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. Though 90.0%-owned Canada Bread the company also makes fresh and frozen bread, pastries and pasta.
Maple Leaf continues to make progress on a major restructuring plan that includes building new plants and eliminating unprofitable products. As part of this strategy, Maple Leaf recently sold its Ontario turkey farms for a combined $48.2 million under two separate deals. The company is also installing a new computer system that will give its managers more timely information.
In the three months ended June 30, 2013, Maple Leaf lost $0.02 a share. A year earlier, it earned $0.16 a share. If you exclude unusual items, such as severance costs and writedowns, earnings per share fell 91.3%, to $0.02 from $0.23.
The company recently started building three new meat-processing plants in Western Canada, which increased its costs in the latest quarter. Higher raw material prices also hurt earnings at Maple Leaf’s pork-and-poultry-processing operations.
Investing in stocks: Chinese takeover of U.S. food firm prompts speculation on Maple Leaf as takeover target
Sales fell 3.7%, to $1.21 billion from $1.26 billion. If you disregard businesses that the company sold and the negative impact of foreign exchange rates, sales would have declined 2.2%. Maple Leaf raised its prices, which helped offset lower volumes.
The company has borrowed most of the cash it needs to complete its restructuring. As a result, its long-term debt is $1.4 billion, or a high 70% of its market cap. However, Maple Leaf’s earnings should improve as it starts to realize the savings from its restructuring. That will give it more cash for debt repayments.
The stock has gained 14% since June. That’s largely in response to the friendly takeover of U.S.-based rival Smithfield Foods (New York symbol SFD) by a Chinese company.
Maple Leaf’s annual dividend rate of $0.16 a share yields 1.1%.
In the latest edition of The Successful Investor, we look at the prospects of Maple Leaf Foods becoming a takeover target. We also examine the earnings outlook for the company and whether the share price can keep rising. We conclude with our clear buy-sell-hold advice on the stock.
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When a company undertakes a restructuring plan, some investors see it as a sign of weakness and others see it as a promise of greater value in the long run. What is your experience with buying or holding stocks that are entering or in a restructuring?
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