Canada Bread Reports Second Quarter Results
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Source: Canada Bread Company, Limited
24/07/2008
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Toronto, Jul 24, 2008 - Canada Bread Company, Limited today announced its financial results for the second quarter ended June 30, 2008.
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- Adjusted earnings per share of $0.30 compared to $0.84 last year, as
high wheat and fuel costs outpaced price increases
- Stabilization of commodity markets and pricing expected to improve
earnings in the second half of 2008
Note: Adjusted earnings per share measures are defined as earnings
per share before restructuring and other related costs.
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"High commodity prices continued to have a significant impact on our margins and financial results," said Richard Lan, President and CEO. "We believe these effects, while material, are short-term with improvements to come in the second half of the year as markets stabilize and we continue to pass on costs by way of price increases to offset the effects of commodity inflation."
Financial Overview
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Sales for the second quarter increased 16.4% to $437.4 million compared to the same period last year due to higher selling prices and contributions from acquisitions. Excluding acquisitions, sales increased by 8.9% compared to last year.
Earnings from operations before restructuring and other related costs ("Adjusted Operating Earnings") were $12.4 million for the second quarter compared to $34.0 million last year. High wheat, fuel and other input costs compressed margins as price increases implemented earlier in the year were not sufficient to cover these rapid cost increases. Management anticipates that a decrease in wheat prices from new crops, due to be harvested in August, and improved supplies will lower costs toward the end of the year and restore margins. As the rest of the year progresses, any further inflationary increases, such as energy, or unanticipated increases in the cost of wheat will be managed by further price increases.
Net earnings before restructuring and other related costs for the quarter were $7.5 million ($0.30 per share), compared to $21.2 million ($0.84 per share) last year. Year-to-date earnings per share, on a comparable basis, were $0.81 compared to $1.60 last year.
Following is a summary of net earnings and earnings per share ("EPS") before restructuring and other related costs ("Adjusted EPS"):
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($ millions) Second Quarter Year-to-Date
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2008 2007 Change 2008 2007 Change
---- ---- ------ ---- ---- ------
Net Earnings $6.5 $21.2 (69.2%) $18.7 $39.1 (52.1%)
Restructuring
and other
related costs,
net of tax 1.0 - - 1.9 1.5 26.9%
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Net earnings
before
restructuring
and other
related costs(i) $7.5 $21.2 (64.5%) $20.7 $40.6 (49.2%)
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Adjusted EPS(i) $0.30 $0.84 (64.5%) $0.81 $1.60 (49.2%)
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(i) These are not recognized measures under Canadian GAAP. Management
believes that this is the most appropriate basis on which to evaluate
results, as restructuring and other related costs are not
representative of continuing operations.
Business Segment Review
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The following table summarizes Adjusted Operating Earnings by business
segment:
($ millions) Second Quarter Year-to-Date
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2008 2007 Change 2008 2007 Change
---- ---- ------ ---- ---- ------
Fresh Bakery 12.5 25.8 (51.7%) 25.1 47.8 (47.4%)
Frozen Bakery (0.1) 8.2 (100.7%) 6.8 16.2 (58.0%)
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12.4 34.0 (63.5%) 31.9 64.0 (50.1%)
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Fresh Bakery (Fresh bakery products, specialty baked goods and hand-held
------------ snacks, and fresh pasta and sauces)
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Fresh Bakery sales for the second quarter increased by 17.8% to $287.6 million compared to $244.2 million last year, largely due to price increases and contributions from acquisitions, partly offset by reduced volumes. Excluding acquisitions, sales increased by 11.5% compared to last year.
Adjusted Operating Earnings for the quarter were $12.5 million compared to $25.8 million last year. This decline was driven by margin compression as price increases for fresh bread and pasta were not enough to cover the increase in wheat and other commodity costs. In addition, costs related to marketing and innovation were higher than last year by 33.6%. During the quarter, the Company launched its Smart 100% Whole Grain Wheat bread nationally and also launched Smart snack cakes in Eastern Canada.
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Frozen Bakery (North American and U.K. frozen bakery products; including
------------- frozen par-baked and specialty bakery products)
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Frozen Bakery sales increased by 13.8% to $149.8 million from $131.6 million last year. This was a result of increased prices and contributions from acquisitions, partly offset by translation difference related to the weaker U.S. dollar. Excluding acquisitions, sales increased by 4.0% compared to last year.
Adjusted Operating Earnings for the quarter were a loss of $0.1 million compared to earnings of $8.2 million last year as a result of lower earnings in the North American frozen bakery operations, driven by wheat and other inflationary cost increases, including energy, that were not fully offset by price increases. These effects were partly offset by cost reductions related to operational and sales mix improvements. Earnings in the U.K. operations continue to track ahead of last year, benefiting from the contribution of acquisitions in new product categories. Bagel growth rates were slower in the first half of the year as production was curtailed in the Company's U.K. bagel plant due to an oven fire. Growth rates are expected to improve in the second half of the year as production rates and advertising and promotion activities will be restored in July 2008.
The North American frozen bakery operations are implementing changes to increase capacity utilization and improve margins. This includes the closure of a bagel facility in Toronto and the transfer of production to other regional plants. An expansion at the Company's Roanoke Virginia plant is also expected to be commissioned through the second half of 2008, improving product costs and reducing freight and distribution costs to supply regional customers.
Other Matters
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On July 23, 2008, Canada Bread Company, Limited declared a dividend of $0.06 per share payable on October 1, 2008 to shareholders of record on September 8, 2008. Unless indicated otherwise, by the corporation, in writing at or before the time the dividend is paid, each dividend paid by the corporation in 2008 or a subsequent year is an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".
Canada Bread Company Limited, which is 89.8% owned by Maple Leaf Foods Inc., is a leading manufacturer and distributor of fresh bakery products, frozen par-baked products and fresh pasta and sauces. The Company had 2007 sales of $1.5 billion and employs approximately 8,800 people at its operations across North America and in the United Kingdom.
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Consolidated Financial Statements
(Expressed in Canadian dollars)
CANADA BREAD COMPANY,
LIMITED
Three and six months ended June 30, 2008 and 2007
CANADA BREAD COMPANY, LIMITED
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
As at As at As at
June 30, June 30, December 31,
2008 2007 2007
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 8,149 $ 10,414 $ 2,847
Accounts receivable 89,722 61,358 68,464
Inventories 58,826 51,406 47,036
Future tax asset - current 19,367 4,968 5,937
Prepaid expenses 8,167 3,786 4,798
Other current assets - 74,158 80,586
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$ 184,231 $ 206,090 $ 209,668
Property and equipment 412,036 385,978 396,623
Goodwill 401,531 360,486 371,066
Other intangibles 13,356 5,035 12,870
Future tax asset - non-current - 379 -
Other long-term assets 10,533 1,905 7,955
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$ 1,021,687 $ 959,873 $ 998,182
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 10,092 $ 10,667 $ 9,845
Accounts payable and accrued
charges 188,244 172,551 177,695
Due to Maple Leaf Foods Inc. 6,213 8,855 5,408
Dividends payable 1,525 1,525 1,525
Income and other taxes payable 18,555 20,822 15,078
Current portion of long-term debt 90,272 10,843 107,644
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$ 314,901 $ 225,263 $ 317,195
Long-term debt - 82,066 5
Future tax liability - non-current 33,492 29,896 33,522
Other long-term liabilities 13,317 6,526 12,417
Shareholders' equity 659,977 616,122 635,043
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$ 1,021,687 $ 959,873 $ 998,182
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
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Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
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Sales $ 437,418 $ 375,723 $ 820,287 $ 734,060
Cost of goods sold 373,381 295,616 691,052 579,423
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Gross margin $ 64,037 $ 80,107 $ 129,235 $ 154,637
Selling, general and
administrative
expenses 51,639 46,112 97,293 90,681
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Earnings from
operations before
restructuring and
other related costs $ 12,398 $ 33,995 $ 31,942 $ 63,956
Restructuring and
other related costs (1,419) - (2,692) (2,192)
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Earnings from
operations $ 10,979 $ 33,995 $ 29,250 $ 61,764
Other income (expense) 1,541 (93) 1,575 409
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Earnings before
interest and income
taxes $ 12,520 $ 33,902 $ 30,825 $ 62,173
Interest expense 2,077 1,375 3,835 2,630
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Earnings before
income taxes $ 10,443 $ 32,527 $ 26,990 $ 59,543
Income taxes 3,905 11,302 8,241 20,408
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Net earnings $ 6,538 $ 21,225 $ 18,749 $ 39,135
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Earnings per share
- basic and diluted $ 0.26 $ 0.84 $ 0.74 $ 1.54
Weighted average
number of shares
(millions) 25.4 25.4 25.4 25.4
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Comprehensive Income
(In thousands of Canadian dollars)
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Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
-------------------------------------------------------------------------
Net earnings $ 6,538 $ 21,225 $ 18,749 $ 39,135
Other comprehensive
income (loss)
Change in accumulated
foreign currency
translation adjustment (1,389) (9,326) 10,309 (10,041)
Change in unrealized
derivative loss on
cash flow hedges 595 2,032 (1,074) 1,853
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(794) (7,294) 9,235 (8,188)
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Comprehensive income $ 5,744 $ 13,931 $ 27,984 $ 30,947
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars, except in share amounts)
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Six months ended June 30,
(Unaudited) 2008 2007
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Retained earnings, beginning of period $ 528,327 $ 450,733
Net earnings 18,749 39,135
Inter-company acquisition - (57)
Dividends declared ($0.12 per share;
2007: $0.12 per share) (3,050) (3,050)
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Retained earnings, end of period $ 544,026 $ 486,761
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
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Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
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CASH PROVIDED BY
(USED IN)
Operating activities
Net earnings $ 6,538 $ 21,225 $ 18,749 $ 39,135
Add (deduct) items
not affecting cash:
Depreciation and
amortization 14,182 12,458 27,001 24,742
Future income taxes (1,350) (1,039) (423) (69)
Loss (gain) on sale
of property and
equipment 188 105 173 (385)
Changes in
restructuring and
other related costs 1,175 - 1,917 -
Other (207) (535) 1,305 (291)
Change in operating
working capital (7,285) 4,988 (34,905) (5,982)
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$ 13,241 $ 37,202 $ 13,817 $ 57,150
Financing activities
Dividends paid (1,525) (1,525) (3,050) (3,050)
Net increase (decrease)
in long-term debt 13,371 (3,432) (17,377) 6,026
Settlement of cross
currency interest
rate swap with
Maple Leaf Foods Inc. - - 80,586 -
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$ 11,846 $ (4,957) $ 60,159 $ 2,976
Investing activities
Additions to property
and equipment (17,242) (30,858) (25,870) (42,525)
Proceeds from sale
of property and
equipment 517 126 532 726
Acquisition of business,
- net of cash acquired (8) (245) (43,544) (8,234)
Change in intangible
assets 160 (117) (39) (86)
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$ (16,573) $ (31,094) $ (68,921) $ (50,119)
Increase (decrease)
in cash and cash
equivalents 8,514 1,151 5,055 10,007
Net cash and cash
equivalents,
beginning of period (10,457) (1,404) (6,998) (10,260)
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Net cash and cash
equivalents, end
of period $ (1,943) $ (253) $ (1,943) $ (253)
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CANADA BREAD COMPANY, LIMITED
Segmented Financial Information
(In thousands of Canadian dollars)
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Three months ended Six months ended
June 30, June 30,
(Unaudited) 2008 2007 2008 2007
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Sales
Fresh Bakery $ 287,638 $ 244,155 $ 524,862 $ 463,341
Frozen Bakery 149,780 131,568 295,425 270,719
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$ 437,418 $ 375,723 $ 820,287 $ 734,060
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Earnings from
operations before
restructuring and
other related costs
Fresh Bakery $ 12,457 $ 25,769 $ 25,146 $ 47,770
Frozen Bakery (59) 8,226 6,796 16,186
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$ 12,398 $ 33,995 $ 31,942 $ 63,956
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Additions to property
and equipment
Fresh Bakery $ 9,605 $ 18,574 $ 11,173 $ 25,576
Frozen Bakery 7,636 12,284 14,697 16,949
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$ 17,241 $ 30,858 $ 25,870 $ 42,525
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Depreciation and
amortization
Fresh Bakery $ 7,472 $ 6,504 $ 13,852 $ 12,706
Frozen Bakery 6,710 5,954 13,149 12,036
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$ 14,182 $ 12,458 $ 27,001 $ 24,742
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As at As at As at
June 30, June 30, December 31,
2008 2007 2007
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(Unaudited) (Unaudited)
Total assets
Fresh Bakery $ 465,250 $ 398,774 $ 400,518
Frozen Bakery 521,853 509,503 573,772
Non-allocated assets 34,584 51,596 23,892
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$ 1,021,687 $ 959,873 $ 998,182
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Goodwill
Fresh Bakery $ 155,616 $ 130,884 $ 131,256
Frozen Bakery 245,915 229,602 239,810
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$ 401,531 $ 360,486 $ 371,066
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