Maple Leaf Results Hit by Bakery Sector Problems

CANADA - Maple Leaf Foods has reported its results for first quarter ended 31 March 2012. Meat Products Group sales for the period increased one per cent to C$725.5 million, while sales for Agribusiness (pigs and animal by–products) were up by 14 per cent.
calendar icon 3 May 2012
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The company reports Adjusted Operating Earnings for the first quarter down 20 per cent to C$40.5 million, while net earnings for the first quarter were $0.8 million, compared to $10.5 million in the first quarter last year. Adjusted Earnings per Share were $0.11 compared to $0.18 last year.

Michael H. McCain, President and CEO, commented: “Our first quarter results were challenged, as expected, due primarily to weak fresh bakery volumes, an issue is affecting the entire industry. We are addressing this challenge directly and expect improved results through the remainder of 2012. Conversely, we are very pleased with the results in our Protein Group, particularly considering the significant decline in commodity industry pork processor margins. While the bakery business had a slow start, we expect to reach our EBITDA margin target run rate later this year.”

Financial overview

Sales for the first quarter of 2012 increased one per cent to $1,160.8 million, compared to $1,147.9 million last year, as higher selling prices across the business were partially offset by lower volumes in fresh bakery and fresh pork.

Adjusted Operating Earnings decreased 20 per cent to $40.5 million compared to $50.7 million last year, primarily due to lower results in the Bakery Products Group.

Net earnings decreased to $0.8 million ($nil basic earnings per share) compared to $10.5 million ($0.08 basic earnings per share) last year. Net earnings included $20.4 million ($0.11 per share) of pre-tax costs mostly related to the implementation of the Company’s value creation plan and other restructuring activities (2011: $26.1 million). Adjusted Earnings per Share declined to $0.11, compared to $0.18 in the prior year period. Earnings in the first quarter of 2011 included $2.4 million ($0.02 per share) related to tax adjustments associated with a prior acquisition.

Several items are excluded from the discussions of underlying earnings performance. These include restructuring charges, mark-to-market adjustments on hedging contracts that are not designated in a hedging relationship and mark-to-market adjustments related to biological assets. Restructuring charges are excluded as they do not reflect the continuing earnings performance of the business. Mark-to-market adjustments do not reflect the economic effect of the hedging transactions and are excluded from earnings discussions until the underlying asset is sold or transferred. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Business segment review

Protein Group
Sales for the Protein Group, which includes the Company’s Meat Products and Agribusiness operations, increased two per cent to $790.8 million from $775.5 million for the prior year period. Adjusted Operating Earnings increased one per cent to $41.2 million compared to $40.7 million for the first quarter last year. Results for the Company’s Meat Products and Agribusiness operations should be viewed as a whole, as there are various factors within the group that work to naturally offset each other.

Meat Products Group
Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, food–service, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf®, Schneiders® and many leading sub-brands.

Meat Products Group sales for the first quarter increased one per cent to $725.5 million from $718.2 million for the first quarter last year. After adjusting for the impact of a weaker Canadian dollar, which increased the sales value of pork exports, sales were consistent with last year, as higher fresh pork and prepared meats prices, and higher prepared meats volumes were offset by lower sales volumes in fresh pork.

Adjusted Operating Earnings decreased 17 per cent to $22.1 million compared to $26.6 million last year, primarily as a result of lower industry pork processing market conditions in North America.

The prepared meats business continued to improve margins in the quarter. Contributing to higher earnings were benefits from the Company’s network transformation initiatives, including the closure of facilities in Surrey, B.C. and Berwick, Nova Scotia and an ongoing program to simplify product mix and focus on more profitable and higher volume products. Also contributing to higher earnings was an improved retail sales mix, supported by product innovation, and higher overall sales volumes. These improvements were partly offset by higher raw material and inflationary costs that were not yet fully recovered through price increases implemented in 2011 and early 2012. The Company expects to realize the full benefit of these price increases in the second quarter.

Earnings increased in the fresh poultry operations as a result of higher volumes and improved pricing of value-added products, particularly the Prime chicken product line, and improved plant operating performance. Industry processor spreads were consistent with the first quarter last year, but improved from the second half of 2011.

Earnings declined in primary pork processing operations as a result of industry packer margins that were 98% lower than last year. The Company partially offset these changes in industry margins through improved domestic sales contracts and international margins.

Agribusiness Group
Consists of Canadian hog production and animal by-product recycling operations.

Sales in the Agribusiness Group for the first quarter increased 14 per cent to $65.3 million in 2012 from $57.3 million in 2011, due to increased sales volumes and higher selling prices for bio-diesel.

Adjusted Operating Earnings increased 36 per cent to $19.1 million compared to $14.0 million last year, due to better performance in both hog production and by-products recycling operations, primarily bio-diesel. Earnings from hog production operations improved as rising hog prices outpaced higher feed costs. Performance improved in the by-products recycling operations as a result of higher prices for biodiesel and other products.

Other matters

On 1 May 2012, Maple Leaf Foods declared a dividend of $0.04 per share payable on 29 June 2012 to shareholders of record at the close of business on 8 June 2012. Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, the dividend will be considered an Eligible Dividend for the purposes of the ‘Enhanced Dividend Tax Credit System’.

Further Reading

- You can view the full report by clicking here.
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