Maple Leaf Foods Reports Results for Third Quarter 2011

TSX: MFI
www.mapleleaffoods.com

TORONTO, Ontario - Oct. 27, 2011 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2011.  Third quarter highlights include:

• Adjusted Operating Earnings⁽¹⁾ increased 17% to $73.3 million.
• Net earnings increased to $43.0 million from a loss of $19.9 million.
• Adjusted Earnings per Share⁽²⁾ increased to $0.34, including $0.07 per share related to a tax adjustment associated with a prior acquisition, from $0.22 last year.
• Value creation initiatives on track and contributing to margin growth.

"Our third quarter reflects strong earnings growth in our protein business, and we are particularly pleased with the performance of our consumer-facing prepared meats operations," said Michael H. McCain, President and CEO. "We are managing high commodity costs through pricing, cost reduction and continuing to drive higher value product innovation. Our strategic value creation initiatives are also contributing to results and we are on track to deliver sustained earnings growth."

(1): Adjusted Operating Earnings measures are 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") measures are 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 third quarter of 2011 decreased 2% to $1,262.2 million compared to $1,293.2 million last year. After adjusting for the impacts of divestitures and a stronger Canadian dollar, sales increased by 6%, primarily as a result of higher selling prices.

Adjusted Operating Earnings increased to $73.3 million compared to $62.7 million last year, driven by stronger performance in the Protein Group. Adjusted Earnings per Share increased to $0.34, including $9.8 million ($0.07 per share) related to a tax adjustment associated with a prior acquisition, compared to $0.22 last year.

Net earnings increased to $43.0 million ($0.29 basic earnings per share) in the third quarter compared to a net loss of $19.9 million ($0.16 basic loss per share) last year.  Net earnings included $4.9 million ($0.03 per share) of pre-tax costs related to restructuring activities (2010: $50.0 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.

Meat Products Group sales for the third quarter decreased 7% to $777.2 million from $834.7 million in the third quarter last year, largely due to the sale of the Company's Burlington, Ontario primary pork processing operation in November 2010.  After adjusting for this divestiture and the impact of a stronger Canadian dollar that reduced the sales value of pork exports, sales increased by 4%.  Higher market prices in fresh pork, price increases in prepared meats and value-added poultry, and improved sales mix in the prepared meats business contributed to higher sales. These benefits were partly offset by lower retail sales volumes in prepared meats.

Adjusted Operating Earnings in the Meat Products Group for the third quarter were $20.8 million, compared to $19.5 million last year, as margin expansion driven by price increases, improved mix, and cost reduction in prepared meats was largely offset by weaker primary processing markets.

Prepared meats earnings and margins increased as a result of price increases implemented earlier in the year to offset rising input costs, improved sales product mix, and early benefits from the Company's value creation plan. These benefits were partly offset by lower sales volumes and higher selling, general and administrative expenses.

Earnings in primary pork processing operations declined slightly, as the benefits of strong exports and better product sales mix were offset by compression in primary pork processor margins in North America and the unfavourable impact of a stronger Canadian dollar.

Earnings from poultry processing operations declined significantly driven by a continued rise in live birds costs as a result of increased feed prices.

On October 19th the Company announced the approval by its Board of Directors to invest approximately $560 million in its prepared meats manufacturing and distribution network as part of its broader value creation plan. Over the next three years the Company will close six plants, consolidating production into four scale facilities, and close four distribution centres, consolidating operations at its existing distribution centre in Saskatoon and into a new facility in Ontario. These changes, and the implementation of world-class technologies, are expected to significantly enhance productivity and contribute to continued margin expansion in this business.

Related to the early execution of initiatives within the value creation plan, on September 30th the Company completed the sale of its Surrey, B.C., plant and recorded a gain before taxes on the sale of $4.1 million. In addition, the Company estimated that it would record $170 million in restructuring and other related costs from 2012 to 2015 related to its three key strategic projects; the prepared meats manufacturing and distribution network, the implementation of SAP and the new fresh bakery in Hamilton, Ontario.  This estimate includes $120 million in cash restructuring and other related costs.

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

Sales in the Agribusiness Group increased 43% to $67.9 million compared to $47.5 million last year driven by higher sales prices in the by-products recycling business, which reflect higher commodity values.

Adjusted Operating Earnings in the Agribusiness Group in the third quarter increased to $25.4 million compared to $15.6 million last year, also benefited from higher prices for recycled by-products. Lower earnings in hog production resulted from higher feed costs that outpaced increases in hog prices, combined with the unfavourable impact of a stronger Canadian dollar.

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 third quarter increased to $417.0 million compared to $411.1 million last year.  After adjusting for the sale of the Company's fresh sandwich product line in February of 2011 and currency translation on sales in the U.S. and U.K., sales increased 5%, primarily due to price increases implemented earlier in 2011. A modest increase in overall sales volumes reflected higher retail sales volume in fresh bakery operations and continued strength in bagel volumes in the U.K. bakery business following the re-launch of the New York Bakery Co.^TM brand earlier in the year. Sales volumes in North American frozen bakery operations declined slightly compared to last year.

Adjusted Operating Earnings in the Bakery Products Group for the third quarter were $28.1 million, compared to $28.3 million last year. The Company experienced some margin compression as price increases implemented earlier in the year were not sufficient to fully offset the impact of the continued rise of raw material costs. Lower costs resulting from improved operating efficiencies in the Company's frozen bakery business and lower selling, general and administrative expenses contributed to earnings. During the quarter the Company also benefited from the sale of its fresh sandwich product line in the first quarter of 2011.

During the quarter, the fresh bakery business recorded approximately $2.3 million of duplicative overhead costs as the Company continues to operate three sub-scale bakeries as it gradually transitions production to its newly commissioned fresh bakery in Hamilton, Ontario, which officially opened on September 28, 2011.  Production lines for rolls and breads are now in operation, and another two lines are planned to start commercial production by the end of 2011. The final four lines, including flat breads, are planned for 2012.  The Company plans to gradually transfer production from three bakeries in the Greater Toronto Area, and proceed with their closures between the end of 2011 through to early 2013.

Other Matters

On October 26, 2011 Maple Leaf Foods Inc. declared a dividend of $0.04 per share payable December 30, 2011 to shareholders of record at the close of business December 7, 2011.  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".

In the third quarter of 2011, the Company paid two separate dividends for total aggregate dividends of $0.04 per share.  The Company designated the second dividend of $0.015 per share to be an Eligible Dividend, while the first dividend of $0.025 was not eligible for purposes of the "Enhanced Dividend Tax Credit System".

The dividends of $0.04 per share paid by the Company in each of the first and second quarters of 2011 were not designated as Eligible Dividends for 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 Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on October 27, 2011 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 905-694-9451 / 800-408-3053 (Passcode 2453483).

A webcast presentation of the third 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=4213105

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 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 nine 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 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 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)

MAPLE LEAF FOODS INC.

Three and nine months ended September 30, 2011 and 2010

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

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

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

MAPLE LEAF FOODS INC.
Consolidated Statements of Changes in Shareholders' Equity
(In thousands of Canadian dollars)
(Unaudited)

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

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

SOURCE Maple Leaf Foods Inc.