The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Globe Investor

News Sources

Take control of your investments with the latest investing news and analysis

Press release from CNW Group

Canada Bread Reports Results for Second Quarter 2010

Thursday, July 29, 2010

Canada Bread Reports Results for Second Quarter 201008:45 EDT Thursday, July 29, 2010TORONTO, July 29 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the second quarter ended June 30, 2010. Second quarter highlights include: << - Adjusted Operating Earnings were $30.4 million; $33.1 million last year - Net earnings were $20.7 million compared to $22.5 million last year - Basic EPS were $0.81 compared to $0.89 last year Note: Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income. Adjusted Earnings per Share ("Adjusted EPS") are defined as basic earnings per share adjusted for the impact of restructuring and other related costs, net of tax. Refer to the section entitled Reconciliation of Non-GAAP Financial Measures at the end of this news release. >> "Our Fresh bakery business delivered steady results however, our second quarter results continued to be affected by a volume decline in our North American Frozen business and our U.K. specialty bakery operations," said Richard Lan, President and CEO. "We are taking steps to reduce costs and build volumes, and expect improvement through the remainder of 2010." << Financial Overview ------------------ >> Sales for the second quarter declined to $402.1 million from $435.9 million in the prior year, mostly due to currency translation impacts of a stronger Canadian dollar on sales denominated in U.S. dollars and British pounds and lower volumes in the Frozen Bakery segment.Adjusted Operating Earnings in the quarter decreased to $30.4 million from $33.1 million. The earnings decline in the second quarter mostly reflected the impact of lower sales volumes in the Frozen Bakery segment partly offset by increased operating earnings in the Fresh Bakery segment.Net earnings in the second quarter declined to $20.7 million or $0.81 per share compared to $22.5 million or $0.89 per share last year as a result of lower Adjusted Operating Earnings and higher restructuring costs. Restructuring charges that were recorded in the second quarter mostly related to the restructuring of the specialty baked goods production in the U.K. and the previously announced construction of a new large-scale bakery and the related consolidation of three smaller bakery facilities in Ontario. The benefit of lower interest expenses in the quarter was offset by lower other income. << Business Segment Review ----------------------- >> Following is a summary of sales by business segment: << ------------------------------------------------------------------------- ($ thousands) Second Quarter Year-to-Date ---------------------------------------------------- 2010 2009 2010 2009 ------------------------------------------------------------------------- Fresh Bakery $ 282,530 $ 290,258 $ 539,719 $ 553,261 Frozen Bakery 119,532 145,660 244,275 295,782 ------------------------------------------------------------------------- Sales $ 402,062 $ 435,918 $ 783,994 $ 849,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Following is a summary of Adjusted Operating Earnings by business segment: << ------------------------------------------------------------------------- ($ thousands) Second Quarter Year-to-Date 2010 2009 2010 2009 ------------------------------------------------------------------------- Fresh Bakery $ 27,515 $ 25,379 $ 48,206 $ 38,197 Frozen Bakery 2,871 7,762 2,504 16,294 ------------------------------------------------------------------------- Adjusted Operating Earnings $ 30,386 $ 33,141 $ 50,711 $ 54,491 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fresh Bakery ------------ >> Includes fresh bakery products, including breads, rolls, bagels, sweet goods, prepared sandwiches, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's(R) and Olivieri(R) and many leading regional brands.Second quarter sales of $282.5 million were slightly lower than sales of $290.3 million in the same period last year, mostly due to increased trade investment in fresh bakery operations due to increased competitive pressure in the Canadian marketplace and lower sales volumes in the fresh sandwich business.Adjusted Operating Earnings in the quarter increased to $27.5 million from $25.4 million in the same period last year as Fresh Bakery operations mostly benefited from a stronger Canadian dollar, which reduces the cost of U.S. dollar priced ingredients. These benefits were offset by inflationary costs, higher trade investment and increased brand support. Brand investment included advertising and promotional expenses to support Dempster's Oven Fresh(TM) and Dempster's(R) Pita, and the new Dempster's(R) Smart(TM) 16, a line extension of Dempster's(R) Smart(TM), which includes 16 whole grains and reduced sodium. << Frozen Bakery ------------- >> Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice and convenience channels in North America and the U.K. It includes national brands such as Tenderflake(R) and New York Bakery Co(R).Sales declined to $119.5 million from $145.7 million last year, in part due to the unfavourable impact of a stronger Canadian dollar on the Company's sales in the U.S. and U.K. and lower sales volume in both the North American and U.K. frozen bakery businesses.Adjusted Operating Earnings in the quarter declined to $2.9 million compared to $7.8 million last year, mostly due to the decline in sales volume and related operational inefficiencies. Management continues to expect the impact of lower volumes in North America to be transitory and is taking steps to reduce the cost base in the Company's U.K. operations. << Other Matters ------------- >> On July 28, 2010, Canada Bread Company, Limited declared a dividend of $0.06 per share payable on October 1, 2010 to shareholders of record at the close of business on September 6, 2010. Unless indicated otherwise, by the Company, in writing at or before the time the dividend is paid, this dividend will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System". << Forward-Looking Statements -------------------------- >> This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to objectives and goals, as well as statements with respect to beliefs, plans, expectations, anticipations, estimates and intentions. Words such as "expect," "anticipate," "intend," "attempt," "may," "will," "plan," "believe," "seek," "estimate," and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.In particular, these forward-looking statements are based on expectations concerning performance of the Company's business in general, and are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States and United Kingdom economies; the rate of exchange of the Canadian dollar to the U.S. dollar and the British pound; initiatives to restore sales volumes in the North American and U.K. frozen bakery businesses; initiatives to reduce its cost base in the U.K.; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under the "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2009 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking statements, which reflect the Company's expectations only as of the date hereof.Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements are discussed more fully under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2009 including the section entitled "Risk Factors" that is available on SEDAR at www.sedar.com. The Company does not intend to, and the Company disclaims any obligation to, update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.Canada Bread Company Limited, which is 90.0% owned by Maple Leaf Foods Inc., is a leading manufacturer and distributor of fresh bakery products, frozen par-baked products and fresh pasta and sauces. The Company had 2009 sales of $1.7 billion and employs approximately 8,000 people at its operations across North America and in the United Kingdom. << Reconciliation of Non-GAAP Financial Measures --------------------------------------------- >> The following non-GAAP measures are referred to in this news release: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-GAAP measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three and sixth month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs, and other income (expense) are not representative of operational results. << ($ thousands) Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 Net earnings $ 20,686 $ 22,537 $ 33,413 $ 37,419 Income taxes 8,046 9,461 13,027 15,633 ------------------------------------------------------------------------- Earnings before income taxes $ 28,732 $ 31,998 $ 46,440 $ 53,052 Interest expense 904 1,814 1,888 3,307 Restructuring and other related costs 805 101 2,509 674 Other income (55) (772) (127) (2,542) ------------------------------------------------------------------------- Adjusted Operating Earnings $ 30,386 $ 33,141 $ 50,710 $ 54,491 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> Adjusted Earnings per ShareThe following table reconciles Adjusted Earnings per share to basic earnings per share as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three and six month periods ended as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results, as restructuring and other related costs are not representative of operational results. << ($ per share) Three months ended Six months ended June 30, June 30, 2010 2009 2010 2009 Basic Earnings per Share $ 0.81 $ 0.89 $ 1.31 $ 1.47 Restructuring and other related costs(i) 0.02 - 0.07 0.02 ------------------------------------------------------------------------- Adjusted Earnings per Share(ii) $ 0.84 $ 0.89 $ 1.39 $ 1.49 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (i) Includes per share impact of restructuring and other related costs, net of tax. (ii) Does not add due to rounding. Consolidated Interim Financial Statements (Expressed in Canadian dollars) CANADA BREAD COMPANY, LIMITED Three months ended June 30, 2010 and 2009 CANADA BREAD COMPANY, LIMITED Consolidated Balance Sheets (In thousands of Canadian dollars) ------------------------------------------------------------------------- As at As at As at June 30, June 30, December 31, 2010 2009 2009 ------------------------------------------------------------------------- (Unaudited) (Unaudited) ASSETS Current assets Cash and cash equivalents $ 88,875 $ 21,124 $ 57,698 Accounts receivable 70,032 68,020 63,620 Due from Maple Leaf Foods Inc. 978 76 - Inventories 57,790 58,140 56,659 Future tax asset 1,770 5,436 1,640 Prepaid expenses and other assets 5,323 6,571 4,438 ----------------------------------------------------------------------- $ 224,768 $ 159,367 $ 184,055 Property and equipment 382,044 410,456 387,252 Goodwill 384,379 405,877 386,807 Other intangible assets 15,482 20,245 16,678 Other long-term assets 11,849 10,453 11,620 ------------------------------------------------------------------------- $ 1,018,522 $ 1,006,398 $ 986,412 ------------------------------------------------------------------------- ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank indebtedness $ 8,071 $ 9,511 $ 4,247 Accounts payable and accrued charges 183,182 179,756 172,172 Due to Maple Leaf Foods Inc. - - 3,817 Dividends payable 1,525 1,525 1,525 Income and other taxes payable 10,022 12,576 13,155 Current portion of long-term debt - 42 - ----------------------------------------------------------------------- $ 202,800 $ 203,410 $ 194,916 Long-term debt 2,420 14,997 2,547 Future tax liability 32,055 35,726 33,338 Other long-term liabilities 8,299 8,623 8,524 Shareholders' equity 772,948 743,642 747,087 ------------------------------------------------------------------------- $ 1,018,522 $ 1,006,398 $ 986,412 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Earnings (In thousands of Canadian dollars, except share amounts) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (Unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Sales $ 402,062 $ 435,918 $ 783,994 $ 849,043 Cost of goods sold 317,045 350,578 623,852 687,844 ------------------------------------------------------------------------- Gross margin $ 85,017 $ 85,340 $ 160,142 $ 161,199 Selling, general and administrative expenses 54,631 52,199 109,432 106,708 ------------------------------------------------------------------------- Earnings from operations before the following: $ 30,386 $ 33,141 $ 50,710 $ 54,491 Restructuring and other related costs (805) (101) (2,509) (674) Other income 55 772 127 2,542 ------------------------------------------------------------------------- Earnings before interest and income taxes $ 29,636 $ 33,812 $ 48,328 $ 56,359 Interest expense 904 1,814 1,888 3,307 ------------------------------------------------------------------------- Earnings before income taxes $ 28,732 $ 31,998 $ 46,440 $ 53,052 Income taxes 8,046 9,461 13,027 15,633 ------------------------------------------------------------------------- Net earnings $ 20,686 $ 22,537 $ 33,413 $ 37,419 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings per share - basic and diluted $ 0.81 $ 0.89 $ 1.31 $ 1.47 ------------------------------------------------------------------------- Weighted average number of shares (millions) 25.4 25.4 25.4 25.4 ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Comprehensive Income (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (Unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Net earnings $ 20,686 $ 22,537 $ 33,413 $ 37,419 Other comprehensive income (loss) 16,506 (2,874) (4,502) 920 ------------------------------------------------------------------------- Comprehensive income $ 37,192 $ 19,663 $ 28,911 $ 38,339 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Consolidated Statements of Retained Earnings (In thousands of Canadian dollars, except share amounts) ------------------------------------------------------------------------- Six months ended June 30, (Unaudited) 2010 2009 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 658,541 $ 587,163 Net earnings 33,413 37,419 Dividends declared ($0.12 per share; 2009: $0.12 per share) (3,050) (3,050) ------------------------------------------------------------------------- Retained earnings, end of period $ 688,904 $ 621,532 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Cash Flows (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (Unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- CASH PROVIDED BY (USED IN): Operating activities Net earnings $ 20,686 $ 22,537 $ 33,413 $ 37,419 Add (deduct) items not affecting cash: Depreciation and amortization 12,380 14,078 25,071 28,155 Future income taxes 108 (872) (1,933) (796) Loss (gain) on sale of property and equipment 5 138 (47) 330 Amortization of terminated interest rate swap 659 645 1,317 645 Change in provision for restructuring and other related costs (725) (433) 347 (974) Other (20) (1,388) 75 (2,031) Change in non-cash operating working capital 1,514 (7,096) (6,201) (28,088) ------------------------------------------------------------------------- Cash provided by operating activities $ 34,607 $ 27,609 $ 52,042 $ 34,660 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Financing activities Dividends paid (1,525) (1,525) (3,050) (3,050) Net increase (decrease) in long-term debt 109 1,272 (127) 10,520 Settlement of interest rate swaps with Maple Leaf Foods Inc. - (8,502) - (8,502) ------------------------------------------------------------------------- Cash used in financing activities $ (1,416) $ (8,755) $ (3,177) $ (1,032) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Investing activities Additions to property and equipment (14,554) (9,524) (22,110) (24,366) Proceeds from sale of property and equipment - 77 685 469 Other (137) 255 (87) (945) ------------------------------------------------------------------------- Cash used in investing activities $ (14,691) $ (9,192) $ (21,512) $ (24,842) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Increase in cash and cash equivalents $ 18,500 $ 9,662 $ 27,353 $ 8,786 Net cash and cash equivalents, begin- ning of period 62,304 1,951 53,451 2,827 ------------------------------------------------------------------------- Net cash and cash equivalents, end of period $ 80,804 $ 11,613 $ 80,804 $ 11,613 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Segmented Financial Information (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, (Unaudited) 2010 2009 2010 2009 ------------------------------------------------------------------------- Sales Fresh Bakery $ 282,530 $ 290,258 $ 539,719 $ 553,261 Frozen Bakery 119,532 145,660 244,275 295,782 ------------------------------------------------------------------------- $ 402,062 $ 435,918 $ 783,994 $ 849,043 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings from operations before restructuring and other related costs and other income Fresh Bakery $ 27,515 $ 25,379 $ 48,206 $ 38,197 Frozen Bakery 2,871 7,762 2,504 16,294 ------------------------------------------------------------------------- $ 30,386 $ 33,141 $ 50,710 $ 54,491 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Additions to property and equipment Fresh Bakery $ 9,407 $ 5,703 $ 13,491 $ 11,431 Frozen Bakery 5,147 3,821 8,619 12,935 ------------------------------------------------------------------------- $ 14,554 $ 9,524 $ 22,110 $ 24,366 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Depreciation and amortization Fresh Bakery $ 6,476 $ 6,911 $ 13,265 $ 14,059 Frozen Bakery 5,904 7,167 11,806 14,096 ------------------------------------------------------------------------- $ 12,380 $ 14,078 $ 25,071 $ 28,155 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- As at As at As at June 30, June 30, December 31, 2010 2009 2009 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Total assets Fresh Bakery $ 456,530 $ 443,964 $ 441,020 Frozen Bakery 458,575 516,077 476,681 Non-allocated assets 103,417 46,357 68,711 ------------------------------------------------------------------------- $ 1,018,522 $ 1,006,398 $ 986,412 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Goodwill Fresh Bakery $ 157,120 $ 155,962 $ 155,946 Frozen Bakery 227,259 249,915 230,861 ------------------------------------------------------------------------- $ 384,379 $ 405,877 $ 386,807 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >> For further information: Lynda Kuhn, SVP Communications, 416-926-2026, www.canadabread.ca