Maple Leaf Foods is to continue to try to increase prices to offset commodity costs, with the Canadian food maker’s CEO insisting food inflation was a retailer’s “friend” not its “enemy”.
Michael McCain, Maple Leaf’s president and CEO, said the company had already increased prices on some products and would do so again later this year amid “unprecedented” pressure on commodity costs.
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Speaking to analysts yesterday after Maple Leaf issued its 2010 results, McCain Maple Leaf would increase prices on its bakery products on 31 March. He said the company had upped prices on its meat products in the second and third quarters of last year but indicated it would look to increase prices again in April or May.
McCain acknowledged the industry was operating in one of the “most aggressive retail environments it had seen for some time”, and cited the competition in the Canadian province of Ontario.
However, McCain said that, although discussions with retailers would be “challenging”, he said it would be hard to prevent Maple Leaf from increasing prices – and even suggested higher prices could benefit the company’s retail customers.
“There is an underlying motivation that food inflation is probably for the food retailing industry a friend and not an enemy where possible,” McCain.
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By GlobalData“The magnitude of these increase is such that it’s going to be very difficult to restrict putting prices up. It’s inevitable that these prices increase but there will be challenging discussions – as they often are.”
Nevertheless, CFO Michael Vels admitted that price increases could impact volumes and that there could be a “lag” before Maple Leaf achieves higher prices on shelf. As a consequence, he told analysts, Maple Leaf had a “continued focus on all areas of cost reduction”.
Yesterday, Maple Leaf’s shares closed up after the company reported higher underlying profits for the fourth quarter of 2010 and the year as a whole.
TD Securities analyst Michael van Aelst said Maple Leaf had “capped off 2010 with a strong performance” in the fourth quarter and pointed to earnings per share of 42% for the final three months – and 36% for the year.
Van Aelst said the results meant he would not alter his “underlying view” of the business but added: “However, the rapid rise in commodity costs will create challenges, particularly if they are not passed along within a reasonable timeframe.
“At this point, it looks like management has been proactive in passing on rising costs, although competitive resistance will leave Maple Leaf’s fresh bakery margins exposed for the better part of Q1/11 as price increases will become effective only on 31 March.”
As a consequence, Van Aelst lowered his forecast for Maple Leaf’s 2011 earnings per share from C$0.96 to C$0.94. He kept his 2012 target at C$1.05.
