Maple Leaf Foods Reports Results for First Quarter 2010
TORONTO, April 29 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the first quarter ended March 31, 2010.
- Adjusted Operating Earnings increased to $33.9 million from $31.6
million last year.
- Adjusted EPS increased to $0.09 compared to $0.05 last year.
- Net earnings increased to $8.8 million from $2.9 million last year.
Note: Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs and other income. Adjusted Earnings per Share ("Adjusted EPS") measures are defined as basic earnings per share adjusted for the impact of restructuring and other related costs, net of tax and non-controlling interest.
"Our first quarter results reflect a modest growth in earnings," said Michael H. McCain, President and CEO. "Our protein business continues to show substantial year over year improvement in performance, although the unexpected early rise in meat raw material costs has temporarily slowed the improvement curve. The bakery business experienced a weaker quarter due to performance in the U.K. and the North American frozen bakery business. However, we are seeing signs of improvement in both these areas as volumes recover and our cost reduction initiatives take hold."
"This, along with price adjustments being implemented mostly in the second quarter, gives us confidence in expecting stronger margin growth and continued improvement through the remainder of 2010."
Financial Overview
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Sales for the first quarter declined 7% to $1,191.5 million from $1,279.3 million last year, mostly due to the impact of the strengthening of the Canadian dollar on fresh pork sales and the translation of bakery sales in the U.S. and the U.K. to Canadian dollars. Adjusted Operating Earnings increased 7% to $33.9 million compared to $31.6 million last year, due to better performance in the protein operations. Net earnings increased to $8.8 million or $0.06 per share in the first quarter of 2010 compared to net earnings of $2.9 million or $0.02 per share last year.
Following is a reconciliation of Basic EPS to Adjusted EPS:
First Quarter
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2010 2009
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Basic EPS $0.06 $0.02
Restructuring and other related costs 0.02 0.03
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Adjusted EPS $0.09(i) $0.05
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(i) Does not add due to rounding.
Business Segment Review
-----------------------
Following is a summary of Adjusted Operating Earnings by business segment:
First Quarter
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($ millions) 2010 2009
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Meat Products Group $14.2 $11.4
Agribusiness Group 6.5 2.1
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Protein Group 20.7 13.5
Bakery Products Group 16.7 19.5
Non-allocated Costs (i) (3.5) (1.4)
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Adjusted Operating Earnings $33.9 $31.6
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(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
-------------------
Includes value-added prepared meats, chilled meal entrees and lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf(R), Schneiders(R) and many leading sub-brands.
Sales for the first quarter declined to $768.2 million from $822.2 million last year, as the stronger Canadian dollar reduced the sales values of fresh pork. Additionally, sales volumes were lower in prepared meats due to the exit of a non-core business and normalized levels of promotional activity compared to the first quarter last year.
Adjusted Operating Earnings in the Meat Products Group increased to $14.2 million compared to $11.4 million last year, largely due to improved markets and efficiencies in the fresh poultry operations. Performance in the prepared meats business improved over last year as a result of better pricing and mix and cost reduction initiatives, partly offset by lower volumes. However, first quarter margins were impacted by a sharp increase in raw material prices that occurred late in the fourth quarter of 2009. Management is implementing staged price adjustments over the next two quarters across its prepared meats portfolio to offset higher input costs. Earnings from primary pork processing operations declined due to a stronger Canadian dollar and weaker export markets that more than offset the benefit of improved North American industry market conditions.
Agribusiness Group
------------------
Consists of Canadian hog production and animal by-product recycling operations.
Agribusiness Group sales declined from $44.6 million last year to $41.8 million mostly due to lower sales of recycled by-products.
Adjusted Operating Earnings increased to $6.5 million compared to $2.1 million in the prior year. Losses in hog production operations were reduced due to lower feed costs and stronger hog market prices. However this improvement was impacted by the strengthening of the Canadian dollar and short-term hedging programs. Included in first quarter earnings is $3.0 million (2009: $0.1 million) in government support to compensate hog producers for losses in prior years. Earnings from by-product recycling declined slightly compared to last year due to increased raw material costs.
Bakery Products Group
---------------------
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, prepared sandwiches, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's(R), Tenderflake(R), Olivieri(R) and New York Bakery Co(R), and many leading regional brands.
Sales declined to $381.5 million from $412.5 million last year, due to the unfavourable impact of the stronger Canadian dollar and lower sales volumes in the North American frozen and U.K. bakery operations.
Adjusted Operating Earnings for the first quarter decreased to $16.7 million compared to $19.5 million last year due primarily to lower sales volumes in both the U.K. and the North American frozen bakery businesses. Management expects the volume decline in North America to be transitory as new business is gradually being secured and is taking steps to reduce the cost base in the Company's U.K. operations until volumes improve. Declines in profitability in these two business units more than offset improved performance in the fresh bakery operations.
Subsequent Events
-----------------
On April 28, 2010, the Company issued notes payable totalling $75.0 million in a private placement with a group of institutional investors. The notes are unsecured, bear interest at 6.08% payable semi-annually and are due in April 2015.
Subsequent to the period end, the Company executed $590.0 million of interest rate swaps. Swaps totaling $330.0 million started on April 28, 2010 and have an expiry date of April 28, 2015 with an average interest rate of 3.34%. Swaps totaling $260.0 million start on December 8, 2011 and have an expiry date of December 8, 2015 with an average interest rate of 4.18%.
Other Matters
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On April 28, 2010, Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on June 30, 2010 to shareholders of record at the close of business on June 4, 2010. Unless indicated otherwise by the Company in writing at or before the time the dividend is paid, these dividends will not be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".
It is currently anticipated that none of the dividends the Company will pay in 2010 will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".
An investor presentation related to the Company's first 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 April 29, 2010 to review Maple Leaf Foods' first quarter financial results. To participate in the call, please dial 416-340-2216 or 866-226-1792. For those unable to participate, playback will be made available an hour after the event at 416-695-5800 / 800-408-3053 (Passcode 6113830 followed by the number sign).
A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca via a link: http://events.startcast.com/events6/91/C0016/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, 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 the Protein Group, expectations regarding earnings potential in the prepared meats business, and expectations regarding actions to reduce costs, restore volumes and/or increase prices. 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, British pound and Japanese yen; expectations regarding actions to reduce costs, restore volumes and/or increase prices; 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, 2009 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, 2009 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 23,500 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 2009.
MAPLE LEAF FOODS INC.
Consolidated Balance Sheets
(In thousands of Canadian dollars)
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As at As at As at
March 31, March 31, December 31,
2010 2009 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 72,334 $ 263,260 $ 29,316
Accounts receivable 167,607 178,448 200,317
Inventories 377,839 401,380 349,909
Income and other taxes recoverable 15,807 26,700 18,067
Future tax asset 3,570 19,438 4,301
Prepaid expenses and other assets 18,978 22,390 15,328
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$ 656,135 $ 911,616 $ 617,238
Property and equipment 1,118,389 1,188,043 1,135,056
Other long-term assets 328,536 330,042 328,063
Future tax asset 40,345 29,183 22,116
Goodwill 848,577 877,044 857,278
Other intangible assets 96,232 99,951 97,713
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$ 3,088,214 $ 3,435,879 $ 3,057,464
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 6,167 $ 8,875 $ 4,247
Accounts payable and accrued
charges 507,803 586,655 489,182
Current portion of long-term debt 202,776 183,142 206,147
Other current liabilities 39,479 12,358 37,837
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$ 756,225 $ 791,030 $ 737,413
Long-term debt 831,946 1,209,874 834,557
Future tax liability 36,053 42,941 27,851
Other long-term liabilities 201,787 167,590 187,523
Non-controlling interest 82,086 75,236 81,070
Shareholders' equity 1,180,117 1,149,208 1,189,050
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$ 3,088,214 $ 3,435,879 $ 3,057,464
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MAPLE LEAF FOODS INC.
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited) 2010 2009
-------------------------------------------------------------------------
Sales $ 1,191,507 $ 1,279,299
Cost of goods sold 1,030,871 1,112,087
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Gross margin $ 160,636 $ 167,212
Selling, general and administrative expenses 126,739 135,613
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Earnings from operations before the following: $ 33,897 $ 31,599
Restructuring and other related costs (3,963) (5,334)
Other income 329 1,679
-------------------------------------------------------------------------
Earnings from operations before interest and
income taxes $ 30,263 $ 27,944
Interest expense 16,127 21,343
-------------------------------------------------------------------------
Earnings from operations before income taxes $ 14,136 $ 6,601
Income taxes 4,080 2,157
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Earnings from operations before non-controlling
interest $ 10,056 $ 4,444
Non-controlling interest 1,302 1,573
-------------------------------------------------------------------------
Net earnings $ 8,754 $ 2,871
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Earnings per share - basic and diluted $ 0.06 $ 0.02
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Weighted average number of shares (millions) 134.9 126.6
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MAPLE LEAF FOODS INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited) 2010 2009
-------------------------------------------------------------------------
Net earnings $ 8,754 $ 2,871
Other comprehensive income (loss)
Change in accumulated foreign currency
translation adjustment (18,116) (1,347)
Change in unrealized derivative loss on cash
flow hedges 1,342 4,521
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$ (16,774) $ 3,174
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Comprehensive income (loss) $ (8,020) $ 6,045
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited) 2010 2009
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 344,839 $ 314,649
Net earnings 8,754 2,871
Adoption of new accounting standard - (207)
Dividends declared ($0.04 per share; 2009: $0.04
per share) (5,394) (5,066)
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Retained earnings, end of period $ 348,199 $ 312,247
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MAPLE LEAF FOODS INC.
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended
March 31,
(Unaudited) 2010 2009
-------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
Operating activities
Net earnings $ 8,754 $ 2,871
Add (deduct) items not affecting cash:
Depreciation and amortization 37,545 38,368
Stock-based compensation 4,440 4,566
Non-controlling interest 1,302 1,573
Future income taxes (10,245) (1,938)
Loss (gain) on sale of property and equipment (1,243) 109
Amortization of terminated interest rate swap 503 598
Change in fair value of derivative financial
instruments (2,236) (12,807)
Decrease in net pension asset 841 395
Change in provision for restructuring and other
related costs 182 2,653
Other (2,046) 4,402
Change in non-cash operating working capital 26,625 (79,621)
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Cash provided by (used in) operating
activities $ 64,422 $ (38,831)
-------------------------------------------------------------------------
Financing activities
Dividends paid $ (5,394) $ (5,066)
Dividends paid to non-controlling interest (286) (205)
Net increase (decrease) in long-term debt 9,475 (745)
Increase in share capital 40 -
Other (677) 217
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Cash provided by (used in) financing
activities $ 3,158 $ (5,799)
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Investing activities
Additions to property and equipment $ (28,703) $ (57,672)
Proceeds from sale of property and equipment 2,172 613
Other 49 (550)
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Cash used in investing activities $ (26,482) $ (57,609)
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Increase (decrease) in cash and cash
equivalents $ 41,098 $ (102,239)
Net cash and cash equivalents, beginning of
period 25,069 356,624
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Net cash and cash equivalents, end of period $ 66,167 $ 254,385
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MAPLE LEAF FOODS INC.
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended
March 31,
2010 2009
-------------------------------------------------------------------------
Sales
Meat Products Group $ 768,180 $ 822,194
Agribusiness Group 41,808 44,588
Bakery Products Group 381,519 412,517
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$ 1,191,507 $ 1,279,299
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Earnings from operations before restructuring
and other related costs and other income
Meat Products Group $ 14,213 $ 11,351
Agribusiness Group 6,460 2,145
Bakery Products Group 16,744 19,525
Non-allocated costs (3,520) (1,422)
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$ 33,897 $ 31,599
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Capital expenditures
Meat Products Group $ 13,626 $ 31,249
Agribusiness Group 4,191 3,048
Bakery Products Group 10,886 23,375
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$ 28,703 $ 57,672
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Depreciation and amortization
Meat Products Group $ 19,931 $ 19,578
Agribusiness Group 4,145 4,034
Bakery Products Group 13,469 14,756
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$ 37,545 $ 38,368
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As at As at As at
March 31, March 31, December 31,
2010 2009 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Total assets
Meat Products Group $ 1,656,111 $ 1,731,057 $ 1,653,389
Agribusiness Group 287,425 294,098 287,057
Bakery Products Group 920,465 997,154 955,469
Non-allocated assets 224,213 413,570 161,549
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$ 3,088,214 $ 3,435,879 $ 3,057,464
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Goodwill
Meat Products Group $ 442,599 $ 450,432 $ 442,943
Agribusiness Group 14,136 14,136 14,136
Bakery Products Group 391,842 412,476 400,199
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$ 848,577 $ 877,044 $ 857,278
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For further information: Lynda Kuhn, SVP Communications, (416) 926-2026, www.mapleleaf.com
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