Maple Leaf Foods Reports Results for First Quarter 2012

TSX: MFI
www.mapleleaffoods.com

TORONTO, May 2, 2012 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the first quarter ended March 31, 2012.

• Adjusted Operating Earnings⁽¹⁾ for the first quarter decreased 20% to $40.5 million
• Net earnings for the first quarter were $0.8 million, compared to $10.5 million in the first quarter last year
• Adjusted Earnings per Share⁽²⁾ were $0.11 compared to $0.18 last year

"Our first quarter results were challenged, as expected, due primarily to weak fresh bakery volumes, an issue is affecting the entire industry," said Michael H. McCain, President and CEO. "We are addressing this challenge directly and expect improved results through the remainder of 2012. Conversely, we are very pleased with the results in our Protein Group, particularly considering the significant decline in commodity industry pork processor margins.  While the bakery business had a slow start, we expect to reach our EBITDA margin target run rate later this year."

(1): Adjusted Operating Earnings, a non-IFRS measure, is defined as earnings from operations before restructuring and other related costs and associated gains, other income and the impact of the change in fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts and the change in fair value of biological assets. 

(2): Adjusted Earnings per Share ("Adjusted EPS"), a non-IFRS measure, is defined as basic earnings per share adjusted for the impact of restructuring and other related costs and associated gains, the impact of the change in fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts, and the change in fair value of biological assets, net of tax and non-controlling interest.

Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this news release.

Financial Overview

Sales for the first quarter of 2012 increased 1% to $1,160.8 million compared to $1,147.9 million last year, as higher selling prices across the business were partially offset by lower volumes in fresh bakery and fresh pork.

Adjusted Operating Earnings decreased 20% to $40.5 million compared to $50.7 million last year, primarily due to lower results in the Bakery Products Group.

Net earnings decreased to $0.8 million ($nil basic earnings per share) compared to $10.5 million ($0.08 basic earnings per share) last year.  Net earnings included $20.4 million ($0.11 per share) of pre-tax costs mostly related to the implementation of the Company's value creation plan and other restructuring activities (2011: $26.1 million).  Adjusted Earnings per Share declined to $0.11, compared to $0.18 in the prior year period.  Earnings in the first quarter of 2011 included $2.4 million ($0.02 per share) related to tax adjustments associated with a prior acquisition.

Several items are excluded from the discussions of underlying earnings performance.  These include restructuring charges, mark-to-market adjustments on hedging contracts that are not designated in a hedging relationship and mark-to-market adjustments related to biological assets.  Restructuring charges are excluded as they do not reflect the continuing earnings performance of the business. Mark-to-market adjustments do not reflect the economic effect of the hedging transactions and are excluded from earnings discussions until the underlying asset is sold or transferred.  Refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Business Segment Review

Following is a summary of sales by business segment:

The following table summarizes Adjusted Operating Earnings by business segment:

Protein Group

Sales for the Protein Group, which includes the Company's Meat Products and Agribusiness operations, increased 2% to $790.8 million from $775.5 million for the prior year period. Adjusted Operating Earnings increased 1% to $41.2 million compared to $40.7 million for the first quarter last year. Results for the Company's Meat Products and Agribusiness operations should be viewed as a whole, as there are various factors within the group that work to naturally offset each other.

Meat Products Group
Includes value-added prepared meats, 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 ®, Schneiders ® and many leading sub-brands.

Meat Products Group sales for the first quarter increased 1% to $725.5 million from $718.2 million for the first quarter last year.  After adjusting for the impact of a weaker Canadian dollar, which increased the sales value of pork exports, sales were consistent with last year, as higher fresh pork and prepared meats prices, and higher prepared meats volumes were offset by lower sales volumes in fresh pork.

Adjusted Operating Earnings decreased 17% to $22.1 million compared to $26.6 million last year, primarily as a result of lower industry pork processing market conditions in North America.

The prepared meats business continued to improve margins in the quarter. Contributing to higher earnings were benefits from the Company's network transformation initiatives, including the closure of facilities in Surrey, B.C. and Berwick, Nova Scotia and an ongoing program to simplify product mix and focus on more profitable and higher volume products.  Also contributing to higher earnings was an improved retail sales mix, supported by product innovation, and higher overall sales volumes.  These improvements were partly offset by higher raw material and inflationary costs that were not yet fully recovered through price increases implemented in 2011 and early 2012. The Company expects to realize the full benefit of these price increases in the second quarter.

Earnings increased in the fresh poultry operations as a result of higher volumes and improved pricing of value-added products, particularly the Prime chicken product line, and improved plant operating performance. Industry processor spreads were consistent with the first quarter last year, but improved from the second half of 2011.

Earnings declined in primary pork processing operations as a result of industry packer margins that were 98% lower than last year.  The Company partially offset these changes in industry margins through improved domestic sales contracts and international margins.

Agribusiness Group
Consists of Canadian hog production and animal by-product recycling operations.

Sales in the Agribusiness Group for the first quarter increased 14% to $65.3 million in 2012 from $57.3 million in 2011, due to increased sales volumes and higher selling prices for bio-diesel.

Adjusted Operating Earnings increased 36% to $19.1 million compared to $14.0 million last year, due to better performance in both hog production and by-products recycling operations, primarily bio-diesel. Earnings from hog production operations improved as rising hog prices outpaced higher feed costs. Performance improved in the by-products recycling operations as a result of higher prices for biodiesel and other products.

Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's^®, Tenderflake^®, Olivieri^® and New York Bakery Co^TM, and many leading regional brands.

Bakery Products Group sales for the first quarter declined 1% to $370.0 million, compared to $372.4 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, the strategic exit of unprofitable fresh and in-store bakery bread categories in the U.K. related to a facility closure, and currency translation, sales increased 1%. The benefit of price increases implemented during 2011 was partially offset by a decline in fresh bakery sales volumes.

Adjusted Operating Earnings declined 73% to $3.3 million compared to $12.2 million last year. The most significant factor was a decline in fresh bakery volumes, a trend which has been experienced across the North American industry. The Company is focusing on expansion in higher growth categories, strategic customer partnerships and increased marketing and consumer communications to increase volumes through the remainder of the year. Earnings were also impacted by higher input costs and overall inflation, and approximately $3 million in incremental costs related to inventory write-downs in the fresh pasta business and duplicative overhead costs as the Company commissions its new fresh bakery in Hamilton, Ontario. Contributing to earnings in the quarter were price increases implemented in early 2011 and the sale of the Company's fresh sandwich product line in the first quarter of 2011.

During the quarter, the Company closed two bakeries in the Greater Toronto Area as it continues to consolidate production into its new fresh bakery in Hamilton, Ontario. Duplicative overhead costs will continue until the Company completes the commissioning of the Hamilton bakery and closes the third Toronto bakery in early 2013.

Profitability in the Company's frozen bakery operations improved due to lower selling, general and administrative expenses, higher sales volumes in North America, and improved sales mix in the U.K. In March 2012, the Company closed its bakery in Walsall, U.K. as part of a plan to focus production in its core categories of bagels, croissants and specialty breads. The Company now operates three facilities in Rotherham, London and Maidstone. As a result, the business expects to realize reduced operating costs, higher efficiencies and a higher value sales mix going forward.

Other Matters

On May 1, 2012, Maple Leaf Foods declared a dividend of $0.04 per share payable June 29, 2012 to shareholders of record at the close of business June 8, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, the dividend 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.mapleleaffoods.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 May 2, 2012 to review Maple Leaf Foods' first 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 905-694-9451 / 800-408-3053 (Passcode 3151597).

A webcast presentation of the first quarter financial results will also be available at http://investor.mapleleaf.ca/phoenix.zhtml?c=88490&p=irol-audioarchives

The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website.

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted Operating Earnings

The following table reconciles earnings from operations before restructuring and other related costs and associated gains, other income (expense) and the impact of the change in fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts and the change in fair value of biological assets to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs, other income (expense) and the change in fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts and the change in fair value of biological assets are not representative of operational results during the period.

Adjusted Earnings per Share

The following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs and associated gains, the changes in the fair value of non-designated interest rate swaps, unrealized (gains) losses on commodity futures contracts and the change in fair value of biological assets net of tax and non-controlling interests are not representative of operational results.

Forward-Looking Statements

This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities law.  These statements 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 forward-looking information in this document includes, but is not limited to, statements with respect to the anticipated benefits, timing, actions, costs and investments associated with the Company's Value Creation Plan, expectations regarding improving business trends, expectations regarding actions to reduce costs, restore and/or promote volumes and/or increase prices, improve efficiencies, expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton fresh bakery and existing bakeries, the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, and expectations regarding sufficiency of the allowance for uncollectible accounts. 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 information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.

In addition, these statements and expectations concerning the 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, U.S., U.K. and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, U.K. British pound and the Japanese yen;  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 Value Creation Plan or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments; and the general assumption that none of the risks identified below or elsewhere in this document 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 information, 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 information is discussed more fully in the Company's Annual Management's Discussion and Analysis for the period ended December 31, 2011 including the section entitled "Risk Factors", that are updated each quarter in the Management's Discussion and Analysis, and are available on SEDAR at www.sedar.com. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, 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. ("Maple Leaf" or the "Company") is a leading Canadian value-added meat, meals and bakery company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 19,500 people at its operations across Canada and in the United States, Europe and Asia.

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
(Unaudited)

MAPLE LEAF FOODS INC.

Three months ended March 31, 2012 and 2011

consolidated balance sheets

consolidated statements of earnings

consolidated statements of comprehensive (loss) income

consolidated statements of changes in total equity

consolidated statements of cash flows

segmented financial information

SOURCE Maple Leaf Foods Inc.