Maple Leaf continues to face challenging markets

by Keith Nunes
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TORONTO — In the midst of transitioning from being a primary processor to a more value-added focus, Maple Leaf Foods, Inc., experienced a challenging marketplace during the second quarter of fiscal 2008, ended June 30. For quarter the company sustained a loss of C$9,353,000 ($9,264,000), which compared with a loss of C$1,671,000 for the same period during the previous year. Sales for the quarter were $1,355,301,000, up from $1,318,773,000 for the same period during fiscal 2007.

"We fully expected the first half of 2008 to be very difficult for Maple Leaf due to the extreme inflation and volatility in commodity markets," said Michael H. McCain, president and chief executive officer. "We are focused on persevering through these unprecedented market conditions, maintaining our focus on executing the structural changes we have committed to and passing on price increases to offset the effects of commodity inflation."

Maple Leaf’s hog production business continued to be affected by lower hog prices and higher feed costs. In Maple Leaf’s protein business, which consists of poultry and pork processing operations, declining poultry margins and a higher Canadian dollar were only partially offset by improved pork processing margins.

For the quarter, the Meat Products Group recorded adjusted operating earnings of C$5,700,000 compared with C$15,000,000 the previous year. Sales for the group were C$856,638,000 during the quarter compared with C$878,966,000 for the same period a year ago.

The restructuring of Maple Leaf’s meat business, which involves reducing the size of its hog and fresh pork operations and expanding its value-added meat and meals business, is proceeding on schedule and is expected to be completed by the end of 2009. The restructuring effort includes the consolidation of six pork processing plants into one double-shifted plant in Brandon, Man.

High wheat and fuel costs compressed margins in Maple Leaf’s Bakery Products Group as price increases put in place earlier in the year were not enough to cover the higher input costs, according to the company. Adjusted operating earnings for the Bakery Products Group were C$8,700,000 compared with C$33,400,000 last year. Sales for the group were $437,096,000 compared with C$375,362,000 for the previous year. According to the company, management expects a decrease in wheat prices from new crops and improved supplies will lower costs toward the end of the year and restore margins.

For the first six months of fiscal 2008 Maple Leaf Foods recorded a loss of C$9,363,000 compared with net income of C$8,792,000, equal to C$0.7 per share on the common stock. Sales for the period were C$2,558,564,000, down from C$2,634,908,000 during the previous year.

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