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Maple Leaf Foods: Q2 results

Maple Leaf Foods Inc. reported its financial results for the second quarter ended June 30, 2010.

 
    - Adjusted Operating Earnings increased 20% to $52.2 million from
       $43.6 million last year.
 
    - Adjusted EPS increased 42% to $0.17 compared to $0.12 last year.
 
    - Net earnings, which include a non-cash pre-tax charge of $20.7 million due to the change in fair value of long-term interest rate swaps, were $3.0 million compared to $4.9 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 Reconciliation of Non-GAAP Financial Measures at the end of this news release.
 
"We are very pleased with the continued steady improvements across our business in spite of challenging market conditions." said Michael H. McCain, President and CEO. "The protein business saw healthy improvements in financial performance while facing significant raw material cost increases. We expect this trend of improvement to continue. While our bakery business earnings were off slightly from year ago, there was a solid recovery in margin towards more normal levels that we expect to continue in the second half of the year."
 
Financial Overview
Sales for the second quarter decreased 4% to $1,271.4 million compared to $1,320.8 million last year. Sales declined due to currency impacts on U.S. and U.K. bakery operations and fresh pork sales, and lower sales volumes in prepared meats. These impacts were partly offset by higher sales values of fresh pork. Adjusted Operating Earnings increased 20% to $52.2 million compared to $43.6 million last year, mostly due to better performance in the Meat Products Group.
 
Net earnings, which include a non-cash pre-tax charge of $20.7 million due to the change in fair value of long-term interest rate swaps not designated in a formal hedging relationship, were $3.0 million in the second quarter of 2010 compared to $4.9 million last year. The impact of the interest rate swaps was partly offset by the benefits of increased Adjusted Operating Earnings and lower restructuring costs and interest expense.
 
 Business Segment Review
 
    Following is a summary of sales by business segment:
 
    -------------------------------------------------------------------------
                                       Second Quarter           Year-to-Date
                                  ------------------------------------------------
    ($ millions)                       2010       2009          2010            2009
    -----------------------------------------------------------------------------
    Meat Products Group         $815.7     $830.4     $1,583.9      $1,652.6
    Agribusiness Group               54.1       55.0             95.9          99.6
    -------------------------------------------------------------------------------
    Protein Group                    $869.8     $885.4      $1,679.8     $1,752.2
    Bakery Products Group         401.6      435.4          783.1         847.9
    ---------------------------------------------------------------------------------
    Sales                          $1,271.4   $1,320.8         $2,462.9      $2,600.1
    ---------------------------------------------------------------------------------
   
 
 
Following is a summary of Adjusted Operating Earnings by business segment:
                                       Second Quarter                Year-to-date
    -------------------------------------------------------------------------
    ($ thousands)                      2010        2009          2010          2009
    -------------------------------------------------------------------------
    Meat Products Group             $14,443   $1,683    $28,656     $13,034
    Agribusiness Group               13,838     16,311     20,298      18,456
    -------------------------------------------------------------------------
    Protein Group                   $28,281    $17,994       $48,954   $31,490
    Bakery Products Group       26,239     27,984        42,983     47,509
    Non-allocated Costs(i)      (2,288)     (2,337)        (5,808)    (3,759)
    -----------------------------------------------------------------------------
    Adjusted Operating Earnings $52,232    $43,641    $86,129   $75,240
    ----------------------------------------------------------------------------
 
    (i) Non-allocated costs comprise costs related to systems conversion and
        consulting fees. Management believes that not allocating these costs
        provides a more comparable assessment of segmented operating results.
 
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 second quarter declined 2% to $815.7 million from $830.4 million in the second quarter last year. Price increases in the prepared meats business had the expected effect of reducing volumes in the short-term as consumers adjust to new price levels. Additionally, the impact of a stronger Canadian dollar on fresh pork sales and the exit of a non-core business category reduced sales. These impacts were partly offset by improved pork markets and increased net pricing in prepared meats.
 
Adjusted Operating Earnings in the Meat Products Group increased to $14.4 million compared to $1.7 million last year reflecting better results in the Company's fresh poultry operations due to improved markets and operating efficiencies. Earnings in the prepared meats business were impacted by higher meat prices and lower volumes. Meat prices continued to be significantly higher than the prior year, following very material increases in December 2009. The Company began implementing price adjustments in the second quarter and will complete this process in the third quarter. As a result, increased raw material costs were only partly recovered during the second quarter. Earnings from pork primary processing declined as export margins were reduced by the stronger Canadian dollar. This decline was partly offset by improved North American industry market conditions. During the second quarter the Company initiated the process to sell its primary pork processing plant in Burlington, Ontario which processes approximately two million hogs annually.
 
 
 

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