Canada Bread: Reports Results for Q4 and FY 2012

Toronto / CA. (cb) Canada Bread Company Limited reported its financial results for the fourth quarter and year ended December 31, 2012. Fourth quarter and full year highlights include:

  • Adjusted Operating Earnings for the fourth quarter increased 35,3 percent to 35,4 million CAD compared to 26,2 million CAD last year
  • Adjusted Operating Earnings for the full year increased 5,5 percent to 115,9 million CAD compared to 109,8 million CAD last year
  • Adjusted EPS for the fourth quarter increased to 1,00 CAD from 0,67 CAD in 2011. For the full year, Adjusted EPS decreased to 3,26 CAD from 3,43 CAD. Adjusted EPS in 2011 included a 0,49 CAD tax adjustment related to a prior acquisition.

«We delivered solid earnings growth in the quarter, reflecting intense effort by our team and solid execution on a number of fronts, including cost reduction, innovation and campaigns to engage with consumers». said Richard Lan, President and CEO. «We continue to see significant potential to deliver incremental value. A number of initiatives are planned or underway to further drive profitability in 2013 and beyond».

Financial Overview

Sales for the fourth quarter decreased 2,4 percent to 390,7 million CAD compared to 400,3 million CAD 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 0,4 percent. Higher prices and volumes in the North American and U.K. frozen bakery businesses were offset by lower volumes and unfavourable sales mix in the fresh pasta business. Volumes in the fresh bread business were consistent with last year.

Sales for 2012 decreased 1,8 percent to 1’567,3 million CAD compared to 1’595,5 million CAD in 2011. After adjusting for the sale of the Company´s fresh sandwich product line, the closure of a bakery in the U.K. and currency translation on sales in the U.S. and U.K., sales were consistent with last year.

Adjusted Operating Earnings for the fourth quarter increased 35,3 percent to 35,4 million CAD compared to 26,2 million CAD last year. Earnings growth in the fresh bread and North American frozen bakery businesses was partly offset by lower earnings in the fresh pasta business, while earnings in the U.K. bakery operations were consistent with last year. Margin expansion in the fresh bread business was primarily due to increased operating efficiencies, lower duplicative overhead costs associated with the new Hamilton bakery and higher costs in 2011 related to the implementation of SAP in Western Canada that were not repeated. The Company also benefited from positive hedging activities that reduced raw material costs.

Adjusted Operating Earnings increased 5,5 percent to 115,9 million CAD in 2012, compared to 109,8 million CAD last year. Adjusted EPS for the fourth quarter were 1,00 CAD compared to 0,67 CAD last year. For the full year, Adjusted EPS decreased to 3,26 CAD compared to 3,43 CAD last year. Adjusted EPS in 2011 included 0,49 CAD per share related to a tax adjustment associated with a prior acquisition.

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 fourth quarter declined 2,7 percent to 254,8 million CAD from 262,0 million CAD last year due to lower volumes in the fresh pasta business. Volumes in the fresh bread business were consistent with the prior year. For the full year, sales declined 2,5 percent to 1’059,9 million CAD from 1’087,3 million CAD last year. After adjusting for the sale of the Company´s fresh sandwich product line, sales decreased 2,1 percent as volumes were lower in both the fresh bread and fresh pasta businesses. This was partly offset by the full year impact of price increases implemented during 2011 in the fresh bread business.

Adjusted Operating Earnings were 24,6 million CAD compared to 19,5 million CAD last year. The increase was driven by efficiency gains in the fresh bread business resulting from the closure of the Delta, B.C. plant in late 2011 and the related transfer of production to more efficient bakeries. Earnings also benefited from positive hedging activities that reduced input costs and from higher costs in 2011 related to the implementation of SAP in Western Canada that were not repeated in 2012. In addition, duplicative overhead costs were incurred last year as the Company continued to operate three bakeries while transferring production to the new, more efficient bakery in Hamilton, Ontario. During 2012, two of these facilities were closed, with associated reduction in costs. Closure of the third Ontario bakery is planned for the second quarter of 2013. Partly offsetting these benefits were lower earnings in the fresh pasta business as supply chain issues resulted in lower volumes and an unfavourable sales mix.

For the full year, Adjusted Operating Earnings decreased 8,7 percent to 91,2 million CAD compared to 99,9 million CAD last year, as lower earnings in the fresh pasta business were partly offset by earnings improvements in the fresh bread business.

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 Co.

Frozen Bakery sales for the fourth quarter decreased 1,8 percent to 135,9 million CAD from 138,3 million CAD 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 4,1 percent, primarily due to stronger volumes in the North American and U.K. bakery businesses, as well as higher pricing in the North American business.

Adjusted Operating Earnings for the fourth quarter increased 60,5 percent to 10,8 million CAD compared to 6,7 million CAD last year. The increase was mainly due to improved performance in the North American operations, which benefited from higher pricing and volumes, as well as positive hedging activities that reduced raw material costs, partially offset by higher administrative expenses.

The U.K. bakery benefited from the closure of the Walsall facility earlier in the year and a new croissant business that began in the fourth quarter. However, these benefits were offset by higher trade spending related to the New York Bakery bagel brand and increased manufacturing costs at the Maidstone facility.

Adjusted Operating Earnings increased to 24,7 million CAD in 2012 compared to 9,9 million CAD last year, mainly due to improved performance at the North American bakery business.

Subsequent Events

On January 30, 2013, the Company announced plans to close a bakery in Grand Falls, New Brunswick and a bakery in Edmonton, Alberta in the first half of 2013. The Company will incur approximately 6,3 million CAD before taxes in restructuring costs, of which approximately 4,2 million CAD are cash costs.

Other Matters

On February 25, 2013, Canada Bread declared a dividend of 0,50 CAD per share payable on April 01, 2013 to shareholders of record at the close of business on March 8, 2013. 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».