Toronto - Maple Leaf Foods Inc. announced its September 30, 1998 third quarter results. While the Company's sales, operating earnings and net earnings were below those of the third quarter last year, the Meat Products Group showed substantial increases in performance directly resulting from three years of restructuring. Offsetting this were difficulties in the Bakery Products Group and the Agribusiness Group which are receiving close attention.
Financial Results
Net earnings for the quarter were $7.1 million ($0.08 per share), down from $16.6 million ($0.18 per share) last year. The year-to-date net loss of $42.5 million ($0.45 per share) reflects the pre-tax special charge equal to $0.60 per share that was taken in the first quarter. Net earnings for the first three quarters last year were $34.4 million ($0.37 per share).
The Company's sales have declined, in the quarter and year-to-date due almost exclusively to the labour dispute earlier in the year and substantial commodity price decreases in grains and livestock. Sales for the quarter were $838 million compared to $962 million last year, while year-to-date sales of $2.4 billion compared to $2.7 billion last year. Period-over-period sales declines will likely continue to be experienced as a result of commodity price decreases, however, underlying product volumes are expected to grow in the fourth quarter and 1999. Operating earnings for the third quarter were $25.2 million compared to $38.6 million last year. Year-to-date operating earnings, before the special charge, were $56.0 million compared to $89.8 million last year.
Meat Products Group
We are pleased with the progress in operating results realized in the entire Meat Products Group. While sales were down for the quarter and year-to- date compared to last year, operating earnings for the third quarter increased substantially from the second quarter and from last year. Year to date, in spite of first half disruptions, operating earnings from the Meat Products Group increased. At Maple Leaf Meats, operating improvements have been realized, progress continues to be made in recapturing prepared meats volumes, and the Burlington fresh pork facility is now processing a greater number of hogs than it was prior to the labour dispute. We expect further improvements in the fourth quarter and 1999 as the strategic plan for the operation continues to unfold. During the quarter, a new long-term, competitive labour agreement was reached for the Winnipeg facility, which paves the way for capital investment in the facility. A further $11.8 million investment in the Burlington fresh pork facility was announced during the quarter, and the new Brandon fresh pork facility is progressing. Additionally, the Poultry operations have made strong improvements largely due to the growing success of the Maple Leaf Prime brand.
Bakery Products Group
Earnings in the Bakery Products Group continued to be disappointing, however, the difficulties being experienced in the Group are not structural or long-term in nature. In Canada, earnings were lower than last year primarily due to three issues: lower fresh bread volumes in Western Canada; reduced gross margins in Atlantic Canada; and lower earnings from the Company's 25 percent interest in Multi-Marques. We believe that the strategic initiatives completed over the last few years have strengthened the foundation for future earnings growth. While the U.S. bakery operation is not currently contributing to earnings, we are fully committed to this business development initiative and believe it has substantial potential for future growth and profitability. Due to adverse financial market conditions, the planned sale of the Franchise Operations pursuant to an initial public offering has been deferred indefinitely.
Agribusiness Group
Agribusiness Group earnings were below those of last year primarily due to low hog prices in Quebec where the Company has a substantial interest in hog growing operations and losses on grain inventories. International Trading earnings were also lower than last year due to lower volumes to Asia, although increased sales into other markets have largely offset these lower volumes.
Other Information and Developments
Interest expense for the quarter of $12.9 million increased by 12 percent from last year, due to higher borrowings arising from capital expenditures and the costs of labour disputes in the first half.
On November 9, 1998, the Company announced that it is offering to sell up to $100 million principal amount of seven year 5.5 percent convertible unsecured subordinated debentures. The debentures will be convertible into common shares of Maple Leaf Foods at a conversion price of 125 percent of the 10 day weighted average price prior to the pricing date. Closing is expected to be in late November. This issue will strengthen our financial position, allowing the Company to aggressively pursue attractive growth opportunities in all operating Groups through capital spending and acquisitions.
The Company declared a dividend of $0.04 per share payable on December 31, 1998 to shareholders of record on December 18, 1998.
We look forward to further improvements in the Meat Products Group's results, and we are aggressively addressing issues that have adversely affected Bakery Products Group and Agribusiness Group results.
Meat Industry Insights News Service
P.O. Box 553
Northport, NY 11768
Phone: 631-757-4010
Fax: 631-757-4060
E-mail: sflanagan@sprintmail.com
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