Maple Leaf Foods Reports Results for Second Quarter 2011

TSX: MFI
www.mapleleaffoods.com

TORONTO, July 28, 2011 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2011.  Second quarter highlights include:

• Adjusted Operating Earnings⁽¹⁾ increased 54% to $77.5 million
• Value creation initiatives on track and contributing to margin growth
• Net earnings increased to $24.6 million from $4.9 million
• Adjusted Earnings per Share⁽¹⁾ increased 83% to $0.30 from  $0.16 last year

"Maple Leaf Foods delivered outstanding results and our ninth consecutive quarter of earnings growth," said Michael H. McCain, President and CEO. "We are successfully managing the impact of rising costs through price increases and cost reduction initiatives, and our value creation plan is on track and contributing to earnings. We are making steady progress in increasing our profitability and delivering on our commitments."

(1): Adjusted Operating Earnings measures are defined as earnings from operations before restructuring and other related costs, 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.  Adjusted Earnings per Share ("Adjusted EPS") measures are defined as basic earnings per share adjusted for the impact of restructuring and other related costs 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, net of tax and non-controlling interest. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.

Financial Overview

Sales for the second quarter of 2011 decreased 3% to $1,238.2 million compared to $1,271.4 million last year, primarily due to business divestitures.  After adjusting for the impact of divestitures and the impact of a stronger Canadian dollar, sales increased by 4%.

Adjusted Operating Earnings increased to $77.5 million compared to $50.4 million last year, largely due to improved performance in the Protein Group. Adjusted Earnings per Share increased to $0.30 compared to $0.16 last year.

Net earnings increased to $24.6 million ($0.17 basic earnings per share) compared to net earnings of $4.9 million ($0.02 basic earnings per share) last year. Net earnings in the quarter included $16.6 million of pre-tax costs related to restructuring activities (2010: $7.5 million).

Several items are excluded from the discussions of underlying earnings performance during the quarter.  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:

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 ®, Schneiders ® and many leading sub-brands.

Sales for the second quarter decreased 7% to $762.2 million from $815.7 million in the second quarter last year, largely due to the sale of the Company's Burlington, Ontario primary pork processing operation in November 2010.  After adjusting for the impact of this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of exports, sales increased by 3% compared to last year. Higher market prices in fresh pork, combined with price increases and higher value sales mix in the prepared meats business contributed to stronger sales. These benefits were partly offset by lower sales volumes, primarily in prepared meats, due to lower export and retail sales volumes.

Adjusted Operating Earnings in the Meat Products Group for the second quarter increased 29% to $16.1 million compared to $12.5 million last year, driven by margin expansion in prepared meats and stronger primary pork processing results.

Prepared meats margins strengthened as price increases offset the impact of rising input costs, although the business experienced some volume decline. Margins also benefited from operational improvements and the contribution of higher-margin products, such as the Natural Selections™ and the newly launched Schneiders^® Country Naturals™ sliced meat lines.

Primary pork processing margins increased as a result of strong export sales, and improved product mix and operating efficiencies. Earnings from poultry processing operations declined compared to those of last year as a result of higher live birds costs that compressed industry-wide poultry processor margins.

During the quarter the Company continued to progress in the implementation of its value creation plan.  This plan includes initiatives to reduce costs and increase supply chain efficiencies through product and packaging simplification, price management, network consolidation, and investments to reduce costs and build scale.  Initiatives underway to standardize product ingredients, sizes and packaging and eliminate non-value added product lines contributed to margin growth in the quarter. The Company closed and subsequently sold a prepared meats facility located in Berwick, Nova Scotia, and consolidated the production into other existing plants. The Company has also announced the scheduled closure of a prepared meats plant in Surrey, British Columbia, in the second half of 2011 and began transferring production to other facilities in June 2011.

Agribusiness Group

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

Sales in the Agribusiness Group for the second quarter increased 31% to $70.9 million from $54.1 million last year mostly reflecting higher sales values in the by-products recycling business.

Adjusted Operating Earnings in the Agribusiness Group in the second quarter increased by 140% to $32.7 million compared to $13.6 million last year, driven by the benefit of higher prices for by-products and hogs.  Earnings in the by-products recycling business increased due to higher market prices in both rendering and bio-diesel operations. Hog prices also increased 15% since last year and outpaced increases in the Company's net cost of grain.

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™, and many leading regional brands.

Sales in the Bakery Products Group for the second quarter were consistent with prior year at $405.1 million compared to $401.6 million last year.  After adjusting for the impact of the sale of the Company's fresh sandwich product line in February 2011 and the impact of currency translation on sales in the U.S. and U.K., sales increased 4% primarily reflecting higher selling prices as a result of price increases implemented in the first half of 2011. Overall sales volumes declined slightly in the fresh bakery business as consumers adjust to higher prices.

Adjusted Operating Earnings in the Bakery Products Group for the second quarter increased 12% to $29.9 million, compared to $26.6 million last year. Overall, earnings improved due to the benefit of price increases, largely in fresh bakery, to offset higher raw material costs. The North American frozen bakery business continues to implement price increases to fully offset higher costs. Benefits from operational efficiencies offset remaining inflationary pressures. Lower promotional costs and the benefit from cost reduction initiative implemented early in 2011 and the sale of the fresh sandwich product line earlier this year also contributed to higher earnings.

In the United Kingdom, the Company sold a small scale bakery in Cumbria in April 2011 and closed a bakery in London in May 2011, with production consolidated into its bakeries in Maidstone and Walsall.

The new fresh bakery in Hamilton, Ontario, which is a significant element of the Company's value creation plan, began initial production in July 2011 as planned. Construction and commissioning of this bakery, one of the largest fresh bakeries in North America, is on schedule and on budget. The Company will gradually transfer production from three bakeries in the Greater Toronto Area, which are scheduled for closure starting at the end of 2011 up until early 2013.

Capital Expenditures

The Company currently estimates its capital expenditures for the full year of 2011 to be between $270 million to $290 million, which is below its prior estimates of $320 million. The level of investment in strategic projects is tracking to plan; however, Management now anticipates that capital investments in base business operations will be lower than previous estimates.

Other Matters

On July 27, 2011 Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable on September 30, 2011 to shareholders of record at the close of business on September 9, 2011. Unless indicated otherwise by the Company in writing or by a posting to its internet website, at or before the time the dividend is paid, the dividend will not be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System". If prior to the payment of the dividend, the Company determines that a portion of this dividend may be designated as an eligible dividend, then the portion so determined shall be paid as a dividend and the portion that is not an eligible dividend shall also be paid as a dividend, such that the total amount of the dividends paid is $0.04 per share.

The dividends paid in the first and second quarter of 2011 were not considered eligible dividends for purposes of the "Enhanced Dividend Tax Credit System".  It is currently anticipated that a portion of the dividend in the third quarter and the dividend for the fourth quarter will be considered eligible dividends for the purposes of the "Enhanced Dividend Tax Credit System".

An investor presentation related to the Company's second 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 July 28, 2011 to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-340-2219 or 877-240-9772. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 5725811).

A webcast presentation of the second quarter financial results will also be available at http://investor.mapleleaf.ca via a link:
http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=88490&eventID=4149788

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, 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 condensed consolidated interim statements of 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 in the unaudited condensed consolidated interim statements of earnings for the three and six month periods ended as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs and 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 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 forward-looking statements in this document include, but are not limited to, statements with respect to improving business trends, expectations regarding actions to reduce costs, restore and/or promote volumes and/or increase prices, improve efficiencies, 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 statements. 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, United States, United Kingdom and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, 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 protein business transformation 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 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 period ended December 31, 2010 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 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. ("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 21,000 people at its operations across Canada and in the United States, Europe and Asia.

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

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Three and six months ended June 30, 2011 and 2010

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Consolidated Balance Sheets
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Consolidated Statements of Earnings
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Consolidated Statement of Comprehensive Income
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Consolidated Statements of Changes in Shareholders' Equity
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Consolidated Statements of Cash Flows
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Segmented Financial Information
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SOURCE Maple Leaf Foods Inc.