MAPLE LEAF FOODS INC. $11 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 144.4 million; Market cap: $1.6 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest food-processing company. It mainly makes its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. This business accounts for roughly 65% of its revenue.
The company also makes fresh and frozen bread, pastries and pasta through its 90.0% stake in Canada Bread Co. Ltd., which supplies 30% of Maple Leaf’s revenue. The remaining 5% comes from its agribusiness division, which raises hogs for the company’s processed-meat operations. This division also recycles animal by-products into other materials, such as soaps and biodiesel fuel.
In 2006, Maple Leaf began to shift its focus to more-profitable processed foods, and cut back its fresh pork production. It also sold its animal-feed business and most of its fresh-meat operations.
Still recovering from listeriosis crisis
As a result of this shift, Maple Leaf’s sales fell from $5.3 billion in 2006 to $5.21 billion in 2007. Sales crept up to $5.24 billion in 2008, despite a listeriosis outbreak at its Toronto meat-processing plant. Thanks to Maple Leaf’s quick response to this crisis, sales fell only slightly in 2009, to $5.22 billion. In 2010, sales fell to $5.0 billion, because it sold a pork-processing plant in Ontario.
Maple Leaf’s losses ballooned from $20 million, or $0.16 a share, in 2006 to $37 million, or $0.29 a share, in 2008, largely due to costs related to the listeriosis outbreak. Maple Leaf earned $52 million, or $0.40 a share, in 2009, but its earnings fell 50.0% to $26 million, or $0.19 a share, in 2010. Excluding unusual items, earnings per share rose 33.3%, from $0.57 in 2009 to $0.76 in 2010.
In addition to building new plants, Maple Leaf’s restructuring involves simplifying its product lines and focusing on its most profitable foods. (Right now it makes over 4,000 types of prepared meats.) This will also cut its packaging costs. As well, the company is installing a new computer system that will give its managers more timely information, and help them make better decisions.
In all, Maple Leaf plans to spend $757 million on its restructuring. However, it expects the plan to increase its gross margin (gross profits as a percentage of sales) from 7.3% in 2010 to 9.5% in 2012. It aims to raise this to 12.5% when it completes its restructuring in 2015.
Maple Leaf is borrowing the money it needs to complete its restructuring. That’s why its long-term debt rose from $389.1 million at the end of 2010 to $746.2 million on June 30, 2011. That’s a high, but still manageable, 47% of its market cap.
The company should earn $1.01 a share in 2011. The stock trades at 10.9 times that estimate. The $0.16 dividend yields 1.5%.
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