[Note: This post sumarizes some key aspects of the Maple Leaf report. To view the complete contents click here]
Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2010.
– Sales were consistent with last year at $1.3 billion
– Adjusted Operating Earnings increased 2% to $64.5 million from $63.0 million last year
– Adjusted EPS increased 10% to $0.23 compared to $0.21 last year
– Net loss in the quarter, which included $48.1 million of non-cash pre-tax adjustments, was $16.1 million compared to net earnings of $22.5 million last year
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 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 interest rate swaps, net of tax and non-controlling interest. Refer to the section entitled Non-GAAP Financial Measures at the end of this news release.
“The rapid rise in raw material costs in both grains and meat proteins, is the story for 2010,” said Michael H. McCain, President and CEO. “Notwithstanding this significant inflation, we realized our sixth consecutive quarter of earnings growth, continued margin expansion in the protein segment, and double digit earnings per share improvement over last year. This steady progress reflects our focus on near-term value creation and implementing initiatives across our businesses to increase margins and growth that are expected to deliver significant return to shareholders now and through 2015.”
Third quarter sales of $1,293.2 million were consistent with last year. Excluding currency impacts related to the U.K. and U.S. bakery operations and fresh pork sales, sales increased by 2%. Adjusted Operating Earnings increased 2% to $64.5 million compared to $63.0 million last year. Improved results in the Meat Group, supported by better performance in fresh pork and poultry, were partly offset by lower earnings in the Bakery Products Group, mostly due to lower volume and increased investment to support product launches, advertising and promotions.
Net loss, including a non-cash pre-tax charge of $14.6 million due to the change in fair value of long-term interest rate swaps not designated in a formal hedging relationship and $50.0 million in restructuring costs (including $33.5 million of non-cash charges), was $16.1 million in the third quarter of 2010 compared to net earnings of $22.5 million last year. Year-to-date net loss was $4.4 million compared to net earnings of $30.2 million 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 third quarter increased 2% to $834.7 million from $815.6 million in the third quarter last year. Excluding the impact of a stronger Canadian dollar that reduced the value of fresh pork sales, sales increased by 4%. Improved pork markets, higher net pricing in prepared meats and improved sales mix contributed to increased sales. These benefits were partly offset by reduced volumes in fresh pork and prepared meats as consumers continue to adjust to new price points.
Adjusted Operating Earnings in the Meat Products Group increased to $21.5 million compared to $18.1 million last year, reflecting higher market prices for fresh chicken and pork and improved operational efficiencies in the Company’s poultry operations. While margins in the prepared meats business benefited from improved net pricing and early operational benefits of product simplification, profitability in the business was impacted by lower volumes as consumers adjust to new price points. Margins continue to be pressured by further increases in raw material meat costs that resulted in continued focus on price adjustments during the quarter.
Management is focused on implementing near-term initiatives to increase margins in the prepared meats business as part of its recently announced value creation plan. In order to streamline product mix, significant changes are being implemented to standardize ingredient formulations, product sizes and specifications across all categories. These initiatives will be completed during 2011, reducing complexity for customers and improving operating efficiencies.
Consists of Canadian hog production and animal by-product recycling operations.
Agribusiness Group sales declined 15% to $47.5 million from $55.8 million in the third quarter last year due to lower sales values and volumes in the rendering operations.
Adjusted Operating Earnings for the Agribusiness Group increased to $15.8 million from $15.1 million in the third quarter last year. Earnings from hog production operations improved due to higher hog market prices and lower feed costs. Stronger performance in hog production was partially offset by lower earnings in the by-product recycling business compared to last year due to lower by-product sales values and volumes.
Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, prepared sandwiches, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster’s(R), Tenderflake(R), Olivieri(R) and New York Bakery Co(R), and many leading regional brands.
Third quarter sales in the Bakery Products Group declined 3% from $425.2 million last year to $411.1 million this year, primarily due to currency translation impacts and lower volumes. Excluding currency impacts on the translation of bakery sales in the U.S. and U.K., sales declined by 1%.
Third quarter Adjusted Operating Earnings in the Bakery Products Group declined from a strong comparative quarter of $32.7 million to $27.9 million this year. Lower volumes and increased investment in marketing and promotional activities in the fresh bakery business impacted earnings. Brand investment included advertising and promotional expenses to support Dempster’s Smart(R) 16, a line extension of Dempster’s Smart(R), which includes 16 whole grains and reduced sodium; support for the launch of Dempster’s(R) rye bread line in Ontario; and extensions in Dempster’s Oven Fresh(R). In the fourth quarter, the fresh bakery business launched a significant promotional bread campaign with hockey superstar Sidney Crosby as the brand ambassador of Dempster’s(R) to promote the benefits of breads, healthy eating and good nutrition.
Management continues to focus on increasing volumes in the North American frozen business while driving cost improvements in baked goods production in the U.K. Cost improvements underway in the U.K. include the transfer of a production line to an existing low-cost scale facility in Maidstone, England in the second quarter that consolidates the majority of croissant production into one site.
The construction of a new large scale fresh bakery facility in Hamilton, Ontario is proceeding on plan. Commissioning of this 375,000 square foot facility is scheduled to commence in mid 2011, allowing for the consolidation of production from three Ontario bakeries. The Company expects to incur restructuring charges totalling approximately $25 million, which includes $5 million in non-cash items.
On October 27, 2010, Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on December 31, 2010 to shareholders of record at the close of business on December 6, 2010. Unless indicated otherwise by the Company in writing at or before the time the dividend is paid, these dividends will not be considered an eligible dividend for the purposes of the “Enhanced Dividend Tax Credit System”.
It is currently anticipated that none of the dividends the Company will pay in 2010 will be considered an eligible dividend for the purposes of the “Enhanced Dividend Tax Credit System”.
An investor presentation related to the Company’s third quarter financial results is available at http://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 October 28, 2010 to review Maple Leaf Foods’ third quarter financial results. To participate in the call, please dial 416-340-2216 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 8236200 followed by the number sign).
A webcast presentation of the third quarter financial results will also be available at http://investor.mapleleaf.ca/ via a link: http://www.bellwebcasting.ca/audience/index.asp?eventid=20810663
The Company’s full financial statements and related Management’s Discussion and Analysis are available for download on the Company’s website.
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 objectives and goals, as well as statements with respect to beliefs, plans, expectations, anticipations, estimates and intentions. Specific statements include, but are not limited to, statements with respect to expectations concerning improving trends in operational results and expectations regarding actions to reduce costs, improved efficiencies, restore volumes and/or increase prices. 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.
In addition, expectations concerning performance of the Company’s business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States, United Kingdom and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, British pound and Japanese yen; expectations regarding actions to reduce costs, restore volumes and/or increase prices; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the protein business transformation or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation that would not be covered by insurance; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under “Risk Factors” in the Company’s Annual Management’s Discussion and Analysis for the year ended December 31, 2009 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward looking statements, which reflect the Company’s expectations only as of the date hereof.
Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking statements are discussed more fully in the Company’s Annual Management’s Discussion and Analysis for the year ended December 31, 2009 including the section entitled “Risk Factors” that is available on SEDAR at http://www.sedar.com/. The Company does not intend to, 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.
Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 23,500 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 2009.
Non-GAAP Financial Measures
The Company uses the following non-GAAP measures: Adjusted Operating Earnings, Adjusted EPS, EBITDA and Net Debt. Management believes that these non-GAAP measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.
Adjusted Operating Earnings
The following table reconciles earnings from operations before restructuring and other related costs, other income (expense) and the impact of the change in fair value of non-designated interest rate swaps to net earnings as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three-month and nine-month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs, other income (expense) and the change in fair value of non-designated interest rate swaps are not representative of operational results.
For further information: Lynda Kuhn, SVP Communications, 416-926-2026, http://www.mapleleaf.com/