July 24, 2008 / 1:02 PM / 10 years ago

Maple Leaf losses mount on higher grain costs

TORONTO (Reuters) - Maple Leaf Foods Inc (MFI.TO), one of Canada’s largest food processors, posted a bigger quarterly loss on Thursday as soaring grain and fuel costs hurt its pork and bakery operations as it continued to restructure.

Maple Leaf reported a net loss of C$9.35 million ($9.26 million), or 7 Canadian cents a share, in the second quarter ended June 30, compared with a loss of C$1.7 million, or 1 Canadian cent a share, a year earlier.

Tight world supplies have pushed grain prices to record highs at a time when Maple Leaf had already embarked on an overhaul to get out of the fresh pork export business and concentrate more on its bakery products.

The company, known for its bacon, wieners and Dempster’s bread, plans to instead focus on higher-valued further-processed meats and food products by 2009.

During a conference call, Chief Executive Michael McCain stressed that the company has been hurt by unprecedented inflation in energy and grain costs, but said he is confident it will perform better in the second half of 2008.

Before restructuring and other related costs, Maple Leaf said it lost 1 Canadian cent a share, compared with a profit of 17 Canadian cents a share a year earlier.

Sales rose to C$1.355 billion from C$1.318 billion a year earlier.

Maple Leaf said that the financial benefits from its restructuring initiatives — including the closure of three processing plants and adding a second shift at its Brandon, Manitoba pork plant — have so far been offset by start-up costs. But it said it expects the restructuring to contribute to earnings in the second half of the year.

Maple Leaf has also launched the process of selling its Burlington, Ontario, pork facility, which processes more than two million hogs a year. By consolidating operations in Brandon and reducing the number of pigs processed, the company expects to see significant cost reductions and margin improvements.

In the bakery business, price increases implemented earlier in the year were not enough to cover the rapid cost increases for wheat, fuel and other supplies, the company said.

Adjusted operating earnings for the group, which includes fresh and frozen bakery products, and specialty pasta and sauces, fell to C$8.7 million from C$33.4 million the year before.

McCain said that wheat costs are expected to come down in the second half of the year, while the full effect of the price increases should also be seen.

Maple Leaf shares have plunged during the past three months to a record low of C$9.50 at the Toronto Stock Exchange, down more than 40 percent from a year earlier. The stock was down 20 Canadian cents, or 2 percent, at C$9.80 on Thursday afternoon.

Other meat companies, such as U.S. firms Pilgrim’s Pride Corp PPC.N, Sanderson Farms Inc (SAFM.O), Smithfield Foods Inc SFD.N and Tyson Foods Inc (TSN.N), have also been battling with the high costs of feed for cattle, chickens and hogs.

($1=$1.01 Canadian)

    Reporting by Roberta Rampton and Leah Schnurr; Editing by Peter Galloway

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