes, internal logistics, speaking with customers, of course, on any preferences or changes that they would like to see and how it is we service them in order to keep their own pricing intact.
We certainly look to pricing action as one of our last resorts. And at this stage we feel that the influence of incremental costs in energy and fuel is one where we'll be able to navigate through. And in order to remain competitive, we will remain competitive, but we'll also look to pricing should things continue to persist throughout the year. But there isn't one region in particular that is necessarily more exposed than another, nor is our operating platform sort of more exposed.
Scott Marks (Analyst at Jefferies)
Understood. Appreciate the context there. Second question for me. You've spoken a lot about the shift toward toward branded, toward value added products, value added ingredients. Wondering if you could just kind of help us frame bigger picture. As you look at your businesses across the globe, where do you think you are in that journey from shifting from more commoditized products to more of these value added products?
And how should we be thinking about the Runway ahead?
Carl Kaliza (President and Chief Executive Officer)
So maybe one way to help describe opportunities and where we are in our dreams. Let me start overall from an ingredients perspective. The ingredients business is not new to Saputo. We've been in this business for decades, but certainly it's evolving at a more rapid pace and demand is certainly ramping up very quickly.
And we had some foresight a couple years ago when we decided to invest heavily into our Waupun facility which added capacity as well as capabilities into higher fractions of whey protein concentrates as well as moving into edible and dry blend lactose. So we have capabilities not only in the us, we have capabilities in Australia, but I also want to provide it by way of example, a choice we made in the UK and the uk.
We, we walked away from a business that we were involved in when it comes to the waste solids, and that was our demineralized and gauss operations because of the demand turndown in those categories. Instead we decided to move over into some basic way products which has improved our margin structure as you can see from the results. But it's also an area which is also underdeveloped for us.
And we are actively looking at how to bring those solids to life and to value through further refinement. And there are active projects in this space at this moment. So you can see that we have a combination of a mature business in some areas as well as an opportunity to continue to add value to waste solids that we already generate.
And if I look further out in order to continue to support our ingredients business, specifically on the whey based side, our current position and growth in the cheese sector will allow us to fuel that whey business as well. That ingredients Business which is whey based, dependent on cheesemake as well.
So we feel really good about the combination and the vertical integration that we have with these two sectors, allowing us to continue to capture that demand.
In addition to that, I would say that we're going to continue to look at moving to a greater share beyond that of being a provider of those ingredients to those who have the last mile and branded offerings and continuing to look at how we can incorporate our ingredients as a raw material into finished goods that we can bring to market as well.
Scott Marks (Analyst at Jefferies)
Appreciate the color. I'll pass it on.
Georges Dumas
Your next question comes from mine of Georges Dumas of Ventum Financial. Your line is open.
Hi, good morning guys. Carl, earlier you mentioned a step up in A and P spending this year. Can you talk maybe order maybe from max order of magnitude there? And Carl, can you maybe talk a little bit about where you're going to see those spend specifically go to?
Max Interien (Chief Financial Officer and Secretary)
So hi George, welcome back. Relative to anp, I mean A and P investment for us, we see it as a journey. We did have an incremental spend in fiscal 26 and we do expect incremental spend as well to further support our brand. The focus that the organization is putting around brand awareness and commercial initiative is having great momentum. We intend to pursue it over the next couple of fiscal.
I will not be providing any specific number just for sensitivity, market sensitivity perspective, but from a, I can give you a flavor from a percentage perspective, likely around 20% of what we've achieved this fiscal will be an incremental next year.
Carl Kaliza (President and Chief Executive Officer)
And maybe I could just add one thing on that, George. We continue to be focused on supporting those key brands. We've underscored what those are. They do span all of our geographies. They're the likes of the Cathedral Cities of the World, Devendale, Cheeseheads, Saputo and of course Armstrong.
But as we do this, we also continuously evaluate the returns from our investments, the overall performance of the brands through a variety of metrics, and ensures that
our A and P spent fundamentally remains an important part of our growth algorithm on ongoing basis.
Georges Dumas
Thanks for that. And one more, if I may, Carl, can you give us your vision on the ingredients platform? How do you where are the margins today? How do you see that evolving over the next three to call it three to four years? And what areas can we grow organically there and what areas do you feel like we need? M and A.
Carl Kaliza (President and Chief Executive Officer)
The ingredients portfolio is very broad and although the craze and the demand is squarely focused on protein, protein also comes from Two different segments if you want, in our dairy category, one being whey based and the other one being milk based. And we play in both. And so we do feel that there's an opportunity in both sectors to continue to enhance not only our offering but
also our volume to get to the whey based proteins. I want to reemphasize that it passes through augmented cheese make and cheese sales. And we're very well positioned with the portfolio that we have both branded, both private label offerings and all the channels we play in to continue to grow our cheese business to be able to fuel that piece. The remainder of the ingredients portfolio also includes milk based proteins. And this is an area where it's a smaller share of our portfolio but we continue to see it as being complementary and part of our growth engine as well as that business also comes with the opportunity to grow our cream offerings
and our cream platform which is key to our dairy foods offerings.
So it is very strategic for us, very much intertwined with our core offerings in dairy foods and cheese. And we will continue to invest both in capital and we will continue to look for the appropriate fit in elements
that might enhance our route to market and, or enhance our last mile and that be more the B2C space. And so we're, you know, we feel very good about where protein sits and where dairy sits with consumers and ingredients will play an important part of our growth profile over the next couple of years.
Georges Dumas
Can you comment at all about the margin of what you referred to?
Carl Kaliza (President and Chief Executive Officer)
Yeah, it being how vast that sector is. There's varying degrees, but overall the ingredient sector margin is one that is quite strong and on the upper end of our overall average, if not exceeding our average of reported margins.
Georges Dumas
Thank you.
Vishal Sridhar (Analyst at National Bank)
Your next question comes from the line of Vishal Sridhar of National Bank. Your line is open.
Hi. Thanks for taking my questions. I was interested to hear about the momentum that you're seeing in your business and want to get your perspective on, you know, consumer malaise and how that plays into your portfolio. Looking at the past and just if you anticipate through the year any shift towards private label away from brand or shift towards retail away from food service, and if so, how that might impact the business.
Carl Kaliza (President and Chief Executive Officer)
Thank you, Vishal for the question.
And certainly over the last three to five years we've learned a lot about the need to be agile and we built the platform accordingly. And we do feel very confident about our ability to navigate the channels that will certainly win in various cycles, economic cycles that we have, whether that be the away from home or whether that be retail or food service.
We feel quite confident that we're agile enough today, much better positioned than we were a couple of years ago to be able to move to and from. I won't speculate on which ones will be winners as it is cyclical in nature. We'll be able to go through that nonetheless with growth.
And when it comes to the aspects of branded versus private label or even toll manufacturing and industrial supply, it's always been core to our business model to play in all sectors.
And yes, we certainly see a shift in or a growth in private label brands across many geographies, but that does not put us in a position where we feel that our brands are in danger or growth profile associated to them are going to be jeopardized. In fact, what it's doing is ensuring
that we put the focus and the resources behind the right brands and making sure that those brands continue to resonate. We continue to innovate behind the appropriate brands and not sprinkle it across our entire network. So we welcome, if you want, the dynamics that are out there today because quite frankly, I do believe that we're not one of, if not the best position to be able to capture the rise and the wins and the real opportunities that are going to present themselves with consumer shifts and customer channel shifts.
Vishal Sridhar (Analyst at National Bank)
Okay, thank you. And with respect to GLP1s and the impact to your business in the categories that you're in, you know, I've noticed that some of the North American pizza players are reporting tepid performance, but I think you commented that your mozzarella trends are growing. So I was wondering what your perspective is on these GLP1s and how it impacts your business and if there's any shifts you need to make.
Carl Kaliza (President and Chief Executive Officer)
GLP1 Dynamics is one that continues to evolve rather rapidly, whether that is in the number of users or which parts of the world that we play in are emerging as a growing set of consumers who are participating in that diet or that usage. But our portfolio, first of all, the dairy category is well positioned in order to play a role for those who choose GLP1 drugs, and that is because of the protein requirements.
I think we're all becoming familiar now with the fact that protein is an important part of that journey. That GLP1 journey also has a variety of caloric requirements along the way. And so people will cycle, if you want, in and out of various dairy products and offerings in that journey. Some will be very protein focused, low calorie, and then at another point in that journey, they become in need of a more complete nutrition.
And so that means that dairy, whether it's the high protein products or products like cheese, which are balanced in complete nutrition and protein, will continue to play important roles. So I do feel quite comfortable that the ongoing demand and trust in dairy is in fact in part supported by the GLP1 Trends.
Vishal Sridhar (Analyst at National Bank)
Thank you.
John Zamparo (Analyst at Scotiabank)
Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.
Thank you. Good morning. I wanted to follow up on the CAPEX guidance. In particular, when do you anticipate the revenue benefits to hit? Is that most likely to be felt fully in F28? Or could some of that slip into F29 or could some fall into F27? Just wondering if you'd add some color on the timelines of any key contributors or key projects.
Carl Kaliza (President and Chief Executive Officer)
I would say that from the fresh capital that we've unlocked the majority of that, the more meaningful portions will hit more 28, 29 than it is in 27. But again, these are. We're looking at investing in categories that we know will have continued long term growth and support. The capex in itself or the timing of delivering the incremental capacity in these categories does not necessarily limit our growth.
We're being a lot more intentional and proactive with our investments. So despite the capital taking the timelines that it has and the lead time it has, we feel that we'll nonetheless be able to grow our business in most of our categories over that time frame.
John Zamparo (Analyst at Scotiabank)
Got it. Okay.
And then I wanted to ask about the margins in Europe. I think you had talked about low to mid teens as the eventual target in that sector. You made a pretty sizable step up this quarter. I wonder, does that shift how you're thinking about the long term ceiling of margins in that region? And what are going to be the key drivers? Is it more mix or is it
Carl Kaliza (President and Chief Executive Officer)
efficiency or some other driver that's going to move margins further in Europe?
We're very pleased with the performance of our European team and business.
And I would say that although there's some seasonality involved in what you see with regards to the margin, it is an absolute structural improvement that the business has had through the consolidation efforts, the optimization efforts, management of working capital, ensuring that the cheese that we actually manufacture is cheese that is needed in the marketplace so that that underlying strength will continue in quarters and years to come.
And where I see the ability to continue to keep moving the margin forward beyond the 13ish where we're sitting at today, I believe is strongly related to
the continued growth of the Cathedral City brand, as well as our focus on adding incremental value to a pool of waste solids in that platform that in comparison to the rest of our waste solids usage globally at Saputo, is undervalued right now. So it's a great opportunity for that platform.
John Zamparo (Analyst at Scotiabank)
Appreciate the color.
Thank you very much.
Chris Lee (Analyst at Desjardins)
Your next question comes from the line of Chris Lee of Desjardins. Your line is open.
Good morning everyone. Thanks for squeezing me in. Karl, in your outlook, you mentioned that you expect U.S. dairy volatility to persist. Just directionally speaking, do you expect the level of volatility this year to be similar, higher or lower than last year?
Carl Kaliza (President and Chief Executive Officer)
I would say that maybe if I look back, Chris, to the prior years, the volatility is dampening a little bit versus the call it 2020-2024, 2025 era. So. But it does sit. Many of the market indices are sitting at lower levels. And so all of this to say that part of the reason is fundamentally that we've had a healthy milk season not only in the US but also globally.
And it's an environment where the dairy farming communities, I'll say, have been fortunate to have climate that has cooperated with its needs. The overall cost of feed for Most of fiscal 25 was in a favorable position to prior years, so it supported their ongoing growth.
Where we see 26 heading calendar 26 and beyond, there'll be inflationary pressures in that community as well, and that we don't see milk growing at the same pace and click as it did in 25, which depending on the regions was between 2 and 4%. So we see something more subdued, more
aligned with the demand of overall dairy products. That in itself will likely help the current market conditions in the US move from its lower base to something higher than what we're seeing today. And I expect that the volatility
will be there nonetheless, but because of not only the milk dynamics, but certainly aspects of geopolitics. All that said, we stay focused on the things that are in our control
and we'll continue to grow our business in the key categories and the market dynamics will be what they are. But I feel good about, I'll say the narrowing between milk supply and the overall demand in the dairy category being better aligned in not only calendar 26, but also at least in the first half of 2017.
Chris Lee (Analyst at Desjardins)
That's very helpful. Thank you for that. Another question I have just on M and A is it fair to say that if you do acquire something that we should think about it in terms of synergies should be more skewed towards revenue or should there be also some cost synergies, you know, from leveraging, you know, manufacturing capabilities or increasing capitalization utilization?
Just yeah, one thing about what if we do think about ma, what type of synergies should we be thinking about?
Carl Kaliza (President and Chief Executive Officer)
It's both and depending on the categories that we would be exploring. And as we indicated before, we're highly focused on ensuring that we invest
in strengthening our growth profile and accelerating our priorities. And keep in mind, I think we've said this before, we are very focused on remaining a low cost manufacturer of high quality dairy solutions. So choices that we will make both in Capex and in M and A spaces are intended to lower our overall operating costs as well as ensuring that we can continue to be that one stop shop for customers who are looking for dairy solutions, both innovation, a route to market to assist in their growth as well as ensuring that the portfolio meets what consumers and consumers are demanding.
So it'll be a combination of both. Some may be skewing to synergies, others skewing to innovations, brand and the route to markets.
Chris Lee (Analyst at Desjardins)
Okay, thanks very much and all the best.
Jean Louis (Conference Operator)
With no further questions, that concludes our Q and A session. I will now turn the conference back over to Nick Estrella for closing remarks.
Nick Estrella (Head of Investor Relations)
Thank you. JL please note that we will release our first quarter fiscal 2027 results on August 6, 2026. We thank you for taking part in the call and webcast. Have a great day.
Jean Louis (Conference Operator)
This concludes today's conference call.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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