Operational efficiencies help drive earnings gain at Canada Bread

by Eric Schroeder
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TORONTO — Operational efficiencies in the fresh bakery business combined with higher pricing and lower raw material costs in the U.K. frozen bakery business led to a 19% gain in adjusted operating earnings at Canada Bread Company, Ltd. in the first quarter of fiscal 2014. Adjusted operating earnings in the quarter ended March 31 totaled C$20,301,000 ($18,469,000), up from C$17,118,000 in the first quarter of fiscal 2013. Earnings from operations before interest and income taxes were C$14,018,000 ($12,753,000), up from C$4,194,000 in the same period a year ago.

Sales during the first quarter of fiscal 2014 fell 1.2% to C$342,837,000 ($311,906,000) from C$346,867,000.

“All segments of our business continued to benefit from strategic capital investments that have improved operating efficiencies and lowered costs,” said Richard Lan, president and chief executive officer. “We continue to clear regulatory requirements to complete the sale of Canada Bread to Grupo Bimbo, and our people are excited about opportunities to grow this business by joining the global bakery leader.”

On Feb. 12, Canada Bread agreed to sell all of its common shares to Grupo Bimbo, S.A.B. de C.V. for C$72 ($65) per share, or approximately C$1,830 million ($1,663 million). Since then, the companies have received clearance from the Canadian Competition Bureau, the U.S. Department of Justice, the Ontario Superior Court of Justice and shareholders of Canada Bread. The transaction remains subject to completion of other closing conditions, including approval under the Investment Canada Act.

Adjusted operating earnings within the Fresh Bakery segment during the first quarter of fiscal 2014 increased 15% to C$15,276,000 from C$13,277,000 while sales fell 2.1% to C$216,173,000 from C$220,802,000 in the first quarter of fiscal 2013.

Canada Bread said operational efficiencies largely drove the higher earnings.

“This was the result of lower overhead costs as the third sub-scale Toronto, Ont., bakery was closed during the second quarter of 2013, with production consolidated into the Hamilton, Ont., bakery, as well as simplification of the product portfolio,” Canada Bread said. “These benefits were partly offset by higher selling, general and administrative costs and lower volumes. The benefit of a price increase last year was offset by higher input costs, despite lower input costs for wheat, due to the impact of a weaker Canadian dollar on other raw material costs, and higher inflationary costs.”

Adjusted operating earnings in the Frozen Bakery segment during the first quarter of fiscal 2014 totaled C$5,025,000, up 31% from C$3,841,000 in the same period a year ago. Sales increased to C$126,664,000 from C$126,065,000.

“Earnings in the U.K. bakery business benefited from higher pricing and lower raw material costs, as well as lower selling, general and administration expenses,” Canada Bread said. “In the North American frozen bakery business, earnings declined primarily due to higher selling, general and administrative costs, resulting from a provision recorded against a trade receivable. Lower volumes and higher inflationary costs were offset by improved operating efficiencies and lower input costs for wheat.”
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