Weston fresh baking income flat in 2008

by Josh Sosland
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TORONTO — Operating income of the fresh baking business of George Weston Ltd. in the year ended Dec. 31 was C$218 million ($173.7 million), nearly unchanged from C$219 million in 2007. Sales were C$2,422 million ($1,930 million), up 10%.

Results for the business, previously part of the company’s Weston Foods segment, were reported as discontinued operations, reflecting the Dec. 10 agreement to sell the business to Grupo Bimbo S.A.B. de C.V. The transaction was completed subsequent to the end of the quarter, on Jan. 21.

Weston said it expects to record a gain of about C$800 million in connection with the sale of the business. The company said it will "continue to assess its strategic options for the deployment of the proceeds of these divestitures."

Operating income of the fresh business in the quarter ended Dec. 31 was C$60 million ($47.8 million), up 43%, from C$42 million during the same period in 2007. Sales were C$665 million ($530 million), up 43%.

"Fresh bakery sales, including fresh-baked sweet goods, increased approximately 14.5% in the fourth quarter of 2008 and 11.9% year-to-date compared to the same periods in 2007, driven by price increases in key product categories combined with changes in sales mix," Weston said. "Volume increases in the fourth quarter of 2008 were positively impacted by the additional week of operating results. On a year-to-date basis, overall volumes decreased, with declines in certain categories partially offset by branded volume growth, lead by the D'Italiano brand. Sales growth in whole grain and whole wheat products exceeded the sales growth of white flour based products. The introduction of new products, such as D'Italiano Thintinis, Gadoua Vitalité, Wonder+ Headstart, Country Harvest Plus and products under the Weight Watchers licensed brand contributed positively to branded sales growth during the fourth quarter of 2008 and year-to-date."

Frozen bakery sales rose 10% in 2008 from 2007 and 18% in the fourth quarter, driven mainly by price increases and changes in sales mix. Volume was flat for the year but up in the fourth quarter, boosted by increases in certain categories and an additional week of operating results.

"Biscuit sales, principally wafers, ice-cream cones, cookies and crackers, increased by approximately 17% in the fourth quarter of 2008 and 8.7% year-to-date compared to the same periods in 2007, due to higher sales volumes in all categories during the fourth quarter of 2008 and higher volume of Girl Scout cookie sales on a year-to-date basis," Weston said.

During the fourth quarter, Weston approved plans to restructure its Canadian baking business. Involved in the plan is the segregation of certain functional departments between the fresh and frozen baking businesses and the centralization of the functions. The company recognized employee termination costs of C$4 million in connection with the restructuring plan.

The company said the reorganization changes the composition of the company’s reporting units for the purpose of goodwill impairment testing.

Weston said it expects a first quarter 2009 C$60 million write-down of part of the remaining goodwill related biscuits, cookies, cones and wafers business.

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