TORONTO — Maple Leaf Foods Inc. (TSX:MFI) says that dramatically higher costs for its raw materials had an impact on its earnings in the second quarter, even as it rolled out widespread price increases on its products.
The company is in the midst of implementing the higher price structure, a process which began in the second quarter and is expected to wrap up this quarter. As a result, chief executive Michael McCain said the higher costs were only partly recovered.
McCain told analysts Thursday on a conference call that executives made the decision to hike prices after costs for its raw materials soared 40 to 50 per cent quarter-to-quarter in its meats business, driven by higher hog prices.
“That’s a very dramatic cost pass-through that has to be effected,” he said.
“Obviously it constitutes some challenge in the marketplace as we pass through that pricing and hit new price points in most of our lines of business.”
But McCain said the company will have to be patient as consumers digest the higher prices they see on supermarket shelves and eventually become accustomed to them.
“There’s a short-term volume reaction to that as consumers adjust to new retail price points. That’s not unexpected,” he said.
The company makes processed meats under the Maple Leaf and Burns brands and also is Canada’s largest baker through its Canada Bread subsidiary. Other brands include Schneiders, Shopsy’s, Swift and Mitchell’s as well as Dempster’s.
McCain provided analyst with a few examples of how the company has raised prices. He said a loaf of bread now costs about a dime more than before, under the new plan, while its popular Schneider’s Red Hots are typically priced at $2.49 instead of $1.99.
In the second quarter, Maple Leaf reported profits of $3 million or two cents per share from a year-ago $4.9 million or four cents per share, as it booked a $20.7-million charge for interest rate swaps.
However, the Toronto-based company said it was pleased with its overall performance as adjusted operating earnings rose 20 per cent to $52.2 million on a better on better results from its meat Products division.
Adjusted earnings per share rose 42 per cent to 17 cents.
Maple Leaf, which was at the centre of a deadly Listeria outbreak in 2008, said its sales fell four per cent to $1.27 billion due the impact of currency fluctuations at the company’s U.S. and U.K. businesses.
“We are seeing a steady improvement in our margins as each (of our) lines of business show improvement,” McCain said.
“We also expect — not on a dramatic one-time basis, but on a steady basis — continued margin improvement throughout this year and subsequent years from the benefit of price increases.”
Maple Leaf is a leading food processing company, with 23,500 people at its operations across Canada and in the United States, the United Kingdom, and Asia. It had sales of $5.2 billion in 2009.
Canada Bread (TSX:CBY) reported Thursday net earnings of $20.7 million or 81 cents per share, compared to $22.5 million or 89 cents per share in the same period of last year.
Adjusted operating earnings for the baker were $30.4 million, down from $33.1 million. Sales declined to $402.1 million from $435.9 million in the prior year, “mostly due to currency translation impacts of a stronger Canadian dollar on sales denominated in U.S. dollars and British pounds and lower volumes in the Frozen Bakery segment.”
Shares of Maple Leaf ended the day down seven cents to $9.24 on the Toronto Stock Exchange.