Maple Leaf Foods Reports Second Quarter 2022 Financial Results

 

Source: Maple Leaf Foods Inc.

via PRNewswire - Aug 04, 2022  

 

Meat Protein delivers top-line growth of 3.8% and Adjusted EBITDA Margin of 9.0% in the quarter

Plant Protein targeting neutral or better Adjusted EBITDA in the latter half of 2023

 

MISSISSAUGA, ON, Aug. 4, 2022 /PRNewswire/ - Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2022.

 

"This chaotic and unpredictable operating environment is unprecedented in my 40-year career in the food industry," said Michael H. McCain, President and CEO of Maple Leaf Foods. "Driven by a post-pandemic economy and the tragic conflict in Eastern Europe, we have been unable to hire adequate people resources to operate our supply chains, experienced unnatural agricultural and trading markets, and realized hyper-inflation that has been challenging to keep up with pricing. While our Q2 results fell short of expectations with an Adjusted EBITDA margin of 9% in the Meat Protein Group, we see signs of these conditions abating. Our commitment to achieve 14-16% Adjusted EBITDA was grounded in the assumption of normal, five-year average market conditions and we are confident we will deliver that once the environment stabilizes, although predicting this timeline at the moment is challenging. Our focus on executing our Blueprint to be the most sustainable protein company on earth is absolute."

 

"In our Plant Protein business, we are in full motion executing our transition to a different business model," continued Mr. McCain. "At the end of Q2, we took steps to materially reduce the size of the organization. We expect to achieve our SG&A targets by the end of this year, and a right sizing of the manufacturing footprint in the first half of 2023, giving us the back half of 2023 as time to make final adjustments. Revenue management adjustments will also occur over the course of the next 12 months. This is a business model in transition back to one of profitable growth."

Second Quarter 2022 Highlights

 

    Total Company sales grew 3.1% to $1,195.1 million, with an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")(i) Margin of 6.2%.

    Meat Protein Group sales grew to $1,160.2 million, an increase of 3.8% year over year. Adjusted EBITDA was $104.1 million, and Adjusted EBITDA Margin was 9.0%.

    In the Plant Protein Group, the Company recorded an $18.6 million restructuring charge and took steps to rightsize its Selling, General and Administrative expenses ("SG&A") spend as part of the journey towards Adjusted EBITDA neutrality in the second half of 2023.

    Capital expenditures were $89.7 million and consisted mainly of Construction Capital(i) of $49.9 million, primarily related to the London, Ontario poultry facility.

 

Outlook

 

    Meat Protein: Expect mid-to-high single digit sales growth in 2022, and Adjusted EBITDA Margin expansion to achieve a target range of 14% - 16% when market conditions normalize.

    Plant Protein: Targeting to deliver neutral or better Adjusted EBITDA in the latter half of 2023.

 

(i)

Refer to the section titled Non-IFRS Financial Measures in this news release.

 

 

Sales for the second quarter of 2022 were $1,195.1 million compared to $1,158.9 million last year, an increase of 3.1%, driven by higher sales in the Meat Protein Group, partially offset by lower sales in the Plant Protein Group. For more details on sales performance by operating segment, refer to the section entitled Operating Review.

 

Year-to-date sales for 2022 were $2,321.7 million compared to $2,211.9 million last year, an increase of 5.0%, due to similar factors as noted above.

 

Net loss for the second quarter of 2022 was $54.6 million ($0.44 per basic share) compared to earnings of $8.8 million ($0.07 per basic share) last year. The net loss resulted from weaker commercial performance due to cost inflation and labour challenges, as well as higher restructuring costs and start-up expenses.

 

Year-to-date net loss for 2022 was $40.9 million ($0.33 per basic share) compared to earnings of $56.5 million ($0.46 per basic share) last year. The net loss resulted from weaker commercial performance due to cost inflation and labour challenges, as well as higher restructuring costs and start-up expenses.

 

Adjusted Operating Earnings for the second quarter of 2022 were $23.6 million compared to $58.3 million last year, and Adjusted Earnings per Share for the second quarter of 2022 were $0.00 compared to $0.29 last year due to similar factors as noted above.

 

Year-to-date Adjusted Operating Earnings for 2022 were $39.7 million compared to $109.8 million last year, and Adjusted Earnings per Share for 2022 were $0.03 compared to $0.56 last year due to similar factors as noted above.

 

For further discussion on key metrics and a discussion of results by operating segment, refer to the section titled Operating Review.

 

Note: Several items are excluded from the discussions of underlying earnings performance as they are not representative of ongoing operational activities. Refer to the section entitled Non-IFRS Financial Measures at the end of this news release for a description and reconciliation of all non-IFRS financial measures.

 

Response to COVID-19

 

As an essential service, Maple Leaf Foods is focused on protecting the health and well-being of its people, maintaining business continuity and broadening its social outreach. To manage through this unprecedented environment, the Company has taken a number of measures in its business and operating practices that include heightened safety policies and procedures, adopting a vaccination mandate for all employees and contractors, and close communication and collaboration with public health authorities, including hosting on-site vaccination clinics in 2021. The measures enacted to protect the health and safety of employees have increased the Company's current cost structure due to higher labour, personal protective equipment, sanitation and other expenses associated with the pandemic.

 

Overall, the Company believes its proactive and comprehensive efforts have, and should continue to mitigate adverse operational impacts. As the COVID-19 situation evolves, Maple Leaf Foods will continue to adapt and adopt best practices that prioritize the health and safety of its employees and the stability of the food supply. As part of Maple Leaf Foods' broader social responsibility since the pandemic began, the Company has provided extensive support to front-line staff, emergency food relief efforts and health care providers.

 

COVID-19 continues to have an impact on the global economy, leading to increased inflation, labour shortages and disruptions in the global supply chain. To date, the Company's leading brands, revenue management capabilities and robust supply chain have enabled it to mitigate these impacts. Maple Leaf Foods continues to monitor the ongoing environment and believes it is well-positioned to face these headwinds.

 

Operating Review

 

The Company has two reportable segments. These segments offer different products, with separate organizational structures, brands, financial, and marketing strategies. The Company's chief operating decision makers regularly review internal reports for these businesses: performance of the Meat Protein Group is based on revenue growth, Adjusted Operating Earnings and Adjusted EBITDA, while the performance of the Plant Protein Group in the short term is focused on obtaining Adjusted EBITDA neutral or better results.

 

The following table summarizes the Company's sales, gross profit, SG&A, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the three months ended June 30, 2022 and June 30, 2021...

 

 Meat Protein Group

 

The Meat Protein Group is comprised of prepared meats, ready-to-cook and ready-to-serve meals, value-added fresh pork and poultry products that are sold to retail, foodservice and industrial channels, and agricultural operations in pork and poultry. The Meat Protein Group includes leading brands such as Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, and many leading regional brands.

 

Sales for the second quarter of 2022 increased 3.8% to $1,160.2 million compared to $1,117.5 million last year. Sales growth was driven by pricing action to mitigate inflation and a favourable mix-shift in product sales, including growth in sustainable meats and branded products, partially offset by lower sales volume.

 

Year-to-date sales for 2022 increased 5.6% to $2,249.6 million compared to $2,131.2 million last year. Sales growth was driven by pricing actions to mitigate inflationary cost increases and favourable mix-shift towards sustainable meats, branded products and growth in sales to the United States. These positive factors were partially offset by lower sales volume.

 

Gross profit for the second quarter of 2022 was $136.0 million (gross margin of 11.7%) compared to $167.0 million (gross margin of 14.9%) last year. Gross profit was negatively impacted by cost inflation, labour shortages, and pork market headwinds, partially offset by pricing action. Gross profit for the second quarter included start-up expenses of $9.0 million (2021: $1.5 million) associated with Construction Capital projects, which are excluded in the calculation of Adjusted Operating Earnings.

 

Year-to-date gross profit for 2022 was $266.9 million (gross margin of 11.9%) compared to $333.1 million (gross margin of 15.6%) last year. Gross profit was negatively impacted by operational and supply chain disruptions, inflationary cost increases, and pork market headwinds, partially offset by pricing action. Gross profit year-to-date included start-up expenses of $17.7 million (2021: $2.1 million) associated with Construction Capital projects, which are excluded in the calculation of Adjusted Operating Earnings.

 

SG&A expenses for the second quarter of 2022 were $87.3 million compared to $81.2 million last year. The increase in SG&A expenses was largely driven by the timing of advertising and promotional expenses and a gradual normalization of discretionary spending.

 

Year-to-date SG&A expenses for 2022 were $176.0 million compared to $168.3 million last year. The increase in SG&A expenses was driven by the timing of advertising and promotional expenses, a gradual normalization of discretionary spending and donations to support the relief efforts in Ukraine.

 

Adjusted Operating Earnings for the second quarter of 2022 were $57.7 million compared to $87.3 million last year, consistent with factors noted above.

 

Year-to-date Adjusted Operating Earnings for 2022 were $108.7 million compared to $167.0 million last year, consistent with factors noted above.

 

Adjusted EBITDA for the second quarter of 2022 were $104.1 million compared to $131.2 million last year, driven by factors consistent with those noted above. Adjusted EBITDA Margin for the second quarter was 9.0% compared to 11.7% last year, also driven by factors consistent with those noted above.

 

Year-to-date Adjusted EBITDA for 2022 were $201.6 million compared to $255.1 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2022 was 9.0% compared to 12.0% last year, also driven by factors consistent with those noted above.

 

Plant Protein Group

 

The Plant Protein Group is comprised of refrigerated plant protein products, premium grain-based protein, and vegan cheese products sold to retail, foodservice and industrial channels. The Plant Protein Group includes the leading brands Lightlife® and Field Roast™.

 

Sales for the second quarter of 2022 decreased 15.1% to $40.8 million compared to $48.1 million last year. Excluding the impact of foreign exchange, sales decreased 18.4%, driven by lower volumes in retail products. This more than offset pricing action implemented to mitigate inflation and structural cost increases, and growth in foodservice volumes.

 

Year-to-date sales for 2022 decreased 5.5% to $85.7 million compared to $90.7 million last year. Excluding the impact of foreign exchange, sales decreased 7.5%, driven by lower volumes in retail products. This more than offset growth in foodservice volumes and pricing action implemented to mitigate inflation and structural cost increases.

 

Gross profit for the second quarter of 2022 was a loss of $10.1 million (gross margin loss of 24.7%) compared to income of $0.3 million (gross margin of 0.6%) last year. The decrease in gross profit was driven by inflationary costs and strategic investments in capacity ahead of anticipated demand, which resulted in increased overhead and short-term costs. This was partially offset by pricing action. Gross profit for the quarter also included start-up expenses of $2.3 million (2021: $0.4 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings.

 

Year-to-date gross profit for 2022 was a loss of $16.3 million (gross margin loss of 19.1%) compared to income of $0.4 million (gross margin of 0.5%) last year. The decrease in gross profit was driven by inflationary costs and strategic investments in capacity ahead of anticipated demand, which resulted in increased overhead and short-term costs. This was partially offset by pricing action. Year-to-date Gross profit also included start-up expenses of $4.5 million (2021: $1.0 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings.

 

SG&A expenses for the second quarter of 2022 were $26.3 million (64.4% of sales) compared to $29.8 million (61.9% of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising expenses, partially offset by higher consulting and people costs.

 

Year-to-date SG&A expenses for 2022 were $57.1 million (66.6% of sales) compared to $58.6 million (64.6% of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising expenses, partially offset by higher consulting and people costs.

 

Adjusted Operating Earnings for the second quarter of 2022 were a loss of $34.0 million compared to a loss of $29.1 million last year. The decrease in Adjusted Operating Earnings is consistent with the factors noted above.

 

Year-to-date Adjusted Operating Earnings for 2022 were a loss of $68.9 million compared to a loss of $57.1 million last year. The decrease in Adjusted Operating Earnings is consistent with the factors noted above.

 

Other Matters

 

On August 3, 2022, the Board of Directors approved a quarterly dividend of $0.20 per share (an increase of $0.02 per share from the 2021 second quarter dividends), $0.80 per share on an annual basis, payable September 29, 2022 to shareholders of record at the close of business September 8, 2022. Unless indicated otherwise by the Company at 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".

Conference Call

 

A conference call will be held at 8:00 a.m. ET on August 4, 2022, to review Maple Leaf Foods' second quarter financial results. To participate in the call, please dial 416-764-8650 or 1-888-664-6383. For those unable to participate, playback will be made available an hour after the event at 416-764-8677 or 1-888-390-0541 (Passscode: 642262#).

 

A webcast of the second quarter conference call will also be available at: https://www.mapleleaffoods.com ...

 

more, including financial tables

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