Maple Leaf ledger recovering from meat recalls

“Steady improvement” in Maple Leaf Foods’ prepared meats business, following last year’s major product recalls, is among the factors putting the company’s second quarter (Q2) in the black.

The Toronto-based food manufacturing giant on Wednesday posted net profit of $4.9 million on sales of $1.32 billion in its fiscal quarter ending June 30, up from a net loss of $9.35 million on $1.36 billion in the year-earlier Q2.

“Our stronger results reflect good performance in our bakery businesses and steady improvement in our prepared meats business, recovering from the product recall of last August,” CEO Michael McCain said in a release.

Sales were down 2.5 per cent from the year-earlier Q2 due to lower volumes in primary processing and prepared meats and lower market prices for fresh pork, the company said.

However, McCain said in the release, the company is also now “realizing material positive benefits” from its major restructuring of its slaughter and processing (or “protein”) operations, which it undertook starting in October 2006.

That overhaul, McCain said, “protected us from challenging commodity markets in the quarter.”

Maple Leaf’s restructuring plans since 2006 have included putting its Burlington, Ont. pork plant up for sale, shutting its pork plant in Saskatoon and cancelling plans for a new facility there, all with the goal of meeting the company’s fresh pork needs through its slaughter and processing plant at Brandon, Man.

Maple Leaf said its Q2 adjusted operating earnings were up overall, due in part to higher margins in its bakery products group as the group’s commodity input costs dropped.

In its Canadian bakery operations, those lower input costs were partly offset by a weaker Canadian dollar that jacked up the cost of flour priced in U.S. dollars. In the frozen bakery business, meanwhile, the gains from lower commodity costs were “partly offset by an unfavourable sales mix shift from specialty to lower margin staple products.”

Offsetting such improvements, the company said, was the performance of its prepared meats business following last summer’s major listeriosis-related product recall.

Gross margins on prepared meat products improved compared to the company’s 2009 Q1, as Maple Leaf cut its investment in trade spending and promotions, but the company said higher raw material costs resulted in lower earnings compared to the same period last year, as it “was not able to increase prices in a business recovery environment.”

“Running efficiently”

Maple Leaf’s Brandon and Winnipeg pork slaughter and processing operations are “running efficiently and at lower costs compared to last year,” the company said. “In addition, improved sales mix and a weaker Canadian dollar benefited earnings in pork processing despite poor industry market conditions.”

Earnings from Maple Leaf’s poultry operations, meanwhile, were “largely consistent compared to last year.”

Maple Leaf’s agribusiness group, which includes its remaining hog production assets, also improved as the company continued to sell or exit its “non-core” hog production in Ontario. It owned about 215,000 hogs in Q2, representing about 20 per cent of the supply into the Brandon processing plant.

Agribusiness results for Q2 also included $3 million in government support to compensate hog producers for previous years’ losses, up from $200,000 in support in the year-earlier period.

Maple Leaf’s rendering operations’ results were “strong” but down from the year-earlier Q2 as volumes and commodity prices fell, the company said.

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