Toronto / CA. (gwl) George Weston Limited and its subsidiaries (collectively the Company) is announcing its unaudited results for the twelve weeks ended March 24, 2012. The Company´s Q1/2012 Quarterly Report to Shareholders, including the Company´s unaudited interim period condensed consolidated financial statements and Management´s Discussion and Analysis (MD+A) for the twelve weeks ended March 24, 2012, is available in the Investor Centre section of the Company´s website and has been filed with the System for Electronic Document Analysis and Retrieval (SEDAR) and will be available at sedar.com.
Consolidated Results of Operations
George Weston Limited´s first quarter 2012 adjusted basic net earnings per common share were 0,89 CAD compared to 1,07 CAD in the same period in 2011, a decrease of 0,18 CAD. The decrease was primarily attributable to a decline in the operating performance of Loblaw Companies Limited, partially offset by a decline in the effective income tax rate. The decline in the operating performance of Loblaw was primarily due to increased transportation costs and higher input costs that were not entirely passed on to the consumer including the incremental investment related to Loblaw´s customer proposition, a charge related to the transition of certain Ontario conventional stores to the more cost effective and efficient operating terms of collective agreements ratified in the third quarter of 2010 and incremental costs related to investments in information technology (IT) and supply chain.
The Company´s basic net earnings per common share were 0,89 CAD compared to 0,74 CAD in the same period in 2011, an increase of 0,15 CAD or 20,3 percent. Adjusted basic net earnings per common share declined 0,18 CAD or 16,8 percent and excluded the year-over-year favourable impact of certain items, primarily the fair value adjustment of the forward sale agreement for 9,6 million Loblaw common shares, restructuring and other charges and the fair value adjustment of commodity derivatives at Weston Foods. The Company uses non-GAAP financial measures.
Operating Segments – Weston Foods
Weston Foods sales in the first quarter of 2012 increased by 3,7 percent to 425 million CAD compared to same period in 2011. Foreign currency translation positively impacted sales by approximately 0,8 percent. Excluding this impact, sales increased 2,9 percent due to the positive impact of higher pricing across key product categories of 4,2 percent, partially offset by a decrease in volumes of 1,3 percent when compared to the same period in 2011.
Weston Foods operating income in the first quarter of 2012 was 60 million CAD compared to 19 million CAD in the same period in 2011. The change in restructuring and other charges, the fair value adjustment of commodity derivatives and share-based compensation net of equity derivatives had a year-over-year favourable impact of 39 million CAD on Weston Foods operating income.
Weston Foods adjusted operating income was 59 million CAD in the first quarter of 2012 compared to 57 million CAD in the same period in 2011, an increase of two million CAD or 3,5 percent. Weston Foods adjusted operating margin remained unchanged at 13,9 percent in the first quarters of both 2012 and 2011. Adjusted operating income in the first quarter of 2012 was positively impacted by higher pricing in key product categories and the benefits realized from productivity improvements and other cost reduction initiatives, which were partially offset by higher commodity and fuel costs and lower sales volumes in the first quarter of 2012 compared to the same period in 2011.
Operating Segments – Loblaw
In the first quarter of 2012, Loblaw executed on its plan. Despite a decline in year-over-year operating income, store conditions improved, Loblaw made steady progress on its IT implementation and took a disciplined approach to improving its customer proposition.
Net Interest Expense And Other Financing Charges
In the first quarter of 2012, net interest expense and other financing charges decreased by 22 million CAD to 44 million CAD compared to the same period in 2011. The decrease was due to an increase of 22 million CAD in non-cash income related to the fair value adjustment of the forward sale agreement for 9,6 million Loblaw common shares. Excluding this impact, net interest expense and other financing charges were flat compared to the same period in 2011.
Income Taxes
In the first quarter of 2012, income tax expense was 59 million CAD compared to 72 million CAD in the same period in 2011. The effective income tax rate decreased to 25,7 percent in the first quarter of 2012 compared to 30,4 percent in the same period in 2011. The decrease was primarily due to a decrease in income tax expense related to certain prior year income tax matters, reductions in the federal and Ontario statutory income tax rates and a reduction in non-deductible amounts.
Outlook
For the full year 2012, Weston Foods expects to deliver sales in line with 2011 as market conditions are expected to remain challenging. Higher commodity and input costs experienced in the first quarter are expected to continue in the second quarter of 2012, putting increased pressure on operating margins when compared to the same periods in 2011. Weston Foods will continue its efforts to reduce costs through improved efficiencies and ongoing cost reduction initiatives in an effort to achieve full year operating margins in line with those in 2011.
Loblaw is focused on consistent execution to exceed customer expectations with the right assortment, improved in-store experience and competitive prices across all banners. For the full year 2012, Loblaw estimates operating income to be down year-over-year, with more pressure in the first half of the year, as it does not expect its operations to cover the incremental costs related to investments in IT and supply chain and the ongoing investments in its customer proposition.
For the remainder of 2012, George Weston Limited anticipates adjusted basic net earnings per common share to be down year-over-year, primarily due to the impact of incremental costs at Loblaw.
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