Maple Leaf Foods Reports Third Quarter Results
TORONTO, Oct 29, 2008 /PRNewswire-FirstCall via COMTEX News Network/ -- RECALL IMPACTS NEAR-TERM EARNINGS; OFFSETS GAINS IN OTHER BUSINESSES
Maple Leaf Foods Inc. (TSX: MFI) 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.
Third Quarter Year-To-Date
---------------------------------------
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
---------------------------------------
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
---------------------------------------
---------------------------------------
(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 $5.1 million in Q2
2007 related to the sale of the animal nutrition business.
(ii) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to
evaluate results, as product recall, restructuring, and other
related costs are not representative of continuing operations.
(iii) Does not add due to rounding.
Business Segment Review
-----------------------
Following is a summary of operating earnings from continuing operations
before one-time direct product recall, restructuring and other related costs
and other income ("Adjusted Operating Earnings") by business segment:
($ millions) Third Quarter Year-to-Date
------------------------ ------------------------
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%)
------------------------ ------------------------
------------------------ ------------------------
(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.)
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."
An investor presentation related to the Company's third 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 10:00 a.m. EDT on October 29, 2008 to review Maple Leaf Foods' third 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 3272764 followed by the number sign).
A webcast presentation of the third quarter financial results will also be available at http://investor.mapleleaf.ca via a link http://events.startcast.com/events/91/B0028.
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. In particular, 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 magnitude of the rate of change of the Canadian dollar versus the U.S. dollar; the availability and prices of 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. 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. Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted in such forward-looking statements are discussed more fully in the Company's Management's Discussion and Analysis for the year ended December 31, 2007, which is available on SEDAR at www.sedar.com<./a>. 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.
Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 23,500 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.
Consolidated Financial Statements
(Expressed in Canadian dollars)
MAPLE LEAF FOODS INC.
Three and nine months ended September 30, 2008 and 2007
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
September 30, September 30, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 125,509 $ 93,727 $ 28,222
Accounts receivable 216,688 233,973 202,285
Inventories 397,642 367,424 351,064
Income and other taxes
recoverable 3,683 - -
Future tax asset - current 44,297 11,939 25,409
Prepaid expenses and other
assets 33,768 27,391 16,529
Assets held for sale - 75,767 10,092
-----------------------------------------------------------------------
821,587 810,221 633,601
Investments in associated
companies 1,146 902 1,207
Property and equipment 1,167,233 1,128,099 1,126,727
Other long-term assets 312,539 282,067 303,360
Future tax asset - non-current 57,890 18,159 22,837
Goodwill 871,312 833,131 817,477
Other intangibles 98,238 87,064 92,635
-------------------------------------------------------------------------
$ 3,329,945 $ 3,159,643 $ 2,997,844
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 9,521 $ 10,157 $ 9,845
Accounts payable and accrued
charges 563,831 584,575 550,528
Income and other taxes payable - 15,502 12,881
Current portion of long-term debt 11,457 70,328 17,945
-----------------------------------------------------------------------
584,809 680,562 591,199
Long-term debt 1,240,805 845,397 855,281
Future tax liability - non-current 82,546 73,405 61,935
Other long-term liabilities 236,785 276,132 248,448
Minority interest 71,939 77,402 79,554
Shareholders' equity 1,113,061 1,206,745 1,161,427
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$ 3,329,945 $ 3,159,643 $ 2,997,844
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Maple Leaf Foods Inc.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Sales $ 1,344,334 $ 1,301,099 $ 3,902,898 $ 3,936,007
Cost of goods sold 1,186,245 1,149,633 3,438,406 3,448,337
-------------------------------------------------------------------------
Gross margin $ 158,089 $ 151,466 $ 464,492 $ 487,670
Selling, general
and administrative
expenses 117,012 112,877 371,427 346,555
-------------------------------------------------------------------------
Earnings from
continuing
operations before
the following: $ 41,077 $ 38,589 $ 93,065 $ 141,115
Product recall,
restructuring and
other related costs (42,902) (6,972) (62,242) (50,397)
Other income 9,157 365 11,075 2,334
-------------------------------------------------------------------------
Earnings from
continuing
operations before
interest and
income taxes $ 7,332 $ 31,982 $ 41,898 $ 93,052
Interest expense 22,325 23,086 65,856 73,029
-------------------------------------------------------------------------
Earnings (loss) from
continuing operations
before income
taxes $ (14,993) $ 8,896 $ (23,958) $ 20,023
Income taxes (4,243) 4,608 (6,202) 12,573
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Earnings (loss) from
continuing operations
before minority
interest $ (10,750) $ 4,288 $ (17,756) $ 7,450
Minority interest 2,169 2,590 4,526 6,944
-------------------------------------------------------------------------
Net earnings (loss)
from continuing
operations $ (12,919) $ 1,698 $ (22,282) $ 506
Net earnings from
discontinued operations
- net of income tax - 218,726 - 228,710
-------------------------------------------------------------------------
Net earnings
(loss) $ (12,919) $ 220,424 $ (22,282) $ 229,216
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Basic earnings
(loss) per share
from continuing
operations $ (0.10) $ 0.01 $ (0.18) $ -
from discontinued
operations - 1.71 - 1.80
-------------------------------------------------------------------------
$ (0.10) $ 1.72 $ (0.18) $ 1.80
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Diluted earnings
(loss) per share
from continuing
operations $ (0.10) $ 0.01 $ (0.18) $ -
from discontinued
operations - 1.66 - 1.75
-------------------------------------------------------------------------
$ (0.10) $ 1.67 $ (0.18) $ 1.75
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Weighted average
number of shares
(millions) 126.3 127.9 126.8 127.5
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Maple Leaf Foods Inc.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net earnings (loss) for
the period $ (12,919) $ 220,424 $ (22,282) $ 229,216
Other comprehensive
income (loss)
Change in accumulated
foreign currency
translation
adjustment (9,187) (6,132) (953) (13,722)
Change in unrealized
derivative loss on
cash flow hedges 2,326 7,459 (2,313) 18,273
-------------------------------------------------------------------------
$ (6,861) $ 1,327 $ (3,266) $ 4,551
-------------------------------------------------------------------------
Comprehensive income
(loss) $ (19,780) $ 221,751 $ (25,548) $ 233,767
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Nine months ended September 30,
(Unaudited) 2008 2007
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 390,784 $ 204,415
Net earnings (loss) for the period (22,282) 229,216
Dividends declared ($0.12 per share;
2007: $0.12 per share) (15,700) (15,391)
Premium on shares repurchased for cancellation (5,515) -
Premium on shares issued from Restricted
Share Unit Trust (819) -
-------------------------------------------------------------------------
Retained earnings, end of period $ 346,468 $ 418,240
-------------------------------------------------------------------------
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Maple Leaf Foods Inc.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN)
Operating activities
Net earnings (loss)
from continuing
operations $ (12,919) $ 1,698 $ (22,282) $ 506
Add (deduct) items
not affecting cash:
Depreciation and
amortization 37,353 35,722 111,062 105,704
Stock-based
compensation 3,840 3,389 12,026 10,474
Minority interest 2,169 2,590 4,526 6,944
Future income taxes (12,517) (133) (21,765) (11,016)
Gain on sale of
property and
equipment (4,302) (173) (4,073) (255)
Gain on sale of
investments - (162) - (162)
Change in other
long-term receivables 163 2,296 559 114
Decrease in net pension
asset (5,137) (8,634) (16,199) (36,726)
Asset impairments and
change in restructuring
provisions 17,448 3,285 28,792 31,431
Other 2,282 (5,081) 5,802 (8,504)
Change in non-cash
operating working
capital 22,070 3,800 (89,835) (74,819)
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Cash provided by
operating activities
of continuing
operations $ 50,450 $ 38,597 $ 8,613 $ 23,691
Cash used in operating
activities of
discontinued
operations - (13,969) - (17,086)
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$ 50,450 $ 24,628 $ 8,613 $ 6,605
Financing activities
Dividends paid (5,252) (5,167) (15,700) (15,391)
Dividends paid to
minority interest (183) (184) (599) (618)
Net increase (decrease)
in long-term debt 138,037 (378,193) 359,371 (260,566)
Increase in share
capital 900 5,242 4,010 20,344
Purchase of
treasury stock - (4,692) (11,341) (4,692)
Shares repurchased
for cancellation - - (11,814) -
Other 2,085 (86) 784 7,291
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Cash provided by
(used in) financing
activities of
continuing
operations $ 135,587 $ (383,080) $ 324,711 $ (253,632)
Cash used in
financing activities
of discontinued
operations - - - (389)
-------------------------------------------------------------------------
$ 135,587 $ (383,080) $ 324,711 $ (254,021)
Investing activities
Additions to property
and equipment (49,344) (58,511) (157,708) (170,236)
Proceeds from sale
of property and
equipment 6,682 1,334 17,227 3,120
Acquisition of
businesses - net
of cash acquired (1,295) (51,192) (62,954) (64,623)
Proceeds on sale
of investments - 2,091 - 3,713
Proceeds on disposal
of business - - - 5,470
Purchase of Canada
Bread shares (32,643) - (32,643) (6,521)
Other 224 1,262 365 1,383
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Cash used in investing
activities of continuing
operations $ (76,376) $ (105,016) $ (235,713) $ (227,694)
Cash provided by
investing activities
of discontinued
operations - 507,456 - 503,316
-------------------------------------------------------------------------
$ (76,376) $ 402,440 $ (235,713) $ 275,622
Increase in cash and
cash equivalents 109,661 43,988 97,611 28,206
Net cash and cash
equivalents,
beginning of period 6,327 39,582 18,377 55,364
-------------------------------------------------------------------------
Net cash and cash
equivalents, end
of period $ 115,988 $ 83,570 $ 115,988 $ 83,570
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Maple Leaf Foods Inc.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Sales
Meat Products
Group $ 838,195 $ 862,961 $ 2,457,378 $ 2,637,653
Agribusiness
Group 63,658 53,158 183,819 180,507
Bakery Products
Group 442,481 384,980 1,261,701 1,117,847
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$ 1,344,334 $ 1,301,099 $ 3,902,898 $ 3,936,007
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Earnings from
continuing
operations before
product recall,
restructuring and
other related
costs and other
income
Meat Products
Group $ 812 $ 13,590 $ 31,542 $ 50,104
Agribusiness
Group 12,336 (3,493) 17,152 2,012
Bakery Products
Group 30,550 32,591 56,378 93,644
Non-allocated
costs (2,621) (4,099) (12,007) (4,645)
-------------------------------------------------------------------------
$ 41,077 $ 38,589 $ 93,065 $ 141,115
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Capital
expenditures
Meat Products
Group $ 29,742 $ 32,022 $ 101,593 $ 93,146
Agribusiness
Group 2,638 3,790 9,614 10,416
Bakery Products
Group 16,964 22,699 46,501 66,674
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$ 49,344 $ 58,511 $ 157,708 $ 170,236
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Depreciation and
amortization
Meat Products
Group $ 18,970 $ 17,621 $ 56,548 $ 52,211
Agribusiness
Group 4,085 5,327 12,252 14,984
Bakery Products
Group 14,298 12,774 42,262 38,509
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$ 37,353 $ 35,722 $ 111,062 $ 105,704
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As at As at As at
September 30, September 30, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Total assets
Meat Products Group $ 1,716,044 $ 1,592,649 $ 1,560,244
Agribusiness Group 240,432 460,053 302,999
Bakery Products Group 908,152 869,776 823,137
Non-allocated assets 465,317 237,165 311,464
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$ 3,329,945 $ 3,159,643 $ 2,997,844
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Goodwill
Meat Products Group $ 450,734 $ 450,686 $ 450,929
Agribusiness Group 12,942 2,042 2,058
Bakery Products Group 407,636 380,403 364,490
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$ 871,312 $ 833,131 $ 817,477
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SOURCE Maple Leaf Foods Inc.