MAPLE LEAF FOODS INC. $10 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 126.3 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.2; SI Rating: Average) continues to make progress with its multi-year restructuring plan. This mainly includes a shift to packaged meats under the Maple Leaf and Schneider brands, which generate higher earnings for it than fresh meats. The plan should increase Maple Leaf’s annual operating earnings (profits after regular operating costs) by $100 million by 2010.
The company has now agreed to settle several class action lawsuits stemming from the listeria outbreak at its Toronto meat-processing plant. The settlement will cost it $25 million to $27 million.
To put these lawsuits in perspective, Maple Leaf lost $0.10 a share (total $12.9 million) in the three months ended September 30, 2008. It earned $0.01 a share ($1.7 million) in the year-earlier quarter. If you exclude the costs to recall contaminated products and other unusual items, per-share earnings rose 116.7%, to $0.13 a share ($16.4 million) from $0.06 a share ($7.7 million). Revenue grew 3.3%, to $1.34 billion from $1.30 billion.
Maple Leaf’s long-term debt of $1.2 billion is high at 92% of its market cap, but its restructuring plan should free up more cash for debt repayments. Maple Leaf holds cash of $125.5 million or about $1.00 a share.
The stock now trades at 29.4 times Maple Leaf’s 2008 earnings forecast of $0.34 a share. Earnings in 2009 could reach $0.59 a share, which gives Maple Leaf a more reasonable p/e of 16.9. The $0.16 dividend yields 1.6%.
Based on current prices, Maple Leaf’s 89.8% stake in Canada Bread is now worth $8.90 per Maple Leaf share. That means you can buy Maple Leaf’s main businesses and brands for just $1.10 a share. These operations account for 68% of its sales of $41.10 a share, and 45% of its earnings.
Maple Leaf Foods is a buy.
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