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Prepare for higher food prices, says Maple Leaf boss

By: Alexandra Posadzki

Thursday, Aug. 2, 2012 at 8:18 AM | Comments: 0

TORONTO -- Grocery shoppers may need to dig deeper into their pockets as drought conditions inflate food prices well into next year and maybe beyond, Maple Leaf Foods president and CEO Michael McCain warned Wednesday.

Because Maple Leaf (TSX:MFI) buys ingredients in advance, consumers likely won't see higher prices for its products until the end of this year, McCain said.

"Rising grain markets, specifically corn, affect the entire food chain," McCain said in an interview.

"Broadly, we've got a good track record of responsibly passing on those cost increases in the marketplace and I think this won't be any exception."

McCain said it is too early to guess just how much of a squeeze consumers will feel on their wallets.

"We don't know exactly what the extent or the timing is of any price increases attached to this because the story of this year's crop conditions is still not fully told," said McCain.

"As this unfolds into the fall we'll have a much better picture."

The food processor reported a good quarter but said it will have to be "prudent" in its spending as it faces a challenging commodity market due to higher global prices for ingredients and drought conditions throughout North America.

The Toronto-based company's net income was $32.5 million in the three months ended June 30, up 32 per cent from $24.6 million in the second quarter of 2011.

Total sales from Maple Leaf's four business groups edged up to $1.26 billion from $1.24 billion, helped by price increases and strength in the company's fresh bakery and prepared meats businesses.

Maple Leaf says its adjusted operating earnings fell to $71.9 million or 28 cents per share from $77.5 million or 30 cents per share a year earlier.

The results were slightly ahead of analyst expectations, although there were relatively few estimates.

The consensus estimate compiled by Thomson Reuters before Maple Leaf's announcement was for $33.35 million of net income, 23 cents of adjusted earnings and $1.25 billion of revenue.

Maple Leaf shares rose 72 cents, or 7.2 per cent, to close at $10.72 Wednesday.

Derek Dley, an analyst at Canaccord Genuity, said more aggressive marketing during the quarter helped the company's sales. "They're ahead of my expectations, especially on the bakery side," said Dley.

"Margins were a lot stronger than I expected. It looks like the company was able to have a positive impact on volumes with greater promotional and marketing activities which seemed to be well targeted."

The company said earnings from its prepared meat business grew, helped by price increases and the closure of two facilities last year in an effort to simplify its meat-processing operations.

-- The Canadian Press

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