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Maple Leaf Foods Reports Second Quarter Financial Results

^{Published on 2009-07-29 05:34:55, Last Modified on 2009-07-29 05:35:04 - Market Wire}
 

 TORONTO, July 29 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2009. - Adjusted EPS of $0.12 compared to a loss of $0.01 last year - Adjusted operating earnings increased 131% to $43.6 million in weak protein market conditions - Bakery Group margins improved as commodity input costs declined - Prepared meats performance improving, but still below prior year levels - Protein restructuring contributed to improved hog production and primary pork processing results Note: Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs and other income. Adjusted Earnings per Share measures are defined as basic earnings per share adjusted for the impact of restructuring and other related costs. "Our stronger results reflect good performance in our bakery businesses and steady improvement in our prepared meats business, recovering from the product recall of last August," said Michael H. McCain, President and CEO. "We are realizing material positive benefits from the transformation of our protein operations over the past several years, which protected us from challenging commodity markets in the quarter. While we have made good progress, there remains significant value creation opportunity with very positive effects on our future financial results." Financial Overview ------------------ Sales for the second quarter decreased by 2.5% to $1,320.8 million compared to $1,355.3 million last year due to lower volumes in primary processing and prepared meats and lower market prices for fresh pork. Earnings from operations before restructuring and other related costs and other income ("Adjusted Operating Earnings") increased by 131.0% to $43.6 million compared to $18.9 million last year. Adjusted Operating Earnings were higher in the second quarter principally due to higher margins in the Bakery Products Group as input costs improved, operational improvements and good sales mix in primary processing and the benefits of restructuring in both hog and fresh pork operations. Offsetting these improvements was the performance of the prepared meats business following the recall. Included in earnings in the second quarter is a $6.3 million mark-to-market loss on foreign currency contracts, expiring in the second quarter, that were entered into to fix the value of U.S.-denominated debt balances. Following is a summary of Adjusted EPS: Second Quarter Year-to-date ------------------------------------------------------------------------- 2009 2008 2009 2008 ------------------------------------------------------------------------- Basic EPS $0.04 $(0.07) $0.06 $(0.07) ------------------------------------------------------------------------- Restructuring and other related costs 0.08 0.07 0.11 0.11 ------------------------------------------------------------------------- Adjusted EPS(i) $0.12 $(0.01) $0.17 $0.03 ------------------------------------------------------------------------- (i) Table does not add due to rounding. Business Segment Review ----------------------- Following is a summary of Adjusted Operating Earnings by business segment: Second Quarter Year-to-date ------------------------------------------------------------------------- ($ thousands) 2009 2008 2009 2008 ------------------------------------------------------------------------- Meat Products Group $1,683 $5,718 $13,034 $30,730 Agribusiness Group 16,311 7,596 18,456 4,816 ------------------------------------------------------------------------- Protein Group 17,994 13,314 31,490 35,546 Bakery Products Group 27,984 8,671 47,509 25,828 Non-allocated Costs(i) (2,337) (3,095) (3,759) (9,386) ------------------------------------------------------------------------- Adjusted Operating Earnings $43,641 $18,890 $75,240 $51,988 ------------------------------------------------------------------------- (i) Non-allocated costs comprise costs related to systems conversion and consulting fees. Management believes that not allocating these costs provides a more comparable assessment of segmented operating results. Meat Products Group ------------------- (value-added prepared meats; chilled meal entrees and lunch kits; value- added fresh pork, poultry and turkey products) Adjusted Operating Earnings in the Meat Products Group were $1.7 million in the second quarter of 2009 compared to $5.7 million last year. Although gross margins on prepared meat products improved compared to the first quarter of 2009 as the Company reduced its investment in trade spending and promotions, higher raw material costs resulted in lower earnings compared to the same period last year as the Company was not able to increase prices in a business recovery environment. Lower earnings in prepared meats were partly mitigated by strong results in primary pork processing as the Company continued to benefit from the restructuring of its primary pork processing operations, as the Brandon and Winnipeg operations are running efficiently and at lower costs compared to last year. In addition, improved sales mix and a weaker Canadian dollar benefited earnings in pork processing despite poor industry market conditions. Earnings from the Company's poultry operations were largely consistent compared to last year. Agribusiness Group ------------------ (hog production and animal by-products recycling) Adjusted Operating Earnings for the Agribusiness Group in the second quarter of 2009 increased to $16.3 million from $7.6 million last year. Despite extremely challenging market conditions, Agribusiness Group results improved following the sale or exit of non-core hog production operations in Ontario as part of the Company's protein restructuring, and operational improvements in core operations in Manitoba. The Company owned approximately 215,000 hogs in the quarter, representing approximately 20% of the supply into the Brandon processing plant. Results for the second quarter also included $3.0 million (2008: $0.2 million) in government support to compensate hog producers for losses in prior years. Results from rendering operations were strong but down from the prior year period as volumes and commodity prices declined. Bakery Products Group --------------------- (fresh and frozen branded value-added bakery products, including frozen par-baked bakery products, sandwiches and specialty pasta and sauces). Adjusted Operating Earnings increased to $28.0 million in the second quarter compared to $8.7 million last year due to declines in commodity costs that improved margins. This result for 2009 compares to a significantly reduced prior year quarter when extremely sharp spikes in wheat, dairy and fuel costs severely impacted profitability. In the Canadian bakery operations, lower input costs were partly offset by a weaker Canadian dollar that increased the cost of U.S. dollar priced flour. In the frozen bakery business, the benefit of lower commodity costs was partly offset by an unfavourable sales mix shift from specialty to lower margin staple products. Earnings from the U.K. bakery operations were largely consistent with last year, although the economic recession in the U.K. has adversely affected sales mix. Other Income ------------ Other income for the quarter was $1.8 million (2008: $1.9 million), mostly comprising insurance proceeds for business interruption losses in the U.K. bakery business and the disposal of investments. Other Matters ------------- On December 16, 2008 the Company issued 7,368,421 subscription receipts for proceeds of $70 million. The Company's two largest shareholders purchased a majority of the units: the Ontario Teachers Pension Plan Board ("Ontario Teachers") 5,484,784 units for $52.1 million and McCain Capital Corporation ("MCC") 1,694,737 units for $16.1 million. Pursuant to the terms of the offering, the Company had the option to return the subscription proceeds or issue common shares in satisfaction of the subscription receipts. As required under the Subscription Receipt Agreement, a Special Committee of independent directors was formed to evaluate the Company's alternatives and take independent advice. On July 28, 2009, it approved Management's recommendation that the Company issue 7,368,421 common shares on August 4, 2009 in satisfaction of the subscription receipts. This decision reflects the Company's approach to ensuring that it maintains an appropriate mix of equity and debt in its capital structure and that these levels are maintained over time. The Company has been advised by Ontario Teachers and MCC that Ontario Teachers has delivered notice to MCC to terminate, effective June 30, 2010, the shareholder agreement that has existed between them since 2001. The Company had been advised and previously reported that the agreement provides that the board of directors of the Company will consist of three nominees of MCC, two nominees of Ontario Teachers, the Chief Executive Officer of the Company and seven independent directors to be mutually agreed to by MCC and Ontario Teachers. Accordingly, absent earlier termination or amendment by the parties, the shareholders agreement will no longer be effective after June 30, 2010. On July 28, 2009 Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on September 30, 2009 to shareholders of record on September 8, 2009. Unless indicated otherwise in writing at or before the time the dividend is paid, each dividend paid by the Corporation in 2009 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System". An investor presentation related to the Company's second quarter financial results is available at [ www.mapleleaf.com ] and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on July 29, 2009 to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-641-6111 or 866-696-5911. For those unable to participate, playback will be made available an hour after the event at 416-695-5800/800-408-3053 (Passcode 3783726 followed by the number sign). A webcast presentation of the second quarter financial results will also be available at [ http://investor.mapleleaf.ca ] via a link:[ http://events.startcast.com/events6/91/C0011/Default.aspx ] The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website. Forward-Looking Statements -------------------------- This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific statements include, but are not limited to, statements with respect to expectations concerning the ongoing nature of restructuring benefits in primary pork processing and hog production, expectations regarding earnings potential in the prepared meats business, and expectations concerning the impact of the economic recession on the Company's operations. Words such as "expect," "anticipate," "intend," "attempt," "may," "will," "plan," "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. In addition, expectations concerning performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States, United Kingdom and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar and Japanese yen; expected recovery of sales following the product recall; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the protein business transformation or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation that would not be covered by insurance; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2008 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward looking-statements, which reflect the Company's expectations only as of the date hereof. Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking statements are discussed more fully in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2008 including the section entitled "Risk Factors" that is available on SEDAR at [ www.sedar.com ]. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law. Maple Leaf Foods Inc. is a leading food processing company, headquartered in Toronto, Canada. The Company employs approximately 24,000 people at its operations across Canada and in the United States, the United Kingdom, and Asia. The Company had sales of $5.2 billion in 2008. Consolidated Financial Statements (Expressed in Canadian dollars) MAPLE LEAF FOODS INC. Three and six months ended June 30, 2009 and 2008 MAPLE LEAF FOODS INC. Consolidated Balance Sheets (In thousands of Canadian dollars) ------------------------------------------------------------------------- As at As at As at June 30, June 30, December 31, 2009 2008 2008 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Assets Current assets Cash and cash equivalents $ 207,795 $ 16,419 $ 365,518 Accounts receivable 183,238 239,596 139,144 Inventories 388,006 388,746 377,414 Income and other taxes recoverable 25,922 - 20,971 Future tax asset 24,763 39,886 19,787 Prepaid expenses and other assets 42,356 23,922 32,289 ----------------------------------------------------------------------- $ 872,080 $ 708,569 $ 955,123 Property and equipment 1,159,897 1,172,268 1,169,435 Other long-term assets 331,966 315,079 329,070 Future tax asset 23,953 39,011 24,854 Goodwill 877,678 856,758 876,261 Other intangible assets 101,281 93,263 97,358 ------------------------------------------------------------------------- $ 3,366,855 $ 3,184,948 $ 3,452,101 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities Bank indebtedness $ 9,511 $ 10,092 $ 8,894 Accounts payable and accrued charges 528,190 534,754 600,924 Income and other taxes payable - 7,243 - Current portion of long-term debt 375,508 12,251 179,244 Other current liabilities 51,355 - 28,456 ----------------------------------------------------------------------- $ 964,564 $ 564,340 $ 817,518 Long-term debt 939,808 1,089,793 1,200,224 Future tax liability 45,787 80,529 37,903 Other long-term liabilities 168,905 247,530 179,039 Non-controlling interest 77,372 81,586 74,447 Shareholders' equity 1,170,419 1,121,170 1,142,970 ------------------------------------------------------------------------- $ 3,366,855 $ 3,184,948 $ 3,452,101 ------------------------------------------------------------------------- ------------------------------------------------------------------------- MAPLE LEAF FOODS INC. Consolidated Statements of Earnings (In thousands of Canadian dollars, except share amounts) ------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, (Unaudited) 2009 2008 2009 2008 ------------------------------------------------------------------------- Sales $ 1,320,803 $ 1,355,301 $ 2,600,102 $ 2,558,564 Cost of goods sold 1,152,600 1,204,824 2,264,687 2,252,161 ------------------------------------------------------------------------- Gross margin $ 168,203 $ 150,477 $ 335,415 $ 306,403 Selling, general and administrative expenses 124,562 131,587 260,175 254,415 ------------------------------------------------------------------------- Earnings from operations before the following: $ 43,641 $ 18,890 $ 75,240 $ 51,988 Restructuring and other related costs (13,852) (11,618) (19,186) (19,340) Other income 1,789 1,933 3,468 1,918 ------------------------------------------------------------------------- Earnings from operations before interest and income taxes $ 31,578 $ 9,205 $ 59,522 $ 34,566 Interest expense 20,764 21,868 42,107 43,531 ------------------------------------------------------------------------- Earnings (loss) from operations before income taxes $ 10,814 $ (12,663) $ 17,415 $ (8,965) Income taxes 3,622 (4,079) 5,779 (1,959) ------------------------------------------------------------------------- Earnings (loss) from operations before non-controlling interest $ 7,192 $ (8,584) $ 11,636 $ (7,006) Non-controlling interest 2,293 769 3,866 2,357 ------------------------------------------------------------------------- Net earnings (loss) $ 4,899 $ (9,353) $ 7,770 $ (9,363) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Basic and diluted earnings (loss) per share $ 0.04 $ (0.07) $ 0.06 $ (0.07) ------------------------------------------------------------------------- Weighted average number of shares (millions) 126.7 126.9 126.7 127.1 ------------------------------------------------------------------------- MAPLE LEAF FOODS INC. Consolidated Statements of Comprehensive Income (Loss) (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, (Unaudited) 2009 2008 2009 2008 ------------------------------------------------------------------------- Net earnings (loss) $ 4,899 $ (9,353) $ 7,770 $ (9,363) Other comprehensive income (loss) Change in accumulated foreign currency translation adjustment 8,527 1,507 7,180 8,234 Change in unrealized derivative loss on cash flow hedges 8,300 (1,593) 12,821 (4,639) ------------------------------------------------------------------------- $ 16,827 $ (86) $ 20,001 $ 3,595 ------------------------------------------------------------------------- Comprehensive income (loss) $ 21,726 $ (9,439) $ 27,771 $ (5,768) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Retained Earnings (In thousands of Canadian dollars, except per share amounts) ------------------------------------------------------------------------- Six months ended June 30, (Unaudited) 2009 2008 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 314,649 $ 378,604 Net earnings (loss) 7,770 (9,363) Adoption of new accounting standard (207) - Dividends declared ($0.08 per share; 2008: $0.08 per share) (10,130) (10,448) Premium on shares repurchased for cancellation - (5,515) Premium on shares issued from Restricted Share Unit Trust - (822) ------------------------------------------------------------------------- Retained earnings, end of period $ 312,082 $ 352,456 ------------------------------------------------------------------------- ------------------------------------------------------------------------- MAPLE LEAF FOODS INC. Consolidated Statements of Cash Flows (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, (Unaudited) 2009 2008 2009 2008 ------------------------------------------------------------------------- Cash provided by (used in): Operating activities Net earnings (loss) $ 4,899 $ (9,353) $ 7,770 $ (9,363) Add (deduct) items not affecting cash: Depreciation and amortization 38,910 38,637 77,278 73,709 Stock-based compensation 4,547 3,923 9,113 8,186 Non-controlling interest 2,293 769 3,866 2,357 Future income taxes (906) (8,944) (2,844) (9,248) Loss on sale of property and equipment 55 37 164 118 Gain on sale of investments (501) - (501) - Amortization of terminated interest rate swap 503 1,371 1,101 4,582 Change in fair value of derivative financial instruments 2,565 1,923 (10,242) (266) Decrease (increase) in net pension asset 704 (5,031) 1,099 (11,062) Asset impairments and change in provision for restructuring and other related costs 10,250 7,381 12,904 11,344 Other (9,728) (3,308) (5,327) (289) Change in non-cash operating working capital (63,077) (87,636) (142,698) (111,905) ------------------------------------------------------------------------- Cash used in operating activities $ (9,486) $ (60,231) $ (48,317) $ (41,837) ------------------------------------------------------------------------- Financing activities Dividends paid (5,064) (5,262) (10,130) (10,448) Dividends paid to non- controlling interest (156) (184) (361) (416) Net increase (decrease) in long-term debt (32,450) 103,810 (33,195) 221,334 Increase in share capital - 1,513 - 3,110 Purchase of treasury stock - (4,992) - (11,341) Shares repurchased for cancellation - (11,814) - (11,814) Other 2,511 (1,816) 2,728 (1,301) ------------------------------------------------------------------------- Cash provided by (used in) financing activities $ (35,159) $ 81,255 $ (40,958) $ 189,124 ------------------------------------------------------------------------- Investing activities Additions to property and equipment (36,015) (62,654) (93,687) (108,364) Proceeds from sale of property and equipment 22,780 2,524 23,393 10,545 Proceeds from sale of investments 1,540 - 1,540 - Acquisition of businesses - net of cash acquired - (87) - (61,659) Other 239 210 (311) 141 ------------------------------------------------------------------------- Cash used in investing activities $ (11,456) $ (60,007) $ (69,065) $ (159,337) ------------------------------------------------------------------------- Decrease in cash and cash equivalents (56,101) (38,983) (158,340) (12,050) Net cash and cash equivalents, beginning of period 254,385 45,310 356,624 18,377 ------------------------------------------------------------------------- Net cash and cash equivalents, end of period $ 198,284 $ 6,327 $ 198,284 $ 6,327 ------------------------------------------------------------------------- ------------------------------------------------------------------------- MAPLE LEAF FOODS INC. Segmented Financial Information (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended June 30, Six months ended June 30, (Unaudited) 2009 2008 2009 2008 ------------------------------------------------------------------------- Sales Meat Products Group $ 830,413 $ 856,638 $ 1,652,607 $ 1,619,183 Agribusiness Group 54,977 61,567 99,565 120,161 Bakery Products Group 435,413 437,096 847,930 819,220 ------------------------------------------------------------------------- $ 1,320,803 $ 1,355,301 $ 2,600,102 $ 2,558,564 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings from operations before restructuring and other related costs and other income Meat Products Group $ 1,683 $ 5,718 $ 13,034 $ 30,730 Agribusiness Group 16,311 7,596 18,456 4,816 Bakery Products Group 27,984 8,671 47,509 25,828 Non-allocated costs (2,337) (3,095) (3,759) (9,386) ------------------------------------------------------------------------- $ 43,641 $ 18,890 $ 75,240 $ 51,988 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures Meat Products Group $ 20,711 $ 38,756 $ 51,960 $ 71,851 Agribusiness Group 2,141 4,077 5,189 6,976 Bakery Products Group 13,163 19,821 36,538 29,537 ------------------------------------------------------------------------- $ 36,015 $ 62,654 $ 93,687 $ 108,364 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Depreciation and amortization Meat Products Group $ 20,033 $ 19,552 $ 39,611 $ 37,578 Agribusiness Group 4,037 4,333 8,071 8,167 Bakery Products Group 14,840 14,752 29,596 27,964 ------------------------------------------------------------------------- $ 38,910 $ 38,637 $ 77,278 $ 73,709 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at As at As at June 30, June 30, December 31, 2009 2008 2008 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Total assets Meat Products Group $ 1,707,809 $ 1,716,978 $ 1,677,671 Agribusiness Group 308,508 251,004 318,387 Bakery Products Group 917,383 901,740 922,158 Non-allocated assets 433,155 315,226 533,885 ------------------------------------------------------------------------- $ 3,366,855 $ 3,184,948 $ 3,452,101 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Goodwill Meat Products Group $ 450,432 $ 450,930 $ 450,431 Agribusiness Group 14,136 12,922 14,445 Bakery Products Group 413,110 392,906 411,385 ------------------------------------------------------------------------- $ 877,678 $ 856,758 $ 876,261 ------------------------------------------------------------------------- ------------------------------------------------------------------------- 

For further information: Lynda Kuhn, Senior Vice-President, Communications & Consumer Relations, (416) 926-2026, [ www.mapleleaf.com ]