Toronto, Ontario – Maple Leaf Foods Inc. (TSE:MFI) today reported its financial results for the second quarter ended June 30, 2003.
Sales for the second quarter of $ 1.3 billion were consistent with the same period last year, while earnings from operations of $22.8 million decreased from $51.3 million last year. Profitability declined in the second quarter primarily as a result of a continued oversupply of protein in North America and a weaker Japanese pork market. Costs relate to the restructuring of a meat processing plant in Atlantic Canada and a labour dispute at a fresh bakery distribution centre in Quebec also affected profitability. Strong performance in fresh bakery and value-added and branded meats partially offset these earnings impacts.

Net earnings for the second quarter of $1.8 million ($0.01 per share) decreased from $22.6 million ($0.19 per share) in 2002. Earnings for the first six months were $7.8 million or $0.05 per share compared to $39.5 million or $0.33 per share last year.

“Make no mistake about it, we are clearly disappointed with our second quarter financial results,” said Michael H. McCain, President and Chief Executive Officer. “We have endured a prolonged oversupply of meat proteins in the North American market, and Japan has been a much less lucrative place to sell our fresh pork products this quarter. That said, we have had a few operating challenges internally as well, which we are dealing with proactively. On a more positive note, we continued to post strong growth in value-added bakery and branded fresh and processed meat sales. In the face of a bad financial quarter, we are as committed as ever to our core strategies, and we are managing through the final stages of this difficult market. We are intent on growing our value-added sales, accelerating new product innovation, increasing our effective ownership of the hogs we process, and building organizational strength – all the right steps to realize long-term shareholder value.”

Other income for the second quarter of $0.3 million compared to $3.9 million last year, due to lower earnings from the sale of excess real estate. Interest expense for the quarter of $16.7 million increased from $15.0 million for the prior year, due to higher borrowing costs as a result of a long-term debt financing completed in December 2002, and higher debt levels. Cash flow from operating activities for the second quarter of $16.7 million compared to $78.9 million last year, due to increased investment in working capital and lower earnings. Capital expenditures of $37.3 million compared to $25.3 million last year.

While the effect of the increase in the value of the Canadian dollar in the second quarter was marginally negative, it did not have a material impact on the Company’s financial results.

On May 5, 2003, the Company purchased 1,165,300 common shares of Canada Bread on the market for $25.00 per share and on June 12, 2003, purchased a further 819,400 common shares for $26.50 pursuant to a private agreement. These share purchases increased Maple Leaf Foods’ ownership of Canada Bread to 81.1% from 73.3%.

During the quarter, the Company also purchased for cancellation 64,400 common shares of Maple Leaf Foods pursuant to a normal course issuer bid, at an average price of $9.77 per share.


Meat Products Group (branded value-added prepared meat products; fresh, frozen and branded value-added pork products; fresh, frozen and branded value-added chicken and turkey products; and global food marketing, distribution and trading)
Meat Product Group sales for the second quarter declined to $718.7 million from $751.1 million last year, primarily due to lower prices in the domestic and export markets for pork. Year-to-date sales were $1.4 billion compared to $1.5 billion last year. Losses from operations of $8.5 million, which included a $ 3.5 million pre-tax ($2.3 million after-tax) gain related to the wind-up of a defined benefit pension plan for hourly employees, compared to operating earnings of $14.7 million last year. Losses for the first six months were $2.2 million, including a $8.2 million pre-tax ($5.3 million after tax) pension gain compared to operating earnings of $27.1 million last year.

Maple Leaf Pork increased the volume of hogs processed by 4% quarter-over quarter, however, dollar sales value declined as a result of lower fresh meat prices due to the continued oversupply of protein in the market. The spread between USDA average hog prices and wholesale pork prices declined 24% quarter-over-quarter, largely due to a rapid rise in live hog prices in the second quarter. While markets are difficult to predict, the industry outlook is for improved wholesale pork prices in the back half of 2003. The Company’s Canadian retail pork sales realized strong gains in the quarter, as did sales of Maple Leaf Medallion Naturally, supported by additional listings and market expansion across Western Canada.

Earnings in the second quarter continued to be adversely affected by ongoing restructuring at a meat processing operation in Atlantic Canada, with earnings in this business declining by $4.6 million in the quarter. Management expects these impacts to be short term. The Company’s poultry earnings improved as reduced supply in the Canadian poultry industry strengthened pricing for processed chicken. This improvement was also driven by growth in Maple Leaf Prime Naturally chicken sales, which have outpaced overall poultry market growth in Canada. Maple Leaf Consumer Foods also achieved solid results across its retail and food service processed meat operations in the quarter, supported by continued strong growth in its core categories as well as the launch of several new branded products. Profits from Maple Leaf International were negatively affected in the quarter due to weaker markets for imported pork products in Japan. The outlook is for pricing and pork import markets in Japan to strengthen in the back half of 2003.

Agribusiness Group (research, development and supply of quality livestock nutrition products and services; pet food; swine production; and animal by-products recycling)

Agribusiness Group sales for the second quarter were $231.2 million compared to $241.2 million last year, while year-to-date sales were $454.2 million compared to $461.9 million last year. Operating earnings in the second quarter of $17.5 million were consistent with last year, while earnings for the first six months were $31.2 million compared to $34.8 million for the same period last year. Sales for the second quarter declined largely as a result of an asset divestiture in the fourth quarter of 2002, and a seasonal slowdown in aquaculture feed sales due to cold-water conditions in Atlantic Canada. Earnings from the Company’s hog production operations improved as a result of higher hog prices. The Company has significantly increased its economic ownership of hogs in the first six months of 2003 and is on track to achieve its near-term goal of 30%. The Company’s feed and rendering operations were marginally affected by the recent Canadian BSE issue, which impacted domestic markets for cattle feed and exports of feed to the U.S., and resulted in declining volumes and markets for recycled animal by-products.

Bakery Products Group (comprised of Maple Leaf’s 81.1% ownership in Canada Bread Company, Ltd., a leading producer of fresh and frozen par-baked bakery products, and fresh pasta and sauces)

Bakery Products Group sales for the second quarter increased 9 % to $314.1 million compared to $287.3 million for the same period last year, while year-to-date sales were $621.6 million compared to $552.4 million last year. The increase in sales was due to contributions from recent acquisitions and volume and sales increases in both fresh and frozen par-baked operations. Operating earnings in the Bakery Products Group of $13.8 million compared to $19.2 million last year, while earnings for the first six months were $27.1 million (not including a $7.4 million pre-tax unusual earnings charge in the first quarter) compared to $31.2 million last year. The decline in second quarter operating earnings was primarily due to a labour dispute at one of the Company’s distribution centres in Quebec, and costs associated with integrating the Company’s fresh bakery operations in Atlantic Canada. In the U.S., rising input costs had some margin impact, as not all cost increases could be passed on through price increases.

The Company declared a dividend of $0.04 per share payable on September 30, 2003 to shareholders of record on September 12, 2003.

Maple Leaf Foods Inc. is a leading Canadian food processing company committed to delivering quality food products to consumers around the world. Headquartered in Toronto, Canada, the Company employs approximately 18,000 people at its operations across Canada, and in the United States, Europe and Asia. The Company reported sales of $5.1 billion in 2002.

A conference call will be held at 3:00 p.m. (Toronto time) on July 23, 2003 to review Maple Leaf Foods’ financial results for the second quarter ended June 30, 2003. To participate in the call, please dial in to 1-800-298-3006. For those unable to participate playback will be made available an hour after the event at 1-800-558-5253 passcode 21153798. An Investor Presentation related to the Company’s second quarter financial results will be available at www.mapleleaf.com (click on Investor Zone and then Investor Communications) after release of the second quarter financial results.

This release contains forward-looking statements and information, which may include statements concerning the company's outlook for the future, as well as other statements of beliefs, future plans and strategies or anticipated events, and similar expressions concerning matters that are not historical facts. The forward-looking information and statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in, or implied by, the statements. These risks and uncertainties include availability and prices of livestock, raw materials and supplies, livestock costs, product pricing, the competitive environment and related market conditions, operating efficiencies, access to capital, the cost of compliance with environmental and health standards, adverse results from ongoing litigation and actions of domestic and foreign governments. Maple Leaf assumes no obligation to publicly update or revise these forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein do not materialize. Refer to the Company’s annual report, management information circular, annual information form and other filings with the Ontario Securities Commission and Toronto Stock Exchange for further information on risks and uncertainties that could cause actual results to differ materially from forward-looking statements.