Maple Leaf Foods Inc. third-quarter results fell far short of analyst expectations due to “abnormal erratic” pork market conditions and increased investment into plant-based protein.
“The headline of our third quarter marked this pivot point of investment in our plant protein business, combined with what are the extraordinary events in pork markets that affected our meat business,” said CEO Michael H. McCain during a conference call with analysts Wednesday.
Strong performance in prepared meats, value-added pork and poultry and plant protein, and a favourable resolution of an income tax audit was more than offset by the investments and pork markets, the company said.
Maple Leaf earned $13.4 million or 11 cents per share for the quarter ended Sept. 30 compared with a profit of $26.6 million or 21 cents per share a year ago.
On an adjusted basis, Maple Leaf earned three cents per share in the quarter, down from an adjusted profit of 29 cents per share. Analysts on average had expected a profit of 31 cents per share for the quarter, according to financial markets data firm Refinitiv.
Sales totalled $995.8 million, up from $874.8 million in the same quarter last year.
For the first time, the company reported financial results from its meat- and plant-protein divisions separately, shedding some light on how the two arms of the company are faring.
Plant-based sales grew 30.1 per cent to nearly $47 million in the quarter as the company invested heavily to fuel growth in the plant-based protein business.
McCain said the spending commitment for the segment marks the first time since he joined the company that it was intentionally running a cash flow loss to “capitalize on the enormous opportunity for rapid top line growth and realizing ultimate shareholder value.”
The company committed nearly $45 million in selling, general and administrative expenses for the plant-based segment in the quarter — compared to roughly $9 million in the same three months the previous year.
Maple Leaf is investing in its brands to expand market penetration, create new products and more, said McCain.
About 70 per cent of that investment, historically, has been on marketing and promotions. The company recently partnered with talk show host Ellen DeGeneres, for example, to promote its vegan patty, the Lightlife burger.
Competitor Beyond Meat, which makes a plant-based patty served in many Canadian national fast-food chains, reported third-quarter revenue growth of 250 per cent Tuesday.
The investments Maple Leaf is making is to drive sustained growth rates of more than 30 per cent in this business, McCain said.
“This kind of growth rate just is not available to us in a traditional food segment.”
Maple Leaf’s meat protein group sales totalled about $953 million for the quarter, up from roughly $839 million in the same quarter the previous year.
The company paid about $79 million in selling, general and administrative expenses for this protein group, which recorded a “disappointing” nine per cent EBITA margin — down 90 basis points from this time last year, McCain said.
Results from the meat business reflected Maple Leaf falling on the wrong side of abnormal, erratic market conditions, said McCain, citing the dual influences of African swine fever in Asia and global trade.
The company expects “a rebound effect” in the fourth quarter.
This report by The Canadian Press was first published Oct. 30, 2019.