Maple Leaf Foods narrows Q2 loss

by Erica Shaffer
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Maple Leaf Foods expanded its line of Protinis protein snacks.
Maple Leaf Foods launched several new products, which expanded the company's ethnic offering and its protein snack line.

TORONTO – Maple Leaf Foods Inc.is nearing the end of its initiative to downsize and re-organize its processing operations and looking ahead to growth opportunities in the protein market.

For the second quarter ended June 30, Maple Leaf narrowed its net loss from continuing operations to C$7.5 million ($5.8 million), or 5 Canadian cents per share from C$39.5 million ($30.4 million), or 28 Canadian cents per share, a year ago. Sales for the quarter slipped 1.3 percent to C$820.8 million ($632.3 million) on lower selling prices due to lower market values within the company’s Meat Products Group.

“We are very pleased with the progress we made in the second quarter,” President and CEO Michael McCain said in an earnings announcement. “We delivered improved volumes with strong commercial performance. We marked a major milestone with the closing of the last of our remaining legacy facilities, which brought an end to our duplicative supply chain, and continued to improve the operational efficiency of our new start-up plants. 

Michael McCain, CEO of Maple Leaf Foods Inc.
Michael McCain, CEO of Maple Leaf Foods.

“All of these factors contributed to a significant improvement in earnings, consecutive quarter-over-quarter growth in EBITDA margin, and positive free cash flow,” McCain added. “Over the balance of the year, we have aggressive plans to build on our commercial momentum and a clear line of sight on how to capture the additional benefits from our new plants and deliver our 10 percent EBITDA margin target.”

For the first six months, adjusted operating earnings improved to C$32.2 million compared to a loss of C$42.0 million a year ago.

On a segment basis, sales in the Meat Products Group declined 1.0 percent to $817.2 million, or 2.3 percent adjusting for the weaker Canadian dollar. Improved volume in prepared meats and a favorable sales mix in fresh poultry partially offset lower market prices for fresh pork. Adjusted operating earnings in the segment increased to C$17.7 million compared to a loss of C$15.6 million a year ago.

Adjusted operating earnings for the first six months advanced to C$25.6 million compared to a loss of C$43.1 million in 2014.

“As a reminder, last year we were faced with extraordinary market volatility as a result of the outbreak of the PED virus in the US hog production, COO Gary Maksymetz told analysts during an earnings conference call. “While protein markets were largely flat, we achieved a C$2 million improvement compared with the second quarter year-ago …”

Maksymetz said volume growth in the company’s prepared meats category was particularly strong in the quarter — especially in Maple Leaf’s retail branded business. He said the company has largely restored volumes to previous levels before the company raised prices in response to high raw material costs. “We are particularly pleased with the strong growth in our retail branded business.”

Maple Leaf Foods reported a strong performance by its Prime Poultry brand.
Positive growth in the company's Prime Poultry brand benefitted from cost savings and a favorable sales mix.

“Our poultry business benefited from favorable sales mix, primarily driven by growth in our branded fresh business, as well as from cost savings initiatives,” Maksymetz continued. “We’ve realized very strong momentum behind Prime Poultry, which is one of our flagship brands. We spoke last quarter about shifting from fixing the business to growing it, and we continue to look for opportunities to advance our leadership in key categories. In the quarter, for example, we introduced several new products, which expanded our ethnic offering and our protein snacking line.”

And the growth story continues. The company’s strategic margin goal is 10 percent; reaching that goal depends on plant optimization. The company is near the end of a years –long initiative to streamline and upgrade its processing operations. Now, the focus is on Maple Leaf Foods’ new plant in Hamilton, Ontario.

“Our plant in Hamilton is unlike any other,” Maksymetz told analysts. “It is the largest prepared meats plant in Canada and it replaced six of our legacy facilities. We have multiple production lines for wieners, baloney and deli meats, including 11 slicing and packaging lines. It houses some of the newest and most advanced technology in the industry. Essentially, it is really multiple plants within a plant. 

Mark Maksymetz, COO of Maple Leaf Foods
Gary Maksymetz, COO of Maple Leaf Foods Inc.

“We continue to make progress, but as is always the case in complex startups like this one, near-term predictions are difficult,” he noted. “Frankly, it’s rarely a straight line. Having said that, we have consistently said that we feel our strategic margin target of 10 percent should be a floor in our business, not a ceiling. We have all the fundamentals for that to be true.”

Sales in the Agribusiness Group, which includes Canadian hog production operations and toll feed sales, declined to C$3.6 million compared to $6.2 million in the second quarter of 2015. The company attributed the decline to lower external sales volume for feed. Sales in the first six months declined to $$7.4 million compared to $12.2 million last year due to the same reason, Maple Leaf said.

Adjusted operating earnings fell C$4.1 million compared to $5.2 million due to increased operating overhead associated with the company’s conversion to group sow housing. Hog prices, net of hedging activities, more than offset increased operating overhead in the first six months, the company said. Adjusted operating earnings for the segment increased to C$6.6 million compared to C$4.9 million.

“We have also developed a robust sustainability platform which we see as supporting our growth agenda,” Maksymetz said. “Our focus is in four key areas: Advancing nutrition and health; our people and community involvement; treating animals well; and environmental sustainability. It is clear to us that our vision for a sustainable protein company will be a cornerstone for growth well into the future.”

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