George Weston bets on healthy, indulgent foods
TORONTO — George Weston Ltd. is investing in two contradicting areas of growing consumer demand for its bakery division — healthier baked goods and indulgent foods.
Luc Mongeau, president of the food processing and grocery company’s Weston Foods bakery business, said Tuesday it is working on innovation in its artisan and alternative bread products, and recently built organic production capabilities into its Kitchener facility.
But Weston Foods is also focusing on goods of the less-healthy variety amid surging demand for products such as doughnuts.
“We are innovating in indulgent product,” Mongeau said on a conference call discussing George Weston’s latest quarterly results. “There is a strong demand for product that delivers greater indulgence, and we are benefiting and growing in these areas with our portfolio.”
The bread industry has been under pressure in recent years as consumers look for healthier or artisan versions of the food staple, while also grappling with increased competition from discount retailers.
Mongeau’s comments on growing demand for certain segments came as George Weston raised its dividend and reported a firstquarter profit of $180 million. The company says it will now pay a dividend of 49 cents per share, up from 45.5 cents.
The increase came as George Weston reported its profit attributable to common shareholders amounted to $1.40 per diluted share. That was up from $108 million or 84 cents per diluted share in the same quarter last year.
However, on an adjusted basis, which excludes a number of onetime items, George Weston says it earned $178 million or $1.38 per share compared with $184 million or $1.43 per share a year ago.
Sales in the quarter totalled $10.74 billion, down from $10.80 billion in the same quarter last year. Weston Foods’ adjusted earnings before interest, taxes, depreciation and amortization for the quarter slipped to $44 million, down 27.9 per cent compared to a year earlier.
Galen G. Weston, who is chair and CEO of George Weston, said the quarter was “marked by significant headwinds.”
He told analysts that Loblaw, in which George Weston is the largest shareholder, delivered solid results amid “external pressures from minimum wage and health care reform.”
“Weston Foods business performance has been impacted by challenging inflationary pressures and cost relating to the transformation program,” he said.
In November, George Weston launched a three-year transformation plan which includes restructuring the organization and simplifying operations.
In this most recent quarter, Weston Foods recorded restructuring and other related costs of $15 million, largely related to the transformation program and the previously announced closure of an unprofitable manufacturing facility in the U.S.
BMO Capital Markets analyst Peter Sklar said Weston Foods’ results were further below its estimates than expected.
“While we were anticipating a deterioration in the bakery’s EBITDA in Q1/18, we were not anticipating this significant of a decline,” he said.
George Weston said that it anticipates flat sales this year compared to 2017, with improvement in the second half of 2018 to balance out an underperforming first six months.
“The second half of 2018 will need to be significantly stronger than we were previously estimating in order to achieve this,” said Sklar.