Maple Leaf warns of challenging commodity markets

By Nicholas Robinson

- Last updated on GMT

Related tags Maple leaf foods Meat Livestock Beef Pork Poultry

Maple Leaf warns of challenging commodity markets
Canadian processor Maple Leaf Foods has reported improved profits for the second quarter, but warned that weather conditions could cause challenges in the year ahead.

The company reported adjusted operating earnings of CA$71.9m for the second quarter of the year ending 30 June, compared to CA$77.5m last year, as well as Q2 net earnings of CA$32.5m compared to CA$24.6m for Q2 last year. Maple Leaf Foods president and CEO Michael H McCain said that although Q2 saw excellent progress in terms of profit, the company was heading into “challenging commodity markets”​, caused by the drought in North America, which he said would cause further food inflation.

Second-quarter protein sales, which include the company’s meat products group and agribusiness group, were reported to have increased by 3% to CA$855.5m from CA$833.1m on the same period last year. The company also said their adjusted operating earnings decreased by 15% to CA$41.3m compared to CA$48.8m for the same quarter last year.

Sales in the company’s meat products group, which includes “value-added”​ prepared meats, lunch kits and fresh meat products, rose by 2% in Q2 to CA$776m from CA$762.2m for the same period last year. McCain said the rise came from an adjustment against the impact of the weaker Canadian dollar, which increased the sales value of pork exports.

Fresh poultry operations also saw an increase as a result of improvements in the industry’s poultry processor margins. Pork, however, saw a decline in earnings from primary pork processing, which Maple Leaf Foods said was due to “unfavourable market conditions in North America and lower margins on export sales, primarily in the Japanese and South Korean markets”.

Previous to the Q2 results the company published a 2012 earnings before interest, tax, depreciation and amortisation (EBITDA) margin target of 9.5%. But as a result of “short-term weakness” in the primary pork industry margins, the company is expecting an EBITDA margin of 8.5% instead.

According to the company capital expenditures for the whole of 2012 will be approximately CA$350m, which is a revision from the previous estimate of CA$435m and, according to the company, reflected a lower base of business capital spend.

McCain said the company expected ongoing improvement in the protein packaging section of the business and explained that a difficult first quarter, caused by the need to pass on pricing of raw materials in late 2011, could cause problems later. He added: “In Q2 [of this year] we had a very successful result in our packaged meat business and we expect that trend line to continue through the year. We expect that we could have challenging poultry markets in the back half of the year, offset by our rendering business.”

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