Welcome, everyone, to the Saputo Inc. First Quarter 2025 Financial Results conference call. If you would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Nick Estrela. Please go ahead.
Thank you, Audra. Good morning, and welcome to our First Quarter Fiscal 2025 earnings call. Our speakers today will be Lino Saputo, Executive Chair of the Board, Carl Colizza, President and Chief Executive Officer, and Maxime Therrien, 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 first 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 Lino.
Thank you, Nick, and good morning, everyone. The year is off to a good start. We delivered strong revenue and EBITDA growth and solid cash flow generation in the first quarter. More importantly, we are definitely seeing the benefits from the bold actions we've taken over the past few years. Capital projects in the U.S. are now completed and up and running, while other expansion and modernization efforts around the globe remain right on track. Our supply chain teams continue to drive productivity savings, and our commercial teams have secured new business with several key customers and driving innovation across all channels. Initiatives to further differentiate our portfolio are also gaining traction. This focus is a driver behind the robust volume growth in the quarter. These collective efforts have been further supported by the optimization of our manufacturing network and streamlined processes.
The dairy commodity environment also began to stabilize, providing a more favorable backdrop for our business in Q1. However, we still expect some volatility in the near term, notably with the cheese and milk price spread. From a macro perspective, consumer demand remains stable. Overall, we're staying focused on what we can control, with an emphasis on execution, innovation, and close collaboration with our customers. We've made progress on many fronts and saw sequential adjusted EBITDA margin improvement, notably in the U.S. and Canada. In addition, our solid cash flow generation drove further reduction in our net leverage ratio, putting us in a great position to support our growth and return capital to shareholders.
As we enter the second quarter, our momentum, coupled with the expected ramp-up of strategic initiative benefits, support our confidence in our ability to achieve our operational goals and generate long-term value for shareholders. I will now turn the call over to Max for the financial review before providing my concluding remarks. Max?
Thank you, Lino, and good morning, everyone. Let's begin by going over the financial highlights of the quarter. Consolidated revenues were CAD 4.6 billion, while adjusted EBITDA amounted to CAD 383 million. Higher year-over-year adjusted EBITDA was driven by a continued solid performance in our Canada sector, a meaningful operational improvements driven by our Global Strategic Plan initiatives in the U.S. sector, higher sales volume in all of our sector, and a favorable U.S. dairy commodity markets as compared to last year. These were partially offset by the negative impact from the continued disconnect between international cheese and dairy ingredient market prices and the cost of milk in the international sector, and the cycle through of the remaining in excess high-cost inventory in our Europe sector. We reported net earnings of CAD 142 million in the first quarter.
On an adjusted basis, our net earnings were CAD 167 million, or CAD 0.39 per share. I'll now take you through key highlights by sector, starting with Canada, where the revenue for the first quarter totaled CAD 1.3 billion, an increase of 4% when compared to last year. Revenue increased due to higher sales volume and a favorable product mix, and higher selling prices in connection with higher cost of milk as raw material. Adjusted EBITDA for Canada for the first quarter totaled CAD 153 million, up 6% versus the same quarter last fiscal year. Our improved performance reflected the benefit derived from operational efficiencies, including from our continuous improvement program relative to supply chain optimization and automation initiatives. Our results also include positive impact from cost reduction initiatives.
In our U.S. sector, revenue totaled $2.1 billion and were 11% higher versus last year. Revenue increased due to the combined effect of the higher average block, butter, and dairy ingredient market prices, and higher sales volume in retail, food service, and industrial market segment. Adjusted EBITDA increased 57% to $162 million. The year-over-year increase was mostly driven by $26 million in benefit derived from operational improvements, including increased capacity, utilization, and productivity, supply chain initiative and cost reduction, and a $15 million positive impact from U.S. market factor. Also of note, last year, adjusted EBITDA had a $10 million inventory write-down due to fluctuation in dairy commodity pricing, which did not occur this year. Q1 adjusted EBITDA include $13 million of duplicate operating costs.
Given current year-to-date spending and our continued focus on our customer-first approach, we expect duplicate operating costs to be more in line with last year, mostly due to lower capacity utilization during the ramp-up phase, additional training and labor costs. In the international sector, revenues for the first quarter were CAD 1 billion, up 16% versus last year. Adjusted EBITDA totaled CAD 45 million, down CAD 32 million on a year-over-year basis. The performance of the sector was impacted by the unfavorable relations between the international cheese and dairy ingredient market prices, and the cost of milk as raw material, and the effect of currency fluctuation on export sales denominated in U.S. dollar, although positive, was less favorable than in prior quarters. In the Europe sector, revenues were CAD 264 million, while adjusted EBITDA amounted to CAD 23 million.
The decline in adjusted EBITDA was due to the cycle through of the remaining excess high-cost inventory and lower international dairy ingredient market prices. We expect the performance of our Europe sector to continue to improve on a sequential basis as we are now in a much better position from an inventory perspective. So from a cash standpoint, net cash generated from operating activities in the first quarter amounted to CAD 191 million, while CapEx for the quarter totaled CAD 97 million, in line with our plan. We closed the previously announced sale of our two fresh milk processing facilities, located in Australia, for proceeds of approximately CAD 95 million. Finally, our board of directors approved an increase of 2.7% to our quarterly dividend yesterday to CAD 0.19 per share, effective with our September payment. This concludes my financial review, and with that, I'll turn the call back to Lino.
Thank you, Max. In Canada, we had a solid quarter underpinned by operational efficiencies and cost savings. The food service market segment performed well, despite a softening in market conditions, thanks to our customer diversity and efforts to creatively work with our partners to deliver results. Retail sales volumes were higher year-over-year, with recent customer investments providing strong returns. From an innovation pipeline perspective, the rollout of new Armstrong spread flavors and Saputo sliced cheeses are underway. We are thoughtfully building out these brands, guided by our disciplined approach on the heels of several successful new product launches last year. In the US, we had one of our best quarters since fiscal 2021, through a combination of consistent execution of our strategy and improved market fundamentals. Our investments in our retail brands also continue to yield results, driving volume improvement.
Progress was most notable in our cheese business, with Frigo and Stella leading the way, with market share gains across the string cheese and mozzarella categories. Food service in the U.S. remained competitive in Q1, especially with foot traffic down year-over-year. However, we're encouraged by the recent increase in promotional activities by QSR chains to drive restaurant traffic. The dairy commodity environment improved during the first quarter, supported by a better balance between milk supply and product demand. While we benefited from better market conditions, our bold actions and focus on the controllables are contributing to our results. The team remains focused on delivering our previously announced business optimization program that will not only enhance our productivity, but also lower overall costs while maintaining our customer-first approach. We also focused on operational efficiencies, especially now that four of the six plant closures have been completed.
Case in point, we delivered $26 million in benefits derived from increased capacity utilization and productivity, supply chain initiatives, and cost reductions during the quarter. We're very excited with the startup of our recent greenfield facility in Franklin, Wisconsin. We continue to take a prudent approach as we ramp up production capacity at Franklin and ramp down other legacy facilities. On margins, we saw a significant improvement in the first quarter, reflecting benefits from market dynamics, cost initiatives, and portfolio developments. With the inflationary environment beginning to stabilize and benefits from our optimization initiatives rolling through, we feel good about the cadence of our margin improvement. In the international sector, our performance was largely impacted by the lingering disconnect between milk costs and global commodity prices in Australia.
We do anticipate a step-up in adjusted EBITDA in Australia, starting in Q2, as the new milk season price is in effect. During the quarter, we completed the previously announced sale of our two fresh milk processing facilities to the Coles Group, while the strategic review process for King Island is ongoing. Both these initiatives are important steps in supporting our network optimization strategy in Australia. In Argentina, the macroeconomic volatility led to some margin pressure in our export business and will likely be the case in Q2. Overall, we remain confident we have the right strategy and structure in place to drive growth in our international business and develop our global presence over the long term. In Europe, EBITDA continued to improve sequentially. Cathedral City volumes were higher through increased investments in promotional activities and advertising.
With consumer confidence on the rise in the U.K., we are seeing early signs consumers are trading up to higher value branded products. We believe with the right promotional activity and innovation and activation plans, we will see further volume improvements. Turning now to our outlook. We remain optimistic for the balance of the year as we make further progress on our strategic initiatives. Our team is focused on driving savings and on capturing incremental value from our investments. This is already showing up in our results, and we anticipate these areas of focus to continue to drive momentum in fiscal 2025. As we announced earlier this year, effective today, I have transitioned to the role of Executive Chair of the board, while Carl Colizza officially becomes our new President and CEO.
Carl, you have been instrumental in developing and delivering on our strategy, and I have no doubt that under your leadership, Saputo's global business and unique culture will continue to flourish. We've worked together for closely over the past 25 years, and I look forward to many more great years ahead. Congratulations again on this well-deserved appointment. As this is my last earnings call, I would like to thank you, the analysts and shareholders, for your trust and support. It was a pleasure working with you, and I will continue to value the relationships developed over the years. On that note, Carl, I turn it over to you, my friend.
Thank you, Lino, for your kind words. It is a pleasure to speak with you all on today's call, my first as president and CEO. I would like to take this opportunity to thank Lino, on behalf of the entire Saputo team, for your focused leadership, for your integrity, and your unrelenting commitment in making Saputo the success it is today. Today, I humbly take on the mantle as president and CEO at a very pivotal time for our business. Like all of us at Saputo, I am immensely proud to be part of this organization, and I very much share Lino's enthusiasm for the future. We have a strong foundation with a portfolio of exceptional brands and world-class assets. My goal is to improve and build upon Saputo's already solid core and make certain that we move expeditiously and decisively through our next growth cycle.
My number one priority is to ensure that we continue our relentless focus on the metrics that drive shareholder value, starting with operational synergies, achieving sustainable improvements in our cost structure, and capturing high-quality growth opportunities. We continue to build confidence in the next stage of our journey, one in which we will leverage our capabilities and capacity to support earnings and cash flow generation. Around the world, across our categories, we're investing to further enhance our competitive advantage. While the majority of our global strategic plan initiatives are behind us, you will continue to see the results of those efforts. Also, woven throughout our strategic agenda is a commitment to corporate responsibility and being a force for positive change through the Saputo Promise. I'm proud of how our people incorporate this focus, this focus into everyday activities and decision-making, while also pursuing a set of ambitious multi-year targets.
We have more work ahead of us, and we are laser-focused on achieving what we set out to do this year. Throughout the balance of fiscal 2025, our focus is set on controlling the controllables, delivering on our remaining major capital projects, and positioning ourselves to maximize the benefits that will materialize following a return to more stable dairy market conditions. I'm confident in our outlook and continue to see this momentum as a tremendous time for the company to begin its next chapter. That said, I am certainly pleased with our first quarter results and how our teams are performing.
It provides us with even more confidence for the year. I am truly excited about the opportunities that lay ahead. I will set the full weight of my energy behind delivering on the significant potential that exists with our great company for the next phase of our growth. I thank you for your time. I will now turn the call over to Audra for questions.
Thank you. We will now begin the question and answer session. 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. We'll take our first question from Irene Nattel at RBC Capital Markets.
Thanks, and good morning, everyone. Big, big day today. Welcome, Carl, officially, and Lino, thank you for all the years, and I'm very glad that I know where to find you. Turning back to the quarter, obviously a great turnout from the U.S. and, you know, understand the market factors, but, you know, if we kind of offset the market factors from the duplicative costs, seems like a really big step up. Can you talk about what the key building blocks of that are? And then where do we go from here, and how sustainable is the current run rate in the U.S.?
Thanks, Irene, for your question and for your kind words as well. I would say that, you know, the building blocks for the success that the U.S. had in Q1 really is about the focus we had on our strategic initiatives. So, where we stand today, you know, we have completed our mozzarella modernization initiatives, and the majority, if not all of that benefit, we are seeing today. Beyond that, we continue to make improvements along the way with our consolidation of various sites. As a reminder, four of the six sites that we said we would be closing have now been closed and consolidated.
So with that, we're making sequential progress in Franklin as well, but we do remain very focused on maintaining our high fill rates, our on time and in full initiatives with our customers, and continuing to supply demand. So from that perspective, the American team has done a great job at delivering on these initiatives.
That's great. Thank you. And, you know, given that this is your first official call, Carl, you know, if we go back to 2021, you guys put that CAD 2.125 billion EBITDA target out there. What is your view, given how the world has changed since then and all the moving pieces? Do you think that is attainable? And not gonna pin you down, but, you know, maybe the question is: what needs to happen in order for you to achieve that, if you still believe it's attainable?
Well, Irene, I think I'll reiterate what we had said in some of the more recent discussions, and that is we absolutely believe in the earnings power of the plan that we put in place. Now, albeit that the conditions and the variables in which we operate in today are very different than that of the start of that plan. And by those, you know, simply put, we're talking about the various disconnects in the overall cost of milk versus the selling price, some of the international demand scenarios, even the local dynamics in the U.S. They are very different conditions. Having said that, it is the investments that we have put forward will continue to serve our business very well and our customers moving forward.
So we're excited about what this can deliver. You know, as far as the absolute number, you referenced to 125, there are a number of other, I'll say, conditions and variables that existed and were true back in 2020, that would need to be true today to make that happen.
Would you care to extrapolate on what those are or expand?
Well, for sure, we take a look at the block price and call it spread, if you would like. There's a number of things there, but overall, if you were to take a look at the demand on the international front, so we understand. Let's start with international. So on the international front, certainly the demand from the Chinese side is not what it was before, and there's a number of reasons for that, one of them including their ongoing milk autonomy. So that's certainly one area that is driving very different dynamics on who supplies what parts of the globe. That is, as we all understand, has created various situations, such as in Australia as well. Our Australian platform has very different milk scenarios and different milk costs.
That has put a very different pressure on us. Moving over to the U.S., some of those milk dynamics were also quite different back then when it comes to the overall block price and spread. I think probably the most overarching statement I can make, ultimately, is the impact of inflation on consumption and our margins has been very significant, very different than what we would have planned at the time of the strat plan.
Understood. Thank you, Carl.
We'll take our next question from Chris Li at Desjardins.
Good morning, everyone. Before I ask my question, Lino, just again want to wish you all the best and hope you'll enjoy some well-deserved time with your family, and you'll certainly be missed on the call. Carl, congrats again, and look forward to seeing you soon.
Thank you very much.
If I just start with the question on international, you've inserted kind of a new outlook, with respect to, you know, there's a couple of moving parts. You mentioned lower farm gate milk price in Australia, but offset by some macro uncertainty in Argentina. So I guess I have a maybe a two-part question. First is, can you please maybe elaborate a little bit more about how each of those two dynamics are gonna impact the profitability of international this year? And then the second part of the question is, to take a step back, do you still expect EBITDA growth into international segment this year, despite some of these macro uncertainties that are happening now in Argentina? Thank you.
Okay. So good morning, Chris. Max here. So two dynamics, one relative to Australia. Certainly the new milk season starting in July with the price of milk that we are paying for the last few weeks will be a benefit for us as we move forward. We intend, or we believe that with this milk price, it's kind of restore our margin in Australia. So we're hopeful that this milk price will stick for the remainder for as long as we can. And with that, we would be back to historical level of profitability out of Australia. Relative to Argentina, we're seeing disconnect over the last few quarters relative to inflation and the peso devaluation. Understand that 50% of our business in Argentina relates to export.
A lower value of peso is beneficial for us on the export market. Lower the peso is, more profitable is our export business. So as we're looking over the last, you know, seven, eight months, and the currency devaluation in Argentina hasn't moved, well, a lot. But inflation keeps growing at the regular rate that we've seen over the last couple of years. So what it does is, you know, the cost of production, the cost of milk, the cost of, you know, our input cost, keeps going, but it's not offset by a peso devaluation. Hence, the margin pressure, not so much on the domestic side, but more onto the export market. And that's what we've seen in Q1.
At this time, you know, when we look into Q2, we don't have sign that there would be a change in this dynamic. We don't see the currency. We have no indication that the currency would appreciate or depreciate or whatnot. So at this time, we say, well, the Q2 would, you know, would likely be the same similar effect than that we've seen in Q1 for Argentina.
Okay. That's, that's very helpful, Max. Maybe then my other question was just if you take all that into your account, when you look at fiscal 2025, just looking into international division, do you still expect EBITDA growth this year?
Well, we'll see how much we can recover from, you know, this Q1. We know we will be recovering in Australia, but to really comment on what's going to be the dynamic on the currency and the level of inflation in Argentina is hard to tell.
Okay. Okay, that's fair. And then maybe my other follow-up question, just switching gear to, to your balance sheet, your free cash flow, obviously, they're all trending in the right direction. I just wanna ask again, you know, what are some of the guideposts that you are waiting before you act on your, on your, on your share buybacks?
Yeah. So, Chris, relative to capital allocation, we've been consistent in our approach, and it, the approach is the same as previously signaled, last quarter. Priorities around dividend, you know, we talked about maintain and grow, so we just announced a 2.7% or CAD 0.02, so to get to CAD 0.76 annually. From a CapEx perspective, we are in line with a lower spend than the last couple of years, so that we're targeting, so no change there. From a debt reimbursement, we have a maturity in November, CAD 400 million, that we'll face. So we're gonna, we're prepared to deal with that. Nothing is on the radar suggesting that we would change our approach. We like the fact that we are building financial flexibility.
Relative to buyback, it has been part of our growth story in the past. It is on our radar, and it will likely be part of our future. The DRIP was one of the step relative to, exiting, from a cash flow perspective. And I would say from, you know, pure straight timeline relative to buyback, we're one quarter closer. I'll leave it at that.
Thanks very much.
Our next question comes from Michael Van Aelst at TD Cowen.
Hi, good morning, welcome, Carl, and congrats to Lino. It's been a pleasure over the years. Max, just on your last comment there, is there a certain trigger that would, you know, that you'd have to hit to start being active on the NCIB, like having your leverage fall below a certain level?
Well, Mike, we, you know, with the volatility that we we saw, we faced, and we're still living. Yes, certainly the return ASAP to our target leverage was one of the top priority. Now, is it prudent to be-- is it a problem to run in those volatile time under a target level? Yes, it is prudent. That said, you know, the intent is not to go to a level of one times EBITDA or that sort of thing. No, we're getting-- we're in the zone. And as I mentioned, we're, you know, one quarter closer than where we were. We wanna deal with our maturity in November, and yeah, it's on our radar. It's a short-term thing.
Okay. All right, flipping to the U.S., clearly some good progress there, both from the markets as well as from internal initiatives. But the, you know, you—I think you said that duplicate overhead costs are not going to fall this year. The original guidance was for it to be down CAD 15 million. So I'm wondering what the—what's changed in the timing, maybe of the plant closures, and when should we expect to see, I guess, further progress on those operational improvements?
Hi, Michael, it's Carl. Maybe just to provide a little bit more clarity. So as I said earlier, from a facilities closure perspective, four of the six are now closed, and the remaining two are on schedule for the first half of the next calendar. But more specifically, some of the duplicate costs that we're incurring come from being laser-focused, honestly, on our customers' demands. So as we are focused on ensuring that we have the highest fill rates possible, we're having to make some difficult but good choices to ensure that our facilities are capable of supplying that demand. So facilities like Green Bay continue to be key in making that happen.
Accordingly, we're being very cautious about onboarding into Franklin all of the production lines that we had slated for consolidation. I would go a step further and say that, when it comes to Franklin, there isn't anything fundamentally wrong with Franklin. The infrastructure, the design of the facility is as we have planned. What we're dealing with here is ensuring that we're being balanced with our approach in servicing the market, and moving through our consolidation process and reducing our overall duplicate costs. So, right now, we're in a good place because, you know, volume is healthy for us at this point, year-over-year growth in our volume as well. So we're managing prudently, keeping a good balance and doing the right things for the health of our business, and this is where we're at.
Okay, so it sounds like the rollout or, or the transition of production into Franklin is going to continue right through to the end of the fiscal 2025, I guess, if you're talking about closures of the remaining two facilities in the first half of next calendar year.
Absolutely. Yep.
Okay. And then just finally on Europe, you talked about the improvements, the steady improvements that you expect. Where do you stand with respect to your, you know, your high, high-cost inventory right now? And, like, can you give us a better indication of the profile of your product mix? How much is 12 or 14 month age? How much is 24 month age? You know, where, where is the bulk of the volumes in them?
Morning, Mike, it's Leanne here. So yes, you're correct. I mean, our excess inventory has been cleared. And so we are seeing that continued improvement quarter-on-quarter, which is good to see. So in terms of our overall profile, you know, we've seen growth in our Cathedral City retail brand, which is, that's been supported by A&P in the first quarter. And we are taking share, so we're seeing a sequential quarter-on-quarter volume growth for our core retail portfolio. And we're also shipping significant new private label volume now, and that soaks up the majority of our industrial volume. That's high-quality private label. And so we are significantly less exposed to the issue that we had last year. Therefore, we're, you know, and we continue to see that improvement quarter-over-quarter. So the inventory is rebalanced.
Okay, so but if you have 24-month or 14-month aged product, I guess you're still gonna have some high cost, higher cost inventory in there as you cycle through that period. I think it was late 2020, 2022 and early 2023, when the costs were high. So, you know, what, what is the breakdown of your aged product, roughly?
The biggest piece, Mike, is we're talking about a 12-month type period. There's product that the maturity of our profile, the cheese in Europe, goes anywhere from three months to three years and even more than that. So even cheese that we have in inventory, that's before the milk cost increase. So at some point, let's focus on the high volume from a Cheddar perspective, and within a 12-month period, this kind of behind us.
Okay. So the vast majority of that is behind you now?
Correct.
Okay, perfect. Thank you.
We'll go next to Tamy Chen at BMO Capital Markets.
Great. Good morning. Thanks for the questions here. On the U.S., I'm just curious. We're hearing other companies talk about the consumer. Sounds like it's, they're deteriorating or softening more. So, I mean, there's a good performance in the U.S. segment, revenue year-over-year. I guess, could you talk about, was that much more just the much stronger block price going through the results? Can you talk a bit more about volumes in your two primary end channels, and if you're seeing any of this apparent further deterioration in the consumer in the U.S. in your results?
Thanks, Tammy, for the question. I would say the following: Yes, there has been some traffic declines in some specific segments, including some QSRs. However, there are some offsetting channels like retail. On the retail side, we're seeing some continued health, some shifts within different banners, you know, moving to discount. But when we look at our overall portfolio and our supply to the omnichannels that we have, as well as our brands and our private labels, we're very well positioned to continue to supply the winning spaces. Beyond that, our own brands are also making some share gains across the board. So, whether that is in string cheese, blue cheese, or other sectors, we're continuing to make progress and are improving our overall share.
So yes, there has been some declines in the overall QSR traffic. We're also optimistic, though, that our partners are gonna continue to focus on driving value, bringing value back to their chains and driving some traffic. So overall, if we answer the question around the revenue in the U.S., certainly the block price change has an impact. But overall volumes are also healthy, and we're continuing to track well and stable.
Okay, got it. And now thinking about the global strategic plan here, the cadence, so just digesting what you just said about what's going on with Franklin. So if you've got the CAD 26 million year-over-year benefit in this quarter, I mean, I think before last quarter, I think you were suggesting we should think about the benefits from the global strategic plan to be fairly consistent through the year, some sequential improvement. But with the commentary on Franklin, should we be thinking about now there's some volatility to that original thinking?
No, we're... So I think the number you're referencing is we would've shared an improvement year-over-year of about $100 million associated to those initiatives. And the number that we've shared of 26 is net of duplicate costs. So, you know, the best way to look at it is we will continue to make improvements quarter-to-quarter. The outlook for Franklin remains, you know, that we're focused on improving the overall efficiencies, all the while balancing that against making sure we get the orders out the door. So we're still confident on our $100 million mark by year end.
Got it. Okay.
We'll go next to Vishal Shreedhar at National Bank Financial.
Hi, thanks for taking my questions. I was hoping to get more perspective on the dynamics in Australia and Argentina. So is there any way you can give us perspective on the declines experienced in both? And it's difficult for us, or for at least for me, to triangulate, because Australia is going to improve and Argentina is declining by some undisclosed amount, how to triangulate that pushing forward, particularly since you expect Argentina to remain pressured, or at least that was my interpretation.
Okay, Vishal, this is Max. Just to give a perspective, the performance in Australia, if we look from a sequential basis, from Q4- Q1, Australia performance was stable. It was impacted by the disconnect in the milk price and the international pricing, and there was nothing major that popped from a Q4 - Q1. When we talk about Argentina, I need to bring you back to the Q3 big devaluation late in the quarter, which by itself started that disconnect between the inflation and the currency valuation. As a result of that, late in the quarter, Q3, we did benefit from a lower peso devaluation in Q4. Hence, our margin in Argentina was quite healthy in Q4.
But since then, the peso hasn't devalued itself, so from a sequential basis, Argentina performance was impacted. We did not enjoy in Q1 the competitiveness increase of that brings a lower peso devaluation. Does that help?
Okay. No, absolutely, I appreciate the perspective. So if the peso were flattish, your relative to where we are now, then we would expect that pressure in Argentina to continue throughout the year. Is that a fair comment?
Well, the other variable is the inflation. What will be the impact of inflation? If inflation would diminish and it would be flat, then there would. No, we would enjoy the margins that we've done in the past. But if inflation keeps coming, well, it does impact the input costs. It impacts the labor costs, it impact the milk costs, so hence the pressure on margin.
I see. So Australia will improve, but Argentina, the outlook as of now is looking a bit more challenged. And just to be fair-
From a-
Go on.
From a sequential perspective, more or less the same thing. There will be, you know, not so much of a decline, it from a sequential perspective.
Okay, understood. And I just want to get back to the comments off the top about the CAD 2.125 billion. What is management's official position on that? Granted, I know when that target was issued, you know, things have changed dramatically in the world, and that's, that's a fair comment. But, management did reiterate that target, albeit take away the timeline. So what is the point of view on that CAD 2.125 billion?
Carl, I'll reiterate what we've shared before, and we. The plan that was put in place, the investments that we've made in our business, position us well to capture the markets that are available to us today, to meet consumer demands for tomorrow, and we really believe in our earnings power. But as I've shared with Irene in the earlier question, numerous variables are very different today than they were then. So when we will achieve that number is impossible to predict, considering the various changes that have occurred in the cost of milk, the supply dynamics around the globe, the enormous amount of year-over-year inflation that has occurred, the impact on consumers.
All of that to say that our assets, our platform, are more efficient than they were when we started this journey, and it continues to position us very well to be able to remain competitive and to offer consumers what they're looking for on an ongoing basis.
Thank you for that.
Next, we'll move to Mark Petrie at CIBC.
Yeah, thanks. Good morning, and certainly echo all of the comments so far. It's been a pleasure over the years, Lino. I wish you all the best in this next chapter, and of course, big congratulations to you, Carl. I just have two, two small or short questions. First, on Europe, just to follow up, can you just talk about the profitability today of the other businesses outside of cheese? Is there, is there any sort of evolution in that, profitability level that we should be aware of?
Morning. Yeah, morning, Mark, it's Leanne. I mean, overall, yeah, we have stable margins across all of our business. And, of course, yes, we have a cheese business. We've talked a lot about Cathedral City, and we also have a strong leadership position in spreads with our Clover brand, and that continues to be stable, as well as our oils business.
Okay, so the path to returning to historical margins is really just a matter of selling through this inventory, and that's largely, or working through the higher price inventory, and that's effectively complete. Is that right?
On the cheese part, absolutely, Mark, you're correct. The other piece I would say is that we also have an ingredients business that we sell that's exported from the U.K. And we have seen recovering volumes on our ingredient business. However, pricing is still lower than a year ago, and that does reflect the soft demand in China in infant formula and across the globe. So that's a combination for the U.K. So in terms of our outlook, you know, that ingredient business, we see for ingredient pricing, it's still gonna continue to be, you know, stable across the rest of the year. But it's absolutely lower than last year from a pricing perspective, even though we're continuing to get good volume.
Yeah. Okay. Fair enough. And then my other question is just on Canada. Obviously another strong performance. Particularly interested to hear you calling out mix as a positive, and just hoping you can expand on specifically what's behind that. Is that just sort of a continued repositioning of the brands towards value add, and you're sort of gaining shelf space? Or do you feel like you're taking share sort of on a sell-through basis? Just if you could expand on those dynamics, that'd be helpful.
Yes. Thanks, Mark. So the Canadian team has made some you know, significant progress over the years at brand development. In particular, Armstrong Cheese continues to grow and take share throughout the market. On the fluid side of our business, we're also improving our share with regards to value-added milks. That is improving the overall mix. And we remain healthy both in the food service space as well as in retail and servicing the channels that are winning. And yes, you know, discount channels are winning over traditional banners, but we're well positioned with our brands as well as our private label offerings to continue to succeed in Canada.
... Okay, appreciate the comments and all the best. Thank you.
We'll go next to Rob Dickerson at Jefferies.
Great, thanks so much. Just two questions for me, hopefully pretty easy. Just in terms of the quarter, I know you said, you know, volumes were up across all segments. Do you ever provide kind of, you know, maybe what they were at least on a total company level?
No, we do not disclose, you know, the volume, the quantity. Basically, we kind of give an indication in terms of over or more or less, but we do not provide that type of sensitive info.
Okay, fair enough. All right, it's not that sensitive. Anyway, so the question is, right, you know, kind of consumer's been pressured in the U.S. market, you know, across a lot of different companies, and there's been some sequential improvement in demand. There have been kind of some green shoots, seeing that, you know, maybe things start to settle a little bit. But then we spend most of our time, or a lot of the time on, you know, the price of block cheese. So I was just trying to gauge, like, the consumer demand aspect of the business, specifically in the U.S., given it's, like, 50% of revenue.
I guess maybe another way to ask it is just, like, what would you say very simplistically, do you believe would be the driver, right, of that volume improvement in the U.S. within the category? Because it also sounds like maybe you are taking some share, which would be great.
Yeah. So there may be some volatility here in the short term with all of the information that we're seeing and hearing about the pinch on the consumer and some traffic slowdown, specifically in the food service sector. But again, you are right, Rob, we are making some gains, some share gains in the retail space. And we're also making some share gains in a number of growing categories. So there are some categories such as cottage cheese that continue to be very healthy, and we'd be an important supplier in that space. And we're being very opportunistic across the network in making sure that we fill the voids that others may be leaving.
Overall, despite you know, the consumer being squeezed and making some difficult choices, from a demand perspective or demand perspective, our outlook is still stable, and we don't, we don't foresee that changing, with the kind of portfolio and our ability to to navigate through multiple different channels.
All right, super. I like that. And then I guess just second question on the spread, block milk. You know, clearly, you know, we've seen the price of block go up, a fair amount over year-over-year, but we've also seen the price of milk go up. So the spread has improved, which is great, but at the same time, you know, we're getting still acceleration within the dairy market. So I'm just curious, like, as we think, you know, out even just the next quarter or two, you know, it's, like, what's the feel of the marketplace?
And again, I mean, I'm speaking to the U.S., 'cause I realize the global dairy is a little different, but maybe just kind of any color on kind of some of the core markets, because, you know, it is kind of all about the spread, and we've seen block go up, which is great. But milk is also going up, and, like, a little tweak to either one of them can be very, you know, material to the overall business. And I think I heard you say earlier, kind of you kind of expect, you know, maybe some stabilization kind of-ish in those two prices, you know, as you think forward through the year. That's all. Thanks so much.
Maybe what I can add, Rob, is what gives us confidence in having some stability or some strength in the commodity markets is really all around the milk supply versus the demand. So we're seeing a fairly stable demand for dairy products in the U.S., as well as the demand on the export side for U.S.-based products. And when we take a look at the overall supply of milk in the U.S., it's not growing. So when we look at those two dynamics, we're comfortable in saying that there's a healthy balance between the two. This should keep prices healthy. Those dynamics would be the, you know, what we would anchor to as we look forward.
The other piece is some of the most recent published information around inventories for cheese in the U.S., as well as some whey solids, would suggest that they're tight. So, with all this said, I think that we've got some strong fundamentals in the U.S. dairy commodity space.
All right. Super. Thanks so much.
We'll take a follow-up from Chris Li at Desjardins.
Thanks very much. Just maybe two more questions for me. The first one is just another follow-up on Argentina. Max, I was wondering if you can give us a sense of how big Argentina is in terms of EBITDA. We know from the disclosure, I think it's about CAD 1 billion in terms of revenues, but just in terms of EBITDA, can you give a sense of how big that business is?
Well, I would say, I would lean you to Argentina having more margin aligned with the rest of the business rather than, you know, maybe over performance relative to the devaluation of the peso. The devaluation of the peso for our export business gives definitely hedge on on margin generation. So if you remove that hedge, we follow more or less same, the same line as the rest of our business.
Okay. But in the last four months, I guess what you're saying is that it's actually a lot higher because of that benefit of the peso devaluation.
We're running a healthy business out of Argentina with export. Very healthy-
Okay.
We're happy, and it's still healthy, and simply not, maybe less favorable than, you know, than it was. But trust me, it's still healthy.
Okay. Thanks for that. And then my other question, maybe this one is for Carl, just a longer term question. Just, you know, would love to get your thoughts on, you know, the potential changes in the federal milk marketing orders in the U.S. You know, what is the latest update you're hearing from that, and what is the potential impact on your business if the proposed changes are actually implemented as proposed? Thank you.
Thanks, Chris, for the question, and thanks for leading into it being proposed, because we're not at the finish line yet, but the proposal that has been tabled, that still, of course, is in a period of commentaries. There's still a milk producer vote that needs to happen in the fall, needs to go through legislation, and at the earliest, implementation would be sometime in June or July of next year. So if we put the timeline aside for a second, we certainly applaud and we're encouraged by what the current draft proposal or the proposal is suggesting. It is addressing Make Allowances, which, as you may know, have not changed over the last 16 years.
So certainly, this would look favorable to us, and it would help offset, you know, all the inflationary pressures that we've absorbed over the, that, you know, that same timeframe. But again, it's in draft form. We're a long way from this having any type of impact on our results. And if things were to stick to where they are today, yes, it would be favorable for us.
Great. Thanks so much.
That concludes our Q&A session.