Saputo Earnings: Soft Macro Environment Takes a Toll on Q2 Results, but Margin Upside Remains

No-moat Saputo’s shares spiraled (down 6%-7%) following its mixed second-quarter report—net sales fell 3.1% to CAD 4.3 million due to lackluster volumes, but its EBITDA margin inflated 90 basis points to 9.2% mainly on favorable commodity prices. While we plan to edge down our near-term sales forecast considering the muted top-line momentum, we see no reason to alter our long-term prospects (low-single-digit annual average sales growth and nearly 10% EBITDA margins) and continue to believe that efforts to automate and optimize its fixed asset base will yield operational efficiencies and agility in the coming years. All in, our CAD 25.50 fair value estimate should stay largely unchanged, rendering shares a tad overpriced. For investors seeking exposure to the consumer staples realm, we’d point to no-moat Kraft Heinz, which trades at a 40% discount to our $53 intrinsic valuation while boasting a 4%-plus dividend yield.