MAPLE LEAF FOODS INC. $11 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $1.5 billion; Price-to-sales ratio: 0.3; Dividend yield: 1.5%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest foodprocessing 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 60% of Maple Leaf’s revenue.
The company also makes fresh and frozen bread, pastries and pasta through its 90.0% stake in Canada Bread Co. Ltd., which supplies 35% of Maple Leaf’s revenue. The remaining 5% comes from the company’s agribusiness division, which raises hogs for its processed-meat operations. This division also recycles animal by-products into other materials,such as soaps and biodiesel fuel.
Restructuring slowed sales growth
Maple Leaf’s sales rose from $5.21 billion in 2007 to $5.24 billion in 2008 despite a listeriosis outbreak at its Toronto meat-processing plant. Its sales then fell to $4.9 billion in 2011 as it sold some businesses as part of a new restructuring plan.
Much of the company’s restructuring involves building new plants and equipping them with better machinery. It is also simplifying its product lines and focusing on its most profitable foods. In addition, Maple Leaf is installing a computer system that will give its managers timelier information and help them make better decisions.
Due to the listeriosis crisis, Maple Leaf’s losses worsened from $0.18 a share (or a total of $23 million) in 2007 to $0.29 a share (or $37 million) in 2008. It earned $0.40 a share (or $52 million) in 2009, but restructuring costs cut its earnings $0.22 a share (or $29 million) in 2010. Earnings improved to $0.59 a share (or $82 million) in 2011.
Excluding unusual items, earnings per share fell from $0.51 in 2007 to $0.29 in 2008, but turned around in 2009 and rose to $1.01 in 2011.
Savings starting to take hold
Thanks to Maple Leaf’s latest restructuring, its gross margin (gross profits as a percentage of sales) should increase to 8.5% in 2012 from 8.0% in 2011. Gross margin should reach 12.5% when the company completes the plan in 2015.
Maple Leaf has borrowed most of the $1.3 billion it will probably spend on this restructuring. That’s why its long-term debt rose to $1.1 billion (or a high 73% of its market cap) on June 30, 2012, from $389.1 million at the end of 2010. However, the plan will give Maple Leaf higher cash flows, which it can use to pay down its debt.
Hedges give earnings a boost
Maple Leaf has hedges in place that help shield it from rising prices for wheat, corn and other commodities. That should help push up its 2012 earnings to $1.03 a share. The stock trades at 10.7 times that estimate. Its 2013 earnings could rise to $1.23 a share, which would give the stock a p/e ratio of just 8.9. The $0.16 dividend yields 1.5%.
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