Media Centre
2009/07/29

Maple Leaf Foods Reports Second Quarter Financial Results

TORONTO, July 29, 2009 /PRNewswire-FirstCall via COMTEX/ -- Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2009.

  • Adjusted EPS of $0.12 compared to a loss of $0.01 last year
  • Adjusted operating earnings increased 131% to $43.6 million in weak protein market conditions
  • Bakery Group margins improved as commodity input costs declined
  • Prepared meats performance improving, but still below prior year levels
  • Protein restructuring contributed to improved hog production and primary pork processing results

Note: Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs and other income. Adjusted Earnings per Share measures are defined as basic earnings per share adjusted for the impact of restructuring and other related costs.

"Our stronger results reflect good performance in our bakery businesses and steady improvement in our prepared meats business, recovering from the product recall of last August," said Michael H. McCain, President and CEO. "We are realizing material positive benefits from the transformation of our protein operations over the past several years, which protected us from challenging commodity markets in the quarter. While we have made good progress, there remains significant value creation opportunity with very positive effects on our future financial results."

    Financial Overview
    ------------------

Sales for the second quarter decreased by 2.5% to $1,320.8 million compared to $1,355.3 million last year due to lower volumes in primary processing and prepared meats and lower market prices for fresh pork.

Earnings from operations before restructuring and other related costs and other income ("Adjusted Operating Earnings") increased by 131.0% to $43.6 million compared to $18.9 million last year. Adjusted Operating Earnings were higher in the second quarter principally due to higher margins in the Bakery Products Group as input costs improved, operational improvements and good sales mix in primary processing and the benefits of restructuring in both hog and fresh pork operations. Offsetting these improvements was the performance of the prepared meats business following the recall. Included in earnings in the second quarter is a $6.3 million mark-to-market loss on foreign currency contracts, expiring in the second quarter, that were entered into to fix the value of U.S.-denominated debt balances.

    Following is a summary of Adjusted EPS:

                                          Second Quarter        Year-to-date
    -------------------------------------------------------------------------
                                          2009      2008      2009      2008
    -------------------------------------------------------------------------
    Basic EPS                            $0.04    $(0.07)    $0.06    $(0.07)
    -------------------------------------------------------------------------
    Restructuring and other related
     costs                                0.08      0.07      0.11      0.11
    -------------------------------------------------------------------------
    Adjusted EPS(i)                      $0.12    $(0.01)    $0.17     $0.03
    -------------------------------------------------------------------------

    (i) Table does not add due to rounding.


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

                                          Second Quarter       Year-to-date
    -------------------------------------------------------------------------
    ($ thousands)                         2009      2008      2009      2008
    -------------------------------------------------------------------------
    Meat Products Group                 $1,683    $5,718   $13,034   $30,730
    Agribusiness Group                  16,311     7,596    18,456     4,816
    -------------------------------------------------------------------------
    Protein Group                       17,994    13,314    31,490    35,546
    Bakery Products Group               27,984     8,671    47,509    25,828
    Non-allocated Costs(i)              (2,337)   (3,095)   (3,759)   (9,386)
    -------------------------------------------------------------------------
    Adjusted Operating Earnings        $43,641   $18,890   $75,240   $51,988
    -------------------------------------------------------------------------

    (i) Non-allocated costs comprise costs related to systems conversion and
        consulting fees. Management believes that not allocating these costs
        provides a more comparable assessment of segmented operating results.

    Meat Products Group
    -------------------
    (value-added prepared meats; chilled meal entrees and lunch kits; value-
    added fresh pork, poultry and turkey products)

Adjusted Operating Earnings in the Meat Products Group were $1.7 million in the second quarter of 2009 compared to $5.7 million last year. Although gross margins on prepared meat products improved compared to the first quarter of 2009 as the Company reduced its investment in trade spending and promotions, higher raw material costs resulted in lower earnings compared to the same period last year as the Company was not able to increase prices in a business recovery environment. Lower earnings in prepared meats were partly mitigated by strong results in primary pork processing as the Company continued to benefit from the restructuring of its primary pork processing operations, as the Brandon and Winnipeg operations are running efficiently and at lower costs compared to last year. In addition, improved sales mix and a weaker Canadian dollar benefited earnings in pork processing despite poor industry market conditions. Earnings from the Company's poultry operations were largely consistent compared to last year.

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

Adjusted Operating Earnings for the Agribusiness Group in the second quarter of 2009 increased to $16.3 million from $7.6 million last year. Despite extremely challenging market conditions, Agribusiness Group results improved following the sale or exit of non-core hog production operations in Ontario as part of the Company's protein restructuring, and operational improvements in core operations in Manitoba. The Company owned approximately 215,000 hogs in the quarter, representing approximately 20% of the supply into the Brandon processing plant. Results for the second quarter also included $3.0 million (2008: $0.2 million) in government support to compensate hog producers for losses in prior years. Results from rendering operations were strong but down from the prior year period as volumes and commodity prices declined.

    Bakery Products Group
    ---------------------
    (fresh and frozen branded value-added bakery products, including frozen
    par-baked bakery products, sandwiches and specialty pasta and sauces).

Adjusted Operating Earnings increased to $28.0 million in the second quarter compared to $8.7 million last year due to declines in commodity costs that improved margins. This result for 2009 compares to a significantly reduced prior year quarter when extremely sharp spikes in wheat, dairy and fuel costs severely impacted profitability. In the Canadian bakery operations, lower input costs were partly offset by a weaker Canadian dollar that increased the cost of U.S. dollar priced flour. In the frozen bakery business, the benefit of lower commodity costs was partly offset by an unfavourable sales mix shift from specialty to lower margin staple products. Earnings from the U.K. bakery operations were largely consistent with last year, although the economic recession in the U.K. has adversely affected sales mix.

    Other Income
    ------------

Other income for the quarter was $1.8 million (2008: $1.9 million), mostly comprising insurance proceeds for business interruption losses in the U.K. bakery business and the disposal of investments.

    Other Matters
    -------------

On December 16, 2008 the Company issued 7,368,421 subscription receipts for proceeds of $70 million. The Company's two largest shareholders purchased a majority of the units: the Ontario Teachers Pension Plan Board ("Ontario Teachers") 5,484,784 units for $52.1 million and McCain Capital Corporation ("MCC") 1,694,737 units for $16.1 million. Pursuant to the terms of the offering, the Company had the option to return the subscription proceeds or issue common shares in satisfaction of the subscription receipts. As required under the Subscription Receipt Agreement, a Special Committee of independent directors was formed to evaluate the Company's alternatives and take independent advice. On July 28, 2009, it approved Management's recommendation that the Company issue 7,368,421 common shares on August 4, 2009 in satisfaction of the subscription receipts. This decision reflects the Company's approach to ensuring that it maintains an appropriate mix of equity and debt in its capital structure and that these levels are maintained over time.

The Company has been advised by Ontario Teachers and MCC that Ontario Teachers has delivered notice to MCC to terminate, effective June 30, 2010, the shareholder agreement that has existed between them since 2001. The Company had been advised and previously reported that the agreement provides that the board of directors of the Company will consist of three nominees of MCC, two nominees of Ontario Teachers, the Chief Executive Officer of the Company and seven independent directors to be mutually agreed to by MCC and Ontario Teachers. Accordingly, absent earlier termination or amendment by the parties, the shareholders agreement will no longer be effective after June 30, 2010.

On July 28, 2009 Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on September 30, 2009 to shareholders of record on September 8, 2009. Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the Corporation in 2009 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".

An investor presentation related to the Company's second 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 July 29, 2009 to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-641-6111 or 866-696-5911. For those unable to participate, playback will be made available an hour after the event at 416-695-5800/800-408-3053 (Passcode 3783726 followed by the number sign).

A webcast presentation of the second quarter financial results will also be available at http://investor.mapleleaf.ca via a link: http://events.startcast.com/events6/91/C0011/Default.aspx

The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website.

    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 objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific statements include, but are not limited to, statements with respect to expectations concerning the ongoing nature of restructuring benefits in primary pork processing and hog production, expectations regarding earnings potential in the prepared meats business, and expectations concerning the impact of the economic recession on the Company's operations. 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.

In addition, expectations concerning performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States, United Kingdom and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar and Japanese yen; expected recovery of sales following the product recall; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the protein business transformation or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation that would not be covered by insurance; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2008 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward looking-statements, which reflect the Company's expectations only as of the date hereof.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking statements are discussed more fully in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2008 including the section entitled "Risk Factors" that is available on SEDAR at www.sedar.com. The Company does not intend to, 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.

Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 24,000 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 2008.

                      Consolidated Financial Statements
                       (Expressed in Canadian dollars)

                            MAPLE LEAF FOODS INC.

              Three and six months ended June 30, 2009 and 2008



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

    -------------------------------------------------------------------------
                                        As at          As at          As at
                                      June 30,       June 30,   December 31,
                                         2009           2008           2008
    -------------------------------------------------------------------------
                                   (Unaudited)    (Unaudited)

    Assets

    Current assets
      Cash and cash
       equivalents                $    207,795   $     16,419   $    365,518
      Accounts receivable              183,238        239,596        139,144
      Inventories                      388,006        388,746        377,414
      Income and other taxes
       recoverable                      25,922              -         20,971
      Future tax asset                  24,763         39,886         19,787
      Prepaid expenses and other
       assets                           42,356         23,922         32,289
      -----------------------------------------------------------------------
                                  $    872,080   $    708,569   $    955,123

    Property and equipment           1,159,897      1,172,268      1,169,435

    Other long-term assets             331,966        315,079        329,070

    Future tax asset                    23,953         39,011         24,854

    Goodwill                           877,678        856,758        876,261

    Other intangible assets            101,281         93,263         97,358
    -------------------------------------------------------------------------
                                  $  3,366,855   $  3,184,948   $  3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities
      Bank indebtedness           $      9,511   $     10,092   $      8,894
      Accounts payable and
       accrued charges                 528,190        534,754        600,924
      Income and other taxes
       payable                               -          7,243              -
      Current portion of
       long-term debt                  375,508         12,251        179,244
      Other current liabilities         51,355              -         28,456
      -----------------------------------------------------------------------
                                  $    964,564   $    564,340   $    817,518

    Long-term debt                     939,808      1,089,793      1,200,224

    Future tax liability                45,787         80,529         37,903

    Other long-term liabilities        168,905        247,530        179,039

    Non-controlling interest            77,372         81,586         74,447

    Shareholders' equity             1,170,419      1,121,170      1,142,970
    -------------------------------------------------------------------------
                                  $  3,366,855   $  3,184,948   $  3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                    Three months ended June 30,    Six months ended June 30,
    (Unaudited)            2009           2008           2009           2008
    -------------------------------------------------------------------------

    Sales          $  1,320,803   $  1,355,301   $  2,600,102   $  2,558,564

    Cost of goods
     sold             1,152,600      1,204,824      2,264,687      2,252,161
    -------------------------------------------------------------------------

    Gross margin   $    168,203   $    150,477   $    335,415   $    306,403
    Selling,
     general and
     administrative
     expenses           124,562        131,587        260,175        254,415
    -------------------------------------------------------------------------

    Earnings from
     operations
     before the
     following:    $     43,641   $     18,890   $     75,240   $     51,988

    Restructuring
     and other
     related costs      (13,852)       (11,618)       (19,186)       (19,340)

    Other income          1,789          1,933          3,468          1,918
    -------------------------------------------------------------------------

    Earnings from
     operations before
     interest and
     income taxes  $     31,578   $      9,205   $     59,522   $     34,566

    Interest expense     20,764         21,868         42,107         43,531
    -------------------------------------------------------------------------

    Earnings (loss)
     from operations
     before income
     taxes         $     10,814   $    (12,663)  $     17,415   $     (8,965)

    Income taxes          3,622         (4,079)         5,779         (1,959)
    -------------------------------------------------------------------------

    Earnings (loss)
     from operations
     before
     non-controlling
     interest      $      7,192   $     (8,584)  $     11,636   $     (7,006)

    Non-controlling
     interest             2,293            769          3,866          2,357
    -------------------------------------------------------------------------
    Net earnings
     (loss)        $      4,899   $     (9,353)  $      7,770   $     (9,363)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and
     diluted
     earnings
     (loss) per
      share        $       0.04   $      (0.07)  $       0.06   $      (0.07)
    -------------------------------------------------------------------------

    Weighted
     average number
     of shares
     (millions)           126.7          126.9          126.7          127.1
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                    Three months ended June 30,     Six months ended June 30,
    (Unaudited)            2009           2008           2009           2008
    -------------------------------------------------------------------------

    Net earnings
     (loss)        $      4,899   $     (9,353)  $      7,770   $     (9,363)

    Other comprehensive
     income (loss)

      Change in
       accumulated
       foreign
       currency
       translation
       adjustment         8,527          1,507          7,180          8,234
      Change in
       unrealized
       derivative
       loss on cash
       flow hedges        8,300         (1,593)        12,821         (4,639)
    -------------------------------------------------------------------------
                   $     16,827   $        (86)  $     20,001   $      3,595
    -------------------------------------------------------------------------
    Comprehensive
     income (loss) $     21,726   $     (9,439)  $     27,771   $     (5,768)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars, except per share amounts)

    -------------------------------------------------------------------------
                                                    Six months ended June 30,
    (Unaudited)                                          2009           2008
    -------------------------------------------------------------------------

    Retained earnings, beginning of period       $    314,649   $    378,604

    Net earnings (loss)                                 7,770         (9,363)

    Adoption of new accounting standard                  (207)             -

    Dividends declared ($0.08 per share;
     2008: $0.08 per share)                           (10,130)       (10,448)

    Premium on shares repurchased for cancellation          -         (5,515)

    Premium on shares issued from Restricted
     Share Unit Trust                                       -           (822)
    -------------------------------------------------------------------------
    Retained earnings, end of period             $    312,082   $    352,456
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                    Three months ended June 30,     Six months ended June 30,
    (Unaudited)            2009           2008           2009           2008
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities

      Net earnings
       (loss)      $      4,899   $     (9,353)  $      7,770   $     (9,363)
      Add (deduct)
       items not
       affecting
       cash:
        Depreciation
         and
         amortization    38,910         38,637         77,278         73,709
        Stock-based
         compensation     4,547          3,923          9,113          8,186
        Non-controlling
         interest         2,293            769          3,866          2,357
        Future income
         taxes             (906)        (8,944)        (2,844)        (9,248)
        Loss on sale
         of property
         and equipment       55             37            164            118
        Gain on sale
         of investments    (501)             -           (501)             -
        Amortization of
         terminated
         interest rate
         swap               503          1,371          1,101          4,582
        Change in fair
         value of
         derivative
         financial
         instruments      2,565          1,923        (10,242)          (266)
      Decrease (increase)
       in net pension
       asset                704         (5,031)         1,099        (11,062)
      Asset impairments
       and change in
       provision for
       restructuring and
       other related
       costs             10,250          7,381         12,904         11,344
      Other              (9,728)        (3,308)        (5,327)          (289)
      Change in
       non-cash
       operating
       working
       capital          (63,077)       (87,636)      (142,698)      (111,905)
    -------------------------------------------------------------------------
    Cash used in
     operating
     activities    $     (9,486)  $    (60,231)  $    (48,317)  $    (41,837)
    -------------------------------------------------------------------------

    Financing
     activities
      Dividends paid     (5,064)        (5,262)       (10,130)       (10,448)
      Dividends paid
       to non-
       controlling
       interest            (156)          (184)          (361)          (416)
      Net increase
       (decrease) in
       long-term debt   (32,450)       103,810        (33,195)       221,334
      Increase in
       share capital          -          1,513              -          3,110
      Purchase of
       treasury stock         -         (4,992)             -        (11,341)
      Shares repurchased
       for cancellation       -        (11,814)             -        (11,814)
      Other               2,511         (1,816)         2,728         (1,301)
    -------------------------------------------------------------------------
    Cash provided by
     (used in)
     financing
     activities    $    (35,159)  $     81,255   $    (40,958)  $    189,124
    -------------------------------------------------------------------------

    Investing
     activities
      Additions to
       property and
       equipment        (36,015)       (62,654)       (93,687)      (108,364)
      Proceeds from
       sale of property
       and equipment     22,780          2,524         23,393         10,545
      Proceeds from
       sale of
       investments        1,540              -          1,540              -
      Acquisition of
       businesses
       - net of cash
       acquired               -            (87)             -        (61,659)
      Other                 239            210           (311)           141
    -------------------------------------------------------------------------
    Cash used in
     investing
     activities    $    (11,456)  $    (60,007)  $    (69,065)  $   (159,337)
    -------------------------------------------------------------------------

    Decrease in
     cash and cash
     equivalents        (56,101)       (38,983)      (158,340)       (12,050)

    Net cash and cash
     equivalents,
     beginning of
     period             254,385         45,310        356,624         18,377
    -------------------------------------------------------------------------
    Net cash and
     cash
     equivalents,
     end of period $    198,284   $      6,327   $    198,284   $      6,327
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                    Three months ended June 30,     Six months ended June 30,
    (Unaudited)            2009           2008           2009           2008
    -------------------------------------------------------------------------

    Sales
      Meat
       Products
       Group       $    830,413   $    856,638   $  1,652,607   $  1,619,183
      Agribusiness
       Group             54,977         61,567         99,565        120,161
      Bakery
       Products
       Group            435,413        437,096        847,930        819,220
    -------------------------------------------------------------------------
                   $  1,320,803   $  1,355,301   $  2,600,102   $  2,558,564
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings from
     operations before
     restructuring
     and other related
     costs and other
     income
      Meat
       Products
       Group       $      1,683   $      5,718   $     13,034   $     30,730
      Agribusiness
       Group             16,311          7,596         18,456          4,816
      Bakery
       Products
       Group             27,984          8,671         47,509         25,828
      Non-allocated
       costs             (2,337)        (3,095)        (3,759)        (9,386)
    -------------------------------------------------------------------------
                   $     43,641   $     18,890   $     75,240   $     51,988
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures
      Meat
       Products
       Group       $     20,711   $     38,756   $     51,960   $     71,851
      Agribusiness
       Group              2,141          4,077          5,189          6,976
      Bakery
       Products
       Group             13,163         19,821         36,538         29,537
    -------------------------------------------------------------------------
                   $     36,015   $     62,654   $     93,687   $    108,364
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation
     and amortization
      Meat
       Products
       Group       $     20,033   $     19,552   $     39,611   $     37,578
      Agribusiness
       Group              4,037          4,333          8,071          8,167
      Bakery
       Products
       Group             14,840         14,752         29,596         27,964
    -------------------------------------------------------------------------
                   $     38,910   $     38,637   $     77,278   $     73,709

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


    -------------------------------------------------------------------------
                                         As at          As at          As at
                                       June 30,       June 30,   December 31,
                                          2009           2008           2008
    -------------------------------------------------------------------------
                                    (Unaudited)    (Unaudited)
    Total assets
      Meat Products Group         $  1,707,809   $  1,716,978   $  1,677,671
      Agribusiness Group               308,508        251,004        318,387
      Bakery Products Group            917,383        901,740        922,158
      Non-allocated assets             433,155        315,226        533,885
    -------------------------------------------------------------------------
                                  $  3,366,855   $  3,184,948   $  3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Meat Products Group         $    450,432   $    450,930   $    450,431
      Agribusiness Group                14,136         12,922         14,445
      Bakery Products Group            413,110        392,906        411,385
    -------------------------------------------------------------------------
                                  $    877,678   $    856,758   $    876,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

SOURCE Maple Leaf Foods Inc.


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