Plant closing cited in bakery profit gain at Maple Leaf

by Eric Schroeder
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TORONTO -- Capped by a strong fourth quarter when the company saw the financial benefits of efficiencies from a plant closing, operating earnings for the Bakery Products Group of Maple Leaf Foods, Inc. were C$97,634,000 ($95,200,000) in the year ended Dec. 31, 2012, up 13% from C$86,294,000 in 2011. Sales were C$1,566,620,000 ($1,528 million), down 1.8% from C$1,594,520,000.

The earnings gain for 2012, and then some, was achieved entirely in the fourth quarter of the year. Operating earnings for the Bakery Products Group were C$31,410,000 ($30,600,000), up 95% from C$16,129,000 in the fourth quarter of 2011. Sales were C$390,603,000 ($380,800,000), down 2.3% from C$400,016,000.

Subsequent to the end of 2012, the company on Jan. 30 announced plans to close baking plants in the first half of 2013 in Grand Falls, N.B., and in Edmonton, Alta. The closings are expected to result in pre-tax restructuring costs of C$6.2 million ($6 million).

Breaking down its fourth-quarter bakery earnings jump, Maple Leaf said strength in its fresh bakery and North American frozen bakery businesses was partly offset by weakness in the company’s fresh pasta business. Earnings from its bakery operations in the United Kingdom were flat year to year.

“The company benefited from efficiency gains resulting from the closure of its bakery in Delta, B.C., in late 2011 and the transfer of production to more efficient bakeries, and from reduced input costs as a result of positive hedging activities,” Maple Leaf said.

Conversely, results in the fourth quarter of 2011 were hurt by higher costs associated with an SAP installation in western Canada.

“Higher duplicative overhead costs were incurred last year as the company continued to operate three bakeries while transferring production to a new, more efficient bakery in Hamilton, Ont.,” the company said. “During 2012, two of these facilities were closed, with associated reduction in costs.  The closure of the third Ontario bakery is planned for the second quarter of 2013.”

Looking at the small decline in fourth-quarter sales, Maple Leaf said the fall was due to a bakery closing in the United Kingdom as well as foreign currency effects.

“Higher volumes in the North American and U.K. frozen bakery businesses were offset by lower volumes and unfavorable sales mix in the fresh pasta operations,” the company said. “Fresh bakery volumes were consistent with the last year.”

The Bakery Group includes fresh and frozen bakery products, including bread, rolls, bagels, specialty and artisan bread, sweet goods, and fresh pasta and sauces sold to retail, food service and convenience channels.

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% 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% 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% increase in operating profits for the year and 59% 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% from $1,245,328,000.
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