Toronto / CA. (cb) Canada Bread Company Limited reported its financial results for the first quarter ended March 31, 2012. First quarter highlights include:
- Adjusted Operating Earnings for the first quarter declined 48 percent to 8,8 million CAD compared to 16,7 million CAD last year
- Net earnings for the quarter were 0,8 million CAD, compared to a net loss of 1,0 million CAD last year
- Adjusted EPS for the quarter was 0,21 CAD, down from 0,56 CAD 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».
Financial Overview
Sales for the first quarter were 370,2 million CAD compared to 371,8 million CAD 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 two percent. 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 percent to 8,8 million CAD in 2012, compared to 16,7 million CAD 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 three million CAD 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 CAD (0,03 CAD basic earnings per share) compared to a loss of 1,0 million CAD (0,04 CAD basic loss per share) last year and included 5,9 million CAD pre-tax restructuring costs (2011: 20,1 million CAD). Adjusted Earnings per Share for the first quarter decreased to 0,21 CAD per share in 2012 from 0,56 CAD per share last year, which had included 0,10 CAD per share related to a tax adjustment associated with a prior acquisition.
Business Segment Review – 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 three percent to 248,2 million CAD from 255,1 million CAD last year. After adjusting for the sale of the Company´s fresh sandwich product line in February 2011, sales decreased one percent 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 percent to 7,3 million CAD compared to 18,0 million CAD last year, driven by a decline in fresh bakery volumes, a trend experienced across the North American industry. Earnings were also impacted by approximately three million CAD 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.
Business Segment Review – 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 first quarter increased five percent to 122,1 million CAD from 116,7 million CAD 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 eight percent, 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 CAD compared to a loss of 1,3 million CAD 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 01, 2012, Canada Bread declared a dividend of 0,50 CAD per share payable on July 03, 2012 to shareholders of record at the close of business on June 08, 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».
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