Maple Leaf Foods Reports Results for the Third Quarter 2014

TORONTO, Oct. 30, 2014 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter, September 30, 2014.

• Adjusted Operating Earnings⁽¹⁾⁽³⁾ for the third quarter was a loss of $19.8 million (loss of $20.3 million last year) and $61.8 million for the nine months (loss of $80.4 million last year)
• Adjusted Earnings per Share⁽³⁾⁽⁴⁾  for the quarter was a loss of $0.13 (loss of $0.19 last year) and $0.49 for the nine  months (loss of $0.66 last year)
• Net loss from continuing operations for the third quarter was $26.7 million (loss of $24.5 million last year) and $190.8 million for the nine months (loss of $93.5 million last year)
• The Company ended production at its plant in Moncton, leaving three remaining plants to close to complete its supply chain transformation

"We continue to make important advances towards our strategic goals," said Michael H. McCain, President and CEO. "We have benefited from improved margins during a period of unprecedented volatility and high costs in the raw materials market. We are managing the related impact on demand and see the volume decline as short term. While the ongoing cost of duplicate supply chains and start-ups continues to be material, we are achieving milestones every quarter. Product transfers into the new Heritage facility in Hamilton continue, facilitating one more plant closure in the quarter. Once fully commissioned, our Heritage plant will be one of the most advanced, efficient facilities of its type in North America."

Financial Overview

Maple Leaf Foods Inc. ("the Company") sales from continuing operations of $820.1 million for the third quarter was an increase of 8.2% from last year, or 7.6% after adjusting for the impact of foreign exchange, due to higher pricing in the Meat Products Group. Sales from continuing operations of $2,363.2 million for the first nine months increased 7.1%, or 6.1% after adjusting for foreign exchange, due to the same factor.

Adjusted Operating Earnings for the third quarter was a loss of $19.8 million compared to a loss of $20.3 million last year. The Meat Products Group benefited from improved pork processing margins and price increases, while impacted by ongoing transitional costs and lower volumes. For the first nine months, Adjusted Operating Earnings  was a loss of $61.8 million compared to a loss of $80.4 million last year, with improved processing margins and price increases more than offsetting the ongoing transitional costs in the period.

Adjusted Earnings per Share was a loss of $0.13 in the third quarter of 2014 compared to a loss of $0.19 last year. For the first nine months, Adjusted Earnings per Share was a loss of $0.49 compared to a loss of $0.66 last year.

Net loss from continuing operations for the third quarter was $26.7 million (loss of $0.19 per basic share attributable to common shareholders⁽⁶⁾) compared to a loss of $24.5 million (loss of $0.18 per share) last year. This included $14.3 million ($0.07 per share) of pre-tax expenses related to restructuring and other related costs (2013: $11.4 million, or $0.06 per share).

For the first nine months, net loss from continuing operations was $190.8 million (loss of $1.35 per share) compared to a net loss of $93.5 million (loss of $0.67 per share) last year. This amount included $56.0 million ($0.30 per share) of pre-tax expenses related to restructuring and other related costs (2013: $62.7 million or $0.33 per share), as well as financing costs of $98.6 million related to the repayment of the Company's long-term notes payable in April 2014.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of ongoing operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this news release for a description and reconciliation of all non-IFRS financial measures.

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, lunch kits and snacks, and fresh pork, poultry and turkey products sold under leading Canadian brands such as Maple Leaf®, Schneiders® and many leading sub-brands.

Sales in the Meat Products Group for the third quarter increased 8.4% to $814.7 million, or 7.8% after adjusting for the weaker Canadian dollar that benefited pork exports. The increase was driven by higher values for fresh pork as well as price increases implemented in the prepared meats business during the second quarter of 2014 in response to higher raw material costs. As expected, the business is experiencing a period of lower demand and volume in response to this pricing action. This is being actively managed and volumes are expected to recover in the next one to two quarters.

For the first nine months, sales increased 7.5% to $2,345.7 million, or 6.5% after adjusting for the impact of foreign exchange, largely due to the same factors noted above.

Adjusted Operating Earnings for the third quarter improved to a loss of $18.2 million compared to a loss of $21.6 million last year, as a result of increased margins in the Meat Products Group, which benefited from price increases in the prepared meats business and higher earnings in the fresh pork business, reflecting increased pork processing margins which more than offset a decline in volume resulting from lower hog supply in Western Canada. Earnings in the poultry business increased slightly as a result of improved poultry processing margins.

The prepared meats business incurred transitional costs of approximately $25.2 million during the third quarter of 2014, consistent with the second quarter of 2014 and an increase from $14.6 million in the third quarter last year. These costs largely related to commissioning activities at the new prepared meats facility in Hamilton, the largest in the Company's network, and duplicative overhead costs from legacy plants scheduled to be closed.

For the first nine months, Adjusted Operating Earnings was a loss of $61.3 million compared to a loss of $43.6 million last year. The decline in earnings was due to the same factors noted above, including higher transitional costs and increased raw material costs, which had not been fully offset by price increases implemented in the second quarter. Raw material prices continued to remain higher than last year due to the outbreak of disease in hog production herds in the U.S.

Agribusiness Group

Includes Canadian hog production operations that primarily supply the Meat Products Group with livestock as well as toll feed sales.

Agribusiness Group sales for the third quarter declined to $5.4 million compared to $6.3 million last year, due to lower pricing on toll feed sales. Sales for the first nine months declined to $17.6 million from $24.4 million.

Adjusted Operating Earnings in the third quarter declined to a loss of $1.6 million compared to a gain of $1.6 million last year as the hog production operations experienced additional costs related to prevention of the PED virus. In addition, there was a nonrecurring gain in the third quarter last year related to a reversal of a provision for a hog supply arrangement no longer required. For the first nine months, Adjusted Operating Earnings increased to $3.3 million from a loss of $28.3 million last year, as the higher market prices for hogs, net of hedging activities, exceeded higher hog production costs.

Other Matters

On October 29, 2014, the Company declared a dividend of $0.04 per share payable December 31, 2014, to shareholders of record at the close of business on December 5, 2014. 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 third quarter financial results is available at www.mapleleaffoods.com and can be found under Investor Material on the Investors page. A conference call will be held at 2:30 p.m. EDT on October 30, 2014, to review Maple Leaf Foods' third quarter financial results. To participate in the call, please dial 416-340-9432 or 800-952-4972. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 2199324).

A webcast presentation of the third quarter financial results will also be available at:
http://www.media-server.com/m/p/ppaigon

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

Reconciliation of Non-IFRS Financial Measures
The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, and Net Debt. Management believes that these non-IFRS measures provide useful information to 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
Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as earnings before income taxes from continuing operations adjusted for items that are not considered representative of ongoing operational activities of the business and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of net earnings as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Operating Earnings for the three and nine months ended, as indicated below. Management believes that this basis is the most appropriate on which to evaluate operating results, as they are representative of the ongoing operations of the Company.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate ongoing financial operating results. It is defined as basic earnings per share from continuing operations attributable to common shareholders, and is adjusted for items that are not considered representative of ongoing operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of basic earnings per share from continuing operations as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Earnings per Share for the three and nine months ended, as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the ongoing operations of the Company.

⁽ⁱ⁾  2013 figures have been restated for the classification of the Rothsay business and the Bakery Products Group as discontinued operations. Refer to Note 22 of the Company's 2014 third quarter unaudited condensed consolidated interim financial statements. 
⁽ⁱⁱ⁾  Includes per share impact of restructuring and other related costs, net of tax and non-controlling interest. 
⁽ⁱⁱⁱ⁾  Includes gains/losses associated with non-operational activities, including gains/losses related to restructuring activities, business combinations, discontinued operations, assets held for sale, and hedge ineffectiveness recognized in earnings, all net of tax. 
^(iv)  Includes per share impact of the change in fair value of non-designated interest rate swaps, unrealized and realized (gains) losses on commodity futures contracts and the change in fair value of biological assets, net of tax. 
^(v)  Includes a $76.3 million early repayment premium to lenders, $12.7 million in financing costs, and a $9.6 million loss transferred from accumulated other comprehensive income into earnings related to the settlement of interest rate swaps that are no longer designated as hedging instruments   
^(vi)  Relates to a $8.7 million modification and mark to market changes of long-term incentive compensation plan as a result of the costs been fixed and payments accelerated, which was a decision made conditional on the sale of Canada Bread, and is therefore not considered representative of ongoing operational activities of the business. 
^(vii)  May not add due to rounding.

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, as well as 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, in addition to 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 Value Creation Plan; expectations regarding the use of derivatives, futures and options; expectations regarding improving efficiencies; the expected use of cash balances; source of funds for ongoing business requirements; capital investments and debt repayment; expectations regarding acquisitions and divestitures; the timing of new plant openings; old plant closures and job losses; LEED certification; expectations regarding the adoption of new accounting standards and the impact of such adoption on financial position; expectations regarding sufficiency of the allowance for uncollectible accounts; and expectations regarding pension plan performance and future pension plan liabilities and contributions. Words such as "expect", "anticipate", "intend", "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., and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, 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 include, among other things:

• risks associated with the Company's Transition Services Agreement with Grupo Bimbo, S.A.B. de C.V. of Mexico

• risks associated with implementing and executing the Value Creation Plan;

• risks associated with the availability of capital;

• risks associated with changes in the Company's systems and processes;

• risks posed by food contamination, consumer liability, and product recalls;

• risks associated with acquisitions, divestitures, and capital expansion projects;

• impact on pension expense and funding requirements of fluctuations in the market prices of fixed income and equity securities and changes in interest rates;

• cyclical nature of the cost and supply of hogs and the competitive nature of the pork market generally;

• risks related to the health status of livestock;

• impact of a pandemic on the Company's operations;

• the Company's exposure to currency exchange risks;

• ability of the Company to hedge against the effect of commodity price changes through the use of commodity futures and options;

• impact of changes in the market value of the biological assets and hedging instruments;

• impact of international events on commodity prices and the free flow of goods;

• risks posed by compliance with extensive government regulation;

• risks posed by litigation;

• impact of changes in consumer tastes and buying patterns;

• impact of extensive environmental regulation and potential environmental liabilities;

• risks associated with a consolidating retail environment;

• risks posed by competition;

• risks associated with complying with differing employment laws and practices, the potential for work stoppages due to non-renewal of collective agreements, and recruiting and retaining qualified personnel;

• risks associated with pricing the Company's products;

• risks associated with managing the Company's supply chain; and

• risks associated with failing to identify and manage the strategic risks facing the Company.

The Company cautions the reader that the foregoing list of factors is not exhaustive. These factors are discussed in more detail under the heading "Risk Factors" presented previously in the 2013 Annual Report. The reader should review such section in detail. Some of the forward-looking information may be considered to be financial outlooks for purposes of applicable securities legislation including, but not limited to, statements concerning future EBITDA margins; capital expenditures; cash costs; and non-cash restructuring charges. These financial outlooks are presented to allow the Company to benchmark the results of the Value Creation Plan. These financial outlooks may not be appropriate for other purposes and readers should not assume they will be achieved. 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. Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com. Maple Leaf Foods Inc. is a focused consumer packaged meats company. Headquartered in Toronto, Canada, the Company employs approximately 12,000 people at its operations in Canada, the U.S., and Asia.

Footnote Legend

1. Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results.  It is defined as earnings from continuing operations adjusted for items that are not considered representative of ongoing operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.
2. Regarding biological assets, please refer to Note 7 of the Company's 2014 third quarter unaudited condensed consolidated interim financial statements. Realized and unrealized gains/losses on commodity futures contracts and settlement of long-term incentive plan are reported within cost of sales and selling, general and administrative respectively in the Company's 2014 third quarter unaudited condensed consolidated interim financial statements.
3. Figures exclude the results of the Rothsay business and the Bakery Products Group, which are reported as discontinued operations. Refer to Note 22 of the Company's 2014 third quarter unaudited condensed consolidated interim financial statements.
4. Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results. It is defined as basic earnings per share from continuing operations attributable to common shareholders, and is adjusted for all items that are not considered representative of ongoing operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release.
5. 2013 figures exclude the results of the Rothsay business, which are reported as discontinued operations. Refer to Note 22 of the Company's 2014 third quarter unaudited condensed consolidated interim financial statements.
6. Unless otherwise stated, all per share amounts are basic attributable to common shareholders.

SOURCE Maple Leaf Foods Inc.