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Press release from CNW Group

Canada Bread Reports Results for the Third Quarter 2012

Wednesday, October 31, 2012

Canada Bread Reports Results for the Third Quarter 201208:06 EDT Wednesday, October 31, 2012TORONTO, Oct. 31, 2012 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the third quarter ended September 30, 2012.Adjusted Operating Earnings(1) for the third quarter increased 7.8% to $34.2 million compared to $31.8 million last yearNet earnings for the quarter were $24.2 million compared to $30.3 million last yearAdjusted EPS(2) for the quarter was $0.96, compared to $1.24 in the third quarter of 2011 ($0.86 excluding a $9.8 million tax adjustment associated with a prior acquisition)"Our earnings growth resulted from effective buying strategies and a strong positive shift in our North American frozen bakery business. We have a number of commercial and marketing initiatives underway to support growth in each of our businesses, and we expect to manage inflationary costs through responsible pricing," said Richard Lan, President and CEO.(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 OverviewCanada Bread sales for the third quarter declined 3.8% to $401.5 million, compared to $417.2 million last year. After adjusting for the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K., sales decreased 2.3%. This decrease was primarily related to lower volumes in the fresh bread business.Adjusted Operating Earnings for the third quarter increased 7.8% to $34.2 million compared to $31.8 million last year, driven by higher earnings in the fresh bread business and the North American frozen bakery operations.Net earnings in the quarter were $24.2 million ($0.95 basic earnings per share) compared to $30.3 million ($1.19 basic earnings per share) last year and included $0.2 million in pre-tax restructuring costs (2011: $1.6 million). Net earnings in the third quarter of 2011 also included $9.8 million ($0.38 per share) related to a tax adjustment associated with a prior acquisition.  Adjusted earnings per share for the third quarter were $0.96 compared to $1.24 last year.Business Segment ReviewThe following table summarizes sales by business segment:                 (Unaudited)  Third Quarter  Year-to-Date($ thousands)  2012  2011  2012  2011Fresh Bakery $  277,709 $287,923 $805,056 $825,372Frozen Bakery    123,785  129,248  371,543  369,804Sales $  401,494 $417,171 $  1,176,599 $1,195,176             The following table summarizes Adjusted Operating Earnings by business segment:              (Unaudited) Third Quarter Year-to-Date($ thousands)  2012  2011  2012  2011Fresh Bakery $  28,765 $29,198 $  66,540 $80,394Frozen Bakery  5,469  2,565    13,884  3,196Adjusted Operating Earnings $  34,234 $31,763 $  80,424 $  83,590Fresh 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 declined 3.5% to $277.7 million from $287.9 million last year, primarily due to lower volumes in the fresh bread business.Adjusted Operating Earnings in the third quarter were $28.8 million compared to $29.2 million last year, as improved earnings in the fresh bread business were offset by lower earnings in the fresh pasta business. Results benefited from positive hedging activities for raw materials during the quarter, although the business continues to experience inflationary costs and projected increases in flour and dairy costs that will require offsetting price increases. Volumes in the fresh bread business were consistent with the second quarter of 2012, but lower than last year, reflecting industry volume declines.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 declined 4.2% to $123.8 million from $129.2 million in 2011. After adjusting for the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K., sales increased 0.6%. Stronger volumes and selling prices in the North American frozen bakery operations were largely offset by lower volumes in the U.K. bakery business.Adjusted Operating Earnings in Frozen Bakery for the third quarter of 2012 increased to $5.5 million from $2.6 million last year. The North American frozen bakery business benefited from higher pricing and increased sales volumes compared to last year. In the U.K., earnings were consistent with last year as improvements from cost reduction strategies, including the closure of a bakery in the first quarter, were offset by lower volumes and costs of commissioning new croissant capacity.Other MattersOn October 30, 2012, the Company declared a dividend of $0.50 per share payable on January 2, 2013 to shareholders of record at the close of business on December 7, 2012. Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".Reconciliation of Non-IFRS Financial MeasuresThe Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS.  Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below.  These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.Adjusted Operating EarningsThe following tables reconcile earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three and nine months ended, as indicated below.  Management believes that this basis is the most appropriate on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.            Three months ended September 30, 2012          (Unaudited)($ thousands)  FreshBakery  FrozenBakery ConsolidatedNet earnings       $24,215Income taxes        9,471Earnings from operations before income taxes       $33,686Interest expense        365Earnings from operations before interest and  income taxes $28,576 $5,475 $34,051Other (income) expense  13  -  13Restructuring and other related costs  176  (6)  170Adjusted Operating Earnings $28,765 $5,469 $34,234                      Three months ended September 30, 2011          (Unaudited)($ thousands) FreshBakery FrozenBakery ConsolidatedNet earnings       $30,256Income taxes        (74)Earnings from operations before income taxes       $30,182Interest expense        269Earnings (loss) from operations before interest and income taxes $28,658 $1,793 $30,451Other (income) expense  86  (372)  (286)Restructuring and other related costs  454  1,144  1,598Adjusted Operating Earnings  $29,198 $2,565 $31,763                      Nine months ended September 30, 2012(Unaudited)($ thousands) FreshBakery FrozenBakery ConsolidatedNet earnings       $51,829Income taxes        21,501Earnings from operations before income taxes       $73,330Interest expense        1,193Earnings from operations before interest and income taxes $64,639 $9,884 $74,523Other (income) expense  (1,567)  209  (1,358)Restructuring and other related costs  3,468  3,791  7,259Adjusted Operating Earnings  $66,540 $13,884 $80,424                      Nine months ended September 30, 2011(Unaudited)($ thousands) FreshBakery FrozenBakery ConsolidatedNet earnings       $44,194Income taxes        4,693Earnings from operations before income taxes       $48,887Interest expense        872Earnings (loss) from operations before interest and income taxes $67,886 $(18,127) $49,759Other (income) expense  8  (372)  (364)Restructuring and other related costs  12,500  21,695  34,195Adjusted Operating Earnings  $80,394 $3,196 $83,590 Adjusted Earnings per ShareThe following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below.  Management believes this basis is the most appropriate on which to evaluate financial results as restructuring and other related costs are not representative of operational results.           (Unaudited) Three months endedSeptember 30, Nine months endedSeptember 30,($ per share) 20122011 20122011Basic earnings per share $0.95$1.19 $2.04$1.74Restructuring and other related costs(i)  0.01 0.05  0.22 1.02Adjusted Earnings per Share(ii) $0.96$1.24 $2.26$2.76(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, LIMITEDThree and nine months ended September 30, 2012 and 2011Consolidated Balance Sheets(In thousands of Canadian dollars)As at September 30,2012 As at September 30,2011 As at December 31,2011     (Unaudited) (Unaudited)  ASSETS         Current assets          Cash and cash equivalents $ 87,300   $35,731  $59,223 Accounts receivable 39,702   46,910  56,522 Due from Maple Leaf Foods Inc. -   426  - Note receivable  50,973   69,692  45,847 Inventories  63,912   62,721  60,048 Income taxes recoverable -   14,442  2,162 Prepaid expenses and other assets 4,288   8,154  5,218      $246,175   $238,076  $229,020 Property and equipment  409,958   421,431  425,944 Investment property  9,524   8,537  8,415 Employee benefits -   2,133  - Other long-term assets 4,713   4,424  4,456 Deferred tax asset 19,419   14,418  17,917 Goodwill   263,177   268,264  266,013 Intangible assets  12,046   13,348  12,710 Total assets $965,012   $970,631  $964,475             LIABILITIES AND SHAREHOLDERS' EQUITY        Current liabilities          Bank indebtedness$1,587  $- $3,153 Accounts payable and accruals 177,101   191,047  185,811 Provisions   10,251   19,236  23,066 Due to Maple Leaf Foods Inc.  3,571   -  2,451 Dividends payable 12,708   5,083  5,083 Income taxes payable 123   -  - Current portion of long-term debt  350   2,449  2,452     $205,691  $217,815 $222,016 Long-term debt   2,986   1,697  1,634 Deferred tax liability 19,224   24,689  21,784 Employee benefits  60,447   53,513  50,434 Provisions   5,521   5,319  5,005 Total liabilities  $293,869  $303,033 $300,873             Shareholders' equity        Share capital $142,965  $142,965 $142,965Retained earnings  543,316   529,128  530,852Accumulated other comprehensive loss  (15,138)  (4,495)  (10,215)Total shareholders' equity$671,143  $667,598 $663,602Total liabilities and shareholders' equity$965,012  $970,631 $964,475 Consolidated Statements of Earnings(In thousands of Canadian dollars, except share amounts) Three months ended September 30,     Nine months ended September 30,(Unaudited)  2012  2011 2012  2011                 Sales    $401,494   $417,171 $1,176,599  $1,195,176Cost of goods sold   318,879   335,174  946,787   956,389                 Gross margin  $82,615  $81,997  $229,812  $238,787Selling, general and administrative expenses  48,381   50,234  149,388   155,197                 Earnings before the following: $34,234  $31,763  $80,424  $83,590Restructuring and other related costs  (170)  (1,598)  (7,259)  (34,195)Other (expense) income  (13)  286  1,358   364                 Earnings before interest and income taxes $34,051  $30,451  $74,523  $49,759Interest expense   365   269  1,193   872                 Earnings before income taxes $33,686  $30,182 $73,330  $48,887Income taxes   9,471   (74)  21,501   4,693                 Net earnings   $24,215  $30,256  $51,829  $44,194                 Earnings per share               Basic and diluted earnings per share $0.95  $1.19  $2.04  $1.74Weighted 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 September 30,     Nine months ended September 30,(Unaudited)   2012 2011 2012 2011                  Net earnings    $24,215 $30,256 $51,829 $44,194                  Other comprehensive income (loss)              Change in accumulated foreign currency              translation adjustment   (4,836)  14,070  (4,273)  8,554 Change in unrealized gains and losses               on cash flow hedges   (228)  1,902  (650)  1,047 Change in actuarial gains and losses  (4,741)  (13,500)  (8,864)  (13,500)       $(9,805) $2,472  $(13,787) $(3,899)Comprehensive income  $14,410 $32,728  $38,042 $40,295 Consolidated Statements of Changes in Shareholders' Equity (In thousands of Canadian dollars) (Unaudited)SharecapitalRetainedearningsTotalaccumulatedothercomprehensivelossTotalshareholders'equity            Balance at December 31, 2011$142,965 $530,852 $(10,215) $663,602 Net earnings   -  51,829  -   51,829  Other comprehensive loss -  (8,864)  (4,923)  (13,787) Dividends declared ($1.20 per share) -  (30,501)  -   (30,501)Balance at September 30, 2012$142,965 $543,316  $(15,138) $671,143                                    (In thousands of Canadian dollars)(Unaudited)SharecapitalRetainedearningsTotalaccumulatedothercomprehensivelossTotalshareholders'equity                 Balance at December 31, 2010$142,965 $510,126 $(14,096) $638,995 Net earnings   -  44,194  -  44,194 Other comprehensive (loss) income -  (13,500)  9,601  (3,899) Dividends declared ($0.46 per share) -  (11,692)  -  (11,692)Balance at September 30, 2011$142,965 $529,128 $(4,495) $667,598 Consolidated Statements of Cash Flows    (In thousands of Canadian dollars)Three months ended September 30, Nine months ended September 30,(Unaudited) 2012 2011   2012 2011                CASH PROVIDED BY (USED IN):                           Operating activities            Net earnings $24,215 $30,256 $51,829 $44,194 Add (deduct) items not affecting cash:             Depreciation and amortization 12,582  11,432  36,522  35,046  Deferred income taxes (814)  3,033  554  (629)  Current income taxes 10,285  (3,107)  20,947  5,322  Interest expense 365  269  1,193  872  (Gain) loss on sale of long-term assets (11)  267  (137)  268  Change in provision for restructuring               and other related costs (1,157)  (1,920)  (7,755)  24,280 Decrease in pension liability (432)  -  (1,875)  - Net income taxes paid  (7,831)  (4,487)  (18,222)  (21,887) Interest paid  (350)  (437)  (1,204)  (795) Other  (112)  3,578  304   594 Change in non-cash operating              working capital  (12,608)  9,761  (1,553)  (32,892)Cash provided by operating activities$24,132 $48,645 $80,603 $54,373                Financing activities            Dividends paid $(12,708) $(8,642) $(22,840) $(11,692) Repayment of long-term debt (34)  -  (822)  -Cash used in financing activities$(12,742) $(8,642) $(23,662) $(11,692)                Investing activities            Additions to long-term assets$(10,147) $(25,087)  $(32,180) $(88,715) Capitalization of interest expense -   -  -   (119) Proceeds from sale of long-term assets 2,434   -  4,882   5,294 Other  -   144  -   (34)Cash used in investing activities$(7,713) $(24,943)  $(27,298) $(83,574)                Increase (decrease) in cash             and cash equivalents$3,677 $15,060 $29,643 $(40,893)Net cash and cash equivalents,             beginning of period 82,036  20,671  56,070  76,624Net cash and cash equivalents, end of period$85,713 $35,731 $85,713 $35,731                Net cash and cash equivalents is comprised of:           Cash and cash equivalents$87,300 $35,731 $87,300 $35,731Bank indebtedness  (1,587)  -  (1,587)  -Net cash and cash equivalents, end of period$85,713 $35,731 $85,713 $35,731Segmented Financial Information        Three months ended September 30,     Nine months ended September 30,   2012 2011 2012 2011              Sales            Fresh Bakery$277,709 $287,923 $805,056 $825,372 Frozen Bakery 123,785  129,248  371,543  369,804   $401,494 $417,171 $1,176,599 $1,195,176              Earnings before restructuring and other   related costs and other income            Fresh Bakery$28,765 $29,198 $66,540 $80,394 Frozen Bakery 5,469  2,565  13,884  3,196   $34,234 $31,763 $80,424 $83,590              Capital expenditures            Fresh Bakery$6,821 $19,362 $24,553 $74,995 Frozen Bakery 3,326  5,725  7,627  13,720   $10,147 $25,087 $32,180 $88,715              Depreciation and amortization            Fresh Bakery$7,918 $6,376 $22,622 $19,445 Frozen Bakery 4,664  5,056  13,900  15,601   $12,582 $11,432 $36,522 $35,046            As at September 30,2012  As at September 30,2011  As at December 31,2011              Total assets            Fresh Bakery   $507,476 $516,798 $516,485 Frozen Bakery    350,922  383,728  368,534 Non-allocated assets   106,614  70,105  79,456      $965,012  $970,631 $964,475Goodwill            Fresh Bakery   $125,892 $125,892 $125,892 Frozen Bakery    137,285  142,372  140,121      $263,177  $268,264 $266,013      SOURCE: Canada Bread Company, LimitedFor further information: Investor Contact: Nick Boland, VP Investor Relations: 416-926-2005 Media Contact: 416-926-2020