With its bakery company for sale and its profitable animal parts rendering division sold, Maple Leaf Foods Inc. has a lot riding on the $575-million restructuring of its core meat division.
The company is three years into a five-year retooling of its operations, cutting more than a thousand jobs, closing plants in four provinces, revamping its product lineup and opening a massive new distribution centre in Guelph, Ont.
The changes are intended to improve efficiencies, drive down costs, modernize meat processing and, eventually, turn Canada’s largest food processor into a growing business again.
Maple Leaf and other food producers have had to react to shifting consumer tastes and the rising costs of raising, feeding and processing animals. North Americans are buying less bread as gluten-free and low-carb diets become more popular. And meat consumption is down as shoppers choose lower-fat protein sources.
Maple Leaf is expected to make a small profit on Wednesday, when it reports third-quarter results. (Analysts are excluding the contributions of the Rothsay rendering subsidiary, whose sale is expected to close this month.)
Markets and analysts will be looking for signs that the restructuring is beginning to pay off, and that the company is able to stem the decline in sales of baked goods and meat.
Falling meat exports to Japan, higher pork and ham prices, and weak margins will result in earnings per share of 1 cent, Bank of Nova Scotia analyst Christine Healy said in a research note. Ms. Healy, who rates Maple Leaf shares “sector perform” with a “high” risk ranking, said the company is in “the critical stages of a restructuring program.”
RBC Dominion Securities analyst Irene Nattel is expecting a loss of 5 cents a share as restructuring costs and poor market conditions weigh on the protein division.
Maple Leaf employs 19,500 people in Canada, the United States, Britain, Asia and Mexico. Its baked goods and meat brands include Dempster’s bread, Schneiders and Shopsy’s.
Lawrence Johnson, a food consultant and principal with Stanton Associates in Los Angeles, said food makers have had to become more creative to stay competitive, offering higher-end prepared meats, ready-to-eat meals and healthier food to consumers who are turning away from simpler “commodity” food.
“To attract the consumer, you have to do more,” he said.
The Globe and Mail has reported that private equity firms and global food companies are interested in Maple Leaf’s 90-per-cent-owned Canada Bread Co. Ltd., and the company has been approached about selling its main meats business, which chief executive officer Michael McCain said is not for sale.
In an interview last week, Mr. McCain, who owns 33 per cent of Maple Leaf, said that the meat division has not been underperforming, if restructuring costs are stripped out, and that he is “very happy with the progress we have made and continue to make … The protein business is clearly in a state of transition and you can’t evaluate a business when it’s in the middle of such a dramatic transition and transformation.”