Dividend Stocks: Restructuring pays off for Maple Leaf Foods

Maple Leaf Foods boosted earnings per share in the latest quarter with buybacks but also on the strength of higher profit margins. Its new focus on offering healthier meats should also boost future sales.

MAPLE LEAF FOODS INC. (Toronto symbol MFI; www.mapleleaffoods.com) is Canada’s largest food processor. It mainly sells its products, including fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands.

The company recently completed a multi-year restructuring plan that involved closing older meat processing plants and shifting their operations to newer, more efficient ones.

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Thanks to the success of this plan, Maple Leaf earned $42.3 million, or $0.31 a share, in the three months ended March 31, 2016. The results are a big improvement over the $2.9 million, or $0.02, it lost a year earlier. If you factor out unusual items, earnings per share jumped to $0.28 from $0.05.

Maple Leaf’s gross profit margin (gross profits as a percentage of revenue) jumped to 10.2% in the latest quarter from 4.7% a year earlier. That’s above its goal of raising its gross profit margin to at least 10%.

Dividend Stocks: Earnings bump up buybacks

The company’s improved earnings have also freed up cash for share repurchases: it spent $11.9 million on buybacks in the latest quarter.

As of March 31, 2016, Maple Leaf held cash of $290.9 million, and its total debt was just $10.5 million.

To lift its long-term prospects, the company is developing new products such as antibiotic-free meats. This food is more expensive to produce, but should help it profit from rising consumer demand for healthier meats.

Maple Leaf will probably earn $1.40 a share in 2016. The stock trades at a somewhat high 21.4 times that forecast. The $0.36 dividend yields 1.2%.

Recommendation in The Successful Investor: HOLD

For our recent report on another well-known Canadian dividend stock, read New buy to fuel TransCanada earnings, dividends.

For our advice on how to make the most of dividend-paying stocks, read 15 tips for successful investing in dividend stocks.

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Jim Bates

Jim is an associate editor at TSI Network. He is the lead reporter and analyst for The Successful Investor and Wall Street Stock Forecaster and a member of the Investment Planning Committee. Jim has held the Chartered Financial Analyst designation since 1992 and spent more than a decade at the Financial Post DataGroup before joining TSI Network. He has a Bachelor of Commerce degree from the University of Toronto.

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