As Canada’s largest bakery and processed meats producer posted its comparatively strong second quarter (Q2) results – net earnings up C$31.7m from Q1 – its CEO warned that hedging cost increases amid volatile commodities will be a top priority.
“While we made excellent progress in the quarter, we are heading into challenging commodity markets driven by drought conditions throughout North America that will fuel further food inflation,” Michael H. McCain, president and CEO of Maple Leaf Foods, said.
However, “our business fundamentals are strong and we will take action to manage on-going cost increases”, McCain said.
The company posted overall net earnings for Q2 of $32.5m, up from $24.6m in Q2 2011 and significantly up from Q1 2012.
As Maple Leaf commences its strategy to hedge incoming food inflation, previous reports on BakeryandSnacks.com suggest price squeezes won’t hit manufacturers until September. See HERE.
Francisco Redruello, senior food analyst at Euromonitor International, said that should droughts continue, there would be “significant” problems for manufacturers.
End product mark-ups?
Most firms will “take the brunt of rising grain costs”, Redruello said, and the bargaining power supermarkets hold would also help ensure food inflation remains marginal.
However, Maple Foods has spiked its frozen bakery prices up; a snippet of its “selective price increases”. This has driven up profitability, the firm said, with the frozen sector of its bakery business showing the most improved sales.
In total, Maple Leaf Foods pulled in $404.7m for its bakery unit in Q2, slightly down on last year’s $405.1m. While improved sales were recognised across the North American frozen bakery operations, sales for its fresh bakery was comparable with last year.
Frozen bakery earnings were improved due to higher pricings and volumes across North America and an improved sales mix in the UK, the firm said. The closure of the Walsall UK bakery also reduced overheads.
However, “these benefits were partially offset by higher inflationary costs in the business”, Maple Leaf added.