Canada Bread Reports Results for Fourth Quarter and Fiscal Year 2010
TORONTO, Feb. 24 /PRNewswire-FirstCall/ - Canada Bread Company, Limited (TSX: CBY) today reported its financial results for the fourth quarter and year ended December 31, 2010. Fourth quarter and full year highlights include:
- Fourth quarter Adjusted Operating Earnings were $27.3 million
compared to $29.1 million last year
- Fourth quarter Adjusted EPS of $0.61 compared to $0.70 in the
prior year
- Full year Adjusted Operating Earnings were $110.5 million compared to
$120.5 million last year
- Fourth quarter net earnings were $13.6 million down from $15.0
million and $61.0 million compared to $77.5 million for the full year
Note: Adjusted Operating Earnings are defined as earnings from operations before restructuring and other related costs and other income (expense). Adjusted Earnings per Share ("Adjusted EPS") are defined as basic earnings per share adjusted for the impact of restructuring and other related costs, net of tax. Please refer to the section entitled Reconciliation of Non-GAAP Financial Measures at the end of this news release.
"While we had a modest decline in operating earnings in the quarter, a number of initiatives are underway to reduce costs and strengthen volumes," said Richard Lan, President and CEO. "We are consolidating manufacturing facilities, reducing overhead costs and increasing our marketing and sales activities, all with good results. We will also manage significant commodity inflation through price increases."
Financial Overview
------------------
Sales for the fourth quarter declined 9% to $393.1 million from $432.2 million in the prior year mostly as a result of an additional week in the fourth quarter last year. Excluding the impact of the extra week in 2009 and unfavourable currency translation of the Company's sales in the U.K. and U.S., sales were largely consistent with the prior year. For the full year, sales were $1,588.4 million, compared to $1,705.8 million in 2009.
Adjusted Operating Earnings in the fourth quarter were $27.3 million compared to $29.1 million last year and $110.5 million compared to $120.5 million for the full year. The fourth quarter decline was largely due to lower volumes in the Company's frozen bakery operations.
During the quarter the business benefited from lower commodity costs and a strong Canadian dollar, which reduced the cost of flour and other ingredients priced in US dollars. However, there was a significant rise in wheat prices late in the quarter that has continued into 2011. A loss of $5.9 million on interest rate swaps and reduced Adjusted Operating Earnings, partly offset by lower income taxes, contributed to a moderate decrease in net earnings from $15.0 million ($0.59 per share) last year to $13.6 million ($0.54 per share) in the fourth quarter of 2010. Net earnings for the full year were $61.0 million ($2.40 per share) compared to $77.5 million ($3.05 per share) in 2009.
Business Segment Review
------------------------
The following table summarizes sales by business segment:
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($ thousands) Fourth Quarter Full Year
------------------------------------------------
2010 2009 2010 2009
-------------------------------------------------------------------------
Fresh Bakery $261,876 $279,244 $1,086,827 $1,119,790
Frozen Bakery 131,203 152,946 501,610 585,998
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Sales $393,079 $432,190 $1,588,437 $1,705,788
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The following table summarizes Adjusted Operating Earnings by business
segment:
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($ thousands) Fourth Quarter Full Year
------------------------------------------------
2010 2009 2010 2009
-------------------------------------------------------------------------
Fresh Bakery $20,623 $20,079 $99,226 $91,535
Frozen Bakery 6,714 9,053 11,251 29,002
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Adjusted Operating Earnings $27,337 $29,132 $110,477 $120,537
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Fresh Bakery
------------
Includes fresh bakery products, including breads, rolls, bagels, sweet goods, prepared sandwiches, and fresh pasta and sauces sold to retail, foodservice and convenience channels. It includes national brands such as Dempster's(R) and Olivieri(R) and many leading regional brands.
Fourth quarter sales decreased 6% to $261.9 million from $279.2 million last year. Excluding the impact of the extra week in 2009, sales increased by 1% due primarily to a moderate increase in volume.
Adjusted Operating Earnings in the quarter increased slightly to $20.6 million from $20.1 million, due to lower commodity costs and the favourable impact of a stronger Canadian dollar on wheat and ingredient purchases. A significant rise in wheat prices that began in the fourth quarter has continued in 2011, and as a result the business expects to implement price increases in the first quarter. Adjusted Operating Earnings for the full year increased to $99.2 million from $91.5 million last year.
Construction of the Company's bakery facility in Hamilton, Ontario commenced in August 2010. The project is on target to begin initial production of bakery products in July 2011.
On February 18, 2011, the Company completed the sale of its fresh sandwich business for $8.0 million, subject to post closing adjustments.
Frozen Bakery
-------------
Includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, foodservice and convenience channels in North America and the U.K. It includes national brands such as Tenderflake(R) and New York Bakery Co(R).
Fourth quarter sales declined by 14% to $131.2 million from $152.9 million last year. Excluding the impact of the extra week in 2009, sales decreased by 7% due to lower volumes, predominantly in U.K. bakery operations, and the impact of unfavourable currency translation of the Company's sales in the U.K. and U.S. due to a stronger Canadian dollar.
Adjusted Operating Earnings in the quarter were $6.7 million compared to $9.1 million last year. Performance in the North American frozen bakery operations was lower than 2009, although volume began to strengthen towards the end of the fourth quarter. A number of initiatives are underway to improve performance. Price increases are being implemented in the first quarter in response to the significant rise in wheat prices. In early 2011, the Company announced it will close a high cost bakery in Laval, Quebec and transfer production to its other bakeries where there is available capacity. Results in the U.K. bakery operations were consistent with last year. Management is proceeding with initiatives to reduce costs and consolidate volumes into fewer bakeries and in the first quarter of 2011 announced plans to close a bakery facility in Cumbria, U.K. Also, in the first quarter of 2011, a significant promotion of the Company's bagel brand in the U.K. was launched to support market growth in the bagel category, which has lead to increased demand and stronger volumes.
For the full year, Adjusted Operating Earnings were $11.3 million compared to $29.0 million last year.
Other Matters
-------------
On February 23, 2011 Canada Bread Company, Limited declared a dividend of $0.06 per share payable on April 1, 2011 to shareholders of record at the close of business on March 10, 2011. Unless indicated otherwise by the Company in writing at or before the time the dividend is paid, this dividend will be considered an eligible dividend for the purposes of the "Enhanced Dividend Tax Credit System".
Forward-Looking Statements
--------------------------
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 objectives and goals, as well as statements with respect to beliefs, plans, 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 expectations concerning performance of the Company's business in general, and are based on a number of factors and assumptions including, but not limited to: the condition of the Canadian, United States and United Kingdom economies; the rate of exchange of the Canadian dollar to the U.S. dollar and the British pound; initiatives to restore sales volumes and reduce costs in the North American and U.K. frozen bakery businesses; the availability and prices of raw materials, energy and supplies; product pricing; the availability of insurance; the competitive environment and related market conditions; improvement of operating efficiencies; continued access to capital; the cost of compliance with environmental and health standards; no adverse results from ongoing litigation; no unexpected actions of domestic and foreign governments and the general assumption that none of the risks identified under the "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2010 will materialize. All of these assumptions have been derived from information currently available to the Company including information obtained by the Company from third-party sources. 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, which reflect the Company's expectations only as of the date hereof.
Factors that could cause actual results or outcomes to differ materially from the results expressed or implied by forward-looking statements are discussed more fully under the heading "Risk Factors" in the Company's Annual Management's Discussion and Analysis for the year ended December 31, 2010 including the section entitled "Risk Factors" that will be available on SEDAR at www.sedar.com. The Company does not intend to, 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 90.0% 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 2010 sales of $1.6 billion and employs approximately 7,500 people at its operations across North America and in the United Kingdom.
Reconciliation of Non-GAAP Financial Measures
---------------------------------------------
The Company uses the following non-GAAP measures: Adjusted Operating Earnings and Adjusted EPS. Management believes that these non-GAAP measures provide useful information to both management and investors in measuring the financial performance of the Company for the reasons outlined below. These measures do not have a standardized meaning prescribed by Canadian GAAP and therefore they may not be comparable to similarly titled measures presented by other publicly traded companies and should not be construed as an alternative to other financial measures determined in accordance with Canadian GAAP.
Adjusted Operating Earnings
The following table reconciles earnings from operations before restructuring and other related costs and other income (expense) to net earnings as reported under Canadian GAAP in the unaudited interim period consolidated statements of earnings for the three-month periods and the audited full-year periods ended as indicated below. Management believes that this is the most appropriate basis on which to evaluate operating results, as restructuring and other related costs and other income (expense) are not representative of operational results.
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($ thousands) Three months ended December 31, 2010
-------------------------------------------------------------------------
Fresh Frozen Unallo- Consoli-
Bakery Bakery cated dated
costs
Net earnings $13,582
Income taxes 4,745
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Earnings from operations
before income taxes 18,327
Interest expense 471
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Earnings from operations
before income taxes and
interest expense 19,345 5,328 (5,876) 18,798
Restructuring and other
related costs 1,141 1,386 - 2,527
Other expense 137 - 5,876 6,012
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Adjusted Operating Earnings $20,623 $6,714 $ - $27,337
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($ thousands) Three months ended December 31, 2009
-------------------------------------------------------------------------
Fresh Frozen Unallo- Consoli-
Bakery Bakery cated dated
costs
Net earnings $15,009
Income taxes 9,392
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Earnings from operations
before income taxes 24,400
Interest expense 1,104
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Earnings from operations
before income taxes and
interest expense 16,635 8,870 - 25,504
Restructuring and other
related costs 3,454 183 - 3,637
Other income (10) - (10)
-------------------------------------------------------------------------
Adjusted Operating Earnings $20,079 $9,053 $ - $29,132
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($ thousands) Year ended December 31, 2010
-------------------------------------------------------------------------
Fresh Frozen Unallo- Consoli-
Bakery Bakery cated dated
costs
Net earnings $60,975
Income taxes 24,827
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Earnings from operations
before income taxes 85,802
Interest expense 3,308
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Earnings from operations
before income taxes and
interest expense 86,685 8,301 (5,876) 89,110
Restructuring and other
related costs 12,598 2,950 - 15,548
Other expense (income) (57) - 5,876 5,819
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Adjusted Operating Earnings $99,226 $11,251 $ - $110,477
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($ thousands) Year ended December 31, 2009
-------------------------------------------------------------------------
Fresh Frozen Unallo- Consoli-
Bakery Bakery cated dated
costs
Net earnings $77,478
Income taxes 35,506
-------------------------------------------------------------------------
Earnings from operations
before income taxes 112,984
Interest expense 5,084
-------------------------------------------------------------------------
Earnings from operations
before income taxes and
interest expense 88,053 30,015 - 118,068
Restructuring and other
related costs 3,373 1,535 - 4,908
Other expense (income) 109 (2,548) - (2,439)
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Adjusted Operating Earnings $91,535 $29,002 $ - $120,537
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Adjusted Earnings per Share
The following table reconciles Adjusted Earnings per Share to basic earnings per share as reported under Canadian GAAP in the consolidated statements of earnings for the unaudited three-month interim periods and the audited full-year periods ended as indicated below. Management believes this is the most appropriate basis on which to evaluate financial results as restructuring and other related costs are not representative of operational results.
($ per share) Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
-------------------------------------------------------------------------
Basic Earnings per Share $ 0.54 $ 0.59 $ 2.40 $ 3.05
Restructuring and other
related costs(i) 0.08 0.11 0.46 0.15
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Adjusted Earnings per
Share(ii) $ 0.61 $ 0.70 $ 2.85 $ 3.20
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(i) Includes per share impact of restructuring and other related costs,
net of tax.
(ii) May not add due to rounding.
Consolidated Financial Statements
(Expressed in Canadian dollars)
CANADA BREAD COMPANY, LIMITED
Three months and Full Year ended December 31, 2010 and 2009
CANADA BREAD COMPANY, LIMITED
Consolidated Balance Sheets
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
As at December 31,
2010 2009
-------------------------------------------------------------------------
ASSETS
Current Assets:
Cash and cash equivalents $ 84,401 $ 57,698
Accounts receivable 29,773 63,620
Note receivable 59,159 -
Inventories 55,477 56,659
Future tax asset 4,015 1,640
Prepaid expenses and other assets 4,516 4,438
-----------------------------------------------------------------------
$ 237,341 $ 184,055
Property and equipment 391,690 387,252
Goodwill 375,894 386,807
Other long-term assets 13,588 11,620
Other intangible assets 13,626 16,678
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$ 1,032,139 $ 986,412
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank indebtedness $ 7,777 $ 4,247
Accounts payable and accrued charges 185,216 172,172
Due to Maple Leaf Foods Inc. 5,336 3,817
Dividends payable 1,525 1,525
Income and other taxes payable 3,248 13,155
Current portion of long-term debt 2,332 -
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$ 205,434 $ 194,916
Long-term debt 1,629 2,547
Future tax liability 30,797 33,338
Other long-term liabilities 8,433 8,524
Shareholders' equity 785,846 747,087
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$ 1,032,139 $ 986,412
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Earnings
(In thousands of Canadian dollars, except share amounts)
-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales $ 393,079 $ 432,190 $ 1,588,437 $ 1,705,788
Cost of goods sold 306,574 342,213 1,254,901 1,365,470
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Gross margin $ 86,505 $ 89,977 $ 333,536 $ 340,318
Selling, general and
administrative expenses 59,168 60,846 223,059 219,781
-------------------------------------------------------------------------
Earnings from operations
before the following: $ 27,337 $ 29,131 $ 110,477 $ 120,537
Restructuring and other
related costs (2,527) (3,637) (15,548) (4,908)
Other income (6,013) 10 (5,819) 2,439
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Earnings before interest
and income taxes $ 18,797 $ 25,504 $ 89,110 $ 118,068
Interest expense 471 1,104 3,308 5,084
-------------------------------------------------------------------------
Earnings before income
taxes $ 18,326 $ 24,400 $ 85,802 $ 112,984
Income taxes 4,745 9,391 24,827 35,506
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Net earnings $ 13,581 $ 15,009 $ 60,975 $ 77,478
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Earnings per share -
basic and diluted $ 0.54 $ 0.59 $ 2.40 $ 3.05
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)
-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Net earnings $ 13,581 $ 15,009 $ 60,975 $ 77,478
Other comprehensive
income (loss)
Change in accumulated
foreign currency
translation adjustment (8,748) (10,684) (21,704) (34,398)
Change in unrealized
derivative loss on
cash flow hedges 3,932 650 5,588 1,754
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$ (4,816) $ (10,034) $ (16,116) $ (32,644)
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Comprehensive income $ 8,765 $ 4,975 $ 44,859 $ 44,834
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Consolidated Statements of Retained Earnings
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Years ended December 31,
2010 2009
-------------------------------------------------------------------------
Retained earnings, beginning of year $ 658,541 $ 587,163
Net earnings 60,975 77,478
Dividends declared ($0.24 per share; 2009:
$0.24 per share) (6,100) (6,100)
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Retained earnings, end of year $ 713,416 $ 658,541
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CANADA BREAD COMPANY, LIMITED
Consolidated Statements of Cash Flows
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
CASH PROVIDED BY (USED IN):
Operating activities
Net earnings $ 13,581 $ 15,009 $ 60,975 $ 77,478
Add (deduct) items not
affecting cash:
Depreciation and
amortization 11,999 12,319 50,159 53,992
Future income taxes (471) 2,166 (6,894) 67
Loss on sale of
property and equipment 235 10 126 471
Change in provision for
restructuring and
other related costs 1,468 2,811 11,561 2,204
Amortization of
terminated interest
rate swaps 113 658 2,089 1,975
Loss on
interest rate swaps 5,876 5,876
Other 212 (266) 42 (2,826)
Change in non-cash
operating working capital (39,117) 10,495 (33,449) (24,315)
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Cash provided by (used in)
operating activities $ (6,104) $ 43,202 $ 90,485 $ 109,046
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Financing activities
Dividends paid $ (1,525) $ (1,525) $ (6,100) $ (6,100)
Changes in long-term debt 1,430 2,547 2,000 (1,971)
Settlement of interest
rate swaps with Maple
Leaf Foods Inc. - - - (8,502)
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Cash provided by (used in)
financing activities $ (95) $ 1,022 $ (4,100) $ (16,573)
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Investing activities
Additions to property
and equipment $ (18,707) $ (11,212) $ (66,595) $ (41,659)
Proceeds from sale of
property and equipment 2,374 32 3,114 547
Change in intangible
assets 249 501 254 502
Other 16 (286) 15 (1,239)
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Cash used in investing
activities $ (16,068) $ (10,965) $ (63,212) $ (41,849)
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Increase (decrease) in
cash and cash equivalents $ (22,267) $ 33,259 $ 23,173 $ 50,624
Net cash and cash
equivalents, beginning of
period 98,891 20,192 53,451 2,827
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Net cash and cash
equivalents, end of
period $ 76,624 $ 53,451 $ 76,624 $ 53,451
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Net cash and cash
equivalents is
comprised of:
Cash and cash equivalents $ 84,401 $ 57,698 $ 84,401 $ 57,698
Bank Indebtedness (7,777) (4,247) (7,777) (4,247)
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Net cash and cash
equivalents, end of
period $ 76,624 $ 53,451 $ 76,624 $ 53,451
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CANADA BREAD COMPANY, LIMITED
Segmented Financial Information
(In thousands of Canadian dollars)
-------------------------------------------------------------------------
Three months ended Year ended
December 31, December 31,
2010 2009 2010 2009
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Sales
Fresh Bakery $ 261,876 $ 279,244 $ 1,086,827 $ 1,119,790
Frozen Bakery 131,203 152,946 501,610 585,998
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$ 393,079 $ 432,190 $ 1,588,437 $ 1,705,788
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Earnings from operations
before restructuring and
other related costs and
other income
Fresh Bakery $ 20,623 $ 20,078 $ 99,226 $ 91,535
Frozen Bakery 6,714 9,053 11,251 29,002
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$ 27,337 $ 29,131 $ 110,477 $ 120,537
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Capital expenditures
Fresh Bakery $ 14,571 $ 6,045 $ 47,880 $ 21,722
Frozen Bakery 4,136 5,167 18,715 19,937
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$ 18,707 $ 11,212 $ 66,595 $ 41,659
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Depreciation and
amortization
Fresh Bakery $ 6,292 $ 6,816 $ 26,866 $ 27,632
Frozen Bakery 5,707 5,503 23,293 26,360
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$ 11,999 $ 12,319 $ 50,159 $ 53,992
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As at As at
December 31, December 31,
2010 2009
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Total assets
Fresh Bakery $ 470,339 $ 441,020
Frozen Bakery 451,810 476,681
Non-allocated assets 109,990 68,711
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$ 1,032,139 $ 986,412
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Goodwill
Fresh Bakery $ 157,194 $ 155,946
Frozen Bakery 218,700 230,861
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$ 375,894 $ 386,807
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SOURCE CANADA BREAD COMPANY, LIMITED
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