Toronto / CA. (gwl) Canadian George Weston Limited, North America´s largest baked goods maker, plans to sit on a mounting cash pile and wait for the right time to invest, the company said after reporting a large gain from the sale of its Canadian dairy business, which boosted its quarterly results.
Basic net earnings per common share for the fourth quarter were 3,05 CAD compared to 1,07 CAD for the same period in 2007. For the year, basic net earnings per common share of 6,08 CAD compared to 3,92 CAD in 2007. Basic net earnings per common share from continuing operations for the fourth quarter were 2,68 CAD compared to 0,75 CAD for the same period in 2007. For the year, basic net earnings per common share from continuing operations of 4,63 CAD compared to 2,46 CAD in 2007.
The Company continued to compete successfully in challenging markets during the fourth quarter of 2008. Loblaw Companies Limited reported results that demonstrate it is continuing to make good progress on its key transformational priorities. Two significant business developments occurred in the Weston Foods operating segment in the fourth quarter of 2008: the sale of the Canadian dairy and bottling operations and the announcement of an agreement to sell the fresh bread and baked goods business in the United States.
On December 01, 2008, the Company closed the previously announced sale of its Canadian dairy and bottling operations to Saputo Inc. This sale resulted in a pre-tax gain of 335 million CAD, which is recognized in the fourth quarter of 2008. Accounting standards do not allow the results of the dairy and bottling operations to be reported as discontinued operations because of Loblaw´s continuing purchases of product from the dairy and bottling operations. Therefore, the results of the dairy and bottling operations up to the date of sale, as well as the gain on sale, are included in net earnings from continuing operations.
In announcing the financial update, W. Galen Weston, Chairman and President of the Company said: «I am pleased with another quarter of strong operating performance at Weston Foods and the continuing progress being made at Loblaw. Having sold both the dairy business and the US fresh baking business at good multiples, we sit at George Weston Limited with strategically well positioned companies with leading market positions in food retail and baking in Canada, our retained US bakery businesses and a significant amount of cash. We intend to use that cash wisely and at the appropriate time».
Sale of US Fresh Bakery Business
Dunedin Holdings, a subsidiary of the Company, announced on December 10, 2008 an agreement to sell its US fresh bakery business to Grupo Bimbo, S.A.B. de C.V. for gross and net proceeds of approximately 2,5 billion USD, including approximately 125 million USD for interest bearing assets. The sale transaction was completed subsequent to the end of the fourth quarter of 2008. The results of the US fresh bakery business have been reflected separately as discontinued operations in the current and comparative results, and accordingly all comparisons of operating results exclude the results of the US fresh bakery business. The Company expects to recognize a gain on the sale of this business in discontinued operations in the first quarter of 2009 of approximately 800 million USD, which is subject to normal post closing working capital and other adjustments. In addition, the Company expects to recognize a portion of the cumulative foreign currency translation loss currently reflected in shareholders´ equity associated with the US net investment in net earnings in the first quarter of 2009.
After the closing of the US fresh bakery transaction in 2009, Dunedin Holdings converted 2,4 billion USD of its cash and short term investments to approximately 3,0 billion Canadian Dollars (CAD). The Company will recognize a foreign exchange loss of approximately 50 million CAD associated with this conversion in net earnings in the first quarter of 2009 due to the strengthening of the Canadian Dollar relative to the US Dollar between the closing date and the dates on which the proceeds were converted to Canadian Dollars. In addition, the future net earnings of the Company will reflect translation gains and losses associated with approximately 1,1 billion USD of cash and short term investments.
Weston reorganized its remaining operations subsequent to the disposition of the US fresh bakery business. The reorganization changed the composition of Weston Foods´ reporting units for the purpose of goodwill impairment testing. As a result of this change, Weston expects to record a write-down of a portion of the remaining goodwill related to the biscuits, cookies, cones and wafers business in an amount of up to 60 million USD in the first quarter of 2009.
Consolidated Results of Continuing Operations
Sales in the fourth quarter of 2008 were 8,1 billion CAD compared to 7,2 billion CAD for the same period in 2007, an increase of 11,4 percent, and include the positive impact of approximately 7,8 percent due to reporting an additional week of results in 2008 (a 13 week period). On a year-to-date basis, sales increased 4,8 percent to 32,1 billion CAD, including the positive impact of approximately 1,9 percent due to the additional week.
Operating income for the fourth quarter of 2008 was 345 million CAD compared to 139 million CAD in the same period in 2007, an increase of 148,2 percent. Consolidated operating margin of 4,3 percent for the fourth quarter increased compared to 1,9 percent for the same period in 2007.
Press Release: George Weston Limited Provides Preliminary Unaudited Financial Update for the Q4/2008 and Fiscal Year 2008 (complete).