Maple Leaf Foods Inc. saw a sharp decline in adjusted operating earnings in the company's first quarter of 2013, reported May 2 for the quarter ending March 31.
Adjusted operating earnings decreased 76.2 percent to $7.6 million, compared to $31.7 million for the same quarter in 2012. Also, its net loss increased to $14.7 million from a loss of $5.8 million in 2012.
Struggles in protein
The company, which is divided into a protein group and a bakery products group, faced its biggest challenges in the proteins. The protein group's adjusted operating earnings declined to a loss of $5.1 million compared to a gain of $33.3 million in 2012 for the same quarter. The protein group consists of two sub-groups — meat products and agribusiness. Included in the meat products segment are value-added prepared meats, lunch kits, and fresh chicken, turkey and pork products. The agribusiness group includes Canadian hog production, animal by-product recycling operations and biodiesel.
The company saw a $24 million impact from market conditions, said company president and CEO Michael McCain, brought on by drought in the U.S. and the devaluation of the Japanese Yen, which mostly impacted primary processing and hog production earnings.
Maple Leaf Foods saw a better picture with its bakery products group. Adjusted operating earnings for the bakery products group increased to $14.1 million compared to $2.4 million in 2012, due in large part to improved performance in the fresh bakery business.
"This was a very difficult quarter, with lower earnings in our protein business overshadowing good improvement in our Bakery results," said McCain. "For some time, we expected a volatile first half to 2013, but this certainly has been more severe than anticipated. Our meat business has demonstrated multiple years of progressive and steady improvement, but this quarter experienced the aggregate impact of poor market conditions, weaker volumes in the wake of necessary price advances and transition costs related to our new network."
Expecting better times ahead
McCain told shareholders on May 2 he expects the company's financial picture to turn around soon. In fact, he already sees improvement. "We're a third of the way into the second quarter now, and what we're seeing is an excellent recovery in April and early May," he said.
"If you take a slightly longer term view which we feel is important here, from 2006 to 2012 we have solid track record of managing commodity increases," said McCain, who noted significant increases in corn, poultry, pork and beef prices since 2008. "On the whole, we're confident that these market factors are transitory. What we're seeing is grain and feed costs that are declining, which will benefit both our chicken and hog production businesses. For the last few weeks, the industry pork margins have started to improve, and I believe most industry observers are expecting normalized packer margins for the back half of 2013."
McCain also pointed out costs involved as the company is implementing changes to place more focus on its prepared meats business. The company has incurred $7 million in incremental costs to support the transformation which, when completed, should boost productivity by 70 percent.
"This is a year of significant change," said McCain. "It's also an exciting year as we transition from construction to commissioning. We're intently focused on continuing to manage these transitions with discipline and excellence as the year unfolds."