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Spilled milk: Saputo shares fall as dairy giant attacked by short-seller

A New York-based activist investors says Saputo has an
A New York-based activist investor says Saputo has an "untenable cost structure" in a "low to no growth industry." (GETTY)

Shares of Canadian dairy giant Saputo (SAP.TO) fell on Tuesday after an activist short-seller took aim at the company in a lengthy report questioning its financial transparency and commitment to environmental, social, and governance matters.

Saputo, a Montreal-based company, is a major producer of cheese, fluid milk, and cream, with divisions in the U.S. and Europe, as well as Australia and Argentina. In August, Saputo announced a global plan to modernize its operations and cut costs beginning in fiscal 2024, with the aim of saving about $9 million annually before taxes by fiscal 2025.

In a 147-page report released Tuesday, New York-based Spruce Point Capital Management cites “numerous concerns” about Saputo's ability to meet the pillars of the plan, including plummeting liquid milk consumption.

“Spruce Point believes Saputo has an untenable cost structure in a thin margin, low to no growth industry,” the report’s authors wrote.

In an email to Yahoo Finance Canada, a Saputo spokesperson called Spruce Point's research "without merit," adding that the report contains "mischaracterizations and incorrect information, which are misleading and solely intended to benefit the author." The spokesperson added that Saputo has not engaged with Spruce Point, and remains committed to its strategic plan.

Spruce Point states that increased financial stress at the dairy giant has led to reduced transparency and disclosures for investors, noting the company has stopped outlining its market share in Canada, revenue contribution from acquisitions, and excess manufacturing by region.

The activist firm also says the company lacks transparency on ESG progress as environmental compliance costs have soared.

Toronto-listed shares of Saputo fell 4.46 per cent to $32.76 as at 3:15 p.m. ET. Year-to-date, the stock has climbed more than 20 per cent.

Earlier this month, analysts at CIBC Capital Markets and RBC Capital markets issued Saputo shares “outperform” ratings in separate research notes.

“While the strategic plan benefits are back-end loaded, Saputo appears to be finding its whey [sic] back to better and more consistent earnings/growth,” RBC’s Irene Nattel wrote in a Nov. 10 note to clients, which includes a $40 per share price target on the stock.

CIBC’s Mark Petrie has a $39 per share target. He notes the company’s second-quarter earnings came in better than expected, showing “continued progress” on the company’s strategic plan.

“We continue to believe Saputo will be able to deliver substantial recovery in profitability in the coming two to three years,” he wrote on Nov. 13.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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