Maple Leaf Foods Reports Third Quarter Financial Results

TORONTO , Oct. 28 /CNW/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2009 .

    
    -   Adjusted EPS increased 62% to $0.21 compared to $0.13 last year
    -   Adjusted Operating Earnings increased 53% to $63.0 million from
        $41.1 million last year
    -   Net earnings of $22.5 million compared to a net loss of $12.9 million
        last year
    -   Sales declined 4% to $1.3 billion largely due to lower fresh meat
        prices
    -   Launched innovative new products to support sales and margin growth

    Note: Adjusted Operating Earnings measures are defined as earnings from
    operations before one-time direct product recall, restructuring and other
    related costs and other income (expense). Adjusted Earnings per Share
    ("Adjusted EPS") measures are defined as basic earnings per share
    adjusted for the impact of one-time direct product recall, restructuring
    and other related costs, net of tax and minority interest.
    

"Our third quarter results showed a very material increase in profitability compared to last year and prior historical levels and we are very pleased with this significant progress," said Michael H. McCain, President and CEO. "We benefited from the core strength of our bakery business, combined with substantial recovery in our packaged meats business. The sustainable earnings improvements from the protein restructuring implemented over the past three years are now more visible in our results. While we are making great progress, we still have to complete the work underway to fuel higher growth and margins consistent with our consumer packaged goods peer group."

    
    Financial Overview
    ------------------
    

Sales for the third quarter decreased 3.6% to $1,296.6 million compared to $1,344.3 million last year. The sales decline was due primarily to lower fresh meat prices, the strategic exit or sale of non-profitable hog operations in 2008, and lower volumes in the Bakery Products Group.

Adjusted Operating Earnings increased to $63.0 million compared to $41.1 million last year, driven by improved performance in prepared meats, fresh poultry and bakery operations, combined with reduced losses in hog production operations as a result of benefits from restructuring initiatives.

Net earnings increased to $22.5 million ( $0.17 per share) in the third quarter of 2009 compared to a net loss of $12.9 million ( $0.10 per share) last year.

    
    Following is a reconciliation of Basic EPS to Adjusted EPS:

                                      Third Quarter           Year-to-Date
    -------------------------------------------------------------------------
                                    2009        2008        2009        2008
    -------------------------------------------------------------------------
    Basic EPS                      $0.17      ($0.10)      $0.24      ($0.18)
    Product recall,
     restructuring and other
     related costs                  0.04        0.24        0.15        0.34
    -------------------------------------------------------------------------
    Adjusted EPS (i)               $0.21       $0.13       $0.39       $0.17
    -------------------------------------------------------------------------

    (i) Table does not add due to rounding.


    Business Segment Review
    -----------------------

    Following is a summary of Adjusted Operating Earnings by business segment:

                                      Third Quarter           Year-to-Date
    -------------------------------------------------------------------------
    ($ thousands)                   2009        2008        2009        2008
    -------------------------------------------------------------------------
    Meat Products Group          $18,111        $812     $31,144     $31,542
    Agribusiness Group            15,062      12,336      33,518      17,152
    -------------------------------------------------------------------------
    Protein Group                 33,173      13,148      64,662      48,694
    Bakery Products Group         32,749      30,550      80,259      56,378
    Non-allocated Costs (i)       (2,891)     (2,621)     (6,650)    (12,007)
    -------------------------------------------------------------------------
    Adjusted Operating Earnings   63,031     $41,077     138,271     $93,065
    -------------------------------------------------------------------------

    (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 $18.1 million compared to $0.8 million last year reflecting solid progress in the recovery of the prepared meats business, which was impacted by a product recall in August 2008 , and benefits from restructuring activities. Prepared meats performance also benefited from lower raw material costs, while volume continued to trend close to historical levels. Management remains focused on driving volume growth and improving earnings in this business, which is not yet performing to full potential. In addition, the Company plans to make investments in this business to improve efficiencies and reduce supply chain costs. Improved industry processor margins and yield efficiencies increased earnings in the Company's poultry operations, while results from primary pork processing were largely consistent with last year as lower pork markets were offset by restructuring and currency benefits.

Market leadership in innovation to drive deeper customer relationships and growth in higher margin packaged meats and meals products is a primary strategic focus as the Company has repositioned itself as a branded consumer packaged goods business. In the third quarter, Maple Leaf introduced re-sealable packaging for deli meats and bacon, responding to consumer needs by vastly improving convenience and storability. Maple Leaf Gourmet(TM), a line of five ready-to-bake and serve gourmet fresh chicken and pork entrees, was also launched in the third quarter.

    
    Agribusiness Group
    ------------------
    (hog production and animal by-products recycling)
    

Adjusted Operating Earnings for the Agribusiness Group in the third quarter of 2009 increased to $15.1 million from $12.3 million last year. Benefits from restructuring have improved results in hog production. Hog production in North America , however, continues to be unprofitable as a result of lower market prices. Earnings from rendering operations, which include biodiesel production, were slightly lower than last year due to lower commodity prices that decreased the value of rendered by-products.

    
    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 $32.7 million in the third quarter compared to $30.6 million last year. Increased earnings were mostly driven by lower commodity costs that improved margins in the North American fresh and frozen bakeries and pasta operations, although partly offset by disappointing results in the fresh sandwich business and U.K. bakery operations. Although not material to the overall performance of the Bakery Products Group, the fresh sandwich business has not met expectations. Management considers this business, which includes Aliments Martel that was acquired last year, to be an important part of its growth strategy and is actively working on initiatives to improve its market share and profitability. Earnings from the U.K. bakery operations were lower due to the continued effects of the U.K. recession on sales of specialty bakery products and higher manufacturing overheads in the quarter.

The Bakery Group launched several exciting new innovative products in the quarter aimed at supporting margin and category expansion. Dempster's(R) OvenFresh(TM) is a line of fresh, long life white and multigrain baguettes and dinner rolls that finish baking at home in minutes. Under a licensing agreement, the Company has also launched Cadbury(TM) Snack Cakes in Eastern Canada , an exciting new addition to its sweet goods offerings in the region.

    
    Other Income (Expense)
    ----------------------
    

Other expense for the quarter was $0.2 million compared to other income of $9.2 million last year. The amount recorded in 2008 was mostly comprised of insurance proceeds to cover business interruption losses in the U.K. bakery business and the disposal of a redundant warehouse facility.

    
    Other Matters
    -------------
    

In the third quarter of 2009 Maple Leaf Foods launched a completely redesigned website that provides significantly enhanced digital marketing functionality, new content on products and services, meal planning and recipes for consumers, investor information, and reinforces Maple Leaf's repositioning as a leading branded food company. To view the new website, please go to www.mapleleaf.com.

On October 28, 2009 Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on December 31, 2009 to shareholders of record at the close of business on December 8, 2009 . This dividend is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".

It is currently anticipated, however, that all dividends the Company will pay in 2010 will not be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".

An investor presentation related to the Company's third 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 October 28, 2009 to review Maple Leaf Foods' third quarter financial results. To participate in the call, please dial 416-340-8018 or 866-223-7781. For those unable to participate, playback will be made available an hour after the event at 416-695-5800/800-408-3053 (Passcode 8434408 followed by the number sign).

A webcast presentation of the third quarter financial results will also be available at http://investor.mapleleaf.ca via a link:

http://events.startcast.com/events6/91/C0013/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, expectations regarding earnings potential in the fresh sandwich 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 nine months ended September 30, 2009 and 2008


    MAPLE LEAF FOODS INC.
    Consolidated Balance Sheets
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                               As at       As at       As at
                                           September   September    December
                                            30, 2009    30, 2008    31, 2008
    -------------------------------------------------------------------------
                                          (Unaudited) (Unaudited)

    ASSETS

    Current assets
      Cash and cash equivalents           $   88,790  $  125,509  $  365,518
      Accounts receivable                    219,338     216,688     139,144
      Inventories                            371,257     397,642     377,414
      Income and other taxes recoverable      17,081       3,683      20,971
      Future tax asset                        28,294      44,297      19,787
      Prepaid expenses and other assets       26,116      33,768      32,289
    -------------------------------------------------------------------------
                                          $  750,876  $  821,587  $  955,123

    Property and equipment                 1,138,069   1,167,233   1,169,435

    Other long-term assets                   333,175     313,685     329,070

    Future tax asset                          25,557      57,890      24,854

    Goodwill                                 867,941     871,312     876,261

    Other intangible assets                   99,810      98,238      97,358
    -------------------------------------------------------------------------
                                          $3,215,428  $3,329,945  $3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Bank indebtedness                   $    4,357  $    9,521  $    8,894
      Accounts payable and accrued charges   532,752     563,831     600,924
      Current portion of long-term debt      363,546      11,457     179,244
      Other current liabilities               45,101           -      28,456
    -------------------------------------------------------------------------
                                          $  945,756  $  584,809  $  817,518

    Long-term debt                           786,744   1,240,805   1,200,224

    Future tax liability                      45,592      94,726      37,903

    Other long-term liabilities              182,127     236,785     179,039

    Non-controlling interest                  79,752      71,939      74,447

    Shareholders' equity                   1,175,457   1,100,881   1,142,970
    -------------------------------------------------------------------------
                                          $3,215,428  $3,329,945  $3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Earnings
    (In thousands of Canadian dollars, except share amounts)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
    (Unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    Sales                     $1,296,597  $1,344,334  $3,896,699  $3,902,898

    Cost of goods sold         1,103,724   1,186,245   3,368,411   3,438,406
    -------------------------------------------------------------------------

    Gross margin              $  192,873  $  158,089  $  528,288  $  464,492
    Selling, general and
     administrative expenses     129,842     117,012     390,017     371,427
    -------------------------------------------------------------------------

    Earnings from operations
     before the following:    $   63,031  $   41,077  $  138,271  $   93,065
    Product recall,
     restructuring and other
     related costs                (7,567)    (42,902)    (26,753)    (62,242)
    Other income (expense)          (249)      9,157       3,219      11,075
    -------------------------------------------------------------------------

    Earnings from operations
     before interest and
     income taxes             $   55,215  $    7,332  $  114,737  $   41,898
    Interest expense              19,755      22,325      61,862      65,856
    -------------------------------------------------------------------------

    Earnings (loss) from
     operations before income
     taxes                    $   35,460  $  (14,993) $   52,875  $  (23,958)
    Income taxes                  10,466      (4,243)     16,245      (6,202)
    -------------------------------------------------------------------------

    Earnings (loss) from
     operations before
     non-controlling
     interest                 $   24,994  $  (10,750) $   36,630  $  (17,756)
    Non-controlling interest       2,537       2,169       6,403       4,526
    -------------------------------------------------------------------------
    Net earnings (loss)       $   22,457  $  (12,919) $   30,227  $  (22,282)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic earnings (loss)
     per share                $     0.17  $    (0.10) $     0.24  $    (0.18)

    Diluted earnings (loss)
     per share                      0.17       (0.10)       0.23       (0.18)
    -------------------------------------------------------------------------
    Weighted average number
     of shares (millions)          131.0       126.3       128.2       126.8

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Comprehensive Income (Loss)
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
    (Unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    Net earnings (loss)       $   22,457  $  (12,919) $   30,227  $  (22,282)

    Other comprehensive income
     (loss)

      Change in accumulated
       foreign currency
       translation adjustment    (15,009)     (9,187)     (7,829)       (953)
      Change in unrealized
       derivative loss on cash
       flow hedges                 1,353       2,326      14,174      (2,313)
      -----------------------------------------------------------------------
                              $  (13,656) $   (6,861) $    6,345  $   (3,266)
    -------------------------------------------------------------------------
    Comprehensive income
     (loss)                   $    8,801  $  (19,780) $   36,572  $  (25,548)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Consolidated Statements of Retained Earnings
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                              Nine months ended September 30,
    (Unaudited)                                             2009        2008
    -------------------------------------------------------------------------
    Retained earnings, beginning of period            $  314,649  $  378,604

    Net earnings (loss)                                   30,227     (22,282)

    Adoption of new accounting standard                     (207)          -

    Dividends declared ($0.12 per share; 2008:
     $0.12 per share)                                    (15,504)    (15,700)

    Premium on shares repurchased for cancellation             -      (5,515)

    Premium on shares issued from Restricted Share
     Unit Trust                                                -        (819)

    -------------------------------------------------------------------------
    Retained earnings, end of period                  $  329,165  $  334,288
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Consolidated Statements of Cash Flows
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
    (Unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED IN):

    Operating activities

      Net earnings (loss)     $   22,457  $  (12,919) $   30,227  $  (22,282)
      Add (deduct) items not
       affecting cash:
        Depreciation and
         amortization             36,637      37,353     113,915     111,062
        Stock-based compensation   4,551       3,840      13,664      12,026
        Non-controlling interest   2,537       2,169       6,403       4,526
        Future income taxes       (9,541)    (12,517)    (12,385)    (21,765)
        Loss (gain) on sale of
         property and equipment      313      (4,302)        477      (4,073)
        Gain on sale of
         investments                   -           -        (501)          -
        Amortization of
         terminated interest
         rate swap                   502         917       1,603       5,499
        Change in fair value of
         derivative financial
         instruments               (2,028)     (1,483)    (12,270)    (1,749)
      Change in other long-term
       receivables                      -         163           -        559
      Decrease (increase) in
       net pension asset               20      (5,137)      1,119    (16,199)
      Change in provision for
       restructuring and other
       related costs                2,946      17,448      15,850     28,792
      Other                        (3,843)      2,848      (9,170)     2,052
      Change in non-cash
       operating working
       capital                      2,464      22,070    (140,234)   (89,835)
    -------------------------------------------------------------------------
    Cash provided by
     operating activities     $    57,015  $   50,450  $    8,698  $   8,613
    -------------------------------------------------------------------------

    Financing activities
      Dividends paid               (5,374)     (5,252)    (15,504)   (15,700)
      Dividends paid to non-
       controlling interest          (155)       (183)       (516)      (599)
      Net increase (decrease)
       in long-term debt         (132,682)    138,037    (165,877)   359,371
      Increase in share capital         -         900           -      4,010
      Purchase of treasury stock   (3,190)          -      (3,190)   (11,341)
      Shares repurchased for
       cancellation                     -           -           -    (11,814)
      Other                            78       2,085       2,806        784
    -------------------------------------------------------------------------
    Cash provided by (used in)
     financing activities     $  (141,323) $  135,587  $ (182,281) $ 324,711
    -------------------------------------------------------------------------

    Investing activities
      Additions to property
       and equipment              (29,705)    (49,344)   (123,392)  (157,708)
      Proceeds from sale of
       property and equipment         179       6,682      23,572     17,227
      Proceeds from sale of
       investments                      -           -       1,540          -
      Acquisition of businesses
       - net of cash acquired           -      (1,295)          -    (62,954)
      Purchase of Canada
       Bread shares                     -     (32,643)          -    (32,643)
      Other                           (17)        224        (328)       365
    -------------------------------------------------------------------------
    Cash used in investing
     activities               $   (29,543) $  (76,376) $  (98,608) $(235,713)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash equivalents   (113,851)    109,661    (272,191)    97,611
    Net cash and cash
     equivalents, beginning
     of period                    198,284       6,327     356,624     18,377
    -------------------------------------------------------------------------
    Net cash and cash
     equivalents, end of
     period                   $    84,433  $  115,988  $   84,433  $ 115,988
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    MAPLE LEAF FOODS INC.
    Segmented Financial Information
    (In thousands of Canadian dollars)

    -------------------------------------------------------------------------
                                  Three months ended       Nine months ended
                                        September 30,           September 30,
    (Unaudited)                     2009        2008        2009        2008
    -------------------------------------------------------------------------

    Sales
      Meat Products Group     $  815,610  $  838,195  $2,468,218  $2,457,378
      Agribusiness Group          55,813      63,658     155,378     183,819
      Bakery Products Group      425,174     442,481   1,273,103   1,261,701
    -------------------------------------------------------------------------
                              $1,296,597  $1,344,334  $3,896,699  $3,902,898
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Earnings from operations
     before product recall,
     restructuring and other
     related costs and other
     income (expense)
      Meat Products Group     $   18,111  $      812  $   31,144  $   31,542
      Agribusiness Group          15,062      12,336      33,518      17,152
      Bakery Products Group       32,749      30,550      80,259      56,378
      Non-allocated costs         (2,891)     (2,621)     (6,650)    (12,007)
    -------------------------------------------------------------------------
                              $   63,031  $   41,077  $  138,271  $   93,065
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Capital expenditures
      Meat Products Group     $   17,278  $   29,742  $   69,238  $  101,593
      Agribusiness Group           3,110       2,638       8,299       9,614
      Bakery Products Group        9,317      16,964      45,855      46,501
    -------------------------------------------------------------------------
                              $   29,705  $   49,344  $  123,392  $  157,708
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Depreciation and
     amortization
      Meat Products Group     $   18,542  $   18,970  $   58,151  $   56,548
      Agribusiness Group           4,004       4,085      12,077      12,252
      Bakery Products Group       14,091      14,298      43,687      42,262
    -------------------------------------------------------------------------
                              $   36,637  $   37,353  $  113,915  $  111,062
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    -------------------------------------------------------------------------
                                               As at       As at       As at
                                           September   September    December
                                            30, 2009    30, 2008    31, 2008
    -------------------------------------------------------------------------
                                          (Unaudited) (Unaudited)
    Total assets
      Meat Products Group                 $1,703,980  $1,716,044  $1,677,671
      Agribusiness Group                     302,660     240,432     318,387
      Bakery Products Group                  893,481     908,152     922,158
      Non-allocated assets                   315,307     465,317     533,885
    -------------------------------------------------------------------------
                                          $3,215,428  $3,329,945  $3,452,101
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Goodwill
      Meat Products Group                 $  450,004  $  450,734  $  450,431
      Agribusiness Group                      14,136      12,942      14,445
      Bakery Products Group                  403,801     407,636     411,385
    -------------------------------------------------------------------------
                                          $  867,941  $  871,312  $  876,261
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

For further information: Lynda Kuhn, Senior Vice-President, Communications & Consumer Relations, [phone], www.mapleleaf.com