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Press release from CNW Group

Canada Bread Reports Results for the Third Quarter 2011

Thursday, October 27, 2011

Canada Bread Reports Results for the Third Quarter 201108:08 EDT Thursday, October 27, 2011TORONTO, Ontario, Oct. 27, 2011 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the third quarter ended September 30, 2011.  Third quarter highlights include:Adjusted Operating Earnings(1) of $31.8 million were consistent with last year.Adjusted EPS(2) increased to $1.24 (2010: $0.87), including $0.38 per share of a tax adjustment for a prior acquisition.Net earnings were $30.3 million, and included $1.6 million in pre-tax restructuring and other related costs related to network optimization initiatives, compared to $14.3 million last year."While our volumes increased in the quarter we continue to feel the impact of high raw material costs, which we largely offset through cost reductions and improved operating efficiencies," said Richard Lan, President and CEO. "We had excellent success with the commissioning of our new scale fresh bakery in Hamilton, Ontario in July, a major endeavour which was executed seamlessly - on time and on budget. Our U.K. business is also benefiting from manufacturing changes to focus on core categories and increase profitability. As commodity markets stabilize, we will continue to seek opportunities to drive volume and margin growth through reduced costs, innovation and product sales mix."(1): Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense). (2): 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 third quarter increased to $417.2 million compared to $411.4 million last year.  After adjusting for the sale of the Company's fresh sandwich product line in February 2011 and currency translation on U.K. and U.S. sales from a stronger Canadian dollar, sales increased by 5% compared to last year, mostly due to price increases implemented in the first half of 2011.Adjusted Operating Earnings for the third quarter were $31.8 million compared to $32.8 million in the prior year. The Company experienced some margin compression, as price increases implemented earlier in the year were not sufficient to fully offset the impact of a continued rise in raw material costs. Reduced costs resulting from operating efficiencies and lower selling, general and administrative expenses helped mitigate this impact. Adjusted Earnings per Share for the third quarter increased to $1.24 from $0.87 last year, and included $9.8 million ($0.38 per share) related to a tax adjustment associated with a prior acquisition.Business Segment ReviewThe following table summarizes sales by business segment:                (Unaudited)     Third Quarter  Year-to-Date($ thousands)     2011  2010  2011  2010Fresh Bakery     $287,923  $285,232  $825,372  $824,951Frozen Bakery     129,248  126,132  369,804  370,407Total Sales     $417,171  $411,364  $1,195,176  $1,195,358The following table summarized Adjusted Operating Earnings by business segment:                (Unaudited)     Third Quarter  Year-to-Date($ thousands)     2011  2010  2011  2010Fresh Bakery     $29,198  $30,633  $80,394  $79,316Frozen Bakery     2,565  2,120  3,196  4,796Adjusted Operating Earnings     $31,763  $32,753  $83,590  $84,112Fresh 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 third quarter of $287.9 million were largely consistent with last year.  After adjusting for the sale of the Company's fresh sandwich product line, sales increased 5%, primarily benefiting from price increases implemented in the first half of 2011. Sales volumes in Fresh Bakery improved slightly due to increased retail sales volumes.Adjusted Operating Earnings were $29.2 million compared to $30.6 million last year. During the quarter, margin compression resulting from price increases implemented in the first half of 2011 that were not sufficient to fully offset the continued rise in wheat cost was largely mitigated by cost reduction initiatives and lower promotional expenses.  During the quarter the Company also benefited from the sale of its fresh sandwich product line in February 2011.During the quarter, the Fresh Bakery business recorded approximately $2.3 million of duplicative overhead costs, as the Company continues to operate three sub-scale bakeries as it gradually transitions production to its newly commissioned fresh bakery in Hamilton, Ontario, which officially opened on September 28, 2011. Production lines for rolls and breads are now in operation, and another two lines are planned to start commercial production by the end of 2011.  The final four lines, including flat breads, are planned for 2012. The Company plans to gradually transfer production from three bakeries in the Greater Toronto Area, and proceed with their closures 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 third quarter increased 3% to $129.2 million from $126.1 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 earlier in 2011. Sales volumes were slightly lower than last year, mainly due to a modest decline in North American frozen bakery sales volumes. In the U.K. operations, sales volumes increased benefiting from continued growth in bagel sales.Adjusted Operating Earnings in Frozen Bakery for the third quarter increased to $2.6 million from $2.1 million last year largely driven by improved margins in the U.K. bakery operations. Earnings benefited from price increases implemented during the first half of the year and efficiency gains from the closure of the North American frozen bakery in Laval, Quebec, as well as the consolidation of production in the U.K.  These benefits were partly offset by the impact of higher raw material costs.Other MattersOn October 26, 2011 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on January 3, 2012 to shareholders of record at the close of business on December 8, 2011.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, these dividends will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.              (Unaudited)     Three months ended September 30, 2011($ thousands)     FreshBakery  FrozenBakery   ConsolidatedNet earnings            $ 30,256Income taxes            (74)Earnings from operations before incometaxes            $ 30,182Interest expense            269Earnings from operations before interestand income taxes     $ 28,658  $ 1,793   $ 30,451Other Income     86  (372)   (286)Restructuring and other related costs     454  1,144   1,598Adjusted Operating Earnings(i)     $ 29,198  $  2,565   $ 31,763(i) may not add due to rounding              (Unaudited)     Three months ended September 30, 2010($ thousands) (i)     FreshBakery  FrozenBakery  ConsolidatedNet earnings           $ 14,313Income taxes           7,172Earnings from operations before incometaxes           $ 21,485Interest expense           823Earnings from operations before interestand income taxes     $ 20,471  $  1,837  $ 22,308Other Income     (67)  -  (67)Restructuring and other related costs     10,229  283  10,512Adjusted Operating Earnings     $ 30,633  $  2,120  $ 32,753(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 and nine 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.                (Unaudited)     Three months ended September 30,  Nine monthsendedSeptember 30,($ per share)     2011  2010  2011  2010Basic earnings per share     $  1.19  $  0.56  $  1.74  $  1.90Restructuring and other related costs(i)     0.05  0.30  1.02  0.38Adjusted Earnings per Share (ii)     $  1.24  $  0.87  $  2.76  $  2.27(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, LIMITED Three and nine months ended September 30, 2011 and 2010CANADA BREAD COMPANY, LIMITEDConsolidated Balance Sheets(In thousands of Canadian dollars)(Unaudited)                     As at   As at   As at        September 30,   September 30,   December 31,        2011   2010   2010                 ASSETS                                 Current assets               Cash and cash equivalents  $  35,731  $  106,961  $  84,401 Accounts receivable   49,542   133,840   29,773 Due from Maple Leaf Foods Inc.   426   1,361   - Note receivable    70,507   -   59,159 Inventories   62,721   56,046   55,477 Prepaid expenses and other assets   8,154   7,539   4,516 Income and other taxes recoverable   14,442   -   -       $  241,523  $  305,747  $  233,326                Property and equipment   421,431   387,484   387,603 Investment property   8,537   3,829   3,743 Employee benefits    2,186   1,035   - Other long-term assets   944   616   828 Deferred tax asset   14,418   9,293   9,543 Goodwill      268,264   266,174   264,276 Other intangible assets   13,348   15,125   13,626 Total assets  $  970,651  $  989,303  $  912,945                 LIABILITIES AND SHAREHOLDERS' EQUITY                             Current liabilities               Bank indebtedness  $  -  $  8,070  $  7,777 Accounts payable and accruals   191,166   253,648   171,742 Provisions    19,117   12,438   13,068 Due to Maple Leaf Foods Inc.   -   -   5,336 Dividends payable   5,083   1,525   1,525 Income and other taxes payable   -   13,049   3,248 Current portion of long-term debt   2,449   -   2,332       $  217,815  $  288,730  $  205,028                Long-term debt   1,697   3,117   1,629 Deferred tax liability   24,469   25,661   24,188 Employee benefits    54,412   28,592   37,491 Other long-term liabilities   5,286   6,765   6,240 Total liabilities   $  303,679  $  352,865  $  274,576Shareholders' Equity              Share capital    $  142,965  $  142,965  $ 142,965Retained earnings     528,502   506,000   509,500Accumulated other comprehensive loss    (4,495)   (12,527)   (14,096)Total shareholders' equity  $  666,972  $  636,438  $  638,369Total liabilities and shareholders' equity  $970,651  $989,303  $  912,945 CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Earnings(In thousands of Canadian dollars, except share amounts)(Unaudited)                    Three months ended  Nine months ended   September 30,  September 30,    2011   2010   2011   2010Sales  $417,171  $411,364  $1,195,176  $1,195,358                 Cost of goods sold   335,174   324,497   956,389   948,390                 Gross margin  $81,997  $86,867  $238,787  $246,968                 Selling, general and administrative expenses   50,234   54,114   155,197   162,856                 Earnings from operations before the following:  $31,763  $32,753  $83,590  $84,112                 Restructuring and other related costs   (1,598)   (10,512)   (34,195)   (13,021)Other income   286   67   364   194                 Earnings from operations before interest and income taxes  $30,451  $22,308  $49,759  $71,285Interest expense   269   823   872   2,679                 Earnings from operations before income taxes  $30,182  $21,485  $48,887  $68,606Income taxes   (74)   7,172   4,693   20,375                 Net earnings  $30,256  $14,313  $44,194  $48,231                 Earnings per share attributable to common shareholders                Basic and diluted earnings per share  $1.19  $0.56  $1.74  $1.90                 Weighted average number of shares (millions)   25.4   25.4   25.4   25.4CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Comprehensive Income (Loss)(In thousands of Canadian dollars)(Unaudited)                    Three months ended  Nine months ended   September 30,  September 30,(Unaudited)   2011   2010   2011   2010Net earnings  $30,256  $14,313  $44,194  $48,231Other comprehensive income (loss)                 Change in accumulated foreign currency translation adjustment   14,070   (7,062)   8,554   (8,549) Change in unrealized gains and losses on cash flow hedges   1,902   274   1,047   1,656 Change in actuarial gains and losses   (13,500)   -   (13,500)   -   $2,472  $(6,788)  $(3,899)  $(6,893)Comprehensive income  $32,728  $7,525  $40,295  $41,338CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Changes in Shareholder's Equity(In thousands of Canadian dollars)(Unaudited)                 (Unaudited)   Sharecapital   Retainedearnings   Totalaccumulatedothercomprehensiveloss   Totalshareholders'equity                 Balance at January 1, 2011  $142,965  $509,500  $(14,096)  $638,369                   Net earnings   -   44,194   -   44,194  Other comprehensive income (loss)   -   (13,500)   9,601   (3,899)  Dividends declared ($0.46 per share)   -   (11,692)   -   (11,692) Balance at September 30, 2011   $142,965  $528,502  $(4,495)  $666,972                 (Unaudited)   Sharecapital   Retainedearnings   Totalaccumulatedothercomprehensiveloss   Totalshareholders'equity                 Balance at January 1, 2010  $142,965  $462,343  $(5,634)  $599,674                  Net earnings   -   48,231   -   48,231 Other comprehensive loss   -   -   (6,893)   (6,893) Dividends declared ($0.18 per share)   -   (4,574)   -   (4,574)Balance at September 30, 2010  $142,965   $506,000  $(12,527)  $636,438 CANADA BREAD COMPANY, LIMITEDConsolidated Statements of Cash Flows(In thousands of Canadian dollars)(Unaudited)                          Three months ended     Nine months ended           September 30,     September 30,       2011  2010  2011    2010                   CASH PROVIDED BY (USED IN):                                     Operating activities                   Net earnings   $  30,256   $  14,313  $44,194  $  48,231 Add (deduct) items not affecting cash:                  Depreciation and amortization    11,432   13,110  35,046   38,222  Deferred income taxes    3,766   (4,373)  (292)    (6,130)  Income tax current    (3,107)  10,441  5,322   25,401  Interest expense    269   823  872   2,679  Loss (gain) on sale of property and                    equipment    267   (62)  268   (109)  Asset impairments and change in                   provision for restructuring and other                 related costs    (1,920)  9,746  24,280   10,093 Income taxes paid (net of refunds)    (4,487)  (7,750)  (21,887)  (25,598) Interest paid    (437)  (295)  (795)    (1,017) Other    2,845   1,770  257     861 Change in non-cash operating                    working capital    9,761   6,950  (32,892)    4,113Cash provided by operating activities   $  48,645   $  44,673 $54,373  $96,746                 Financing activities               Dividends paid   $   (8,642)  $  (1,525) $(11,692) $  (4,574) Net increase in long-term debt    -   697  -     570Cash used in financing activities     $   (8,642)  $(828) $(11,692) $  (4,004)                   Investing activities                 Additions to long term assets   $ (25,087)  $(25,778) $(88,715)  $(47,888) Capitalization of interest expense to                long term assets    -   (126)  (119)  (158) Proceeds from sale of long term assets    (148)  55  5,294  740 Change in intangible assets    292   -  (34)  - Other    -   91  -   4Cash used in investing activities     $ (24,943)  $(25,758) $(83,574)  $(47,302)                 Increase (decrease) in cash and                  cash equivalents   $  15,060   $  18,087 $(40,893)  $  45,440Net cash and cash equivalents,                    beginning of period    20,671   80,804  76,624   53,451Net cash and cash equivalents, end of period      $  35,731   $  98,891 $35,731   $  98,891                 Net cash and cash equivalents is comprised of:                Cash and cash equivalents     $  35,731   $106,961  $35,731   $106,961Bank indebtedness      -   (8,070)  -   (8,070)Net cash and cash equivalents, end of period     $  35,731   $  98,891 $35,731   $  98,891  CANADA BREAD COMPANY, LIMITEDSegmented Financial Information(In thousands of Canadian dollars)(Unaudited)                                           Three months ended   Nine months ended          September 30,   September 30,      2011  2010  2011  2010                Sales              Fresh Bakery  $287,923   $285,232 $825,372   $824,951 Frozen Bakery  129,248   126,132  369,804   370,407      $417,171   $411,364  $1,195,176   $1,195,358                Earnings from operations before             restructuring and other related             costs and other income              Fresh Bakery  $29,198   $30,633  $80,394   $79,316  Frozen Bakery  2,565   2,120  3,196   4,796      $31,763   $32,753  $83,590   $84,112                Capital expenditures             Fresh Bakery  $19,362   $19,818 $74,995   $33,309 Frozen Bakery  5,725   5,960  13,720   14,579      $25,087   $25,778 $88,715   $47,888                Depreciation and amortization             Fresh Bakery  $6,376   $7,330 $19,445   $20,636 Frozen Bakery  5,056   5,780  15,601   17,586      $11,432   $13,110 $35,046   $38,222                     September 30, September 30,  December 31,      2011 2010 2010              Total assets            Fresh Bakery   $516,818   $476,959  $437,976 Frozen Bakery   383,728   388,305  372,211 Non-allocated assets   70,105   124,039  102,758       $970,651  $989,303  $912,945              Goodwill            Fresh Bakery   $125,892   $125,892  $125,892 Frozen Bakery   142,372   140,282  138,384       $268,264  $266,174  $264,276                  For further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020