Earnings Decline as Company Adjusts to High Grain and Inflationary Costs
TORONTO, April 24 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported
its financial results for the first quarter ended March 31, 2008.- Earnings increased in core processed meat and meals business
- Margin decline in the bakery operations due to rising wheat prices
- Significant losses in hog production as grain prices increase
- Good progress on shifting protein operations to higher value business
model
- Adjusted earnings per share of $0.04 compared to $0.12 last yearNote: All earnings measures are defined as earnings from continuing
operations before restructuring and other related costs. All earnings per
share measures are defined as earnings per share from continuing
operations before restructuring and other related costs.
"Operating earnings for the quarter were substantially impacted by
continued increases in worldwide prices for wheat, grains and other
commodities", said Michael H. McCain, President and CEO. "These effects, while
material, are temporary and are expected to reverse as markets stabilize;
through a combination of price increases, some reduction in wheat prices as
new crops come to market and livestock price increases as hog supplies
tighten. We fully expect these to be difficult but transitory market
conditions. Our underlying operations, in particular the value-added meats and
bakery businesses, are very well positioned and early successes in the
Company's protein restructuring is building a solid base for higher earnings.
We remain on track to realize our incremental earnings targets from these
initiatives and continue to be very positive regarding the re-positioning and
growth in our core business."
Financial Overview
------------------
Earnings from continuing operations before restructuring and other
related costs ("Adjusted Operating Earnings") decreased by 34% to $33.1
million for the quarter. Rapid wheat cost increases compressed margins in the
Bakery Products group as price increases have not yet offset rising input
costs. Hog production losses also increased sharply as feed prices increased
at a faster rate than hog prices. Partly offsetting these effects, margins
increased in the value-added meats business due to price increases and
favorable markets, and early benefits of the Company's strategic repositioning
of the Protein Group were realized.
Also included in earnings for the quarter were certain other items of
note, including government support payments of $8.4 million received as part
of programs to assist the hog production industry, and initial costs of
$6.0 million related to consulting and systems conversions initiatives. Also
during the quarter, the average Canadian dollar exchange rates were higher
than last year as the Canadian dollar traded above parity before returning to
current levels, negatively impacting earnings by approximately $5.5 million.
Earnings per share from continuing operations before restructuring and
other related costs ("Adjusted EPS") for the quarter was $0.04, compared to
$0.12 last year.Following is a summary of Adjusted EPS:
First Quarter
--------------------------
2008 2007
---- ----
EPS from continuing operations $ 0.00 $ 0.04
Restructuring and other related costs,
net of tax (i) $ 0.04 $ 0.08
--------------------------
Adjusted EPS (ii) $ 0.04 $ 0.12
Discontinued operations $ 0.00 $ 0.04
--------------------------
--------------------------
EPS before restructuring and other
related costs (ii) $ 0.04 $ 0.16
--------------------------
--------------------------
(i) Includes the per share impact of restructuring and other related
costs net of tax and minority interest.
(ii) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to
evaluate results, as restructuring and other related costs are not
representative of continuing operations.
Business Segment Review
-----------------------
Following is a summary of Adjusted Operating Earnings by business segment:
($ millions) First Quarter
----------------------------------
2008 2007 Change
---- ---- ------
Meat Products Group 21.1 21.4 (1%)
Agribusiness Group (i) (3.4) 0.9
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Protein Group 17.7 22.3 (21%)
Bakery Products Group 15.4 27.6 (44%)
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33.1 49.9 (34%)
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----------------------------------
(i) Agribusiness Group excludes the results of the animal nutrition
business that are reported as discontinued operations.Meat Products Group (value-added processed packaged meats; chilled meal
entrees and lunch kits; value-added pork, poultry and turkey products;
and global meat sales.)
Adjusted Operating Earnings for the first quarter of $21.1 million were
consistent with last year. Consumer packaged meats margins expanded for the
quarter as price increases, early benefits from restructuring and improved
input costs drove a strong result. However, the effect of foreign exchange and
a decline in fresh poultry margins due to higher feed and related live bird
costs offset the strong result in the packaged meats business and improved
pork processor margins. The Company's strategic repositioning of its protein
operations, underway since 2007, and expected to be finalized in 2009,
resulted in some early benefits to earnings during the quarter, including
reduced overhead from double-shifting the front-end processing at the Brandon
pork plant, the closure of a sub-scale poultry facility in Nova Scotia, and
reduced administration expenses resulting from combining the businesses in the
Meat Products Group.
The Company has made good progress in shifting its protein operations to
focus on growth in the higher margin value-added meat and meals businesses. In
the quarter, the Company announced it is proceeding with commissioning a
second-shift cut operation at the Brandon plant by September 2008 and will
close its fresh pork processing plant in Winnipeg. By consolidating these
operations in Brandon, significant cost reduction and scale efficiencies will
be realized. Concurrently, a major expansion is underway to consolidate
value-added ham boning operations at its Lagimodiere Road plant in Winnipeg
that will further improve yield and margins in this business. The Company is
preparing for the sale of its primary pork processing plant in Burlington,
which processes over two million hogs per year. A project to construct a new
distribution centre in Saskatoon is also nearing completion that, combined
with consolidation of existing warehouses and third party storage into two
Western warehouses, is expected to yield distribution savings later in the
year.
Agribusiness Group (swine production and animal by-products recycling)
Adjusted Operating Earnings for the first quarter were a loss of
$3.4 million compared to earnings of $0.9 million last year. Included in 2008
earnings is $8.4 million of government support related to hog production
losses in prior periods. Excluding this amount, hog production losses for the
period increased by $17.6 million compared to last year. The environment for
North American hog producers continues to be very difficult as hog prices have
not strengthened despite substantial increases in feed grains, including corn
and barley. Canadian hog producers have been further disadvantaged by a
stronger Canadian dollar that reduces net revenues for finished hogs. Through
its reorganization, Maple Leaf will significantly reduce the number of hogs it
produces; reducing its exposure to hog production markets in the second half
of the year. The Company marketed 338,000 finished hogs in the quarter
compared to 346,000 last year. Included in the 2008 amount was 108,000 hogs
related to Alberta and Ontario investments, disposed of in the first quarter,
but where the Company has retained and will grow out the remaining hogs that
were in process at time of sale. The majority of these hogs are expected to be
completed and sold by the end of July 2008.
Other restructuring of hog production operations in Western Canada are
materially complete, and the Company benefited from cost reductions in these
operations during the quarter, compared to last year. High feed prices and
related production losses have begun to result in early herd reductions in
North America and in the medium term, this rebalancing of supply and demand is
expected to result in higher hog prices, increases in meat prices, and
improvements in industry hog production margins.
The Company's rendering operations achieved strong results in the
quarter, benefiting from higher soybean and other commodity prices, and
improved returns from its biodiesel operations driven by improved plant
efficiencies and higher oil prices. In the first quarter of 2008, the Company
completed the purchase of Central By-Products, a rendering business located
near London, Ontario, further strengthening its capacity in the Ontario
market.
Bakery Products Group (fresh, frozen and branded value-added bakery
products, including frozen par-baked bakery products; and specialty pasta
and sauces)
Adjusted Operating Earnings for the quarter decreased by 44% to
$15.4 million compared to $27.6 million last year. Most of the variance from
last year resulted from margin compression as unprecedented and rapid
increases in wheat prices and other input costs outpaced price increases the
Company implemented in 2007 and March 2008. The price of wheat and other
inputs such as fuel have remained high and further price increases may be
necessary to restore margins. As any such price increases will not be
effective from the beginning of the second quarter, management expects
continued negative impacts on earnings in the short term. However, as price
increases take effect, margins in the Bakery Products Group should recover
towards the end of the year.
In the first quarter of 2008, the Company completed the purchase of
Aliments Martel Inc., a leading manufacturer and distributor of sandwiches,
meals and sweet goods based in Quebec. This was an important strategic
acquisition to increase market share and manufacturing and distribution
capacity in the Canada sandwich market, which represents an important growth
platform for Maple Leaf. With this acquisition, the Company has become the
national leader in the Canadian pre-packaged sandwich market.
Forward-Looking Statements
--------------------------
This document contains, and the Company's oral and written public
communications often contain, forward-looking statements that are based on
current expectations, estimates, forecasts and projections about the
industries in which the Company operates and beliefs and assumptions made by
the Management of the Company. Such statements include, but are not limited
to, statements with respect to our objectives and goals, as well as statements
with respect to our beliefs, plans, objectives, expectations, anticipations,
estimates and intentions. Words such as "expect," "anticipate," "intend,"
"attempt," "may," "will," "plan," "believe," "seek," "estimate," and
variations of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve assumptions and risks and uncertainties that are
difficult to predict. Therefore, actual outcomes and results may differ
materially from what is expressed, implied or forecasted in such
forward-looking statements. The Company does not intend, and the Company
disclaims any obligation to update any forward-looking statements, whether
written or oral, or whether as a result of new information, future events or
otherwise except as required by law.
These forward-looking statements are based on a variety of factors and
assumptions including, but not limited to: the condition of the Canadian and
United States economies; the rate of appreciation of the Canadian dollar
versus the U.S. dollar and Japanese yen; the availability and saleability of
prices of livestock, raw materials, energy and supplies; product pricing; the
competitive environment and related market conditions; improvement of
operating efficiencies; continued access to capital; the cost of compliance
with environmental and health standards; adverse results from ongoing
litigation; no expected actions of domestic and foreign governments and the
general assumption that none of the risks identified under "Risk Factors" in
the Company's 2007 Annual Information Form will materialize. These assumptions
have been derived from information currently available to the Company
including information obtained by the Company from third-party industry
analysts.
Actual results may differ materially from those predicted by such
forward-looking statements. While the Company does not know what impact any of
these differences may have on its business, results of operations, financial
condition and the market price of its securities may be materially adversely
affected. Factors that could cause actual results or outcomes to differ
materially from the results expressed or implied by forward-looking statements
are discussed more fully in the Company's Management Discussion and Analysis
which will be available on SEDAR at www.sedar.com.
Other Matters
-------------
On April 24, 2008, Maple Leaf Foods Inc. declared a dividend of $0.04 per
share payable on June 30, 2008 to shareholders of record on June 9, 2008.
Unless indicated otherwise in writing at or before the time the dividend is
paid, each dividend paid by the corporation in 2008 or a subsequent year is an
eligible dividend for the purposes of the "Enhanced Dividend Tax Credit
System."
Maple Leaf Foods Inc. is a leading food processing company, headquartered
in Toronto, Canada. The Company employs approximately 23,400 people at its
operations across Canada and in the United States, the United Kingdom and
Asia. The Company had sales of $5.2 billion in 2007.
An investor presentation related to the Company's first quarter financial
results is available at www.mapleleaf.com and can be found under Investor
Relations on the Quarterly Results page. A conference call will be held at
2:30 p.m. EDT on April 24, 2008 to review Maple Leaf Foods' first quarter
financial results. To participate in the call, please dial 416-641-6113 or
866-226-1792. For those unable to participate, playback will be made available
an hour after the event at 416-695-5800/800-408-3053 (Passcode 3257859
followed by the number sign).
A webcast presentation of the first quarter financial results will also
be available at http://investor.mapleleaf.ca via a
linkhttp://events.startcast.com/events/91/B0026.Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three months ended March 31, 2008 and 2007
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
March 31, March 31, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 55,516 $ 61,564 $ 28,222
Accounts receivable 204,602 213,470 202,285
Inventories 381,902 389,165 351,064
Future tax asset - current 38,834 2,754 25,409
Prepaid expenses and other
assets 15,127 13,808 16,529
Assets held for sale - 347,490 10,092
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$ 695,981 $ 1,028,251 $ 633,601
Investments in associated
companies 2,558 6,532 1,207
Property and equipment 1,160,221 1,079,242 1,126,727
Other long-term assets 313,177 274,879 303,360
Future tax asset - non-current 31,933 36,377 22,837
Goodwill 857,655 829,799 817,477
Other intangibles 93,521 85,624 92,635
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$ 3,155,046 $ 3,340,704 $ 2,997,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 10,206 $ 11,349 $ 9,845
Accounts payable and accrued
charges 565,328 590,333 550,528
Income and other taxes payable 14,577 22,507 12,881
Other current liabilities 9,998 27,220 -
Current portion of long-term debt 12,523 78,244 17,945
Liabilities related to assets
held for sale - 65,665 -
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$ 612,632 $ 795,318 $ 591,199
Long-term debt 997,952 1,251,075 855,281
Future tax liability - non-current 71,208 24,380 61,935
Other long-term liabilities 232,794 207,898 248,448
Minority interest 81,039 83,754 79,554
Shareholders' equity 1,159,421 978,279 1,161,427
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$ 3,155,046 $ 3,340,704 $ 2,997,844
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MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended March 31,
(Unaudited) 2008 2007
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Sales $ 1,203,263 $ 1,316,135
Cost of goods sold 1,047,337 1,148,772
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Gross margin $ 155,926 $ 167,363
Selling, general and administrative expenses 122,828 117,503
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Earnings from continuing operations before
restructuring and other related costs $ 33,098 $ 49,860
Restructuring costs and other related costs (7,722) (12,710)
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Earnings from continuing operations $ 25,376 $ 37,150
Other income (expense) (15) 467
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Earnings from continuing operations
before interest and income taxes $ 25,361 $ 37,617
Interest expense 21,663 24,591
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Earnings from continuing operations before
income taxes $ 3,698 $ 13,026
Income taxes 2,120 6,216
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Earnings from continuing operations before
minority interest $ 1,578 $ 6,810
Minority interest 1,588 1,544
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Net earnings (loss) from continuing
operations $ (10) $ 5,266
Net earnings from discontinued operations
- net of income tax - 5,197
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Net earnings (loss) $ (10) $ 10,463
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Basic earnings per share
from continuing operations $ 0.00 $ 0.04
from discontinued operations 0.00 0.04
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$ 0.00 $ 0.08
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Diluted earnings per share
from continuing operations $ 0.00 $ 0.04
from discontinued operations 0.00 0.04
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$ 0.00 $ 0.08
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Weighted average number of shares (millions) 127.3 127.2
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MAPLE LEAF FOODS INC.
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended March 31,
(Unaudited) 2008 2007
-------------------------------------------------------------------------
Net earnings (loss) $ (10) $ 10,463
Other comprehensive income (loss)
Change in accumulated foreign currency
translation adjustment 6,727 (886)
Change in net unrealized derivative loss on
cash flow hedges (3,046) 5,663
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$ 3,681 $ 4,777
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Comprehensive income $ 3,671 $ 15,240
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended March 31,
(Unaudited) 2008 2007
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 390,784 $ 204,415
Net earnings (loss) (10) 10,463
Dividends declared ($0.04 per share; 2007:
$0.04 per share) (5,186) (5,091)
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Retained earnings, end of period $ 385,588 $ 209,787
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MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
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Three months ended March 31,
(Unaudited) 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings (loss) from continuing
operations $ (10) $ 5,266
Add (deduct) items not affecting cash:
Depreciation and amortization 35,072 35,093
Stock-based compensation 4,263 3,672
Minority interest 1,588 1,544
Future income taxes (304) (3,411)
Loss (gain) on sale of property and equipment 81 (459)
Change in other long-term receivables 344 (2,311)
Decrease in net pension asset (6,031) (16,425)
Asset impairments and change in
restructuring provisions 3,963 3,721
Other 3,697 3,209
Change in non-cash operating working capital (24,269) (40,172)
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Cash provided by (used in) operating
activities of continuing operations $ 18,394 $ (10,273)
Cash provided by (used in) operating
activities of discontinued operations - (7,348)
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$ 18,394 $ (17,621)
Financing activities
Dividends paid (5,186) (5,091)
Dividends paid to minority interest (232) (251)
Net increase in long-term debt 117,524 71,843
Increase in share capital 1,597 2,215
Purchase of treasury stock (6,349) -
Other 515 8,106
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Cash provided by financing
activities of continuing operations $ 107,869 $ 76,822
Cash provided by (used in) financing
activities of discontinuing operations - (398)
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$ 107,869 $ 76,424
Investing activities
Additions to property and equipment (45,710) (52,425)
Proceeds from sale of property and equipment 8,021 746
Acquisition of businesses -
net of cash acquired (61,572) (10,803)
Proceeds on disposal of business - 5,470
Purchase of Canada Bread shares - (6,521)
Other (69) 2,908
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Cash used in investing
activities of continuing operations $ (99,330) $ (60,625)
Cash provided by (used in) investing
activities of discontinuing operations - (3,327)
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$ (99,330) $ (63,952)
Increase (decrease) in cash and cash
equivalents 26,933 (5,149)
Cash and cash equivalents, beginning of period 18,377 55,364
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Cash and cash equivalents, end of period $ 45,310 $ 50,215
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MAPLE LEAF FOODS INC.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended March 31,
(Unaudited) 2008 2007
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Sales
Meat Products Group $ 762,545 $ 895,735
Agribusiness Group 58,594 62,895
Bakery Products Group 382,124 357,505
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$ 1,203,263 $ 1,316,135
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Earnings from operations, before restructuring
and other related costs
Meat Products Group $ 21,141 $ 21,364
Agribusiness Group (3,431) 917
Bakery Products Group 15,388 27,579
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$ 33,098 $ 49,860
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Additions to property and equipment
Meat Products Group $ 33,095 $ 36,718
Agribusiness Group 2,899 2,640
Bakery Products Group 9,716 13,067
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$ 45,710 $ 52,425
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Depreciation and amortization
Meat Products Group $ 18,026 $ 17,386
Agribusiness Group 3,834 4,888
Bakery Products Group 13,212 12,819
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$ 35,072 $ 35,093
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As at As at As at
March 31, March 31, December 31,
2008 2007 2007
(Unaudited) (Unaudited)
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Total assets
Meat Products Group $ 1,600,376 $ 1,595,010 $ 1,560,244
Agribusiness Group 302,566 670,324 302,999
Bakery Products Group 907,432 821,038 823,137
Non-allocated assets 344,672 254,332 311,464
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$ 3,155,046 $ 3,340,704 $ 2,997,844
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Goodwill
Meat Products Group $ 429,835 $ 451,530 $ 450,929
Agribusiness Group 12,842 19,872 2,058
Bakery Products Group 414,978 358,397 364,490
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$ 857,655 $ 829,799 $ 817,477
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