Adjusted earnings ease 3% at Canada Bread

by Eric Schroeder
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TORONTO — Canada Bread Co., Ltd. in the third quarter ended Sept. 30 posted earnings of C$30,256,000 ($30,444,000), equal to C$1.19 per share on the common stock, up 111% from C$14,313,000, or C$0.56 per share, in the same period a year ago. The most recent quarterly results included C$1.6 million in pre-tax restructuring and other related costs related to network optimization initiatives. But earnings from operations before restructuring and other related costs were C$31,763,000 ($31,952,000), down 3% from C$32,753,000.

“While our volumes increased in the quarter we continue to feel the impact of high raw material costs, which we largely offset through cost reductions and improved operating efficiencies,” said Richard Lan, president and chief executive officer. “We had excellent success with the commissioning of our new scale fresh bakery in Hamilton, Ont., in July, a major endeavor which was executed seamlessly — on time and on budget. Our U.K. business is also benefiting from manufacturing changes to focus on core categories and increase profitability. As commodity markets stabilize, we will continue to seek opportunities to drive volume and margin growth through reduced costs, innovation and product sales mix.”

Sales for the third quarter rose 1% to C$417,171,000 ($419,574,000) from C$411,364,000 for the prior year period. Canada Bread attributed the sales gain to higher selling prices as a result of price increases implemented in the first half of 2011.

Earnings from operations within the Fresh Bakery segment fell 5% to C$29,198,000 ($29,364,000) from C$30,633,000, while sales rose 1% to C$287,923,000 ($289,540,000) from C$285,232,000 in the third quarter of fiscal 2010.

“During the quarter, margin compression resulting from price increases implemented in the first half of 2011 that were not sufficient to fully offset the continued rise in wheat cost was largely mitigated by cost reduction initiatives and lower promotional expenses,” Canada Bread said. “During the quarter the company also benefited from the sale of its fresh sandwich product line in February 2011.

“During the quarter, the Fresh Bakery business recorded approximately $2.3 million of duplicative overhead costs, as the company continues to operate three sub-scale bakeries as it gradually transitions production to its newly commissioned fresh bakery in Hamilton, Ont., which officially opened on Sept. 28, 2011. Production lines for rolls and breads are now in operation, and another two lines are planned to start commercial production by the end of 2011. The final four lines, including flat breads, are planned for 2012. The company plans to gradually transfer production from three bakeries in the Greater Toronto Area, and proceed with their closures between the end of 2011 through to early 2013.”

Operating earnings in the Frozen Bakery segment rose 21% to C$2,565,000 ($2,579,000) from C$2,120,000. Sales increased 2% to C$129,248,000 ($129,941,000) from C$126,132,000.

Canada Bread said sales volumes in the Frozen Bakery business were slightly lower in the third quarter, mainly due to a modest decline in North American frozen bakery sales volumes. In the U.K., sales volumes increased behind continued growth in bagel sales.

For the first nine months of fiscal 2011 Canada Bread had earnings of C$44,194,000 ($44,438,000), or C$1.74 per share, down 8% from C$48,231,000, or C$1.90 per share, in the same period of fiscal 2010. Net sales also were lower, falling to C$1,195,176,000 from C$1,195,358,000.

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