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Press release from PR Newswire

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, 2011 TORONTO, Ontario, Oct. 27, 2011 /PRNewswire/ - 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 Overview Sales 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 ($0.38 per share) related to a tax adjustment associated with a prior acquisition. Business Segment Review The following table summarizes sales by business segment:                                 (Unaudited)           Third Quarter     Year-to-Date ($ thousands)           2011     2010     2011     2010 Fresh Bakery           $287,923     $285,232     $825,372     $824,951 Frozen Bakery           129,248     126,132     369,804     370,407 Total Sales           $417,171     $411,364     $1,195,176     $1,195,358 The following table summarized Adjusted Operating Earnings by business segment:                                 (Unaudited)           Third Quarter     Year-to-Date ($ thousands)           2011     2010     2011     2010 Fresh Bakery           $29,198     $30,633     $80,394     $79,316 Frozen Bakery           2,565     2,120     3,196     4,796 Adjusted Operating Earnings           $31,763     $32,753     $83,590     $84,112 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® 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 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® 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 Matters On October 26, 2011 Canada Bread Company, Limited declared a dividend of $0.20 per share payable on January 3, 2012 to shareholders of record at the close of business on December 8, 2011.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, these dividends will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System". Reconciliation of Non-IFRS Financial Measures The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS. Adjusted Operating Earnings The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited condensed consolidated interim statements of earnings for the three month periods ended as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.                             (Unaudited)           Three months ended September 30, 2011 ($ thousands)           Fresh Bakery     Frozen Bakery       Consolidated Net earnings                         $ 30,256 Income taxes                         (74) Earnings from operations before income taxes                         $ 30,182 Interest expense                         269 Earnings from operations before interest and income taxes           $ 28,658     $ 1,793       $ 30,451 Other Income           86     (372)       (286) Restructuring and other related costs           454     1,144       1,598 Adjusted 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)           Fresh Bakery     Frozen Bakery     Consolidated Net earnings                       $ 14,313 Income taxes                       7,172 Earnings from operations before income taxes                       $ 21,485 Interest expense                       823 Earnings from operations before interest and income taxes           $ 20,471     $  1,837     $ 22,308 Other Income           (67)     -     (67) Restructuring and other related costs           10,229     283     10,512 Adjusted Operating Earnings           $ 30,633     $  2,120     $ 32,753 (i) May not add due to rounding Adjusted Earnings per Share The 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 months ended September 30, ($ per share)           2011     2010     2011     2010 Basic earnings per share           $  1.19     $  0.56     $  1.74     $  1.90 Restructuring and other related costs(i)           0.05     0.30     1.02     0.38 Adjusted 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 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, 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 2010 CANADA BREAD COMPANY, LIMITED Consolidated 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     $   274,576 Shareholders' Equity                           Share capital       $   142,965     $   142,965     $  142,965 Retained earnings         528,502       506,000       509,500 Accumulated other comprehensive loss        (4,495)       (12,527)       (14,096) Total shareholders' equity     $   666,972     $   636,438     $   638,369 Total liabilities and shareholders' equity     $ 970,651     $ 989,303     $   912,945   CANADA BREAD COMPANY, LIMITED Consolidated 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       2010 Sales     $ 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     $ 71,285 Interest expense       269       823       872       2,679                                   Earnings from operations before income taxes     $ 30,182     $ 21,485     $ 48,887     $ 68,606 Income 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       25.4 CANADA BREAD COMPANY, LIMITED Consolidated 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       2010 Net earnings     $ 30,256     $ 14,313     $ 44,194     $ 48,231 Other 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     $ 41,338 CANADA BREAD COMPANY, LIMITED Consolidated Statements of Changes in Shareholder's Equity (In thousands of Canadian dollars) (Unaudited)                                   (Unaudited)       Share capital       Retained earnings       Total accumulated other comprehensive loss       Total shareholders' 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)       Share capital       Retained earnings       Total accumulated other comprehensive loss       Total shareholders' 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, LIMITED Consolidated 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)       4,113 Cash 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     -       570 Cash 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     -     4 Cash 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)    $   45,440 Net cash and cash equivalents,                                    beginning of period         20,671     80,804     76,624     53,451 Net 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    $ 106,961 Bank indebtedness           -     (8,070)     -     (8,070) Net cash and cash equivalents, end of period         $   35,731    $   98,891   $ 35,731    $   98,891     CANADA BREAD COMPANY, LIMITED Segmented 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                                     SOURCE Canada Bread Company, LimitedFor further information: <p align="right"> Investor Contact: Nick Boland,<br/> VP Investor Relations: 416-926-2005<br/> Media Contact: 416-926-2020 </p>