My top stock pick for August was Maple Leaf Foods Inc. (TSX: MFI). The company has returned over 200% in a five-year period and 23% so far in 2017. Maple Leaf Foods is a Toronto-based packaged-meats company. On July 27, the company announced its second-quarter profits for this year.
Adjusted operating earnings grew 24% to $75 million in the second quarter. Second-quarter sales grew 8.3% to $926 million, and adjusted earnings per share increased 28.1% to $0.41. Adjusted for the impact of foreign exchange and acquisitions, sales were up 5.7%. The company saw larger volumes in prepared meats, value-added fresh pork, and poultry.
Maple Leaf Foods reported reduced margins in its prepared meats business, which offset beneficial market conditions. Net earnings increased to $37.3 million in the second quarter, $0.29 per share, compared to $31.4 million, or $0.23 per share, in Q2 2016. Maple Leaf Foods will look to raise prices in the third quarter to offset rising raw material costs. A report by researchers as Dalhousie University projected meat prices to jump 7-9% by the end of 2017, which should further boost profits for Maple Leaf Foods.
The company also approved a dividend of $0.11 per share, representing a 1.27% dividend yield to be payable September 29, 2017, to shareholders. Earnings growth in the past year was 44%, which has prompted analysts to place expectations of high growth for the next three years — some upwards of 30%. The company has demonstrated over the past few years that it is capable of strong and sustainable growth.
The company announced the acquisition of the U.S.-based Lightlife Foods Inc. in February for $140 million. Lightlife Foods produces vegetarian and vegan meat substitutes and was one of the key drivers in sales growth in the second quarter. Maple Leaf Foods has sought out U.S. acquisitions after investing heavily in upgrades to current infrastructure. The purchase of Lightlife Foods demonstrates that Maple Leaf Foods is cognizant of the tremendous growth in demand for vegetarian and vegan alternatives.
A report by Statista, a market research and business intelligence portal, revealed that consumption per capita of beef and pork had declined in Canada between 2012 and 2014. Data from 2015 showed that 12% of young Canadians claimed they were vegetarian compared to 5% of Canadians 50 or older. The growing trend among youth to move to vegetarian and vegan alternatives gives an impetus to Maple Leaf Foods to ensure that they are establishing a foothold in this industry.
On August 8, Maple Leaf Foods stock closed at $34.75 — up 0.40% for the day. The company has posted strong first- and second-quarter earnings in 2017, and the purchase of LightLife Foods Inc. demonstrates that it is committed to making a presence in the vegetarian and vegan food industry.
The stock is a long-term buy and is projected to have strong growth in the future. It also provides a dividend for investors in search of income to add to their portfolios.
