April 28, 2011 / 12:48 PM / in 7 years

UPDATE 4-Maple Leaf Foods sees benefits from price increases

* Adjusted EPS C$0.18 vs analyst forecast C$0.17

* Revenue tops estimates

* Plans to continue price increases

* Shares up 5 percent (Adds comments from analyst, conference call; updates shares)

By S. John Tilak

TORONTO, April 28 (Reuters) - Maple Leaf Foods Inc’s (MFI.TO) move to pass on rising food costs to consumers helped the Canadian food processor’s profits in the first quarter and eased margin concerns for the rest of the year.

Maple Leaf, whose shares were up on the news, said its profit margins on prepared meats rose because of its price increases although it also reported some volume declines.

The company, which sells its products under such brands as Schneiders and Dempster’s, said it plans to keep raising prices this year as food inflation will continue to be a factor and sees a margin benefit as a result.

Globally, food costs have soared to record highs in recent months, prompting companies in the sector to boost their prices to protect margins, despite the risk of turning away some customers.

The food price index of the United Nations Food and Agriculture Organisation fell in March after eight straight months of rises.

“Food inflation is certainly the challenge of the year,” Maple Leaf Chief Executive Michael McCain said on a conference call with analysts.

The effects will be felt throughout 2011, he said. Corn and wheat prices are up dramatically.

In the first quarter, the higher costs hit Maple Leaf’s bakery business, where adjusted operating earnings fell 29 percent.

“The price increases will stick because they were cost-based,” Canaccord Genuity analyst Candice Williams said.

“That will help offset some of the margin pressure, particularly what we saw in the bakery. We expect that to alleviate in the second quarter,” she said.

Maple Leaf’s first-quarter net earnings fell to C$10.5 million ($11.1 million), or 7 Canadian cents a share, from C$19.9 million, or 13 Canadian cents a share, in the year-before quarter.

Excluding special items, earnings rose to 18 Canadian cents a share. Analysts on average had forecast 17 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Among the items excluded were restructuring charges and some adjustments on hedging contracts.

Revenue fell 4 percent to C$1.15 billion, but beat the average analyst estimate of C$1.14 billion.

Sales in its meat products group, Maple Leaf’s biggest segment, fell 7 percent to C$718.2 million, largely due to the sale of the company’s primary pork processing unit in Burlington, Ontario, in November.

Earlier this year, Toronto-based Maple Leaf gave a seat on the board to West Face Capital, a large shareholder and activist investor that had been critical of the company’s corporate governance.

The move came months after the resignation of two board members and the exit of a top shareholder, Ontario Teachers’ Pension Plan.

A deadly meat recall three years ago hit the company’s shares and profits. Since last year it has modernized plants and closed some to boost earnings.

The stock, up 12 percent in the last 12 months, gained 4.6 percent to close at C$11.97 on Thursday on the Toronto Stock Exchange.

$1=$0.95 Canadian Reporting by S. John Tilak, editing by Peter Galloway

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