Earnings dip for Canada Bread

by Jeff Gelski
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TORONTO – Canada Bread Co. Ltd. had net earnings of C$20.7 million ($20.0 million), or C81c per share, for the second quarter ended June 30, which was down from C$22.5 million ($21.7 million), or C89c per share, in the previous year’s second quarter. The reduction came as a result of lower adjusted operating earnings and higher restructuring costs.

Second-quarter restructuring charges mostly related to the restructuring of the specialty baked goods production in the United Kingdom and the previously announced construction of a new large-scale bakery and the related consolidation of three smaller bakery facilities in Ontario.

Second-quarter sales declined to C$402,062,000 from C$435,918,000 in the previous year’s second quarter. The decline mostly was due to currency translation impacts of a stronger Canadian dollar on sales denominated in U.S. dollars and British pounds and lower volumes in the Frozen Bakery segment, partially offset by increased operating earnings within the Fresh Bakery segment.

“Our fresh bakery business delivered steady results,” said Richard Lan, president and chief executive officer, when results were given Thursday. “However, our second-quarter results continued to be affected by a volume decline in our North American frozen business and our U.K. specialty bakery operations. We are taking steps to reduce costs and build volumes and expect improvement through the remainder of 2010.”

The Fresh Bakery segment had second-quarter sales of C$282,530,000, down from C$290,258,000 in the previous year’s second quarter, mostly because of increased trade investment in fresh bakery operations due to increased competitive pressure in the Canadian marketplace and lower sales volumes in the fresh sandwich business.

Second-quarter adjusted operating earnings for the Fresh Bakery segment were C$27,515,000, up from C$25,379,000. Fresh Bakery operations mostly benefitted from a stronger Canadian dollar that reduced the cost of ingredients priced on U.S. dollars. Inflationary costs, higher trade investments and increased brand support offset those benefits.

The Frozen Bakery segment had second-quarter sales of C$119,532,000, down from C$145,660,000. The decline in part was due to the unfavorable impact of a stronger Canadian dollar on the company’s sales in the United States and the United Kingdom and lower sales volume in both the North American and U.K. frozen bakery businesses.

Second-quarter adjusted operating earnings for the Frozen Bakery segment were C$2,871,000, down from C$7,762,000, mostly due to the decline in sales volume and related operational inefficiencies.

For the six months ended June 30, Canada Bread companywide had sales of C$783,994,000, which was down from C$849,043,000 in the same period of the previous year, and net earnings of C$33,413,000, or C$1.31 per share, which was down from C$37,419,000, or C$1.47 per share.

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