TORONTO — There is a seasonal rhythm to the global pork markets, said Michael H. McCain, president and chief executive officer of Maple Leaf Foods Inc. During the third quarter of fiscal 2019, that rhythm was disrupted and impacted the company’s quarterly results.
“In our meat business, our third quarter was highlighted by abnormal, erratic conditions,” Mr. McCain said Oct. 30 during a conference call with securities analysts. “And to be frank, we were on the wrong side of those conditions. They were connected to the dual influences of African swine fever in Asia and global trade. Paradoxically, we expect a rebound effect in the very next fourth quarter.”
African swine fever has wiped out approximately 50% of China’s hog production. Mr. McCain said the assumption was those losses would lead to a tighter global supply situation and higher prices. However, to prevent the disease from spreading, Chinese hog herds were culled and frozen inventory of pork in China stockpiled.
“The paradox here is that even though North American markets prematurely anticipated price rises, they actually fell before they rose,” Mr. McCain said. “Meanwhile, hog producers in North America have been building production in anticipation of export growth, but near term, it was compressed before that growth was realized.
“In addition, there’s been trade interruption impact as China has placed tariffs on U.S. pork and, in fact, completely cut off exports from Canada. It’s super critical to understand that these aberrations, these gyrations are incredibly short term. It would be a big mistake to conclude that these are normal in our meat industry. Because of the enormous hole in global protein supply once near-term inventory culling and trade gets even remotely normalized, there will be a significant demand upside and financial opportunity for global pork suppliers free of A.S.F.”
Net income for the quarter ended Sept. 30 was C$13,409,000 ($10,189,181), equal to C11c per share on the common stock, and a decline when compared to the same period of the previous year when the company earned C$26,556,000 ($20,179,275), equal to C21c per share.
Sales for the quarter rose to C$995,707,000 ($756,628,473) from C$874,827,000 ($664,772,887).
Mr. McCain added that Maple Leaf Foods now sees upside in the global pork markets.
“The fundamentals of these conditions when balanced out is very much in our favor,” he said.
The third quarter was also a period of significant investment in the company’s nascent Plant Protein business unit. While quarterly sales totaled C$47 million, 30% growth, according to the company, business unit selling, general and administrative (S.G.A.) expenses rose to C$45 million during the quarter compared with C$8.6 million the year prior. Much of the S.G.A. expense was focused on driving sales growth and gaining market share, according to the company. The company called the investment in advertising, promotion and marketing incurred during the quarter “significant.”
“We are focused on the financial safety valve of ensuring that we don’t just build any old business in plant protein, but we build a business that at its core is profitable and can be relatively quickly converted to harvest mode, harvesting that profitability,” Mr. McCain said.