Weston profit drops on weakness at Loblaw, bakery division

Company forging ahead with its plan to reduce the number of products offered

George Weston Ltd. is forging ahead with its plan to reduce the number of different products offered by its bakery division but progress is slower than expected, chairman and CEO Galen G. Weston said Tuesday.

Second-quarter sales at Weston Foods, the smaller of the company’s two main divisions, were down 8.1 per cent at $468 million due to a combination of currency fluctuations, volume and changes in the mix of products sold.

The bakery division’s operating income was down 12.5 per cent from a year ago, at $21 million, and its adjusted EBITDA was down 11.1 per cent at $48 million — driven by the decline in sales and higher input and distribution costs.

Galen Weston told analysts that the rationalization of the product lineup at Weston Foods — which supplies its sibling company Loblaw and other retailers — is a complex task that requires getting new orders to replace discontinued items.

“You lose sales immediately and you hope you’re going to have new sales coming online. It’s not coming as fast as we expected,” Weston told analysts in a quarterly conference call.

He added that the second quarter did show early signs of reduced overhead expenses due to the transformation and “we expect those benefits to continue as the year progresses. So that gives us the confidence to continue and push forward.”

As usual, George Weston’s overall second quarter results were dominated by its holdings in Loblaw Companies Ltd., which operates Canada’s largest grocery business and the Shoppers Drug Mart chain of pharmacies. It also has investments in real estate through its holdings of the Choice Properties real estate trust. George Weston’s secondquarter net income plunged 77.6 per cent to $28 million and adjusted earnings slipped to $210 million, below analyst estimates on both counts. Overall sales slipped 1.2 per cent to $11.2 billion.

Net income per share dropped to 21 cents from $160 million or $1.23 per share in last year’s second quarter. Weston’s adjusted earnings fell to $210 million or $1.63 per share. Analysts had estimated George Weston would have $1.40 per share of net income and $1.68 per share of adjusted earnings, according to Thomson Reuters Eikon.

Last week, Loblaw announced that costs related to the acquisition of Canadian Real Estate Investment Trust and nonoperating factors pushed down its net income by 86.1 per cent.