Meat and Poultry Industry News

Maple Leaf Foods posts Q2 loss citing consumer demand drop, supply chain duplications

August 6, 2014
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Maple Leaf Foods Inc. reported its financial results for the second quarter, June 30, 2014. Adjusted Operating Earnings for the second quarter was a loss of $12.1 million compared to a loss of $32.3 million last year. For the first six months, Adjusted Operating Earnings was a loss of $42.0 million compared to a loss of $60.1 million last year. Net loss from continuing operations for the second quarter was $39.5 million compared to $38.4 million last year. For the first six months, net loss from continuing operations was $164.2 million compared to $69.0 million last year.

"We continue to make good progress on our strategic agenda, although the transitory cost of duplicative supply chains continues to be significant," said Michael H. McCain, President and CEO. "We implemented material price increases during the second quarter which going forward will fully offset significant raw material cost increases to date. As anticipated, there is a short-term impact on demand, which we expect will normalize in time. Our progress in converting to the new supply chain continues as performance improves in our Western facilities and commissioning of the new flagship plant in Hamilton, Ontario is underway. Following the successful sale of our bakery business, we completed a comprehensive organizational restructuring in the quarter, right-sizing our structure to cost effectively support our needs as a focused value-added protein company.  We are managing significant change along with our base business performance, and we are very satisfied with our progress towards our financial targets."

Maple Leaf Foods sales from continuing operations of $831.8 million for the second quarter was an increase of 9.6% from last year, or 8.2% after adjusting for the impacts of foreign exchange, as higher pricing was partly offset by lower volume. Sales from continuing operations of $1,543.1 million for the first six months was an increase of 6.5%, or 5.3% after adjusting for foreign exchange, due to the same factors.

Adjusted Operating Earnings for the second quarter was a loss of $12.1 million compared to a loss of $32.3 million last year, as improved market conditions in the Agribusiness Group more than offset lower earnings in the Meat Products Group. For the first six months, Adjusted Operating Earnings increased was a loss of $42.0 million compared to a loss of $60.1 million last year, due to similar factors.

Net loss from continuing operationsfor the second quarter was $39.5 million (loss of $0.28 per basic share attributable to common shareholders) compared to a loss of $38.4 million (loss of $0.27 per basic share attributable to common shareholders) last year. Net loss from continuing operations included $20.0 million ($0.11per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2013: $14.4 million, or $0.07 per basic share attributable to common shareholders).

For the first six months, net loss from continuing operations was $164.2 million (loss of $1.17 per share attributable to common shareholders) compared to a net loss of $69.0 million (loss of $0.49 per basic share attributable to common shareholders) last year. Net loss from continuing operations included $41.8 million ($0.22 per basic share attributable to common shareholders) of pre-tax expenses related to restructuring and other related costs (2013: $51.3 million or $0.27 per basic share attributable to common shareholders). Net loss also included financing costs of $98.6 million related to the repayment of the Company's long-term notes payable in April 2014.

Adjusted Earnings per Share was a loss of $0.13 in the second quarter of 2014 compared to a loss of $0.25 last year. For the first six months, Adjusted Earnings per Share was a loss of $0.37 compared to a loss of $0.48 last year.

Meat Products Group sales for the second quarter increased 9.7% to $825.6 million, or 8.3% after adjusting for the weaker Canadian dollar that benefited pork exports. This was primarily driven by higher market prices for fresh pork, as well as price increases implemented in the prepared meats business during the second quarter of 2014 in response to higher raw material and inflationary costs. Partly offsetting these were lower volume in the prepared meats business, largely due to the pricing actions implemented in the second quarter, combined with a decline in fresh pork volume. For the first six months, sales increased 7.0% to $1,531.0 million, or 5.8% after adjusting for the impact of foreign exchange, largely due to the same factors noted above, with the addition of higher volume and sales mix in the first quarter of 2014.

Adjusted Operating Earnings for the second quarter was a loss of $15.6 million compared to a loss of $11.5 million last year, as lower earnings in the prepared meats and fresh poultry businesses were only partly offset by improved results in the fresh pork business.

The prepared meats business incurred transitional costs of approximately $25 million during the second quarter of 2014, which were largely related to commissioning activities and overhead costs at the new meat processing facility in Hamilton, Ontario. Last year, transitional costs were approximately $12 million during the same period, mainly attributable to start-up activities at plant expansions in Western Canada.

Lower volume in the prepared meats business also contributed to lower earnings. The decrease in volume was mainly due to price increases taken during the second quarter of 2014, which were implemented to offset rising raw material and inflationary costs in the quarter. Raw material prices continued to remain higher than last year due to the outbreaks of disease in hog production herds in the U.S. Adding to this was a weakening Canadian dollar that also contributed to higher input costs. Higher selling, general and administrative expense as a result of the timing of advertising and promotional spend, also reduced earnings.

Earnings in the fresh pork business increased due to improved domestic and foreign sales. Higher primary pork processing margins and market values for by-products also contributed to earnings, as did plant labour and yield efficiencies which offset lower volume due to decreased hog supplies. Earnings in fresh poultry declined due to an unfavourable sales mix and plant operating inefficiencies. These were partly offset by improved primary poultry processing spreads.

Source: Maple Leaf Foods Inc.

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