MAPLE LEAF FOODS INC. (Toronto symbol MFI; www.mapleleaf.ca) is Canada’s largest food processing company. It mainly sells its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. Through 90.0%-owned Canada Bread, 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.
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Canadian stock market: Maple Leaf raises selling prices and disposes of sandwich business, bakery
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.
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.
In the latest edition of The Successful Investor, we look at Maple Leaf’s long-term prospects in light of its initiatives to control costs in the face of rising prices for ingredients, fuel and electricity and its investment in new plants and a new computer system. We conclude with our clear buy-sell-hold advice on this stock.
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As the saying goes, “Everybody has to eat,” which means that companies involved in processing and selling food are often identified as safe, conservative investments. But food stocks break down into different categories—food producers, grocery chains and retail food outlets. Which ones do you prefer, and why? Let us know what you think.
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