Toronto / CA. (gwl) George Weston Limited (GWL) announced its consolidated unaudited results for the twelve weeks ended June 20, 2015. «We are pleased with George Weston Limited’s performance in the second quarter of 2015. We remain focused on delivering stable long term growth and profitability and creating long term value for shareholders», said Executive Chairman W. Galen Weston.
Pavi Binning, President, George Weston Limited, said that «In the second quarter, Loblaw continued to execute against its strategic framework, delivering solid results in both food and drug retail. Weston Foods delivered sales growth and results in line with expectations which reflected the impact of increased capital and incremental investments in targeted areas».
Consolidated Results of Operations
GWL’s second quarter 2015 adjusted basic net earnings per common share increased to 1.33 CAD from 1.25 CAD in the same period in 2014. The increase of 0.08 CAD was primarily due to an improvement in operating performance at Loblaw Companies, partially offset by a decline in operating performance at Weston Foods.
Basic net earnings per common share increased by 2.03 CAD to 0.32 CAD compared to Q2/2014, and included the favourable year-over-year impact of the following significant prior year inventory items:
- a charge incurred in the second quarter of 2014 of 622 million CAD (1.63 CAD per common share) related to the fair value increment on the acquired inventory sold associated with the acquisition of Shoppers Drug Mart Corporation (“Shoppers Drug Mart”); and
- a charge incurred in the second quarter of 2014 of 190 million CAD (0.49 CAD per common share) related to inventory measurement and other conversion differences associated with the implementation of a perpetual inventory system at Loblaw.
Reportable Operating Segments
Sales: Weston Foods sales in the second quarter of 2015 were 464 million CAD, an increase of 33 million CAD, or 7.7 percent compared to the same period in 2014. Foreign currency translation positively impacted sales by approximately 5.7 percent. Excluding the impact of foreign currency translation, sales increased by 2.0 percent primarily due to the combined positive impact of pricing and changes in sales mix, as volumes remained relatively flat. Volumes in the second quarter of 2015 were negatively impacted by the timing of Easter.
Ebitda: Weston Foods Ebitda in the second quarter of 2015 was 57 million CAD, a decrease of four million CAD compared to the same period in 2014, primarily due to a decline in underlying operating performance, partially offset by the favourable year-over-year impacts of restructuring and other charges and the fair value adjustment of commodity derivatives.
Adjusted Ebitda in the second quarter of 2015 was 58 million CAD, a decrease of nine million CAD compared to the same period in 2014. The decline in adjusted Ebitda was primarily due to new plant costs, investments in capabilities and innovation and higher input costs, partially offset by higher pricing.
Operating Income: Weston Foods operating income in the second quarter of 2015 was 38 million CAD, a decrease of seven million CAD compared to the same period in 2014. Adjusted operating income in the second quarter of 2015 was 39 million CAD, a decrease of twelve million CAD compared to the same period in 2014.
In addition to the factors described above impacting Ebitda and adjusted Ebitda, the decline in both operating income and adjusted operating income was also driven by an increase in depreciation and amortization of three million CAD in the second quarter of 2015 due to investments in capital.
Loblaw Segment Results
Please refer to the news release «George Weston Limited Reports a 6.4 percent Increase in Adjusted EPS and a 118.7 percent Increase in Basic EPS for the Second Quarter of 2015» on the company’s web server.
Outlook
For full year 2015, Weston Foods expects a decline in adjusted operating income due to the costs associated with capital investments, incremental investments in innovation and capabilities and higher input costs. This decline will be partially offset by the positive impact of pricing, volume growth and productivity improvements. On an equivalent 52-week basis, management continues to expect the decline in adjusted operating income to be greater in the first half of the year than in the second half, primarily driven by performance in the fourth quarter.
Loblaw’s strategic framework is focused on delivering the best in food, best in health and beauty, operational excellence and growth. This strategic framework is supported by a financial strategy of maintaining a stable trading environment that targets positive same-store sales and stable gross margin; surfacing efficiencies; delivering synergies as a result of its acquisition of Shoppers Drug Mart; and deleveraging the balance sheet. Consistent with its previous outlook, on a full year comparative basis reflecting 2014 financial results for Loblaw and Shoppers Drug Mart, in 2015 Loblaw expects to:
- maintain positive same-store sales and stable gross margin (excluding synergies) in Retail;
- achieve net synergies as a result of the acquisition of Shoppers Drug Mart slightly exceeding 200 million CAD;
- continue to drive net efficiencies across the food retail business by achieving reductions in supply chain, administrative functions and IT, while still investing in key areas, like eCommerce;
- grow adjusted operating income in its food retail business, excluding synergies, and experience a decline in adjusted operating income in its drug retail business, excluding synergies, as a result of investments in key projects and other factors;
- grow consolidated adjusted net earnings available to common shareholders (including synergies) relative to 2014, however not at the same level achieved in the first half of 2015;
- invest approximately 1’200 million CAD in capital expenditures; and
- achieve its deleveraging target in 2015.
Loblaw’s expectations for 2015 also include the following:
- competitive intensity expected to remain high, but relatively stable as industry square footage growth in supermarket-type merchandise moderates; and
- continued pressure in our drug retail business from the ongoing impact of healthcare reform.
