Canada Bread Reports Third Quarter Results
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Source: Canada Bread Company, Limited
03/11/2008
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TORONTO, Oct. 29, 2008 - Earnings Strengthen as Commodity Markets Decline Late in Quarter
Canada Bread Company, Limited (TSX: CBY) today announced its financial results for the third quarter ended September 30, 2008.
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Adjusted Operating Earnings declined 6% compared to the prior year period
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Adjusted Earnings per Share increased to $0.93, including insurance proceeds related to a fire in the Rotherham, U.K. bagel facility
Note: All earnings measures are defined as earnings before restructuring and other related costs. All earnings per share measures are defined as earnings per share before restructuring and other related costs.
"Earnings strengthened as commodity markets began to decline late in the quarter and we benefited from significant capital investments that have lowered our operating costs," said Richard Lan, President and CEO. "While wheat prices are declining, labour, packaging and other input costs have increased. We expect previously implemented price increases to continue to improve margins through the end of the year. We are continuing to grow and diversify our product mix through some exciting new products that were launched in the quarter. These expand our leadership in the premium nutrition and specialty bakery categories under the banner of our strong brands."
Financial Overview
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Sales for the third quarter increased 14.8% to $443.1 million compared to the same period last year due to higher selling prices and contributions from acquisitions. Excluding acquisitions, sales increased by 9.7% compared to last year. Year-to-date sales increased by 12.8% to $1,263.4 million.
Earnings from operations before restructuring and other related costs and other income ("Adjusted Operating Earnings") declined 6.6% to $31.9 million compared to $34.1 million last year. Net earnings before restructuring and other related costs for the quarter increased 12.6% to $23.7 million ($0.93 per share), compared to $21.1 million ($0.83 per share) last year. Year-to-date earnings per share, on a comparable basis, were $1.75 compared to $2.43 last year.
Following is a summary of net earnings and earnings per share ("EPS") before restructuring and other related costs ("Adjusted EPS"): <<
($ millions) Third Quarter Year-to-Date
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2008 2007 Change 2008 2007 Change
---- ---- ------ ---- ---- ------
Net Earnings $ 19.7 $ 21.1 (6.4%) $ 38.5 $ 60.2 (36.1%)
Restructuring and
other related
costs, net of tax 4.0 0.0 N/A 5.9 1.5 294.5%
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Net earnings before
restructuring and
other related
costs(i) $ 23.7 $ 21.1 12.6% $ 44.4 $ 61.7 (28.0%)
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Adjusted EPS(i) $ 0.93 $ 0.83 12.6% $ 1.75 $ 2.43 (28.0%)
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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) Third Quarter Year-to-Date
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2008 2007 Change 2008 2007 Change
---- ---- ------ ---- ---- ------
Fresh Bakery 26.0 24.9 4.1% 51.1 72.7 (29.7%)
Frozen Bakery 5.9 9.2 (35.9%) 12.7 25.4 (50.0%)
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31.9 34.1 (6.6%) 63.8 98.1 (34.9%)
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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 third quarter increased 19.2% to $290.2 million compared to $243.5 million last year, largely due to price increases and contributions from acquisitions. Excluding acquisitions, sales increased by 13.8% compared to last year.
Adjusted Operating Earnings for the quarter were $26.0 million compared to $24.9 million last year. Earnings were significantly impacted in the first half of 2008 by an unprecedented rise in commodity prices. Price increases implemented late in 2007 and early 2008 contributed to results in the third quarter, but have not offset prior losses. In the early part of the quarter, earnings across the business were affected by high wheat and oil prices, which began to decline towards the end of the quarter. Management anticipates that the combination of the price increases implemented earlier in the year and lower commodity prices will continue to improve margins through the end of the year. During the quarter the Company increased its investment in innovation and marketing and promotional activities. Supporting sales growth and product diversification in the Fresh Bakery business, new product launches included Dempster's Naan bread, diversifying into this high growth specialty category and Dempster's BodyWise diet breads. The Company also launched Nature's Path, a national line of branded organic breads.
<< Frozen Bakery (North American and U.K. frozen bakery products; including frozen par-baked and specialty bakery products) >>
Frozen Bakery sales increased by 7.4% to $152.9 million from $142.3 million last year. This was a result of increased prices and contributions from acquisitions. Excluding acquisitions, sales increased by 2.7% compared to last year.
Adjusted Operating Earnings for the quarter declined to $5.9 million from $9.2 million last year. The Company's U.K. bakery business experienced lower bagel sales growth as result of a fire at the principal bagel line at the Rotherham plant, which impacted sales and earnings and increased manufacturing costs as the new oven was commissioned. These costs and business disruption are covered by insurance and proceeds of $4.8 million received in the third quarter are included in Other Income. The Company has received $6.5 million year-to-date and expects to receive further insurance reimbursements in the fourth quarter of 2008 and in the first quarter of 2009.
As part of its acquisition integration activities, the U.K. bakery business is taking steps to further reduce costs and improve operating efficiencies. This includes the closure of two small bakery operations announced in the quarter, with production from these facilities, primarily croissants and bagels, being transferred to the Company's larger bakeries in Maidstone and Rotherham.
In continuation of its initiatives to increase the profitability of its North American frozen bakery business, the Company closed a bagel plant in Toronto and shifted production to other regional facilities. A bagel line is also being commissioned at its bakery in Roanoke, Virginia, which will move production closer to customers and reduce transportation costs.
<< Other Matters
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On October 22, 2008, Canada Bread Company, Limited declared a dividend of $0.06 per share payable on January 2, 2009 to shareholders of record on December 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".
<< Forward-Looking Statements
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This document contains, and the Company's oral and written public communications often contain, forward-looking statements that are based on current expectations, estimates, forecasts and projections about the industries in which the Company operates and beliefs and assumptions made by the Management of the Company. Such statements include, but are not limited to, statements with respect to our objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. Words such as "expect", "anticipate", "intend", "attempt", "may", "will", "plan", "believe", "seek", "estimate", and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve assumptions and risks and uncertainties that are difficult to predict. In particular, these forward-looking statements are based on a variety of factors and assumptions including, but not limited to: the condition of the Canadian and United States economies; the magnitude of the rate of change of the Canadian dollar versus the U.S. dollar; the availability and prices of raw materials, energy and supplies; product pricing; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; adverse results from ongoing litigation; no expected actions of domestic and foreign governments and the general assumption that none of the risks identified under "Risk Factors" in the Company's 2007 Annual Information Form will materialize. These assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party industry analysts. These assumptions may prove to be incorrect in whole or in part. In addition, actual results may differ materially from those expressed, implied or forecasted in such forward-looking statements. Factors that could cause actual results or outcomes to differ materially from the results expressed, implied or forecasted in such forward-looking statements are discussed more fully in the Company's Management's Discussion and Analysis for the year ended December 31, 2007, which is available on SEDAR at www.sedar.com. The Company does not intend, and the Company disclaims any obligation to update any forward-looking statements, whether written or oral, or whether as a result of new information, future events or otherwise except as required by law.
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. <<
Consolidated Financial Statements
(Expressed in Canadian dollars)
CANADA BREAD COMPANY,
LIMITED
Three and nine months ended September 30, 2008 and 2007
CANADA BREAD COMPANY, LIMITED
Consolidated Balance Sheets
(In thousands of Canadian dollars)
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As at As at As at
September 30, September 30, December 31,
2008 2007 2007
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(Unaudited) (Unaudited)
ASSETS
Current assets
Cash and cash equivalents $ 20,328 $ 12,439 $ 2,847
Accounts receivable 76,108 72,712 68,464
Inventories 58,451 49,086 47,036
Future tax asset - current 18,719 4,607 5,937
Prepaid expenses and other
receivables 13,039 7,431 4,798
Other current assets - 82,146 80,586
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$ 186,645 $ 228,421 $ 209,668
Property and equipment 408,160 393,825 396,623
Goodwill 395,181 387,465 371,066
Other intangibles 18,331 4,596 12,870
Future tax asset - non-current - 360 -
Other long-term assets 9,815 1,779 7,955
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$ 1,018,132 $ 1,016,446 $ 998,182
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank indebtedness $ 9,521 $ 10,157 $ 9,845
Accounts payable and accrued
charges 185,670 181,911 177,695
Due to Maple Leaf Foods Inc. 3,960 7,757 5,408
Dividends payable 1,525 1,525 1,525
Income and other taxes payable 18,560 21,131 15,078
Current portion of long-term
debt 50 10,352 107,644
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$ 219,286 $ 232,833 $ 317,195
Long-term debt 78,453 116,700 5
Future tax liability -
non-current 35,867 29,382 33,522
Other long-term liabilities 13,918 12,157 12,417
Shareholders' equity 670,608 625,374 635,043
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$ 1,018,132 $ 1,016,446 $ 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 Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
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Sales $ 443,086 $ 385,849 $ 1,263,373 $ 1,119,909
Cost of goods sold 363,501 304,754 1,054,553 884,177
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Gross margin $ 79,585 $ 81,095 $ 208,820 $ 235,732
Selling, general and
administrative
expenses 47,726 46,979 145,019 137,660
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Earnings from
operations before
the following: $ 31,859 $ 34,116 $ 63,801 $ 98,072
Restructuring and
other related costs (5,718) - (8,410) (2,192)
Other income 4,797 77 6,372 486
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Earnings before
interest and income
taxes $ 30,938 $ 34,193 $ 61,763 $ 96,366
Interest expense 2,147 1,446 5,982 4,076
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Earnings before income
taxes $ 28,791 $ 32,747 $ 55,781 $ 92,290
Income taxes 9,064 11,660 17,305 32,068
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Net earnings $ 19,727 $ 21,087 $ 38,476 $ 60,222
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Earnings per share -
basic and diluted $ 0.77 $ 0.83 $ 1.51 $ 2.37
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 Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
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Net earnings $ 19,727 $ 21,087 $ 38,476 $ 60,222
Other comprehensive
income (loss)
Change in accumulated
foreign currency
translation
adjustment (7,010) (8,689) 3,299 (18,730)
Change in unrealized
derivative loss on
cash flow hedges (561) (1,621) (1,635) 232
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(7,571) (10,310) 1,664 (18,498)
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Comprehensive income $ 12,156 $ 10,777 $ 40,140 $ 41,724
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars, except in share amounts)
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Nine months ended September 30,
(Unaudited) 2008 2007
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Retained earnings, beginning of period $ 528,327 $ 450,733
Net earnings 38,476 60,222
Inter-company acquisition - (57)
Dividends declared ($0.18 per share; 2007:
$0.18 per share) (4,575) (4,575)
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Retained earnings, end of period $ 562,228 $ 506,323
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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 Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
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CASH PROVIDED BY (USED
IN)
Operating activities
Net earnings $ 19,727 $ 21,087 $ 38,476 $ 60,222
Add (deduct) items
not affecting cash:
Depreciation and
amortization 14,012 12,194 41,014 36,936
Future income
taxes 1,817 1,057 1,394 988
Loss (gain) on
sale of property
and equipment (34) (62) 139 (447)
Changes in
restructuring and
other related costs 4,987 - 6,904 -
Other (218) (1,096) 1,087 (1,387)
Change in operating
working capital 1,154 (2,280) (33,752) (8,262)
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Cash provided by
operating activities $ 41,445 $ 30,900 $ 55,262 $ 88,050
Financing activities
Dividends paid (1,525) (1,525) (4,575) (4,575)
Net increase
(decrease) in
long-term debt (11,768) 35,146 (29,145) 41,172
Settlement of cross
currency interest
rate swap with
Maple Leaf Foods Inc. - - 80,586 -
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Cash provided by (used
in) financing
activities $ (13,293) $ 33,621 $ 46,866 $ 36,597
Investing activities
Additions to property
and equipment (14,155) (22,058) (40,025) (64,583)
Proceeds from sale
of property and
equipment 86 62 618 788
Acquisition of
business - net of
cash acquired (1,275) (40,235) (44,819) (48,469)
Change in intangible
assets (58) 245 (97) 159
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Cash used in investing
activities $ (15,402) $ (61,986) $ (84,323) $ (112,105)
Increase (decrease) in
cash and cash
equivalents 12,750 2,535 17,805 12,542
Net cash and cash
equivalents, beginning
of period (1,943) (253) (6,998) (10,260)
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Net cash and cash
equivalents, end of
period $ 10,807 $ 2,282 $ 10,807 $ 2,282
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CANADA BREAD COMPANY, LIMITED
Segmented Financial Information
(In thousands of Canadian dollars)
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Three months ended Nine months ended
September 30, September 30,
(Unaudited) 2008 2007 2008 2007
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Sales
Fresh Bakery $ 290,196 $ 243,509 $ 815,058 $ 706,850
Frozen Bakery 152,890 142,340 448,315 413,059
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$ 443,086 $ 385,849 $ 1,263,373 $ 1,119,909
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Earnings from
operations before
restructuring and
other related costs
and other income
Fresh Bakery $ 25,985 $ 24,955 $ 51,131 $ 72,725
Frozen Bakery 5,874 9,161 12,670 25,347
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$ 31,859 $ 34,116 $ 63,801 $ 98,072
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Additions to property
and equipment
Fresh Bakery $ 5,912 $ 5,392 $ 17,085 $ 30,968
Frozen Bakery 8,243 16,666 22,940 33,615
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$ 14,155 $ 22,058 $ 40,025 $ 64,583
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Depreciation and
amortization
Fresh Bakery $ 7,122 $ 6,470 $ 20,975 $ 19,176
Frozen Bakery 6,890 5,724 20,039 17,760
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$ 14,012 $ 12,194 $ 41,014 $ 36,936
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As at As at As at
September September December
30, 2008 30, 2007 31, 2007
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(Unaudited) (Unaudited)
Total assets
Fresh Bakery $ 459,396 $ 399,304 $ 400,518
Frozen Bakery 507,191 515,709 573,772
Non-allocated assets 51,545 101,433 23,892
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$ 1,018,132 $ 1,016,446 $ 998,182
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Goodwill
Fresh Bakery $ 156,691 $ 131,255 $ 131,256
Frozen Bakery 238,490 256,210 239,810
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$ 395,181 $ 387,465 $ 371,066
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