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Press release from CNW Group

Canada Bread Reports Results for the Second Quarter 2011

Thursday, July 28, 2011

Canada Bread Reports Results for the Second Quarter 201108:01 EDT Thursday, July 28, 2011TORONTO, July 28, 2011 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the second quarter ended June 30, 2011.  Second quarter highlights include:Adjusted Operating Earnings(1) increased 14% to $35.1 million.Adjusted EPS(1)  were $0.97 compared to $0.85 last year.Net earnings were $14.9 million, and included $12.5 million in pre-tax restructuring costs related to network optimization initiatives."Our margins strengthened as price increases continue to take hold to offset higher commodity costs," said Richard Lan, President and CEO. "We also began commissioning of our new bakery in Hamilton, a very complex project that is progressing on time and on budget. We will continue implementing our value creation plan to reduce costs and build our capacity to increase top line growth".(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 OverviewSales for the second quarter of $406.2 million were consistent with $402.1 million last year.  After adjusting for the impacts of the sale of the fresh sandwich product line in February of 2011 and the impact of currency translation on sales in the U.K. and U.S., sales increased 4% compared to last year, primarily driven by higher selling prices as a result of price increases implemented in the first half of 2011.Adjusted Operating Earnings in the quarter increased 14% to $35.1 million from $30.7 million in the prior year as the benefit of price increases and lower manufacturing costs offset higher raw material costs, particularly in the fresh bakery operations.  Earnings also benefited from reduced promotional costs and from cost reduction initiatives implemented in early 2011.Adjusted EPS increased 14% to $0.97 compared to $0.85 in the prior year. Net earnings in the quarter decreased to $14.9 million ($0.59 basic earnings per share) from $20.9 million ($0.82 basic earnings per share) in the second quarter of 2010.  Net earnings in the quarter include $12.5 million of pre-tax costs related to restructuring activities (2010: $0.8 million).Business Segment ReviewThe following table summarizes sales by business segment:     (Unaudited)Second QuarterYear-to-Date($ thousands)2011201020112010Fresh Bakery$282,364$282,530$537,449$539,719Frozen Bakery123,881119,532240,556244,275Total Sales$406,245$402,062$778,005$783,994The following table summarized Adjusted Operating Earnings by business segment:     (Unaudited)Second QuarterYear-to-Date($ thousands)2011201020112010Fresh Bakery$33,211$27,754$51,196$48,683Frozen Bakery1,8922,9576312,676Adjusted Operating Earnings$35,103$30,711$51,827$51,359Fresh BakeryIncludes 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® and Olivieri® and many leading regional brands.Fresh Bakery sales for the second quarter of $282.4 million were consistent with $282.5 million last year.  After adjusting for the impact of the sale of the Company's fresh sandwich product line, sales increased 4% compared to those last year, primarily driven by the benefit of price increases taken in the first half of 2011 and partly offset by lower sales volumes. Price increases to offset the impact of higher commodity costs contributed to some volume decline, as consumers adjust to higher prices.Adjusted Operating Earnings in the quarter increased 20% to $33.2 million compared to $27.8 million last year. Earnings benefited from improved margins, as price increases and improved operating efficiencies offset the impact of higher raw materials and inflationary costs.  Lower advertising and promotional expenses, cost reduction initiatives and the sandwich product line divestiture also contributed to stronger earnings. These benefits were partly offset by lower sales volumes.The new fresh bakery in Hamilton, Ontario, which is a significant element of the Company's value creation plan, began initial production in July 2011 as planned. Construction and commissioning of this bakery, one of the largest fresh bakeries in North America, is on schedule and on budget. The Company will gradually transfer production from three bakeries in the Greater Toronto Area, which are scheduled for closure between the end of 2011 through to early 2013.Frozen BakeryIncludes 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® and New York Bakery CoTM.Frozen Bakery sales for the second quarter increased 4% to $123.9 million from $119.5 million last year.  After adjusting for the impact of currency translation on sales in the U.S. and U.K., sales increased 5% predominantly as a result of price increases implemented in the first half of 2011.  Sales volumes improved slightly compared to last year, benefiting from  increased bagel sales volumes in the U.K. following the re- launch of the New York Bakery brand earlier this year.Adjusted Operating Earnings in the quarter declined 36% to $1.9 million from $3.0 million last year largely due to higher commodity prices.  The frozen bakery business continues to implement price increases to fully offset the impact of higher raw material and other inflationary costs. Resulting margin compression was partially offset by lower operating costs.In the United Kingdom, the Company sold a small scale bakery in Cumbria in April 2011 and closed a bakery in London in May 2011, with production consolidated into its bakeries in Maidstone and Walsall.Other MattersOn July 27, 2011 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on October 3, 2011 to shareholders of record at the close of business on September 9, 2011.  Unless indicated otherwise by the Company in writing at or before the time the dividend is paid, these dividends will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".In the Interim Report to Shareholders dated as at April 27, 2011 for the first quarter ended March 31, 2011, the dividend of $0.20 per share payable on July 4, 2011 to shareholders of record at the close of business on June 10, 2011 was erroneously described as non-eligible for the purposes of the "Enhanced Dividend Tax Credit System".  The dividend payable on July 4, 2011 to shareholders of record at the close of business on June 10, 2011 is eligible for the purposes of the "Enhanced Dividend Tax Credit System", as indicated in the Company's press release dated April 28, 2011.Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three-month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results.     (Unaudited) Three months ended June 30, 2011($ thousands) (i)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $14,904 Income taxes   7,388 Earnings from operations before income taxes   $22,292 Interest expense   264 Earnings from operations before interest and  income taxes$30,760($8,204) $22,556 Other Income-- - Restructuring and other related costs2,45110,096 12,547 Adjusted Operating Earnings(1)$33,211$1,892 $35,103' (i) May not add due to rounding     (Unaudited)Three months ended June, 2010($ thousands) (i)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $20,949 Income taxes   8,137 Earnings from operations before income taxes   $29,086 Interest expense   875 Earnings from operations before interest and  income taxes$27,594$2,367 $29,961 Other Income(55)- (55) Restructuring and other related costs215590 805 Adjusted Operating Earnings$27,754$2,957 $30,711(i) May not add due to roundingAdjusted Earnings per ShareThe following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three and six month periods ended as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.($ per share)Three months ended June 30,Six months ended June 30, 2011201020112010Basic Earnings per Share$   0.59$   0.82$   0.55$   1.34Restructuring and other related costs(i)0.380.020.980.07Adjusted Earnings per Share(ii)$   0.97$   0.85$   1.53$   1.41(i) Includes per share impact of restructuring and other related costs, net of tax.(ii) May not add due to rounding.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 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.Condensed Consolidated Interim Financial Statements(Expressed in Canadian dollars)(Unaudited)CANADA BREAD COMPANY, LIMITEDThree and six months ended June 30, 2011 and 2010 CANADA BREAD COMPANY, LIMITED   Consolidated Balance Sheets       (In thousands of Canadian dollars)           As at As at As at     June 30, June 30, December 31,     2011 2010 2010ASSETS                  Current assets         Cash and cash equivalents  $ 20,671   $ 88,875   $ 84,401 Accounts receivable   66,896  138,132  29,773 Due from Maple Leaf Foods Inc. -  978  - Note receivable  68,814  -  59,159 Inventories   53,037  57,790  55,477 Prepaid expenses and other assets7,937  5,323  4,516 Income and other taxes recoverable7,066  -  -      $  224,421   $ 291,098   $  233,326           Property and equipment 401,387  377,775  387,603 Investment property  8,389  3,991  3,743 Employee benefits  744  690  - Other long-term assets 1,002  1,337  828 Deferred tax asset  12,654  8,171  9,543 Goodwill   261,590  269,698  264,276 Other intangible assets 13,335  15,482  13,626 Total assets   $  923,522   $ 968,242   $  912,945LIABILITIES AND SHAREHOLDERS' EQUITY             Current liabilities         Bank indebtedness   $ -   $ 8,071   $ 7,777 Accounts payable and accruals 183,275  247,966  171,742 Provisions   22,885  2,912  13,068 Due to Maple Leaf Foods Inc. 3,347  -  5,336 Dividends payable  5,083  1,525  1,525 Income and other taxes payable -  10,022  3,248 Current portion of long-term debt 2,323  -  2,332      $  216,913   $ 270,496   $  205,028           Long-term debt  1,675  2,420  1,629 Deferred tax liability  22,895  29,110  24,188 Employee benefits   36,232  29,010  37,491 Other long-term liabilities 6,480  6,769  6,240 Total liabilities    $  284,195   $ 337,805   $  274,576          Shareholders' Equity        Share capital    $  142,965   $ 142,965   $  142,965Retained earnings   525,644  493,211  518,315Accumulated other comprehensive loss (29,282) (5,739) (22,911)Total shareholders' equity   $  639,327   $ 630,437   $  638,369Total liabilities and shareholders' equity  $  923,522   $ 968,242   $  912,945 CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Earnings                               (In thousands of Canadian dollars, except share amounts)                                                    Three months ended June 30, Six months ended June 30,                 2011 2010 2011 2010                                    Sales                $ 406,245  $ 402,062 $ 778,005  $ 783,994                                      Cost of goods sold              321,798  317,065   621,215  623,893                        Gross margin               $ 84,447   $  84,997 $ 156,790  $ 160,101                        Selling, general and administrative expenses        49,344  54,286 104,963  108,742                        Earnings from operations before the following:        $ 35,103  $  30,711 $ 51,827  $  51,359Restructuring and other related costs          (12,547)  (805) (32,597)  (2,509)Other income               -  55 78  127                        Earnings from operations before interest and income taxes      $ 22,556  $  29,961 $ 19,308  $  48,977Interest expense              264  875 603  1,856                        Earnings from operations before income taxes        $ 22,292 $  29,086 $ 18,705 $  47,121Income taxes              7,388  8,137 4,767  13,203                        Net earnings               $ 14,904   $  20,949  $ 13,938   $  33,918                        Earnings per share attributable to common shareholders             Basic and diluted earnings per share          $ 0.59  $ 0.82 $ 0.55  $ 1.34                          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 June 30,     Six months ended June 30,(Unaudited)       2011 2010 2011 2010                Net earnings        $ 14,904  $  20,949  $ 13,938   $  33,918                Other comprehensive income (loss)             Change in accumulated foreign currencytranslation adjustment    (26)   11,202 (5,516) (1,487) Change in unrealized loss on cash flow hedges    250   1,533 (855)   1,382          $ 224  $  12,735  $  (6,371)  $ (105)                Comprehensive income        $ 15,128  $  33,684  $ 7,567   $  33,813 CANADA BREAD COMPANY, LIMITED            Consolidated Statements of Changes in Shareholders' Equity              (In thousands of Canadian dollars)                                   Total             accumulated             other Total       Share Retained comprehensive shareholders'(Unaudited)         capital earnings loss equity              Balance at January 1, 2010        $ 142,965   $ 462,343 $  (5,634)   $ 599,674               Net earnings - 33,918 - 33,918 Other comprehensive loss - - (105) (105) Dividends declared ($0.12 per share) - (3,050) - (3,050)Balance at June 30, 2010    $ 142,965 $ 493,211  $  (5,739) $ 630,437                                        Total             accumulated             other Total       Share Retained comprehensive shareholders'(Unaudited)         capital earnings loss equity         Balance at January 1, 2011             $ 142,965   $ 518,315 $ (22,911)     $ 638,369          Net earnings - 13,938 - 13,938 Other comprehensive loss - - (6,371) (6,371) Dividends declared ($0.26 per share) - (6,609) - (6,609)Balance at June 30, 2011    $ 142,965 $ 525,644  $ (29,282) $ 639,327 CANADA BREAD COMPANY, LIMITED      Consolidated Statements of Cash Flows      (In thousands of Canadian dollars)     Three months ended June 30,Six months ended June 30, 2011 20102011  2010CASH PROVIDED BY (USED IN):    Operating activities     Net earnings     $ 14,904$  20,949$ 13,938 $  33,918 Add (deduct) items not affecting cash:        Depreciation and amortization  11,40712,40023,61425,112  Deferred income taxes    (480)199(4,058)(1,757)  Income tax current      7,8708,9758,42914,690  Interest expense      2648756031,856  Loss (gain) on sale of property and equipment(4)51(47)   Asset impairments and change in provision for restructuring and other related costs  7,814(725)26,200347 Income taxes paid        (7,582)(5,800)(17,400)(17,847) Interest paid        (81)(316)(358)(722) Other          (2,127)(811)(2,588)(909) Change in non-cash operating  working capital      (27,122)(1,115)(42,653)(2,837)Cash provided by operating activities        $ 4,863$  34,636$ 5,728 $  52,074Financingactivities       Dividends paid         $  (1,525)$  (1,525)$  (3,050)$  (3,050) Net increase (decrease) in long-term debt  -109-(127)Cash used in financing activities        $  (1,525) $  (1,416) $  (3,050)$  (3,177)Investing activities     Additions to property and equipment      $(34,071)$ (14,554)$ (63,628) $ (22,110) Capitalization of interest expense to property and equipment    (5)(29)(119)(32) Proceeds from sale of property and equipment  403-5,442685 Change in intangible assets(841)-(326)- Other            - (137)-(87)Cash used in investing activities        $ (34,514)$(14,720)$ (58,631) $ (21,544)Increase (decrease) in cash and cash equivalents              $ (31,176)$  18,500$ (55,953)$  27,353Net cash and cash equivalents, beginning of period    51,84762,30476,62453,451Net cash and cash equivalents, end of period  $ 20,671$  80,804$ 20,671$  80,804Net cash and cash equivalents is comprised of:    Cash and cash equivalents          $ 20,671$  88,875$ 20,671$  88,875Bank indebtedness          -(8,071)-(8,071)Net cash and cash equivalents, end of period      $ 20,671$  80,804$ 20,671$  80,804    CANADA BREAD COMPANY, LIMITED  Segmented Financial Information  (In thousands of Canadian dollars)   Three months ended June 30,Six months ended June 30, 2011201020112010Sales     Fresh Bakery  $282,364$  282,530$ 537,449$  539,719 Frozen Bakery123,881119,532240,556244,275 $406,245$  402,062$ 778,005$  783,994Earnings from operations beforerestructuring and other relatedcosts and other income     Fresh Bakery  $  33,211$ 27,754$  51,196$ 48,683 Frozen Bakery1,8922,9576312,676 $  35,103$ 30,711$  51,827$ 51,359Capital expenditures     Fresh Bakery  $  29,476$ 9,407$  55,633$ 13,491 Frozen Bakery4,5955,1477,9958,619 $  34,071$ 14,554$  63,628$ 22,110Depreciation and amortization     Fresh Bakery  $ 6,434$ 6,496$  13,069$ 13,306 Frozen Bakery4,9735,90410,54511,806 $  11,407$ 12,400$  23,614$ 25,112     June 30,June 30,December 31, 201120102010Total assets    Fresh Bakery  $ 518,930$  473,408$  437,976 Frozen Bakery352,966394,838372,211 Non-allocated assets51,62699,996102,758 $ 923,522$  968,242$  912,945Goodwill    Fresh Bakery  $ 125,892$  125,892$  125,892 Frozen Bakery135,698143,806138,384 $ 261,590$  269,698$  264,276   For further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020