Canada Bread Reports Results for the First Quarter 2012
TSX: CBY
TORONTO, May 2, 2012 /CNW/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the first quarter ended March 31, 2012. First quarter highlights include:
- Adjusted Operating Earnings(1) for the first quarter declined 48% to $8.8 million compared to $16.7 million last year
- Net earnings for the quarter were $0.8 million, compared to a net loss of $1.0 million last year
- Adjusted EPS(2) for the quarter was $0.21, down from $0.56 in the first quarter of 2011
"Our first quarter results were significantly impacted, as expected, by an industry wide decline in bakery volumes," said Richard Lan, President and CEO. "Despite this, we benefited from our position in key categories, innovation and the strength of our brands. We are addressing the challenges and improving profitability through increased marketing, consumer outreach 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 Overview
Sales for the first quarter were $370.2 million compared to $371.8 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, the strategic exit from fresh and in-store bakery bread categories in the U.K., and currency translation on sales in the U.S. and U.K., sales increased 2%. The increase was due to price increases implemented across the business during 2011 and was partially offset by declines in Fresh Bakery sales volumes.
Adjusted Operating Earnings for the first quarter declined 48% to $8.8 million in 2012, compared to $16.7 million last year. The most significant factor was a decline in fresh bakery volumes, a trend which has been experienced across the North American industry. The Company is focusing on expansion in higher growth categories, strategic customer partnerships and increased marketing and consumer communications to increase volumes through the remainder of the year. Earnings were also impacted by higher input costs and overall inflation, and approximately $3 million in incremental costs related to inventory write-downs in the fresh pasta business and duplicative overhead costs as the Company commissions its new fresh bakery in Hamilton, Ontario. These impacts were partly offset by the benefits of price increases implemented in early 2011 and from the sale of the Company's fresh sandwich product line in the first quarter of 2011.
Net earnings in the quarter were $0.8 million ($0.03 basic earnings per share) compared to a loss of $1.0 million ($0.04 basic loss per share) last year and included $5.9 million pre-tax restructuring costs (2011: $20.1 million).
Adjusted Earnings per Share for the first quarter decreased to $0.21 per share in 2012 from $0.56 per share last year, which had included $0.10 per share related to a tax adjustment associated with a prior acquisition.
Business Segment Review
| The following table summarizes sales by business segment: | ||||
| First Quarter (Unaudited) |
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| ($ thousands) | 2012 | 2011 | ||
| Fresh Bakery | $248,183 | $255,085 | ||
| Frozen Bakery | 122,061 | 116,675 | ||
| Total Sales | $370,244 | $371,760 | ||
| The following table summarized Adjusted Operating Earnings by business segment: | ||||
| First Quarter (Unaudited) |
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| ($ thousands) | 2012 | 2011 | ||
| Fresh Bakery | $7,268 | $17,985 | ||
| Frozen Bakery | 1,493 | (1,261) | ||
| Adjusted Operating Earnings | $8,761 | $16,724 | ||
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 first quarter declined 3% to $248.2 million from $255.1 million last year. After adjusting for the sale of the Company's fresh sandwich product line in February 2011, sales decreased 1% as volume declines more than offset the benefit of price increases implemented during 2011.
Adjusted Operating Earnings in the first quarter of 2012 declined 60% to $7.3 million compared to $18.0 million last year, driven by a decline in fresh bakery volumes, a trend experienced across the North American industry. Earnings were also impacted by approximately $3 million in incremental costs related to inventory write-downs in the fresh pasta operations and duplicative overhead costs as the Company commissions its new fresh bakery in Hamilton, Ontario. Earnings were further affected by higher input costs, overall inflation and increases in advertising and promotional spending. These impacts were partly offset by price increases implemented in early 2011 and the sale of the fresh sandwich product line in the first quarter of 2011.
During the quarter, the Company closed two bakeries in the Greater Toronto Area as it continues to consolidate production into its new fresh bakery in Hamilton, Ontario. Duplicative overhead costs will continue until the Company completes the commissioning of the Hamilton bakery and closes the third Toronto bakery in 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 first quarter increased 5% to $122.1 million from $116.7 million in 2011. After adjusting for the Company's strategic exit of unprofitable fresh and in-store bakery bread categories in the U.K. related to a facility closure and currency translation on sales in the U.S. and U.K., sales increased 8%, driven by higher sales volumes in both North America and the U.K., as well as price increases implemented in the North American frozen bakery business during 2011.
Adjusted Operating Earnings in Frozen Bakery for the first quarter of 2012 were $1.5 million compared to a loss of $1.3 million last year. Earnings improvements were due to lower selling, general and administrative expenses, higher sales volumes in North America and improved sales mix in the U.K. The lower selling, general and administrative expenses were due to reduced general and administrative costs and lower advertising and promotional expenses, primarily in the U.K. The business also benefited from the continuing growth in the U.K. bagel category and North American foodservice channel.
The Company closed its bakery in Walsall, U.K. in March 2012 as part of a plan to focus production in its core categories of bagels, croissants and specialty breads. The Company now operates three facilities in Rotherham, London and Maidstone. As a result, the business expects to realize reduced operating costs, higher efficiencies and a higher value sales mix going forward.
Other Matters
On May 1, 2012, Canada Bread declared a dividend of $0.50 per share payable on July 3, 2012 to shareholders of record at the close of business on June 8, 2012. Unless indicated otherwise by the Company in writing on or before the time the dividend is paid, this dividend will be considered an Eligible Dividend for the purposes of the "Enhanced Dividend Tax Credit System".
Reconciliation of Non-IFRS Financial Measures
The Company uses the following non-IFRS measures: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-IFRS measures provide useful information to both Management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by IFRS and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with IFRS.
Adjusted Operating Earnings
The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under IFRS in the unaudited earnings for the three month periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results during the period.
| (Unaudited) | Three months ended March 31, 2012 | |||
| ($ thousands) | Fresh Bakery | Frozen Bakery | Consolidated | |
| Net earnings | $839 | |||
| Income taxes | 1,623 | |||
| Earnings from operations before income taxes | 2,462 | |||
| Interest expense | 437 | |||
| Earnings (loss) from operations before interest and income taxes | $5,352 | ($2,453) | 2,899 | |
| Other (income) expense | (231) | 209 | (22) | |
| Restructuring and other related costs | 2,147 | 3,737 | 5,884 | |
| Adjusted Operating Earnings | $7,268 | $1,493 | $8,761 | |
| (Unaudited) | Three months ended March 31, 2011 | |||
| ($ thousands) | Fresh Bakery | Frozen Bakery | Consolidated | |
| Net loss | ($966) | |||
| Income taxes | (2,621) | |||
| Loss from operations before income taxes | (3,587) | |||
| Interest expense | 339 | |||
| Earnings (loss) from operations before interest and income taxes | $8,468 | ($11,716) | (3,248) | |
| Other Income | (78) | - | (78) | |
| Restructuring and other related costs | 9,595 | 10,455 | 20,050 | |
| Adjusted Operating Earnings | $17,985 | ($1,261) | $16,724 | |
Adjusted Earnings per Share
The following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under IFRS as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.
| Three months ended March 31, (Unaudited) |
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| ($ per share) | 2012 | 2011 | ||||
| Basic earnings per share | $0.03 | ($0.04) | ||||
| Restructuring and other related costs(i) | 0.18 | 0.60 | ||||
| Adjusted Earnings per Share (ii) | $0.21 | $0.56 | ||||
(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 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 months ended March 31, 2012 and 2011
Consolidated Balance Sheets
| As at March 31, | As at March 31, | As at December 31, | |||||||||||
| (In thousands of Canadian dollars) | 2012 | 2011 | 2011 | ||||||||||
| (unaudited) | (unaudited) | ||||||||||||
| ASSETS | |||||||||||||
| Current assets | |||||||||||||
| Cash and cash equivalents | $ | 42,070 | $ | 51,847 | $ | 59,223 | |||||||
| Accounts receivable | 47,670 | 51,263 | 56,522 | ||||||||||
| Note receivable | 51,910 | 53,270 | 45,847 | ||||||||||
| Inventories | 56,181 | 52,107 | 60,048 | ||||||||||
| Income and other taxes recoverable | 7,572 | 6,591 | 2,162 | ||||||||||
| Prepaid expenses and other assets | 3,244 | 3,934 | 5,218 | ||||||||||
| $ | 208,647 | $ | 219,012 | $ | 229,020 | ||||||||
| Property and equipment | 416,505 | 383,814 | 425,944 | ||||||||||
| Investment property | 9,546 | 8,443 | 8,415 | ||||||||||
| Other long-term assets | 4,460 | 3,980 | 4,456 | ||||||||||
| Deferred tax asset | 15,812 | 10,264 | 17,917 | ||||||||||
| Goodwill | 264,342 | 261,590 | 266,013 | ||||||||||
| Intangible assets | 12,814 | 12,799 | 12,710 | ||||||||||
| Total assets | $ | 932,126 | $ | 899,902 | $ | 964,475 | |||||||
| LIABILITIES AND SHAREHOLDERS' EQUITY | |||||||||||||
| Current liabilities | |||||||||||||
| Bank indebtedness | $ | 4,786 | $ | - | $ | 3,153 | |||||||
| Accounts payable and accruals | 170,421 | 178,925 | 185,811 | ||||||||||
| Provisions | 14,140 | 20,435 | 23,066 | ||||||||||
| Due to Maple Leaf Foods Inc. | 3,650 | 1,021 | 2,451 | ||||||||||
| Dividends payable | 5,083 | 1,525 | 5,083 | ||||||||||
| Current portion of long-term debt | 2,567 | 2,329 | 2,452 | ||||||||||
| $ | 200,647 | $ | 204,235 | $ | 222,016 | ||||||||
| Long-term debt | 1,567 | 1,652 | 1,634 | ||||||||||
| Deferred tax liability | 18,607 | 21,136 | 21,784 | ||||||||||
| Employee benefits | 51,199 | 36,291 | 50,434 | ||||||||||
| Provisions | 5,046 | 6,235 | 5,005 | ||||||||||
| Other long-term liabilities | - | 444 | - | ||||||||||
| Total liabilities | $ | 277,066 | $ | 269,993 | $ | 300,873 | |||||||
| Shareholders' equity | |||||||||||||
| Share capital | $ | 142,965 | $ | 142,965 | $ | 142,965 | |||||||
| Retained earnings | 525,308 | 507,635 | 530,852 | ||||||||||
| Accumulated other comprehensive loss | (13,213) | (20,691) | (10,215) | ||||||||||
| Total shareholders' equity | $ | 655,060 | $ | 629,909 | $ | 663,602 | |||||||
| Total liabilities and shareholders' equity | $ | 932,126 | $ | 899,902 | $ | 964,475 | |||||||
Consolidated Statements of Earnings
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Consolidated Statements of Other Comprehensive Loss
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Consolidated Statements of Changes in Shareholders' Equity
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Consolidated Statements of Cash Flows
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Segmented Financial Information
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| (Unaudited) | 2012 | 2011 | |||||||
| Sales | |||||||||
| Fresh Bakery | $ | 248,183 | $ | 255,085 | |||||
| Frozen Bakery | 122,061 | 116,675 | |||||||
| $ | 370,244 | $ | 371,760 | ||||||
| Earnings (loss) before restructuring and other related | |||||||||
| costs and other income | |||||||||
| Fresh Bakery | $ | 7,268 | $ | 17,985 | |||||
| Frozen Bakery | 1,493 | (1,261) | |||||||
| $ | 8,761 | $ | 16,724 | ||||||
| Capital expenditures | |||||||||
| Fresh Bakery | $ | 9,194 | $ | 26,458 | |||||
| Frozen Bakery | 1,463 | 3,400 | |||||||
| $ | 10,657 | $ | 29,858 | ||||||
| Depreciation and amortization | |||||||||
| Fresh Bakery | $ | 7,057 | $ | 6,635 | |||||
| Frozen Bakery | 4,292 | 5,572 | |||||||
| $ | 11,349 | $ | 12,207 | ||||||
| As at March 31, | As at March 31, | As at December 31, | |||||||||||
| 2012 | 2011 | 2011 | |||||||||||
| Total assets | |||||||||||||
| Fresh Bakery | $ | 513,106 | $ | 466,086 | $ | 516,485 | |||||||
| Frozen Bakery | 353,533 | 354,540 | 368,534 | ||||||||||
| Non-allocated assets | 65,487 | 79,276 | 79,456 | ||||||||||
| $ | 932,126 | $ | 899,902 | $ | 964,475 | ||||||||
| Goodwill | |||||||||||||
| Fresh Bakery | $ | 125,892 | $ | 125,892 | $ | 125,892 | |||||||
| Frozen Bakery | 138,450 | 135,698 | 140,121 | ||||||||||
| $ | 264,342 | $ | 261,590 | $ | 266,013 | ||||||||
Investor Contact: Nick Boland,
VP Investor Relations: 416-926-2005
Media Contact: 416-926-2020
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