Flat demand for fresh baked goods, Shoppers costs eat at George Weston profits

TORONTO – George Weston Ltd. (TSX:WN) said Tuesday it is working on a new strategic plan to improve its bakery division as it reported flat sales for fresh baked goods continued to eat into results in the third quarter.

Company president Pavi Binning said the company expects to make an announcement regarding the changes when it reports its fourth-quarter results in March.

“While the traditional bakery market continues to be challenging, there are areas of growth available to us,” Binning told analysts during a conference call to discuss the company’s latest financial results.

In the past, the country’s largest food processor and distributor has said it wants to drive growth by increasing its offering of gluten-free products.

The company also wants to increase its focus on its Ace Bakery breads, along with cakes, doughnuts and pies as it competes with other major supermarkets for consumers’ loyalty.

The parent company of grocery giant Loblaw said Tuesday it earned a profit from continuing operations attributable to shareholders of $53 million or 30 cents per share for the 16 weeks ended Oct. 4.

That compared with a profit from continuing operations of $168 million or $1.21 per share a year ago when the company also earned $58 million from discontinued operations.

George Weston said after excluding a number of one-time items including costs related to the recently-closed acquisition of Shoppers Drug Mart, and restructuring, adjusted earnings from continuing items increased by 24.2 per cent to $1.59 per share from $1.28 per share a year ago.

The results beat analysts estimates of $1.54 of adjusted earnings and about $14 billion of revenue for the quarter, according to Thomson Reuters.

The addition of Shoppers Drug Mart helped boost revenue by 34.7 per cent to nearly $14 billion for the quarter compared with $10.4 billion a year ago. Excluding the sales from Canada’s largest pharmacy chain, George Weston’s revenue increased by two per cent to $10.59 billion from $10.38 billion — mostly from its Loblaw division.

Last quarter, George Weston had warned that the third quarter would be challenging for the company as it continued to deal with higher commodity prices and start-up losses at a new bakery in Toronto.

Irene Nattel, an analyst with RBC Dominion Securities, said the company’s results were better than forecast, a sign that its productivity and hedging initiatives are working. Much of the strength in the company was also due to its majority ownership in Loblaw, which reported last week better than expected results driven by strong drug sales at Shoppers, she noted.

The Toronto-based company has been dealing with an competitive grocery market in Canada, as stores like Walmart and Target begin selling food to attract more customers.

On Monday, the Competition Bureau said it was investigating Loblaw’s relationship with suppliers and has asked the Federal Court to require certain suppliers to provide information.

Binning said the investigation should not be seen out of the ordinary.

“It’s the latest step in a review that the Competition Bureau announced earlier this year when they approved our acquisition of Shoppers Drug Mart,” he said.

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