MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $2.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.1%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest foodprocessing company. It mainly sells its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. Though 90.0%-owned Canada Bread (see right), the company also makes fresh and frozen bread, pastries and pasta.
Maple Leaf is starting to see the benefits of a major restructuring plan, which includes building new plants and eliminating unprofitable products. It’s also installing a new computer system that will give its managers more timely information.
In 2012, Maple Leaf’s earnings rose 40.5%, to $122.7 million, or $0.81 a share. In 2011, it earned $87.3 million, or $0.58 a share. If you disregard restructuring costs, earnings per share rose at a more modest rate of 5.0%, to $1.06 from $1.01.
The company is paying higher prices for ingredients, such as wheat and corn. In response, it has raised its selling prices. Even so, sales for the year fell 0.6%, to $4.86 billion from $4.89 billion. That’s mainly because Maple Leaf sold its fresh sandwich business and closed a bakery in the U.K. Unfavourable currency exchange rates also hurt its sales growth.
The restructuring should raise Maple Leaf’s gross margin (gross profits as a percentage of sales) from 8.6% in 2012 to 12.5% in 2015.
Maple Leaf has borrowed most the cash it needs to complete its restructuring. As a result, its long-term debt rose 28.1% in 2012, to $1.2 billion. That’s still a manageable 60% of its market cap. Ongoing savings from the restructuring will also give Maple Leaf more cash for debt repayments.
Thanks to the company’s improving outlook, the stock has gained 13% in the past year. It now trades at 12.7 times Maple Leaf’s projected 2013 earnings of $1.10 a share. The $0.16 dividend yields 1.1%.
At current prices, Maple Leaf’s stake in Canada Bread is worth roughly $8.40 per Maple Leaf share. That means you get Maple Leaf’s meat-processing operations, which account for nearly two-thirds of its sales, for just $5.60 a share.
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