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Maple Leaf Foods

Fred Lum/Fred Lum/The Globe and Mail

Global food inflation is tightening its grip on Canada's food manufacturing sector, creating a new challenge for Maple Leaf Foods Inc. as it implements a $1.3-billion turnaround plan.

President and CEO Michael McCain said Thursday that consumers could expect more price increases across the company's product portfolio because of skyrocketing raw material costs especially for corn and wheat.

Excluding special items, Maple Leaf's profit climbed in the first quarter, though its net profit slipped.

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Adjusted operating earnings, which include earnings from operations before hefty restructuring costs, increased 61 per cent to $50.7-million. During the first quarter, the company successfully implemented price increases that fattened its margins on prepared meats.

Profit, including a $26.1-million pre-tax restructuring costs, fell to $10.5-million or 8 cents a share, from $19.9-million or 14 cents a year earlier.

Addressing shareholders at the company's annual meeting, Mr. McCain said food inflation is a "very real global challenge," noting corn and wheat prices rose 95 per cent and 102 per cent, respectively, between February, 2010, and February, 2011.

As a result, Maple Leaf is trying to balance its consumer price increases with its need to grow volume.

"In the short term, there is always some pressure to our performance as we go through the process of passing on that cost increase through increased pricing. But over time, it should be neutral to our company," Mr. McCain said in an interview.

"I am very respectful of the impact on consumers. We try to be as sensitive to that as we possibly can be. We balance the initiatives with passing on pricing with also reducing cost to try and mitigate that as much as we possibly can."

Maple Leaf, however, is just the latest Canadian food company to warn of price hikes as a result of soaring commodity prices. The others include Metro Inc. and George Weston Ltd.

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Earlier this month, Statistics Canada said the price of food bought from stores rose 3.7 per cent in March, marking the biggest increase in a year and a half.

"Consumer food price inflation has begun to pick up and this trend is likely to hold over the next several months," Kenrick Jordan, senior economist BMO Nesbitt Burns Inc., said in a report on Thursday.

Maple Leaf is sharpening its focus on managing the impact of rising raw material prices and other costs as it implements a costly new strategic "blueprint" to cut costs and boost innovation, while closing the book on a difficult year that included a high-profile board shakeup and the departure of a key shareholder, Ontario Teachers' Pension Plan.

West Face Capital, which owns a 11.4-per-cent stake in Maple Leaf, now occupies a board seat. When asked if he was pleased with the company's progress on its turnaround plan to date, West Face president and CEO Gregory Boland replied, "It is still early days so I'm getting oriented with it."

Mr. McCain said the plan "is already showing results." Earlier in the day, Maple Leaf reported its adjusted earnings per share, which exclude special items, rose to 18 cents during the three months ended March 31, 2011, from 7 cents during the same period last year.

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