Maple Leaf Foods Inc. reported its financial results for the third quarter ended 30 September 2011. Third quarter highlights include...
- Adjusted Operating Earnings((1)) increased 17% to $73.3 million.
- Net earnings increased to $43.0 million from a loss of $19.9 million.
- Adjusted Earnings per Share((2)) increased to $0.34, including $0.07 per share related to a tax adjustment associated with a prior acquisition, from $0.22 last year.
- Value creation initiatives on track and contributing to margin growth.
"Our third quarter reflects strong earnings growth in our protein business, and we are particularly pleased with the performance of our consumer-facing prepared meats operations," said Michael H. McCain, President and CEO. "We are managing high commodity costs through pricing, cost reduction and continuing to drive higher value product innovation. Our strategic value creation initiatives are also contributing to results and we are on track to deliver sustained earnings growth."
Sales for the third quarter of 2011 decreased 2% to $1,262.2 million compared to $1,293.2 million last year. After adjusting for the impacts of divestitures and a stronger Canadian dollar, sales increased by 6%, primarily as a result of higher selling prices.
Adjusted Operating Earnings increased to $73.3 million compared to $62.7 million last year, driven by stronger performance in the Protein Group. Adjusted Earnings per Share increased to $0.34, including $9.8 million ($0.07 per share) related to a tax adjustment associated with a prior acquisition, compared to $0.22 last year.
Net earnings increased to $43.0 million ($0.29 basic earnings per share) in the third quarter compared to a net loss of $19.9 million ($0.16 basic loss per share) last year. Net earnings included $4.9 million ($0.03 per share) of pre-tax costs related to restructuring activities (2010: $50.0 million).
Business Segment Review
Following is a summary of sales by business segment:
Business Segment Review
Meat Products Group sales for the third quarter decreased 7% to $777.2 million from $834.7 million in the third quarter last year, largely due to the sale of the company's Burlington, Ontario primary pork processing operation in November 2010. After adjusting for this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of pork exports, sales increased by 4%. Higher market prices in fresh pork, price increases in prepared meats and value-added poultry, and improved sales mix in the prepared meats business contributed to higher sales. These benefits were partly offset by lower retail sales volumes in prepared meats.
Adjusted Operating Earnings in the Meat Products Group for the third quarter were $20.8 million, compared to $19.5 million last year, as margin expansion driven by price increases, improved mix, and cost reduction in prepared meats was largely offset by weaker primary processing markets.
Prepared meats earnings and margins increased as a result of price increases implemented earlier in the year to offset rising input costs, improved sales product mix, and early benefits from the company's value creation plan. These benefits were partly offset by lower sales volumes and higher selling, general and administrative expenses.
Earnings in primary pork processing operations declined slightly, as the benefits of strong exports and better product sales mix were offset by compression in primary pork processor margins in North America and the unfavourable impact of a stronger Canadian dollar.
Earnings from poultry processing operations declined significantly driven by a continued rise in live birds costs as a result of increased feed prices.
Investment in facilities, closure of plants
On October 19th the company announced the approval by its Board of Directors to invest approximately $560 million in its prepared meats manufacturing and distribution network as part of its broader value creation plan. Over the next three years the company will close six plants, consolidating production into four scale facilities, and close four distribution centres, consolidating operations at its existing distribution centre in Saskatoon and into a new facility in Ontario. These changes, and the implementation of world-class technologies, are expected to significantly enhance productivity and contribute to continued margin expansion in this business.
Related to the early execution of initiatives within the value creation plan, on September 30th the company completed the sale of its Surrey, B.C., plant and recorded a gain before taxes on the sale of $4.1 million. In addition, the Company estimated that it would record $170 million in restructuring and other related costs from 2012 to 2015 related to its three key strategic projects;the prepared meats manufacturing and distribution network, the implementation of SAP and the new fresh bakery in Hamilton, Ontario. This estimate includes $120 million in cash restructuring and other related costs.
Agribusiness Group Consists of Canadian hog production and animal by-product recycling operations.
Sales in the Agribusiness Group increased 43% to $67.9 million compared to $47.5 million last year driven by higher sales prices in the by-products recycling business, which reflect higher commodity values.
Adjusted Operating Earnings in the Agribusiness Group in the third quarter increased to $25.4 million compared to $15.6 million last year, also benefited from higher prices for recycled by-products. Lower earnings in hog production resulted from higher feed costs that outpaced increases in hog prices, combined with the unfavourable impact of a stronger Canadian dollar.