Turning a corner

by Erica Shaffer
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Maple Leaf Foods reported an adjusted profit after seven straight quarters of losses.

TORONTO – Maple Leaf Foods is nearing the end of its $1 billion organizational makeover, and the results are starting to show in the company's most recent earnings report.

For the first quarter ended March 31, Maple Leaf reported an adjusted profit of C$10.4 million ($8.55 million), an improvement over the C$29.9 million loss reported in the year-ago quarter. The company also narrowed its net loss from continuing operations to $2.8 million ($2.4 million) in the first quarter compared to C$124.6 million in the first quarter of 2014.

But the real story, according to Michael McCain, president and CEO, is the company's gains in adjusted EBITDA margin.

"At the end of the first quarter, it was 4.7 percent and this is up from last year's negative 1.1 percent the same quarter,” McCain said in remarks during the shareholders' meeting.

“We’re also pleased to see the long term fundamentals moving in our direction for both currency and commodities providing for a change a little tailwind for the business,” he added. “But what’s different now is that we can focus more of our effort on driving top line growth — a pivot point from fixing to growing.”

Maple Leaf Foods has been restructuring and streamlining its processing operations by closing legacy plants and building new facilities at the same time. The company also consolidated 17 of its distribution centers into two and built a 400,000-sq.-ft. processing plant. The strategic plan has cost the company $1 billion and spanned seven years. McCain said April 30 marked a sea-change for the company.

“Our final production run at the last of our legacy plants is happening as I speak to you this morning,” he said. “Starting tomorrow, all of our prepared meats production will happen in our transformed network, the realization of a strategy that has been seven years in the making.

“The new facilities are at the forefront of technical advancement amongst the best in the world. We can produce better products, more of them, and more efficiently than ever before,” McCain added.

On a segment basis Sales in the Meat Products Group advance 10.1 percent to C$776.4 million or 8.8 percent after currency adjustment. The company attributed the gains to prices increases implemented in the second quarter of 2014 for its prepared meats products. Higher volumes in the fresh pork and an improved sales mix in the fresh poultry business also provided tailwinds. However, lower volumes in the prepared meats business partially offset gains in the segment, according to the company.

Maple Leaf said earnings in its fresh pork business improved on higher export margins, primarily in Japan, and growth in the Canadian retail market which more than offset declines in pork processing margins. Improvements in poultry processing margins and operating efficiencies lift earnings in the fresh poultry business.

The Agribusiness Group reported sales declined to C$3.8 million compared to C$5.9 million a year ago due to lower toll feed sales. The Agribusiness Group, includes Canadian hog production operations that primarily supply the Meat Products Group with livestock as well as toll feed sales.

Adjusted operating earnings in the segment advanced to $2.5 million compared to a loss of $0.3 million a year ago. Maple Leaf said its hog production operations benefited from hog prices and hedging activities, which were offset by additional costs relating to prevention of the spread of Porcine Epidemic Diarrhea virus.

“We had a very strong quarter, returning to profitability in adjusted earnings per share,” McCain said.
“We were able to reduce our operating costs as we come to the final stage of our network transition, and with the last production run at our last legacy plant, we are bringing an end to our duplicative supply chain. Our final phase is to bring our new state of the art facilities to full operational effectiveness. All of this keeps us on track to reach our strategic financial target.”

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