Canada Bread grows despite lower earnings in quarter

by Eric Schroeder
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TORONTO — A better sales mix of healthier bakery products coupled with continued growth in the United Kingdom led to earnings of C$17,910,000 ($16,007,000) in the first quarter ended March 31, equal to C$0.70 per share in the same period a year earlier. This compared with earnings of C$19,397,000, or C$0.76 per share, in the first quarter of fiscal 2006.

Earnings before restructuring and other related costs were C$29,961,000, up 7% from C$28,001,000. Earnings during the first quarter were adversely affected by C$2.2 million related to the previously announced closing of a fresh bakery in Langley, B.C.

"In the first quarter we achieved continued growth through increasing our sales mix of higher nutrition and specialty fresh bakery products, and expanding our U.K. bakery business," said Richard Lan, president and chief executive officer. "While North American frozen bakery operations realized a modest improvement, there is much we can do to increase earnings in this segment. To accelerate strategic repositioning of this business, we have established new executive leadership under a 30-year veteran of the bakery industry."

Sales for the third quarter increased 19% to C$358,337,000 ($320,269,000) from C$301,564,000 for the prior year period, partially due to the contribution of recent acquisitions, including the February purchase of Quebec-based snack cake maker Patisserie Chevalier, Inc., and the October acquisition of shares of Royal Touch Foods Inc. Excluding acquisitions, sales rose 8%.

The Fresh Bakery segment’s sales grew by 6% to C$219,186,000, while earnings from operations were C$22,001,000 compared with C$21,576,000 in the first quarter last year. Canada Bread said it benefited from product mix and price improvements that mostly offset higher wheat prices and some volume declines

"Reinforcing its leadership in the growing higher nutrition market, the company launched Dempster’s WholeGrains Prebiotic, a delicious bread that contains inulin, a unique source of prebiotic fiber that promotes digestive health," the company said. "Dempster’s WholeGrains Prebiotic is the first major brand in Canada to offer the benefits of prebiotics."

Canada Bread added that fresh pasta earnings fell in the quarter due to higher dairy and packaging costs.

Frozen Bakery sales rose 48% to C$139,151,000, while operating earnings climbed 24% to C$7,960,000. Canada Bread said a significant portion of the sales gain reflected the contributions from the acquisitions of the French Croissant Company Ltd. on Nov. 27 in the United Kingdom.

"The U.K. bakery operations recorded another strong quarter, benefiting from the contribution of acquisitions, as well as continued bagel earnings growth," the company said. "During the quarter, the company began a project to further expand capacity at its Rotherham bagel facility through a C$8.3 million investment in freezing capacity that will allow the business to pursue further opportunities in the frozen bagel market in the U.K. and Europe. This expansion, together with investments in croissant capacity at the French Croissant Co., is expected to well position the business to continue its growth in the specialty bakery market."

Canada Bread said its North American frozen bakery operations also improved from last year, but remained below earnings potential. MBN

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