George Weston looks to fresh and gluten-free products to grow this year

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TORONTO – George Weston Ltd. (TSX:WN) is hoping fresh and gluten-free products will help drive sales this year as customers continue to turn away from frozen goods and toward healthier food choices.

Company president Pavi Binning said it’s ACE Bakery division, a producer of high-quality bakery products without preservatives, is a key growth area for the company, but notes that cookies and gluten-free products are also showing strength.

“There is more room for ACE to grow as we move forward and we are out of capacity, largely, in Canada on the ACE business, so that’s an important area for us,” Binning said during a conference call Thursday with analysts to discuss the company’s fourth quarter results.

“There’s a number of investments where we see opportunities: one, to grow the business in the future; and second, maybe to realize some more cost efficiencies.”

Binning said he expected to see growth in the gluten-free area this year, even though the segment remains relatively small.

“We’ve had a good start. In Canada in particular, the “All But Gluten’ brand has been well-received by retailers,” he said, adding that it has a successful entry into the U.S. market.

Sales in the gluten-free business exceeded $10 million in 2013 just in Canada, he said, adding George Weston now plans to focus on growing that segment in the U.S.

The company was hit hard in the last half of 2013 by customers’ move away from frozen dough products, but Binning said he expects that segment to begin to stabilize in the second half of 2014.

George Weston is also facing a new competitor after Maple Leaf Foods (TSX:MFI) sold its Canada Bread (TSX:CBY) subsidiary to Grupo Bimbo, a Mexican company.

But Binning said he was taking the competition in stride.

“My expectation is that the new competitor, Bimbo, will be a strong competitor in the market place just like Canada Bread has been,” he said.

“What we’re focused on is what we need to do to drive long-term value for shareholders.”

George Weston on Thursday reported earnings of $232 million in the fourth quarter, up from $112 million in the same period last year, as sales rose to $7.9 billion from $7.7 billion.

Adjusted basic net earnings per share were $1.11, up from $1 in the quarter last year and 14 cents better than estimates. Analysts had estimated 97 cents of adjusted earnings.

Earnings were boosted by a lower income tax rate but partially offset by declines in the performance of Weston Foods and Loblaw Companies Ltd. (TSX:L). The quarter also included a $32 million restructuring charge after Loblaw said it would cut about 275 store-support positions.

Basic net earnings were $1.37, up from 41 cents, on the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares and a number of other items.

Looking forward, the company said it expected modest sales growth for 2014, but adjusted operating income will likely decline due to continued investments that include plant start-up costs and marketing and innovation.

Loblaw moved to acquire Shoppers in July, in a blockbuster $12.4-billion deal that will allow it to better compete against retail giants such as Walmart and provide cash flow of about $1 billion to pay down debt.

During the summer, the company also spun off its real estate holdings into a new publicly traded trust, Choice Properties (TSX:CHP.UN), which remains majority owned by Loblaw.

On the Toronto Stock Exchange Thursday, George Weston shares were trading up 32 cents at $80.04.

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