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Maple Leaf Foods Reports Third Quarter 2006 Financial Results

Toronto, Ontario – October 26, 2006 – Maple Leaf Foods Inc. (TSX:MFI) today reported its financial results for the third quarter ended September 30, 2006.

“Our performance in the third quarter clearly does not reflect the potential of this Company and reaffirms our decision to move forward with major changes in our protein value chain,” said Michael McCain, President and CEO. “We will significantly improve long-term profitability, and reduce our exposure to currency and commodity markets, through reorganizing these operations to focus growth in the higher margin, value-added meats and meals business. While our bakery group achieved significant top line growth in the quarter, profitability was impacted by record high flour prices and other short-term factors. We are implementing price increases to offset these higher costs, and we will continue to benefit from the brand and market leadership we have built in this business.”

On October 12, 2006, Maple Leaf announced a major shift in strategy and subsequent reorganization of its protein value chain operations to significantly increase long-term profitability. These operations, comprising its Meat and Agribusiness Groups, will be vertically integrated to support growth in the higher margin value-added meats and meals business. To support this transition to an integrated protein organization, Richard Lan has been appointed Chief Operating Officer of Maple Leaf’s Food Group, which includes all of the protein and bakery operations. The Company will size its feed, hog production, and fresh pork operations to meet the requirements of its value-added meats business, resulting in the sale or consolidation of certain assets. As a result, the Company expects to incur restructuring costs of between $80 million to $120 million over the next three years.

In the third quarter, the Company recorded restructuring and other costs of $19.7 million before income taxes related to ongoing restructuring of its hog production operations that resulted in a write-down of certain hog investments, as well as costs related to consolidating operations and exiting non-core trading businesses. As further decisions are made, the estimated costs of these initiatives will be reflected as restructuring costs and disclosed separately from ongoing base earnings.

During the quarter the Company also recorded a non-recurring tax expense of $21.2 million to write-down future tax assets related to its U.S. frozen bakery business. Although the Company continues to believe that tax losses incurred to date in this jurisdiction will be utilized, the accumulation of tax losses in recent years and uncertainty as to when these losses will be utilized has triggered an application of accounting rules that require the Company to set-up a full valuation allowance against these net tax assets. These adjustments are more fully explained in note 6 to the interim financial statements.

Sales for the third quarter of 2006 decreased 5% to $1.5 billion primarily reflecting lower prices of export products due to currency changes. Year-to-date sales decreased 5% to $4.4 billion.

Earnings from operations before restructuring and other costs declined to $46.3 million compared to $71.6 million in the third quarter last year. Year-to-date earnings from operations before restructuring and other costs declined to $158.5 million from $211.4 million last year. Earning comparisons do not include restructuring and other costs of $19.7 million ($15.6 million after tax) in the third quarter of 2006. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other costs are not representative of continuing operations.

Net earnings for the quarter before restructuring and other costs and non-recurring tax adjustments were $11.8 million ($0.09 per share), decreasing from $30.1 million ($0.24 per share) last year. Year-to-date net earnings on the same basis were $50.3 million ($0.39 per share) compared to $84.4 million ($0.67) per share last year.

Including restructuring and other costs and non-recurring tax adjustments, the Company recorded a net loss of $22.3 million (loss of $0.17 per share) and year-to-date net earnings of $16.1 million ($0.13 per share).

Operating Review
The following table reflects operating earnings by business segment before restructuring and other costs:

    Earnings from operations before restructuring and other costs:

    ($ millions)                   Third Quarter             Year to Date
                               --------------------      --------------------
                                2006   2005  Change       2006   2005  Change
                               ------ ------ ------      ------ ------ ------
    Meat Products Group          9.2   13.3   (31%)       36.6   49.5   (26%)
    Agribusiness Group          13.2   26.8   (51%)       44.4   83.0   (46%)
                               --------------------      --------------------
    Protein Value Chain         22.4   40.1   (44%)       81.0  132.5   (39%)
    Bakery Products Group       23.8   31.4   (24%)       77.5   78.9    (2%)
                               --------------------      --------------------
                                46.3   71.6   (35%)      158.5  211.4   (25%)
                               --------------------      --------------------

Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)

Meat Products Group sales for the third quarter decreased 9% to $926 million, primarily due to a currency related decline in the value of export sales. Year-to-date sales were $2.8 billion compared to $3.1 billion last year.

Earnings from operations for the third quarter declined to $9.2 million from $13.3 million last year, while year-to-date earnings were $36.6 million compared to $49.5 million last year. While the fundamentals in the meat industry have gradually improved, profitability from pork sales to Japan declined compared to the third quarter last year. An increase in scheduled advertising and promotional spending in the processed meats and meals business, including support for the launch of a new line of Maple Leaf Fully Cooked Roasts, also impacted earnings. The contribution from the fresh poultry operations increased due to improved industry poultry processor margins in the quarter, while the performance of the fresh pork business was largely consistent with last year. To support the integration of these operations into a single, focused value-added protein business, in the fourth quarter, the Company has consolidated its fresh and processed meats and meals operations into a single operating division.

Agribusiness Group (research, development and supply of quality livestock nutrition products and services; pet food; swine production; and animal by-products recycling)

Agribusiness Group sales for the third quarter declined to $190 million compared to $200 million last year, while year-to-date sales increased to $598 million from $589 million last year.

Earnings from operations for the third quarter declined to $13.2 million from $26.8 million last year, and year-to-date declined to $44.4 million from $83.0 million last year. While hog prices rose unexpectedly during the quarter, the Company did not realize the full benefit of this increase due to the impact of short term hedging programs and a stronger Canadian dollar that resulted in a reduction in the net realized value of hogs. Maple Leaf had effective ownership of 19% of the 1.7 million hogs it processed in the third quarter. The Company is restructuring its hog production business to establish 100% ownership of its hog barns, while significantly reducing its total hogs under management. Moving to a smaller, vertically integrated business model will allow Maple Leaf to lower overhead costs, exert more control over operating improvements at these barns, and reduce its exposure to the hog market. This restructuring may involve the sale or liquidation of investments that cannot achieve the Company’s targets for return on capital employed in this business. Included in restructuring and other costs for the third quarter was $12.4 million related to the write down on hog production assets to management’s estimate of their realizable value in the restructuring process.

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

Bakery Products Group sales for the third quarter increased 9% to $342 million compared to $314 million last year, as a result of price increases, and higher volumes in the frozen bakery and pasta operations and the contribution of Walsall in the U.K. Year-to-date sales increased to $979 million compared to $917 million in 2005.

Earnings from operations in the third quarter decreased to $23.8 million from $31.4 million last year, while year-to-date earnings declined to $77.5 million from $78.9 million last year. The decline in earnings during the quarter was principally due to a 35% rise in flour prices, the most significant increase in 10 years, due in part to adverse weather conditions that have impacted global wheat supply and prices. While the Company has implemented price increases, this pricing only became effective at the beginning of the fourth quarter and thus did not offset cost increases.

Profitability in the frozen bakery operations was also impacted by start up costs and product waste related to the launch of a new product line for a major food service customer. In addition, the Company’s Roanoke, Virginia bakery experienced operational issues during the quarter. The U.K. frozen bakery operations benefited from contributions from the new par-baked plant in Walsall, which was acquired in the first quarter of 2006.

Growth in profitability in the Company’s fresh bakery business was impacted by high flour prices and some Canadian industry wide market softness, although these factors were mitigated by an improved sales mix and price increases. Dempster’s Smart bread, which was launched in early 2006, continued to support strong growth in the white bread category. The Olivieri pasta business had a very strong quarter, reflected in increased sales and earnings.

Cash Flow and Financing
Interest expense for the third quarter of $25.1 million compared to $23.6 million last year due primarily to higher short-term interest rates. At the end of the third quarter, interest rates on 83% of the Company’s indebtedness was fixed and not exposed to short-term interest rate fluctuations. Year-to-date interest expense was $74.2 million compared to $74.7 million last year.

Cash flow from operating activities for the third quarter declined to $77.4 million from $104.4 million last year, driven by lower earnings partially offset by improved cash flow from working capital. Cash flow from operating activities for the year-to-date was $73.7 million compared to $134.1 million for the first nine months of 2005.

Capital expenditures on plant and equipment for the third quarter of $32.8 million were largely consistent with last year. In October, the Company announced that it will not be proceeding with the previously announced construction of a new pork processing plant in Saskatoon, which will reduce previously estimated capital expenditures for 2006 and 2007.

Forward-Looking Statements
This document may contain forward-looking information within the meaning of applicable securities legislation. Forward-looking information is based upon a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond Maple Leaf Foods’ control, that could cause actual results to differ materially from those that are disclosed in or implied by such forward-looking information. Maple Leaf does not undertake to update any such forward-looking information whether as a result of new information, future events or otherwise. Any forward-looking information in this press release speaks as of the date of this press release. Additional information about these assumptions and risks and uncertainties is contained in the filings with securities regulators including the annual information form and Management’s Discussion and Analysis accompanying the financial statements in the reports to shareholders. These filings are available on the Company’s website at

Other Matters
Maple Leaf Foods declared a dividend of $0.04 per share payable on December 29, 2006 to shareholders of record on December 8, 2006.

Maple Leaf Foods Inc. is a leading Canadian food processing company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 24,000 people at its operations across Canada and in the United States, Europe and Asia. The Company had sales of $6.1 billion in 2005.

An investor presentation related to the Company’s third quarter financial results is available at and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:15 p.m. EDT on October 26, 2006 to review Maple Leaf Foods’ third quarter financial results. To participate in the call, please dial 416-641-6113 or 866-542-4239. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 3200361#).

A webcast presentation of the third quarter financial results will also be available at via a link An archived replay of the webcast will be available following the call at each of the above links.

SOURCE: Maple Leaf Foods Inc.

Lynda Kuhn, Vice-President, Public & Investor Relations, (416) 926-2026,