Maple Leaf turns profit on prepared meat, poultry

by Josh Sosland
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TORONTO – Operating income of the Protein Group of Maple Leaf Foods, Inc. in the year ended Dec. 31, 2012, was C$189,808,000 ($185,000,000), up 7 percent from C$177,882,000 in 2011. Sales in 2012 were C$3,298,157,000 ($3,215,000), basically unchanged from C$3,299,104,000 the prior year.

A jump in profits during the fourth quarter accounted for the entire gain for the year in Protein Group profits. Protein Group operating profits were C$60,793,000 ($59,300,000), up 44 percent from C$42,216,000 in the fourth quarter last year.

The Protein Group include a Meat Products Group (prepared meats and fresh pork and poultry) and an Agribusiness Group (hog production, byproduct sales and biofuels), and it was the Meat Products Group that drove the fourth-quarter profits gain. The Meat Products Group accounts for more than 90 percent of Protein Group sales. Fourth-quarter profits for the meat group rose 73 percent because of strength in prepared meats and fresh poultry, partly offset by weakness in pork processing.

“The prepared meats business benefited from price increases to manage higher input costs, an improved sales mix driven by higher margin product innovation and the discontinuance of lower-margin food service business,” the company said. “Other positive effects impacting earnings for the quarter included cost reductions from simplification of the company's product portfolio and C$5.9 million ($5.8 million) in provisions related to re-assessments of environmental remediation costs on facilities planned for closure. These benefits were partly offset by lower volumes.

“Sales of higher value products, such as the Maple Leaf Prime chicken brand, combined with improved sales mix in higher value channels contributed to higher earnings in the fresh poultry operations. Earnings in primary pork processing declined from last year due to continued weaker industry margins, although improved from earlier in the year.”

Adjusted for a stronger Canadian dollar, sales in the meat group fell 4.6 percent “primarily due to discontinuance of lower-margin accounts in the prepared meats business,” Maple Leaf said.
Agribusiness Group profits fell 14 percent in the fourth quarter.

“Hog production earnings were impacted by a combination of higher feed costs and lower market prices for hogs,” the company said. “Earnings in the byproducts recycling operations were impacted by higher payments for raw materials and lower biodiesel selling prices, partly offset by stronger export volumes.”

At the parent company level, net income of Maple Leaf Foods in the year ended Dec. 31 was C$122,714,000 ($120 million) equal to C$0.83 (81c) per share on the common stock, up 41 percent from C$87,331,000, or C$0.59 per share, in 2011. Net sales were C$4,864,779,000 ($4,742,000,000), down less than 1 percent from C$4,893,624,000.

“We are very pleased with our results for the fourth quarter and 2012 in total,” said Michael H. McCain, president and chief executive officer. “They reflect steady, ongoing progress in realizing earnings growth toward our financial targets. The challenging market conditions in primary pork processing margins and consumer bread demand were significant headwinds for the year. However, we achieved an 8 percent increase in operating profits for the year and 59 percent in the fourth quarter despite these challenges. This is a strong testament to the strength of our business and our strategic initiatives, and the extraordinary contribution of our people. The effects of food inflation driven by the North American droughts of 2012 will be felt mostly in the first half of 2013. As a result, we expect some short-term volatility in our earnings as we pass those cost increases on in the marketplace. Beyond this, our strategic initiatives will accelerate in 2013 and contribute to continued margin growth.”

In the fourth quarter, net income was C$56,844,000 ($55,400,000), or C$0.39 (38c) per share, up sharply from C$9,195,000, or C$0.06 per share, in the fourth quarter of last year. Sales were C$1,204,777,000 ($1,175 million), down 3.2 percent from $1,245,328,000.

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