Maple Leaf Foods Inc. has reported its financial results for the first quarter ended 31 March 2011. First quarter highlights include adjusted operating earnings increased 61 per cent to C$50.7 million. Value creation initiatives are on track and contributing to margin growth, says the company, although net earnings in the quarter decreased 47 per cent to $10.5 million, including $26.1 million in pre-tax restructuring costs.

Adjusted Earnings per Share increased to $0.18 from $0.07 last year.

Michael H. McCain, President and CEO, commented: "Maple Leaf Foods delivered our eighth consecutive quarter of improved results, with a significant increase in profitability in our fresh and prepared meats businesses. We are very pleased with the progress on both short and long-term initiatives. Our value creation plan is on track and contributed to earnings in the quarter. While the most significant challenge has been rising raw material costs, we are passing on price increases to protect our margins. Overall, this was another strong quarter of performance."

Financial overview

Sales for the first quarter of 2011 decreased four per cent to $1,147.9 million compared to $1,191.5 million last year, primarily due to business divestitures. Excluding the effect of divestitures, and the impact of a stronger Canadian dollar, sales increased by four per cent.

Adjusted Operating Earnings increased to $50.7 million compared to $31.5 million last year primarily due to improved performance in the Protein Group. Adjusted Earnings per Share increased to $0.18, including $2.4 million ($0.02 per share) related to tax benefits associated with a prior acquisition. Adjusted Earnings per Share for the prior period were $0.07.

Net earnings decreased to $10.5 million or $0.08 basic earnings per share in the first quarter compared to net earnings of $19.9 million or $0.14 basic earnings per share last year. Net earnings in the quarter included $26.1 million of pre-tax costs related to restructuring activities (2010: $4.0 million).

Several items are excluded from the discussions of underlying earnings performance during the quarter. These include restructuring charges, mark-to-market adjustments on hedging contracts that are not designated in a hedging relationship and mark-to-market adjustments related to biological assets. Restructuring charges are excluded as they do not reflect the continuing earnings performance of the business. Mark to market adjustments do not reflect the economic effect of the hedging transactions and are excluded from earnings discussions until the underlying asset is sold or transferred. A full reconciliation is included in the full report.

Business segment review

Meat Products Group

Includes value-added prepared meats, chilled meal entrees and lunch kits; and fresh pork, poultry and turkey products sold to retail, food-service, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf, Schneiders and many leading sub-brands.

Sales for the first quarter decreased seven per cent to $718.2 million from $768.2 million in the first quarter last year, largely due to the sale of the Company's Burlington, Ontario primary pork processing operation in November 2010. Excluding this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of exports, sales increased by four per cent. The business benefited from higher market prices in fresh pork and increased net pricing and improved sales mix in prepared meats, which were partly offset by lower volumes in prepared meats.

Adjusted Operating Earnings in the Meat Products Group for the first quarter increased 131 per cent to $26.6 million compared to $11.6 million last year, driven by margin expansion in prepared meats and improved primary processing markets.

Prepared meats margins strengthened as price increases were successfully implemented to manage the effect of rising input costs. Higher prices continued to result in some volume declines, consistent with the experience of others in the food industry. As food inflation trends continue in 2011, pricing will continue to be implemented as required to offset higher costs. New product innovation, including the Natural Selections line of sliced meat products, contributed to an improved sales mix and higher margins. The Company is building on the success of this natural product offering, made with no artificial preservatives, with the launch of Schneiders Country Naturals sliced meats across a broad range of prepared meat products.

Strong performance in primary pork processing operations was driven by improved market conditions in North America and operating efficiencies at the Brandon pork processing facility. Earnings from the fresh poultry operations declined, as higher corn prices drove up live bird prices and contracted industry processor margins.

The Company continues to implement its value creation plan to increase shareholder value over the near and long term. This includes implementing price increases, simplifying its product mix and increasing scale in its manufacturing network. During the quarter, the Company announced that it will close its Surrey, B.C. prepared meats facility and transfer production to other facilities in order to consolidate production and reduce costs.

Agribusiness Group

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

Sales in the Agribusiness Group for the first quarter increased 37 per cent to $57.3 million from $41.8 million in the first quarter last year. Of this increase, approximately 25 per cent was due to higher sales values, the remainder was related to higher volumes in the by-product recycling business.

Adjusted Operating Earnings in the Agribusiness Group in the first quarter increased to $14.0 million compared to $6.3 million last year, driven by stronger performance in both by-product recycling and hog production.

Hog prices have increased 18 per cent since last year and out-paced the Company's net cost of grain, contributing to higher earnings. The contribution from by-products recycling operations also increased due to higher biodiesel sales volumes, eco-energy credits that were not received in the first quarter of 2010, and operational improvements. The benefit of higher market prices in the rendering business was mostly offset by higher raw material costs.

Further Reading

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