Sales jump but profits slump at Maple Leaf Foods in Q1

Pandemic absenteeism, weather, new facilities and acute inflation were cited as challenges that offset promising performance.
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Maple Leaf Foods is reporting a big Q1 profit slump, earning $13.7 million for the quarter ended March 31, compared with a profit of $47.7 million a year earlier.

But the company is seeing signs that give it reason to be optimistic.

Sales totaled $1.13 billion, up from $1.05 billion in the same quarter last year. The increase came as sales in its meat protein group , whichrose to $1.09 billion for the quarter compared with $1.01 billion a year earlier, while sales for its plant protein business climbed slightly to $44.9 million from $42.6 million.

In Wednesday’s earnings call, president and CEO Michael McCain recalled what he said in the last quarter, that Q1 2022 “would be rough.” It’s a brand focused CPG company and needs to “up its game in demonstrating this,” McCain added.

The company says that its rise in sales was eaten away by the impact of the Omicron variant, including high levels of absenteeism – often as high as 30% – inflation, supply chain disruptions and even bad Manitoba weather. The company also had increased start-up costs related to the construction of new facilities.

It’s dramatically taking steps to increase hiring capacity in a tough environment. The supply chain has normalized, McCain says, but it has to assume higher inventory levels for some ingredients.

According to McCain, however, he’s buoyed by meat protein revenues growing 7.5% compared with same quarter year ago.

Curtis Frank, president and chief operating officer at Maple Leaf Foods, says its plant business posted year-over-year growth of 5.2%, mostly on the back of food service. It launched new products in U.S. retail, like Lightlife tempeh cubes, at Whole Foods and other banners. Cantina-style quesos have also been “a tremendous success” in consumer testing, the company says.

It’s really excited about product innovations, Frank says, particularly in the tempeh category.

Frank says that in high inflation environments, it’s not unusual to see trading down to less expensive products. In Q1, however, he says it grew branded sales in prepared meats and fresh poultry. Sustainable meats is high growth and high margin, he says.

Overall, the company expects mid-to-high single-digit sales growth at its meat protein business by the end of the year. It did not offer forecasts for its plant-based business, but said it was targeting “neutral or better” adjusted EBITDA.

The company plans on “right sizing its SG&A” to be less than $50 million U.S. This will be 15% of sales or lower, a normal structural level, he says. The balance of SG&A Frank says, will be invested in brand development and promotional support. The first quarter number was $31 million, and there’s a distinct business seasonality, that needs to be taken into effect.

The company says the team fully working toward this agenda. SG&A will likely be a faster timeline than adjusting the manufacturing footprint.