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Maple Leaf Profits Battered by Listeria


October 31, 2008
By The Canadian Press

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October 31, 2008- The Canadian food processing giant that saw its meat business battered by a listeriosis outbreak at a key plant this summer hopes to see a "full recovery"’ by next year, the company’s CEO said Wednesday.

Chief executive Michael McCain said Maple Leaf Foods Inc. has examined several case studies of other companies that were forced to recall products over illness outbreaks, and it wouldn’t be unprecedented to expect a full brand recovery within six to 12 months.

McCain said sales of products with the Maple Leaf brand declined by up to 35 per cent following the recall, which produced a big net loss for the company and also wiped out 94 per cent of the operating profits of the company’s meat division.

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But the Toronto food company has been seeing week-over-week improvements in the sales of both Maple Leaf-brand products and its meats generally since early September.

In fact, the number of consumers who say they’re buying Maple Leaf products has more than doubled in the last two months, and the most recent survey done by the company indicates that more than 80 per cent of consumers are planning to buy the products in the "near term,"’ McCain said.

"Over time, with patience and hard work, over time we will be in a position or have an opportunity to recover consumers’ trust in our brand,’’ he said. “Every week gets a bit better."
Twenty people died earlier this year from a strain of listeriosis linked to Maple Leaf’s Toronto packaged-meat plant, which the company was forced to close for weeks for sanitization and testing.
McCain said Wednesday he estimates the outbreak and resulting recall of hundreds of Maple Leaf products cost the company between $25 million and $30 million, plus another $15 million in lost sales.
That eliminated most of the third quarter operating profits in its meat division and produced a big overall net loss for the company, which sells some of Canada’s best known brands of processed meats and bread.
However, the Maple Leaf president and CEO is confident the big Toronto-based food processor did the right thing in immediately accepting responsibility for the outbreak.
McCain was widely praised at the time for issuing an apology on behalf of his company in newspaper and television ads, and for promptly recalling any products produced at the Toronto plant, even if those products hadn’t been linked to listeriosis in any way.
"When this occurred, we made the most fundamental decision that we would put consumers’ interests and public health first regardless of the advice of our accountants and lawyers," McCain said in an interview with The Canadian Press.
"We believed that was the responsible thing to do regardless of the very material financial consequences that  …  we are feeling today.’"
In its financial statement, Maple Leaf reported a summer-quarter loss of $12.9 million, or 10 cents per share. That compared with a year-earlier profit of $220.4 million, or $1.67 per share. The 2007 profit included a $218.7-million gain on discontinued operations.
Sales edged up to $1.34 billion, from $1.30 billion a year ago, but the company also saw most of its operating profits -or earnings before interest and taxes- sliced away in its troubled meat products group.
Operating earnings in the division plunged 94 per cent to about $800,000 from $13.6 million last year as the company pulled more than 200 meat products from store shelves over fears of Listeria contamination.
McCain said his company hopes to become a leader in food safety and has taken several steps to improve reviews and protocols at its plants.
"We believe that taking responsible actions over time will be rewarded over time,’" he said.
But he said that even it the brand never fully recovers, he has no regrets.
"With or without the recovery, it was the right decision to make in the interests of public health and consumers, and if we had to do it again we’d do the same thing."
Excluding the one-time costs associated with the recall, plant closure and initial communication with consumers, Maple Leaf said it would have earned a profit of 13 cents per share thanks to a restructuring of its pork-processing operations, price increases in its bread division and lower prices for commodities such as wheat and fuel.
The restructuring, which the company says should be completed by the fourth quarter of 2008, entails reducing fresh pork processing operations and focusing on higher-profit packaged meat and processed meals.
Maple Leaf closed its Winnipeg pork plant during the third quarter and is trying to sell its Burlington, Ont., and Lethbridge, Alta., plants.
Also during the quarter, a double shift expansion was completed at the Brandon, Man., plant which will be Maple Leaf’s only remaining pork processing site once the restructuring is complete, handling more than four million animals a year.
Maple Leaf is a multibillion-dollar food giant, whose Dempster’s bread, Maple Leaf bacon and ham, Shopsy’s and Burns hot dogs, Nutriwhip toppings and Tenderflake lard are well-known Canadian brands. It generated revenues of more than $5.2 billion last year.
Formed in the early 1990s from the merger of Maple Leaf Mills and Canada Packers, Maple Leaf employs more than 23,000 people and has operations across Canada, the United States, the United Kingdom and Asia.
The company produces prepared meats and other consumer foods, as well as animal feed and fresh pork. It also owns Canada Bread Co., which produces the Dempster’s and Olivieri brands.
Canada Bread also reported its third-quarter results Wednesday, with net earnings of $19.7 million, or 77 cents per share, down from $21.1 million, or 83 cents per share a year earlier. The Maple Leaf subsidiary’s sales rose to $443.1 million from $385.8 million a year ago.
In Wednesday trading on the Toronto Stock Exchange, Maple Leaf shares rose 28 cents to $7.45, a gain of 3.9 per cent.