Fletcher’s Fine Foods continues to dramatically boost its production and sales.
But its first-quarter results reveal the critical structural flaw that has crippled the company’s performance. Fletcher’s makes money on processed foods but loses on hog slaughter.
Fletcher’s total sales grew by almost 16 percent, while its net earnings per share dropped by 25 percent to 15 cents in the first three months of 2000.
Its $1.6 million increase in processed foods profits was wiped out by a more than $5 million drop in fresh pork profits. The company lost $274,000 on fresh pork sales and made $11.6 million on processed foods.
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The losses in fresh pork profits occurred even as the company increased fresh pork sales by more than 16 percent.
Fletcher’s blames its fresh pork numbers on its inability to run enough hogs through its Red Deer slaughter plant, plus rising hog prices. The company has been trying to get enough hogs to run a full capacity single shift, which would take 8,000 hogs per week.
It is well short of that mark now. Eventually it wants to run a double shift, which will demand 16,000 hogs per week.
Fletcher’s situation is due in large part to competition from western Manitoba, where Maple Leaf Foods is aggressively taking pigs from as far away as the Peace River country of northern Alberta and British Columbia.
Fletcher’s hopes that its long-term supply contracts with Quadra Management, Saskatchewan Wheat Pool’s Heartland network, and other producers such as Peace Pork will eventually fill the pig void. It says its alliances with these producers are already mitigating the damage caused by high pig prices.
“The same conditions that resulted in the fresh pork division’s poor margins enabled Peace Pork to generate substantial earnings for the quarter,” said George Paleologou, Fletcher’s chief financial officer. Fletcher’s owns 40 percent of Peace Pork.
Fletcher’s also continues to expand its processing operations, an area it says is key to future profitability.
Unlike Schneider Corporation and Maple Leaf, Fletcher’s main rivals in Canada, the company is heavily reliant on hog slaughter for both its sales and profits.
The other companies are more diversified and have not been as affected by the spike in hog prices and shortage of animals.
Fletcher’s is taking a recently purchased, truck-based, home distribution network onto the internet, so customers will be able to place orders through e-mail.
To finance this move the company is raising $12.5 million in equity through its McSweeney’s subsidiary.
Fletcher’s recently assigned three of its board of directors and hired an investment bank to look for ways to maximize shareholder value in the company — a move that University of Guelph analyst Kevin Grier likens to hanging a for sale sign on the company.
Fletcher’s also recently delisted from the Nasdaq stock exchange in New York, saying it raises almost all of its money in Canada.
Fletcher’s closed April 28 on the Toronto Stock Exchange at $20.50 per share. Its 52 week high was $28.25. Its 52 week low was $17.50.
Maple Leaf Foods closed April 28 at $11.05. Its 52 week high was $16. Its 52 week low was $10.
Schneider Corporation closed April 28 at $18.50. Its 52 week high was $23. Its 52 week low was $18.
