Maple Leaf Foods Q1 net earnings, sales down

by Bryan Salvage
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TORONTO – Maple Leaf Foods Inc. announced for the first quarter ended March 31, net earnings decreased 47 percent to $10.5 million (US$11 million), including $26.1 million (US$27.5 million) in pre-tax restructuring costs. Sales for the first quarter of 2011 decreased 4 percent to $1,147.9 million (US$1,207.9 million) compared to $1,191.5 million (US$1,253.8 million) last year, primarily due to business divestitures.

Adjusted operating earnings increased 61 percent to $50.7 million (US$53.4 million); value creation initiatives are on track and contributing to margin growth; and adjusted earnings per share increased to $0.18 (US$0.19) from $0.07 (US$0.74) last year.

"Maple Leaf Foods delivered our eighth consecutive quarter of improved results, with a significant increase in profitability in our fresh and prepared meats businesses." said Michael McCain, president and CEO. “While the most significant challenge has been rising raw material costs, we are passing on price increases to protect our margins. Overall, this was another strong quarter of performance."

Meat Products Group sales for the first quarter fell 7 percent to $718.2 million (US$755.8 million) from $768.2 million (US$808.4 million) in the first quarter last year, largely due to the sale of the company's Burlington, Ontario primary pork processing operation in November 2010. Excluding this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of exports, sales increased by 4 percent. Maple Leaf said this business benefited from higher market prices in fresh pork and increased net pricing and improved sales mix in prepared meats, which were partly offset by lower volumes in prepared meats.

Adjusted operating earnings in the group increased 131 percent to $26.6 million (US$28 million) compared to $11.6 million (US$12.2 million) last year, driven by margin expansion in prepared meats and improved primary processing markets.

Prepared meats margins strengthened as price increases were successfully implemented to manage the effect of rising input costs. Higher prices continued to result in some volume declines, consistent with the experience of others in the food industry. As food inflation trends continue in 2011, pricing will continue to be implemented as required to offset higher costs.

New product innovation, including the Natural Selections line of sliced meat products, contributed to an improved sales mix and higher margins. The company launched Schneiders Country Naturals prepared sliced meats.

Strong performance in primary pork processing operations was driven by improved market conditions in North America and operating efficiencies at the Brandon pork processing facility. Earnings from the fresh poultry operations declined, as higher corn prices drove up live bird prices and contracted industry processor margins.

The company continues to implement its value creation plan to increase shareholder value over the near and long term. This includes implementing price increases, simplifying its product mix and increasing scale in its manufacturing network. The company previously announced it will close its Surrey, BC prepared meats facility and transfer production to other facilities to consolidate production and reduce costs.

Sales in the Agribusiness Group, which consists of Canadian hog production and animal by-product recycling operations, increased 37 percent to $57.3 million (US$60.3 million) from $41.8 million (US$44 million) in the first quarter last year. Since last year, hog prices have increased 18 percent and outpaced the company's net cost of grain, contributing to higher earnings.
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