Bakery volume declines hurt Canada Bread earnings

by Eric Schroeder
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TORONTO — An industry wide decline in bakery volumes hurt earnings at Canada Bread Co., Ltd. in the first quarter of fiscal 2012. Adjusted operating earnings in the first quarter ended March 31 totaled C$8,761,000 ($8,858,000), down 48% from C$16,724,000 in the same period a year ago. Earnings from operations before restructuring and other related costs, meanwhile, were C$2,899,000 ($2,931,000), which compared with a loss of C$3,248,000 in the same period a year ago. The first quarter of fiscal 2011 included C$20,050,000 in restructuring and other related costs, while the most recent quarter included C$5,884,000 of such costs.

Sales during the first quarter of fiscal 2012 fell to C$370,244,000 ($374,389,000) from C$371,760,000.

“Our first-quarter results were significantly impacted, as expected, by an industry wide decline in bakery volumes,” said Richard Lan, president and chief executive officer. “Despite this, we benefitted 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.”

Adjusted operating earnings within the Fresh Bakery segment during the first quarter of fiscal 2012 fell 60% to C$7,268,000 ($7,350,000) from C$17,985,000, while sales eased 3% to C$248,183,000 ($250,989,000) from C$255,085,000 in the first quarter of fiscal 2011.

Canada Bread said the earnings decline reflected a decrease in fresh bakery volume, C$3 million 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, Ont., higher input costs, overall inflation and increases in advertising and promotional spending.

During the quarter, Canada Bread closed two bakeries in the Greater Toronto area as it continues to consolidate production into its new fresh bakery in Hamilton. The company will close a third Toronto bakery in early 2013.

Adjusted operating earnings in the Frozen Bakery segment during the first quarter of fiscal 2012 totaled C$1,493,000 ($1,510,000), which compared with a loss of C$1,261,000 in the same period a year ago. Sales increased 5% to C$122,061,000 ($123,435,000) from C$116,675,000.

“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 company said. “The lower selling, general and administrative expenses were due to reduced general administrative costs and lower advertising and promotional expenses, primarily in the U.K. The business also benefitted from the continuing growth in the U.K. bagel category and North American food service channel.”

Canada Bread closed its bakery in Walsall, U.K., in March as part of a plan to focus production in its core categories of bagels, croissants and specialty bread. The company now operates three facilities in the United Kingdom in Rotherham, London and Maidstone.

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