Maple Leaf Foods: Q2 results – increase in earnings, sales decrease

 

“Maple Leaf Foods delivered outstanding results and our ninth consecutive quarter of earnings growth,” said Michael H. McCain, president and CEO. “We are successfully managing the impact of rising costs through price increases and cost reduction initiatives, and our value creation plan is on track and contributing to earnings. We are making steady progress in increasing our profitability and delivering on our commitments.”

  

Financial Overview
Sales for the second quarter of 2011 decreased 3% to $1,238.2 million compared to $1,271.4 million last year, primarily due to business divestitures. After adjusting for the impact of divestitures and the impact of a stronger Canadian dollar, sales increased by 4%.

 

Adjusted Operating Earnings increased to $77.5 million compared to $50.4 million last year, largely due to improved performance in the Protein Group. Adjusted Earnings per Share increased to $0.30 compared to $0.16 last year.

 

Net earnings increased to $24.6 million ($0.17 basic earnings per share) compared to net earnings of $4.9 million ($0.02 basic earnings per share) last year. Net earnings in the quarter included $16.6 million of pre-tax costs related to restructuring activities (2010: $7.5 million).

Several items are excluded from the discussions of underlying earnings performance during the quarter. 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.

 

Meat products group
Includes value-added prepared meats, chilled meal entrees and lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice,industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf ®, Schneiders ® and many leading sub-brands.

Sales for the second quarter decreased 7% to $762.2 million from $815.7 million in the second quarter last year, largely due to the sale of the Company’s Burlington, Ontario primary pork processing operation in November 2010. After adjusting for the impact of this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of exports, sales increased by 3% compared to last year. Higher market prices in fresh pork, combined with price increasesand higher value sales mix in the prepared meats business contributed to stronger sales. These benefits were partly offset by lower sales volumes, primarily in prepared meats, due to lower export and retail sales volumes.

 

Adjusted Operating Earnings in the Meat Products Group for the second quarter increased 29% to $16.1 million compared to $12.5 million last year, driven by margin expansion in prepared meats and stronger primary pork processing results.

 

Prepared meats margins strengthened as price increases offset the impact of rising input costs, although the business experienced some volume decline. Margins also benefited from operational improvements and the contribution of higher-margin products, such as the Natural Selections™ and the newly launched Schneiders® Country Naturals™sliced meat lines.

 

Primary pork processing margins increased as a result of strong export sales, and improved product mix and operating efficiencies. Earnings from poultry processing operations declined compared to those of last year as a result of higher live birds costs that compressed industry-wide poultry processor margins.

 

During the quarter the company continued to progress in the implementation of its value creation plan. This plan includes initiatives to reduce costs and increase supply chain efficiencies through product and packaging simplification, price management, network consolidation, and investments to reduce costs and build scale. Initiatives underway to standardize product ingredients, sizes and packaging and eliminate non-value added product lines contributed to margin growth in the quarter. The Company closed and subsequently sold a prepared meats facility located in Berwick, Nova Scotia, and consolidated the production into other existing plants. The Company has also announced the scheduled closure of a prepared meats plant in Surrey, British Columbia, in the second half of 2011 and began transferring production to other facilities in June 2011.

 

 

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

Sales in the Agribusiness Group for the second quarter increased 31% to $70.9 million from $54.1 million last year mostly reflecting higher sales values in the by-products recycling business.

 

Adjusted Operating Earnings in the Agribusiness Group in the second quarter increased by 140% to $32.7 million compared to $13.6 million last year, driven by the benefit of higher prices for by-products and hogs. Earnings in the by-products recycling business increased due to higher market prices in both rendering and bio-diesel operations. Hog prices also increased 15% since last year and outpaced increases in the Company’s net cost of grain.

 

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