Maple Leaf Foods Inc. posted a $14.8-million loss in what the company concedes was a “very difficult” first quarter, but CEO Michael McCain described the problems as both “transitory” and “self-correcting.”
“This was a very difficult quarter, with lower earnings in our protein business overshadowing good improvement in our bakery results,” McCain said.
The company’s meat business, which had enjoyed several years of steady improvement, was hurt in the quarter by poor market conditions, weaker volumes in the wake of necessary price hikes and transition costs related to its new network.
“But I think the most important thing to recognize is this is a short-term impact – more severe than we anticipated – but it is transitory as part of the expected market bubbles connected to the droughts of last summer,” he said.
“Longer term our strategies are working. Over the past four years we have doubled our EBITDA margins as a result of changes in the investments in our business and we expect to continue to invest in margin expansion through 2015.”
Maple Leaf said the loss amounted to 11 cents per share in the period ended March 31 compared with a loss of just under $6-million or four cents per share a year ago.
The bigger loss came as sales fell to $1.11-billion from $1.16-billion in the 2012 quarter, a 4.1 per cent decrease year over year or 2.3 per cent after adjusting for divestitures and foreign exchange as lower volumes were partly offset by higher prices.
The loss for the quarter included $47.4-million or 25 cents per share of pre-tax expenses related to restructuring and other related costs, compared with $20.4-million, or 11 cents per share, in the year-earlier period.
Adjusted earnings per share were a loss of six cents, reversing last year’s adjusted EPS profit of six cents.
McCain explained that droughts in the U.S. drove up the cost of major feed grains, which translated into higher prices for livestock and therefore the input costs for the company’s meat products.
“The same thing is true of wheat, which translates into the cost of bread,” he said, noting that changes in input costs tend to be reflected six to nine months down the line as they work their way through the system.
“We certainly experienced (the drought impact) in a more severe way than we anticipated but we believe that those are self-correcting,” he said.
Meanwhile, Maple Leaf plans to stay with its strategic plan, with no material changes expected to the company’s forecast of $425-million in capital sending for the year.
Nor does McCain expect significant changes to the $139-million in forecast restructuring spending into 2015. The company took a $47.4-million restructuring charge for severance and decommissioning costs in the latest period.
“The accounting rules require us to take both severances and decommissioning costs in advance of the actual event once it’s been decided and many of them are non-cash charges and those were reflected in our quarterly results,” he said.
McCain said that while the outcome is seen as challenging in the near term “we expect steady improvements through the remainder of the year as a result of improved markets, restoring stable volumes and continued success in our supply chain conversions.”
Sales for the protein group, which includes the company’s meat products and agribusiness groups, declined 5.9 per cent to $744.4-million from $790.8-million.
The drop was driven by lower volumes and the divestiture of the company’s potato processing business, partly offset by higher price.
Sales for the bakery group fell 0.4 per cent overall to $368.4-million, but increased by 0.6 per cent after adjusting for the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K.
The increase was mostly due to price increases in the fresh and North American frozen bakery businesses and higher croissant volumes in the U.K., partly offset by lower volumes in the fresh bakery business.