Canada Bread: Reports Results for Q2/2011

Toronto / CA. (cb) Canada Bread Company Limited reported its financial results for the second quarter ended June 30, 2011. Second quarter highlights include: adjusted Operating Earnings(1) increased 14 percent to 35,1 million CAD; adjusted EPS(1) were 0,97 CAD compared to 0,85 CAD last year; net earnings were 14,9 million CAD and included 12,5 million CAD in pre-tax restructuring costs related to network optimization initiatives.

«Our margins strengthened as price increases continue to take hold to offset higher commodity costs», said Richard Lan, President and CEO. «We also began commissioning of our new bakery in Hamilton, a very complex project that is progressing on time and on budget. We will continue implementing our value creation plan to reduce costs and build our capacity to increase top line growth».

Financial Overview

Sales for the second quarter of 406,2 million CAD were consistent with 402,1 million CAD last year. After adjusting for the impacts of the sale of the fresh sandwich product line in February of 2011 and the impact of currency translation on sales in the U.K. and U.S., sales increased four percent compared to last year, primarily driven by higher selling prices as a result of price increases implemented in the first half of 2011.

Adjusted Operating Earnings in the quarter increased 14 percent to 35,1 million CAD from 30,7 million CAD in the prior year as the benefit of price increases and lower manufacturing costs offset higher raw material costs, particularly in the fresh bakery operations. Earnings also benefited from reduced promotional costs and from cost reduction initiatives implemented in early 2011.

Adjusted EPS increased 14 percent to 0,97 CAD compared to 0,85 CAD in the prior year. Net earnings in the quarter decreased to 14,9 million CAD (0,59 CAD basic earnings per share) from 20,9 million CAD (0,82 CAD basic earnings per share) in the second quarter of 2010. Net earnings in the quarter include 12,5 million CAD of pre-tax costs related to restructuring activities (2010: 0,8 million CAD).

Business Segment Review

Includes fresh bakery products, including breads, rolls, bagels, sweet goods and fresh pasta and sauces sold to retail, foodservice and convenience channels.

Fresh Bakery sales for the second quarter of 282,4 million CAD were consistent with 282,5 million CAD last year. After adjusting for the impact of the sale of the Company´s fresh sandwich product line, sales increased four percent compared to those last year, primarily driven by the benefit of price increases taken in the first half of 2011 and partly offset by lower sales volumes. Price increases to offset the impact of higher commodity costs contributed to some volume decline, as consumers adjust to higher prices.

Adjusted Operating Earnings in the quarter increased 20 percent to 33,2 million CAD compared to 27,8 million CAD last year. Earnings benefited from improved margins, as price increases and improved operating efficiencies offset the impact of higher raw materials and inflationary costs. Lower advertising and promotional expenses, cost reduction initiatives and the sandwich product line divestiture also contributed to stronger earnings. These benefits were partly offset by lower sales volumes.

The new fresh bakery in Hamilton, Ontario, which is a significant element of the Company´s value creation plan, began initial production in July 2011 as planned. Construction and commissioning of this bakery, one of the largest fresh bakeries in North America, is on schedule and on budget. The Company will gradually transfer production from three bakeries in the Greater Toronto Area, which are scheduled for closure 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.

Frozen Bakery sales for the second quarter increased four percent to 123,9 million CAD from 119,5 million CAD last year. After adjusting for the impact of currency translation on sales in the U.S. and U.K., sales increased five percent predominantly as a result of price increases implemented in the first half of 2011. Sales volumes improved slightly compared to last year, benefiting from increased bagel sales volumes in the U.K. following the re-launch of the New York Bakery brand earlier this year.

Adjusted Operating Earnings in the quarter declined 36 percent to 1,9 million CAD from 3,0 million CAD last year largely due to higher commodity prices. The frozen bakery business continues to implement price increases to fully offset the impact of higher raw material and other inflationary costs. Resulting margin compression was partially offset by lower operating costs.

In the United Kingdom, the Company sold a small scale bakery in Cumbria in April 2011 and closed a bakery in London in May 2011, with production consolidated into its bakeries in Maidstone and Walsall.

Other Matters

On July 27, 2011 Canada Bread Company, Limited declared a dividend of 0,20 CAD per share payable on October 03, 2011 to shareholders of record at the close of business on September 09, 2011. Unless indicated otherwise by the Company in writing at 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».

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