Maple Leaf Foods: Results for Q4 and fiscal year 2010

 

Note: Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs, other income and the impact of the change in fair value of non-designated interest rate swaps. Adjusted Earnings per Share (“Adjusted EPS”) measures are defined as basic earnings per share adjusted for the impact of restructuring and other related costs and the impact of the change in fair value of non-designated interest rate swaps, net of tax and non-controlling interest. Please refer to the section entitled Reconciliation of Non-GAAP Financial Measures at the end of this news release.

 

“Maple Leaf Foods delivered strong earnings growth in the fourth quarter, despite a sharp increase in raw material prices” said Michael H. McCain, President and CEO. “These results reflect the benefits of cost reductions and price increases intended to help us keep pace with global food inflation, and some early benefits from the initial execution of our strategic plan. We expect the progress we are making in reducing our cost structure, simplifying our product lines, and streamlining our operations will contribute to earnings throughout 2011.”

 

 

 

Financial overview
Sales for the fourth quarter of 2010 decreased 9% to $1,212.0 million compared to $1,324.9 million last year, primarily due to the sale of the Company’s Burlington pork operation during the quarter and the effect of an additional week in the fourth quarter last year. For the full year ended December 31, 2010, sales were $4,968.1 million, compared to $5,221.6 million in 2009.

 

Adjusted Operating Earnings increased to $71.4 million compared to $57.8 million last year due to improved performance in the Meat Products Group. Full year Adjusted Operating Earnings increased to $222.0 million compared to $196.1 million in 2009. Net earnings increased to $30.2 million or $0.22 basic earnings per share in the fourth quarter compared to net earnings of $21.9 million or $0.16 basic earnings per share last year.

 

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(R), Schneiders(R) and many leading sub-brands.

Sales for the fourth quarter declined 10% to $762.6 million from $842.2 million compared to the same period last year. Excluding the impacts of an extra week in the fourth quarter of 2009, the divestiture of the Burlington pork processing facility and the exit of a non-core product line, sales increased by 4%. Higher market prices for fresh pork and increased net pricing in prepared meats were partly offset by lower volumes.

 

Adjusted Operating Earnings in the Meat Products Group for the fourth quarter increased 63% to $39.5 million compared to $24.2 million last year, driven by strong performance in fresh pork processing operations due to improved pork pricing spreads. Strong pork results were partly offset by lower earnings in prepared meats. Prepared meats results declined due to lower volumes and higher input costs, although margins increased due to higher pricing. Earnings from the fresh poultry business were consistent with last year, as strong industry processor margins that continued through 2010 began to abate in the fourth quarter. For the year, Adjusted Operating Earnings in the Meat Products Group increased 62% to $89.7 million compared to $55.4 million last year.

 

Maple Leaf is implementing a number of near-term initiatives to increase margins in the prepared meats business as part of the Company’s value creation plan. These initiatives aim to reduce complexity and costs by, among other things, standardizing ingredient formulations, product sizes and specifications across all categories. Some early benefits were realized in 2010. The implementation of the value creation plan also involves a number of significant changes in the Company’s prepared meats plant network. These changes will reduce costs through the closure of sub-scale plants and the consolidation of production volumes in other facilities.

 

To this end, in November 2010, Maple Leaf announced the closure of its prepared meats facility in Berwick, Nova Scotia and, in early 2011, announced plans to close its prepared meats facility in Surrey, British Columbia. These closures are expected to result in lower costs and contribute to earnings later in 2011. The Company is also implementing price increases across its prepared meats business in response to rising meat costs.

 

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

 

Sales increased 11% to $56.2 million from $50.7 million in the fourth quarter last year due to higher sales values in the bio-diesel and core rendering businesses.

 

Adjusted Operating Earnings in the Agribusiness Group in the fourth quarter were consistent with the prior year. Earnings in hog production were slightly behind last year as government support to compensate producers for prior year losses received in Q4 2009 was not repeated in 2010. Earnings from the by-products recycling operations increased slightly due to improved pricing and operating efficiencies.

 

Adjusted Operating Earnings for the year increased 6% to $50.8 million from $48.0 million in 2009.