Toronto, Oct 29, 2008 - Maple Leaf Foods Inc. today reported its financial results for the third quarter ended September 30, 2008.
* Adjusted Earnings per Share were $0.13 compared to $0.06 last year
* Improved commodity markets, protein restructuring and price increases all contributed to improvements in underlying results
*Net earnings (loss) per share of ($0.10) compared to $0.01 last year, including direct costs of a major packaged meats recall at the Bartor Road facility
The recall is complete and actions are underway to restore sales and volumes
Note: Adjusted Earnings per Share measures are defined as earnings per share from continuing operations before one-time direct product recall, restructuring and other related costs and certain non-recurring tax adjustments. Adjusted Earnings per Share and Operating Earnings measures include on-going effects of the product recall, such as lower sales and higher supply chain costs.
"The headline for the third quarter was managing the unprecedented recall at our Toronto packaged meats plant and doing what was right to protect consumers and maintain public trust," said Michael H. McCain, President and CEO. "While the recall is complete, our actions had a very substantial near-term impact. In other areas of our business, results improved considerably and as expected we are starting to see material benefits from the restructuring of our protein operations. Our focus through the remainder of 2008 will be on stabilizing our business and continuing to restore confidence, including implementing an enhanced food safety program that will be among the best in North America."
The following is a summary of Adjusted Earnings per Share (EPS) defined as EPS from continuing operations before one-time direct product recall, restructuring and other related costs and certain non-recurring tax adjustments. On-going effects of the product recall, such as lower sales and higher supply chain costs are included in Adjusted Operating Earnings and Adjusted Earnings per Share.
Adjusted Operating Earnings for the third quarter were $0.8 million compared to earnings of $13.6 million last year. This decline was principally a result of lower sales and higher supply chain costs related to the product recall, which Management estimates impacted Adjusted Operating Earnings by approximately $14 million in the quarter. In addition earnings declined due to lower poultry processor margins and higher input costs in the packaged meats business. These negative impacts outweighed the contribution of higher earnings in the primary pork processing business due to improved pork processing margins and benefits from consolidating primary pork operations in Western Canada and expanding the Brandon facility. Year-to-date Adjusted Operating Earnings were $31.5 million compared with $50.1 million last year.
Progress continued in the strategic reorganization of the Company's protein operations. This restructuring will increase profitability and reduce currency and commodity exposure by reducing the Company's fresh pork processing operations and focusing growth in its higher margin packaged meat and meals businesses. The double shift expansion at the Brandon pork processing plant was completed in the third quarter and is now processing approximately 83,000 hogs per week. Brandon is the only pork processing plant that the Company will retain, providing a low cost, high quality pork supply for its packaged meats business. As part of this consolidation, Maple Leaf closed its Winnipeg processing facility in the third quarter, increasing the total number of pork plants closed to three. The marketing of the Burlington pork plant, which processes over 2 million hogs annually, is well underway and the Company expects to conclude this process in the next few months.
Agribusiness Group (swine production and animal by-products recycling)
Adjusted Operating Earnings from the Agribusiness Group were $12.3 million compared to a loss of $3.5 million in 2007. Earnings from rendering operations benefited from higher commodity prices during most of the quarter, and higher earnings from bio diesel sales. Hog production losses were significantly reduced from last year and from the run rate for the first half of the year due to the divestiture of the Alberta and Ontario hog production businesses, a lower cost of production and improved efficiencies in the restructured Manitoba operations. In the third quarter the Company marketed approximately 224,000 hogs, down from 353,000 last year, and the restructuring of these operations is virtually complete. For the year-to-date, Adjusted Operating Earnings of $17.2 million compared to $2.0 million in 2007.
Bakery Products Group (fresh, frozen and branded value-added bakery products, including frozen par-baked bakery products; and specialty pasta and sauces)
Adjusted Operating Earnings in the Bakery Group were $30.6 million compared to $32.6 million last year. Earnings were significantly impacted in the first half of 2008 by an unprecedented rise in commodity prices.
Price increases implemented late in 2007 and early 2008 contributed to results in the third quarter, but have not offset prior losses. In the early part of the quarter, earnings across the business were affected by high wheat and oil prices, which began to decline towards the end of the quarter.
Management anticipates that the combination of the price increases implemented earlier in the year and lower commodity prices will continue to improve margins through the end of the year. Earnings for the quarter were also affected by increased investments in marketing and innovation initiatives. Supporting sales growth and product diversification in the Fresh Bakery business, new product launches included Dempster's Naan bread, diversifying into this high growth specialty category and Dempster's BodyWise diet breads.
The Company also launched Nature's Path, a national line of branded organic breads. For the year-to-date, Adjusted Operating Earnings of $56.4 million compared to $93.6 million in 2007.
The Company's U.K. bakery business experienced lower bagel sales growth as a result of a fire at the principal bagel line at the Rotherham plant, which impacted sales and earnings and increased manufacturing costs as the new oven was commissioned. These costs and business disruption are covered by insurance and proceeds of $4.8 million received in the third quarter are included in other income. The Company has received $6.5 million year-to-date and expects to receive further insurance reimbursements in the fourth quarter of 2008 and in the first quarter of 2009.
As part of its acquisition integration activities the U.K. bakery business is taking steps to further reduce costs and improve operating efficiencies. This includes the closure of two small bakery operations announced in the quarter, with production from these facilities, primarily croissants and bagels, being transferred to the Company's larger bakeries in Maidstone and Rotherham.
Other Matters
On October 23, 2008, Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on December 31, 2008 to shareholders of record on December 8, 2008. Unless indicated otherwise, by the corporation, in writing at or before the time the dividend is paid, each dividend paid by the corporation in 2008 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System."
Third Quarter Year-To-Date
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2008 2007 2008 2007
---- ---- ---- ----
EPS from continuing
operations $(0.10) $0.01 $(0.18) $0.00
Product recall, restructuring
and other related costs (i) $0.24 $0.05 $0.34 $0.31
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Adjusted EPS (ii) (iii) $0.13 $0.06 $0.17 $0.31
Discontinued operations $1.71 $1.80
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EPS before one-time direct
product recall, restructuring
and other related costs and
certain non-recurring tax
adjustments (ii) (iii) $0.13 $1.77 $0.17 $2.10
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(i) Includes the per share impact of one-time direct product recall,
restructuring and other related costs net of tax and minority
interest and the recognition of a tax benefit of $5.1 million in Q2
2007 related to the sale of the animal nutrition business.
(ii) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to
evaluate results, as product recall, restructuring, and other
related costs are not representative of continuing operations.
(iii) Does not add due to rounding.
Business Segment Review
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Following is a summary of operating earnings from continuing operations
before one-time direct product recall, restructuring and other related costs
and other income ("Adjusted Operating Earnings") by business segment:
($ millions) Third Quarter Year-to-Date
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2008 2007 Change 2008 2007 Change
---- ---- ------ ---- ---- ------
Meat Products Group $ 0.8 $ 13.6 (94.0%) $ 31.5 $ 50.1 (37.0%)
Agribusiness Group (i) 12.3 (3.5) 453.2% 17.2 2.0 752.5%
------------------------ ------------------------
Protein Group 13.1 10.1 30.2% 48.7 52.1 (6.6%)
Bakery Products Group 30.6 32.6 (6.3%) 56.4 93.6 (39.8%)
Non-allocated Costs (ii) (2.6) (4.1) 36.1% (12.0) (4.6)(158.5%)
------------------------ ------------------------
------------------------ ------------------------
$ 41.1 $ 38.6 6.4% $93.1 $141.1 (34.1%)
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(i) Agribusiness Group excludes the results of the animal nutrition
business that are reported as discontinued operations.
(ii) Non-allocated costs include costs related to the Company's IT system
conversion, certain shared services and consulting expenses related
to restructuring initiatives. Management believes that not
allocating these costs provides a more comparable assessment of
segment operating results.
Meat Products Group (value-added processed packaged meats; chilled meal
entrees and lunch kits; value-added pork, poultry and turkey products;
and global meat sales.)