‘Unseasonably strong’ meat costs bite Maple Leaf’s Q4

Canada’s iconic lunch meat maker Maple Leaf Foods has booked a tough fourth fiscal quarter due to "unseasonably strong raw material costs" in its prepared meats business.

Those costs, combined with "short-term" higher operating costs in the company’s bakery business and lower pork and poultry processing margins compared to year-ago highs, led to "lower relative performance" in the processor’s Q4, CEO Michael McCain said Tuesday.

"We are now actively passing through pricing to help mitigate these challenges and we remain committed to executing our value creation initiatives," McCain said in a release.

The Toronto company on Tuesday booked net earnings of $9.2 million on sales of $1.245 billion for its Q4 ending Dec. 31, 2011, down from $30.64 million on $1.212 billion in the year-earlier period.

Q4 sales from the company’s meat products group were up three per cent at $781.8 million, as it saw higher market prices in fresh pork and price increases and improved sales mix in prepared meats. "These benefits were partly offset by lower sales volumes in primary processing, while prepared meats sales volumes were consistent with last year," Maple Leaf said.

Normally selling prices for meat products are "seasonally reduced" as meat costs typically decline toward year-end, Maple Leaf said, but in this Q4 fresh meat input costs for both pork and poultry "continued to be unexpectedly high, which impacted margins."

In the company’s agribusiness group (hog production, animal byproduct recycling) gross Q4 sales rose 13 per cent to $63.5 million due to higher selling prices for biodiesel and rendered products, though sales volumes declined slightly, mainly in the rendering operations.

Earnings improvements in hog production, thanks to higher hog prices, were offset by lower earnings in byproduct recycling operations, where "strong market values for both biodiesel and rendered products experienced during most of 2011 began easing."

Gross Q4 sales in the company’s bakery products group rose to $400 million, mainly on price increases put in place earlier in 2011, offset slightly by lower sales volumes and a change in sales mix compared to the year-earlier period, Maple Leaf said.

Full year

For the 12 months ending Dec. 31, Maple Leaf reported net earnings of $87.33 million on $4.894 billion in gross sales, compared to $35.61 million on $4.968 billion in fiscal 2010.

Full-year operating earnings in the meat products group rose on "better sales mix and the early benefits of transformation initiatives in the prepared meats business," as well as stronger results from its pork processing results earlier in the year.

Operating earnings for the year in the agribusiness group jumped 62 per cent to $81.9 million on the "strong market values for biodiesel and rendered byproducts experienced for most of the year."

Full-year operating earnings in the bakery products group slipped nine per cent to $86.3 million, "largely due to higher input costs that were not fully recovered by price increases."

Related story:
Maple Leaf to close SW Ont. chicken plant, Feb. 8, 2012

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