Maple Leaf Foods shares plunge after surprising loss

Thu May 2, 2013 11:36am EDT
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By Rod Nickel and Shounak Dasgupta

(Reuters) - Shares of Canadian food processor Maple Leaf Foods Inc (MFI.TO: Quote) 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.   Continued...

Maple Leaf Foods Inc. President and Chief Executive Officer Michael McCain speaks to shareholders during the company's annual general meeting in Mississauga, April 29, 2009. REUTERS/ Mike Cassese