Maple Leaf Foods Inc. chief executive officer Michael McCain is asking for patience. Again.
The meat company he runs – and owns one-third of – is nearing the end of a multiyear restructuring in which it is replacing production facilities and opening a new distribution system.
The changes, intended to boost profits and transform the Toronto-based maker of Shopsy’s and Schneider meats into a low-cost producer, will be complete next year. Until then, four new plants are running alongside old ones and production costs are piling up.
“We are a company in transition, and the job is not complete,” said Mr. McCain, who has warned that the double costs will show up in the company’s fourth-quarter financial results, which it reports on Thursday.
Derek Dley, an equity analyst with Canaccord Genuity, expects the results will be “notably weak.”
“We continue to believe that the near/medium term outlook ... remains challenging, as the company will record duplicate costs in 2014 as it transfers production to its new large-scale manufacturing facilities, and closes down another five facilities throughout the year,” Mr. Dley said in a research note.
Few companies have undergone such turmoil and change. In 2008, Maple Leaf came under intense focus after tainted meat from one of its Toronto plants was linked to the deaths of 22 people. Since then, it has worked to regain public trust and spent hundreds of millions of dollars upgrading its factories. Since the arrival of activist investor West Face Capital in 2010, Maple Leaf has narrowed its focus, selling divisions and subsidiaries that produce turkey, pasta and rendered animal byproducts. This month, it announced the long-awaited sale of its bakery division, Canada Bread Co. Ltd., to Mexico’s Grupo Bimbo for $1.8-billion. The proceeds will pay off Maple Leaf Foods’ $1.1-billion debt and help fund the meat revamp.
Now Maple Leaf Foods is focused on reinventing what’s left – its meat business, which has endured slumping sales for years.
Mr. McCain is looking past the two-for-one production costs, which are expected to continue this year until all of the old plants close. He said specialization will let Maple Leaf expand its market share and even launch takeovers.
“We have been absolutely mired in a restructuring agenda for the last seven full years as we’ve rebuilt our entire business to come into the 21st century of North American manufacturing. That job will be done in 2015,” Mr. McCain said earlier this month. “We’ll have the brands, the assets and the people in place.”
Bank of Nova Scotia analyst Christine Healy expects Maple Leaf Foods’ earnings improved in the fourth quarter. She is calling for earnings before interest, taxes, depreciation and amortization of $85-million, or 14 cents a share, compared with $56-million in the third quarter.
Analysts surveyed by Bloomberg expect adjusted earnings per share of 12 cents, and net income of $23.5-million compared with last year.
Canada Bread, which trades publicly until the sale is complete, reports financial results on Wednesday.