Toronto / CA. (gwf) Food producer and Loblaw parent George Weston Limited reported an 8,5 percent drop in second-quarter profit and warned of continued impact from rising commodity prices.
The company earned 118 million CAD or 0,84 CAD per share in the quarter, down from 129 million CAD or 0,90 CAD per share in the year-before period, as Weston Foods felt the bite of increased prices for flour, fuel and other inputs and Loblaw lagged in its restructuring.
«The industry appears to be pricing the commodity increases through, and therefore it´s clearly helping our earnings as well as other people´s earnings», chief financial officer Bob Vaux said during a call with analysts. «Our margins are relatively higher than most other people, but going forward I think we have to approach things on a relatively cautious basis. We´re focused on productivity, we´re focused on maintaining our brand strong and on improving our mix, but there´s an awful lot going on in the industry in terms of commodity cost increases and the pricing».
Included in the quarter were a total of 37 million CAD in charges – related to restructuring at both Weston Foods and Loblaw, as well as commodity derivatives fair value adjustment at Weston Foods. Those charges were offset partially by 20 million CAD in gains. Sales edged up to 7,8 billion CAD from 7,7 billion CAD.
Weston Foods, which produces baked goods and other food items, reported sales for the second quarter of 2008 of one billion CAD, up two percent from the second quarter of 2007. Foreign currency translation negatively impacted reported sales growth by approximately 6,3 percent.
Weston Foods´ operating income of 79 million CAD, down 29,5 percent from a year-ago 112 million CAD. Excluding the impact of one-time charges, operating earnings for the quarter would have been 105 million CAD, versus 87 million CAD in the year-earlier period.
George Weston said its consolidated results will continue to reflect the impact of restructuring changes undertaken by both Weston Foods and Loblaw going forward. George Weston chairman and president W. Galen Weston said Loblaw was «continuing its investments in infrastructure and superior value and service for its customers». But, he said, the grocer is behind in its plans for operating as an effective selling organization, «as reflected in its second-quarter sales performance».
Some days ago the Loblaw Companies Limited reported a 17,6 percent improvement in second-quarter net earnings to 140 million CAD, up from a year-ago 119 million CAD. That good news was tempered by the fact it paid out far less in restructuring charges in the quarter. Net earnings per share were 0,51 CAD – ahead of analyst expectations of a 0,50 CAD per share profit and compared with 43 cents in the same period of 2007.
The supermarket giant has been engaged in a highly competitive price war with other major chains motivated by their aggressive growth strategies as well as the looming presence of Wal-Mart supercentres, which offer produce and other food products on top of general retail items. George Weston holds a 62 percent stake in Loblaw (press release).