Maple Leaf Foods' four building blocks to growth
Feb. 24, 2017
by Erica Shaffer
Sustainability, capital investments among the strategies aimed at delivering future profitability.
MISSISSAUGA, Ontario – Net income at Maple Leaf Foods Inc. more than doubled in the fourth quarter, ending 2016 on a fairly strong note. But CEO Michael McCain believes the company can do better in 2017, and he discussed key components of the company’s growth strategy during a recent earnings call with analysts.
For the fourth quarter ended Dec. 31, 2016, Maple Leaf Foods reported net income of C$76.2 million, a 128.8 percent increase over the year-ago quarter figure of C$33.3 million. Sales for the period declined 5.1 percent to C$828.2 million from C$873.1 million.
“As good as 2016 was, we’re highly confident that we can do considerably better in the future,” McCain said. “Our results are outstanding compared to five years ago, but they are decidedly not best in class in North America and we're committed to getting them there over the next five years.”
According to McCain, Maple Leaf Foods sees four primary building blocks to future profitable growth. The first lies with the company’s leadership producing food using systems that address social and environmental needs.
“This is directly connected to our growth, several brand strategies and our product portfolio,” McCain said. “For example, the Greenfield brand, our new lead brand in the sustainable meats segment, went on to become the top-selling new brand from the universe of all new brands that launched in the Canadian grocery retail channels last year in 2016. We’re very, very pleased about this and the products from animals that are raised without antibiotics are an increasing part of our portfolio.”
The second building block is capital investments aimed at improving operating costs in the company’s poultry supply chain, similar to investments Maple Leaf made in its pork supply chain. McCain said the company currently operates five processing facilities and two further-processing plants for poultry.
“Achieving scale in our fresh chicken plants is important to our continued pursuit of efficiency across our manufacturing footprint and the returns look attractive,” McCain said. “We began executing this strategy with a decision to close our subscale turkey processing facility in Ontario and entering into a supply agreement with a third party.”
Improving performance of the company’s core packaged meats business is the third building block, McCain said. The company’s portfolio includes Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections, Schneiders, Schneiders Country Naturals, Mina and many leading regional brands.
“…our concentrated effort is on renovating that core portfolio of products,” McCain said. “SKU by SKU, this initiative is examining everything from taste profiles, health and nutrition profiles, to packaging, all the way through to the core brand strategies that are relevant and current to consumers today. And we think this has tremendous opportunity to accelerate our growth and our margins. Maple Leaf has the leading brand portfolio in the Canadian fresh and prepared meats market which provides an ideal platform to work from.”
Sales in the company’s Meat Products Group in the fourth quarter were C$824.4 million, down 5.1 percent from a year ago, or 5.8 percent after adjusting foreign exchange impacts. Excluding only the contribution of the 53rd week in 2015, sales advanced 2.0 percent on stronger year-over-year prepared meats sales.
Adjusted operating earnings for the fourth quarter C$73.5 million compared to $54.6 million in the fourth quarter of 2015. Maple Leaf said margins in prepared meats improved lower operating costs across the network.
Additionally, fresh pork earnings were higher compared to a year ago due to stronger margins in the value-added retail and export channels, higher industry margins, and operating efficiency gains, the company said. Earnings in fresh poultry declined slightly as industry processor margins retreated from record levels in the fourth quarter of 2015.
The fourth block in the company’s growth strategy includes opportunities for additional cost reduction throughout the business.
“We have embedded a cost culture at Maple Leaf and again, there's room for improvement, not the least of which is ongoing efficiency gains in our Heritage facility in Hamilton, Ontario,” McCain said.
Turning to the company’s recent acquisition of Lightlife Foods, McCain said alternative protein is where Maple Leaf is least developed. The Lightlife acquisition provides Maple Leaf a platform in the fast-growing segment of alternative proteins.
“This transaction is not about synergies, it’s about growth,” McCain explained, “and growth that establishes a strong US platform for Maple Leaf in alternative proteins.”
McCain noted that a continued shift toward balancing meat consumption with alternative proteins is driving growth in the category. This trend has led Maple Leaf to make investments in the segment, including consumer knowledge, technology in the category and product design.
“We fully expect this will be useful to support Lightlife’s growth as part of our portfolio,” McCain said. “Part of the attraction to Lightlife is its ability to drive growth in the overall category. With such a strong market position and a well-established brand, they are able to support and work with retail customers across North America to bring new innovations of the market, supported by a diverse portfolio of over 30 products. They also have a manufacturing and distribution base that enables this growth.”