Maple Leaf Foods says COVID-19 response cost $20 million in Q2

Maple Leaf Foods says increased expenses tied to the COVID-19 pandemic will drain up to $20 million from its income statement in the second quarter as it struggles to cope with market shifts, public health restrictions and plant shutdowns following infections at several sites.

The higher costs include extra spending on labour--including a weekly $80 bonus to hourly staff--personal protective equipment, sanitation and screening, the company said.

"Unfortunately, we have identified some cases of COVID-19 among front-line team members that work in our processing facilities," CEO Michael McCain said during a conference call with analysts Wednesday.

The infections required the company to suspend operations "at a small number of facilities over the past several weeks for as little as 24 hours to about a week," he said.

More broadly, McCain cited "volatility" triggered by the crisis as demand migrated to retail thanks to consumer "hoarding" and away from food service, where "dramatic declines" began in mid-March.

While Maple Leaf derives about three-quarters of its business from retail, the shift toward it has nonetheless been "highly disruptive" as the company grapples with "insufficient retail capacity" to produce some products, McCain said. The balance is now more lopsided, but sales via retail and food service have been "net neutral," he said.

Among the most popular products for home-bound Canadians and Americans are wieners, sausages and sliced meats, while deli meat sales have dipped with the shutdown of restaurants across the continent, McCain said. "Some categories like lunch kits tend to suffer with families at home."

Despite ongoing uncertainty, Maple Leaf maintained its earnings forecast for the year and said it expected its financial performance would be "largely unchanged."

The food producer cited a hunger for pork in China and Japan as well as continued demand for plant-based protein, even as it contends with unstable pork and poultry commodity markets, potential plant closures down the line and ongoing public health measures.

Maple Leaf reported a first-quarter loss of $3.7 million compared with a profit of $50.1 million a year ago.

The loss came as it made strategic investments in plant protein and saw a $36.7-million impact to earnings from non-cash fair value changes in biological assets and derivative contracts driven by depressed market prices for hogs, the company said.

On an adjusted basis, operating earnings amounted to $45.1 million for the quarter ended March 31, up from $42.1 million in the same quarter a year earlier.

Sales in the first three months of 2020 totalled $1.02 billion, up from $907.1 million in the first quarter of 2019.