Market Trends

Maple Leaf investors are undeterred by bakery blip

May 14, 2012
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Investors are betting that Maple Leaf Foods Inc. can rebound from a slump in bakery sales by cutting costs as it trades at half the price-earnings value of its peers. Canada’s second-largest food processor has outperformed the Standard & Poor’s/TSX index this year by 8.6 percentage points even after the stock fell last week due to a drop in bakery sales. The Toronto-based meat processor and baker may double its price in three years as it consolidates into new plants and updates systems to cut expenses, according to Michael Van Aelst, an analyst at TD Newcrest in Montreal.

“The road will likely not be without some temporary hazards,” Aelst stated in a note to clients in early May. “We see very good value in a company that, in our view, has significant upside over the next three years.”

Chief Executive Officer Michael McCain, who owns 33 percent of Maple Leaf, worked to revise a company restructuring project last year. Cutting duplicate overhead costs in its bakery division after closing two plants earlier this year and other efficiency gains should save C$25 million ($25 million) in 2012, says Kenneth Zaslow, an analyst at BMO Capital Markets in New York. An advertising campaign will promote bread as a healthy food choice and the company’s bakery margins will improve in the second half from lower wheat costs to help maintain annual double-digit earnings per share growth, stated McCain.

“We’re committed to double-digit earnings per share growth every year, and believe that we’ll deliver that this year as well,” he says.

The fresh bakery market has slowed 3% in Canada over the past 12 weeks, according to Nielsen Co., with Maple Leaf “down a little bit more than that,” McCain says.

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