Maple Leaf Foods to spin off pork business into new public company

Maple Leaf Foods MFI-T will be spinning off its pork business into a new publicly traded company, an apparent strategic distancing from a volatile sector that has faced some tough years.

The split announced Wednesday morning is expected to conclude in early 2025. Moving forward, Maple Leaf Foods portfolio will be prepared meats, including brands such as Schneiders; the poultry business; and its plant protein sector. It will keep a 19.9-per-cent stake in the as-yet-unnamed pork company.

“We’ve got a very compelling blueprint for the future,” said Curtis Frank, Maple Leaf’s chief executive. “Headlined by our purpose to raise the good in food and our vision to be the most sustainable protein company on earth.”

The move comes after three bad years for the pork business. Starting in 2020, Canadian exports to major markets in Japan and China fell. Prices for grain used to feed hogs also skyrocketed after the Russia-Ukraine war began in 2022. Last year, Olymel – Maple Leaf’s major pork processing competitor – cut down on processing by 1.5 million hogs annually, focusing efforts on premium and ready-to-consume products.

In the first quarter of 2024, Maple Leaf’s pork processing sales – which make up 25 per cent of total sales – decreased by 4.5 per cent while prepared meats grew by 2.9 per cent.

To analysts, Maple Leaf’s pork spinoff is therefore an attempt to boost valuation and add some stability for the packaged-food sector of the company. However, it begs questions about the future of the pork company, which was once the centrepiece of Maple Leaf’s business and brand.

Maple Foods is hoping to diversify and innovate within the packaged-goods sector, said Michael McCain, executive chair of Maple Leaf Foods. McCain Capital Corp. and the Ontario Teachers’ Pension Plan Board acquired the controlling interest in Maple Leaf Foods in 1995.

Much of this planned improvement will happen at two facilities that have come onboard recently: the Bacon Centre of Excellence, a $182-million expansion of a prepared meats facility in Winnipeg, and a poultry plant in London, Ont.

Maple Leaf is also hoping to lead the charge on sustainable meats, continuing to commit to environmental and animal welfare objectives. In 2019, the company announced that it had become carbon neutral. It has also invested in animal welfare practices: converting sow housing to remove gestation crates – metal cages so small a sow can’t turn around – and reducing antibiotics in feed.

The new pork company – released from the Maple Leaf supply chain – will be able to expand into the fresh pork markets across North America and Asia, said Dennis Organ, future CEO of the pork company.

Becoming a separate company will also mean no competition with packaged goods for capital investment, he said. They are hoping to invest in automation and reaching full capacity at their plants. Maple Leaf’s major plant, located in Brandon, Man., is not operating at full capacity. The company hopes to increase annual hog processing by one million, up from four million hogs processed in the past 12 months.

In the investor call, Mr. McCain said pork’s poor performance across the past few years was “unprecedented” and a “gross dysfunction” he hadn’t seen in 30 years of business in the meat sector. He anticipates a strong future for the sector and said that Maple Leaf is not positioning to sell the company.

Maple Leaf will remain the anchor purchaser of all pork and will depend on the new pork company for the majority of all meat purchased, he said.

“These two companies have an existential relationship that is really important in the long term to each of them,” said Mr. McCain.

Although Maple Leaf will retain a stake in the new company, Mr. McCain acknowledged that the spinoff reflects a need to distance the packaged-goods sector from the volatility of the pork commodity industry, giving the former more stable margins and increasing its valuation.

Questions remain about the future of the company’s brand.

“[Maple Leaf] has a very strong and rich history around pork,” said Sylvain Charlebois, director of the Agri-Food Analytics Lab at Dalhousie University. “How will they support customers in both retail and service moving forward if they decide to let go of pork?”

Maple Leaf Foods is a consolidation of packing plants, abattoirs and flour mills that stretches back more than a century. In 2014, it sold its bread business, betting on an increasing global demand for protein.

Mr. McCain says Maple Leaf is staying true to this emphasis on protein, albeit expanding the definition. In 2017, Maple Leaf started to invest in plant-based protein. This side of the business (which accounts for 5 per cent of sales) will stay part of Maple Leaf, alongside its poultry operations, which accounts for 20 per cent of sales.

In a presentation to investors Wednesday, Maple Leaf said that global protein consumption is projected to nearly double by 2050.

The company says it hopes to capitalize on that market, staying true to it’s vision to be “the most sustainable protein company on Earth,” Mr. Frank said.

Markets responded favourably to the announcement. By end of day Wednesday, Maple Leaf Foods stock price had climbed 5 per cent, closing at $24.40 per share.