Maple Leaf Foods Reports Results for Second Quarter 2013

TSX: MFI
www.mapleleaffoods.com

TORONTO, July 31, 2013 /PRNewswire/ - Maple Leaf Foods Inc. (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2013.

• Adjusted Operating Earnings⁽¹⁾⁽²⁾ for the second quarter was $22.8 million compared to $63.1 million last year. Year-to-date Adjusted Operating Earnings were $30.4 million compared $94.8 million last year
• Net earnings⁽²⁾ for the second quarter was $nil, compared to $26.0 million last year. For the first six months, net loss was $14.7 million compared to net earnings of $20.2 million last year
• Adjusted Earnings per Share⁽²⁾⁽³⁾ was $0.02 compared to $0.23 last year. Year-to-date Adjusted Earnings per Share was a loss of $0.04 compared to $0.29 last year.

"Market conditions which affected first quarter results continued into the second quarter, although there was material improvement in important areas", said Michael H. McCain, President & CEO. "Hog production returns, global pork markets and volatile raw material markets all contributed to a material year-over-year earnings decline. This was compounded by the costs of transition and start-ups in our new prepared meat manufacturing and distribution network. These factors more than offset strong growth in prepared meats volumes from earlier in the year and solid improvement in the Bakery segment, which we expect will accelerate. Market conditions are expected to improve and our commercial fundamentals are good. Overall, we are satisfied with our strategic progress, although we are now at the peak of change and expect earnings volatility through this transition."

Financial Overview

Maple Leaf Foods Inc. ("the Company") sales of $1,214.2 million for the second quarter declined 3.7% from last year, or 2.2% after adjusting for the impacts of divestitures and foreign exchange, due to lower volumes which were partly offset by higher pricing. For the first six months sales decreased 3.9% from the prior year to $2,327.1 million, or 2.3% after adjusting for divestitures and foreign exchange, due to the same factors.

Adjusted Operating Earnings for the second quarter decreased 63.9% to $22.8 million compared to $63.1 million last year, as earnings in the Protein Group were impacted by unfavourable market conditions, which were only partly offset by stronger Bakery Group results. For the first six months, Adjusted Operating Earnings declined to $30.4 million compared to $94.8 million last year.

Net earnings for the second quarter decreased to $nil (loss of $0.02 per share attributable to common shareholders) compared to $26.0 million ($0.17 per share attributable to common shareholders) last year. Net earnings included $15.4 million ($0.08 per share) of pre-tax expenses related to restructuring and other related costs (2012: $9.8 million, or $0.06 per share). Year-to-date net loss was $14.7 million ($0.12 loss per basic share) compared to earnings of $20.2 million ($0.13 per share) last year. The year-to-date net loss included $62.8 million ($0.32 per share) of pre-tax expenses related to restructuring and other related costs (2012: $30.1 million, or $0.16 per share).

Adjusted Earnings per Share in the second quarter decreased to $0.02 compared to $0.23 last year. Year-to-date Adjusted Earnings per Share declined to a loss of $0.04 compared to $0.29 last year.

Several items are excluded from the discussions of underlying earnings performance as they are not representative of on-going operational activities. Refer to the section entitled Reconciliation of Non-IFRS Financial Measures at the end of this News Release for a description and reconciliation of all non-IFRS financial measures.

Business Segment Review

Following is a summary of sales by business segment:

The following table summarizes Adjusted Operating Earnings by business segment:

Protein Group

Results for the Protein Group, which includes the operations of the Company's Meat Products and Agribusiness Groups, should be viewed in totality due to intercompany transactions and correlated factors within these operations.

Sales for the second quarter in the Protein Group declined 4.5% to $816.7 million from $855.5 million last year. For the first six months, sales decreased 5.2% to $1,561.1 million. The quarter and year-to-date declines were primarily driven by lower volumes and the divestiture of the Company's potato processing business, partly offset by higher pricing.

Adjusted Operating Earnings in the second quarter declined to a loss of $9.8 million compared to Adjusted Operating Earnings of $33.4 million last year, reflecting a combination of poor market conditions and higher near-term costs related to the implementation of its prepared meats strategy.

For the first six months, Adjusted Operating Earnings decreased to a loss of $14.8 million compared to Adjusted Operating Earnings of $66.7 million last year, due to similar factors noted above with the addition of lower prepared meats volumes in the first quarter of 2013.

Meat Products Group
Includes value-added prepared meats, lunch kits; and fresh pork, poultry and turkey products sold to retail, foodservice, industrial and convenience channels. Includes leading Canadian brands such as Maple Leaf ®, Schneiders ® and many leading sub-brands.

Meat Products Group sales for the second quarter declined 3.2% to $751.3 million, or 1.4% after adjusting for the impact of divesting the Company's potato processing business and foreign exchange. This was the result of lower volumes in primary pork processing, partly offset by higher pricing in fresh and prepared meats. For the first six months, sales declined 4.9% or 2.8% after adjusting for the impact of divesting the Company's potato processing business and foreign exchange, due to similar factors as well as lower prepared meats volumes in the first quarter.

Adjusted Operating Earnings for the second quarter declined to a loss of $11.5 million compared to earnings of $15.3 million last year, primarily due to lower earnings in the prepared meats and primary pork processing businesses.

Higher transitional costs compared to last year were incurred as the Company implements its strategy to increase scale, productivity and profitability in its prepared meats business. In the quarter, commissioning activities at three large plant expansions in Western Canada resulted in higher costs. Earnings were also impacted by higher raw material costs, driven primarily by an increase in pork belly prices. Retail volumes increased from last year but were offset by a decline in lower-margin foodservice volumes.

Earnings in primary pork processing continued to be negatively affected by the devaluation of the Japanese Yen, which was partly offset by improving primary processing spreads and higher margins in other export markets. Earnings in fresh poultry were affected by higher feed and related live bird costs, partly offset by higher volumes, pricing and increased sales into higher margin channels. The sale of the Company's potato processing business reduced Adjusted Operating Earnings by approximately $4 million in the second quarter compared to last year.

For the first six months, Adjusted Operating Earnings declined to a loss of $21.9 million compared to Adjusted Operating Earnings of $30.4 million last year due to similar factors noted above, with the addition of lower volumes in the prepared meats business during the first quarter of 2013. The sale of the Company's potato processing business reduced Adjusted Operating Earnings for the first six months by approximately $7 million compared to last year.

Agribusiness Group
Consists of Canadian hog production, animal by-product recycling operations including biodiesel manufacturing and distribution.

Sales in the Agribusiness Group for the second quarter were $65.4 million, 17.7% lower than last year due to a decline in biodiesel volumes, which was partly offset by higher pricing. Sales for the first six months declined 8.3% to $132.9 million due to similar factors.

Adjusted Operating Earnings in the second quarter declined to $1.7 million compared to $18.1 million last year, primarily due to increased hog production losses resulting from higher feed costs. In addition earnings declined in the by-products recycling business as a result of lower biodiesel volumes and higher raw material costs.

Year-to-date Adjusted Operating Earnings decreased to $7.1 million compared to $36.3 million last year, almost entirely driven by the increase in hog production losses.

Bakery Products Group
Includes fresh and frozen bakery products, including breads, rolls, bagels, specialty and artisan breads, sweet goods, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's^®, Tenderflake^®, Olivieri^® and New York Bakery Co^TM, and many leading regional brands.

Bakery Products Group sales for the second quarter decreased 1.8% to $397.5 million, or 0.7% after adjusting for discontinued bread categories in the U.K. and currency translation on sales in the U.S. and U.K.  Lower sales volumes in the fresh bakery business were partially offset by volume growth in the U.K. as well as higher pricing implemented during the first quarter in the fresh and North American frozen bakery businesses.

Sales for the first six months decreased 1.1% to $765.9 million compared to $774.7 million last year, but were consistent with last year after adjusting for discontinued bread categories in the U.K. and currency translation due to similar factors.

Second quarter Adjusted Operating Earnings increased 4.6% to $32.7 million compared to $31.2 million last year, driven by higher earnings in the fresh bakery, U.K. bakery, and fresh pasta businesses.

Earnings in the fresh bakery business increased as a result of reduced costs and improved operating efficiencies. Also contributing to earnings were lower sales waste and SG&A expenses. These benefits were partly offset by a decline in volume. During the quarter, the Company closed a third bakery in the Toronto area, eliminating any future duplicative overhead costs associated with consolidating production at its bakery in Hamilton, Ontario.

Performance in the North American frozen bakery business was consistent as earlier price increases offset inflationary costs and lower volumes. Results in the fresh pasta business increased mainly due to lower SG&A costs. Earnings in the U.K. bakery business improved primarily due to higher volumes in both bagels and croissants. This business continues to benefit from network consolidation, investment in scale facilities and focus on its core categories.

For the first six months, Adjusted Operating Earnings increased 39.3% to $46.8 million compared to $33.6 million last year. Operational improvements and lower SG&A expenses more than offset lower volumes, mainly in the fresh bakery business. Price increases earlier in the year also contributed to earnings growth, but this was largely offset by higher raw material and other inflationary costs.

Other Matters

In July the company sold its turkey agricultural operations for gross proceeds of $48.2 million. The assets and liabilities associated with the turkey agricultural operations are classified as assets held for sale as at June 30, 2013.

On July 30, 2013, the Company declared a dividend of $0.04 per share payable September 30, 2013 to shareholders of record at the close of business on September 6, 2013. Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, the dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".

An investor presentation related to the Company's second quarter financial results is available at www.mapleleaffoods.com and can be found under Investor Relations on the Quarterly Results page. A conference call will be held at 2:30 p.m. EDT on July 31, 2013 to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-340-8061 or 866-225-0198. For those unable to participate, playback will be made available an hour after the event at 905-694-9451 / 800-408-3053 (Passcode 3231342).

A webcast presentation of the second quarter financial results will also be available at http://edge.media-server.com/m/p/2pus9m49/lan/en

The Company's full financial statements and related Management's Discussion and Analysis are available for download on the Company's website.

Reconciliation of Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted Operating Earnings

Adjusted Operating Earnings, a non-IFRS measure, is used by Management to evaluate financial operating results.  It is defined as earnings before income taxes adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. The table below provides a reconciliation of net earnings as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Operating Earnings for the three and six months ended, as indicated below. Management believes that this basis is the most appropriate on which to evaluate operating results, as they are representative of the on-going operations of the Company.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate on-going financial operating results.  It is defined as basic earnings per share attributable to common shareholders, and is adjusted for items that are not considered representative of on-going operational activities of the business, and items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred.  The table below provides a reconciliation of basic earnings per share as reported under IFRS in the unaudited consolidated interim statements of earnings to Adjusted Earnings per Share for the three and six months ended, as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the on-going operations of the Company.

Forward-Looking Statements

This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities law.  These statements are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking information in this document includes, but is not limited to, statements with respect to the anticipated benefits, timing, actions, costs and investments associated with the Company's Value Creation Plan, expectations regarding improving business trends, expectations regarding actions to reduce costs, restore and/or promote volumes and/or increase prices, improve efficiencies, expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton fresh bakery and existing bakeries, the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, and expectations regarding sufficiency of the allowance for uncollectible accounts. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.

In addition, these statements and expectations concerning the performance of the Company's business in general are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, U.S., U.K. and Japanese economies; the rate of exchange of the Canadian dollar to the U.S. dollar, U.K. British pound and the Japanese yen;  the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies whether as a result of the Value Creation Plan or otherwise; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments; and the general assumption that none of the risks identified below or elsewhere in this document will materialize.  All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part.  In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking information, which reflect the Company's expectations only as of the date hereof.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted by forward-looking information is discussed more fully in the Company's Annual Management's Discussion and Analysis for the period ended December 31, 2012 including the section entitled "Risk Factors", that are updated each quarter in the Management's Discussion and Analysis, and are available on SEDAR at www.sedar.com. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking information, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.

Maple Leaf Foods Inc. ("Maple Leaf" or the "Company") is a leading Canadian value-added meat, meals and bakery company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 20,000 people at its operations across Canada and in the United States, Europe and Asia.

Condensed Consolidated Interim Financial Statements
(Expressed in Canadian dollars)
(Unaudited)

MAPLE LEAF FOODS INC.

Three and six months ended June 30, 2013 and 2012

Consolidated Balance Sheets

Consolidated Statements of Earnings (Loss)

Consolidated Statements of Comprehensive Income (Loss)

Consolidated Statement of Changes in Total Equity

Consolidated Statements of Cash Flows

Segmented Financial Information

SOURCE Maple Leaf Foods Inc.