Media Centre
2003/07/23

Maple Leaf Reports 2003 Second Quarter Financial Results

Toronto, Ontario – Maple Leaf Foods Inc. (TSE:MFI) today reported its
financial results for the second quarter ended June 30, 2003.
Sales
for the second quarter of $ 1.3 billion were consistent with the same
period last year, while earnings from operations of $22.8 million
decreased from $51.3 million last year. Profitability declined in the
second quarter primarily as a result of a continued oversupply of protein
in North America and a weaker Japanese pork market. Costs relate to the
restructuring of a meat processing plant in Atlantic Canada and a labour
dispute at a fresh bakery distribution centre in Quebec also affected
profitability. Strong performance in fresh bakery and value-added and
branded meats partially offset these earnings impacts.

Net
earnings for the second quarter of $1.8 million ($0.01 per share)
decreased from $22.6 million ($0.19 per share) in 2002. Earnings for the
first six months were $7.8 million or $0.05 per share compared to $39.5
million or $0.33 per share last year.

“Make no mistake about it,
we are clearly disappointed with our second quarter financial results,”
said Michael H. McCain, President and Chief Executive Officer. “We have
endured a prolonged oversupply of meat proteins in the North American
market, and Japan has been a much less lucrative place to sell our fresh
pork products this quarter. That said, we have had a few operating
challenges internally as well, which we are dealing with proactively. On a
more positive note, we continued to post strong growth in value-added
bakery and branded fresh and processed meat sales. In the face of a bad
financial quarter, we are as committed as ever to our core strategies, and
we are managing through the final stages of this difficult market. We are
intent on growing our value-added sales, accelerating new product
innovation, increasing our effective ownership of the hogs we process, and
building organizational strength – all the right steps to realize
long-term shareholder value.”

Other income for the second quarter
of $0.3 million compared to $3.9 million last year, due to lower earnings
from the sale of excess real estate. Interest expense for the quarter of
$16.7 million increased from $15.0 million for the prior year, due to
higher borrowing costs as a result of a long-term debt financing completed
in December 2002, and higher debt levels. Cash flow from operating
activities for the second quarter of $16.7 million compared to $78.9
million last year, due to increased investment in working capital and
lower earnings. Capital expenditures of $37.3 million compared to $25.3
million last year.

While the effect of the increase in the value
of the Canadian dollar in the second quarter was marginally negative, it
did not have a material impact on the Company’s financial results.


On May 5, 2003, the Company purchased 1,165,300 common shares of
Canada Bread on the market for $25.00 per share and on June 12, 2003,
purchased a further 819,400 common shares for $26.50 pursuant to a private
agreement. These share purchases increased Maple Leaf Foods’ ownership of
Canada Bread to 81.1% from 73.3%.

During the quarter, the Company
also purchased for cancellation 64,400 common shares of Maple Leaf Foods
pursuant to a normal course issuer bid, at an average price of $9.77 per
share.


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 Product Group sales for
the second quarter declined to $718.7 million from $751.1 million last
year, primarily due to lower prices in the domestic and export markets for
pork. Year-to-date sales were $1.4 billion compared to $1.5 billion last
year. Losses from operations of $8.5 million, which included a $ 3.5
million pre-tax ($2.3 million after-tax) gain related to the wind-up of a
defined benefit pension plan for hourly employees, compared to operating
earnings of $14.7 million last year. Losses for the first six months were
$2.2 million, including a $8.2 million pre-tax ($5.3 million after tax)
pension gain compared to operating earnings of $27.1 million last year.


Maple Leaf Pork increased the volume of hogs processed by 4%
quarter-over quarter, however, dollar sales value declined as a result of
lower fresh meat prices due to the continued oversupply of protein in the
market. The spread between USDA average hog prices and wholesale pork
prices declined 24% quarter-over-quarter, largely due to a rapid rise in
live hog prices in the second quarter. While markets are difficult to
predict, the industry outlook is for improved wholesale pork prices in the
back half of 2003. The Company’s Canadian retail pork sales realized
strong gains in the quarter, as did sales of Maple Leaf Medallion
Naturally, supported by additional listings and market expansion across
Western Canada.

Earnings in the second quarter continued to be
adversely affected by ongoing restructuring at a meat processing operation
in Atlantic Canada, with earnings in this business declining by $4.6
million in the quarter. Management expects these impacts to be short term.
The Company’s poultry earnings improved as reduced supply in the Canadian
poultry industry strengthened pricing for processed chicken. This
improvement was also driven by growth in Maple Leaf Prime Naturally
chicken sales, which have outpaced overall poultry market growth in
Canada. Maple Leaf Consumer Foods also achieved solid results across its
retail and food service processed meat operations in the quarter,
supported by continued strong growth in its core categories as well as the
launch of several new branded products. Profits from Maple Leaf
International were negatively affected in the quarter due to weaker
markets for imported pork products in Japan. The outlook is for pricing
and pork import markets in Japan to strengthen in the back half of 2003.


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
second quarter were $231.2 million compared to $241.2 million last year,
while year-to-date sales were $454.2 million compared to $461.9 million
last year. Operating earnings in the second quarter of $17.5 million were
consistent with last year, while earnings for the first six months were
$31.2 million compared to $34.8 million for the same period last year.
Sales for the second quarter declined largely as a result of an asset
divestiture in the fourth quarter of 2002, and a seasonal slowdown in
aquaculture feed sales due to cold-water conditions in Atlantic Canada.
Earnings from the Company’s hog production operations improved as a result
of higher hog prices. The Company has significantly increased its economic
ownership of hogs in the first six months of 2003 and is on track to
achieve its near-term goal of 30%. The Company’s feed and rendering
operations were marginally affected by the recent Canadian BSE issue,
which impacted domestic markets for cattle feed and exports of feed to the
U.S., and resulted in declining volumes and markets for recycled animal
by-products.

Bakery Products Group (comprised of Maple Leaf’s
81.1% ownership in Canada Bread Company, Ltd., a leading producer of fresh
and frozen par-baked bakery products, and fresh pasta and
sauces)

Bakery Products Group sales for the second quarter
increased 9 % to $314.1 million compared to $287.3 million for the same
period last year, while year-to-date sales were $621.6 million compared to
$552.4 million last year. The increase in sales was due to contributions
from recent acquisitions and volume and sales increases in both fresh and
frozen par-baked operations. Operating earnings in the Bakery Products
Group of $13.8 million compared to $19.2 million last year, while earnings
for the first six months were $27.1 million (not including a $7.4 million
pre-tax unusual earnings charge in the first quarter) compared to $31.2
million last year. The decline in second quarter operating earnings was
primarily due to a labour dispute at one of the Company’s distribution
centres in Quebec, and costs associated with integrating the Company’s
fresh bakery operations in Atlantic Canada. In the U.S., rising input
costs had some margin impact, as not all cost increases could be passed on
through price increases.

The Company declared a dividend of $0.04
per share payable on September 30, 2003 to shareholders of record on
September 12, 2003.

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 18,000 people at its operations across Canada, and
in the United States, Europe and Asia. The Company reported sales of $5.1
billion in 2002.

A conference call will be held at 3:00 p.m.
(Toronto time) on July 23, 2003 to review Maple Leaf Foods’ financial
results for the second quarter ended June 30, 2003. To participate in the
call, please dial in to 1-800-298-3006. For those unable to participate
playback will be made available an hour after the event at 1-800-558-5253
passcode 21153798. An Investor Presentation related to the Company’s
second quarter financial results will be available at www.mapleleaf.com
(click on Investor Zone and then Investor Communications) after release of
the second quarter financial results.

This release contains
forward-looking statements and information, which may include statements
concerning the company's outlook for the future, as well as other
statements of beliefs, future plans and strategies or anticipated events,
and similar expressions concerning matters that are not historical facts.
The forward-looking information and statements are subject to risks and
uncertainties that could cause actual results to differ materially from
those expressed in, or implied by, the statements. These risks and
uncertainties include availability and prices of livestock, raw materials
and supplies, livestock costs, product pricing, the competitive
environment and related market conditions, operating efficiencies, access
to capital, the cost of compliance with environmental and health
standards, adverse results from ongoing litigation and actions of domestic
and foreign governments. Maple Leaf assumes no obligation to publicly
update or revise these forward-looking statements even if experience or
future changes make it clear that any projected results expressed or
implied therein do not materialize. Refer to the Company’s annual report,
management information circular, annual information form and other filings
with the Ontario Securities Commission and Toronto Stock Exchange for
further information on risks and uncertainties that could cause actual
results to differ materially from forward-looking
statements.
 


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