MAPLE LEAF FOODS INC. $16 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.1 million; Market cap: $2.2 billion; Price-to-sales ratio: 0.5; Dividend yield: 1.0%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest food processing company. It mainly sells its products, including fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands.
The company recently said it plans to sell its 90.0% stake in Canada Bread (see right), Canada’s second-largest producer of baked goods after Weston Bakery.
Canada Bread supplies a third of Maple Leaf’s sales. Maple Leaf’s $1.6-billion stake in this business is equal to 73% of its $2.2-billion market cap.
The companies share some facilities, so they could be hard to separate. Nonetheless, Canada Bread’s strong brands and high market share should attract several bidders.
The sale proceeds will help Maple Leaf restructure its meatprocessing operations, including building plants and eliminating unprofitable products. Maple Leaf will also likely use the cash to pay down its $1.5- billion debt.
In addition, Canada Bread recently paid an $8.00-a-share special dividend. Maple Leaf will likely put the $182.9 million it received to pay down some short-term loans early, which would lower its interest costs.
Meanwhile, Maple Leaf lost $2.6 million, or $0.02 a share, in the three months ended September 30, 2013. A year earlier, it earned $9.0 million, or $0.06 a share. Without restructuring charges and other unusual items, the company lost $0.01 a share, compared to a profit of $0.13.
Sales fell 2.5%, to $1.15 billion from $1.18 billion. That’s mainly because Maple Leaf sold some operations as part of its restructuring. The lower Japanese yen also makes its pork exports more expensive in Japan.
Due to its restructuring, Maple Leaf probably earned just $0.13 a share in 2013. However, the company’s earnings could rise to $1.38 a share when it completes the plan in 2015. The stock trades at 11.6 times that forecast. The $0.16 dividend yields 1.0%.
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