CANADA BREAD CO. LTD. $72 (Toronto symbol CBY; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 25.4 million; Market cap: $1.8 billion; Price-to-sales ratio: 1.2; Dividend yield: 2.8%; TSINetwork Rating: Above Average; www.canadabread.ca) recently sold its Olivieri Foods business, which makes pasta and sauces, to Spain’s Ebro Foods. The company received $120 million, increasing its cash holdings to $308 million. Its recent $8.00-a-share special dividend cost it $203.2 million.
The special dividend would seem to indicate that Maple Leaf (see page 13) is close to selling its 90.0% stake in Canada Bread. If not, Canada Bread would likely invest the cash from the Olivieri sale in its own bakeries or pursue acquisitions.
But even if Maple Leaf hangs on to Canada Bread, its future looks bright. It recently opened a $100-million bakery in Hamilton, Ontario, which let it close three outdated facilities in Toronto and shift their production to the new plant.
These moves are starting to pay off: in the three months ended September 30, 2013, Canada Bread earned $24.5 million, or $0.96 a share. That’s up 4.0% from $23.5 million, or $0.93 a share, a year earlier. Without unusual items, earnings per share jumped 18.3%, to $1.10 from $0.93.
Sales fell 2.2%, to $392.5 million from $401.5 million. Baked good sales (68% of the total) fell 4.0%, but sales of frozen goods (32%) rose 1.6%. If you adjust for the closure of some less-profitable U.K. bakeries, sales of frozen items would have risen 4.2%.
The stock jumped from $66 before Maple Leaf’s announcement to $80 in December. It moved down to its current level following the special dividend payment.
The shares trade at a somewhat high 20.6 times the $3.50 a share the company likely earned in 2013. The $2.00 dividend yields 2.8%.
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