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Press release from CNW Group

Canada Bread Reports Results for the Second Quarter 2012

Wednesday, August 01, 2012

Canada Bread Reports Results for the Second Quarter 201208:22 EDT Wednesday, August 01, 2012TSX: CBYTORONTO, Aug. 1, 2012 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the second quarter ended June 30, 2012.  Second quarter highlights include:Adjusted Operating Earnings(1) for the second quarter were $37.4 million compared to $35.1 million last year, an increase of 7%Net earnings for the quarter were $26.8 million compared to $14.9 million last yearAdjusted EPS(2) for the quarter was $1.09, up from $0.97 in the second quarter of 2011"Our results improved from last year and significantly from a weak first quarter, reflecting some improvement in volume and the benefit of price increases in our Frozen Bakery segment to manage higher costs," said Richard Lan, President and CEO. "While the bread category continues to be soft in both North America and the U.K., we will continue to manage this through proactive sales strategies, product innovation and cost reduction."(1): Adjusted Operating Earnings, a non-IFRS measure, is defined as earnings from operations before restructuring and other related costs and other income (expense). (2): Adjusted Earnings per Share ("Adjusted EPS"), a non-IFRS measure, is 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 were $404.9 million compared to $406.2 million last year. After adjusting for the closure of a bakery and related exit of unprofitable categories in the U.K. and currency translation on sales in the U.S. and U.K., sales increased 1%. The increase was mainly due to stronger volumes and selling prices in the North American frozen bakery operations.Adjusted Operating Earnings for the second quarter of $37.4 million were 7% higher compared to earnings of $35.1 million last year as improved pricing, sales mix, and volumes in the Frozen Bakery segment were partially offset by higher inflationary costs and spending in the Fresh Bakery segment, largely attributable to the fresh pasta business.Net earnings in the quarter were $26.8 million ($1.05 basic earnings per share) compared to $14.9 million ($0.59 basic earnings per share) last year and included $1.2 million in pre-tax restructuring costs (2011: $12.5 million). Adjusted earnings per share for the second quarter were $1.09 compared to $0.97 last year.Business Segment ReviewThe following table summarizes sales by business segment:      (Unaudited)             Second QuarterYear-to-Date($ thousands)  2012201120122011Fresh Bakery  $279,164$282,364$527,347$537,449Frozen Bakery  125,697123,881247,758240,556Total Sales  $404,861$406,245$775,105$778,005       The following table summarized Adjusted Operating Earnings by business segment:     (Unaudited)Second QuarterYear-to-Date($ thousands)2012201120122011Fresh Bakery$30,507$33,211$37,775$51,196Frozen Bakery6,9221,8928,415631Adjusted Operating Earnings$37,429$35,103$46,190$51,827     Fresh 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 $279.2 million were 1% lower than sales of $282.4 million last year, primarily due to increased feature pricing activity in the fresh bakery business and lower volumes in the fresh pasta business. Volumes in the fresh bakery business were comparable to last year.Adjusted Operating Earnings in the second quarter declined 8% to $30.5 million compared to $33.2 million last year. While results in the fresh bakery business were consistent with last year, there was a significant improvement from the first quarter of 2012 as a result of increased promotional and marketing activities and warm summer weather. However, an underlying decline in consumer demand continues to impact results. Included in results are $0.8 million in duplicative overhead costs related to the commissioning of a new fresh bakery in Hamilton, Ontario and which are expected to continue until early 2013. The Company expects the new bakery to be accretive to operating earnings commencing in 2013, with the closure of the third Toronto bakery and as volumes consolidate into the new Hamilton facility. Results from the fresh pasta business declined due to higher inflationary and operational costs, and increased advertising and promotional spending.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 were $125.7 million compared to $123.9 million in 2011. After adjusting for the closure of a bakery and related exit of unprofitable categories in the U.K. and currency translation on sales in the U.S. and U.K., sales increased 5%. The sales increase was mainly due to stronger volumes and selling prices in the North American frozen bakery operations.Adjusted Operating Earnings in Frozen Bakery for the second quarter of 2012 were $6.9 million compared to $1.9 million last year. Profitability continued to improve due to higher pricing and volumes in the North American frozen bakery operations, an improved sales mix in the U.K., and lower overhead costs resulting from the closure of the Walsall, U.K. bakery in the first quarter of 2012. These benefits were partially offset by higher inflationary costs.Other MattersOn July 31, 2012, Canada Bread declared a dividend of $0.50 per share payable on October 1, 2012 to shareholders of record at the close of business on September 7, 2012.  Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following tables reconcile earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three and six months ended, as indicated below.  Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.     (Unaudited) Three months ended June 30, 2012($ thousands)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $26,775 Income taxes   10,407Earnings from operations before income taxes   37,182 Interest expense   391 Earnings from operations before interest and  income taxes30,6516,922 37,573 Other income(1,349)- (1,349)Restructuring and other related costs1,205- 1,205Adjusted Operating Earnings$30,507$6,922 $37,429     (Unaudited) Three months ended June 30, 2011($ thousands)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $14,904Income taxes   7,388Earnings from operations before income taxes   22,292Interest expense   264Earnings from operations before interest and  income taxes30,760(8,204) 22,556Restructuring and other related costs2,45110,096 12,547Adjusted Operating Earnings$33,211$1,892 $35,103     (Unaudited) Six months ended June 30, 2012($ thousands)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $27,614 Income taxes   12,030Earnings from operations before income taxes   39,644 Interest expense   828 Earnings from operations before interest and  income taxes36,0634,409 40,472 Other (income) expense(1,580)209 (1,371) Restructuring and other related costs3,2923,797 7,089Adjusted Operating Earnings$37,775$8,415 $46,190     (Unaudited) Six months ended June 30, 2011($ thousands)Fresh BakeryFrozen Bakery ConsolidatedNet earnings   $13,938Income taxes   4,767Earnings from operations before income taxes   18,705Interest expense   603Earnings from operations before interest and  income taxes39,228(19,920) 19,308Other income(78)- (78)Restructuring and other related costs12,04620,551 32,597Adjusted Operating Earnings$51,196$631 $51,827     Adjusted Earnings per ShareThe following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.   ($ per share)Three months ended June 30, Six months ended June 30,(Unaudited)2012201120122011Basic Earnings per Share$1.05$   0.59$1.09 $   0.55Restructuring and other related costs(i) 0.04 0.38 0.21 0.98Adjusted Earnings per Share(ii)$1.09$   0.97$1.30  $   1.53(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 information" within the meaning of applicable securities laws.  These statements 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 information in this document includes, but is 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, expected duplicative overhead costs incurred due to the concurrent operation of the new Hamilton fresh bakery and existing bakeries, expectations regarding the timing and amount of capital investments; expectations regarding the timing and cost of plant closures; 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 information. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict.In particular, these 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, U.S. and U.K. 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 information, 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 information 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, 2011 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 information, 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 2011 sales of $1.6 billion and employs approximately 6,000 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 six months ended June 30, 2012 and 2011Consolidated Balance Sheets     As at June 30, As at June 30, As at December 31,(In thousands of Canadian dollars)2012 2011 2011     (Unaudited) (Unaudited)  ASSETS      Current assets       Cash and cash equivalents $83,631   $20,671  $59,223 Accounts receivable  45,363   48,823  56,522 Note receivable   39,766   83,755  45,847 Inventories   59,770   53,037  60,048 Income and other taxes recoverable 2,875   7,066  2,162 Prepaid expenses and other assets 2,481   7,937  5,218      $233,886   $221,289  $229,020 Property and equipment  416,690   401,387  425,944 Investment property  9,522   8,389  8,415 Employee benefits  -   691  - Other long-term assets 4,405   4,134  4,456 Deferred tax asset 15,974   12,654  17,917 Goodwill   266,050   261,590  266,013 Intangible assets  12,274   13,335  12,710 Total assets  $958,801   $923,469  $964,475             LIABILITIES AND SHAREHOLDERS' EQUITY        Current liabilities          Bank indebtedness $1,595   $-  $3,153 Accounts payable and accruals 176,950   183,157  185,811 Provisions   11,642   23,004  23,066 Due to Maple Leaf Foods Inc.  4,047   3,347  2,451 Dividends payable 12,708   5,083  5,083 Current portion of long-term debt 264   2,323  2,452      $207,206   $216,914  $222,016 Long-term debt  3,093   1,675  1,634 Deferred tax liability 19,480   23,115  21,784 Employee benefits  54,498   35,333  50,434 Provisions   5,047   6,222  5,005 Other long-term liabilities -   257  - Total liabilities   $289,324   $283,516  $300,873             Shareholders' equity        Share capital  $142,965   $142,965  $142,965Retained earnings  536,586   517,455  530,852Accumulated other comprehensive loss (10,074)  (20,467)  (10,215)Total shareholders' equity $669,477   $639,953  $663,602Total liabilities and shareholders' equity $958,801   $923,469  $964,475                         Consolidated Statements of Earnings(In thousands of Canadian dollars,except share amounts)  Three months ended June 30,     Six months ended June 30,(Unaudited) 2012 2011 2012 2011            Sales   $404,861  $406,245  $775,105  $778,005Cost of goods sold  319,419  321,798  627,908  621,215                Gross margin  $85,442  $84,447  $147,197  $156,790Selling, general and administrative expenses 48,013  49,344  101,007  104,963                Earnings before the following: $37,429  $35,103  $46,190  $51,827Restructuring and other related costs  (1,205)  (12,547)  (7,089)  (32,597)Other income   1,349  -  1,371  78                Earnings before interest and income taxes $37,573  $22,556  $40,472  $19,308Interest expense   391  264  828  603                Earnings before income taxes $37,182  $22,292  $39,644  $18,705Income taxes  10,407  7,388  12,030  4,767                Net earnings   $26,775  $14,904  $27,614  $13,938                Earnings per share              Basic and diluted earnings per share $1.05  $0.59  $1.09  $0.55Weighted average number of shares (millions) 25.4  25.4  25.4  25.4                                  Consolidated Statements of Comprehensive Income(In thousands of Canadian dollars) Three months ended June 30,     Six months ended June 30,(Unaudited)  2012 2011 2012 2011             Net earnings   $26,775   $14,904  $27,614   $13,938                 Other comprehensive income (loss)             Change in accumulated foreign currency             translation adjustment  2,861   (26)  563   (5,516) Change in unrealized gains and losses              on cash flow hedges  278   250  (422)  (855) Change in actuarial gains and losses (2,823)  -  (4,123)  -       $316   $224  $(3,982)  $(6,371)Comprehensive income  $27,091  $15,128  $23,632   $7,567                                 Consolidated Statements of Changes in Shareholders' Equity          Total            accumulated            other Total(In thousands of Canadian dollars)Share Retained comprehensive shareholders'(Unaudited)  capital earnings loss equity             Balance at December 31, 2011 $142,965   $530,852   $(10,215)  $663,602  Net earnings   -   27,614   -   27,614  Other comprehensive (loss) income -   (4,123)  141   (3,982) Dividends declared ($0.70 per share) -   (17,757)  -   (17,757)Balance at June 30, 2012  $142,965   $536,586   $(10,074)  $669,477                                     Total            accumulated            other Total(In thousands of Canadian dollars)Share Retained comprehensive shareholders'(Unaudited)  capital earnings loss equity             Balance at December 31, 2010 $142,965  $510,126  $(14,096)  $638,995 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   $517,455   $(20,467)  $639,953                              Consolidated Statements of Cash Flows(In thousands of Canadian dollars)Three months ended June 30,     Six months ended June 30,(Unaudited) 2012 2011 2012 2011            CASH PROVIDED BY (USED IN):                   Operating activities        Net earnings  $26,775   $14,904  $27,614   $13,938 Add (deduct) items not affecting cash:             Depreciation and amortization 12,591   11,407  23,940   23,614  Deferred income taxes 1,350   (480)  1,368   (3,662)  Income tax current 9,057   7,868  10,662   8,429  Interest expense 391   264  828   603  (Gain) loss on sale of long-term assets 105   (4)  (126)  1  Change in provision for restructuring               and other related costs (2,248)  7,814  (6,598)  26,200 Decrease in pension liability (502)  -  (1,443)  - Net income taxes paid  (3,836)  (7,582)  (10,391)  (17,400) Interest paid  (495)  (81)  (854)  (358) Other  266   (2,125)  416   (2,984) Change in non-cash operating              working capital  18,482   (27,122)  11,055   (42,653)Cash provided by operating activities $61,936   $4,863  $56,471   $5,728                Financing activities            Dividends paid  $(5,049)  $(1,525)  $(10,132)  $(3,050) Repayment of long-term debt (788)  -  (788)  -Cash used in financing activities $(5,837)  $(1,525)  $(10,920)  $(3,050)                Investing activities            Additions to long-term assets $(11,376)  $(34,071)  $(22,033)  $(63,628) Capitalization of interest expense -   (5)  -   (119) Proceeds from sale of long-term assets 29   403  2,448   5,442 Other  -   (841)  -   (326)Cash used in investing activities $(11,347)  $(34,514)  $(19,585)  $(58,631)                Increase (decrease) in cash             and cash equivalents $44,752   $(31,176)  $25,966   $(55,953)Net cash and cash equivalents,             beginning of period 37,284   51,847  56,070   76,624Net cash and cash equivalents, end of period $82,036   $20,671  $82,036   $20,671                Net cash and cash equivalents is comprised of:           Cash and cash equivalents $83,631   $20,671  $83,631   $20,671Bank indebtedness  (1,595)  -  (1,595)  -Net cash and cash equivalents, end of period $82,036   $20,671  $82,036   $20,671                               Segmented Financial Information       Three months ended June 30,     Six months ended June 30,   2012 2011 2012 2011          Sales        Fresh Bakery $279,164   $282,364  $527,347   $537,449 Frozen Bakery 125,697   123,881  247,758   240,556    $404,861   $406,245  $775,105   $778,005              Earnings before restructuring and other related           costs and other income           Fresh Bakery $30,507   $33,211  $37,775   $51,196 Frozen Bakery 6,922   1,892  8,415   631    $37,429   $35,103  $46,190   $51,827              Capital expenditures            Fresh Bakery $8,538   $29,476  $17,732   $55,633 Frozen Bakery 2,838   4,595  4,301   7,995    $11,376   $34,071  $22,033   $63,628              Depreciation and amortization           Fresh Bakery $7,647   $6,434  $14,704   $13,069 Frozen Bakery 4,944   4,973  9,236   10,545    $12,591   $11,407  $23,940   $23,614                                As at June 30, As at June 30, As at December 31,                                                2012 2011 2011           Total assets         Fresh Bakery    $503,055   $518,890  $516,485 Frozen Bakery    352,594   352,953  368,534 Non-allocated assets   103,152   51,626  79,456       $958,801   $923,469  $964,475Goodwill            Fresh Bakery    $125,892   $125,892  $125,892 Frozen Bakery    140,158   135,698  140,121       $266,050   $261,590  $266,013                                      SOURCE: Canada Bread Company, LimitedFor further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020