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Maple Leaf: Profit up Despite Challenging Market Conditions

28 February 2013

CANADA - Despite the challenging market conditions in primary pork processing margins and consumer bread demand, Maple Leaf Foods achieved an eight per cent increase in operating profits for the year.

Maple Leaf Foods Inc. has reported its financial results for the fourth quarter and fiscal year ended 31 December 2012.

Highlights for the fourth quarter of 2012 include Adjusted Operating Earnings up increased 58.9 per cent to CC$91.3 million, net earnings increased to CC$56.8 million from C$9.2 million last year and Adjusted Earnings per Share increased to C$0.38 from C$0.21 last year. EBITDA margins were 10.6 per cent for the company.

For the full year of 2012, the highlights were Adjusted Operating Earnings 8.1 per cent higher to C$280.0 million following strong second-half results, net earnings increased 40.5 per cent to C$122.7 million and Full year Adjusted Earnings per Share was C$1.06, compared to C$1.01 last year (2011 includes C$0.09 per share tax adjustments related to a prior acquisition).

CEO's comments

Michael H. McCain, President and CEO, commented: "We are very pleased with our results for the fourth quarter and 2012 in total. They reflect steady, ongoing progress in realizing earnings growth towards 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 eight per cent increase in operating profits for the year and 59 per cent 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," said Mr McCain.

Financial overview

Sales for the fourth quarter declined 3.3 per cent to C$1,204.8 million compared to C$1,245.3 million last year, or 2.2 per cent after adjusting for the impacts of divestitures and foreign exchange, primarily as a result of lower sales volumes. For the full year, sales were C$4,864.8 million, down 0.6 per cent from C$4,893.6 million in 2011, or 0.3 per cent after adjusting for divestitures and foreign exchange.

Adjusted Operating Earnings for the fourth quarter were C$91.3 million compared to C$57.4 million last year, due to strong improvements in the Meat and Bakery Products Groups. For the full year, Adjusted Operating Earnings increased 8.1 per cent, to C$280.0 million compared to C$259.0 million last year due to increased earnings in the Meat and Bakery businesses.

Adjusted Earnings per Share were C$0.38 in the quarter, compared to C$0.21 last year. For the year, Adjusted Earnings per Share were C$1.06, compared to C$1.01 last year. Adjusted Earnings per Share in 2011 included C$12.2 million (C$0.09 per share) of tax adjustments related to a prior acquisition.

For the fourth quarter, net earnings were C$56.8 million (C$0.39 basic earnings per share) compared to C$9.2 million (C$0.06 basic earnings per share) last year. Net earnings included C$12.8 million (C$0.07 per share) of pre-tax costs related to restructuring activities (2011: C$32.2 million, or C$0.17 per share). For the full year, net earnings were C$122.7 million (C$0.83 basic earnings per share) compared to C$87.3 million (C$0.59 basic earnings per share) last year. Net earnings for the year included C$47.5 million (C$0.25 per share) of pre-tax costs related to restructuring activities (2011: C$79.8 million, or C$0.41 per share).

Business segment review

Protein Group

Sales for the Protein Group, which includes the Company's Meat Products Group and Agribusiness Group, declined 3.7 per cent to C$814.2 million in the fourth quarter of 2012 from C$845.3 million last year. For the full year, sales for the Protein Group of C$3,298.2 million were consistent with C$3,299.1 million last year. Adjusted Operating Earnings increased 44.0 per cent to C$60.8 million in the fourth quarter, compared to C$42.2 million last year. For the full year, Adjusted Operating Earnings increased 6.6 per cent to C$189.7 million, compared to C$177.9 million last year. Results for the Company's Meat Products Group and Agribusiness Group should be viewed in combination due to intercompany transactions and correlated factors within these operations.

Meat Products Group

Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, food-service, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf®, Schneiders® and many leading sub-brands.

Meat Products Group sales for the fourth quarter declined 5.3 per cent to C$740.8 million from C$781.8 million in the fourth quarter last year. After adjusting for the impact of a stronger Canadian dollar, which decreased the sales value of pork exports, sales declined 4.6 per cent, primarily due to discontinuance of lower-margin accounts in the prepared meats business.

Adjusted Operating Earnings for the fourth quarter increased 75.2 per cent to C$48.1 million, compared to C$27.5 million last year, driven by stronger earnings growth in the prepared meats and fresh poultry businesses, which was partly offset by lower earnings in the primary pork processing operations. The prepared meats business benefited from price increases to manage higher input costs, an improved sales mix driven by higher margin product innovation and the discontinuance of lower-margin food-service business. Other positive effects impacting earnings for the quarter included cost reductions from simplification of the Company's product portfolio and C$5.9 million in provisions related to re-assessments of environmental remediation costs on facilities planned for closure. These benefits were partly offset by lower volumes.

Sales of higher value products, such as the Maple Leaf Prime chicken brand, combined with improved sales mix in higher value channels contributed to higher earnings in the fresh poultry operations. Earnings in primary pork processing declined from last year due to continued weaker industry margins, although improved from earlier in the year.

For the full year, Adjusted Operating Earnings in the Meat Products Group increased 26.3 per cent to C$121.3 million compared to C$96.0 million last year, largely driven by the same factors noted in the quarter.

Agribusiness Group

Consists of Canadian hog production and animal by-product recycling operations, including biodiesel manufacturing and distribution.

Sales in the Agribusiness Group increased 15.6 per cent to C$73.4 million for the fourth quarter compared to C$63.5 million last year, as higher volumes in biodiesel and rendering operations were partly offset by lower biodiesel selling prices.

Adjusted Operating Earnings in the fourth quarter declined 14.1 per cent to C$12.7 million compared to C$14.7 million last year. Hog production earnings were impacted by a combination of higher feed costs and lower market prices for hogs. Earnings in the by-products recycling operations were impacted by higher payments for raw materials and lower biodiesel selling prices, partly offset by stronger export volumes.

Adjusted Operating Earnings for the year declined 16.4 per cent to C$68.4 million compared to C$81.9 million last year, as a result of lower results in both hog production and by-product recycling operations.

You can view the full report by clicking here.

ThePigSite News Desk



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