Toronto / CA. (gwl) George Weston Limited and its subsidiaries (collectively the company) has announced its unaudited results for the 16 weeks ended October 08, 2011. The company´s third quarter adjusted basic net earnings per common share were 1,44 CAD compared to 1,26 CAD in the same period in 2010, an increase of 0,18 CAD. The increase was primarily attributable to the improvement in the operating performance of the company´s two operating segments, Weston Foods and Loblaw Companies Limited, and decreases in both net interest expense and other financing charges and income tax expense.
Due to the Company´s transition to International Financial Reporting Standards (IFRS or GAAP), effective the first quarter of 2011, all comparative figures that were previously reported in accordance with Canadian Generally Accepted Accounting Principles have been restated to conform with IFRS.
Consolidated Results of Operations
As previously noted in the first quarter of 2011, the Company is using three new non-GAAP financial measures: adjusted basic net earnings per common share, adjusted operating income and adjusted Ebitda. Under GAAP, certain expenses and income must be recognized that are not necessarily reflective of the Company´s underlying operating performance. These non-GAAP financial measures exclude the impact of certain items and are used internally when analyzing consolidated and segment underlying operating performance. These non-GAAP financial measures are also helpful in assessing underlying operating performance on a consistent basis. Adjusted operating income and adjusted Ebitda exclude restructuring and other charges, a commodity derivatives fair value adjustment at Weston Foods, foreign currency translation gains and losses, the impact of share-based compensation net of equity derivatives, net insurance proceeds recorded by Weston Foods, a gain related to the sale of a portion of a Loblaw property, and the effect of certain prior years´ commodity tax matters at Loblaw. Adjusted basic net earnings per common share also exclude the impact of the accounting for Weston Holdings Limited´s (WHL), a subsidiary of GWL, forward sale agreement for 9,6 million Loblaw common shares.
Weston Foods
Weston Foods sales in the third quarter of 2011 increased by 10,3 percent to 545 million CAD, supported by volume growth of 5,7 percent – compared to the same period in 2010. The acquisition of Keystone Bakery Holdings LLC and ACE Bakery Limited in the third and fourth quarters of 2010, respectively, positively impacted sales growth and volume growth by approximately 10,0 percent and 7,5 percent, respectively, while foreign currency translation negatively impacted sales growth by approximately 2,0 percent. Excluding the acquisitions and foreign currency translation, sales increased by 2,3 percent due to the positive impact of higher pricing across key product categories of 4,1 percent; partially offset by a decrease in volume of 1,8 percent.
| (unaudited) | Q3 | 2011 | Q3 | 2010 | first 9M | 2011 | first 9M | 2010 |
| Sales | 545 | mio. CAD | 494 | mio. CAD | 1’362 | mio. CAD | 1’238 | mio. CAD |
| Operating income | 77 | mio. CAD | 116 | mio. CAD | 151 | mio. CAD | 228 | mio. CAD |
| Operating margin | 14,1 | percent | 23,5 | percent | 11,1 | percent | 18,4 | percent |
| Adjusted operating income | 87 | mio. CAD | 85 | mio. CAD | 209 | mio. CAD | 187 | mio. CAD |
| Adjusted operating margin | 16,0 | percent | 17,2 | percent | 15,3 | percent | 15,1 | percent |
| Adjusted Ebitda | 105 | mio. CAD | 101 | mio. CAD | 254 | mio. CAD | 227 | mio. CAD |
| Adjusted Ebitda margin | 19,3 | percent | 20,4 | percent | 18,6 | percent | 18,3 | percent |
Weston Foods operating income in the third quarter of 2011 was 77 million CAD compared to 116 million CAD in the same period in 2010 and operating margin was 14,1 percent compared to 23,5 percent in the same period in 2010.
Weston Foods adjusted operating income was 87 million CAD in the third quarter of 2011 compared to 85 million CAD in the same period in 2010 – an increase of 2,4 percent. Weston Foods adjusted operating margin was 16,0 percent compared to 17,2 percent in the same period in 2010. Adjusted operating income was positively impacted by sales growth mainly as a result of higher pricing in key product categories and the bakery acquisitions, and by the benefits realized from productivity improvements and other cost reduction initiatives. These positive impacts were substantially offset in the third quarter by significant increases in commodity and fuel costs, which had a negative impact on adjusted operating income and adjusted operating margin in the third quarter of 2011. Weston Foods adjusted operating income excludes restructuring and other charges, a commodity derivatives fair value adjustment, the impact of share-based compensation net of equity derivatives and net insurance proceeds.
Loblaw
In the third quarter of 2011, Loblaw´s continued improvement in execution helped to drive sales while adjusted Ebitda margin and expenses remained on trend. As the infrastructure program progresses, going forward Loblaw expects the related investments to negatively impact operating income. With its initiatives tracking to plan, Loblaw looks forward to the ongoing leadership of its new President, Vicente Trius, who is now firmly established in his role. For more information about Loblaw in Q3/2011 and 9M-2011 please visit weston.ca.
Outlook
For the remainder of 2011, Weston Foods expects continued sales growth and satisfactory operating performance with earnings reflecting seasonally lower operating margins. Weston Foods will continue to mitigate higher commodity and energy costs through pricing and continued cost reduction initiatives in an effort to achieve full year operating margins in line with those in 2010. Looking ahead to the first half of 2012, higher commodity and input costs are expected to continue to put pressure on operating margins when compared to the same period in 2011.
Loblaw remains committed to consistently improve in execution in an increasingly competitive environment. With an ongoing focus on the successful implementation of its information technology and supply chain, Loblaw continues to expect that these investments will negatively impact operating income for the remainder of 2011. Loblaw also expects additional costs associated with the transition of certain Ontario conventional stores under collective agreements and that there may be volatility in earnings with respect to fixed asset impairments. Evaluations of indicators, that may arise in the fourth quarter of 2011, will determine whether any impairment or recovery will be required.
George Weston Limited continues to assess opportunities for the deployment of its significant holdings of cash and short term investments.
