Media Centre
2008/04/24

Maple Leaf Foods Reports Results for First Quarter Fiscal 2008

Earnings Decline as Company Adjusts to High Grain and Inflationary Costs
TORONTO, April 24, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the first quarter ended March 31, 2008.

  • Earnings increased in core processed meat and meals business
  • Margin decline in the bakery operations due to rising wheat prices
  • Significant losses in hog production as grain prices increase
  • Good progress on shifting protein operations to higher value business model
  • Adjusted earnings per share of $0.04 compared to $0.12 last year

Note: All earnings measures are defined as earnings from continuing operations before restructuring and other related costs. All earnings per share measures are defined as earnings per share from continuing operations before restructuring and other related costs.

"Operating earnings for the quarter were substantially impacted by continued increases in worldwide prices for wheat, grains and other commodities", said Michael H. McCain, President and CEO. "These effects, while material, are temporary and are expected to reverse as markets stabilize; through a combination of price increases, some reduction in wheat prices as new crops come to market and livestock price increases as hog supplies tighten. We fully expect these to be difficult but transitory market conditions. Our underlying operations, in particular the value-added meats and bakery businesses, are very well positioned and early successes in the Company's protein restructuring is building a solid base for higher earnings. We remain on track to realize our incremental earnings targets from these initiatives and continue to be very positive regarding the re-positioning and growth in our core business."

Financial Overview

------------------

Earnings from continuing operations before restructuring and other related costs ("Adjusted Operating Earnings") decreased by 34% to $33.1 million for the quarter. Rapid wheat cost increases compressed margins in the Bakery Products group as price increases have not yet offset rising input costs. Hog production losses also increased sharply as feed prices increased at a faster rate than hog prices. Partly offsetting these effects, margins increased in the value-added meats business due to price increases and favorable markets, and early benefits of the Company's strategic repositioning of the Protein Group were realized.

Also included in earnings for the quarter were certain other items of note, including government support payments of $8.4 million received as part of programs to assist the hog production industry, and initial costs of $6.0 million related to consulting and systems conversions initiatives. Also during the quarter, the average Canadian dollar exchange rates were higher than last year as the Canadian dollar traded above parity before returning to current levels, negatively impacting earnings by approximately $5.5 million.

Earnings per share from continuing operations before restructuring and other related costs ("Adjusted EPS") for the quarter was $0.04, compared to $0.12 last year.

    Following is a summary of Adjusted EPS:

                                                            First Quarter
                                                   --------------------------
                                                          2008          2007
                                                          ----          ----

    EPS from continuing operations                 $      0.00   $      0.04
    Restructuring and other related costs,
     net of tax (i)                                $      0.04   $      0.08
                                                   --------------------------

    Adjusted EPS (ii)                              $      0.04   $      0.12

    Discontinued operations                        $      0.00   $      0.04
                                                   --------------------------
                                                   --------------------------

    EPS before restructuring and other
     related costs (ii)                            $      0.04   $      0.16
                                                   --------------------------
                                                   --------------------------

    (i)  Includes the per share impact of restructuring and other related
         costs net of tax and minority interest.
    (ii) These are not recognized measures under Canadian GAAP. Management
         believes that this is the most appropriate basis on which to
         evaluate results, as restructuring and other related costs are not
         representative of continuing operations.

    Business Segment Review
    -----------------------
    Following is a summary of Adjusted Operating Earnings by business segment:

    ($ millions)                                      First Quarter
                                           ----------------------------------
                                            2008          2007        Change
                                            ----          ----        ------

    Meat Products Group                     21.1          21.4           (1%)
    Agribusiness Group (i)                  (3.4)          0.9
                                           ----------------------------------
    Protein Group                           17.7          22.3          (21%)
    Bakery Products Group                   15.4          27.6          (44%)
                                           ----------------------------------
                                            33.1          49.9          (34%)
                                           ----------------------------------
                                           ----------------------------------

    (i)  Agribusiness Group excludes the results of the animal nutrition
         business that are reported as discontinued operations.

    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.)

Adjusted Operating Earnings for the first quarter of $21.1 million were consistent with last year. Consumer packaged meats margins expanded for the quarter as price increases, early benefits from restructuring and improved input costs drove a strong result. However, the effect of foreign exchange and a decline in fresh poultry margins due to higher feed and related live bird costs offset the strong result in the packaged meats business and improved pork processor margins. The Company's strategic repositioning of its protein operations, underway since 2007, and expected to be finalized in 2009, resulted in some early benefits to earnings during the quarter, including reduced overhead from double-shifting the front-end processing at the Brandon pork plant, the closure of a sub-scale poultry facility in Nova Scotia, and reduced administration expenses resulting from combining the businesses in the Meat Products Group.

The Company has made good progress in shifting its protein operations to focus on growth in the higher margin value-added meat and meals businesses. In the quarter, the Company announced it is proceeding with commissioning a second-shift cut operation at the Brandon plant by September 2008 and will close its fresh pork processing plant in Winnipeg. By consolidating these operations in Brandon, significant cost reduction and scale efficiencies will be realized. Concurrently, a major expansion is underway to consolidate value-added ham boning operations at its Lagimodiere Road plant in Winnipeg that will further improve yield and margins in this business. The Company is preparing for the sale of its primary pork processing plant in Burlington, which processes over two million hogs per year. A project to construct a new distribution centre in Saskatoon is also nearing completion that, combined with consolidation of existing warehouses and third party storage into two Western warehouses, is expected to yield distribution savings later in the year.

Agribusiness Group (swine production and animal by-products recycling)

Adjusted Operating Earnings for the first quarter were a loss of $3.4 million compared to earnings of $0.9 million last year. Included in 2008 earnings is $8.4 million of government support related to hog production losses in prior periods. Excluding this amount, hog production losses for the period increased by $17.6 million compared to last year. The environment for North American hog producers continues to be very difficult as hog prices have not strengthened despite substantial increases in feed grains, including corn and barley. Canadian hog producers have been further disadvantaged by a stronger Canadian dollar that reduces net revenues for finished hogs. Through its reorganization, Maple Leaf will significantly reduce the number of hogs it produces; reducing its exposure to hog production markets in the second half of the year. The Company marketed 338,000 finished hogs in the quarter compared to 346,000 last year. Included in the 2008 amount was 108,000 hogs related to Alberta and Ontario investments, disposed of in the first quarter, but where the Company has retained and will grow out the remaining hogs that were in process at time of sale. The majority of these hogs are expected to be completed and sold by the end of July 2008.

Other restructuring of hog production operations in Western Canada are materially complete, and the Company benefited from cost reductions in these operations during the quarter, compared to last year. High feed prices and related production losses have begun to result in early herd reductions in North America and in the medium term, this rebalancing of supply and demand is expected to result in higher hog prices, increases in meat prices, and improvements in industry hog production margins.

The Company's rendering operations achieved strong results in the quarter, benefiting from higher soybean and other commodity prices, and improved returns from its biodiesel operations driven by improved plant efficiencies and higher oil prices. In the first quarter of 2008, the Company completed the purchase of Central By-Products, a rendering business located near London, Ontario, further strengthening its capacity in the Ontario market.

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 for the quarter decreased by 44% to $15.4 million compared to $27.6 million last year. Most of the variance from last year resulted from margin compression as unprecedented and rapid increases in wheat prices and other input costs outpaced price increases the Company implemented in 2007 and March 2008. The price of wheat and other inputs such as fuel have remained high and further price increases may be necessary to restore margins. As any such price increases will not be effective from the beginning of the second quarter, management expects continued negative impacts on earnings in the short term. However, as price increases take effect, margins in the Bakery Products Group should recover towards the end of the year.

In the first quarter of 2008, the Company completed the purchase of Aliments Martel Inc., a leading manufacturer and distributor of sandwiches, meals and sweet goods based in Quebec. This was an important strategic acquisition to increase market share and manufacturing and distribution capacity in the Canada sandwich market, which represents an important growth platform for Maple Leaf. With this acquisition, the Company has become the national leader in the Canadian pre-packaged sandwich market.

Forward-Looking Statements

--------------------------

This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to our objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Words such as "expect," "anticipate," "intend," "attempt," "may," "will," "plan," "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed, implied or forecasted in such forward-looking statements. The Company does not intend, and the Company disclaims any obligation to update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.

These forward-looking statements are based on a variety of factors and assumptions including, but not limited to: the condition of the Canadian and United States economies; the rate of appreciation of the Canadian dollar versus the U.S. dollar and Japanese yen; the availability and saleability of prices of livestock, raw materials, energy and supplies; product pricing; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; adverse results from ongoing litigation; no expected actions of domestic and foreign governments and the general assumption that none of the risks identified under "Risk Factors" in the Company's 2007 Annual Information Form will materialize. These assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party industry analysts.

Actual results may differ materially from those predicted by such forward-looking statements. While the Company does not know what impact any of these differences may have on its business, results of operations, financial condition and the market price of its securities may be materially adversely affected. Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements are discussed more fully in the Company's Management Discussion and Analysis which will be available on SEDAR at www.sedar.com.

Other Matters

-------------

On April 24, 2008, Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on June 30, 2008 to shareholders of record on June 9, 2008. Unless indicated otherwise 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."

Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 23,400 people at its operations across Canada and in the United States, the United Kingdom and Asia. The Company had sales of $5.2 billion in 2007.

An investor presentation related to the Company's first quarter financial results is available at www.mapleleaf.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on April 24, 2008 to review Maple Leaf Foods' first quarter financial results. To participate in the call, please dial 416-641-6113 or 866-226-1792. For those unable to participate, playback will be made available an hour after the event at 416-695-5800/800-408-3053 (Passcode 3257859 followed by the number sign).

A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca via a linkhttp://events.startcast.com/events/91/B0026.

                  Consolidated Interim Financial Statements
                  (Expressed in Canadian dollars)

                  MAPLE LEAF FOODS INC.

                  Three months ended March 31, 2008 and 2007



    MAPLE LEAF FOODS INC.
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                           As at         As at         As at
                                        March 31,     March 31,  December 31,
                                            2008          2007          2007
    -------------------------------------------------------------------------
                                      (Unaudited)   (Unaudited)

    ASSETS

    Current assets
      Cash and cash equivalents      $    55,516   $    61,564   $    28,222
      Accounts receivable                204,602       213,470       202,285
      Inventories                        381,902       389,165       351,064
      Future tax asset - current          38,834         2,754        25,409
      Prepaid expenses and other
       assets                             15,127        13,808        16,529
      Assets held for sale                     -       347,490        10,092
      -----------------------------------------------------------------------
                                     $   695,981   $ 1,028,251   $   633,601

    Investments in associated
     companies                             2,558         6,532         1,207
    Property and equipment             1,160,221     1,079,242     1,126,727
    Other long-term assets               313,177       274,879       303,360
    Future tax asset - non-current        31,933        36,377        22,837
    Goodwill                             857,655       829,799       817,477
    Other intangibles                     93,521        85,624        92,635
    -------------------------------------------------------------------------
                                     $ 3,155,046   $ 3,340,704   $ 2,997,844
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness              $    10,206   $    11,349   $     9,845
      Accounts payable and accrued
       charges                           565,328       590,333       550,528
      Income and other taxes payable      14,577        22,507        12,881
      Other current liabilities            9,998        27,220             -
      Current portion of long-term debt   12,523        78,244        17,945
      Liabilities related to assets
       held for sale                           -        65,665             -
      -----------------------------------------------------------------------
                                     $   612,632   $   795,318   $   591,199

    Long-term debt                       997,952     1,251,075       855,281

    Future tax liability - non-current    71,208        24,380        61,935

    Other long-term liabilities          232,794       207,898       248,448

    Minority interest                     81,039        83,754        79,554
    Shareholders' equity               1,159,421       978,279     1,161,427
    -------------------------------------------------------------------------
                                     $ 3,155,046   $ 3,340,704   $ 2,997,844
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Earnings
    (In thousands of Canadian dollars, except share amounts)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                           2008          2007
    -------------------------------------------------------------------------
    Sales                                          $ 1,203,263   $ 1,316,135

    Cost of goods sold                               1,047,337     1,148,772
    -------------------------------------------------------------------------
    Gross margin                                   $   155,926   $   167,363

    Selling, general and administrative expenses       122,828       117,503
    -------------------------------------------------------------------------
    Earnings from continuing operations before
     restructuring and other related costs         $    33,098   $    49,860

    Restructuring costs and other related costs         (7,722)      (12,710)
    -------------------------------------------------------------------------
    Earnings from continuing operations            $    25,376   $    37,150

    Other income (expense)                                 (15)          467
    -------------------------------------------------------------------------
    Earnings from continuing operations
     before interest and income taxes              $    25,361   $    37,617

    Interest expense                                    21,663        24,591
    -------------------------------------------------------------------------
    Earnings from continuing operations before
     income taxes                                  $     3,698   $    13,026

    Income taxes                                         2,120         6,216
    -------------------------------------------------------------------------
    Earnings from continuing operations before
     minority interest                             $     1,578   $     6,810

    Minority interest                                    1,588         1,544
    -------------------------------------------------------------------------
    Net earnings (loss) from continuing
     operations                                    $       (10)  $     5,266

    Net earnings from discontinued operations
     - net of income tax                                     -         5,197
    -------------------------------------------------------------------------
    Net earnings (loss)                            $       (10)  $    10,463
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings per share
      from continuing operations                   $      0.00   $      0.04
      from discontinued operations                        0.00          0.04
    -------------------------------------------------------------------------
                                                   $      0.00   $      0.08
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Diluted earnings per share
      from continuing operations                   $      0.00   $      0.04
      from discontinued operations                        0.00          0.04
    -------------------------------------------------------------------------
                                                   $      0.00   $      0.08
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of shares (millions)         127.3         127.2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Comprehensive Income
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                           2008          2007
    -------------------------------------------------------------------------
    Net earnings (loss)                            $       (10)  $    10,463

    Other comprehensive income (loss)

      Change in accumulated foreign currency
       translation adjustment                            6,727          (886)
      Change in net unrealized derivative loss on
       cash flow hedges                                 (3,046)        5,663
    -------------------------------------------------------------------------
                                                   $     3,681   $     4,777
    -------------------------------------------------------------------------
    Comprehensive income                           $     3,671   $    15,240
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                           2008          2007
    -------------------------------------------------------------------------
    Retained earnings, beginning of period         $   390,784   $   204,415

    Net earnings (loss)                                    (10)       10,463

    Dividends declared ($0.04 per share; 2007:
     $0.04 per share)                                   (5,186)       (5,091)
    -------------------------------------------------------------------------
    Retained earnings, end of period               $   385,588   $   209,787
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Cash Flows
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                           2008          2007
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED IN)

    Operating activities
      Net earnings (loss) from continuing
       operations                                  $       (10)  $     5,266
      Add (deduct) items not affecting cash:
        Depreciation and amortization                   35,072        35,093
        Stock-based compensation                         4,263         3,672
        Minority interest                                1,588         1,544
        Future income taxes                               (304)       (3,411)
        Loss (gain) on sale of property and equipment       81          (459)
      Change in other long-term receivables                344        (2,311)
      Decrease in net pension asset                     (6,031)      (16,425)
      Asset impairments and change in
       restructuring provisions                          3,963         3,721
      Other                                              3,697         3,209
      Change in non-cash operating working capital     (24,269)      (40,172)
    -------------------------------------------------------------------------
    Cash provided by (used in) operating
     activities of continuing operations           $    18,394   $   (10,273)
    Cash provided by (used in) operating
     activities of discontinued operations                   -        (7,348)
    -------------------------------------------------------------------------
                                                   $    18,394   $   (17,621)
    Financing activities
      Dividends paid                                    (5,186)       (5,091)
      Dividends paid to minority interest                 (232)         (251)
      Net increase in long-term debt                   117,524        71,843
      Increase in share capital                          1,597         2,215
      Purchase of treasury stock                        (6,349)            -
      Other                                                515         8,106
    -------------------------------------------------------------------------
    Cash provided by financing
     activities of continuing operations           $   107,869   $    76,822
    Cash provided by (used in) financing
     activities of discontinuing operations                  -          (398)
    -------------------------------------------------------------------------
                                                   $   107,869   $    76,424

    Investing activities
      Additions to property and equipment              (45,710)      (52,425)
      Proceeds from sale of property and equipment       8,021           746
      Acquisition of businesses -
       net of cash acquired                            (61,572)      (10,803)
      Proceeds on disposal of business                       -         5,470
      Purchase of Canada Bread shares                        -        (6,521)
      Other                                                (69)        2,908
    -------------------------------------------------------------------------
    Cash used in investing
     activities of continuing operations           $   (99,330)  $   (60,625)
    Cash provided by (used in) investing
     activities of discontinuing operations                  -        (3,327)
    -------------------------------------------------------------------------
                                                   $   (99,330)  $   (63,952)
    Increase (decrease) in cash and cash
     equivalents                                        26,933        (5,149)
    Cash and cash equivalents, beginning of period      18,377        55,364
    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period       $    45,310   $    50,215
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Segmented Financial Information
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                                 Three months ended March 31,
    (Unaudited)                                           2008          2007
    -------------------------------------------------------------------------

    Sales
      Meat Products Group                          $   762,545   $   895,735
      Agribusiness Group                                58,594        62,895
      Bakery Products Group                            382,124       357,505
    -------------------------------------------------------------------------
                                                   $ 1,203,263   $ 1,316,135
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings from operations, before restructuring
     and other related costs
      Meat Products Group                          $    21,141   $    21,364
      Agribusiness Group                                (3,431)          917
      Bakery Products Group                             15,388        27,579
    -------------------------------------------------------------------------
                                                   $    33,098   $    49,860
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Additions to property and equipment
      Meat Products Group                          $    33,095   $    36,718
      Agribusiness Group                                 2,899         2,640
      Bakery Products Group                              9,716        13,067
    -------------------------------------------------------------------------
                                                   $    45,710   $    52,425
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and amortization
      Meat Products Group                          $    18,026   $    17,386
      Agribusiness Group                                 3,834         4,888
      Bakery Products Group                             13,212        12,819
    -------------------------------------------------------------------------
                                                   $    35,072   $    35,093
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    -------------------------------------------------------------------------
                                           As at         As at         As at
                                        March 31,     March 31,  December 31,
                                            2008          2007          2007
                                      (Unaudited)   (Unaudited)
    -------------------------------------------------------------------------

    Total assets
      Meat Products Group            $ 1,600,376   $ 1,595,010   $ 1,560,244
      Agribusiness Group                 302,566       670,324       302,999
      Bakery Products Group              907,432       821,038       823,137
      Non-allocated assets               344,672       254,332       311,464
    -------------------------------------------------------------------------
                                     $ 3,155,046   $ 3,340,704   $ 2,997,844
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Goodwill
      Meat Products Group            $   429,835   $   451,530   $   450,929
      Agribusiness Group                  12,842        19,872         2,058
      Bakery Products Group              414,978       358,397       364,490
    -------------------------------------------------------------------------
                                     $   857,655   $   829,799   $   817,477
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


SOURCE Maple Leaf Foods Inc.


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