050437 Maple Leaf Foods Q1 profit down

Toronto - Maple Leaf Foods Inc. said its first-quarter profit dropped from a year ago due in large part to a restructuring charge the meat products maker took in the period due to closures and a 2004 acquisition.

CEO Michael McCain said Maple Leaf also faced declining margins in both the pork and poultry processing sectors, although those decreases were partially offset by a 19 per cent hike in live hog prices. McCain said Maple Leaf, which is celebrating its 10th anniversary as a publicly-traded company, will not provide earnings guidance for 2005, which is shaping up to be a tumultuous year.

"During the first quarter of this year we had tremendous challenges to deal with," McCain told shareholders during the company's annual meeting.

"In addition to what other food processing companies are experiencing in energy and the impact of currency change, the underlying commodity markets this quarter were significantly against us."

Net earnings for the three months ended March 31 fell to $12.7 million, 10 cents per share diluted, from a year-ago $18.1 million, 16 cents per share.

That was well off an analyst consensus estimate for 17 cents per share, according to Thomson One.

The Toronto-based company said net earnings for the quarter before restructuring costs were $21.1 million, or 17 cents per share.

Sales for the quarter increased to $1.6 billion from $1.2 billion in the same period a year earlier, mostly due to Maple Leaf's acquisition of Schneider Foods in April 2004 and increased sales in the company's fresh pork and hog production operation, said chief financial officer Michael Vels.

Bakery sales were up four per cent, but earnings declined in the North American frozen division despite price increases because of higher distribution costs, especially fuel.

"Considering these factors, we're actually very, very pleased with the profit growth that we realized driven by the bakery business and driven by our ongoing achievements in adding value across the protein-value chain that continue to reduce the impact of commodity price changes on our earnings," McCain said.

One industry analyst, who spoke on the condition of anonymity, seemed to agree with that assessment, adding the numbers were "OK."

The $13-million pre-tax restructuring charge recorded during the quarter related to its Schneider merger, the closure of a UK bakery operation and consolidation of feed mills.

Maple Leaf has decided not to offer earnings guidance opting instead for "a policy of education" about the business, McCain told shareholders, acknowledging that decision might disappoint some investors.

"We will accept reasonable short-term volatility and results or performance," he added. "We care about but we're not focused on quarterly numbers. Our future will not be a straight line."

That future direction includes leveraging its scale in Canada, including stepped-up domestic asset investments. That would be achieved through increases in capital spending on a project-by-project basis.

Growth will also be driven by product innovation and improved efficiencies across the business. There are about 175 innovation projects underway, McCain said.

That includes the company's new FroBake line of breads and rolls which go directly from the freezer to the oven. Initial U.S. sales began during the tail- end of the quarter.

The company also plans to significantly expand its international asset base, likely in two to five years time. However, that long-range plan is still to be developed.

"The bakery business in the United Kingdom and Europe warrants investments, but we will also consider opportunities in the European Union, the United States, in South America and possibly China in any of our core businesses," McCain said.

Maple Leaf employs more than 23,000 people in Canada, the United States, Europe and Asia. Its specialty products include pork, poultry and processed- meats, along with bakery goods, fresh pasta and sauces.

Its bakery operations include an 86.9 per cent ownership of Canada Bread Co., Ltd. Responding to a query by shareholders, McCain said the company may decide to increase its stake if "the price is right."

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