“The decline in operating earnings in the quarter was largely due to a lag in implementing pricing to offset rising costs,” said Richard Lan, president and chief executive officer. “With these price increases in effect at the end of the quarter, we expect our margins to strengthen. We are also encouraged by early signs of improved performance in our U.K. bakery operations. With high impact marketing, targeted product innovation and overhead cost reductions, we expect continued improvement in this business.”
Sales for the first quarter fell 3% to C$371,760,000 ($391,153,000) from C$381,932,000 for the prior year period. Canada Bread attributed the sales decline to the sale of the fresh sandwich product line in February.
The Fresh Bakery segment’s sales eased to C$255,085,000 ($268,522,000) from C$257,189,000. Canada Bread said sales actually rose 2% excluding the sale of the company’s fresh sandwich product line, reflecting the benefit of price increases implemented in the latter part of 2010.
Earnings from operations were C$17,985,000 ($18,929,000), down 14% from C$20,929,000 in the first quarter last year.
“During the quarter, the fresh bakery operation was significantly exposed to higher wheat prices, with a lag in pricing to offset these inflationary pressures,” Canada Bread said. “Price increases were implemented at the end of the quarter and have begun to positively affect margins going further.”
Canada Bread added a significant element of its value creation plan is the construction of a new fresh bakery in Hamilton, Ont. The facility, which is scheduled to begin initial production in July, is expected to benefit from scale efficiencies, reduce overhead costs and support future growth.
Also during the quarter, Canada Bread announced plans to close a fresh bakery located in Delta, B.C., in November. Production will be consolidated to the company’s other bakeries in Langley, B.C., and Edmonton, Alta. At the same time, the company said it will invest approximately C$11 million to expand the Edmonton bakery to support increased tortilla production.
Frozen Bakery sales fell 6% to C$116,675,000 ($122,769,000), while the segment sustained an operating loss of C$1,261,000, which compared with a loss of C$281,000 in the same period a year ago.
”The North American frozen bakery business continued to experience weaker volumes due to changes implemented by certain retail customers earlier in 2010,” Canada Bread said. “Progress has been made in securing new business, which is expected to strengthen volumes in 2011. In the U.K., bagel volume increased significantly with the re-launch of the New York Bakery brand bagels, although overall volumes for the U.K. bakery were lower than last year.”
In March, Canada Bread closed a sub-scale bakery in Laval, Que., and transferred production to other bakeries.