Last year left a bad smell in the books of Maple Leaf Foods, but the company hopes improvements at the end of the year can lead to a more pleasing 2004.
The company blames its 2003 problems on too much meat in the market and the Canadian currency’s sudden surge.
“The single largest factor contributing to the earnings decline was an oversupply of protein in North America and global markets that persisted throughout the year, abating somewhat towards the end of the year,” said the company in a News release
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“The sharp rise in the Canadian dollar negatively affected the company’s profitability in 2003, as the Canadian dollar appreciated by 17 percent beginning early in the year.”
Pork sales and pig production, in which Maple Leaf has heavily invested in recent years, were particularly bad areas for the company in 2003.
Earnings from meat sales collapsed to $3.2 million in 2003, a 95 percent drop from the $58.2 million made in 2002.
Earnings from livestock production and input sales increased to $81.6 million in 2003 from $66.8 million in 2002. But this increase was due to operations other than swine. Overall the agribusiness division sales fell to $918.8 million in 2003 from $943.9 million the year before, even though sales volumes increased. Lower commodity prices held down revenues.
Maple Leaf Foods said it is protecting itself against more sudden currency shifts by pushing some of the costs onto farmers in its swine production network.
“Maple Leaf has taken steps to adjust its hog production system to the higher Canadian dollar by reflecting currency effects in existing contracts, realigning contracts when they come due, working with producer partners to reduce costs, continuing to improve hog production performance and differentiating Canadian pork through initiatives such as DNA traceability,” said the News release
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Although the company’s fourth quarter results show a marked upturn from the first three quarters of 2003, it was also in the fourth quarter that the currency appreciation hit home. The company estimates the Canadian dollar’s increase cost it $25 million in 2003, “the majority of which was in the fourth quarter.”But overall, the fourth quarter showed a large recovery from the slump of the rest of the year.
Profits on meat sales jumped by 28 percent and agribusiness division profits rose by 62 percent.
“We are pleased with the improvement in the fourth quarter financial results which reflect, in part, the strengthening underlying protein markets, and we are confident about the year ahead,” said Michael McCain, president and chief executive officer of Maple Leaf Foods.
