Maple Leaf Foods Reports Fourth Quarter and Full Year 2023 Financial Results

Delivers on its commitment to turn around its Plant Protein business

Maple Leaf records consolidated year over year sales and Adjusted EBITDA growth in 2023

TSX: MFI
www.mapleleaffoods.com

MISSISSAUGA, ON, Feb. 22, 2024 /CNW/ – Maple Leaf Foods Inc. (“Maple Leaf Foods” or “the Company”) (TSX:MFI) today reported its financial results for the fourth quarter and full year ended December 31, 2023.

“In 2023 we made great progress in advancing our strategic Blueprint, delivering top-line growth of 2.7%, recording an increase of $155 million in Adjusted EBITDA to $428 million for the year, and meeting our commitment to achieve Adjusted EBITDA neutral or better in our Plant Protein business as we exited the year,” said Curtis Frank, President and Chief Executive Officer of Maple Leaf Foods. “While these are important achievements, and we are pleased with our relative performance in challenging market conditions, we acknowledge that we still have work to do to realize our full potential.”

“In the fourth quarter, our Meat Protein results fell below our expectations, as a result of global pork market dislocations that have persisted longer and deeper than we anticipated, and a challenging consumer demand environment, plus we still have a short distance to go to bring home the full benefits from our London Poultry and Bacon Centre of Excellence projects,” continued Frank. “With our refreshed strategic Blueprint announced today, we are sharpening our execution focus, bringing together our Meat Protein and Plant Protein businesses to build a powerful platform from which to grow in the U.S. market, and aligning the talents of our team to leverage the strength of our portfolio of leading brands, leadership in sustainability and world-class assets.”

Fourth Quarter 2023 Highlights

Total Company sales growth of 0.6% to $1,192.7 million, with an Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”)(i) margin of 10.1%.
Meat Protein Group sales grew to $1,159.0 million, an increase of 0.8% year over year. Adjusted EBITDA was $122.0 million, Adjusted EBITDA margin was 10.5%, an improvement of 390 basis points from the fourth quarter of 2022.
London Poultry plant and Bacon Centre of Excellence delivered approximately $25 million incremental Adjusted EBITDA.
Plant Protein Group sales were $36.5 million. Plant Protein Group Adjusted EBITDA improved by $20.5 million year over year to a gain of $0.1 million, achieving the Company’s Adjusted EBITDA target of neutral or better in the latter half of 2023.
Capital expenditures were $40.8 million.

2023 Highlights

Total Company sales grew by 2.7% to $4,867.9 million, with an Adjusted EBITDA margin of 8.8%.
Meat Protein Group sales grew to $4,736.2 million, an increase of 3.1%. Adjusted EBITDA was $463.0 million and Adjusted EBITDA Margin was 9.8%.
Plant Protein Group Sales were $147.0 million. Plant Protein Group Adjusted EBITDA improved by 68.8% to a loss of $32.9 million.
Capital expenditures of $196.6 million.
The Company had Net Debt(i) of $1,747.5 million and undrawn committed credit of $447.2 million as at year end, and is focused on deleveraging the Balance Sheet.

Financial Highlights

Fourth Quarter 2023

Sales for the fourth quarter increased 0.6% to $1,192.7 million compared to $1,185.5 million last year. Sales growth in the Meat Protein Group was partly offset by an 8.9% sales decline in the Plant Protein Group. For more details on sales performance by operating segment, please refer to the Operating Review.

Net loss for the fourth quarter of 2023 was $9.3 million ($0.08 loss per basic share) compared to net loss of $41.5 million ($0.34 loss per basic share) last year. The improvement in performance for the quarter was driven by pricing to mitigate inflation, stronger pork markets, benefits from strategic construction projects, and the non-repeated estimated impact of $23 million from the cybersecurity incident in 2022 combined with achieving the goal of Adjusted EBITDA neutral performance in the Plant Protein segment. This was partially offset by higher input costs and increased interest expense. Net loss for the fourth quarter of 2023 also included start-up expenses of $29.7 million (2022: $25.8 million) associated with Construction Capital projects, and lower gains on biological assets mark to market adjustments, both of which are excluded from the calculation of Adjusted Operating Earnings.  

Adjusted Operating Earnings for the fourth quarter of 2023 were $57.5 million compared to $1.8 million last year, consistent with the factors noted above.

Adjusted EBITDA Margin for the fourth quarter increased to 10.1% from 4.7% last year, consistent with the factors noted above.

Adjusted Earnings Before Taxes (“Adjusted EBT”) for the fourth quarter of 2023 were $16.4 million compared to a loss of $21.7 million last year, consistent with the factors noted above.

Basic Earnings per Share was a loss of $0.08 for the fourth quarter of 2023 compared to a loss of $0.34 last year, consistent with the factors described above. 

Adjusted Earnings per Share in the fourth quarter of 2023 was $0.08 compared to a loss of $0.28 last year.

Full Year 2023

Sales for 2023 were $4,867.9 million compared to $4,739.1 million last year, an increase of 2.7%. Sales growth in the Meat Protein Group was partly offset by a decline in the Plant Protein Group. For more details on sales performance by operating segment, please refer to the Operating Review.

Net loss for 2023 was $125.0 million ($1.03 loss per basic share) compared to a net loss of $311.9 million ($2.52 loss per basic share) last year. In the Meat Protein Group stronger commercial performance more than offset market headwinds and inflation. In the Plant Protein Group improved operational performance more than offset lower volumes. In the prior year, the Plant Protein Group also included a $190.9 million one-time impairment charge. Interest expense increased by $94.8 million, reflecting the net debt levels associated with Construction Capital projects and increases in borrowing rates. Net loss for the year also included start-up expenses of $122.3 million (2022: $59.3 million) associated with Construction Capital projects, as well as net losses from non-cash fair value changes in biological assets and derivative contracts of $24.6 million (2022: $14.0 million), all of which are excluded in the calculation of Adjusted Operating Earnings.

Adjusted Operating Earnings for 2023 were $193.2 million compared to $65.7 million last year, and Adjusted Earnings per Share for 2023 was $0.09 compared to loss of $0.26 last year.

Adjusted Earnings Before Taxes (“Adjusted EBT”) for 2023 were $34.2 million compared to $4.4 million last year due to similar factors as noted above.

For further discussion on key metrics and a discussion of results by operating segment, refer to the section titled Operating Review.

Operating Review

During the year ended December 31, 2023, the Company had two reportable segments. These segments offer different products, with separate organizational structures, brands, and financial and marketing strategies. The Company’s Chief Operating Decision Makers regularly review internal reports for these businesses. Performance of the Meat Protein Group is based on profitable revenue growth, Adjusted Operating Earnings, Adjusted EBITDA, while the performance of the Plant Protein Group in the short term is focused on obtaining Adjusted EBITDA neutral results.  

Fourth Quarter 2023

The following table summarizes the Company’s sales, gross profit, SG&A expenses, Adjusted Operating Earnings, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBT by operating segment for the fourth quarters ended December 31, 2023 and December 31, 2022:

Meat Protein Group

The Meat Protein Group is comprised of prepared meats, ready-to-cook and ready-to-serve meals, snack kits, value-added fresh pork and poultry products that are sold to retail, foodservice and industrial channels, and agricultural operations in pork and poultry. The Meat Protein Group includes leading brands such as Maple Leaf®, Maple Leaf Prime®, Maple Leaf Natural Selections®, Schneiders®, Schneiders® Country Naturals®, Mina®, Greenfield Natural Meat Co.®, and other leading regional brands.

Sales for the fourth quarter increased 0.8% to $1,159.0 million compared to $1,149.6 million last year. Sales growth was driven by volume growth, pricing action implemented in prior quarters to mitigate the impact of inflation, and favourable mix shift. Prior year sales volumes were also impacted by the cybersecurity incident.

Gross profit for the fourth quarter of 2023 was $124.0 million (gross margin of 10.7%) compared to $82.2 million (gross margin of 7.2%) last year. Gross profit was positively impacted by pricing action to catch up to inflation, improved pork market conditions, and benefits from strategic capital, partially offset by cost inflation, unfavourable product mix, and start up expenses. Prior year results were impacted by the cybersecurity incident. Gross profit for the fourth quarter of 2023 included start-up expenses of $29.7 million (2022: $25.8 million) associated with Construction Capital projects which are excluded from the calculation of Adjusted Operating Earnings.

SG&A expenses for the fourth quarter of 2023 were $91.3 million an increase from $80.0 million last year. The increase was due to inflationary pressures on base compensation as well as higher advertising and promotional spend.

Adjusted Operating Earnings for the fourth quarter of 2023 were $62.3 million compared to $28.0 million last year, driven by the factors noted above.

Adjusted EBITDA Margin for the fourth quarter was 10.5% compared to 6.6% last year, consistent with the factors noted above as well as benefits from London poultry plant and Bacon Centre of Excellence.

Adjusted EBT for the fourth quarter of 2023 were $23.2 million compared to $6.7 million last year, driven by factors consistent with those noted above, as well as a $20.3 million increase in interest expense as a result of increased interest rates and higher debt, and increased depreciation expense all related to continued capital investment.

Plant Protein Group

The Plant Protein Group is comprised of refrigerated plant protein products, premium grain-based protein, and vegan cheese products sold to retail, foodservice and industrial channels. The Plant Protein Group includes the leading brands Lightlife® and Field Roast™.

Sales for the fourth quarter were $36.5 million compared to $40.0 million last year, representing a decline of 8.9%, or 9.1% excluding the impact of foreign exchange. Sales decline was driven by lower retail volumes, partially offset by pricing action implemented in prior quarters to mitigate inflation.

Gross profit for the fourth quarter of 2023 was $5.1 million (gross margin of 13.9%) compared to a loss of $10.3 million (gross margin loss of 25.8%) last year. The improvement in gross profit was driven by operational improvements, higher pricing, partially offset by lower volumes.

SG&A expenses for the fourth quarter of 2023 were $9.9 million (27.2% of sales), compared to $15.8 million (39.5% of sales) last year. The decrease in SG&A expenses was primarily attributable to lower advertising and promotional expenses and lower people costs as a result of restructuring in prior quarters.

Adjusted Operating Earnings for the fourth quarter of 2023 were a loss of $4.8 million compared to a loss of $26.2 million last year. The improvement in Adjusted Operating Earnings is consistent with the factors noted above.

Adjusted EBITDA for the fourth quarter of 2023 was $0.1 million compared to a loss of $20.4 million last year, consistent with the factors noted above.

Full Year 2023

The following table summarizes the Company’s sales, gross profit, SG&A expenses, Adjusted Operating Earnings, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBT by operating segment for the years ended December 31, 2023 and December 31, 2022.

Meat Protein Group

Sales for 2023 increased 3.1% to $4,736.2 million compared to $4,593.6 million last year. Sales growth was driven by pricing actions implemented to reflect higher input costs, favourable sales mix and foreign exchange. These positive factors were partially offset by commodity market headwinds and lower sales volumes.

Gross profit for 2023 was largely flat year over year at $478.2 million (gross margin of 10.1%) compared to $474.7 million (gross margin of 10.3%) last year as pricing actions were offset largely by higher input costs, market headwinds and start up expenses. Gross profit for 2023 included start-up expenses of$122.3 million (2022: $54.5 million) associated with Construction Capital projects, which are excluded in the calculation of Adjusted Operating Earnings.

SG&A expenses for 2023 were $355.4 million compared to $338.9 million last year. The increase in SG&A expenses was driven by inflationary pressures on base compensation and discretionary spending, partially offset by lower variable compensation.

Adjusted Operating Earnings for 2023 were $245.2 million compared to $190.3 million last year, driven by factors noted above.

Adjusted EBITDA for 2023 were $463.0 million compared to $378.7 million last year, driven by factors consistent with those noted above, in addition to increased depreciation expenses added back as a result of significant capital expansion largely in London. Adjusted EBITDA Margin for 2023 was 9.8% compared to 8.2% last year, also driven by factors consistent with those noted above.

Adjusted EBT for 2023 were $89.5 million compared to $139.0 million last year, driven by factors consistent with those noted above, as well as a $104.3 million increase in interest expense as a result of increased interest rates and higher debt related to continued capital investment.

Plant Protein Group

Sales for 2023 were $147.0 million compared to $169.3 million last year, representing a decrease of 13.2%, or 16.3% after excluding the impact of foreign exchange. The sales decline was driven by lower volumes in retail and foodservice products, partially offset by pricing action implemented in prior quarters to mitigate inflation.

Gross profit for 2023 was a loss of $2.2 million (gross margin loss of 1.5%) compared to a gross loss of $36.5 million (gross margin loss of 21.6%) last year. The improvement in gross profit was driven by operational improvements, higher pricing to offset inflation, and reduction in start-up expenses, partially offset by lower volumes. Gross profit for 2023 included start-up expenses of nil (2022: $4.8 million) associated with Construction Capital projects which are excluded in the calculation of Adjusted Operating Earnings. 

SG&A expenses for 2023 were $49.7 million (33.8% of sales) compared to $92.8 million (54.8% of sales) last year. The decrease in SG&A expenses was driven by lower advertising and promotional expense, lower people costs and lower consulting costs.

Adjusted Operating Earnings for 2023 were a loss of $51.9 million compared to a loss of $124.5 million last year. This improvement is consistent with the factors noted above.

Adjusted EBITDA for 2023 was a loss of $32.9 million compared to a loss of $105.4 million last year. This improvement is consistent with the factors noted above.

Other Matters

On February 21, 2024, the Board of Directors approved a quarterly dividend of $0.22 per share (an increase of $0.01 per share from the 2023 fourth quarter dividends), $0.88 per share on an annual basis, payable March 28, 2024 to shareholders of record at the close of business March 8, 2024. Unless indicated otherwise by the Company at or before the time the dividend is paid, the dividend will be considered an eligible dividend for the purposes of the “Enhanced Dividend Tax Credit System”. The Board of Directors has also approved the issuance of common shares from treasury at a two percent discount under the Company’s Dividend Reinvestment Plan (“DRIP”). Under the DRIP, investors holding the Company’s common shares can receive common shares instead of cash dividend payments. Further details, including how to enroll in the program are available at https://www.mapleleaffoods.com/investors/stock-information.com. 

Conference Call

A conference call will be held at 8:00 a.m. ET on February 22, 2024, to review Maple Leaf Foods’ fourth quarter financial results. To participate in the call, please dial 416-764-8650 or 1-888-664-6383. For those unable to participate, playback will be made available an hour after the event at 416-764-8677 or 1-888-390-0541 (Passcode: 225124 #).

A webcast of the fourth quarter conference call will also be available at: https://www.mapleleaffoods.com.

The Company’s full consolidated financial statements (“Consolidated Financial Statements”) and related Management’s Discussion and Analysis are available on the Company’s website.

An investor presentation related to the Company’s fourth quarter financial results is available at www.mapleleaffoods.com and can be found under Presentations and Webcasts on the Investors page.

Outlook

Maple Leaf Foods is a leading consumer protein company built on a powerful portfolio of brands, with a leading voice in sustainability and food security. The Company’s strategic blueprint defines how it will advance its vision to be the most sustainable protein company on Earth while delivering on its commercial and financial objectives.

The Company recognizes that macro-economic challenges and global conflict continue to define the post-pandemic environment. This is resulting in higher interest rates, inflation, supply chain tensions, and pressures on agricultural, commodity and foreign exchange markets. As a result, consumers and business alike are adapting their behaviours which contributes to shifts in demand and product mix. The Company leverages its data-driven insights to stay close to these dynamics, and it is confident in the resilience of its brands, business model and strategy to manage through these transitory conditions.

In the near term, the Company is realigning its organizational structure to align with the refresh of its strategic blueprint by bringing together its Meat and Plant Protein businesses. This shift supports a clear and consistent focus on driving profitable growth in Canada, the U.S. and internationally across its entire protein and prepared foods portfolio.

For the full year 2024, the Company expects:

Low-to mid-single digit revenue growth
Adjusted EBITDA margin expansion from 2023, supported by the benefits of:

The profitable growth of its leading portfolio of Meat and Plant Protein brands
Returns from investments in the London Poultry Plant and the Bacon Centre of Excellence
Leadership in Sustainable Meats
Driving operational and cost efficiency
Profitable growth in the Plant Protein category, having achieved the target of Adjusted EBITDA neutral exiting 2023

To achieve its Meat Protein target of 14% to 16% Adjusted EBITDA Margin when markets normalize
To generate strong free cash flow and delever its balance sheet by:

Improving profitability
Generating the targeted returns on its capital investments at the London Poultry Plant and the Bacon Centre of Excellence, including reducing start-up expenses, maximizing efficiencies and onboarding new customers
Exercising disciplined capital management, with total capital expenditures this year expected to be in a more typical range of $170 – $190 million largely focused on maintenance capital and optimization of its existing network

Maple Leaf Foods will also continue to advance its ambitious sustainability agenda, including leading the real food movement, advancing its animal care initiatives, seeking solutions to address food insecurity, accelerating its efforts to reduce its environmental footprint and continuing to deliver safe food made in a safe work environment.

Non-IFRS Financial Measures

The Company uses the following non-IFRS measures: Adjusted Operating Earnings, Adjusted Earnings per Share, Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted EBT, Construction Capital, Net Debt, Free Cash Flow and Return on Net Assets. Management believes that these non-IFRS measures provide useful information to investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. 

Adjusted Operating Earnings, Adjusted EBITDA, Adjusted EBITDA Margin and Adjusted EBT  

Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBITDA Margin are non-IFRS measures used by Management to evaluate financial operating results. Adjusted Operating Earnings is defined as earnings before income taxes adjusted for items that are not considered representative of ongoing operational activities of the business and certain items where the economic impact of the transactions will be reflected in earnings in future periods when the underlying asset is sold or transferred. Adjusted EBITDA is defined as Adjusted Operating Earnings plus depreciation and intangible asset amortization, adjusted for items included in other expense that are considered representative of ongoing operational activities of the business. Adjusted EBITDA Margin is calculated as Adjusted EBITDA divided by sales. Adjusted EBT is used annually by the Company to evaluate its performance and is a component of calculating bonus entitlements under the Company’s short term incentive plan. It is defined as Adjusted EBITDA, less depreciation and amortization, and interest expense. Interest expense is allocated to the operating segments for this metric on a legal entity basis.

The tables below provide a reconciliation of earnings (loss) before income taxes as reported under IFRS in the Consolidated Financial Statements to Adjusted Operating Earnings, Adjusted EBITDA and Adjusted EBT for the three and twelve months ended December 31, as indicated below. Management believes that these non-IFRS measures are useful in assessing the performance of the Company’s ongoing operations and its ability to generate cash flows to fund its cash requirements, including the Company’s capital investment program.   

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