maple leaf foods
Toronto symbol MFI, is Canada’s largest food processing company. Its products include fresh and prepared meats and poultry, mostly under the Maple Leaf and Schneider brands. It also makes fresh and frozen bakery products through 89.8%-owned Canada Bread Co. Ltd.
CANADA BREAD COMPANY, LTD. $53 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.3 billion; SI Rating: Above average) makes fresh and frozen breads and baked goods under several brands, including Dempster’s, Healthy Way, Olafson’s, and Tenderflake. The company also makes pastas and sauces under the Olivieri name. Customers include retail food stores, in-store bakeries and restaurants, in Canada, the United States and the UK. In the three months ended December 31, 2006, the company earned $0.70 a share (total $17.7 million), down 5.4% from $0.74 a share ($18.7 million) a year earlier. The latest quarterly earnings exclude $3.7 million (after-tax) expenses related to the closure of a bakery in B.C. and other restructuring items. Sales rose 15.1%, to $355.5 million from $308.8 million, mainly due to higher prices. A big part of Canada Bread’s success in the past few years is acquisitions. In fact, if you disregard acquisitions, sales in the latest quarter grew just 8%....
The food-processing industry seems dull to many investors, but sometimes it creates surprisingly large capital gains. That can happen when a company builds brand names that generate rising sales at premium prices. On the other hand, because consumers tend to stick with brands they know and trust, food processors offer a substantial margin of safety. Here are two leading food processing companies pursuing opposite strategies. Saputo is expanding through acquisitions, mainly of smaller competitors that it can quickly absorb. In contrast, Maple Leaf Foods is consolidating its operations to focus on its more profitable businesses. Still, both approaches should improve their long-term profitability. SAPUTO INC. $39 (Toronto symbol SAP; Aggressive Growth Portfolio, Consumer sector; Shares outstanding: 103.2 million; Market cap: $4.0 billion; SI Rating: Average) is Canada’s largest producer of dairy products. Major brands include Saputo, Armstrong, Stella and Dairyland. The company is also the fifth-largest cheese producer in the United States, and the third-largest dairy company in Argentina. Saputo’s Canadian businesses supply 80% of its profit....
MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 127.6 million; Market cap: $1.8 billion; SI Rating: Average) is Canada’s largest supplier of fresh and frozen meat products, mostly under the Maple Leaf and Schneiders brands. It also makes animal feeds and owns 87.5% of Canada Bread Company, Ltd., which makes bread, pasta and sauces. Maple Leaf’s revenue hovered around $5.0 billion from 2001 to 2003. In 2004, it acquired rival Schneider Corp. for $499 million. Consequently, revenue grew to $6.4 billion in 2004, and $6.5 billion in 2005. Profits rose from $0.55 a share (total $57.4 million) in 2001 to $0.71 a share ($84.7 million) in 2002, but fell to $0.27 a share ($35.1 million) in 2003 due to restructuring costs. The Schneider acquisition helped lift earnings in 2004 to $0.89 a share ($102.3 million), but more restructuring costs cut profits in 2005 to $0.72 a share ($94.2 million)....
CANADIAN NATIONAL RAILWAY CO. $54 (Toronto symbol CNR; Conservative Growth Portfolio, Manufacturing & Industry sector; SI Rating: Average) plans to increase capital spending in 2007 by 4% over 2006. About half will go to basic items like replacing tracks and repairing bridges. It will also buy new locomotive and other railcars that will cut its fuel costs and improve safety. CN Rail is a buy. GREAT-WEST LIFECO INC. $34 (Toronto symbol GWO; Conservative Growth Portfolio, Finance sector; SI Rating: Above average) continues to expand its retirement savings and healthcare insurance operations in the United States....
MAPLE LEAF FOODS INC. $13 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; SI Rating: Average) is a leading producer of fresh and frozen meat products. The company also supplies animal feeds to farmers, and owns 87.5% of Canada Bread. Overseas customers account for 30% of Maple Leaf’s sales. The high value of the Canadian dollar makes Maple Leaf’s products more expensive in foreign countries, which has hurt its sales. Rising inventories of frozen meat products, particularly in Japan, have cut demand and prices. Consequently, sales in the second quarter of 2006 fell 6.3%, to $1.5 billion from $1.6 billion a year earlier. Earnings fell 36.0%, to $0.16 a share (total $21.2 million) from $0.25 a share ($33.2 million)....
MAPLE LEAF FOODS INC. $12 has moved down on fears that the high Canadian dollar would hurt pork exports to Japan. Rising fuel and other costs are also cutting into its earnings growth. But new facilities and equipment should improve its efficiency. A new share buyback plan will also help support the stock price. Buy. PETRO-CANADA $44 paid $30 million for oil sand leases adjacent to its MacKay River project in northern Alberta. The price is equal to 6% of the $474 million or $0.94 a share it earned before unusual items in the second quarter of 2006. The company aims to double MacKay River’s output by 2010. Buy. LOBLAW COMPANIES LTD. $51 will probably earn $3.23 a share in 2006, down 4% from 2005, as it continues to iron out problems with its new distribution network. The new system should cut Loblaw’s long-term costs and help it compete with Wal-Mart. But the stock will likely move sideways until earnings improve. Hold....
CANADA BREAD COMPANY, LTD. $61 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; SI Rating: Above average) is a leading supplier of fresh and frozen baked goods to supermarkets and restaurants. It also makes pastas and sauces. Its main brands include “Dempster’s”, “Tenderflake” and “Olivieri”. Canada Bread’s revenue rose from $678 million in 2001 to $1.35 billion in 2005, mainly due to its $262.3 million acquisition of the U.S. and UK bakery operations of Maple Leaf Foods Inc. (see below). Maple Leaf now owns 87.5% of Canada Bread. Earnings before restructuring costs jumped from $0.97 a share (total $36 million) in 2001 to $1.80 a share ($64 million) in 2002. Income fell to $1.61 a share ($63 million) in 2003, but grew to $2.62 a share ($99 million) in 2004, and to $3.07 a share ($111 million) in 2005....
MAPLE LEAF FOODS INC. $13 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; SI Rating: Average) is one of Canada’s largest food processing companies. It makes fresh and frozen meat products under the “Maple Leaf” and “Schneiders” brand names. It also supplies animal feeds and other agricultural services to farmers, and owns 87.5% of Canada Bread. The company’s revenue rose from $4.8 billion in 2001 to $5.1 billion in 2002, but slipped to $5.0 billion in 2003. In 2004, Maple Leaf paid $499 million for rival meat processing company Schneider Corp. Consequently, revenue grew to $6.4 billion in 2004, and to $6.5 billion in 2005. Income rose from $0.55 a share (total $57.4 million) in 2001 to $0.71 a share ($84.7 million) in 2002. Restructuring costs cut Maple Leaf’s profit in 2003 to $0.27 a share ($35.1 million), but income improved to $0.89 a share ($102.3 million) in 2004....
Many investors see the food industry as stable and slow-moving. However, food is in the news every day. Consumers worry about the risk of common foods from transfats and other ingredients. New scientific studies link health with the presence of vitamins, minerals and other food components. Obesity is a growing concern as it becomes more common and its risk becomes better understood. This volatile situation creates opportunities for well-managed food producers like these three. All are improving their market share with new products, and cutting costs. They are also enhancing their longterm potential with new projects outside of Canada. CANADA BREAD COMPANY, LTD. $61 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; SI Rating: Above average) is a leading supplier of fresh and frozen baked goods to supermarkets and restaurants. It also makes pastas and sauces. Its main brands include “Dempster’s”, “Tenderflake” and “Olivieri”....
MAPLE LEAF FOODS INC. $14 (Toronto symbol MFI; Conservative Growth Portfolio, Consumer sector; SI Rating: Average) has teamed up with a genetic testing firm, Clinical Data, Inc., to develop a way to track hogs using DNA markers. That should make it easier for inspectors to trace unhealthy animals back to the farm they came from. Demand for this system should be strong in light of growing concern over mad cow and other diseases, and Maple Leaf aims to someday licence it to other pork processors. If successful, the two companies aim to adapt the system for other animals and agricultural products. Maple Leaf Foods is a buy.