Maple Leaf Foods Inc.'s second-quarter sales and profit fell due to several factors, including brand renovation and volatile trade environments.
The company's net income was $34.9 million in the three months ended June 30, down from $37.3 million in the second quarter of 2017.
Adjusted earnings amounted to 34 cents per share, which was four cents below analyst estimates.
Sales were also below analyst estimates, declining by 1.8 percent to $909.2 million from $925.9 million.
"We anticipated a more challenging year in 2018, driven by temporarily volatile trading environments and our market launch of a comprehensive food renovation in the second quarter, which is largely how it has unfolded so far," said Michael McCain, president and CEO of Maple Leaf Foods.
Despite difficult circumstances, the company has maintained its financial performance above strategic targets.
“This is a testament to the value-added strength and balance in our portfolio. We have had excellent underlying commercial and operating gains, and we are enthusiastic about the key initiatives which will create long-term shareholder value," McCain said.
Deborah Simpson, chief financial officer of Maple Leaf, said the company continues to see volume and sales benefit from its ongoing expansion into the U.S. market.
“Our sustainable meats portfolio performed well in the U.S., continuing to gain traction with major retailers,” she said.
Brand renovation
The company also had costs of approximately $10 million to support its comprehensive food and brand renovation launch, primarily for production ramp-up, customer promotional activity, reformulation impacts and merchandising and marketing costs.
“We expect these additional costs will subside moving into the second half of the year,” Simpson said.
McCain added that the company may still see some impact of the renovation in the third quarter but is confident it will not in the fourth.
The brand renovation includes approximately 600 billboards, for Maple Leaf and Schneiders, across the country. The company is in the middle of executing several experiential marketing, digital social campaigns and public relations engagements.
“We are also airing excellent TV broadcast spots and are executing a very comprehensive in-store execution program,” McCain said.
It may take considerably more time for the company to feel the benefits of the rebranding.
“For the Maple Leaf brand, it's important to note that this is a significant change to the brand positioning, so it will require materially more time to communicate and embed the full extent of that message, and our consumer narrative will take time to hold. We have great confidence this is the right direction not just for this brand but for the large swath of the food industry,” he said.
Other business
On June 27, the company signed a definitive agreement to acquire two processing plants and associated supply from Cericola Farms, a privately held company. The transaction will be financed through a combination of cash on hand and drawings under the existing credit facility and is expected to close in August, subject to normal closing requirements including Competition Bureau review.
“These two plants have significant capabilities and capacity for processing value-added air-chilled chicken, including RWA and organic,” McCain said.
