Canada Bread adjusted earnings rise 14% in Q2

by Eric Schroeder
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TORONTO — Canada Bread Co., Ltd. in the second quarter ended June 30 posted earnings of C$14,904,000 ($15,700,000), equal to C$0.59 per share on the common stock, down 29% from C$20,949,000, or C$0.82 per share, in the same period a year ago. The most recent quarterly results included C$12.5 million in pre-tax restructuring costs related to network optimization initiatives. But earnings from operations before restructuring and other related costs were C$35,103,000 ($36,989,000), up 14% from C$30,711,000.

“Our margins strengthened as price increases continue to take hold to offset higher commodity costs,” said Richard Lan, president and chief executive officer. “We also began commissioning of our new bakery in Hamilton (Ont.), 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.”

Sales for the first quarter rose 1% to C$406,245,000 ($428,136,000) from C$402,062,000 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 rose 20% to C$33,211,000 ($35,008,000) from C$27,754,000, while sales were virtually flat at C$282,364,000 ($297,694,000), which compared with C$282,530,000 in the second quarter of fiscal 2010.

“Earnings benefited from improved margins, as price increases and improved operating efficiencies offset the impact of higher raw materials and inflationary costs,” Canada Bread said. “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, Ont., 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.”

Operating earnings in the Frozen Bakery segment fell 36% to C$1,892,000 ($1,994,000) from C$2,957,000. Sales, meanwhile, rose 4% to C$123,881,000 ($130,546,000) from C$119,532,000.

Canada Bread said sales volumes in the Frozen Bakery business improved slightly compared with last year, benefiting from increased bagel sales volumes in the United Kingdom following the re-launch of the New York Bakery brand earlier this year.

“The frozen bakery business continues to implement price increases to fully offset the impact of higher raw material and other inflationary costs,” Canada Bread said. “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.”

For the first six months of fiscal 2011 Canada Bread had earnings of C$13,938,000 ($14,692,000), or C$0.55 per share, down sharply from C$33,918,000, or C$1.34 per share, in the same period of fiscal 2010. Net sales also were lower, falling 1% to C$778,005,000 ($820,210,000) from C$783,994,000.

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