Profits plummet at Maple Leaf

The company reported earnings of CAD$7.6 million in the first quarter ended March 31, 2013, a 76.2% fall on the $31.7m recorded in the same period last year.

The decline was primarily driven by big losses in the company’s Protein Group, which includes its Meat Products and Agribusiness Groups. Although sales only fell 5.9%, the Group reported losses of $5.1 million in the first quarter, compared to earnings of $33.3 million last year. Maple Leaf said that this was primarily the result of the US drought and the devaluation of the Japanese Yen, which hit the profitability of pork exports.

Michael H. McCain, president and CEO, admitted that it had been “a very difficult”​ quarter for the company, which had not expected such severe volatility in the market.

“Our meat business has demonstrated multiple years of progressive and steady improvement, but this quarter experienced the aggregate impact of poor market conditions, weaker volumes in the wake of necessary price advances and transition costs related to our new network,”​ he said.

Pork earnings plummet​

Meat products sales for the first quarter fell 6.7% to $677m, down from $725m in the first quarter of 2012. Maple Leaf said that the slowdown in sales was “a result of lower volumes in the fresh pork and prepared meats businesses, partly offset by price increases in prepared meats and higher market pricing for pork and poultry products”.

Adjusted operating earnings, meanwhile, fell to $10.5m from $15.1m in the same period last year. “As expected, last year’s record drought in the US Midwest caused a significant rise in grain and meat costs. The company experienced an 8% decline in prepared meats volumes in the wake of price increases required to offset these higher input costs,”​ said Maple Leaf.

Primary pork processing was hit by the reduced margins on pork exports and poultry processing earnings were also affected by lower processing margins, although the company added that higher pricing on added-value poultry products had offset some of these losses.

Agribusiness sales actually increased 3.3% to $67.5m as the result of higher pricing and volumes in by-products, but group earnings plummeted 70.4% to $5.4m. The company said the drop was “entirely driven”​ by reduced profits in pork production as the result of high feed costs and lower hog prices.

Steady improvement​

McCain said that the company expected trading to remain challenging in the near term, but predicted steady improvements through the year as the result of improved market conditions and supply chain development. “Our strategic initiatives, which are the most material contributor to our margin expansion, are on track and contributing to results,”​ he said.