maple leaf foods

These three food companies continue to cut their costs. They’re using the savings to make acquisitions and invest in new plants and equipment.

These moves should spur their long-term earnings growth. However, we only see one of the three as a buy right now.

SAPUTO INC....

CENOVUS ENERGY INC., $29.59, Toronto symbol CVE, is selling its Shaunavon shale oil property in Saskatchewan. This field produces 3,600 barrels a day, or about 2% of Cenovus’s total oil production. The company will receive $240 million when the deal closes in July 2013. That’s equal to 61% of the $391 million, or $0.52 a share, that Cenovus earned in the three months ended March 31, 2013. The sale is part of Cenovus’s plan to sell some of its less-important operations. The company also expects to sell its Bakken shale oil property in Saskatchewan in the next few months. It will probably use the cash from these deals to expand its main oil sands operations in Alberta....

CANADIAN IMPERIAL BANK OF COMMERCE, $78.35, Toronto symbol CM, reported better-than-expected earnings this week. It also raised its dividend. In its fiscal 2013 second quarter, which ended April 30, 2013, CIBC earned $876 million, up 4.3% from $840 million a year earlier. Earnings per share rose 6.0%, to $2.12 from $2.00, on fewer shares outstanding. These figures exclude several unusual items, mainly losses on securities the bank holds. On that basis, the latest earnings beat the consensus estimate of $2.08 a share. Revenue rose 1.8%, to $3.14 billion from $3.08 billion. Stronger earnings from CIBC’s retail banking and wealth management divisions offset lower results from its securities-trading business. As well, more of the bank’s credit card customers are paying their accounts on time, so it cut its loan-loss provisions by 14.0%, to $265 million from $308 million a year earlier. CIBC also lowered its provisions due to fewer loan losses at its Caribbean banking and U.S. real estate lending operations....

MAPLE LEAF FOODS INC. $13 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.2%; TSINetwork Rating: Average; www.mapleleaf.ca) recently increased the prices of its meat products to offset rising costs of animal feed after last year’s drought in the U.S. The recent drop in the value of the yen has also made its pork products more expensive in Japan. As a result, Maple Leaf’s sales fell 4.1% in the first quarter of 2013, to $1.1 billion from $1.2 billion a year earlier. If you exclude the cost of a major restructuring, which includes building new plants and eliminating unprofitable products, Maple Leaf lost $0.06 a share, compared with a year-earlier profit of $0.06 a share.

Due to new accounting rules for pensions, Maple Leaf has cut its gross margin (gross profits as a percentage of sales) target for 2015 to 11.7% from 12.5%. That’s still a big improvement over its 2012 gross margin of 8.6%.

Maple Leaf Foods is still a buy....

MAPLE LEAF FOODS INC. $13 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $1.8 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.2%; TSINetwork Rating: Average; www.mapleleaf.ca) recently increased the prices of its meat products to offset rising costs of animal feed after last year’s drought in the U.S....

MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 140.0 million; Market cap: $2.0 billion; Price-to-sales ratio: 0.4; Dividend yield: 1.1%; TSINetwork Rating: Average; www.mapleleaf.ca) is Canada’s largest foodprocessing company. It mainly sells its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. Though 90.0%-owned Canada Bread (see right), the company also makes fresh and frozen bread, pastries and pasta.

Maple Leaf is starting to see the benefits of a major restructuring plan, which includes building new plants and eliminating unprofitable products. It’s also installing a new computer system that will give its managers more timely information.

In 2012, Maple Leaf’s earnings rose 40.5%, to $122.7 million, or $0.81 a share. In 2011, it earned $87.3 million, or $0.58 a share. If you disregard restructuring costs, earnings per share rose at a more modest rate of 5.0%, to $1.06 from $1.01.
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MAPLE LEAF FOODS INC. (Toronto symbol MFI; www.mapleleaf.ca) is Canada’s largest food processing company. It mainly sells its products, which include fresh and prepared meats and poultry, under the Maple Leaf and Schneider brands. Through 90.0%-owned Canada Bread, the company also makes fresh and frozen bread, pastries and pasta. Maple Leaf is starting to see the benefits of a major restructuring plan, which includes building new plants and eliminating unprofitable products. It’s also installing a new computer system that will give its managers more timely information....

Saputo and Maple Leaf Foods have each gained over 20% in the past six months, while Canada Bread is up 4%. That’s mainly because all three companies are doing a good job of controlling their costs in the face of rising prices for ingredients (like wheat), fuel and electricity....

BANK OF MONTREAL, $64.08, Toronto symbol BMO, reported better-than-expected earnings this week. That’s mainly because stronger results from securities trading and wealth management offset lower earnings from its retail-banking business. In the first quarter of the bank’s 2013 fiscal year, which ended January 31, 2013, its earnings rose 7.1%, to $1.04 billion, or $1.52 a share. These figures exclude unusual items, such as costs to integrate U.S. banking firm Marshall & Ilsley, which Bank of Montreal bought in July 2011. On that basis, the latest earnings beat the consensus estimate of $1.48 a share. A year earlier, Bank of Montreal earned $972 million, or $1.42 a share. Overall revenue fell 0.9%, to $4.08 billion from $4.12 billion. Revenue was unchanged at the Canadian banking business, which supplies 39% of the bank’s overall revenue. Low interest rates continue to attract borrowers, but they also hurt the income that Bank of Montreal earns on its loans. Revenue at its U.S. operations (19% of the total) fell 4.4%, partly due to smaller gains on sales of securities....

TOROMONT INDUSTRIES LTD. $21.77 (Toronto symbol TIH; TSINetwork Rating: Extra Risk) (416-667-5511; www.toromont.com; Shares outstanding: 76.3 million; Market cap: $1.6 billion; Dividend yield: 2.2%) distributes a broad range of industrial equipment, including machinery made by Caterpillar Inc. Toromont also makes refrigeration systems through its CIMCO division. In July 2011, the company completed the spinoff of Enerflex Ltd. (see at right). Shareholders received shares of the new Toromont and shares of Enerflex. Sales and profits keep rising...