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Canada Bread Co Ltd
Symbol C : CBY
Shares Issued 25,416,812
Close 2013-10-29 C$ 69.50
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Canada Bread earns $24.48-million in Q3

2013-10-30 07:14 ET - News Release

Mr. Richard Lan reports

CANADA BREAD REPORTS RESULTS FOR THE THIRD QUARTER 2013

Canada Bread Co. Ltd. has released its financial results for the third quarter ended Sept. 30, 2013. Third quarter highlights include:

Adjusted operating earnings increased 16.7 per cent to $38.9-million compared with $33.3-million last year. Year-to-date adjusted operating earnings increased 19.0 per cent to $92.5-million compared with $77.7-million last year

Net earnings for the quarter increased to $24.5-million compared with $23.5-million last year. For the first nine months, net earnings increased to $51.3-million from $49.8-million last year.

Adjusted earnings per share for the quarter was $1.10, up from 93 cents in the third quarter of 2012. For the first nine months, adjusted earnings per share was $2.60, up from $2.18 last year.

The company achieved an adjusted EBITDA margin of 13.2 per cent in the third quarter

"The business delivered solid earnings growth in the third quarter, benefiting from a very strong focus on efficiency gains, cost reduction and innovative new products," said Richard Lan, president and chief executive officer. "We are realizing some of the benefits of our strategic initiatives already implemented and moving forward with others to realize this potential."

Financial overview

Canada Bread sales for the third quarter decreased 2.2 per cent to $392.5-million compared with $401.5-million last year, or 1.4 per cent after adjusting for discontinued categories in the United Kingdom and the impact of currency translation on sales in the United States and U.K. The decrease was due to lower sales volumes, primarily in the fresh bread business, partially offset by higher pricing across the company.

Sales for the first nine months decreased 1.5 per cent to $1,158.8-million compared with $1,176.6-million last year, or 0.9 per cent after adjusting for discontinued categories in the U.K. and the impact of currency translation, due to similar factors noted above.

Adjusted operating earnings increased 16.7 per cent in the third quarter to $38.9-million compared with $33.3-million last year, driven by higher pricing and operational improvements, partly offset by lower volumes. For the first nine months, adjusted operating earnings increased 19.0 per cent to $92.5-million compared with $77.7-million last year, due to similar factors noted above.

Net earnings in the quarter were $24.5-million (96 cents basic earnings per share) compared with $23.5-million (93 cents basic earnings per share) last year and included $3.7-million of pretax restructuring and other related costs (2012: $200,000). Year-to-date net earnings were $51.3-million ($2.02 basic earnings per share) compared with $49.8-million ($1.96 basic earnings per share) last year and included $15.2-million of pretax restructuring and other related costs (2012: $7.3-million).

Adjusted earnings per share were $1.10 for the third quarter (2012: 93 cents) and $2.60 for the first nine months of 2013 (2012: $2.18).

Several items are excluded from the discussions of underlying earnings performance as they are not representative of continuing operational activities.

                BUSINESS SEGMENT REVIEW
               (In thousands of dollars)

                     Third quarter            Year to date      
                   2013       2012        2013        2012

Fresh bakery   $266,719   $277,709    $780,553    $805,056
Frozen bakery   125,782    123,785     378,283     371,543
Sales           392,501    401,494   1,158,836   1,176,599


    ADJUSTED OPERATING EARNINGS BY BUSINESS SEGMENT
              (In thousands of dollars)

                                 Third quarter     Year to date  
                                 2013     2012     2013    2012 

Fresh bakery                  $26,417  $28,086  $68,245 $64,503
Frozen bakery                  12,483    5,243   24,215  13,206
Adjusted operating earnings    38,900   33,329   92,460  77,709

Fresh bakery

Fresh bakery includes fresh bakery products, including breads, rolls, bagels, sweet goods, and fresh pasta and sauces sold to retail, food service and convenience channels. It includes national brands such as Dempster's and Olivieri and many leading regional brands.

Fresh bakery sales for the third quarter decreased 4.0 per cent to $266.7-million compared with $277.7-million last year, as lower volumes were partly offset by the benefit of an earlier price increase in the fresh bread business. During the first nine months of 2013, sales decreased 3.0 per cent to $780.6-million compared with $805.1-million last year due to similar factors.

Adjusted operating earnings in the fresh bakery segment declined 5.9 per cent to $26.4-million from $28.1-million last year. Lower volumes and higher raw material and inflationary costs in the fresh bread business were partly offset by operating efficiencies, driven by the closure of a third Toronto, Ont., bakery, higher pricing, and lower selling, general and administrative expenses. Earnings in the fresh pasta business were consistent with the prior year.

For the first nine months, adjusted operating earnings increased 5.8 per cent to $68.2-million compared with $64.5-million last year. In the fresh bread business, earnings improved as a result of higher pricing, operational improvements, and lower selling, general and administrative spend, partly offset by lower volumes and higher raw material and other inflationary costs. Earnings in the fresh pasta business increased mainly due to an inventory write-off in the first quarter of last year that did not reoccur.

Frozen bakery

Frozen bakery includes frozen bakery products, including frozen par-baked bakery products, specialty and artisan breads, and bagels sold to retail, food service and convenience channels in North America and the U.K. It includes national brands such as Tenderflake and New York Bakery Co.

Frozen bakery sales for the third quarter increased 1.6 per cent to $125.8-million, or 4.2 per cent after adjusting for discontinued categories in the U.K. and the impact of currency translation on sales in the U.S. and U.K. The increase was driven by volume growth in the U.K., and higher pricing in both the North American and U.K. bakery businesses. Year-to-date frozen bakery sales increased 1.8 per cent to $378.3-million, or 3.8 per cent after adjusting for discontinued categories in the U.K. and the impact of currency translation on sales in the U.S. and U.K. The increase was due to similar factors affecting the third quarter.

Third quarter adjusted operating earnings increased to $12.5-million from $5.2-million last year. The North American frozen bakery business benefited from operational cost reductions and higher pricing, while the U.K. business earnings benefited from increased volumes in the bagel and croissant categories. This business continued to benefit from network consolidation, investment in scale facilities and focus on its core categories.

For the first nine months of 2013, adjusted operating earnings increased 83.4 per cent to $24.2-million compared with $13.2-million last year, due to similar factors affecting the third quarter.

Subsequent events

On Oct. 21, 2013, the company announced that it has established a special committee comprising solely independent directors in connection with the potential sale by Maple Leaf Foods Inc., of its 90-per-cent interest in the company. Maple Leaf has advised the company's board that it is exploring strategic alternatives for its 90-per-cent interest in the company, including a potential sale. This process is expected to conclude in early 2014. There can be no assurance that the process being undertaken by Maple Leaf Foods Inc. will result in the consummation of any transaction.

On Oct. 24, 2013, the company announced that it has signed a definitive agreement to sell substantially all of the net assets of its fresh pasta and sauce business, a component of the fresh bakery segment, for gross proceeds of approximately $120-million. Subject to Competition Bureau review, the transaction is expected to close by the end of 2013.

Other matters

On Oct. 29, 2013, the company declared a dividend of 50 cents per share payable on Jan. 2, 2014, to shareholders of record at the close of business on Dec. 6, 2013. Unless indicated otherwise by the company in writing on 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.

                                 FINANCIAL HIGHLIGHTS
                               (In thousands of dollars)
                                                                              
                                                       Three months ended Sept. 30, 2013
                                               Fresh bakery  Frozen bakery  Consolidated

Net earnings                                                                     $24,488
Income taxes                                                                      10,027
Earnings before income taxes                                                      34,515
Interest income (loss)                                                              (73)
Earnings before interest and income taxes           $25,001         $9,441       $34,442
Other expense                                           539            205           744
Restructuring and other related costs                   877          2,837         3,714
Adjusted operating earnings                          26,417         12,483        38,900


                                                            Three months ended Sept. 30, 2012
                                               Fresh bakery   Frozen bakery      Consolidated

Net earnings                                                                          $23,535
Income taxes                                                                            9,246
Earnings before income taxes                                                           32,781
Interest expense                                                                          365
Earnings before interest and income taxes           $27,897          $5,249           $33,146
Other income                                             13               -                13
Restructuring and other related (costs)                 176             (6)               170
Adjusted operating earnings                          28,086           5,243            33,329


                                                         Nine months ended Sept. 30, 2013
                                              Fresh bakery   Frozen bakery   Consolidated

Net earnings                                                                      $51,298
Income taxes                                                                       20,243
Earnings before income taxes                                                       71,541
Interest expense                                                                      615
Earnings before interest and income taxes          $56,417         $15,739        $72,156
Other (income) expense                                 227           4,909          5,136
Restructuring and other related costs               11,601           3,567         15,168
Adjusted operating earnings                         68,245          24,215         92,460

                                                                      
                                                          Nine months ended Sept. 30, 2012 
                                               Fresh bakery   Frozen bakery   Consolidated

Net earnings                                                                       $49,789
Income taxes                                                                        20,826
Earnings before income taxes                                                        70,615
Interest expense                                                                     1,193
Earnings before interest and income taxes           $62,537          $9,271        $71,808
Other (income) expense                              (1,567)             209        (1,358)
Restructuring and other related costs                 3,533           3,726          7,259
Adjusted operating earnings                          64,503          13,206         77,709

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