Home > Global Industry > Weston Foods: Reports First Quarter 2018 Results

Weston Foods: Reports First Quarter 2018 Results

Toronto / CA. (gwl) George Weston Limited (GWL) announced its consolidated unaudited results for the 12 weeks ended March 24, 2018. Galen Weston, Chairman and Chief Executive Officer, George Weston Limited, commented that «Loblaw delivered solid results in the face of external headwinds, and is rapidly scaling its e-Commerce offer across Canada. Weston Foods results came in as expected despite a challenging quarter in sales. We remain focused on delivering results and continuing the roll out of our transformation program».

First Quarter Highlights

(unaudited – CAD in millions except where otherwise indicated) Q1-2018 Q1-2017(3) Change
Sales CAD 10,744 CAD 10,803 (0.5)%
Operating income CAD 502 CAD 513 (2.1)%
Adjusted Ebitda(1) CAD 918 CAD 927 (1.0)%
Adjusted Ebitda margin(1) 8.5% 8.6%
Net earnings attributable to shareholders of the Company CAD 190 CAD 118 61.0%
Net earnings available to common shareholders
of the Company CAD 180 CAD 108 66.7%
Adjusted net earnings available to common shareholders
of the Company(1) CAD 178 CAD 184 (3.3)%
Diluted net earnings per common share (CAD) CAD 1.40 CAD 0.84 66.7%
Adjusted diluted net earnings per common share(1) (CAD) CAD 1.38 CAD 1.43 (3.5)%

.

Consolidated Results of Operations

Net earnings available to common shareholders of the Company in the first quarter of 2018 were CAD 180 million (CAD 1.40 per common share), an increase of CAD 72 million (CAD 0.56 per common share) compared to the same period in 2017. The increase was primarily due to the favourable year-over-year net impact of adjusting items totalling CAD 78 million (CAD 0.61 per common share), partially offset by the decline in the underlying operating performance of CAD 6 million (CAD 0.05 per common share), as described below.

  • The decline in underlying operating performance of CAD 6 million (CAD 0.05 per common share) was primarily due to:
    • the unfavourable underlying operating performance of Weston Foods;
    • the unfavourable underlying operating performance of Loblaw Companies Limited’s Retail segment, which as previously announced, the year-over-year performance was expected to be negatively impacted by minimum wage increases, incremental healthcare reform, and the disposition of Loblaw’s gas bar operations in the third quarter of 2017;
    • the unfavourable impact of an increase in net interest expenses and other financing charges; and
    • the unfavourable impact of an increase in depreciation and amortization;

partially offset by,

    • the favourable underlying operating performance of Loblaw’s Financial Services and Choice Properties Real Estate Investment Trust (Choice Properties) segments.
  • The favourable year-over-year net impact of adjusting items totaling CAD 78 million (CAD 0.61 per common share) was primarily due to:
    • the fair value adjustment of the forward sale agreement for 9.6 million Loblaw common shares of CAD 43 million (CAD 0.33 per common share);
    • the fair value adjustment of the Trust Unit liability of CAD 24 million (CAD 0.18 per common share);
    • the fair value adjustment of derivatives of CAD 14 million (CAD 0.11 per common share); and
    • the foreign currency translation of CAD 14 million (CAD 0.11 per common share);

partially offset by,

    • the unfavourable impact of the additional charge in the first quarter of 2018 related to the Loblaw Card Program of CAD 7 million (CAD 0.05 per common share);
    • the unfavourable impact of healthcare reform on inventory balances of CAD 7 million (CAD 0.05 per common share); and
    • the unfavourable impact of acquisition and other costs related to Choice Properties’ agreement to acquire Canadian Real Estate Investment Trust (CREIT) of CAD 4 million (CAD 0.03 per common share).
  • Net earnings available to common shareholders of the Company also included the positive contribution from the increase in the Company’s ownership interest in Loblaw, as a result of Loblaw’s share repurchases for cancellation.

Adjusted net earnings available to common shareholders of the Company(1) decreased by CAD 6 million (CAD 0.05 per common share) to CAD 178 million (CAD 1.38 per common share) in the first quarter of 2018 compared to the same period in 2017. Normalized for the disposition of Loblaw’s gas bar operations, adjusted net earnings available to common shareholders of the Company(1) decreased by approximately CAD 1 million. Adjusted diluted net earnings per common share(1) also included the positive contribution from the increase in the Company’s ownership interest in Loblaw (CAD 0.06 per common share). Normalized for the disposition of Loblaw’s gas bar operations, adjusted diluted net earnings per common share(1) decreased by approximately 0.7 percent, or CAD 0.01 per common share.

Reportable Operating Segments

The Company has two reportable operating segments, Loblaw and Weston Foods. The Company also holds cash, short term investments and a direct interest in Choice Properties of approximately 6.1 percent. Loblaw has three reportable operating segments: Retail, Financial Services and Choice Properties. Loblaw provides Canadians with grocery, pharmacy, health and beauty, apparel, general merchandise, financial services, and wireless mobile products and services. Loblaw also holds approximately 82.4 percent effective interest in Choice Properties, which owns, manages and develops well-located retail and commercial real estate across Canada. Weston Foods is a leading North American bakery that offers packaged bread and rolls in Canada as well as frozen and artisan bread and rolls, cakes, donuts, pies, biscuits and alternatives throughout Canada and the U.S.

Weston Foods Segment Results

(unaudited – CAD in millions except where otherwise indicated) Q1-2018 Q1-2017 Change
Sales CAD 517 CAD 539 (4.1)%
Operating income CAD 10 CAD 23 (56.5)%
Adjusted Ebitda(1) CAD 44 CAD 61 (27.9)%
Adjusted Ebitda margin(1) 8.5% 11.3%
Depreciation and amortization(i) CAD 31 CAD 24 29.2%

(i)Depreciation and amortization in the first quarter of 2018 includes $4 million of accelerated depreciation related to restructuring and other related costs.

Sales Weston Foods sales in the first quarter of 2018 were CAD 517 million, a decrease of CAD 22 million, or 4.1 percent, compared to the same period in 2017. Sales included the unfavourable impact of foreign currency translation of approximately 2.6 percent. Excluding the unfavourable impact of foreign currency translation, sales decreased by 1.5 percent mainly due to a decrease in volume.

Operating Income Weston Foods operating income in the first quarter of 2018 was CAD 10 million, a decrease of CAD 13 million, or 56.5 percent, compared to the same period in 2017. The decrease was primarily due to the decline in underlying operating performance of CAD 20 million, partially offset by the favourable year-over-year net impact of adjusting items totaling CAD 7 million, as described below:

  • the fair value adjustment of derivatives of CAD 13 million;

partially offset by,

  • the unfavourable impact of restructuring and other related costs of CAD 6 million.

Adjusted Ebitda(1) Weston Foods adjusted Ebitda(1) in the first quarter of 2018 was CAD 44 million, a decrease of CAD 17 million, or 27.9 percent, compared to the same period in 2017. The decrease was driven by a decrease in volume, higher input and distribution costs, and costs of the transformation program, partially offset by productivity improvements.

Weston Foods adjusted Ebitda margin(1) in the first quarter of 2018 decreased to 8.5 percent compared to 11.3 percent in the same period in 2017. The decline in adjusted Ebitda margin(1) in the first quarter of 2018 was driven by the factors as described above.

Depreciation and Amortization  Weston Foods depreciation and amortization in the first quarter of 2018 was CAD 31 million, an increase of CAD 7 million, or 29.2 percent compared to the same period in 2017. Depreciation and amortization included CAD 4 million of accelerated depreciation recorded in the first quarter of 2018 related to the previously announced closure of an unprofitable manufacturing facility in the U.S. Excluding these amounts, depreciation and amortization increased in the first quarter of 2018 by CAD 3 million due to investments in capital.

Weston Foods Other Business Matters

Restructuring and other related costs Weston Foods continuously evaluates strategic and cost reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low cost operating structure. In the first quarter of 2018, Weston Foods recorded restructuring and other related costs of CAD 15 million (2017 – CAD 9 million), which were primarily related to the reorganization costs from the transformation program and the previously announced closure of an unprofitable manufacturing facility in the U.S., which was completed in the first quarter of 2018. Restructuring and other related costs recorded in the first quarter of 2018 included CAD 11 million of severance and exit costs and CAD 4 million of accelerated depreciation.

Loblaw Segment Results

(unaudited – CAD in millions except where otherwise indicated) Q1-2018 Q1-2017(3) Change
Sales CAD 10,367 CAD 10,404 (0.4)%
Operating income CAD 478 CAD 493 (3.0)%
Adjusted Ebitda(1) CAD 874 CAD 866 0.9%
Adjusted Ebitda margin(1) 8.4% 8.3%
Depreciation and amortization(i) CAD 369 CAD 360 2.5%

(i)Depreciation and amortization in the first quarter of 2018 includes CAD 121 million (2017 – CAD 121 million) of amortization of intangible assets acquired with Shoppers Drug Mart Corporation.

As previously announced, Loblaw’s year-over-year financial performance was negatively impacted by minimum wage increases and incremental healthcare reform. In addition, the disposition of Loblaw’s gas bar operations, in the third quarter of 2017, had a negative year-over-year impact on financial performance.

In addition, sales, operating income and adjusted Ebitda(1) in the first quarter of 2018 included the impacts of the consolidation of franchises as set out in «Loblaw Other Business Matters».

Sales Loblaw sales in the first quarter of 2018 were CAD 10,367 million, a decrease of CAD 37 million, or 0.4 percent compared to the same period in 2017, primarily driven by Retail. Retail sales decreased by CAD 61 million, or 0.6 percent, compared to the same period in 2017 and included food retail sales of CAD 7,221 million (2017 – CAD 7,393 million) and drug retail sales of CAD 2,884 million (2017 – CAD 2,773 million).

Excluding the consolidation of franchises, Retail sales decreased by CAD 119 million, or 1.2 percent.

Outlook

Weston Foods’ three year strategic framework is focused on becoming a premier North American bakery and delivering solid financial results. In 2018, Weston Foods will focus on key fundamental areas by growing the core business, selectively innovating in new segments and markets, and strengthening key processes in the organization.

In 2018, on a full-year comparative basis, Weston Foods expects

  • Sales will be essentially flat to 2017. Growth in volume is expected to be offset by product rationalization and negative impacts of foreign exchange;
  • Adjusted Ebitda(1) will be essentially flat to 2017. Adjusted Ebitda(1) will include improvements from the transformation program and productivity, but will be offset by headwinds from higher input and distribution costs in an inflationary environment, minimum wage increases and foreign exchange. In the first half of 2018, adjusted Ebitda(1) is expected to decline primarily due to costs related to the transformation program and inflation. Adjusted Ebitda(1) in the second half of 2018 is expected to improve driven by sales growth and realized benefits from the transformation program, partially offset by continued inflationary pressures;
  • Investment in capital expenditures of approximately CAD 230 million related to growth, regulatory and maintenance; and
  • Depreciation will increase.

Loblaw is focused on its strategic framework, delivering best in food and health and beauty, using data driven insights underpinned by process and efficiency excellence. This framework is supported by Loblaw’s financial plan of maintaining a stable trading environment that targets positive same-store sales and stable gross margin, creating efficiencies to deliver operating leverage, investing for the future and returning capital to shareholders.

Headwinds from minimum wage increases and healthcare reform will negatively impact Loblaw’s financial performance in 2018.

In 2018, on a full-year comparative basis, normalized for the disposition of Loblaw’s gas bar business, Loblaw expects to:

  • deliver positive same-store sales and stable gross margin in its Retail segment in a highly competitive market;
  • deliver essentially flat adjusted net earnings(1) growth with positive adjusted earnings per share(1) growth based on our share buyback program;
  • invest approximately CAD 1.3 billion in capital expenditures, including CAD 1.0 billion in its Retail segment; and
  • return capital to shareholders by allocating a significant portion of free cash flow(1) to share repurchases.

For 2018, the Company expects adjusted net earnings(1) to be essentially flat due to the results of Loblaw and Weston Foods, as described above.

This website stores some user agent data. These data are used to provide a more personalized experience and to track your whereabouts around our website in compliance with the European General Data Protection Regulation. If you decide to opt-out of any future tracking, a cookie will be set up in your browser to remember this choice for one year. I Agree, Deny
610