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Maple Leaf Foods is nearing the end of its multi-year plan to unload less profitable businesses and modernize its meat-processing plants. The plan’s costs have depressed the company’s current earnings, but it greatly improves its longer-term prospects.
MAPLE LEAF FOODS INC. (Toronto symbol MFI; www.mapleleaf.ca) is Canada’s largest foodprocessing company. It mainly sells its products, including fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands.
In May 2014, the company sold its 90.0% stake in Canada Bread, Canada’s second-largest producer of baked goods after Weston Bakery. It received $1.66 billion for this holding.
Meanwhile, Maple Leaf continues to make progress with a major restructuring of its meat-processing operations, which mainly involves closing older plants and shifting their operations to newer facilities. The company expects to complete the plan by the end of 2015.
Maple Leaf is starting to see some of the plan’s benefits. In the quarter ended September 30, 2014, it lost $26.7 million, or $0.19 a share, compared to a loss of $24.5 million, or $0.18 a share, a year ago. But if you exclude restructuring costs, losses improved to $0.13 a share from $0.19.
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Investing advice: Higher earnings ahead for Maple Leaf
Sales rose 8.2%, to $820.1 million from $757.8 million. That’s mainly because Maple Leaf raised prices on its packaged meats in response to higher raw material costs. The lower Canadian dollar also helped boost its pork exports.
Maple Leaf used most of the cash from the Canada Bread sale to cut its long-term debt from $744.2 million at the end of 2013 to just $9.9 million as of September 30, 2014. It also held cash of $510.2 million, or $3.59 a share.
The company will probably lose $0.44 a share in 2014, but its earnings should improve to $0.87 a share in 2015. The stock trades at 21.8 times that estimate. That’s still a reasonable p/e ratio in light of Maple Leaf’s high market share and improving outlook. The $0.16 dividend yields 0.8%.
Maple Leaf Foods is a buy recommendation of The Successful Investor.
Tomorrow our Investor Toolkit tells you why we make buy recommendations on so few stocks.
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