MAPLE LEAF FOODS INC. TSX: MFI
www.mapleleaffoods.com
Investor Contact: Mike Rawle
905-285-5732
Media Contact: Janet Riley
905-285-1515
Maple Leaf Foods Reports Second Quarter 2021 Financial Results
Meat Protein delivers healthy Adjusted EBITDA Margin of 11.6%, despite transitory headwinds
Mississauga, Ontario, August 5, 2021 - Maple Leaf Foods Inc. ("Maple Leaf Foods" or the "Company") (TSX: MFI) today reported its financial results for the second quarter ended June 30, 2021.
"As we anticipated, our second quarter faced material market headwinds and a difficult year-over-year comparable quarter due to COVID-19 effects, and yet our business delivered excellent results" said Michael H. McCain, President and CEO. "In Meat Protein, performance was impressive with sales growth of 7.4% and Adjusted EBITDA margins of 11.6%. We expect our margins to fully recover beginning in the third quarter. In Plant Protein, where we continue to invest for long-term growth, we expected our sales in the first and second quarters to come in soft. At the same time, we expect to return to our strategic growth targets or above in the second half of this year. Our brand momentum, innovation pipeline and customer activity all support this.
"During these challenging times, I continue to be inspired by our people, confident in the resiliency and effectiveness of our strategic Blueprint, and more optimistic than ever in achieving our long-term goals," concluded Mr. McCain.
Second Quarter 2021 Highlights
- Total Company sales up 5.9% to $1,158.9 million, with an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")(i) Margin of 9.0%, similar to the performance in the first quarter.
- Meat Protein Group sales up 7.4% to $1,117.5 million, while Adjusted EBITDA Margin remained healthy at 11.6%.
- Excluding foreign exchange impacts, Plant Protein Group sales declined 10.4% while selling, general and administrative ("SG&A") expenses were similar to last year.
- Net earnings were $8.8 million, compared to $25.7 million last year primarily due to non-cash fair value changes in biological assets and derivative contracts.
- Capital expenditures were $166.8 million and consisted predominantly of Construction Capital(i) of $127.8 million, the majority of which was related to ongoing construction of the London, Ontario poultry facility.
- Balance sheet remained strong with Net Debt of $1,068.2 million and undrawn committed credit of over $800 million.
- 2021 Outlook: Meat Protein Group targets unchanged - mid-to-high single digit sales growth and Adjusted EBITDA Margin expansion; Plant Protein sales growth now expected to be at least 30% in the back half of 2021.
- Refer to the section titled Non-IFRS Financial Measures in this news release.
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Financial Highlights | ||||||||||
As at or for the | ||||||||||
Measure(i) | Three months ended June 30, | Six months ended June 30, | ||||||||
2021 | 2020 | Change | 2021 | 2020 | Change | |||||
(Unaudited) | ||||||||||
Sales | $ | 1,158.9 | $ | 1,094.6 | 5.9 % | $ | 2,211.9 | $ | 2,117.3 | 4.5 % |
Net Earnings | $ | 8.8 | $ | 25.7 | (65.8)% | $ | 56.5 | $ | 21.9 | 157.3 % |
Basic Earnings per Share | $ | 0.07 | $ | 0.21 | (66.7)% | $ | 0.46 | $ | 0.18 | 155.6 % |
Adjusted Operating Earnings(ii) | $ | 56.4 | $ | 66.7 | (15.4)% | $ | 106.7 | $ | 111.8 | (4.5)% |
Adjusted Earnings per Share(ii) | $ | 0.28 | $ | 0.35 | (20.0)% | $ | 0.54 | $ | 0.56 | (3.6)% |
Adjusted EBITDA - Meat Protein Group(ii) | $ | 129.7 | $ | 138.2 | (6.2)% | $ | 253.0 | $ | 249.3 | 1.5 % |
Sales - Plant Protein Group | $ | 48.1 | $ | 60.6 | (20.6)% | $ | 90.7 | $ | 107.0 | (15.2)% |
Free Cash Flow(ii) | $ | (135.9) | $ | 53.7 | (353.1)% | $ | (331.1) | $ | (79.6) | (316.0)% |
Construction Capital(ii) | $ | 720.8 | $ | 229.0 | 214.8 % | |||||
Net Debt(ii) | $ | (1,068.2) | $ | (606.7) | 76.1 % |
- All financial measures in millions of dollars except Basic and Adjusted Earnings per Share.
- Refer to the section titled Non-IFRS Financial Measures in this news release.
Sales for the second quarter of 2021 were $1,158.9 million compared to $1,094.6 million last year, an increase of 5.9%, 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, please refer to the section titled Operating Review.
Year-to-date sales for 2021 were $2,211.9 million compared to $2,117.3 million last year, an increase of 4.5%, due to similar factors as noted above.
Net earnings for the second quarter of 2021 were $8.8 million ($0.07 per basic share) compared to $25.7 million ($0.21 per basic share) last year. The reduction in net earnings was primarily driven by a higher net loss of $31.7 million (2020: net loss of $17.2 million) from non-cash fair value changes in biological assets and derivative contracts, which are both excluded in the calculation of Adjusted Operating Earnings below. Results were also impacted by limited access to China and lower primary processing margins in the Meat Protein Group, as well as lower sales volume and capacity utilization in the Plant Protein Group.
Year-to-date net earnings for 2021 were $56.5 million ($0.46 per basic share) compared to $21.9 million ($0.18 per basic share) last year. The increase was primarily driven by a lower net loss of $4.9 million (2020: net loss of $53.9 million) from non-cash fair value changes in biological assets and derivative contracts, which are both excluded in the calculation of Adjusted Operating Earnings below.
Adjusted Operating Earnings for the second quarter of 2021 were $56.4 million compared to $66.7 million last year, and Adjusted Earnings per Share for the second quarter of 2021 were $0.28 compared to $0.35 last year due to similar factors as noted above.
Year-to-date Adjusted Operating Earnings for 2021 were $106.7 million compared to $111.8 million last year, and Adjusted Earnings per Share for 2021 were $0.54 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.
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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, and close communication and collaboration with public health authorities including on-site vaccination clinics. The measures enacted to protect the health and safety of employees have increased the Company's cost structure due to higher labour, personal protective equipment, sanitation and other expenses associated with the pandemic. Continuing COVID-19 structural costs have been incorporated in the Company's 2021 operating plan.
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.
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 is based predominantly on revenue growth rates, gross margin optimization and controlling SG&A investment levels, which generate high revenue growth rates.
The following table summarizes the Company's sales, gross profit, SG&A expenses, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the three months ended June 30, 2021 and June 30, 2020.
Three months ended June 30, 2021 | Three months ended June 30, 2020 | |||||||||||
($ millions)(i) | Meat | Plant | Non- | Meat | Plant | Non- | ||||||
Protein | Protein | Total | Protein | Protein | Total | |||||||
(Unaudited) | Group | Group | Allocated(ii) | Group | Group | Allocated(ii) | ||||||
Sales | $ | 1,117.5 | 48.1 | (6.7) | $ | 1,158.9 | $ | 1,040.4 | 60.6 | (6.4) | $ | 1,094.6 |
Gross profit | $ | 167.0 | 0.3 | (31.7) | $ | 135.7 | $ | 176.6 | 7.9 | (17.2) | $ | 167.3 |
Selling, general and administrative | $ | 81.2 | 29.8 | - | $ | 110.9 | $ | 83.7 | 34.1 | - | $ | 117.8 |
expenses | ||||||||||||
Adjusted Operating Earnings(iii) | $ | 85.9 | (29.5) | - | $ | 56.4 | $ | 92.9 | (26.3) | - | $ | 66.7 |
Adjusted EBITDA(iii) | $ | 129.7 | (25.9) | - | $ | 103.8 | $ | 138.2 | (22.6) | - | $ | 115.7 |
Adjusted EBITDA Margin(iii) | 11.6 % | (53.9)% | n/a | 9.0 % | 13.3 % | (37.2)% | n/a | 10.6 % |
- Totals may not add due to rounding.
- Non-allocatedincludes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results.
- Refer to the section titled Non-IFRS Financial Measures in this news release.
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The following table summarizes the Company's sales, gross profit, SG&A expenses, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin by operating segment for the six months ended June 30, 2021 and June 30, 2020.
Six months ended June 30, 2021 | Six months ended June 30, 2020 | |||||||||||
($ millions)(i) | Meat | Plant | Non- | Meat | Plant | Non- | ||||||
Protein | Protein | Total | Protein | Protein | Total | |||||||
(Unaudited) | Group | Group | Allocated(ii) | Group | Group | Allocated(ii) | ||||||
Sales | $ | 2,131.2 | 90.7 | (9.9) | $ | 2,211.9 | $ | 2,021.7 | 107.0 | (11.4) | $ | 2,117.3 |
Gross profit | $ | 333.1 | 0.4 | (4.9) | $ | 328.6 | $ | 333.9 | 14.6 | (53.9) | $ | 294.7 |
Selling, general and administrative | $ | 168.3 | 58.6 | - | $ | 226.8 | $ | 171.8 | 65.0 | - | $ | 236.7 |
expenses | ||||||||||||
Adjusted Operating Earnings(iii) | $ | 164.9 | (58.1) | - | $ | 106.7 | $ | 162.1 | (50.3) | - | $ | 111.8 |
Adjusted EBITDA(iii) | $ | 253.0 | (50.9) | - | $ | 202.1 | $ | 249.3 | (43.1) | - | $ | 206.2 |
Adjusted EBITDA Margin(iii) | 11.9% | (56.1%) | n/a | 9.1% | 12.3% | (40.3%) | n/a | 9.7% |
- Totals may not add due to rounding.
- Non-allocatedincludes eliminations of inter-segment sales and associated cost of goods sold, changes in the fair value of biological assets and derivatives, and non-allocated costs which are comprised of expenses not separately identifiable to reportable segments and are not part of the measures used by the Company when assessing a segment's operating results.
- Refer to the section titled Non-IFRS Financial Measures in this news release.
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®, Schneiders®, Mina®, Greenfield Natural Meat Co.® and many leading regional brands.
Sales for the second quarter of 2021 increased 7.4% to $1,117.5 million compared to $1,040.4 million last year. Sales growth was driven by higher fresh pork and poultry market values, favourable mix-shift towards branded products and sustainable meats, and higher volumes in the U.S. These factors more than offset an unfavourable impact from foreign exchange. Strong recovery in foodservice volumes offset normalization in retail volumes from the initial pandemic onset.
Year-to-date sales for 2021 increased 5.4% to $2,131.2 million compared to $2,021.7 million last year. Sales growth was driven by higher fresh pork and poultry market values, favourable mix-shift from branded products and sustainable meats, U.S. volume and prepared meats pricing action taken in the fourth quarter of 2020 to mitigate inflation and other structural cost increases. These factors more than offset an unfavourable impact from foreign exchange and lower sales to China. Strong recovery in foodservice volumes during the second quarter offset normalization in retail volumes.
Gross profit for the second quarter of 2021 was $167.0 million (gross margin of 14.9%) compared to $176.6 million (gross margin of 17.0%) last year. Mix-shift benefits towards growth in branded products and sustainable meats were more than offset by limited access to China and lower margins in primary processing. Gross profit in the second quarter of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
Year-to-date gross profit for 2021 was $333.1 million (gross margin of 15.6%) compared to $333.9 million (gross margin of 16.5%) last year. Strong operational performance and mix-shift benefits from branded products and sustainable meats were offset by limited access to China. Gross profit in the first half of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
SG&A expenses for the second quarter of 2021 were $81.2 million compared to $83.7 million last year. The reduction in SG&A expenses was driven by a decrease in variable compensation, partially offset by the normalization of advertising and promotions spend compared to last year. Other discretionary spending accounts, such as travel and training were similar to last year.
Year-to-date SG&A expenses for 2021 were $168.3 million compared to $171.8 million last year. The reduction in SG&A was driven by a decrease in variable compensation, and the lapping of donations made in March 2020 to support front-line health care workers at the outset of the COVID-19 pandemic. This more than offset the normalization of advertising and promotions as well as higher personnel costs.
Adjusted Operating Earnings for the second quarter of 2021 were $85.9 million compared to $92.9 million last year, consistent with factors noted above.
Year-to-date Adjusted Operating Earnings for 2021 were $164.9 million compared to $162.1 million last year, consistent with factors noted above.
Adjusted EBITDA for the second quarter of 2021 were $129.7 million compared to $138.2 million last year, driven by factors consistent with those noted above. Adjusted EBITDA Margin for the second quarter was 11.6% compared to 13.3% last year, also driven by factors consistent with those noted above.
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Year-to-date Adjusted EBITDA for 2021 were $253.0 million compared to $249.3 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2021 was 11.9% compared to 12.3% 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 2021 decreased 20.7% to $48.1 million compared to $60.6 million last year. Excluding the impact of foreign exchange, sales decreased 10.4%, driven by lower retail volumes as the business lapped surge demand in 2020 tied to COVID-19. This more than offset higher foodservice volumes and pricing action implemented in the fourth quarter of 2020 to mitigate inflation and structural cost increases.
Year-to-date sales for 2021 decreased 15.2% to $90.7 million compared to $107.0 million last year. Excluding the impact of foreign exchange, sales were down 6.9%, driven by lower volumes in fresh retail products. This more than offset pricing action implemented in the fourth quarter of 2020 to mitigate inflation and structural cost increases.
Gross profit for the second quarter of 2021 was $0.3 million (gross margin of 0.6%) compared to $7.9 million (gross margin of 13.0%) last year. The decrease in gross profit was attributed to strategic investments in capacity to build for anticipated demand, which has resulted in increased overhead and transitory costs. Other factors include lower sales volumes and higher trade expenditures. The second quarter of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
Year-to-date gross profit for 2021 was $0.4 million (gross margin of 0.5%) compared to $14.6 million (gross margin of 13.7%) last year. The decrease in gross profit was attributed to lower sales volumes and capacity utilization, as well as higher trade expenditure. Gross profit in the first half of 2020 was also impacted by significant operational and one-off costs in response to COVID-19.
SG&A expenses for the second quarter of 2021 were $29.8 million (61.9% of sales) compared to $34.1 million (56.3% of sales) last year. The decrease in SG&A expenses was primarily driven by the impact of foreign exchange. Excluding this, spend was similar to last year as lower variable compensation was offset by increased expenses related to organizational capacity.
Year-to-date SG&A expenses for 2021 were $58.6 million (64.6% of sales) compared to $65.0 million (60.7% of sales) last year. The decrease in SG&A expenses was primarily driven by the impact of foreign exchange. Excluding this, spend was similar to last year as lower advertising and promotion costs were offset by increased expenses related to organizational capacity.
Adjusted Operating Earnings for the second quarter of 2021 were a loss of $29.5 million compared to a loss of $26.3 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.
Year-to-date Adjusted Operating Earnings for 2021 were a loss of $58.1 million compared to a loss of $50.3 million last year. The decline in Adjusted Operating Earnings is consistent with the factors noted above.
Other Matters
On August 4, 2021, the Board of Directors approved a quarterly dividend of $0.18 per share, $0.72 per share on an annual basis, payable September 29, 2021 to shareholders of record at the close of business September 8, 2021. 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 5, 2021, 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 (Passcode: 127538#).
A webcast of the second quarter conference call will also be available at:
https://www.mapleleaffoods.com
The Company's full unaudited condensed consolidated interim financial statements ("Consolidated Interim Financial Statements") and related Management's Discussion and Analysis are available on the Company's website.
An investor presentation related to the Company's second quarter financial results is available at www.mapleleaffoods.comand can be found under Presentations and Webcasts on the Investors page.
2021 Outlook
Throughout the COVID-19 pandemic, Maple Leaf Foods has remained focused on protecting its employees and ensuring continuity of its supply chain. As a result, the current environment does increase certain operating costs and potential for short- term processing disruptions to protect the health and safety of plant personnel. Continuing COVID-19 structural costs have been incorporated in the Company's 2021 operating plan.
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Maple Leaf Foods Inc. published this content on 05 August 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 05 August 2021 10:15:09 UTC.
