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Oct 26, 2017

Maple Leaf Foods third-quarter profit beats on overall sales growth

A sign for the Maple Leaf food processing plant is seen in Toront in Toronto

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MISSISSAUGA, Ont. - Maple Leaf Foods Inc. (MFI.TO) saw a boost in profits despite higher raw-material costs, which pushed the processed meat company to raise prices in the latest quarter.

Maple Leaf chief executive Michael McCain said a spike in costs, particularly in pork markets, prompted the company to raise prices in the 2 to 2.5 per cent range.

Still, the company's topline growth helped mitigate this, said McCain.

"The operating and commercial strength of our business and our balanced portfolio, we believe, provides us with relative stability in the wake of the sharp increase in raw material costs, which we ... have addressed through targeted pricing action," he said on a conference call with analysts on Thursday.

The processed meat company earned $37.6 million in its latest quarter, up from a year ago, helped by higher sales. The profit amounted to 39 cents per diluted share for the quarter ended Sept. 30 compared with a profit of $31.8 million or 23 cents per share a year ago, the company said.

Sales in the quarter were $908.4 million, up from $852.1 million, while adjusted operating earnings increased to $65.2 million compared with $61.5 million last year.

Maple Leaf says higher sales across its portfolio benefited from improved volumes, as well as the addition of Lightlife Foods earlier this year.

That quarterly performance comes despite a 60 per cent year-on-year increase in pork belly prices, which impacted profit margins on bacon, one of its core products, Maple Leaf chief financial officer Debbie Simpson told analysts.

The company signalled in July that it would look to raise prices in the third quarter to offset rising raw material costs. McCain said Thursday it took action to recover lost margins about a month ago.

He said the company hasn't seen a significant drop in demand at this point, but any impact won't be apparent for another two or three months, he added.

"Most customers... they accept that we have to earn a profit," he said.

While he believes the latest price increase is sufficient to cover rising raw material costs, McCain said Maple Leaf also expects make another price adjustment "around the first quarter of 2018" to reflect inflation.