Topic: Dividend Stocks

MAPLE LEAF FOODS INC. $8.70 – Toronto symbol MFI

MAPLE LEAF FOODS INC. $8.70 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 129.3 million; Market cap: $1.1 billion; Price-to-sales ratio: 1.0; SI Rating: Average) is Canada’s largest food-processing company. It mainly produces fresh and prepared beef and poultry under the Maple Leaf and Schneider brands. Maple Leaf also owns 89.8% of Canada Bread.

In the three months ended March 31, 2009, Maple Leaf’s sales rose 6.3%, to $1.3 billion from $1.2 billion a year earlier. Ingredient costs rose during the quarter, but Maple Leaf was able to pass these on by raising the prices on some of its products. As well, Maple Leaf gets 30% of its sales from outside of Canada, so the lower Canadian dollar helped its results.

Earnings soared to $2.9 million, or $0.02 a share, from a loss of $10,000, or nil per share, a year earlier. If you disregard costs related to the company’s restructuring plan, earnings per share would have risen to $0.05 from $0.04.

Under the plan, Maple Leaf is shifting its focus away from fresh meats and toward its more profitable packaged-meats and bakery operations. The company is also upgrading its computer systems. Maple Leaf hopes these moves will lift its annual operating earnings (or profits after regular operating costs) by $100 million by 2010.

Maple Leaf is still recovering from last summer’s listeriosis outbreak at its Toronto meat-processing plant. While volumes have improved, it will probably take several more months before they return to normal.

Despite this slowdown and the extra costs related to the outbreak, including a $25-million class-action lawsuit settlement, Maple Leaf’s balance sheet remains strong. The company holds cash of $263.3 million, or $2.04 a share. Its $1.2-billion long-term debt is a high 1.1 times its market cap, but savings from the restructuring should free up more cash, which Maple Leaf may use for debt repayments.

Maple Leaf’s stock fell to $6.54 last October in the wake of the listeriosis outbreak, but it’s up 33% since then. It now trades at 19.3 times this year’s forecast earnings of $0.45 a share. However, Maple Leaf’s 2010 earnings could rise to $0.78 a share, which would give it a more reasonable p/e of 11.1. The $0.16 dividend yields 1.8%.

Based on current prices, Maple Leaf’s 89.8% stake in Canada Bread is worth roughly $7.25 per Maple Leaf share. That means you can buy Maple Leaf’s main meat-processing business and brands for about
$1.45 a share. These operations account for 55% of Maple Leaf’s sales and 35% of its earnings.

Maple Leaf Foods is a buy.

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