Saputo defends commitment to end animal cruelty after facing challenge at meeting

LAVAL, Que. - Saputo was under fire Tuesday from an animal rights activist who said it hasn't done enough to prevent animal cruelty since undercover videos revealed cows being kicked, punched and beaten with pipes at a diary operation that supplies milk used by the cheese maker.

Chief executive Lino Saputo Jr. defended the company after a member of Mercy For Animals spoke out at the Saputo shareholder meeting and challenged its commitment to "sweeping change" for the dairy industry.

"We will not let this item go until there is some change in the industry," Saputo said following the annual meeting.

"We are not specialists in this field. However we will use our power and our clout to get the attention of those people that have the experience in this field to create some reform in the industry."

The Montreal-based company says it took a legal risk when it stopped accepting milk from Chilliwack Cattle Sales for two days because of the evidence of animal cruelty. Saputo says it's required by law to purchase milk from provincial marketing boards and is only permitted to reject milk for safety reasons.

It wants legal reform to give supply managed boards the power to refuse milk based on cruelty, adoption of industry codes of practice and regular farm inspections.

But Krista Osborne, executive director of Mercy For Animals, which shot the video, said she isn't satisfied with the dairy giant's response.

The group wants cameras installed in dairies with live streaming of cows to the Internet because it suspects such events are happening across the country.

"There is no concrete evidence of any changes made whatsoever and quite frankly Lino Saputo would have no knowledge of what occurred in the Chilliwack cattle sale organization if it wasn't for our undercover investigation," she said.

"They have on multiple occasions indicated that their supply chain is beyond reproach and their supply chain quite frankly is nothing but absolute cruelty."

Chilliwack Cattle fired eight employees after the group took the video to authorities. Saputo resumed accepting milk from the operation following independent verification of its practices from inspectors from Wisconsin and Ontario.

During the shareholder meeting, Saputo credited the animal rights group for bringing the issue to light, saying as a dairy products consumer he was "appalled" by what he saw.

The issue surfaced as Saputo (TSX:SAP) announced it was raising its quarterly dividend and splitting its stock after recent acquisitions helped improve results.

The company said will increase its dividend by three cents to 26 cents per share.

Net earnings grew 6.3 per cent to $145.3 million, or 73 cents per share, for the period ended June 30, which compared to $136.7 million or 69 cents per share a year ago.

Saputo's adjusted earnings were 73 cents per share, which was four cents below analyst expectations according to a survey by Thomson Reuters.

Revenues increased more than 20 per cent to $2.62 billion.

The results were helped by the company's acquisition of a majority interest in Australia's Warrnambool Cheese and Butter Factory.

Saputo also plans what's essentially a two-for-one stock split as it pays shareholders a stock dividend of one common share for each Saputo share they hold.

The chief executive told shareholders he has confidence in the company's outlook and its opportunities for growth.

Irene Nattel of RBC Capital Markets said the results fell short of expectations due to market factors in the U.S., but the outlook was more favourable than last quarter.

"Underlying operations remain strong, with management focused on both optimizing profitability of the existing operations, and on expanding the company's global presence via acquisitions," she wrote in a report, noting the company said it could pursue a deal worth up to $3.5 billion.

During a conference call, Saputo said the company faced "a perfect storm" of higher commodity prices and lower average block cheese prices.

Canadian dairy revenues increased six per cent to $949 million, after falling nine per cent in the fourth quarter. U.S. revenues grew 23 per cent to $1.29 billion, while international revenues were up 69 per cent to $380 million due to the Australian acquisition.

Saputo Jr. say the company may seek to acquire the remaining 12 per cent stake in Warrnambool following the expiry of a cooling off period to take the company private.

Meanwhile, he said the bakery division, which is now incorporated in the Canadian division's results, is stable but efforts to extend its sales in the United States has lost momentum since a change of ownership at Hostess. Saputo's Vachon division and Hostess, maker of Twinkies, both make snack cakes for the grocery industry.

As for the federal government's efforts to secure a trade deal in Asia, Saputo said he can understand why some U.S. politicians want Canada expelled from the Trans-Pacific Partnership talks if its supply management system isn't on the table.

On the Toronto Stock Exchange, Saputo's shares rose $1.02 at $68.59 in afternoon trading.

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