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(Reuters) - Shares of Canadian food processor Maple Leaf Foods Inc (MFI.TO) dove 8 percent on Thursday after it reported a surprising quarterly loss on lower meat sales.
The Toronto-based company had expected a volatile first half, but conditions have been more difficult than it expected, Chief Executive Michael McCain said.
Meat volumes were weaker after the company raised prices and profits from raising and processing hogs were hurt by higher feed costs tied to last year's U.S. drought, the company said. The yen has lost value, McCain said, and pork exporters have not yet raised prices to key Japanese buyers accordingly.
Those two factors hurt earnings from the protein segment by C$24 million, the company said.
Maple Leaf's shares fell as much as 8 percent to a three-month low, before paring losses to a drop of 6.4 percent, or 85 Canadian cents, to C$12.50 on Thursday morning in Toronto.
"Everybody knew that you lose money on every pig you sell," said analyst Robert Gibson of Octagon Capital. "People like myself were surprised by the magnitude of the hit."
The price of corn, which strongly influences wheat, shot to a record high last year after the worst U.S. drought in more than 50 years. While those conditions have improved, U.S. corn planting is off to one of the slowest starts on record, keeping grain prices volatile.
Canada Bread Company Ltd CBY.TO, of which Maple Leaf owns 90 percent, operates a large new bakery in Hamilton, Ontario, where margins are strongly influenced by wheat prices. Maple Leaf is also one of Canada's largest producers of hogs, which are fed grains such as corn, barley and wheat.
"It's just important for us to persevere through a period like this and stay committed to our longer term strategies, which are demonstrably working," McCain said in an interview with Reuters, adding he expects grain prices to soften in the second half.
"We see this as transitory."
McCain said Maple Leaf was not planning additional significant price increases this year for its meat and bread products, which include Dempster's Bread and Klik luncheon meat. Price increases during the past year have had the predictable effect of lighter volumes, but they are now returning to normal, McCain said.
Sales for the company's protein group fell about 6 percent to C$744.4 million ($738.38 million) in the first quarter.
Total sales decreased 4 percent to C$1.11 billion.
Like other Canadian meat processors, Maple Leaf has seen sales to Russia drop off with that country's refusal to accept pork with ractopamine, a widely used feed additive. The only Maple Leaf plant that previously shipped to Russia, at Lethbridge, Alberta, is currently unable to export there, but McCain said he expects approval from Canadian and Russian regulators soon.
The company's quarterly net loss widened to C$14.7 million, or 11 Canadian cents per share, in the first quarter from C$5.8 million, or 4 Canadian cents per share, a year earlier.
On an adjusted basis, the company reported a loss of 6 Canadian cents per share, compared with adjusted earnings of 6 Canadian cents per share a year earlier.
Analysts had on average expected Maple Leaf to earn 12 Canadian cents a share on sales of C$1.148 billion, according to Thomson Reuters I/B/E/S.
The company is carrying out a multi-year program of closing older processing plants and modernizing others, as it seeks to boost profit and better compete with U.S. rivals.
($1 = $1.0082 Canadian)
Editing by Maureen Bavdek