Saputo Inc.

press star 1 again. I'll now turn the conference over to Nick Estrella, Head of Investor Relations. Please go ahead.

Thank you, Jean-Louis. Good morning, and welcome to our second quarter fiscal 2026 earnings call. Our speakers today will be Carl Kalitza, President and Chief Executive Officer, and Maxime Terrien, 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 second quarter investor presentations. 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 today. Before we dive into our quarterly results, we have stayed focused on the elements within our control.

We are executing our strategy with discipline, advancing key initiatives, and strengthening our company's foundations. Our results reflect that focus with solid performance across sectors. We delivered stronger commercial execution, improved efficiency, and continued cost optimization, driving meaningful margin expansion. We are building on our strengths to becoming increasingly nimble and customer-driven, better positioned to capture opportunities across markets and categories.

Our operations generated strong cash flow, both in the quarter and year to date, driven by lower capital spending

working capital management, and good cash conversion. We remain focused on generating sustainable growth, maximizing shareholder value, and delivering consistent EPS expansion over time. We are closely monitoring the trade environment and potential tariff impacts across our markets. At this time, our direct exposure remains limited, and we have plans in place to mitigate potential cost pressures and protect customer relationships. Our diversified footprint and strong local supply chains provide flexibility to adapt quickly. Our ongoing collaboration with industry partners helps us manage the impacts of changes in trade policy. We continue to invest in volume growth through brand marketing, product innovation, and enhanced revenue management capabilities. These efforts are delivering results with strong consumption trends across key categories, as our brands resonate with consumers and capitalize on growing demand for protein-rich foods. We also continue to diversify our customer base, winning new business, gaining market share, and expanding partnerships with high-growth innovators and private label customers. This multi-pronged approach is enabling us to capture opportunities across all market segments while building resilience. Our strong customer relationships remain a major driver of our success. Saputo received two significant recognitions that speak to the strength of these partnerships and the dedication of our teams. At a major North American supply summit held in Chicago, we became the first Canadian company to receive a prestigious industry award recognizing suppliers who consistently deliver measurable, high-impact performance. Whether it is enhancing our core product, supporting community events, or helping launch a successful national beverage program, these achievements showcase the customer focus across our organization. At a leading food service event in Canada, Saputo was named top supplier nationwide, recognized for outstanding performance in areas such as fill rates, sales growth, regional engagement, and innovation. These recent achievements reflect the confidence we have earned and underscore how our teams continue to set Saputo apart as a trusted partner. I will now turn the call over to Max for the financial review before providing concluding remarks.

Thank you, Carl, and good morning, everyone.

The financial highlights of the second quarter are the following. Consolidated revenues were $4.7 billion, which was similar to last year. Revenues includes higher sales volume, particularly in North America. Selling prices across domestic and international cheese and dairy ingredient markets were higher, while U.S. dairy commodity pricing was lower when compared to last year. Adjusted EBITDA amounted to $450 million, which was 16% higher when compared to last year. The increase to adjusted EBITDA was supported by a strong commercial execution, better volume and service levels, operational efficiencies from recent capital investment, and proactive cost management. Export markets benefited from the favorable international cheese and dairy ingredient market pricing relative to milk costs, while domestic markets saw margin preservation through strategic price increases. Net earnings for the second quarter totaled $185 million. On an adjusted basis, net earnings totaled $198 million, up $41 million, or 26% when compared to the same quarter last year. Adjusted EPS was $0.48 per share versus the $0.37 last year. The 30% increase in adjusted EPS is primarily attributable to higher net earnings and also reflects common share repurchase under our NCIB program. Cash flow from operating activities was robust at $372 million, up 130% year over year, reflecting lower working capital usage and improved adjusted EBITDA. Year-to-date, net cash from operating activities totaled $689 million, a significant improvement when compared to last year. Capital expenditure total $84 million in Q2, in line with our plans. As of September 30th, our net debt to adjusted EBITDA ratio improved to 1.88. Our balance sheet remains strong, with leverage below our long-term target range, providing ample financial flexibility to support strategic priorities, and navigate the current environment. I'll now take you to key highlights by sector, starting with Canada. Revenues for the second quarter total $1.4 billion, an increase of 6% when compared to last year, supported by strong sales volume across retail, food service, and industrial market segments. Growth was led by value-added milk and culture products, as well as butter sales. Revenue also increased due to higher selling prices implemented to mitigate inflationary pressure and the higher cost of milk as raw material. Adjusted EBITDA for the second quarter totaled $179 million, up 11%, with margins at 13%. Adjusted EBITDA was driven by three main elements. First, strong commercial execution including higher volume, product mix, and pricing. Second, enhance manufacturing efficiencies from capital investment. And third, test G&A cost saving through ongoing optimization efforts. In our U.S. sector, revenues total $2.2 billion and were 3% lower versus last year. Revenues were negatively impacted by lower US dairy commodity market pricing, namely the average cheese block market price and average butter market price. However, how higher selling prices implemented to mitigate inflationary pressure contributed positively to revenue. More importantly, revenues benefited from increased sales volume across both retail and food service market segments, driven by strong demand from key customers. Retail growth was led by dairy food, while food service gain came from core product categories within strategic accounts. Adjusted EBITDA was $167 million, which was up 15% when compared to last year. The increase in adjusted EBITDA reflects higher sales volume and a favorable product mix, driven by our commercial initiatives. Adjusted EBITDA also increased due to operational improvement driven by efficiencies initiatives linked to our recent capital investment. We saw benefits from reduced duplicate operating costs related to network optimization, along with disciplined execution in customer fulfillment and proactive cost management that supported margin expansion. Compared to the same quarter last fiscal year, U.S. dairy commodity market conditions were unfavorable despite reduction in cost of milk stemming from the new federal milk marketing order formula that was implemented in June this year. During the second quarter, we incurred transitional implementation costs associated with the startup of our new consolidated warehousing facility in Caledonia, Wisconsin. The project is designed to streamline our supply network and deliver long-term improvement in scale and operational leverage. In the international sector, revenues for the second quarter were $871 million, down 5% versus last year. In Australia, our export sales volume decreased, aligning with our product mix optimization strategy. In Argentina, improved economic condition and milk availability have supported the increase in sales volume. Higher international cheese and dairy ingredient market prices for our products in our export markets have a favorable impact. Adjusted EBITDA total, $79 million, up 46% on a year-over-year basis. Second quarter results were positively impacted by favorable international cheese and dairy ingredient market pricing relative to milk costs. In Argentina, lower milk costs stemming from the reduced inflation and better currency alignment improved our financial performance. In Australia, our product mix optimization strategy mitigated both higher farm gate milk prices and reduced milk availability, which affected efficiencies and fixed cost absorption. In the Europe sector, revenue were $324 million, or 17% higher when compared to last year, while adjusted EBITDA was $25 million, down $3 million. Adjusted EBITDA reflect a favorable relation between selling prices and input costs. was temporarily impacted by a major maintenance shutdown and asset transition tied to our ingredients strategy. We continued our consolidating operational sites and increased investment in advertising and promotion to support commercial initiatives.

Turning to capital allocation, we take a long-term and disciplined approach

always with the goals of creating sustainable value. We plan to continue to actively repurchase shares as part of our effort to return capital and enhance shareholder value. After six months, we have returned $376 million to shareholder through dividend and share repurchases. Subsequent to the quarter, we repurchased 1.3 million shares for approximately In closing, our Q2 results demonstrate the strength of our diversified platform and the effectiveness of our strategic initiatives and the benefit of sharp execution. We remain focused on delivering sustainable value to our shareholder and executing with discipline across all market segments.

This concludes my review. And with that, I'll turn it back to Nicole. Thank you, Max.

Across our global network, our team delivered strong, focused execution, advancing our strategic priorities, and building a more efficient, customer-driven business. In the Canada sector, we delivered another solid quarter, supported by disciplined commercial execution and progress on efficiency initiatives. Adjusted EBITDA increased 11% versus last year. driven by the strong volume in mix and cost optimization. Commercially, our portfolio is performing well across key categories. Armstrong is outperforming in the everyday cheese category, growing ahead of market in blocks, shreds, and snacks. In specialty cheese, our branded portfolio significantly outpaced the industry. This was led by strong results in the feta, bocconcini, fresh mozzarella, and brie categories. with Alexis de Parneuf driving momentum in premium segments. We are seeing positive trends in our fluid milk category, as value-added segments offset core milk declines. Growth in filtered and lactose-free milk was robust, while our ultra-filtered and protein offerings under Dairyland and Nielsen are gaining traction through new product launches and expanded distribution. The cottage cheese category is delivering growth, thanks to broader distribution and increased brand investment. We are also strengthening our position in high-protein innovation, launching new Armstrong protein cheese SKUs and expanding the Dairyland and Nielsen protein beverage lineup, including the recently rolled out 18-gram protein milk across retail and food service channels. In the U.S. sector, our teams are executing on driving volume growth improving operational efficiencies and managing costs. While market headwinds limited upside in the quarter, we made meaningful progress across our strategic pillars, positioning the business for a strong performance in the second half of the fiscal year. We are making steady progress with our logistics and warehousing operations. With our new cold storage distribution facility in Caledonia ramping up, we expect to unlock further efficiencies and lowering third-party logistics costs, contributing to stronger margins.

We are also advancing on other key initiatives.

Our new Franklin facility is a great example. Its improved performance is driving better plant efficiency in specialty cheese and helping reduce duplicate costs across our network. From a commercial standpoint, our performance continues to strengthen. In food service, We are building on strong momentum, expanding our presence with leading customers and driving growth through high-performing partnerships. We launched new marketing activations across all core retail brands in the quarter. Specialty brand campaigns are set to scale in the third quarter to capture seasonal demand. Innovation is also driving growth, with the introduction of new products such as Treasure Cave Blue Dips, which is rolling out nationally. and Frigo Cheesehead's Cheddarella, which has secured broad retail distribution and is expanding into on-the-go channels. Our Frigo Cheesehead brand is also expanding its reach, tapping into new snacking channels, from airports and convenience stores to delivery platforms and corporate offices. Operationally, our teams are effectively navigating input cost volatility, maintaining strong fill rates and strengthening our ability to consistently meet customer demand, contributing to our performance this quarter. We have made solid progress, but there is still more work to do to grow margins. We know we can go further to drive additional efficiencies, strengthen our commercial performance, and unlocking the full potential of our U.S. platform. In the international sector, our teams are showing agility and resilience, translating into year-over-year improvements despite external challenges. In Argentina, we saw a marked improvement in performance. New product launches and a focused media campaign supported our brands, while private label and exports experienced strong growth. We increased the insourcing of milk this quarter, running our operations at optimal levels while maximizing the value of every liter. At the same time, we continue to diversify our customer base to capture growth opportunities. In Australia, we were able to maintain margins despite the higher cost of milk. Results improved year over year supported by higher international market prices, higher margin domestic and export sales. On the milk side, we are making deliberate sourcing choices to prioritize higher margin products and ensure a balanced, sustainable supply base. While milk intake remains lower than last year due mostly to ongoing seasonal and drought-related conditions, we are seeing early signs of recovery and expect a healthier season ahead. We are also investing in our brands with the new Cheer and Devondale marketing campaigns, expanded product formats, and a fresh advertising push launching later this month. We introduced two new shredded cheese SKUs under our flagship Devondale brand, further strengthening our presence in the supermarket channel. This launch supports our long-term strategy to grow branded offerings and enhance consumer engagement. In the food service segment, we continue to expand adoption of our IQF mozzarella. This product offers superior convenience and shelf life, and we are seeing strong conversion momentum among pizza operators seeking operational efficiencies. In Europe, performance reflected good commercial execution and disciplined cost management with higher pricing across our cheese and ingredient portfolio. These benefits were largely offset by planned maintenance expenses to ensure the long-term reliability and efficiency of our operations. On that note, we have successfully transitioned from D90 to Sweet Whey Powder with the first shipment processed as we move into the third quarter. This shift ensures our product portfolio is aligned with favorable market trends and supports stronger returns from our ingredients platform. Commodity markets remain volatile with fluctuations in milk, cream, and bulk cheese prices requiring close daily management of milk inflows, inventory levels, and sales mix. Our teams are managing costs and inventory with discipline as we prepare for potential shifts in market dynamics and milk pricing. On the commercial side, both our private label and branded businesses delivered solid performance. Momentum for our famous Cathedral City cheese brand was supported by a successful omnichannel advertising campaign alongside new SKUs to supplement our ready meals range in both frozen and chilled. Cathedral City is now the third largest chilled ready meals brand in the UK, underscoring the strength and growth trajectory of this iconic brand. While the maintenance shutdown weighed on short-term results, our priorities are clear. Strength in execution, manage through change, and position our European business for long-term profitable growth.

As we wrap up Q2, Our confidence in the dairy category has never been stronger.

Dairy remains a cornerstone of everyday life, delivering nutrition, versatility and enjoyment to consumers globally. Demand continues to grow across markets, supported by trends in health, convenience and premiumization. These fundamentals reinforce our bullish outlook and commitment to driving innovation, operational excellence, and sustainable growth. We believe our strategy positions us to capture long-term value for our shareholders while continuing to meet the evolving needs of customers worldwide. Looking ahead to the second half of the fiscal year, we are managing well through evolving trade conditions and shifts in consumer demand. Our disciplined approach to pricing, customer partnerships, Execution and cost management is directly contributing to our margin recovery efforts. We expect continued benefits from stronger commercial performance, improved operational efficiency, and sharp focus on cash generation. Our solid balance sheet and disciplined capital allocation gives us the flexibility to invest while continuing to return capital to shareholders. That concludes our formal remarks. I will now turn the call over

for questions.

Thank you. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, simply press star 1 again. One moment, please, for your first question. Your first question comes from the line of Irene Nuttall of RBC Capital Markets. Your line is open.

Thanks, and good morning, everyone. Great quarter. If we look at Canada as the North Star in terms of what can happen once the operational pieces are put into place, As we move through this last, really now, the very last stages of the global strat plan, how should we be thinking about the evolution of margins in each geography? And can we get to the point where we're delivering these double-digit kinds of margins across regions?

Good morning, Irene. Thanks for the question. And yes, we are equally proud of Canada as well. And I think the... The best way to answer the question is understanding the construct of the Canadian business. The Canadian business is very well diversified across every commercial channel. And I would say that in addition to that, what the Canadian team has that realistically none of the other sectors have is a coast-to-coast distribution, refrigerated distribution system. So that is also an... important part of the Canadian success story in being able to meet and grow with customer demands. That last mile, if you want, or that last leg of delivering to customers is often well within our control in the Canadian environment. That has come through, as you know, acquisitions over the years in the fluid milk category. So the milk business is an important part of why we also have this distribution system. Having said that, in the other sectors, it is not our intention to be bolting that on. Despite that, there are many things that we can do and are doing to grow margin structure in each of those sectors. So I think we've articulated in the past where we expect each of our divisions to be. We know that in the UK, with the continued focus and discipline that they have, we will improve our margin structure. We will get back to those mid-teens in way of margin structure. Same in the international sector, both Argentina and Australia, based on where they sit today. We know that there's percentage points that can be improved with ongoing operational efficiencies. And in the U.S., much of the same. Yes, there is an influence in and around the market conditions and the price we pay for milk in the relationship to selling price of cheese. But as I said in my remarks, work is not done. We still expect to see the full benefits of our investments come through by the end of this fiscal year. That is to be kicked off with the final segment of line integrations into Franklin from the closure of Green Bay. Beyond that, we also are ramping up our supply chain initiatives, as well as one that we don't speak all that much about, but we do have a very important project in our facility in Wisconsin in Waupon, whereby we've augmented the overall capacity and output of WPC-80 and other high-value ingredients, which is also in its commissioning stage right now. So short answer to your question, Irene, is there's upside yet. But the Canadian construct is fairly unique.

Understood. Thank you. And then just following up on, you said something about cash flow, working capital. As Max pointed out, the leverage is now below 2.1.9. And the pace of buyback moderated a little bit in Q2. Should we be expecting it to increase again as we move through the back half of the year and into next year?

Irene, thanks for the question. The answer is yes. Following the issuance of our Q1 results, we saw an uptick in our stock price, which was welcome, and we wanted to sort of see the market calibrate within itself. We definitely see ongoing value in us buying our own stock, so we have confidence in our stock. We take a long-term view relative to the allocation to buyback, and we do have the cash position in order to respond. So, yeah, we have been active. We're still active, and we intend to be active over the course of the next few quarters for sure.

Thank you.

Your next question comes from the line of Chris Lee of Desjardins. Your line is open.

Thank you and good morning everyone. Carl, in your outlook you noted that you expect U.S. dairy market volatility to moderate in the second half of the year. I think that's maybe a slightly more constructive tone than before. If that's correct, what is driving that improved outlook?

Good morning, Chris. The comment was really around the volatility. So what we were expecting is that we saw some of the component pricing and market conditions hit some highs and lows throughout the first six months of the year. We expect the back half to be more range-bound, probably on the lower end of where we have seen it in the last six months, but we do expect it to be steady. And as we've described in the past, regardless of where that block prices, or the value of other components, what we prefer to see is stability. And stability drives also better decision-making from our customer base. They have a better understanding of what their input costs will be, how it is they want to go to market with their promotional activities and so forth. And we do expect that that's what's going to occur in the back half of the year. And that's on the backs of understanding clearly the supply of milk and the quantity of milk that will be readily available, as well as the demand that's coming from the processing industry. I think those variables and those facts are clear to all industry stakeholders, including the buyers. And we believe that based also on the futures, so the futures markets that are traded, that band will narrow in.

Okay, that's very helpful. And then maybe shifting gear to international market, obviously very strong EBITDA performance. I understand a quarter doesn't obviously make a trend in their seasonality and other factors, but I'm just wondering, the 79 million that you achieved in Q2, do you think that's a sustainable level sort of for the second half of the year? And more asking in the context of, as you noted, Australia, there's still some challenges there. that they're going through right now. I'm wondering if there's good visibility on what the profitability for international should be for the back half of the year.

What I can tell you, Chris, is that we feel really good about the second half of the year in the international sector for a number of reasons. The milk recovery in Argentina has been beneficial. We recovered 7-8% of the milk versus last year, which has certainly been beneficial. welcome in our operations as we run our facilities that are already quite efficient at those optimal levels. And equally important is that the output has found homes at good margins. And we also feel strong about the forward-looking contracts that we have both in Argentina and in Australia. Before I leave the Argentinian sector for a second, I also feel quite good about the pricing of milk or the Argentinian supply in the second half of the year. There's an abundance of milk. The milk-to-feed ratio costs have been good to the Argentinian dairy farmers, so we feel good that it's going to be very competitive in the second half. And equally, all signals are pointing to continued relative stability with regards to the economic conditions in Argentina. If I go to Australia, it's still tough with regards to overall milk supply and availability of milk. So I'm not going to trivialize that for farming partners. But we do nonetheless feel good about what we've secured in the way of milk supply, the value of the contracts that we have also secured through the end of our fiscal year, and also the inroads that we're making in the domestic market versus that of export. The short answer, once again, is that we feel good about the second half in the international sector.

That's great. And then maybe my last question, just also in Australia, Carl. I was wondering, do you have any initial or high-level thoughts around the recent consolidation within that sector with Atalis and Fonterra? How do you expect that transaction to impact the industry and perhaps for Saputo?

The market hasn't realistically consolidated in this space. And I say that because I think the acquirer of the assets sold by Fonterra and Oceania wasn't in that space before as far as the cheese sector and some of the other dairy products. So in short, I do feel that the market will remain resilient. I feel that the market will continue to do what the dairy industry is poised to continue to do. And that is to bring nutritious products to the table every day. And I think that it's going to continue to bring innovation. I think that the business that bought those assets certainly has brought innovation to a variety of markets that they have been in. And that's only good for the dairy industry. So I don't see any meaningful impacts to milk supply and the dynamics on supply costs. nor anything different than the level of competition that we already have today.

That's very helpful. Thanks and all the best.

Next question comes from the line of Michael Van Elst of TD Cowan. Your line is open.

Hi, good morning, and congrats on the quarter. I'd like to... I'd like to... focus a bit more on the volume and the mix-up optimization strategy, because it does seem like you're improving fill rates back to where it was historically in Canada, seem to be driving volumes at a reasonably healthy pace. And I'm wondering, are you gaining market share? Because you seem to be growing in all categories. And yeah, To what degree is this and other factors driving both the volume growth but also the ability to be disciplined on pricing?

Thanks, Mike, for the question. Are you specific to Canada or all geographies that you're asking for?

Well, I'd like to know about Canada first because it seems like you're ahead in Canada on this front, and then maybe you could kind of give us a... an idea of how the other geographies are positioned relative to Canada in terms of these initiatives.

Okay. So if I look at the Canadian marketplace, we are absolutely taking share in a number of areas. And that comment also equally applies to the U.S. When you consider the volume improvements that we have made in that platform. In both cases, our high percentage fill rates are allowing us to fill the orders that are there. They're allowing us to be opportunistic in moments when other suppliers are not able to fill the demand. The Canadian marketplace in particular was somewhat unique through the summer period. Fewer Canadians traveled and we saw the impact of that through the Q2 period with strong demand from the food service sector and really all around. But the short answer is that the combination of the value that we bring with regards to the service quality, product offerings, price proposition and fundamentally being there when our customers need us for either ideation, innovation and Having the product on time and in full is allowing the Canadian team to win the market share that it is. Demand in the Canadian marketplace has been steady. So I'm not going to suggest that demand in the Canadian marketplace is outpacing that of any other sector on dairy. It really is a function of what we bring to the table every day. And the same is true in the U.S. Our improved fill rates, and these are at levels that realistically are the best that our U.S. sector has ever seen, are allowing us to capture that moment and those opportunities that exist. The U.S. market is still highly fragmented versus that of Canada. And when you think of the retail sector as an example, whereas by comparison only in the Canadian marketplace, you can see we are coast to coast in just about every single banner that is in the market. We can't say the same of that in the U.S., which is a great opportunity because we're making inroads in a number of regional areas as much as expanding national distribution with our ability to supply. So, again, in the U.S. space, demand has been relatively steady. It's not growing at outpacing any other type of grocery sector or food sector, but we're picking up share.

So are these fill rates and the service quality and I guess also your innovation, are these the reasons that are allowing you to also improve your mix without a substantial amount of pushback from the competition?

It is. It's also, you know, there, as you know, Mike, there's a lot of people behind this. We have folks that are very dialed in to our customers and and ensuring that we service them. And servicing a customer goes well beyond receiving an order and shipping it. It has everything to do to understand what they need to grow and how it is we can participate in that. And our teams do that better than anybody. And even though you guys cover a number of different areas, entities. You hear things about the QSR sector, you know, in some areas either slowing down or struggling, or more importantly, looking to put into place value offerings to drive traffic. Well, we're part of those conversations. We're ensuring to the highest degree possible that dairy and our offerings participate in that. And I have numerous examples across all channels, including HMR. So home meal replacements is an area that's seeing an upside as folks choose to remain at home instead of dining out. So those takeouts, if you call them that, in the grocery sector, we're also working at innovating the menu to ensure that there is a dairy offering or an increased amount of it through those areas.

Excellent. Thank you.

Your next question comes from the line of Mark Petri of CIBC. Your line is open.

Maybe just following up on some of the topics you've already discussed, I know obviously you're highlighting a more commercial approach to selling. Which regions do you think have the most options? Mark, you're cutting in and out a little bit. We couldn't hear the question. I'm sorry, Mark. Okay, is that? Try again. If not, we'll move on, and maybe you can retry again later.

Yeah, okay. So I know we talked about this last quarter, but I want to ask just about the benefits from your more commercial approach to selling. And my question is, you know, when you look across your segments, which reads to have the most outside benefit from the commercial office and sort of the benefits that this is building in your business?

Okay, I think I understood because you came out, but at the end of the day, focusing in on the value that our commercial office is now bringing, it's multi-pronged in nature for sure. Some of it has to do with ensuring that our A&P is dialed in to what the consumers need today. And when you're a brand owner, and you have passionate people behind those brands, you absolutely want to support each one, but not all are created equal, and not all have the spotlight and or the opportunity to excel in certain moments of the market. And part of what our team does is ensure that the spend that we put, the effort, the energy, is in the right brands. As an example, there is an absolute focus and incremental spend being put behind our Frigo Cheeseheads brands, that is driving household penetration right now, which will fundamentally increase our share and regular pickup in the future. We continue to invest behind the Armstrong brand and I'll say tweaking how it is we go to market with our pricing as well as our advertising strategies In other markets, Devondale and Cheer are also getting a push, and then Cathedral City in the UK. Rather than sprinkling it, if you like, across all the brands that we operate. So in many respects, it's a combination of focus on A&P, doing more with fewer brands, also ensuring that from a pricing perspective and revenue management generation, that best practices... are shared amongst our division and applied in the business process. And last, and certainly not least, because it pays typically at a later date, but it's our innovation cycle. Leanne and the team have materially improved what it is we focus in on, what's going to be and is relevant to consumers based on the insights, and how it is we need to get to market in the speed which we need to, and learning how to fail fast as well. So in a nutshell, I think it answers the question, Mark, that you provided. And if not, please ask again.

Yeah, sorry about that. Hopefully this is a little bit better. I guess my follow-up question to that topic specifically is, is there a region that you think the opportunity on this shift in approach is is more material or there's sort of bigger upside in that region versus the total business?

Yeah, it's clear. It's the US. I would say that the US is the area whereby we have strong brands, but in comparison to, say, the UK and Canada, they're not anchored in as well or don't have the same level of awareness necessarily. as those two points of reference, but they do have the characteristics, the portfolio, the fundamentals, and the relevance with consumers to win. That's part of the reason why also Leanne is right here in the U.S. Leanne's office is here, and it's all about ensuring that we take our fair share, as she reminds us often, of the market that our brands have earned and deserve.

Yeah, okay, thanks. And I also wanted to ask about the shift in Europe and your byproduct processing. What's involved in that move and what would it take to move away from sweet dry whey back to higher value product if the dynamic supported that?

The short answer is that time and money can do anything. And having said that more specifically, Mark, we... We're quite good at providing engineering designs to convert our lines to the final product outputs that we want. So in the end, should the market suggest that other value-added ingredients, beyond D90, D90 is not a sector in which we believe is considered, to be honest, value-added anymore, okay? Hence the reason why we moved away from it based on the overall cost of operations. But if there are other segments whereby the waste solids we generate could be better utilized, better consumed, better margin, we wouldn't hesitate to invest the capital required in those sites. But those cycles are minimum 18 months in nature. But as we sit and look at the dairy ingredients market globally, we have a very, very strong platform in the U.S., Australia, and Argentina to be able to service that growing market. sector and customer needs.

Okay.

Appreciate all the comments and take care.

Your next question comes from the line of John Zamparo of Scotiabank. Your line is open.

Thank you. Good morning. I wanted to come back to the outlook. It was incrementally maybe a bit more cautious internationally or perhaps specific to export markets. You called out more challenging supply and demand conditions in the second half, but it also sounds, based on your prepared remarks, that you're generally more optimistic on your international business. What are you seeing that led you to include that in the outlook, and how should we see that play out in Saputo's results for the back half?

Thanks for the question, John. What we're seeing right now in the dairy demand and dairy consumption globally is The demand is quite steady, and it's coming from a very broad sector, but the supply of milk is also quite strong, and we're seeing that strength of milk supply come through in New Zealand, Argentina, the US, and a handful of the European common suppliers, both France and Germany. So there's a very healthy milk supply right now in the marketplace with a steady demand for dairy products. But it's still somewhat chaotic when it comes to the trade front. So as we head into the second half of the year, we expect there to be greater clarity on what the – trading relationships and policies are across the globe so that the global dairy supply chain can settle in. That's the first thing. But the milk supply is strong. Thankfully, I'll take the U.S. as an example. In the U.S., production capacity was put online by a number of industry players, and thankfully our dairy farming community showed up. They committed to the supply. They produce the milk. They have the necessary herds to get it done. It's there now. Is there a need for a global reduction or is demand going to improve? I think that over the next six months, we're going to see that happen naturally. So there's a strong outlook in our case for continued, for our industry, for continued dairy demand. across different sectors where Saputo is going to play and continue to be successful, and hence why we feel good about the second half of our fiscal, is in the diversity of our platform. Not all sectors will excel, but many will, and we have enough flexibility in our platform to be able to ride the waves that will come.

Okay, that's helpful. Thank you. And I wonder if you can quantify the approximate EBITDA impact of the planned maintenance shutdown in Europe and also the transition or implementation costs related to your Caledonia facility?

It was slightly less than $5 million in the UK for that shutdown.

And as far as Caledonia, John, Caledonia is also a success story for us right now. So the consolidation of the 3PLs into our site is going better than planned and this isn't going to be a scenario or timeline similar to Franklin by any means. We're currently in the ramp up, about halfway through it, and we expect the efforts behind the consolidation and the duplicate costs that are attached to this, or call it slash inefficiencies, to be tapered off and gone by the end of the fiscal. So that's the plan for Caledonia, and kind of looking forward, and we look at the U.S. and the U.S.' 's business and where they're going to continue to drive margin improvements despite, you know, we call it the milk market conditions, the supply chain side also has a lot of upside for us. And what we're seeing in Caledonia is going to provide a blueprint for other parts of the country for us.

Understood. Okay. And then lastly, on the NCIB issue, You mentioned you plan to renew it. It sounds like this might accelerate. Is it likely to be the same size as your prior program, or would you consider doing a larger buyback given relatively low leverage at the moment?

I would say at this time, John, we would be looking to a similar size as what we're having. We feel it serves us well, and we do feel that it will serve us well for a foreseeable future.

Okay, that's great. I'll pass that on. Thank you very much.

Your next question comes from the line of Scott Marks of Jefferies. Your line is open.

Hey, good morning. Thanks so much for taking your questions. First thing I wanted to ask about, you noted obviously strong volume growth across a number of markets, including the U.S. and Canada. Just wondering if you can help us understand maybe where you're seeing the most strength and maybe where you might be running up against capacity issues, let's say, because demand might be so great for certain products. Thanks.

Good morning, Scott. So maybe I'll start with the U.S. So we're seeing and growing our share, as I mentioned earlier. So in some cases, we're running countercurrent to where some of the demand is. As an example, our mozzarella is growing as far as overall percentage of our sales and supply. With regards to other areas of the business, we're making inroads with regards to our specialty cheeses. We're investing behind the brands and we're continuing to take share. So, relatively speaking, it's broadly across the portfolio including of course, our ingredient sector. So overall, I would say that it's a very balanced increase within the US sector. If I take a look at the Canadian side, actually, before leaving the US, specifically around areas that have capacity constraints, it's no secret in the industry or on the shelves, as you all see, Products like cottage cheese are in very high demand, and we are certainly running at the upper end of our capacity. We are looking at a number of options to expand that because it is a continued category of growth, but that's a good example of a sector that continues to win a share of stomach with consumers. That also expands into Canada. It's no different. Our cottage cheese offering and other cultured product offerings are are probably the areas of our operations that are seeing the highest rate of utilization. But beyond that, the same commentary applies to Canada. It's a very broad-based improvement of our offering and of our share across the board.

Appreciate the answer there. Next question for me, obviously, You know, there's been a lot of talk around the capital allocation, the share buybacks, you're obviously towards the tail end of the GSP. Sounds like you're more involved with, you know, organic opportunities and still finding efficiencies in the business, but wondering if you can share any color in how you're thinking about inorganic opportunities moving forward. Thanks.

Sure. And you're right. We are focused on ensuring that, one, we have strong cash generation so that we have options available to us and our capital allocation program or philosophy hasn't changed. We're certainly focused on ensuring that we have consistent dividends that are out there. We need to ensure that we maintain our operations and invest in our ability to remain efficient because that is at the core of what it is we do, we transform milk and bring the best to the market. So we have to be extremely efficient. So those competencies, expertise, and commitment financially to that are core to who we are. But as we continue to evolve our commercial strategy, we are also recognizing areas that will require either further investments in the mechanical capabilities and or brand assets that we have, And we regularly look at whether or not it's best to invest in ourselves or to go to market and acquire those capabilities, whether it's a brand, whether it's a set of assets, and in, quote-unquote, in which geographies. Certainly, we are highly focused on the North American sector with regards to those type of inorganic opportunities. But we are constantly looking at what is the best return on the investment. Is it traditional capex? Or is it that of acquiring through M&A the capabilities, the adjacencies that we need to stay relevant with consumers and customers?

Appreciate that. And maybe just if I could sneak in one more, there's been a lot of talk here in the U.S. about changes to the SNAP program. So just wondering if you can give us a sense of how exposed you believe your business is to that and whether you've seen any impacts in any parts of the business because of changes. Thanks.

Well, it's clear based on everything that we've said around dairy, the value proposition of dairy, and the kinds of favors it's in with consumers. So it's an important part of the grocery bill for many consumers in the U.S. So certainly the current SNAP situation is going to impact some of the retailers and some of the choices that consumers make We still feel good about where dairy will fit into the priority or prioritization of the tough choices consumers are going to have to make. But it's still a large portion of the everyday American grocery list. And there's, as we know, a relatively important population that rely on SNAP every day. So there's going to be some exposure there for sure with regards to our customer base and how that trickles down to us. We expect that with the diversity of our platform and the offerings that we have, we'll be okay.

Appreciate it.

We'll pass it on.

Thank you.

Your next question comes from Vishal Sridhar of National Bank Financial. Your line is open.

Hi. Thanks for taking my questions and squeezing me in here. Earlier in the call, you mentioned that stability is good for decision-making and for the business. I'm just wondering, within the business, maybe looking at the US, for example, is there anything that management can do to insulate itself better against the commodity volatility that we see quarter to quarter, which oftentimes is unpredictable? I know in the past, management's talked about brands, strong brands being a good insulator for that. So just wondering if the thinking has evolved and what management is doing.

You're right, Michelle. We have mentioned that and it is still part of our strategy to augment the ratio of products that we bring to the retail side of the business, more specifically branded as the top priority versus that of, call it the industrial channels, which are highly correlated to the markets. Keep in mind that Those markets are indices to which pricing protocols are initiated on. The more industrial it is in nature, the supply, the more highly correlated it is on the one end of the spectrum to the other end, which is fully branded on the retail side, which has a greater degree of pricing autonomy or pricing decisions. So it is also why we are heavily dependent focused on improving the value, the investments behind a select number of brands that we have, great brands in the U.S., and that's what our commercial office is focused in on. And part of the benefit beyond that of driving growth and brand recognition is obviously helping insulate against some of these market conditions.

If I could add, Vishal, Aside from the pricing protocol to be optimized and getting into other spaces or more branded or in the retail space, of course, it has to do with operating costs and lowering operating costs give us the edge to, despite market volatility, to still pose results ahead of the year before and increase our profitability. So, hence why focus on cost control remains high on our radar, and that's what I wanted to add.

Thank you for that, Culler. With respect to the cost opportunities, in the past management used to give us pretty granular quantifications of the benefits to come. Could you help us understand from the Wisconsin way facilities or the closure of Green Bay and full run rate of Franklin, you know, the materiality of these benefits that we should expect to flow into run rate EBITDA when they're up and running fully?

Well, what I would say, Vishal, is that, you know, when you go back to the commentary we provided around the magnitude of the capital investments we put into the U.S. or globally and the expected returns, We talked about a $200 million overall lift from that capital investment. We have benefited around 50-ish or so a couple of years ago, $100 million last year, and we're chasing sort of the balance of all that this year. And we feel strongly that the totality of those returns will come through by the end of the fiscal year. For the investment program, the capital investment program that we put in, I think the last bits and pieces will come from having our way operation in Waupon, Wisconsin, being fully operationalized and fully out in market come the first half of next fiscal year. But the lion's share of it will come through this year and has been coming through, of course, as evident in our results.

Thank you. Congrats on the quarter.

Thank you, Michel. Your next question comes from the line of Etienne Ricard of BMO. Your line is open.

Okay, thank you, and good morning. Just to circle back on the innovation pipeline, if we look historically, to what extent have new products supported top-line growth prospects? And where I'm getting at is, if your pace of new product introductions is accelerating, How should we think about the revenue impact?

We won't get into the specifics, Jen, just in part for competitive reasons, but I can give you maybe two examples. On the one hand, if you take the Armstrong cheese story in Canada, we were starting out at a number four position when we decided to make the pivot to having Armstrong be our national brand. And over the period of a couple of years, through the focus on the brand, but more importantly, the content and the offering of the portfolio, we're able to get to it being the number one brand. And so from an innovation perspective, and why I highlight Armstrong's, because although it was a multi-year journey, it's also a multi-pronged approach. It's as much about what the brand and its essence is and how it resonates with consumers, but equally it's about the offerings in this case here on the SKU front. So from the convenience to the flavors to the formats and in the various channel offerings. What I would say is when we look at our investment in our improvement innovation and our innovation cycle, it's really going to be better related and more closely related to what the insights are telling us about consumers' needs of today and tomorrow and ensuring that both the R&D work, the mechanical capacity and or capabilities that we have will allow us to capture those needs. So in the end, we do expect it to be a meaningful, organic contribution to our revenues as we move forward, hence why we have committed incremental dollars to the category of commercial initiatives, which includes innovation.

Great. Thank you very much. With no further questions, this concludes our Q&A session. Thank you for your participation. This concludes today's conference call. You may now disconnect.