February 3, 2011 / 7:11 PM / in 7 years

UPDATE 2-Saputo results hit by recall, strong C$

* EPS C$0.54 vs C$0.50 a year earlier

* Records C$1.9 million charge on recalls

* Shares close 1.45 percent lower (Adds details, conference call)

TORONTO, Feb 3 (Reuters) - Saputo Inc SAP.TO, Canada’s biggest dairy processor, posted a 7.2 percent increase in quarterly earnings on Thursday, but said the strong Canadian dollar weighed on revenues.

Results benefited from a higher average block price per pound of cheese in the United States, a favorable dairy ingredient market, and higher selling prices due to the higher cost of milk in Argentina, where Saputo is the third largest milk processor.

Offsetting the gains, particularly in operation efficiencies, however, was an overall seasonal decline in cheese prices from $1.76 per pound to $1.34 during the quarter.

Prices since the new year have climbed back to about $1.79 per pound.

The Montreal-based company, the maker of Stella cheese and Vachon desserts, also said it lost C$27 million in revenue due to the appreciation of the Canadian dollar against the U.S. dollar and the Argentinian peso.

For the third quarter ended Dec. 13, Saputo earned C$111.8 million ($112.9 million), or 54 Canadian cents a share, up from C$104.3 million, or 50 Canadian cents, a year earlier.

Analysts had, on average, expected earnings of 57 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue rose 3 percent during the quarter to C$1.542 billion, from C$1.497 billion. Analysts had forecast revenue of C$1.52 billion.

The company recorded a charge of C$1.9 million during the quarter due to the recall of some of its processed cheese products. Saputo said during a conference call that the production line is set to restart during the first quarter of fiscal 2012. The products are currently being made in another facility. [ID:nSGE6B203V]

During the call with analysts, Chief Executive Lino Saputo noted that dairy prices were rising in Argentina, as well as in other international markets and in Canada, benefiting the the industry as a whole.

World food prices in general have risen steadily during the past year, hitting a record in January, according to the United Nations, whose closely watched Food Price Index was up for the seventh straight month. [ID:nSGE71203E]

Saputo’s shares finished 1.45 percent lower at C$40.65 on the Toronto Stock Exchange on Thursday.

$1=$0.99 Canadian Reporting by Solarina Ho

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