High restructuring costs hit Maple Leaf earnings

High restructuring costs hit Maple Leaf earnings

Maple Leaf Foods' third-quarter earnings came in below analyst expectations today (30 October) as the Canadian group registered greater-than-expected charges related to a scheme to modernise some of its meat plants.

The company reported a net loss from continuing operations of C$26.7m (US$23.88m), compared with a loss of C$24.5m a year earlier. EBITDA of C$16m was below consensus of C$20m.

Costs at Maple Leaf's prepared meat business, which accounts for around 90% of sales, rose by C$14.6m to $25.2m. The company is upgrading its meat operations, including the closure of some plants, as it works to boost profitability.

Canaccord Genuity analyst Derek Dley said the issue was a "short-term" problem as production is scheduled to be transferred to the new Hamilton prepared meats facility in the next few quarters.

While Dley forecast a fiscal 2015 EBITDA margin of 8.7% - below management guidance of 10% - he stressed that should the company hit its targets it will imply a significant upside for the group's current share price.

"Achievement of management's EBITDA margin guidance of 10% implies 12% upside to the share price at the current valuation, all other factors being equal. However, should Maple Leaf reach its margin goals, we believe the valuation multiple assigned to Maple Leaf's share price would likely increase to a level in line with the company's packaged goods peers, implying 28% upside to the current share price," he wrote in a note to investors.

However, the EBITDA miss would seem to have raised further doubts over whether this will be achievable. Shares in Maple Leaf were down more than 3% at 12:42 ET, dropping to C$19.50.

Higher meat pricing meant sales from continuing operations totaled C$820.1m, an increase of 8.2% from last year.

Show the press release

Maple Leaf Foods Reports Results for the Third Quarter 2014


TORONTOOct. 30, 2014 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter,September 30, 2014.

  • Adjusted Operating Earnings(1)(3) for the third quarter was a loss of $19.8 million (loss of $20.3 million last year) and $61.8 millionfor the nine months (loss of $80.4 million last year)
  • Adjusted Earnings per Share(3)(4)  for the quarter was a loss of $0.13 (loss of $0.19 last year) and $0.49 for the nine  months (loss of $0.66 last year)
  • Net loss from continuing operations for the third quarter was $26.7 million (loss of $24.5 million last year) and $190.8 million for the nine months (loss of $93.5 million last year)
  • The Company ended production at its plant in Moncton, leaving three remaining plants to close to complete its supply chain transformation


"We continue to make important advances towards our strategic goals," said Michael H. McCain, President and CEO. "We have benefited from improved margins during a period of unprecedented volatility and high costs in the raw materials market. We are managing the related impact on demand and see the volume decline as short term. While the ongoing cost of duplicate supply chains and start-ups continues to be material, we are achieving milestones every quarter. Product transfers into the new Heritage facility inHamilton continue, facilitating one more plant closure in the quarter. Once fully commissioned, our Heritage plant will be one of the most advanced, efficient facilities of its type in North America."

Financial Overview

Maple Leaf Foods Inc. ("the Company") sales from continuing operations of $820.1 million for the third quarter was an increase of 8.2% from last year, or 7.6% after adjusting for the impact of foreign exchange, due to higher pricing in the Meat Products Group. Sales from continuing operations of $2,363.2 million for the first nine months increased 7.1%, or 6.1% after adjusting for foreign exchange, due to the same factor.

Adjusted Operating Earnings for the third quarter was a loss of $19.8 million compared to a loss of $20.3 million last year. The Meat Products Group benefited from improved pork processing margins and price increases, while impacted by ongoing transitional costs and lower volumes. For the first nine months, Adjusted Operating Earnings  was a loss of $61.8 million compared to a loss of $80.4 million last year, with improved processing margins and price increases more than offsetting the ongoing transitional costs in the period.

Adjusted Earnings per Share was a loss of $0.13 in the third quarter of 2014 compared to a loss of $0.19 last year. For the first nine months, Adjusted Earnings per Share was a loss of $0.49 compared to a loss of $0.66 last year.

Net loss from continuing operations for the third quarter was $26.7 million (loss of $0.19 per basic share attributable to common shareholders(6)) compared to a loss of $24.5 million (loss of $0.18 per share) last year. This included $14.3 million ($0.07 per share) of pre-tax expenses related to restructuring and other related costs (2013: $11.4 million, or $0.06 per share).

For the first nine months, net loss from continuing operations was $190.8 million (loss of $1.35 per share) compared to a net loss of$93.5 million (loss of $0.67 per share) last year. This amount included $56.0 million ($0.30 per share) of pre-tax expenses related to restructuring and other related costs (2013: $62.7 million or $0.33 per share), as well as financing costs of $98.6 million related to the repayment of the Company's long-term notes payable in April 2014.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of ongoing operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this news release for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

Following is a summary of sales by business segment:

(Unaudited)   Third Quarter Year-to-Date
($ thousands)   2014   2013   2014   2013  
Meat Products Group   $ 814,699   $ 751,509   $ 2,345,651   $ 2,182,046  
Agribusiness Group(5)   5,398   6,339   17,583   24,420  
Total Sales(3)   $ 820,097   $ 757,848   $ 2,363,234   $ 2,206,466  


The following table summarizes Adjusted Operating Earnings by business segment:

(Unaudited)   Third Quarter Year-to-Date
($ thousands)   2014   2013   2014   2013
Meat Products Group   $ (18,220)   $ (21,624)   $ (61,312)   $ (43,568)
Agribusiness Group   (1,610)   1,559   3,252   (28,255)
Protein Group   $ (19,830)   $ (20,065)   $ (58,060)   $ (71,823)
Non-Allocated Costs in Adjusted Operating   Earnings(i)     (233)   (3,748)   (8,604)
Adjusted Operating Earnings(3)   $ (19,830)   $ (20,298)   $ (61,808)   $ (80,427)
(i)   Non-allocated costs are comprised of expenses not separately identifiable to business segment groups, and do not form part of the measures used by the Company when assessing the segments' operating results. Non-allocated costs for 2013 have been re-stated on a comparable basis.


Meat Products Group

Includes value-added prepared meats, lunch kits and snacks, and fresh pork, poultry and turkey products sold under leading Canadian brands such as Maple Leaf®, Schneiders® and many leading sub-brands.

Sales in the Meat Products Group for the third quarter increased 8.4% to $814.7 million, or 7.8% after adjusting for the weaker Canadian dollar that benefited pork exports. The increase was driven by higher values for fresh pork as well as price increases implemented in the prepared meats business during the second quarter of 2014 in response to higher raw material costs. As expected, the business is experiencing a period of lower demand and volume in response to this pricing action. This is being actively managed and volumes are expected to recover in the next one to two quarters.

For the first nine months, sales increased 7.5% to $2,345.7 million, or 6.5% after adjusting for the impact of foreign exchange, largely due to the same factors noted above.

Adjusted Operating Earnings for the third quarter improved to a loss of $18.2 million compared to a loss of $21.6 million last year, as a result of increased margins in the Meat Products Group, which benefited from price increases in the prepared meats business and higher earnings in the fresh pork business, reflecting increased pork processing margins which more than offset a decline in volume resulting from lower hog supply in Western Canada. Earnings in the poultry business increased slightly as a result of improved poultry processing margins.

The prepared meats business incurred transitional costs of approximately $25.2 million during the third quarter of 2014, consistent with the second quarter of 2014 and an increase from $14.6 million in the third quarter last year. These costs largely related to commissioning activities at the new prepared meats facility in Hamilton, the largest in the Company's network, and duplicative overhead costs from legacy plants scheduled to be closed.

For the first nine months, Adjusted Operating Earnings was a loss of $61.3 million compared to a loss of $43.6 million last year. The decline in earnings was due to the same factors noted above, including higher transitional costs and increased raw material costs, which had not been fully offset by price increases implemented in the second quarter. Raw material prices continued to remain higher than last year due to the outbreak of disease in hog production herds in the U.S.

Agribusiness Group

Includes Canadian hog production operations that primarily supply the Meat Products Group with livestock as well as toll feed sales.

Agribusiness Group sales for the third quarter declined to $5.4 million compared to $6.3 million last year, due to lower pricing on toll feed sales. Sales for the first nine months declined to $17.6 million from $24.4 million.

Adjusted Operating Earnings in the third quarter declined to a loss of $1.6 million compared to a gain of $1.6 million last year as the hog production operations experienced additional costs related to prevention of the PED virus. In addition, there was a nonrecurring gain in the third quarter last year related to a reversal of a provision for a hog supply arrangement no longer required. For the first nine months, Adjusted Operating Earnings increased to $3.3 million from a loss of $28.3 million last year, as the higher market prices for hogs, net of hedging activities, exceeded higher hog production costs.

Other Matters

On October 29, 2014, the Company declared a dividend of $0.04 per share payable December 31, 2014, to shareholders of record at the close of business on December 5, 2014. Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, the dividend will be considered 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.mapleleaffoods.com and can be found under Investor Material on the Investors page. A conference call will be held at 2:30 p.m. EDT on October 30, 2014, to review Maple Leaf Foods' third quarter financial results. To participate in the call, please dial 416-340-9432 or 800-952-4972. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 2199324).

Original source: Maple Leaf Foods