CANADA BREAD CO. LTD. $51 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.3 billion; Price-to-sales ratio: 0.8; Dividend yield: 3.9%; TSINetwork Rating: Above Average; www.canadabread.ca) is Canada’s second-largest producer of fresh and frozen baked goods, after Weston Bakery. It also makes pastas and sauces. The company’s main brands include Dempster, Tenderflake and Olivieri.
Canada Bread supplies around a third of Maple Leaf’s sales (see page 44). As a result, it has a big role in Maple Leaf’s restructuring.
For example, in 2011, Canada Bread opened a new $100-million bakery in Hamilton, Ontario. That let it close two outdated facilities in Toronto and shift their production to the new plant; it plans to close a third Toronto bakery in 2013.
Canada Bread is also selling some of its lessprofitable operations. For example, it recently sold a business that supplied fresh sandwiches to gas stations and convenience stores.
In 2012, Canada Bread’s earnings jumped 42.8%, to $74.2 million, or $2.92 a share. In 2011, it earned $52.0 million, or $2.04 a share. However, if you disregard restructuring costs and other unusual items, earnings per share would have fallen 5.0%, to $3.26 from $3.43. That’s mainly due to higher ingredient costs and supply problems at its fresh pasta operations.
Revenue fell 1.8%, to $1.57 billion from $1.60 billion. Price increases helped offset the sale of the sandwich business. Unfavourable currency rates also hurt the contribution of Canada Bread’s operations in the U.S. and U.K., which supply around 25% of its total sales.
Higher costs for wheat and other ingredients will likely cut Canada Bread’s 2013 earnings to $3.05 a share. The stock trades at 16.7 times that estimate. The $2.00 dividend yields 3.9%. However, Maple Leaf’s high 90.0% ownership stake hurts Canada Bread’s liquidity.
Canada Bread is a hold.
