TORONTO — Volatile protein market conditions and significant transition costs contributed to a 40% drop in earnings for Maple Leaf Foods Inc. during the third quarter.
“We have five significant operational start-ups occurring simultaneously, during a year when commodity markets have not been friendly,” said Michael H. McCain, president and chief executive officer. “However, these transitory conditions do not detract from the underlying strength of the business or the strategic direction. Our commercial performance is solid and we are satisfied with the progress we are making in implementing our prepared meats strategy.”
For the quarter ended Sept. 30, the company had earnings of C$15,521,000 ($14,877,000), equal to C$0.09 per share on the common stock, which compared with earnings of C$26,043,000, or C$0.17 per share, during the same quarter of the previous year. The implementation of the company’s prepared meats strategy and poor commodity market conditions in the Protein Group were partly offset by strong results in the Bakery Group.
Sales for the quarter were C$1,150,210,000 ($1,102,473,000), down 2.5% from C$1,180,113,000 during the same quarter of the previous year, reflecting lower volumes partly offset by higher pricing and an improved sales mix.
Challenging market conditions and costs related to plant expansions pressured the company’s Meat Products Group, which includes value-added prepared meats, lunch kits and fresh pork and poultry products. The segment reported a loss in adjusted operating earnings of C$21,600,000 ($20,704,000) compared with earnings of C$22,900,000. Improvements in sales mix, with new products launched in the second half of 2012 and first half of 2013, partly offset the declines. The company’s sale of its potato processing operations reduced adjusted operating earnings by approximately C$3,000,000 ($2,880,000) during the quarter compared to last year. Segment sales declined nearly 3% to C$750,947,000 from C$772,460,000 last year.
Operational cost reductions and higher pricing benefitted the company’s Bakery Products Group, which had a 29% increase in adjusted operating earnings to C$38,500,000 ($36,902,000) from C$29,900,000 last year. Sales for the segment declined 2% in the quarter to C$392,924,000 ($376,616,000) from C$401,294,000, negatively impacted by lower sales volumes in the fresh bakery business.
As live hog prices increased, offsetting higher feed costs, the Agribusiness Group saw an increase in adjusted operating earnings to C$1,600,000 ($1,534,000) during the quarter, compared with a loss of C$4,000,000 last year. Sales for the segment were C$75,687,000 ($72,546,000) compared with C$67,330,000 last year. On Oct. 28, Maple Leaf Foods sold its Rothsay byproduct recycling operations, which was previously reported as part of the Agribusiness Group, for gross proceeds of C$644,500,000 ($617,751,000).
The company recently announced that it is considering strategic alternatives for its bakery business, including a possible sale of its 90% ownership interest in Canada Bread Co. Ltd. The process is expected to conclude in early 2014. Additionally, the company signed a definitive agreement to sell substantially all of the net assets of its fresh pasta and sauce business, a component of its Bakery Products Group, for gross proceeds of approximately C$120,000,000. The transaction is expected to close by the end of the year.“Our bakery business is performing at record levels as we come into the back half of 2013,” Mr. McCain said. “Through exploring strategic alternatives, we are committed to optimizing the value of this business, either as part of Maple Leaf or under new ownership."