Maple Leaf Reports 2002 Third Quarter Financial Results
Operating Earnings Up 52%; Earnings Per Share Up 33%
– Maple Leaf Foods Inc. (TSX:MFI) today reported
its financial results for the third quarter
ended September 30, 2002.
“Maple Leaf achieved a 52% improvement in operating earnings in the third quarter compared to last year,” said Michael H. McCain, President and Chief Executive Officer. "We are extremely pleased with this performance considering the challenging market conditions we have faced in the past six months - specifically, a North American over-supply of animal proteins, rapidly rising wheat and feed grain prices, turbulent conditions in export markets. This solid improvement reflects on-going progress we are making in implementing our fundamental business strategies across the entire Company, and we are executing a large number of initiatives designed to grow our sales, improve our margins, and reduce volatility in our portfolio."
In accordance with changes in generally accepted accounting principles, effective January 1, 2002 the Company no longer amortizes goodwill, resulting in a positive impact on 2002 reported earnings. The effect of this is explained more fully in note 1 to the Company's financial statements. All comparative percentage increases noted herein are after taking account of this change.
Sales for the third quarter increased 6% to $ 1.27 billion from $1.20 billion for the same period last year, driven both by the acquisition of bakery businesses and internal growth. During the quarter, prices for meat products declined across the industry due to lower raw material input prices. Accordingly, actual tonnage growth for the Company exceeded this level of dollar sales growth.
Earnings from operations increased by 52% to $49.8 million compared to $30.2 million last year ($32.7 million before goodwill amortization). The Meat Products Group reported improved results, while lower earnings were reported in the Agribusiness Group. The Meat Products Group and Agribusiness Group, which comprise the Company's protein value chain operations, are linked through the Company's Vertical Coordination strategic model. The combined operating earnings for these two groups of $28.8 million increased 47% from $19.6 million in the third quarter last year. The Bakery Products Group recorded an 82% increase in earnings over the prior year period.
Net earnings for the third quarter increased to $19.3 million ($0.16 per share) compared to $10.2 million ($0.10 per share) in 2001 ($12.5 million or $0.12 per share before goodwill amortization), an earnings per share increase of 33%. Net earnings for the first nine months were $58.8 million or $0. 49 per share compared to $32.7 million ($0.31 per share) for the prior year ($39.5 million or $0.38 per share before goodwill amortization).
Other income for the third quarter of $0.2 million compared to $4.0 million for the same period last year, when the Company received a $3.5 million dividend from a passive investment. Interest expense for the quarter of $13.9 million decreased from $16.0 million for the prior year due to lower debt and interest rates. Year-to-date interest expense was $42.3 million compared to $49.5 million in 2001.
The Company’s cash flow from operating activities for the third quarter increased to $37.9 million compared to $6.1 million last year, reflecting higher cash earnings and significantly reduced investments in working capital.
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 $717.6 million compared to $792.3 million last year, as the market price for meat products declined across the industry due to lower raw material input prices. Year-to-date sales of $2.2 billion compare to $2.3 billion for the prior year period. Earnings from operations improved to $11.9 million compared to a loss of $4.5 million for the prior year period (a loss of $3.3 million before goodwill amortization), while earnings for the first nine months increased 112% to $39.0 million compared to $18.4 for the same period last year. Maple Leaf Consumer Foods, Maple Leaf International and Maple Leaf Pork all reported stronger earnings in the third quarter compared to the prior year period. Maple Leaf Pork continues to make steady progress in shifting its sales mix to higher value-added products and markets, while Maple Leaf Consumer Foods benefited from reduced raw material prices and growing market demand for Maple Leaf Top Dogs and Maple Leaf Mega Bites wieners, as well as Maple Leaf bacon and ham products. Partly offsetting these results was the operating performance of Maple Leaf Poultry, which continued to be impacted by an oversupply of Canadian poultry products and corresponding price declines.
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 increased by 5.0% to $239.6 million compared to $227.3 million last year, while year-to-date sales were $701.5 million compared to $652.8 million last year. Operating earnings were $16.9 million compared to $24.1 million for the same period last year ($ 24.5 million before goodwill amortization), while earnings for the first nine months were $ 51.7 million compared to $62.1 million for the prior year period. Lower industry pricing for hogs, which affected the Group’s interests in hog production operations, was the principal reason for the lower earnings. While rising grain prices adversely impacted the profitability of the Company’s hog production operations in the quarter, increased grain costs had no material impact on the profitability of the Company’s feed operations.
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 75% to $311.5 from $178.3 million for the same period last year, while year-to-date sales increased 67% to $ 863.9 million from $515.8 million last year. Earnings from operations for the third quarter increased 82% to $21.0 million from $10.6 million for the same period last year ($11.5 million before goodwill amortization), while earnings for the first nine months were $52.1 million, a 93% increase from $27.0 million last year. The increase in sales and earnings was due to contributions from recent acquisitions increased sales of the Company’s branded fresh and par-baked products, and continued operational improvements. Excluding the effect of acquisitions, sales for the quarter increased by 12%.
In the fourth quarter of 2001, Canada Bread Company, Limited ("Canada Bread"), a 68% owned subsidiary of Maple Leaf Foods, acquired the remaining 75% interest in Multi-Marques Inc., to hold 100%. As of September 30, 2002, Canada Bread had committed to a restructuring plan for the business and has completed the purchase accounting for this acquisition. Included in accounts payable and accrued charges as at September 30, 2002 are accruals of $5.0 million related to the costs associated with restructuring and related rationalization costs.
On July 18, 2002 the Company acquired Olafson's Baking Company Inc. of Delta, British Columbia. The initial purchase price was $11 million. Additional consideration, up to a maximum of $11 million, may be payable depending on the attainment of certain financial targets, up until February 28, 2004.
On October 8, 2002 the Company announced the purchase of Grace Baking Company of San Francisco, California. Grace Baking is a leading U.S. producer of premium fresh and frozen artisan bread products.
On October 9, 2002, Maple Leaf Foods and Canada Bread announced an agreement in principle whereby Canada Bread will purchase all of Maple Leaf Foods' other bakery operations for $266 million, inclusive of debt assumption. Completion of the transaction is subject to finalization of documentation and approval by a majority of Canada Bread's shareholders, excluding Maple Leaf Foods. Canada Bread expects to mail an information circular to its shareholders before the end of October and to hold a meeting of its shareholders in early December. If approved at that meeting, the transaction would be scheduled to close in early December 2002. The transaction is not expected to have any material effect on Maple Leaf Foods' earnings per share.
Maple Leaf Foods declared a dividend of $0.04 per share payable on December 31, 2002 to shareholders of record on December 13, 2002.
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 more than 15,000 at its operations across Canada and in the United States, Europe and Asia. Maple Leaf Foods Inc. reported sales of $4.8 billion in 2001.
A conference call will be held at 2:00 p.m. (EST) on October 23, 2002 to review Maple Leaf Foods’ financial results for the third quarter ended September 30, 2002. The call will be hosted by Michael H. McCain, President & Chief Executive Officer; Tom P. Muir, Chief Financial Officer and Michael H. Vels, Executive Vice-President, Finance.
To participate in the call, please dial in to 1-888-774-1632. For those unable to participate playback will be made available an hour after the event at 1-800-558-5253 passcode #20941765.