Maple Leaf Foods Inc. ("Maple Leaf Foods" or "the Company") (TSX: MFI) today reported its financial results for the third quarter ended September 30, 2024, and provided an update on its new tax-free structure for the spin-off of its pork business, to be known as Canada Packers. 

"In the third quarter of 2024, we made significant strides in executing our strategic playbook, achieving strong results in a challenging consumer landscape," said Curtis Frank, President and CEO of Maple Leaf Foods. "Our sales increased by 1.8%, driven by over 3% growth in our prepared meats business, while Adjusted EBITDA rose to $141 million.

Mr. Frank continued, "These results reflect our continued investment in our market-leading brands, our leadership in sustainable meats, and alignment with our customers' strategies, as we expanded retail market share and demonstrated growth in our Food Service portfolio. These factors, together with improving pork market conditions and the benefits from our capital projects, fueled a 9.1% year-over-year increase in Adjusted EBITDA.

"With our business performance strengthening, our large-scale capital programs complete, and our disciplined approach to capital management, we generated an increase of $65 million in Free Cash Flow during the quarter. This has accelerated the rapid deleveraging of our balance sheet, achieving a 3.1x Adjusted EBITDA to Net Debt ratio at the end of Q3. Looking forward, we anticipate continued progress in the fourth quarter and remain confident in our 2024 outlook," continued Mr. Frank.

"We continue to be very excited about the benefits of the spin-off of our pork business, and the future of Maple Leaf Foods and Canada Packers as independent, public companies. The prospect of executing the transaction as a tax-free spin-off is a positive development as we continue to advance our strategy to unlock value and unleash the potential of these two unique and distinct businesses," concluded Mr. Frank.

Third Quarter 2024 Highlights       

Advancing the Creation of Two Independent Public Companies 

Outlook

(i)         Refer to the section titled Non-IFRS Financial Measures in this news release.

Financial Highlights

Sales for the third quarter of 2024 were $1,260.1 million compared to $1,238.3 million last year, a increase of 1.8%. Sales in the Prepared Foods operating unit increased 2.0%. Within Prepared Foods, prepared meats and plant protein sales increased by 3.1% and 1.1% respectively which were partially offset by a decline in poultry of 0.9%, compared to the same period in the prior year. Sales in the Pork operating unit increased by 1.1% compared to the same period in the prior year.

Year-to-date sales for 2024 were $3,674.2 million, relatively flat compared to $3,675.2 million last year. Prepared Foods sales increased marginally by 0.9%, with an increase in prepared meats sales of 3.1% largely offset by declines in poultry and plant protein of 4.0% and 2.4%, respectively. Pork operating unit sales declined 2.6% compared to the prior year.

Earnings for the third quarter of 2024 of $17.7 million ($0.14 basic earnings per share) improved compared to a loss of $4.3 million ($0.04 basic loss per share) last year. This was driven by improvements in pork market conditions, reduction of start-up expenses at new facilities, realization of operational efficiencies, and unrealized mark to market valuation of biological assets, which were partially offset by increased Selling, General, and Administrative expenses ("SG&A"), driven largely by variable compensation, and higher income taxes.

Year-to-date earnings for 2024 were $43.1 million ($0.35 basic earnings per share) compared to a loss of $115.7 million ($0.95 basic loss per share) last year. The increase was driven by improvement in pork market conditions, reduction of start-up expenses at new facilities, realization of operational efficiencies, unrealized mark to market valuation of biological assets and derivatives, and lower restructuring charges, which were partly offset by higher SG&A driven largely by variable compensation, increased interest rates, and income taxes.

Adjusted Operating Earnings for the third quarter of 2024 were $73.6 million compared to $70.5 million last year, and Adjusted Earnings per Share for the third quarter of 2024 was $0.18 compared to $0.13 last year. The increase was a result of improved pork market conditions and operational efficiencies partly offset by higher SG&A.

Year-to-date Adjusted Operating Earnings for 2024 were $204.7 million compared to $135.7 million last year, and Adjusted Earnings per Share for 2024 was $0.41 compared to $0.01 last year due to similar factors as noted for the third quarter above.

Adjusted Earnings Before Taxes ("Adjusted EBT") for the third quarter of 2024 were $32.1 million compared to $25.1 million last year. Adjusted EBT was driven by improved pork market conditions and operating efficiencies partly offset by interest expense due to higher interest rates, and higher SG&A.

Year-to-date Adjusted EBT for 2024 were $76.9 million compared to $17.8 million last year due to similar factors as noted above.

Free Cash Flow for the third quarter of 2024 was $154.9 million compared to Free Cash Flow of $89.6 million in the prior year. The improvement was driven by improved earnings after the removal of non-cash items, income tax refunds, lower restructuring payments, and lower spending on maintenance capital.

Year-to-date Free Cash Flow for 2024 was $255.6 million compared to Free Cash Flow of $25.6 million in the prior year. Free Cash Flow increased significantly due to improved earnings after the removal of non-cash items, income tax refunds, and lower restructuring payments, combined with lower spending on maintenance capital, partially offset by higher interest payments, and increased investment in working capital.

Net Debt as at September 30, 2024 was $1,597.3 million, a decrease of $172.2 million compared to the prior year.

For further discussion on key operational metrics and results refer to the section titled Operating Review.

Operating Review

During the first quarter of 2024, the Company announced an update to its strategic blueprint (the "Blueprint") that reflects the progress it has made toward achieving its Purpose and Vision and establishes the roadmap for the next chapter of how Maple Leaf Foods intends to deliver on these objectives.   

As part of delivering on these objectives, the Company combined its Meat and Plant protein businesses and aligned its organizational structure to focus on growth potential in key markets and drive operational efficiencies. As a result in the first quarter of 2024, Maple Leaf Foods began to report its business and operational results as a consolidated protein company, and updated its strategic Adjusted EBITDA margin target of 14% - 16% to include Plant protein. 

As a consolidated protein company, Maple Leaf Foods has two operating units: Prepared Foods and Pork, which represent on average approximately 75% and 25% of total Company revenue respectively. Prepared Foods combines the operations of prepared meats, plant protein, and poultry, which represent on average approximately 50%, 5% and 20% of total Company revenue respectively.

On July 9, 2024, Maple Leaf Foods announced its intention to separate into two independent public companies through a spin-off of Maple Leaf Foods' Pork operating unit. This separation is expected to be completed in 2025. See the section entitled Outlook within this press release for a further update.

The following table summarizes the Company's sales, gross profit, selling, general and administrative expenses, Adjusted Operating Earnings, Adjusted EBITDA, and Adjusted EBITDA Margin for the three and nine months ended September 30, 2024 and September 30, 2023.

Sales for the third quarter increased 1.8% to $1,260.1 million, compared to $1,238.3 million last year. Sales in the Prepared Foods operating unit increased 2.0%, with prepared meats and plant protein increasing 3.1% and 1.1% respectively which was partially offset by a decline in poultry of 0.9%. The increase in prepared meats sales was driven by foodservice volume growth and improved category mix, and was partially offset by increased trade promotions. Plant protein sales were positively impacted by foreign exchange and improved product mix, which more than offset volume declines which remain in line with the overall plant protein category. The decrease in poultry sales was driven by the repatriation of production to the London poultry facility and higher internalization of poultry supply into prepared meats, and was partially offset by improved channel mix tied to retail volume growth. Sales in the Pork operating unit increased by 1.1% due to improved product mix and favourable foreign exchange, which were partially offset by lower by-product market prices.

Year-to-date sales for 2024 were $3,674.2 million relatively flat compared to $3,675.2 million last year. Sales were driven by factors consistent with those mentioned above with the exception of sales in the Pork operating unit which were negatively impacted by lower opportunistic buy and sell activity in the second quarter of 2024.

Gross profit for the third quarter increased to $186.2 million, (gross margin of 14.8%) compared to $145.9 million (gross margin of 11.8%) last year. The improvement in gross profit was driven by improved pork market conditions, reduced start-up expenses in the London poultry facility and Bacon Centre of Excellence, realization of operational efficiencies across the network, and unrealized mark to market valuation of biological assets driven by changes in feed markets, all of which were partially offset by the impact of increased trade promotions in the quarter.

Year-to-date gross profit for 2024 was $543.7 million (gross margin of 14.8%) compared to $315.9 million (gross margin of 8.6%) last year. Gross profit improvement was driven by improved pork market conditions, reduced start-up expenses in the London poultry facility and Bacon Centre of Excellence, realization of operational efficiencies, and unrealized mark to market valuation of biological assets driven by changes in feed markets.

SG&A expenses for the third quarter were $108.5 million, compared to $94.9 million last year. The increase in SG&A expenses was primarily driven by higher variable compensation.

Year-to-date SG&A expenses for 2024 were $335.2 million compared to $303.8 million last year. The increase in SG&A expenses was driven by higher variable compensation and higher consulting fees largely incurred in the second quarter of 2024.

Adjusted Operating Earnings for the third quarter were $73.6 million, compared to $70.5 million last year driven primarily by the drivers noted above for gross profit and SG&A, and excluding the impacts of unrealized mark to market valuation adjustments and start-up expenses, which are excluded in the calculation of Adjusted Operating Earnings.

Year-to-date Adjusted Operating Earnings for 2024 were $204.7 million compared to $135.7 million last year, consistent with factors noted above for the third quarter.

Adjusted EBITDA for the third quarter were $140.8 million, compared to $129.0 million last year, driven by factors consistent with those noted above and also excluding the impact of unrealized mark to market valuation adjustments and start-up expenses. Adjusted EBITDA Margin for the second quarter of 2024 was 11.2% compared to 10.4% last year, also driven by factors consistent with those noted above.

Year-to-date Adjusted EBITDA for 2024 were $398.1 million compared to $307.4 million last year, driven by factors consistent with those noted above. Year-to-date Adjusted EBITDA Margin for 2024 was 10.8% compared to 8.4% last year, also driven by factors consistent with those noted above.

Other Matters

On November 12, 2024, the Board of Directors approved a quarterly dividend of $0.22 per share, $0.88 per share on an annual basis, payable December 31, 2024 to shareholders of record at the close of business December 6, 2024. 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". The Board of Directors has also approved the issuance of common shares from treasury at a two percent discount under the Company's Dividend Reinvestment Plan ("DRIP"). Under the DRIP, investors holding the Company's common shares can receive common shares instead of cash dividend payments. Further details, including how to enroll in the program are available at https://www.mapleleaffoods.com/investors/stock-information/.

Conference Call

A conference call will be held at 8:00 a.m. ET on November 13, 2024, to review Maple Leaf Foods' third quarter financial results. To participate in the call, please dial 289-819-1350 or 1-800-836-8184. For those unable to participate, playback will be made available an hour after the event at 289-819-1450 or 1-888-660-6345 (Passcode: 41534#).

A webcast of the third quarter conference call will also be available at: https://www.mapleleaffoods.com/investors/events-and-presentations/

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 and on SEDAR+ at www.sedarplus.ca.

An investor presentation related to the Company's third quarter financial results is available at www.mapleleaffoods.com under Presentations and Webcasts on the Investors page.

Outlook

Maple Leaf Foods is a leading consumer protein company built on a powerful portfolio of brands, with a leading voice in sustainability and food security. The Company's strategic Blueprint defines how it will advance its vision to be the Most Sustainable Protein Company on Earth while delivering on its commercial and financial objectives.

The Company recognizes that macro-economic factors and global conflict continue to define the current operating environment, contributing to continuing high interest rates, inflation, supply chain tensions, and pressures on agricultural, commodity and foreign exchange markets. As a result, consumers and businesses alike are adapting their behaviour which impacts demand and product mix. The Company leverages its data-driven insights to stay close to these dynamics, and it is confident in the resilience of its brands, business model and strategy to manage through prevailing economic conditions.

Earlier this year, Maple Leaf Foods refreshed its Blueprint and announced it was realigning its organizational structure to support its new strategic orientation as it brings together its Meat and Plant Protein businesses under a single umbrella with a clear and consistent focus on driving profitable growth in Canada, the U.S., and internationally across its entire protein portfolio.

With this focus, the Company expects to achieve an overall consolidated strategic Adjusted EBITDA Margin target of 14% to 16%. Prior to this year, this strategic Adjusted EBITDA Margin target applied to the previous Meat Protein segment but now applies on a consolidated protein basis.

For the full year 2024, the Company expects:

Additionally, the Company estimates its capital expenditures for 2025 will be in the range of $175 million to $200 million with approximately $130 million comprised of maintenance capital with the remainder being growth capital. The growth capital consists of projects focused on continued capacity optimization and cost efficiency and to drive growth opportunities.

Maple Leaf Foods will also continue to advance its ambitious sustainability agenda, including leading the real food movement, advancing its animal care initiatives, seeking solutions to address food insecurity, accelerating its efforts to reduce its environmental footprint and continuing to deliver safe food made in a safe work environment.

Update on the spin-off of the pork business

On July 9, 2024, Maple Leaf Foods announced plans to separate into two independent public companies through the spin-off of its pork business (the "spin-off"). The primary goal of the spin-off is to unlock value for stakeholders and unleash the potential of both businesses as they each pursue their distinctive value creation opportunities. The new pork company will be known as Canada Packers Inc., a name that honours the legacy of this iconic brand in Maple Leaf Foods' history, but with a new modern focus on sustainability that reflects its bold vision for the future.

Since the announcement of the spin-off, the Company has made significant strides in executing the work necessary for a successful separation of the two businesses, including continuing to assess its ability to achieve a more tax efficient outcome. The Company has now identified a structure that would allow it to implement the spin-off through a tax-free "butterfly reorganization."

The originally announced structure of the transaction involved a return of capital spin-off, and to the extent any of the shares of Canada Packers could not be distributed through a return of capital, Maple Leaf Foods intended to distribute such shares as a dividend. This structure was expected to result in a taxable gain for Maple Leaf Foods.

By contrast, the tax-free "butterfly reorganization," which would be executed by way of a plan of arrangement, is not expected to result in any taxable gain for Maple Leaf Foods.

Under the proposed new structure, Maple Leaf Foods will retain a 16-17% ownership interest in Canada Packers, with the balance of the shares being distributed pro-rata to existing Maple Leaf Foods shareholders. The Company's largest, owner-operator shareholder, McCain Capital Inc. ("MCI") and certain members of the McCain family (together the "McCain Parties") have agreed to enter into a tax matters agreement prior to the closing of the spin-off which contains a number of representations and covenants related to compliance with the rules governing butterfly reorganization transactions under the Income Tax Act (Canada) (the "ITA"). The McCain Parties have also reinforced their support for the transaction, and the new structure.

With this new structure, the completion of the transaction is subject to receipt of an advance tax ruling from the Canada Revenue Agency (CRA), execution of the tax matters agreement (including satisfaction of the conditions thereunder), and other customary conditions such as receipt of an updated favourable fairness opinion and required approvals.

Further details of the transaction and structure will be included in the Information Circular to be filed in connection with the transaction.

As a taxable transaction, the spin-off already represented an attractive, value creation opportunity, and now with the opportunity to pursue a tax-free structure, the spin-off has the potential to deliver even greater value. Because the advance ruling application process will take a number of months, the closing of the transaction will be delayed beyond the Company's original expectations, but is still expected to close in 2025, subject to the receipt of all necessary approvals and the satisfaction of all other conditions, including the receipt of the advance tax ruling. 

Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBT, Construction Capital, Net Debt, Net Debt to trailing four quarters Adjusted EBITDA, Free Cash Flow and Return on Net Assets. Management believes that these non-IFRS measures provide useful information to investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

Adjusted Operating Earnings, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBT

Adjusted Operating Earnings, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBT are non-IFRS measures used by Management to evaluate financial operating results. Adjusted Operating Earnings is defined as earnings before other income, income taxes and interest expense adjusted for items that are not considered representative of ongoing operational activities of the business and certain items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying or related asset is sold or transferred. Adjusted EBITDA is defined as Adjusted Operating Earnings plus depreciation and intangible asset amortization, adjusted for items included in other expense that are considered representative of ongoing operational activities of the business. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by sales. Adjusted EBT is used annually by the Company to evaluate its performance and is a component of calculating bonus entitlements under the Company's short term incentive plan. It is defined as Adjusted EBITDA plus interest income, less depreciation and amortization, and interest expense. 

The table below provides a reconciliation of earnings (loss) before income taxes as reported under IFRS in the Consolidated Interim Financial Statements to Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBT for the three and nine months ended September 30, 2024 as indicated below. Management believes that these non-IFRS measures are useful in assessing the performance of the Company's ongoing operations and its ability to generate cash flows to fund its requirements, including the Company's capital investment program.

Adjusted Earnings per Share

Adjusted Earnings per Share, a non-IFRS measure, is used by Management to evaluate financial operating results. It is defined as basic earnings per share and is adjusted on the same basis as Adjusted Operating Earnings. The table below provides a reconciliation of basic earnings per share as reported under IFRS in the Consolidated Interim Financial Statements to Adjusted Earnings per Share for the three and nine months ended September 30 as indicated below. Management believes this basis is the most appropriate on which to evaluate financial results as they are representative of the ongoing operations of the Company.

Construction Capital

Construction Capital, a non-IFRS measure, is used by Management to evaluate the amount of capital resources invested in specific strategic development projects that are not yet operational. It is defined as investments and related financing charges in projects over $50 million that are related to longer-term strategic initiatives, with no returns expected for at least 12 months from commencement of construction and the asset is re-categorized from Construction Capital once operational.  

Construction Capital balance was nil as at December 31, 2023, and there was no activity during 2024. The Construction Capital activity for the nine months ended September 30, 2023 is shown in the table below.

Net Debt 

The following table reconciles Net Debt and Net Debt to trailing four quarters Adjusted EBITDA to amounts reported under IFRS in the Company's Consolidated Interim Financial Statements as at September 30 as indicated below. The Company calculates Net Debt as cash and cash equivalents, less current and long-term debt and bank indebtedness. Management believes this measure is useful in assessing the amount of financial leverage employed.

Free Cash Flow 

Free Cash Flow, a non-IFRS measure, is used by Management to evaluate cash flow after investing in the maintenance of the Company's asset base. It is defined as cash provided by operations, less Maintenance Capital(i) and associated interest paid and capitalized. The following table calculates Free Cash Flow for the periods indicated below:

Return on Net Assets ("RONA") 

RONA is calculated by dividing tax effected earnings from operations (adjusted for items which are not considered representative of the underlying operations of the business) by average monthly net assets. Net assets are defined as total assets (excluding cash and deferred tax assets) less non-interest bearing liabilities (excluding deferred tax liabilities). Management believes that RONA is an appropriate basis upon which to evaluate long-term financial performance. 

Forward-Looking Statements

This document contains, and the Company's oral and written public communications often contain, "forward-looking information" within the meaning of applicable securities law. These statements are based on current expectations, estimates, projections, beliefs, judgements and assumptions based on information available at the time the applicable forward-looking statement was made and in light of the Company's experience combined with its perception of historical trends. Such statements include, but are not limited to, statements with respect to objectives and goals, in addition to statements with respect to beliefs, plans, targets, goals, objectives, expectations, anticipations, estimates, and intentions. Forward-looking statements are typically identified by words such as "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "could", "would", "believe", "plan", "intend", "design", "target", "undertake", "view", "indicate", "maintain", "explore", "entail", "schedule", "objective", "strategy", "likely", "potential", "outlook", "aim", "propose", "goal", and similar expressions suggesting future events or future performance. These statements are not guarantees of future performance and involve assumptions, risks and uncertainties that are difficult to predict.

By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Company believes the expectations reflected in the forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements should not be unduly relied upon. 

Specific forward-looking information in this document may include, but is not limited to, statements with respect to:

Various factors or assumptions are typically applied by the Company in drawing conclusions or making the forecasts, projections, predictions or estimations set out in the forward-looking statements. These factors and assumptions are based on information currently available to the Company, including information obtained by the Company from third-party sources and include but are not limited to the following:

Readers are cautioned that these assumptions may prove to be incorrect in whole or in part. The Company's actual results may differ materially from those anticipated in any forward-looking statements.

Factors that could cause actual results or outcomes to differ materially from the results expressed, implied, or projected in the forward-looking statements contained in this document include, among other things, risks associated with the following:

The Company cautions readers that the foregoing list of factors is not exhaustive.

Readers are further cautioned that some of the forward-looking information, such as statements concerning future capital expenditures, Adjusted EBITDA Margin expansion, and the Company's ability to achieve its financial targets or projections may be considered to be financial outlooks for purposes of applicable securities legislation. These financial outlooks are presented to evaluate potential future earnings and anticipated future uses of cash flows and may not be appropriate for other purposes. Readers should not assume these financial outlooks will be achieved. 

More information about risk factors can be found under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2023, that is available on SEDAR+ at www.sedarplus.ca. The reader should review such section in detail. Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR+ at www.sedarplus.ca.

All forward-looking statements included herein speak only as of the date hereof. Unless required by law, the Company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. All forward-looking statements contained herein are expressly qualified by this cautionary statement.

Management's Estimates on the Pork business spin-off, and related Non-IFRS measures

The following table presents management's preliminary estimates of certain financial information regarding the Canada Packers and the business that will be retained after the separation by Maple Leaf Foods. These preliminary estimates have not been audited or reviewed by any third party, have been derived from internal management reporting, and reflect sales, cost and expense allocations, including with respect to corporate expenses, as well as other estimates and adjustments, each of which is preliminary in nature and subject to change. 

Management believes that these preliminary estimates are useful in providing an indication of the relative size of the businesses upon separation. Each of these figures is expected to be refined prior to the separation, with full financial details to be presented in the management information circular to be filed in connection with the transaction.

Adjusted EBITDA, Pro Forma Adjusted EBITDA, and Pro Forma normalized Adjusted EBITDA, and related margins, as presented in the table above, are non-IFRS metrics and do not have a standardized meaning prescribed by IFRS.  Consequently, they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.

About Maple Leaf Foods Inc.

Maple Leaf Foods is a leading protein company responsibly producing food products under brands including Maple LeafÂR, Maple Leaf PrimeÂR, Maple Leaf Natural SelectionsÂR, SchneidersÂR, SchneidersÂR Country NaturalsÂR, MinaÂR, Greenfield Natural Meat Co.ÂR, LightlifeÂR and Field Roastâ?¢. The Company employs approximately 13,500 people and does business primarily in Canada, the U.S. and Asia. The Company is headquartered in Mississauga, Ontario and its shares trade on the Toronto Stock Exchange (MFI).

Consolidated Interim Balance Sheets

Consolidated Interim Statements of Earnings (Loss)

Consolidated Interim Statements of Other Comprehensive Income (Loss)

Consolidated Interim Statements of Changes in Total Equity

Consolidated Interim Statements of Cash Flows

SOURCE Maple Leaf Foods Inc.

SOURCE: Maple Leaf Foods Inc.

Investor Contact: investor.relations@mapleleaf.com; Media Contact:
media.hotline@mapleleaf.com

COMTEX_459754879/2197/2024-11-13T06:00:00