TORONTO – Being forced to pay more for bacon and sausages left a bad taste with some consumers in the last quarter, but Maple Leaf Foods is anticipating that the higher prices will not act as a deterrent for much longer.
The Toronto-based meat processor, which also makes hot dogs and deli meats, said a price hike helped the company achieve a nearly 10 per cent increase in sales in the second quarter, topping $831.7 million. But although its total sales were higher, the prices resulted in consumers buying less.
Maple Leaf president and chief executive Michael McCain said it is a trend he expects to eventually abate.
“As expected, a price increase of this magnitude had a short term impact on volumes,” he told an analyst call Thursday following the company’s latest earnings release.
“This volume decline was most dramatic after the first weeks of the price increase, but since then, has been steadily recovering. We’re cautiously optimistic all our volumes will be restored, but patience is required.”
In May, the company raised prices on all its products by an average eight per cent because of an outbreak of the Porcine Epidemic Diarrhea (PED) Virus, which has killed millions of piglets since it was discovered last year.
The virus does not affect humans or the food they consume, but is estimated to have wiped out about 10 per cent of the U.S. pig population and has been blamed for recent increases in bacon and pork prices. Farmers have struggled to control the virus, because little is known about how it spreads and there is not yet a federally approved vaccine in the U.S.
McCain said whether consumers will get used to buying pork products at the higher prices, still remains one of the factors that could hurt the company.
“The pace of which this occurs is one of the outstanding risk factors for the balance of this year,” he said.
BMO economist Aaron Goertzen wrote in a report that hog prices are at the highest level since the mid-1990s, but the outlook is somewhat positive because the PED virus looks like it is dying down — for the moment.
“Although a PED flare-up can’t be ruled out, futures markets appear optimistic that the worst has passed and are pricing in a sharp decline in hog prices over the remainder of this year and in 2015,” Goertzen said.
Meanwhile, Maple Leaf (TSX:MFI) reported a profit of $897.8 million or $6.38 per share in its latest quarter boosted by the sale of its 90 per cent stake in Canada Bread to Mexican company Grupo Bimbo. That compared with a loss of $2.5 million or two cents per share a year ago.
Sales for the three-month period ended June 30 totalled $831.8 million, up from $759.3 million.
The company’s loss from continuing operations for the second quarter was $39.5 million or 28 cents per share compared with a loss of $38.4 million or 27 cents per share year.
The results for the quarter included $20 million or 11 cents per share of pre-tax costs related to restructuring and other related costs.
In April, Maple Leave announced it was closing its wiener production plant in Hamilton and moving workers to a new bigger facility in the same city, west of Toronto.
The company also plans to close four meat plants by the end of the year. Once its restructuring plan is finished, it will operate 13 meat plants instead of 22, and two distribution centres instead of 19.
McCain said the company was making “good progress” on its strategic agenda, although transition costs continue to be significant.
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