TORONTO — Disappointing frozen dough results have executives at George Weston Ltd. talking about the need to increase par-bake production. Operating income fell for the company’s Weston Foods segment in the third quarter ended Oct. 5 as performance declined in the frozen dough business.
“We have seen a gradual trend with our retail customers focusing more on thaw-and-sell in (par)-bake products and less on frozen dough,” said Pavi Binning, president of Toronto-based George Weston Ltd., in a Nov. 19 earnings call. “This trend is consistent with in-store bakery market decline that is down 4% on a year-to-date basis. However, in the quarter, this trend accelerated, and, in addition, we had some operational challenges that impacted our profitability.”
He said a way to develop more thaw-and-sell and par-bake products may come through ACE Bakery, a George Weston subsidiary that recently opened a bakery in Gaffney, S.C.
“From an ACE perspective, ACE is largely a par-bake and thaw-and-sell business, and we’re very pleased with the progress of the ACE business,” Mr. Binning said. “Our growth in terms of volume is in the double digits. I’m delighted with the progress of that business.”
Weston Foods in the third quarter had sales of C$562 million ($537 million), which was up from C$541 million in the previous year’s third quarter. Third-quarter operating income for Weston Foods was C$86 million ($82 million), which compared with C$114 million in the previous year’s third quarter. The decrease primarily was due to the year-over-year unfavorable impact of the fair value adjustment of commodity derivatives of C$19 million and a decline in underlying operating performance.
Adjusted operating income was C$88 million in the third quarter, which was still down from C$94 million. The decline in the frozen dough business and a cost impact of investments more than offset higher sales volumes, higher pricing, and benefits realized from productivity improvements and other cost-reduction initiatives.
Through the first three quarters of the fiscal year, Weston Foods had sales of C$1,399 million, up from C$1,366 million, and operating income of C$198 million, up from C$186 million. Adjusted operating income through three quarters was C$213 million, down from C$218 million in the same time period of the previous year.
Companywide, George Weston Ltd. in the third quarter had net earnings from continuing operations attributable to shareholders of C$171 million, or C$1.23 of basic net earnings per common share. Those numbers compared with C$156 million and C$1.11 in the previous year’s third quarter. George Weston Ltd. had third-quarter sales of C$10,377 million, which was up from C$10,164 million in the previous year’s third quarter.