The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from CNW Group

Canada Bread Reports Results for the First Quarter 2011

Thursday, April 28, 2011

Canada Bread Reports Results for the First Quarter 201108:31 EDT Thursday, April 28, 2011TORONTO, April 28 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the first quarter ended March 31, 2011. First quarter highlights include: << - Adjusted Operating Earnings(1) were $16.7 million compared to $20.6 million last year - Adjusted EPS(1) of $0.56 was unchanged from the prior year - Net earnings in the quarter declined to a loss of $1.0 million, largely due to $20.1 million in pre-tax restructuring costs >>"The decline in operating earnings in the quarter was largely due to a lag in implementing pricing to offset rising costs. With these price increases in effect at the end of the quarter, we expect our margins to strengthen," said Richard Lan, President and CEO. "We are also encouraged by early signs of improved performance in our U.K. bakery operations. With high impact marketing, targeted product innovation and overhead cost reductions, we expect continued improvement in this business." << (1): Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense). 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. Please refer to the section entitled Reconciliation of Non-IFRS Financial Measures in this news release. Financial Overview ------------------ >>Sales for the first quarter decreased by 3% to $371.8 million compared to $381.9 million in the prior year, largely due to the sale of the fresh sandwich product line in February of 2011. Excluding this sale and the currency translation on U.K. and U.S. sales from a stronger Canadian dollar, sales were consistent with prior year.Adjusted Operating Earnings for the first quarter decreased 19% to $16.7 million from $20.6 million in the prior year. Earnings in fresh bakery declined mostly due to higher wheat costs as price increases were only effected at the end of the quarter. Lower volumes in the North American frozen bakery business also impacted results. Performance in the U.K. bakery business improved due to a significant increase in bagel volumes, driven by a successful marketing campaign and product innovation in the category. Management expects performance to continue to improve through the remainder of 2011.Adjusted EPS of $0.56, which included $2.4 million ($0.10 per share) related to tax benefits associated with a prior acquisition, was unchanged from the prior year. Net earnings in the quarter decreased to a loss of $1.0 million ($0.04 per share) from $13.0 million ($0.51 per share) in the first quarter of 2010. Net earnings in quarter include $20.1 million of pre-tax costs related to restructuring activities.On February 18, 2011, the Company completed the sale of its fresh sandwich product line for $8.0 million, subject to post closing adjustments. << Business Segment Review ----------------------- >>The following table summarizes sales by business segment: << ------------------------------------------------------------------------- (Unaudited) First Quarter ($thousands) ----------------------- 2011 2010 ------------------------------------------------------------------------- Fresh Bakery $255,085 $257,189 Frozen Bakery 116,675 124,743 ------------------------------------------------------------------------- Sales $371,760 $381,932 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>The following table summarizes Adjusted Operating Earnings by business segment: << ------------------------------------------------------------------------- (Unaudited) First Quarter ($ thousands) ----------------------- 2011 2010 ------------------------------------------------------------------------- Fresh Bakery $17,985 $20,929 Frozen Bakery (1,261) (281) ------------------------------------------------------------------------- Adjusted Operating Earnings $16,724 $20,648 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Fresh Bakery ------------ >>Includes fresh bakery products, including breads, rolls, bagels, sweet goods, 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.First quarter sales of $255.1 million were slightly lower than sales of $257.2 million in the same period last year. Excluding the impact of the sale of the Company's fresh sandwich product line, sales increased 2% compared to prior year. The increase in sales is due to the benefit of price increases implemented in the later part of 2010. Fresh bakery volumes in the quarter increased by 1%.Adjusted Operating Earnings in the quarter decreased by 14% to $18.0 million compared to $20.9 million last year. During the quarter, the fresh bakery operation was significantly exposed to higher wheat prices, with a lag in pricing to offset these inflationary pressures. Price increases were implemented at the end of the quarter and have begun to positively affect margins going forward. These were in part offset by the benefit derived from the sale of the Company's fresh sandwich product line during the quarter.A significant element of the Company's value creation plan is the construction of the new fresh bakery in Hamilton, Ontario to benefit from scale efficiencies, reduce overhead costs and support future growth. This new bakery is on schedule to begin initial production in July 2011.During the quarter, the Company announced plans to close a fresh bakery facility located in Delta, B.C., in November 2011. Production will be consolidated at the Company's other bakeries in Langley, B.C. and Edmonton, Alberta. At the same time, an investment of approximately $11.0 million will be made to expand the Edmonton bakery to support increased tortilla production, where the Company has a leading market position and brand. << 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(TM).Frozen Bakery sales for the quarter decreased by 6% to $116.7 million from $124.7 million last year. Excluding the currency translation differences on sales in the U.S. and U.K., sales declined by 4%, predominantly as a result of lower volumes, which was partially offset by the positive impact of price increases implemented across its bakery operations. The North American frozen bakery business continued to experience weaker volumes due to changes implemented by certain retail customers earlier in 2010. Progress has been made in securing new business, which is expected to strengthen volumes in 2011. In the U.K., bagel volume increased significantly with the re-launch of the New York Bakery brand bagels, although overall volumes for the U.K. bakery were lower than last year.Adjusted Operating Earnings in the quarter were a loss of $1.3 million compared to a loss of $0.3 million last year, driven by lower volumes and the rapid rise in wheat prices. In the first quarter of 2011, the Company re-launched its New York Bakery brand to support market growth in the bagel category, which has led to significant increases in volumes and improved margins in the U.K. bakery business. These benefits were largely offset by the significant advertising and promotion expenses associated with the re-launch.In March 2011, the Company closed a sub-scale bakery in Laval, Quebec and transferred production to other bakeries where there was available capacity. Also in the first quarter of 2011, the Company entered into an agreement to sell a bakery facility in Cumbria, U.K. << Other Matters ------------- >>On April 27, 2011, Canada Bread Company, Limited declared a dividend of $0.20 per share payable on July 4, 2011 to shareholders of record at the close of business on June 10, 2011. 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 StatementsThis 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, objectives, expectations, anticipations, estimates and intentions. Specific forward-looking statements in this document include, but are not limited to, statements concerning expectations regarding actions to reduce costs and improve efficiencies, restore volumes and/or increase prices, timing of promotional investment, improving business trends in 2011, the expected use of cash balances, source of funds for ongoing business requirements, capital investments and debt repayment, and expectations regarding sufficiency of the allowance for uncollectible accounts. 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 a variety of factors and assumptions that are discussed throughout this document. In addition, expectations concerning the performance of the Company's business in general 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 British pound; 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 below or elsewhere 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, implied or forecasted in such forward-looking statements include, among other things: << - the risks associated with implementing and executing its business transformation strategy, - the risks associated with changes in the Company's shared systems and processes; - the Company's exposure to currency exchange risks; - the ability of the Company to hedge against the effect of commodity price changes through the use of commodity futures and options; - the risks associated with a consolidating retail environment; - the risks posed by food contamination, consumer liability and product recalls; - the risks related to business acquisitions and capital expansion projects; - the risks posed by compliance with extensive government regulation; - the risks posed by litigation; - the impact of changes in consumer tastes and buying patterns; - the impact of extensive environmental regulation and potential environmental liabilities; - the risks associated with complying with differing employment laws and practices globally and the potential for work stoppages due to non-renewal of collective agreements; - the impact on pension expense and funding requirements of fluctuations in the market prices of fixed income and equity securities and changes in interest rates; - the risks associated with the Company's independent distributors; and - the risks posed by competition. >>The Company cautions the reader that the foregoing list of factors is not exhaustive. These factors are discussed in more detail under the heading "Risk Factors" in the Company's Management's Discussion and Analysis for the year ended December 31, 2010 and are updated each quarter in the Management's Discussion and Analysis, which are available on SEDAR at www.sedar.com. The reader should review such sections in detail. 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.Additional information concerning the Company, including the Company's Annual Information Form, is available on SEDAR at www.sedar.com.Canada Bread Company Limited, which is 90% owned by Maple Leaf Foods Inc. (TSX:MFI), is a leading manufacturer and distributor of fresh bakery products, frozen par-baked products and fresh pasta and sauces. The Company had 2010 sales of $1.6 billion and employs approximately 7,500 people at its operations across North America and in the United Kingdom. << Reconciliation of Non-IFRS Financial Measures --------------------------------------------- >>The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-IFRS measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three-month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results. << ------------------------------------------------------------------------- (Unaudited) Three months ended March 31, 2011 ------------------------------------------------------------------------- ($ thousands)(i) Fresh Frozen Consoli- Bakery Bakery dated ------------------------------------------------------------------------- Net loss ($966) Income taxes (2,621) ------------------------------------------------------------------------- Loss from operations before income taxes (3,587) Interest expense 339 ------------------------------------------------------------------------- $8,468 ($11,716) (3,248) Other Income (78) - (78) Restructuring and other related costs 9,595 10,455 20,050 ------------------------------------------------------------------------- Adjusted Operating Earnings $17,985 ($1,261) $16,724 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (i) May not add due to rounding ------------------------------------------------------------------------- (Unaudited) Three months ended March 31, 2010 ------------------------------------------------------------------------- ($ thousands)(i) Fresh Frozen Consoli- Bakery Bakery dated ------------------------------------------------------------------------- Net earnings $12,969 Income taxes 5,066 ------------------------------------------------------------------------- Earnings from operations before income taxes 18,035 Interest expense 981 ------------------------------------------------------------------------- $19,988 ($972) 19,016 Other Income (72) - (72) Restructuring and other related costs 1,013 691 1,704 ------------------------------------------------------------------------- Adjusted Operating Earnings $20,929 ($281) $20,648 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (i) May not add due to rounding >>Adjusted Earnings per ShareThe following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three-month periods ended as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results. << ($ per share) Three months ended March 31, (Unaudited) 2011 2010 ------------------------------------------------------------------------- Basic (loss) earnings per Share $ 0.04 $ 0.51 Restructuring and other related costs(i) 0.60 0.05 ------------------------------------------------------------------------- Adjusted Earnings per Share (ii) $ 0.56 $ 0.56 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (i) Includes per share impact of restructuring and other related costs, net of tax. (ii) May not add due to rounding. Condensed Consolidated Interim Financial Statements (Expressed in Canadian dollars) (Unaudited) CANADA BREAD COMPANY, LIMITED Three months ended March 31, 2011 and 2010 CANADA BREAD COMPANY, LIMITED Consolidated Balance Sheets (In thousands of Canadian dollars) ------------------------------------------------------------------------- As at As at As at As at March 31, March 31, December January 1, (Unaudited) 2011 2010 31, 2010 2010 ------------------------------------------------------------------------- ASSETS Current assets Cash and cash equivalents $ 51,847 $ 68,471 $ 84,401 $ 57,698 Accounts receivable 54,700 119,399 29,773 133,620 Due from Maple Leaf Inc. - 6,740 - - Note Receivable 52,820 - 59,159 - Inventories 52,107 53,383 55,477 56,659 Prepaid expenses and other assets 3,934 4,109 4,516 4,438 Income and other taxes recoverable 6,591 - - - ------------------------------------------------------------------------- $ 221,999 $ 252,102 $ 233,326 $ 252,415 Property and equipment 383,814 369,402 387,603 383,024 Investment property 8,443 3,788 3,743 3,959 Employee benefits 53 345 - - Other long-term assets 993 432 828 390 Deferred tax asset 10,264 7,113 9,543 5,887 Goodwill 261,590 264,197 264,276 267,729 Other intangible assets 12,799 15,196 13,626 16,678 ------------------------------------------------------------------------- Total assets $ 899,955 $ 912,575 $ 912,945 $ 930,082 ------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Bank indebtedness $ - $ 6,167 $ 7,777 $ 4,247 Accounts payable and accruals 179,044 230,224 171,742 237,849 Provisions 20,316 3,969 13,068 3,919 Due to Maple Leaf Foods Inc. 1,021 - 5,336 3,817 Dividends payable 1,525 1,525 1,525 1,525 Income and other taxes payable - 7,313 3,248 13,155 Current portion of long-term debt 2,329 - 2,332 - ------------------------------------------------------------------------- $ 204,235 $ 249,198 $ 205,028 $ 264,512 Long-term debt 1,652 2,311 1,629 2,547 Deferred tax liability 20,916 27,243 24,188 28,063 Employee benefits 37,190 28,767 37,491 28,489 Other long-term liabilities 6,679 6,778 6,240 6,797 ------------------------------------------------------------------------- Total liabilities $ 270,672 $ 314,297 $ 274,576 $ 330,408 ------------------------------------------------------------------------- Shareholders' Equity Share capital $ 142,965 $ 142,965 $ 142,965 $ 142,965 Retained earnings 515,824 473,787 518,315 462,343 Accumulated other comprehensive loss (29,506) (18,474) (22,911) (5,634) ------------------------------------------------------------------------- Total shareholders' equity $ 629,283 $ 598,278 $ 638,369 $ 599,674 ------------------------------------------------------------------------- Total liabilities and shareholders' equity $ 899,955 $ 912,575 $ 912,945 $ 930,082 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Earnings (In thousands of Canadian dollars, except share amounts) ------------------------------------------------------------------------- Three months ended March 31, (Unaudited) 2011 2010 ------------------------------------------------------------------------- Sales $ 371,760 $ 381,932 Cost of goods sold 299,417 306,828 ------------------------------------------------------------------------- Gross margin $ 72,343 $ 75,104 Selling, general and administrative expenses 55,619 54,456 ------------------------------------------------------------------------- (Loss)earnings from operations before the following: $ 16,724 $ 20,648 Restructuring and other related costs (20,050) (1,704) Other income 78 72 ------------------------------------------------------------------------- Earnings from operations before interest and income taxes $ (3,248) $ 19,016 Interest expense 339 981 ------------------------------------------------------------------------- (Loss) earnings from operations before income taxes $ (3,587) $ 18,035 Income taxes (2,621) 5,066 ------------------------------------------------------------------------- Net (loss) earnings $ (966) $ 12,969 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (Loss) earnings per share attributable to common shareholders Basic and diluted (loss) earnings per share $ (0.04) $ 0.51 ------------------------------------------------------------------------- Weighted average number of shares (millions) 25.4 25.4 ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Comprehensive Income (Loss) (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended March 31, (Unaudited) 2011 2010 ------------------------------------------------------------------------- Net (loss) earnings $ (966) $ 12,969 ------------------------------------------------------------------------- Other comprehensive loss Change in accumulated foreign currency translation adjustment (5,490) (12,689) Change in unrealized loss on cash flow hedges (1,105) (151) ------------------------------------------------------------------------- $ (6,595) $ (12,840) ------------------------------------------------------------------------- Comprehensive (loss) income $ (7,561) $ 129 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Changes in Shareholders' Equity (In thousands of Canadian dollars) ------------------------------------------------------------------------- Total accumulated other Total compre- share- Share Retained hensive holders' (Unaudited) capital earnings loss equity ------------------------------------------------------------------------- Balance at January 1, 2010 $ 142,965 $ 462,343 $ (5,634) $ 599,674 Net earnings - 12,969 - 12,969 Other comprehensive income - - (12,840) (12,840) Dividends declared ($0.06 per share) - (1,525) - (1,525) ------------------------------------------------------------------------- Balance at March 31, 2010 $ 142,965 $ 473,787 $ (18,474) $ 598,278 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total accumulated other Total compre- share- Share Retained hensive holders' (Unaudited) capital earnings loss equity ------------------------------------------------------------------------- Balance at January 1, 2011 $ 142,965 $ 518,315 $ (22,911) $ 638,369 Net loss - (966) - (966) Other comprehensive loss - - (6,595) (6,595) Dividends declared ($0.06 per share) - (1,525) - (1,525) ------------------------------------------------------------------------- Balance at March 31, 2011 $ 142,965 $ 515,824 $ (29,506) $ 629,283 ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Consolidated Statements of Cash Flows (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended March 31, (Unaudited) 2011 2010 ------------------------------------------------------------------------- CASH PROVIDED BY (USED IN): Operating activities Net (loss) earnings $ (966) $ 12,969 Add (deduct) items not affecting cash: Depreciation and amortization 12,207 12,712 Deferred income taxes (3,578) (1,956) Income tax current 559 6,025 Interest expense 339 981 Loss (gain) on sale of property and equipment 5 (52) Amortization of terminated interest rate swap - 658 Asset impairments and change in provision for restructuring and other related costs 18,386 1,072 Income taxes paid (9,818) (12,047) Interest paid (277) (1,064) Other (461) (138) Change in non-cash operating working capital (15,531) (1,722) ------------------------------------------------------------------------- Cash provided by operating activities $ 865 $ 17,438 ------------------------------------------------------------------------- Financing activities Dividends paid $ (1,525) $ (1,525) Net increase (decrease) in long-term debt - (236) ------------------------------------------------------------------------- Cash used in financing activities $ (1,525) $ (1,761) ------------------------------------------------------------------------- Investing activities Additions to property and equipment $ (29,557) $ (7,556) Capitalization of interest expense to property and equipment (114) (3) Proceeds from sale of property and equipment 5,039 685 Change in intangible assets 515 - Other - 50 ------------------------------------------------------------------------- Cash used in investing activities $ (24,117) $ (6,824) ------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents $ (24,777) $ 8,853 Net cash and cash equivalents, beginning of period 76,624 53,451 ------------------------------------------------------------------------- Net cash and cash equivalents, end of period $ 51,847 $ 62,304 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Net cash and cash equivalents is comprised of: Cash and cash equivalents $ 51,847 $ 68,471 Bank indebtedness - (6,167) ------------------------------------------------------------------------- Net cash and cash equivalents, end of period $ 51,847 $ 62,304 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CANADA BREAD COMPANY, LIMITED Segmented Financial Information (In thousands of Canadian dollars) ------------------------------------------------------------------------- Three months ended March 31, 2011 2010 ------------------------------------------------------------------------- Sales Fresh Bakery $ 255,085 $ 257,189 Frozen Bakery 116,675 124,743 ------------------------------------------------------------------------- $ 371,760 $ 381,932 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Earnings from operations before restructuring and other related costs and other income Fresh Bakery $ 17,985 $ 20,929 Frozen Bakery (1,261) (281) ------------------------------------------------------------------------- $ 16,724 $ 20,648 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Capital expenditures Fresh Bakery $ 26,157 $ 4,084 Frozen Bakery 3,400 3,472 ------------------------------------------------------------------------- $ 29,557 $ 7,556 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Depreciation and amortization Fresh Bakery $ 6,635 $ 6,810 Frozen Bakery 5,572 5,902 ------------------------------------------------------------------------- $ 12,207 $ 12,712 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ------------------------------------------------------------------------- March 31, March 31, December January 1, 2011 2010 31, 2010 2010 ------------------------------------------------------------------------- Total assets Fresh Bakery $ 466,142 $ 455,080 $ 437,976 $ 460,125 Frozen Bakery 353,636 379,599 372,211 408,229 Non-allocated assets 80,177 77,896 102,758 61,728 ------------------------------------------------------------------------- $ 899,955 $ 912,575 $ 912,945 $ 930,082 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Goodwill Fresh Bakery $ 125,892 $ 124,827 $ 125,892 $ 124,827 Frozen Bakery 135,698 139,370 138,384 142,902 ------------------------------------------------------------------------- $ 261,590 $ 264,197 $ 264,276 $ 267,729 ------------------------------------------------------------------------- ------------------------------------------------------------------------- >>For further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005, Media Contact: 416-926-2020