Dairy processor Saputo eyes Brazil for acquisitions

(Reuters) — Saputo Inc., one of Canada’s largest dairy processors, has an eye on Brazil for possible acquisitions, and could make deals worth as much as $3.5 billion, its chief executive officer said.

The struggling global dairy industry is fragmented, potentially yielding opportunities, Chief Executive Officer Lino Saputo Jr. said.

The company would like to buy cheese-making plants in Brazil, instead of continuing to move cheese into the market from Argentina, he said.

“You have hundreds and hundreds of dairy players” in Brazil, Saputo said in an interview. “If we found an interesting platform on the cheese side in Brazil that would allow us to be a consolidator, that’s essentially what we’re looking for.”

He declined to say if Saputo was in serious negotiations with any company.

Brazil is one of the world’s biggest milk producers and has a large number of domestic consumers.

After Brazil, Saputo is also interested in deals in the United States, Australia and New Zealand, he said.

Last year, Saputo made two small acquisitions, Woolwich Dairy in North America and, through its Australian subsidiary Warrnambool Cheese and Butter Factory, the Everyday Cheese Business.

Montreal-based Saputo’s shares have gained about 18 percent in 2016.

The stock is trading above historical averages as investors anticipate further acquisitions, said Brittany Weissman, an analyst at Edward Jones. Even so, strong competition is pushing acquisition prices higher and deals may be hard to achieve, she said.

Saputo, whose products include Dairyland Milk and Armstrong Cheese, reported lower quarterly earnings on June 2, citing weaker pricing around the world for dairy ingredients.

In the fourth quarter ended on March 31, net income dropped to $141.2 million, or 36 cents a share, from $157.4 million, or 39 cents a share, a year earlier.

Excluding one-time items, earnings were 41 cents a share, just above analysts’ average estimate of 40 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue climbed nine percent to $2.7 billion, in line with expectations.

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