Release Date: November 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Maple Leaf Foods Inc (MLFNF, Financial) reported a 2% year-over-year increase in Q3 sales, driven by over 3% growth in the CPG prepared meats business.
- Adjusted EBITDA grew by over 9% to $141 million in the quarter, with a year-to-date growth of nearly 30%.
- The company achieved a substantial increase in free cash flow generation, contributing to a significant reduction in net debt.
- Maple Leaf Foods Inc (MLFNF) launched 22 new SKUs in Q3, marking the most items introduced at one time since 2020.
- The company reported double-digit sales growth in the US market for prepared meats, with over 50% sales growth for its sustainable meats brand, Greenfield.
Negative Points
- Higher SG&A expenses year-over-year created a headwind to adjusted EBITDA performance.
- The inflation-stressed consumer environment negatively impacted the premium portfolio, leading to more trade-down and increased investments to protect market share.
- The plant protein category, while showing improvement, still faces challenges in achieving profitability.
- Pork markets, although improving, continue to operate below normal conditions, with a negative market impact of about $14 million in Q3.
- The spin-off of the pork business is delayed due to the need for a tax ruling, pushing the target closing to mid-2025.
Q & A Highlights
Q: Can you walk us through the factors affecting EBITDA year-to-date and expectations for late 2024 into 2025?
A: Curtis Frank, President and CEO, explained that the pro forma Maple Leaf business, excluding the pork business, showed relatively flat margins. Key factors include contributions from capital projects, an uptick in SG&A due to variable compensation, and the impacts of an inflation-stressed consumer environment. Despite these challenges, the company saw 2% growth in Prepared Foods and market share gains across categories.
Q: Are there any product introductions addressing value-seeking consumer behavior?
A: Curtis Frank noted that Maple Leaf Foods has introduced frozen further processed poultry offerings, including ethnic options, to cater to value-seeking consumers. This strategy aims to balance the premium portfolio while adapting to current consumer demands.
Q: Can you quantify the importance of the five levers to achieve the 14% to 16% EBITDA margin target?
A: Curtis Frank stated that while he won't quantify each lever, the 110 basis points improvement in pork market conditions is significant. The combination of all five levers, including consumer environment improvements and capital project benefits, is expected to position the company within the target range.
Q: What actions have been taken to restore profitability in Japan, and what factors are beyond your control?
A: Curtis Frank highlighted that commercial actions have been taken to improve profitability in Japan, with market conditions and currency impacts being out of their control. The company has added customer relationships and improved profitability in Japan, with contingencies in place to mitigate risks.
Q: With the balance sheet leverage down, do priorities change for free cash flow allocation?
A: Dave Smales, CFO, mentioned that with improving free cash flow and leverage ratios, the company has options for capital deployment, including business investments and potential return of capital. The focus remains on network optimization and cost reduction initiatives.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
