Thank you for standing by. My name is Jeannie and I will be your conference operator today. At this time, I would like to welcome everyone to the Saputo, Inc. Fourth Quarter and Fiscal Year 2024 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the conference over to Nick Estrela. You may begin.

Thank you, Jeannie. Good morning, and welcome to our fourth quarter and fiscal 2024 earnings call. Our speakers today will be Lino Saputo, Chair of the Board, President and Chief Executive Officer, and Maxime Therrien, Chief Financial Officer and Secretary. For the question-and-answer session, Lino and Maxime will be supported by Carl Colizza, President and Chief Operating Officer, North America, and Leanne Cutts, President and Chief Operating Officer, International and Europe. 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 fourth 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 reports, 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 will now hand it over to Lino.

Thank you, Nick, and good morning, everyone. Before we jump into our fiscal 2024 financial results, I'd like to comment on the recently announced leadership transition. Effective August 9th, I will be transitioning to the role of Executive Chair and Carl Colizza will become our President and CEO. This succession is the result of a careful and thoughtful planning process led by the Board of Directors to ensure a rigorous candidate review and seamless CEO transition. Carl joined the team in 1998 and has held key leadership positions in engineering, operations, business development, and strategy. He has served as President and COO, North America, since 2019. Over the past 25 years, he has played an integral role in both building and executing our strategic vision. Carl and I have worked in close collaboration for many years and I'm confident he is the ideal successor to lead Saputo for the next chapter. Carl's leadership style exemplifies our culture and values. He's passionate about the business and his collaborative approach and long-term vision inspires our team. I look forward to continuing to work closely with him and our strong leadership team as Executive Chair. While I move away from day-to-day, I'm excited with my new role, more focused on strategic oversight and continuing to promote the Saputo vision and values. Now, turning to our financial results. Fiscal 2024 was a year of resilience. Our financial performance throughout the year reflects our ability to stay the course in a dynamic macroeconomic environment, including commodity price volatility, a challenged consumer, and ongoing inflationary pressures. If you look past the market noise, our core business performed very well. Our teams remain focused on the elements within our control to accelerate growth once market dynamics begin to improve. Case in point, we generated over $1.1 billion of cash from operating activities, a testament to our diversified global platform. Fiscal 2024 was also a year of progress. Following three years of investments and optimization of our global network, we completed the bulk of the capital projects under our Global Strategic Plan. We are now ramping up commercial production at several facilities. We are leveraging the unique capacity and capabilities that will support organic growth. Our initiatives are already taking root and we're seeing positive results across the entire business. The investments we've made have delivered operational efficiencies, cost savings, plant productivity improvements, and enhanced margins. We have more operational stability and sustained improvements in customer fill rates. We've improved labor efficiencies and utilization in our plants. We are a more agile and collaborative business and we have a long runway of opportunities in front of us. Over the balance of fiscal 2025 now underway, you will continue to see the results of our efforts. While I'm pleased with our performance, we still have more work ahead of us and we're laser-focused on achieving what we set out to do this year. Even though the work around the Global Strategic Plan has been at the forefront of much of our previous discussions, we have also been working behind the scenes to re-energize what we do best, invest in innovation, build our brands and drive distribution gains across our categories around the world. Across our brands and products, both for food service and retail, we have a broad portfolio of offerings at a range of price points to meet consumers where they are. This is why our market position remains healthy despite a more challenging macro environment where consumers are more cautious on their discretionary spending. In retail, we expect investments to ramp up as our teams activate our brand marketing, advertising and innovation plans. In food service, we are focusing on providing solutions to operators seeking efficiencies and menu simplification. As we grow our business, we also want to play a key role in caring for our employees and the communities where we operate. In addition, we strive to mitigate our impact on the planet, working in partnership with farmers, suppliers, and other industry partners while offering products that contribute to a healthy lifestyle. These goals are integral to our business and guide our everyday actions. To update you on our progress, we issued our fiscal 2024 Saputo Promise Report yesterday. We're proud of what we've accomplished, yet recognize there is still a lot more to be done. 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 $4.5 billion while adjusted EBITDA amounted to $379 million. Lower year-over-year adjusted EBITDA was driven by unfavorability from volatile commodity markets in the US sector, 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 sell-off of inventory produced at higher milk prices in the Europe sector. The positive driver included higher sales volume in both domestic and export market, benefit from our ongoing cost containment measure implemented to minimize the effect of inflation, along with lower logistics cost, mainly in North America, and continued operational improvement in the US sector. We reported net earnings of $92 million in the fourth quarter. On an adjusted basis, our earnings were $156 million, or $0.37 per share. Fourth quarter results also included a restructuring cost of $15 million after tax in severance costs from cost efficiency efforts. I'll now take you through key highlights by sector starting with Canada. Revenue for the fourth quarter totaled $1.2 billion, an increase of 3% when compared to last year. Revenue increased due to higher selling prices in connection with the higher cost of milk as raw material. Sales volume were higher in the retail market segment. Adjusted EBITDA for the fourth quarter totaled $138 million, up 3% versus the same quarter last fiscal year. Our performance reflected benefit from ongoing cost containment measure and lower logistics costs. In our US sector, revenue totaled $1.9 billion and were 7% lower versus last year. Revenue decreased due to the commodities market, more specifically by the combined effect of the lower average cheese block, butter, and dairy ingredient market prices. Sales volume were higher, driven by most -- mostly by export sales volume. Adjusted EBITDA declined 4% to $138 million. The decrease was mostly driven by a $61 million negative impact from US market factor led by the unfavorable cheese-milk spread and unfavorable realization of inventories, lower ingredient market prices, and a $15 million cost incurred to implement previously announced network optimization initiatives, mostly from our new Franklin, Wisconsin facility. These factors were partially mitigated by continued operational improvement, higher sales volume, and lower logistic costs. In the international sector, revenue for the fourth quarter were $1.1 billion, up 18% versus last year, mostly driven by higher export sales volume and the favorable effect of currency fluctuation on sales denominated in US dollar. Adjusted EBITDA totaled $88 million, up $4 million versus last year. Similar to revenue, the improvement was mostly driven by increased export sales volume, the positive effect of fluctuation of the US dollar on export sales denominated in US, and also higher milk intake, improved operational efficiencies and benefit from previously announced network optimization initiatives. Still, our adjusted EBITDA was partially offset by the continued disconnect between the international cheese and dairy ingredient market prices and the cost of milk as raw material. In the Europe sector, revenue were $290 million, while adjusted EBITDA amounted to $15 million. The decline in adjusted EBITDA was due to the continued negative impact from the selling of inventory produced at high milk prices through bulk cheese sales volume and lower international dairy ingredient market prices. Net cash generated from operating activities for the fourth quarter amounted to $371 million. For the full year, this cash generation amounted to $1.2 billion. CapEx for the quarter totaled $203 million while the full year was at $654 million, in line with our expectation. Over time, we expect CapEx returning to a level similar to our depreciation and amortization expense range. We continue to expect an improvement in our cash flow generation as we'll be harvesting the benefit from the Global Strategic Plan. Our leverage ratio should progressively come down and is anticipated to be below our target of 2.25 times net debt to adjusted EBITDA as adjusted EBITDA and cash flow generation improve during fiscal '25. We expect to build momentum into fiscal '25 with the ramp-up of network optimization benefit, improved US cheese prices, sales volume growth, potentially much lower Australian milk costs starting July 1st, and the lapping of high-cost inventory in the UK. This concludes my financial review. And with that, I'll turn the call back to Lino.

Thank you, Max. In the fourth quarter, the operating backdrop differed greatly across our markets once again, but we continued to execute with discipline. We reported adjusted EBITDA of $379 million on revenues of $4.5 billion. Volatile global dairy markets continued to unfavorably impact our results. This was partially offset by higher sales volumes coupled with the operational benefits from our capital spending program as well as our emphasis on cost management and continuous improvement. In Canada, revenue was 3% higher versus last year. Our ongoing cost containment measures and lower logistics costs had a favorable impact on adjusted EBITDA, and in May, we implemented price increases to reflect the recent cost of milk increase in Canada, which will flow through in Q1. From a commercial perspective, our marketing capabilities and product innovations continue to be recognized. Armstrong NIBBLERS won Best New Product, while the Saputo Cheese Fries won Best New Product in the Cheese Snack category. In addition, several of our specialty cheeses won gold or silver at the World Cheese Competition, with our Sauvagine brand bringing home the Super Gold award. During the fourth quarter, we marked an important milestone with our Armstrong brand becoming second in terms of market share in the Everyday Cheese category. In the US, our performance was in line with the prior year, despite $61 million in negative market factors and $15 million of duplicate operational costs. Commodity prices, while still volatile, now appear to be starting to show the sequential improvements that we expected in time, supported by a better balance between milk supply and dairy demand. Volume momentum was also strong with higher sales volume, notably in cheese. We're pleased to report several capital projects in support of our US growth, including new plants, and new capacity in key product categories are now either fully operational or ramping up to full operational capacity in the coming months. Another priority is the optimization of our footprint and network. We expect to close four of the six planned facilities by the end of the month. This is part of our efforts to reallocate resources to nearby, more efficient plants, improving mix and better serving our customers. Our investment program has progressed at pace with a relentless focus on automation, adding scale, and delivering further quality, capacity, and efficiency improvements. I'm proud of what our employees are achieving. The executive team and I recently visited several of the plants that are part of our capital investment program. We left those facilities feeling inspired by the quality and the commitment of our people. They are enthusiastic, passionate, and fully aligned with our business goals and we intend to keep building on this momentum as the year progresses. In the international sector, dairy market prices remain subdued, but our performance has improved sequentially year-on-year. In Australia, although we continue to benefit from higher milk intake which positively impacts our efficiencies and absorption of fixed costs, our results continue to be impacted by the disconnect between the cost of milk and international pricing. Last week, however, we announced a competitive opening milk price for the '24/'25 season. The current milk price now better reflects the shift in market dynamics, with global demand for dairy products remaining moderate alongside subdued international prices. As we narrow the gap between farmgate milk prices and global commodity prices, we expect profitability to improve. In Europe, adjusted EBITDA was driven by the impact from the continued sell-through of our high-cost inventory from last year, albeit at a more modest rate than last quarter. Our aggressive plan to return to normalized inventory levels over the past few quarters will continue playing a critical role in strengthening the sector's performance. It's encouraging to see this work start to pay off in working capital and inventory position. We anticipate earnings will further improve sequentially as we work through high-cost inventory and as the retail branded channel recovers. We will also benefit from our recent site consolidation efforts. In February, Heinz teamed up with Cathedral City to launch their new Cheesy Beanz flavor. Initially launched exclusively at Tesco, the UK's largest supermarket, it has now been rolled out in some of the country's largest retailers. It has been very well received and marks further progress in helping expand the Cathedral City brand beyond the chilled aisle and into other areas within the supermarket. Another example is our partnership with retailer Iceland, which has brought Cathedral City into the Frozen Products category. Just this month, we launched the range of Cathedral City chilled ready meals. Across our sectors, our teams have worked tirelessly to reach this inflection point. The business is poised for growth and focused on margin improvement, cash flow generation, and debt reduction. We also remain focused on what we can control. Our priority is to execute with excellence. Our operations have improved across the business and we have a long runway of opportunities ahead of us. Turning now to our outlook. We expect to see steady improvements in fiscal 2025. Cash flow generation should increase, driven by improvements in adjusted EBITDA and a reduction in capital expenditures. We are closely tracking a number of near-term themes, including continuing inflation, geopolitical challenges, and commodity price volatility, to name a few. We are also closely monitoring consumer sentiment and traffic trends between at-home and away-from-home consumption. In any respect, we are well-positioned to address these challenges and we are confident we can deliver on our long-term plan. I continue to be pleased with our team's ability to control the controllables, including managing our supply chain and in-market execution. We see a strong dynamic global dairy market even amid a challenging geopolitical and macroeconomic environment. In this backdrop, we are successfully executing on the strategy we laid out over three years ago with momentum across our core categories and wins in the many significant opportunities we are pursuing. Fiscal 2024 was a critical year for us. Last year, we evolved our business through capacity, distribution, and capability investments that better position us to reach our full potential. As we celebrate our 70th year anniversary, I look forward to continuing to partner with Carl and the broader team as Executive Chair and could not be more confident in their stewardship and Saputo's bright future. And on that note, I will now turn the call over to Jeannie for your questions. Jeannie?

[Operator instructions] And your first question comes from the line of Irene Nattel with RBC Capital Markets. Please go ahead.

Thanks and good morning, everyone. Before we get into the quarter, I just really wanted to ask about the timing of your -- the shift in leadership. So, I guess, Lino, what gives you the confidence that now is the right time? And you mentioned you'll have more time to focus on, I think, strategic oversight. So, what is it that's been going -- what is it that you feel like you haven't had enough time to focus on, that you will now be able to?

Yes, Irene, thank you for the question. So, from a good governance perspective, it always makes sense to have a split function between the Chair and the CEO. I felt that before the pandemic, we were poised for that, and unfortunately, as we went into our strat plan execution and a global pandemic, I felt that the time was not right for us to make such a big change from a leadership perspective. Over the course of the last three years, I think we've navigated extremely well through the pandemic and all of its challenges. We've navigated extremely well and executed, I think, flawlessly in terms of the plans and the projects we had in our network optimization. And we're coming to the end of the investments, and we're coming to the beginning of the benefits that should be derived from those investments. So, as far as I'm concerned, a large part of the heavy lifting has been done. I know that Carl and the team are completely focused in delivering the numbers that we expect of ourselves and I thought it was a really good time for Carl now to start taking over and starting to understand what the next evolution for Saputo should be and would be. From my perspective, what this does for me, it allows me to be able to tour our facilities with a lot more flexibility without having to be tied down to some of the responsibilities related to day-to-day because Carl will be taking care of day-to-day. [Technical Difficulty] we have in five different countries, to meet with some of our key stakeholders, partners, whether they would be dairy farmers and/or clients on a need basis. And so it provides me so much more flexibility in my responsibilities to be able to focus on the vision, the values, and the culture of Saputo, making sure that our character and our identity for the next generation continues to be as strong as it is now, all the while focusing on my functions as Chair of the Board with strategic oversight, making sure that as a company, our governance structure is up-to-date and is as a stellar as it has been over the course of the last 70 years, including the discipline that we've applied to our business on an ongoing basis. So, my focus moving forward is going to be growth and value creation in all of its forms and supporting the team in shaping its long-term strategy, and helping develop new talent, and guide Carl and his leadership group in terms of making sure that we continue to progress. So, I'm excited about the move. I think the timing is right. Heavy lifting is done. Carl is fully engaged and fully focused on the evolution of our business and I'm delighted to be able to support Carl in his new responsibility.

Thank you very much for that, Lino, really appreciate it, and it sounds very exciting. Moving back to the quarter, if I may, just focus on the US for a second, although obviously a lot of moving parts in the quarter, if you scratch the surface and you think about the magnitude of the headwinds that you had in the quarter, it would appear that the underlying business is making significant progress. So, I guess the question is, and -- A is, in fact is that the case? And then B, what has to happen for us to actually see that build on the P&L?

Thank you, Irene, for the question. It's Carl. You're absolutely right. The underlying business is performing very well. We did have negative market factors in the quarter, but we were focused on the things that we can control and that always comes back to our efficiency, our volumes, supporting our customers with their needs, providing solutions so we can grow the business. And the team was very successful through Q4 with the ongoing momentum. Our capital plans are on track, both in spend, and largely in line on schedule. So, we are going to be able to harvest some of that, as we go through here, fiscal '25. So, we're very optimistic about the fundamentals in the US despite the market factors and, our outlook on this would be quite positive when we take it -- when we look at the ability for the US to service the market, do it efficiently and capitalize on the investment with a focus that has been here for the last two and a half years.

That's great. Thank you.

Your next question comes from the line of Michael Van Aelst with TD Cowen. Please go ahead.

Hi, thank you. Just a quick one to start. You talked about closing for the next -- the six remaining facilities planned by the end of June. How many of those -- can you give it more specific for the US market?

Sure, Michael. So, we've closed two facilities of the six that are planned. We've closed Belmont as well as Big Stone and Big Stone being the most recent one. And by the end of the first quarter, the next two facilities that have been announced for closure will be Lancaster and Bardsley, excuse me. By the start sometime in the early calendar year, we'll also get into the last two facilities, which are Green Bay followed by South Gate. So, four of the six will be closed by the end of the first quarter, continuing to contribute to reducing our duplicate costs in our network and continuing to optimize the scenario in Franklin, which is the facility that is primarily at the center of absorbing this consolidation.

Okay. Right. So, should we be seeing a material drop in the duplicate overhead costs as early as Q1? Or when do we see that?

Well, Mike, so duplicate costs amounted to about $36 million. It anticipate to be lower in fiscal '25. I would -- that would give you an estimate of about $15 million lower than the $36 million that we call out this year.

Okay. And then, so when you look at the GSP and the progress you've made, a lot of it, you said the bulk of the Cap or the vast majority of the Cap, the heavy lifting has been done, the CapEx is done. Where would -- like, where would you say the run rate returns are at now versus where you expect them to be at the end of fiscal '25 and the end of fiscal '26, just so we have an idea of how you -- what you've achieved to date and how much is still to come and at what -- roughly what pace?

So, Michael, what I would say is, providing that the current dynamics between supply and demand remain and that our volumes, which we were quite positive and bullish with, with regards to the outlook here in '25, providing those things stay in line, we're quite confident that we'll be able to achieve about 50% of the savings from the initiatives that were previously announced for the US in this fiscal year. So, it is the majority of the savings and initiatives that we expect to translate here in fiscal '25, and we feel strongly about being able to do that as the timelines have -- are here now and our facilities and our teams are performing really well.

So, would that have been close to zero in fiscal '24?

No, there, there, we certainly had some, some improvements in our bottom-line that were associated to the investments that we have made. Now we're very focused in -- on the US. Let's not forget that capital investment programs were put across the globe, including Canada, so Canada has been benefiting as well from the investments that they've made, particularly in the space of automation. In the US, we would have had some savings from various initiatives that we would have implemented, example, in the mozzarella space. So, some of the contributions from our strategic investments in mozzarella we're part of '24, but it is not the lion's share by any means.

And, Mike, by calling out some elements relative to market, that gives a bit of a flavor as to the run rate of the business or that translate the controllable element of our performance. So, we do have some benefit that flow through our fiscal '24 numbers.

Okay. All right. Thank you.

Your next question comes from the line of Chris Li with Desjardins. Please go ahead.

Thanks, everyone. And good morning. I'm sorry, maybe just a quick follow-up on Mike -- Michael's question. Carl, when you said that if -- assuming your volume outlook depends on the way you expect, you'll be able to achieve about 50% of the savings that you previously announced in fiscal '25, can you just remind us what is that -- 50% of what savings, what is that number? Is that $200 million if I remember right? Yes, if you can just provide some clarity on that, that'll be great. Thank you.

So, Chris, Carl is referring to the various press releases that we've issued over the course of the last few years considering the fact that there's some benefit into fiscal '24. There will be another chunk of 50% of the benefit that we called out or that we were saying that we're calling out is -- are still valid, still believe we will be able to materialize. And that's the relation that Carl is making.

Okay. But you weren’t able to sort of quantify like in dollars terms, in terms of what's the lift to EBITDA would be for this year.

So, yeah sorry, the previously announced initiatives in the US amounted to close to $200 million and based on what we've just shared, that would translate into close to $100 million in savings is what we anticipate to see by the end of fiscal 2025.

Okay. And from a timing perspective, is it going to be more spread out through the quarters or more skewed towards the back half?

It's not going to be just the late half. So we're not pushing and kicking the can down the road by any means. With the closures that are eminent here, the last -- two more closures, excuse me, that are eminent here by the end of the month, the consistent progress we're seeing in Franklin, it's not like we're waiting on volume to come our way to be able to achieve it. We have some good momentum on that front. So we should be able to see that here midway through the fiscal year, seeing some of that run rate translate to the numbers we've just shared.

Okay, thanks for that, that's helpful. And, Lino, maybe one for you. When you mentioned about shifting more to your strategic oversight, I wanted to ask specifically, where does M&A fit into that oversight? Maybe a broader question is, from a capital allocation perspective, where does M&A fit in that totem pole? Thank you.

Yeah, so right now, Chris, we're really focused on cash generation, paying down debt, supporting the dividend, and taking care of our shareholders to eventually some buyback programs that ultimately will come. M&A, as you know, Chris, has been the DNA of our growth as an organization since we went public in 1997. And at some point we'll get back to the M&A market. Although right now I would say it's on the back burner. We need to be prudent. Not to say that we're not looking at files. We definitely have our M&A team engaged in understanding the assets that are available on the market and how they would fit with us, but our criteria is very, very narrow. We need to make sure that it is going to be accretive day one. We're not looking at buying any fixer-uppers. We're not looking at further getting into heavily commoditized spaces. And so, for us, it has to add value for the geographies and the platforms that we have. I would say that even with the files we have on our table right now, nothing right now meets our criteria that will give us a green light to move ahead. So for now, no urgency on M&A, although we need to be mindful of what's available. Cash generation for us, paying down debt is important and being able to take care of our shareholders is our top priority.

Okay, that's very clear. Thanks, Lino. And maybe last question is, I know it's not set in stone yet, but it does look like that the farmgate milk price in Australia will decline fairly meaningfully this year compared to last year. I mean, do you expect this to have a meaningful impact, positive impact on EBITDA if you in fact get the mill price that you have kind of put out there, or are there other factors that could maybe mitigate that positive impact because it does seem like it's going to be a fairly meaningful reduction starting in Q2?

Good morning, Chris. It's Leanne here. Yes, we've opened the new milk year in Australia with a competitive milk price. A reminder that our fiscal Q1 doesn't include this lower milk price. It's still that our fiscal Q1 would include last year's milk year price and lower commodity prices. So we'll begin to see the impact of that lower milk price in our fiscal Q2 at the beginning of that new milk year from July. And yes, we do expect to see an improved run rate from Q2, which will be closer to our historical levels of profitability.

Okay, that's helpful. And Carl and Lino, congrats on your new roles and all the best. Thank you.

Thank you very much, Chris.

Your next question comes from the line of Tamy Chen with BMO Capital Markets. Please go ahead.

Hi, good morning. Thanks for the question. Just wanted to go back to your comment about capital allocation and the buyback. I mean, should we think about once your leverage is back below the target, which I think is 2.25 times, I mean at that point does the idea of a buyback come higher up in your capital allocation priorities?

Tamy, it's Max. So at this time from capital allocation there's no changes from last we spoke. Priorities remain from a dividend either to protect or to grow the dividend. Certainly, maintain our CapEx certainly at a lower pace as we get into fiscal ‘25 and also the debt reduction. And don't forget we do have a maturity that comes in our way in November. So that's how we're confident in the cash generation considering that lower CapEx but also in EBITDA growth perspective, building flexibility on our balance sheets will allow us to do different things. Buyback has been part of the story in our story in the past and can very likely be part of our future. Now, we've made a first step last quarter when we removed our -- we got out of the [indiscernible] program. We need to see, we anticipate cash generation. We need the cash to come in. We need to see it and allow putting us in a position where we could do different things and consider a buyback program.

Okay, got it. And then with respect to the outlook for the US, could you lay out or remind us again in terms of volume, because that is one of the factors you mentioned, if you assume your volume outlook does stay in line, then you talked about the 50% of savings from the Global Strat Plan. I'm just curious, can you remind us what outlook you are currently assuming for volume?

Well, I mean, when we -- over the-- I'm going to reference a few years ago. Between dairy foods and cheese, pre-pandemic we were at a material rate versus that of what we had over the last three years, probably in the vicinity of 5% higher than what we were operating at over the last couple of fiscal years. We slowly regained some of that and we're beginning to climb back into the same ranges of where we were, I'll call it the pre-pandemic era. And more importantly, it's not just volume for volume. It's the volume and the categories that we feel are most important to us and have the highest degree of growth and sustainability. Of course, mozzarella is core to who we are, very important in our portfolio, and we're making some material and significant gains in this space, post investments that we've made, a number of other categories in retail, specialty items as well. Our flagship Cheese Head brand is also growing its market share meaningfully as well as some of the other branded products such as Montchevre and Treasure Cave. So we're confident that the tactics that we're utilizing in the marketplace today and then the investments that we put in for capacity and the ones that are yet to come will continue to put us in a great position for us to capitalize on the demand for these products. So it's where the optimism comes from. Yes, we understand that some of the food service sectors have seen slower traffic, but there's also the upside in retail. And unlike prior years, we were very well positioned to be able to capitalize on that across the portfolio, both branded and private label as well. So that's where the optimism on the volume front comes from.

Okay, that's helpful. And one last one for me is just reading your outward language with respect to the commodity factors in the US, which is -- and even hearing you this morning, it does sound cautious and incrementally more optimistic than prior quarters. We have seen a pretty strong and quick rally in the block price as an example. And I'm just curious, what gives you that incremental degree of positivity or confidence that we're getting into more sustainable, normalized dynamics in the factors here because it's just been so volatile recently? And I ask because I think domestic demand in the US, for cheese as an example, I don't know that that's really meaningfully better. So I'm just curious why you feel we are starting to see that proper, more sustained improvement in US commodity factors? Thank you.

Yeah. So, Carl will talk about the sustainability of the commodity factors in the US and perhaps what we're seeing globally as well. But what I can say Tamy is, from an infrastructure perspective we have never been as solid as we are today. If I look at the investments we've made around the world, increasing our ability to produce more in the facilities that are sophisticated and automated, being able to reduce our costs and shrink the amount of sites that we have to operate, just on that basis, we feel much, much better about our ability to execute and deliver to customers more than we've done in the past. And the flexibility between retail and the food service as Carl alluded to, it is part of that plan. So from an infrastructure perspective, we've done a lot of heavy lifting over the last three years. And I would say credit to the board that they allowed us to continue to focus on improving our network and spending the money at a time when the outlook was not so clear and the clouds were looming. They allowed us to execute on our plan, which puts us in a much, much better position starting fiscal ‘25. So irrespective of the markets, we feel much better about our ability to process high quality products at an even lower cost today than we ever have in the history of our company. Maybe go into markets.

Sure. Thanks, Lino. So really when we look at the US and where some of our, I'll say our confidence comes from, is when we take a look at cheese inventories as a whole in the US coming out of a flush season, we're not seeing a material growth in those inventories. So there isn't an imbalance there that's been created. We also know that from the most recent numbers, the number of milking cows in the US has not increased dramatically. In fact, it's on the decline to some degree, which basically puts us in a better position with supply versus the tempered demand. So yes, demand is not through the roof in any way, but it's still on the positive side and despite it shifting channels we're still seeing some pretty solid growth on the retail side. Dairy and cheese in particular on the dairy side is still growing in the 3% range. Part of that is fundamental to two things. One, the value offering of dairy overall as part of nutritious diet. The other piece is that dairy, unlike many other foods in the US in particular, last year didn't see as much of an inflationary pressure as it did -- other foods have. And that's a direct function of what the CME values were. So it's remained on shelf an affordable product, generally affordable product for consumers. So we're optimistic that with our brand, with our channel penetration, with a portfolio playing in all sorts of different spaces from value products to indulgence to everyday cheese, we've got a winning recipe here for fiscal ‘25.

Great, thank you.

Your next question comes from the line of Rob Dickerson with Jefferies. Please go ahead.

Great, thanks so much. Maybe just a quick follow-up to that last response on the US and the value proposition. I'm just curious, I guess, one, kind of what you're seeing in the competitive backdrop. We're hearing from a lot of food companies that you might need to lean a little bit more to pricing, but at the same time you do have a nice value proposition. Maybe there hasn't been as much price inflation to consumer, but that's the case. It also seems like maybe the competitive risk at this point might be a bit more rational relative to the total retail store. Any comments on that would be helpful.

Yeah, I think that we're staying close to the numbers, working with all of our partners, both in the retail space as much as it is the National Accounts and Foodservice, to make sure that we are, one, connected with what their needs are and what they're seeing in their particular stores, what they're seeing in the potential shifts between branded and private label and ensuring that we have the right products, the right recipes and inventory and ready to supply. One of the things that we're constantly looking at and adapting is the amount of investment we put behind consumer marketing versus promotional spend. And depending on the channels in question, as some of the discount channels are winning the day in retail, some of it may require us to look at more trade spend in lieu of consumer marketing. But again, it's data driven. We're continuing to support our customers in their needs. And they all have a bit of a different tactic as far as how to continue to appease the consumer. And we're able to respond to that with the breadth of the scope of our portfolio.

Okay, great. And then I guess just in terms of the overall spread, some of the commentary you've provided up front, It sounds like you're, again, maybe, I don't say extremely confident, but you're encouraged as to where the market is headed. So if the market continues to head that way, and speaking more to the US, and then there also are the cost savings that should be coming through, and then combined with my first question, it doesn't really seem like there's necessarily some kind of like missing piece here such that you would have to like materially increase trade spend or marketing or what have you because it sounds like the demand environment is somewhat stable. So the longer term question is, well, you should clearly then be able to get not back to where you were on a profitability basis relative to pre-pandemic in the US, but you should be able to get somewhat nicely ahead of that, all things considered. There's a lot in there, but I hope that makes sense.

Yeah, no, it did. And as we sit here June 7th, yes, we are from the overall market factors that influence our business, we're generally in a good place, in a good zone. No one has a crystal ball, but if we look at the fundamentals that tend to drive the market factors, and the CME in particular, a lot of that is really about the balance between supply and demand. And as we sit here today, the majority of the data would suggest that we're going to remain in that kind of good balance if you like. And so we expect that those market factors will continue to be favorable for us as we move forward. Now we don't control them of course. We'll continue to focus on the things that are within our control, and that is continuing to deliver on what we've engaged in and what we've committed to with our operational excellence and our network transformation. And that will help mitigate, should there be something different on our horizon.

Okay, fair enough. And then just quickly and pretty simplistically, within Europe, right, you've cycled through now the higher cost inventory. How should we be thinking about profitability in that region near term and, I guess, kind of as we get through the year? Is this a -- we've cycled through and therefore we can get back to X. Just trying to figure out how we should be modeling that. That's all. Thanks so much.

Hi, Rob. It's Leanne. Yes, our excess inventory has been cleared. We're still selling through some regular inventory that was produced at higher milk prices, but that will continue to a much lesser extent than we've seen in previous quarters. So that cheese product mix is on track to being fully corrected. So we expect continued sequential improvement quarter on quarter throughout F ‘25 for the UK in particular.

Okay, super. Thank you so much.

Your next question comes from the line of Mark Petrie with CIBC. Please go ahead.

Yeah, thanks, good morning. Just to follow up on a bunch of the comments or a few of the comments that you've already made. I understand the long-term EBITDA target is predicated on normalized commodity conditions And I know there's a lot of different pieces to consider in assessing the conditions and their impact, but can you just give us a rough sense of how you're looking at today's markets, or the markets that you've assumed for fiscal ‘25, versus the trough, I guess, of last year, and then that normalized level? Just give us a sense of how much progress you think you're seeing in the market today.

Well, maybe I'll speak about the US in particular. But as I think you were alluding to, the market factors go beyond that of the US. There are a variety of influences on the international side, particularly in Australia as well, that you used the word normalized and I don't think we can call that normal. So we'll elaborate on that in a second, but when it comes to the US in particular, I think maybe the best way to look at it is, we're in the zone now. We're in the zone on multiple variables that constitute the market factors that we consider as being more normal in nature. We're in that zone today. Again, I'm going to emphasize June 7th, but we are in that zone today and providing that we don't have a lot of volatility. The volatility also has an impact on overall results and market factors but we're in the zone today. When it comes to international, I'll hand it off to Leanne here to kind of give you a better sense of what normal is.

Yeah. So, Mark, commodity pricing we're still seeing in our international markets as being volatile, especially in some of the lower protein ingredient categories. Demand is still soft and that also reflects China demand as well. That continues to be relatively soft. Higher specialized ingredients pricing continues to be stable, although it's lower prices versus last year. And in particular in Australia, as we have mentioned, there continues to still be a disconnect between the international cheese and dairy ingredient pricing and our local Australia farmgate milk price, although we have seen that gap narrow considerably at the moment with the -- our opening milk price.

Yeah, understood. Okay, those comments are helpful. Thanks guys. And then maybe another one that's sort of higher level. It's interesting that in fiscal ’24, all of your regions saw retail penetration rise year-over-year and I know the dynamics vary greatly by region but how much of that would you say is just sort of market dynamics versus how -- your sort of intentional work to reshape sales mix?

We've got to give the credit to the team because they are, especially on the commercial side of things, they have always been working in close collaboration with our customers in all channels. We went through a couple of years of not being able to supply the way we would have done historically and would have liked to through those periods for all the reasons that we had described in the past around labor and a variety of supply chain disruptions. But the majority of all that is behind us and we're executing and firing on all cylinders and our commercial team is able to execute the vision and the tactics that they've wanted to do for so long. So the credit goes out to the team for being able to do that in a variety of markets.

Yes, in particular, we see in the UK, Cathedral City is growing share. The cheese categories are growing, both volume and value, and we're actually growing and taking share from both brands and private labels. Similarly, Argentina, where we're the number one brand there, and Australia, where we're continuing to hold or grow share across our core brands.

Yes, understood, okay. And I guess then fair to say that your expectation or certainly your plans would be that retail sales mix would continue to rise? Is that fair?

It varies by sector for sure, but I would say that absolutely in the US it is square in our priorities and is part of its composition, a component of our strategic growth plan. So yes, we would expect it to continue to grow in that sector. Really no different for Canada. If you looked at it purely on a numbers basis, with the continued kind of declines in fluid milk, those things might shift, but the things that are of the highest value to us in the retail space continue to be the focus and have some growth targets associated to it.

Okay, perfect. Thanks for all the comments and all the best.

Your next question comes from the line of Vishal Shreedhar with National Bank. Please go ahead.

Hi, thanks for taking my questions. Most of my questions have been asked but I was just wondering about the D&A. It stepped up quite a bit year-over-year and even sequentially. And is that step-up related to the Franklin cut-and-wrap facility? And as facilities close, should we expect some relief on that line or is that Q4 number a good number to extend forward?

No, the Q4 number is a good run rate to work with as CapEx projects get to a close, depreciation starts, so we have a bit of an incremental on that front. So, Q4 would be a good base to work with for fiscal ‘25.

Okay. And a similar question for interest expense. A bit of a step-up there year-over-year. It’s said that there was, we looked into it, was the other financing costs that were the increase or the cause of the increase?

No, the incremental financing costs refer to credit line in geographies such as the UK and Australia. So as cash generation improves, that line should come down during the fiscal ‘25.

Okay. That's it for me. Thanks for squeezing me in. Thanks, guys.

And your last question comes from the line of Chris Li with Desjardins. Please go ahead.

Just maybe a few quick follow-ups. Max, on CapEx, so you invested about $650 million in fiscal ‘24, what is your expectation for F ‘25?

Fiscal ‘25, we nailed down a number of $418 million, $420 million. So that's about $230 million lower than this fiscal. And that's what we -- I've been signaling, I believe, last quarter for sure. So this would be much lower. And this is part of our cash generation story that we alluded to earlier. And I would point you to the AIF, so we have some details on the CapEx section of our AIF that we released yesterday.

Okay, very helpful. And then, Leanne, just a quick one for you. I know you mentioned that you expect dairy market -- international dairy prices to remain subdued for this year. But we're seeing some gradual improvement in the GDT in the last few trading sessions. I know it's still early, but if that trend is sustained, do you think there's some upside perhaps to your pricing outlook for this year?

Yeah, Chris, we are seeing some progressive incremental improvements on GDT, as you referenced. It is still very modest and still significantly lower, depending on the category. So we're continuing to be cautious around our outlook for commodity prices.

Okay. And, Carl, maybe last one for you. When you talk about the commodities market being kind of “in the zone”, I'm just curious specifically when you are budgeting for fiscal ‘25, what kind of cheese new spread assumption are you making? I know in the past you mentioned that you don't need to have a neutral spread to make your numbers. So I'm just wondering like what's your best estimate right now for the full year for F ‘25 for your budgeting?

So I just want to clarify a few things. The market factors, there are a number of components in there. So there's the value of the butterfat, there's the spread, of course, there's the value of the selling prices of ingredients. So those are the overall kind of market factors we reference. But in the neutral range, on either side of the plus or minus of being neutral or spread is generally healthy for us. So that's kind of what it is we work with and what some of the foundations of the strategic growth plan targets were based on. But over the last several years, we've rarely been there.

Got you. Okay. Thanks very much.

That concludes our Q&A session. I would now turn the conference back over to Nick Estrela for closing remarks.

Thank you, Jeannie. Please note that we will release our first quarter fiscal 2025 results on August 8, 2024. We thank you for taking part in the call and webcast and have a great day.

This concludes today's call. You may now disconnect.