Maple Leaf Foods – Too Pricey for the Risk vs Reward…

Maple Leaf Foods is Canada’s largest food processor and a leading consumer protein company. The company sold its bakery and rendering business and reorganized itself into a focused protein company in 2017.

It operates in Canada, the U.S., and Asia through well-known brands such as Maple Leaf, Maple Leaf Prime, Maple Leaf Natural Selections, Schneiders, Swift, etc. Maple Leaf operates through 31 manufacturing facilities for prepared meats, fresh pork, fresh poultry, and plant protein.

As a leading producer of meat products, Maple Leaf focuses on a product portfolio that combines “raised without antibiotics” products, a fresh poultry network, and plant protein. The company is known for its quality products and is widely trusted by its customers worldwide.

Maple Leaf’s brand portfolio caters to a wide range of consumer demands, ranging from natural and simple foods with nothing artificial to exquisite food with unique flavors. It operates through two segments – meat protein and plant protein. Meat protein is the larger segment accounting for 95% of total revenues.

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Investment Data

Revenue Growth & Market Exposure

With a history going back to 100 years, Maple Leaf has developed a deep understanding of changing consumer tastes and preferences. It caters to the retail, foodservice, industrial and agricultural industries.

The company sells a wide range of prepared meats, ready-to-cook and ready-to-serve meals, value-added fresh pork, poultry products, and plant protein products, premium grain-based protein, and vegan cheese products. Maple Leaf is the largest producer of RWA pork in North America and poultry in Canada.

Today, consumers want more basic, natural, and less processed food choices. Maple Leaf’s meat and plant protein businesses are highly profitable and cash-generating. 

Though the food industry is an essential service, Maple Leaf witnessed changes like the dislocation of channel shift (food at home), fast adoption of e-commerce, and an increased interest in plant protein interest during the pandemic. The company also became the world’s first major carbon-neutral food company and is poised to grow leveraging its sustainability leadership.

Maple Leaf’s brands, innovation capacity, and supply chain proficiency are its huge competitive advantages. The company repositioned its portfolio towards two high-growth categories representing 20% of annual sales now growing at a 3-year CAGR of 25%+.

The company witnessed a sales growth of 9% in the last year. Sales growth in Maple Leaf’s meat protein group was driven by a favorable mix-shift towards sustainable meats and branded products, growth in exports to Asian markets, and pricing actions. The company continues to invest aggressively in the growth capacity behind its poultry business, and in the plant protein business.

Maple Leaf expects mid-to-high single-digit sales growth in the meat protein group and plant protein group sales growth to be in line with its target of 30% for the upcoming year.

Dividends

Maple Leaf has maintained its track record of consistent dividend growth. It has a dividend growth rate of 29% CAGR in the last five years. Maple Leaf is a Canadian Dividend Aristocrat. The company last raised its dividend by more than 10% and has an annual yield of 2.5%.

Maple Leaf sports a payout ratio of 79%. In each of the years from 2015 to 2020, Maple Leaf entered into NCIBs and repurchased shares. The current NCIB program allows repurchasing of 7.5 million shares till May 2021.

Maple Leaf is a cash-generating business that can comfortably support the investments required. The company has consistently generated a strong base level of operating cash flow, even in periods of higher commodity prices.

Maple Leaf estimates that the plant protein category will grow to at least $25 billion in North America by 2029 and the company to command a $3 billion market share. The company has a long-term goal of 30% annual revenue growth and underlying gross margins of 30%. It is focusing on growth in categories such as sustainable meat, poultry, artisanal meats, and value-added meal kits.

Maple Leaf is a consumer defensive company with relatively recession-proof earnings. The company continues to invest in strategic initiatives like renovating its brands, accelerating the product innovation pipeline, expanding existing and acquiring new relationships, and building an efficient supply chain. It is expecting growth in the Meat Protein Group with an adjusted EBITDA margin expansion towards the target of 14%-16% by 2022 and capital expenditure in the range of $550 to $650 million.

Competition

The consumer foods industry in which Maple Leaf operates is highly competitive. Maple Leaf is seeing intense competition in the plant proteins, as new entrants and more traditional food companies enter this space. The company exports significant amounts of its products to customers outside of Canada and could face challenges in the current global trade scenario.

Maple Leaf competes with the likes of Premium Brands Holding Corp and High Liner Foods Inc. Premium Brands Holding is one of Canada’s largest food companies while High Liner Foods is a leading processor and marketer of frozen seafood across North America. 

Bottom Line

As a leading consumer staples company, Maple Leaf Foods is well-positioned to benefit from attractive opportunities in growth segments and expanding markets. Maple Leaf’s plant protein business should continue to grow, given its leading market shares and brands already in distribution throughout North America. It witnessed strong growth in both the meat and plant protein groups in the last year.

The company continues to focus on innovation and brand investment for future growth. Maple Leaf is rapidly building a leadership position in sustainable meats and is growing its U.S. market reach. The company’s strategic initiatives should deliver top-line growth and structural margin expansion.