Maple Leaf Foods plans to charge higher prices for its products in 2006 as it comes off a terrible ending to 2005, said chief executive officer Michael McCain at a news conference.
But a world heap of meat will make the first six months of 2006 a tough time for the company.
“The protein oversupply that is forecast for the first half of 2006 will continue to challenge both the primary pork and the poultry markets,” said McCain.
The company stunned the market with lower results than analysts expected, driving its share price down 18 percent the day the results were released.
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Its earnings per share fell to 81 cents in 2005 from 90 cents in 2004. Most of the poor performance came from the fourth quarter, when earnings per share fell to 14 cents from 2004’s 28 cents.
The company’s pork and overall meat operations were responsible for most of the decline. McCain blamed a triumvirate of problems and unusual items for the drop in profit.
Energy costs surged over the year, but especially in the fourth quarter. The value of sales to Japan slumped as the Japanese currency plunged in value by 16 percent in the second half of 2005. That hurt Maple Leaf because it has emphasized sales to the lucrative Japanese market.
“We have a business that is very heavily biased towards the Japanese market,” said McCain.
The company also spent a lot on advertising in the United Kingdom, where it has been promoting a line of bagels.
The company’s hog barns continue to struggle.
“We had and continue to have unsatisfactory performance issues in our hog production operations,” said McCain.
High feed costs, high operating costs and the currency exchange rate with the U.S. all hurt hog production earnings.
Maple Leaf produces about 20 percent of the pigs it slaughters.
The weakness in meat prices that McCain expects comes from healthy North American production and poor overseas demand. In Europe, many consumers have backed away from chicken because of the spread of avian influenza, and this has caused U.S. poultry meat supplies to build, undermining the price of competitive meats.
Maple Leaf expects to begin construction of its announced Saskatoon slaughter plant this year. McCain said that project is progressing well. The company’s ability to boost production in Brandon will not be undermined by the new slaughter facilities in Saskatoon or the announced OlyWest plant in Winnipeg, McCain said.
The Saskatoon plant will mostly replace existing, aged capacity, while Manitoba still exports millions of pigs per year that could offer enough supply to support several plants in the province.
The company will not say when it plans to add a second shift to its Brandon plant, a move that has been expected for years.
McCain said he didn’t like ending the fiscal year with a whimper after experiencing three good quarters.
“It’s certainly disappointing to have to experience that at the end of the year, but that was our reality,” said McCain.
“We recognize that they are largely short term, very manageable impacts and we have plans in place against each. We’re not quarter to quarter managers. We’re long-term fundamental operators, and the fundamentals in our business continue to be strong.”
