TORONTO — Executives at Weston Foods hope new leadership and the addition of a new business can boost earnings and better position the company for the future.
During a May 6 conference call with analysts to discuss first-quarter earnings, Pavi Binning, president of George Weston Ltd., noted that Weston Foods made a number of leadership changes at the end of April. Kevin McDonough, president of Interbake Foods, took on additional responsibilities and now heads both the biscuit division and the North America frozen business, while Ed Hollick was named executive vice-president of operations. Mr. McDonough and Mr. Hollick, along with Maria Liang, president of Weston Bakeries, and Lee Andrews, president of ACE Bakery, now report to Mr. Binning. Jairo Senise, formerly president of Weston Foods, left the company, Mr. Binning said.
“The reason we made the changes is we decided to streamline and simplify the structure for the time being,” Mr. Binning said. “My view is a number of changes need to be made as we position the business for the future, and I wanted to be directly involved as we make those changes.”
Although the year-over-year favorable impact of the fair value adjustment of commodity derivatives helped boost operating income in the Weston Foods division of George Weston Ltd. in the first quarter of fiscal 2014 by 22%, adjusted operating income in the period fell 9%. Operating income in the quarter ended March 22 increased to C$61 million ($55.9 million) from C$48 million in the first quarter of fiscal 2013. But adjusted operating income fell to C$52 million ($47.6 million) from C$57 million, dragged down by higher commodity and other input costs.
Net sales were C$449 million ($411.4 million), up 6% from C$424 million a year ago.
“Adjusted operating income was positively impacted by higher sales volumes driven by investments in growth, marketing and innovation, the benefits realized from productivity improvements and other cost reduction initiatives and the foreign currency translation of United States operations,” the company said. “This improvement was more than offset by higher commodity and other input costs, including the negative impact of the appreciation of the U.S. dollar, the cost impact of investments, including plant start-up costs and the impact of changes in sales mix, and a decline in the performance of the frozen dough business.”
Fresh bakery sales decreased by approximately 0.7% in the first quarter of 2014 compared to the same period in 2013, reflecting lower sales volumes, partially offset by the positive impact of pricing and changes in sales mix.
“Despite the decline in volumes in the first quarter of 2014, growth was experienced in the Country Harvest and D’Italiano brands,” Weston said. “The introduction of new products in the last 12 months, such as Country Harvest Veggie breads, D’Italiano line of snack products, and the launch of gluten-free bread and sweet goods, including the All But Gluten brand, contributed positively to sales and volumes in the first quarter of 2014.”
Frozen bakery sales fell approximately 0.2% in the first quarter, driven by lower volumes and the negative impact of pricing and changes in sales mix. Weston said the decline in volumes mainly was driven by a decline in frozen dough products, partially offset by growth in certain other product categories. Sales and volumes in the first quarter of 2014 were affected negatively by the timing of customer orders related to Easter when compared to the same period in 2013, the company said.
Biscuit sales, principally cookies, crackers, wafers and ice cream cones, increased by approximately 4.9% in the first quarter of 2014 compared to the same period in 2013, due to volume growth partially offset by the negative impact of pricing and changes in sales mix.
“Volume growth in the first quarter of 2014 was driven by higher cookie sales, including Girl Scout products, wafer and cone sales,” Weston said. “New products introduced in the last 12 months contributed positively to cookie sales and volumes in the first quarter of 2014.”
Mr. Binning also provided more detail on Weston’s May 5 acquisition of Chicago-based Rubschlager Baking Corp., saying Weston paid about $10 million for the maker of a full range of rye bread varieties and products for the North American market. The company’s products are sold across the United States and Canada and include a range of deli-style cocktail bread (its signature product), traditional square bread, 100% whole rye Rye-Ola bread, sandwich bread and mini-bread chips.
“The reason that we made this acquisition was this is a segment that we weren’t represented in and it’s a category in sort of the baking arena that is growing 2% to 3% a year,” he said. “Certainly there was a demand from our customers that we have in our portfolio, some rye products, that’s the reason that we bought it and certainly we think that we can do more with the business as we move forward than the previous owners were able to do.”
Pressed by an analyst to explain why Weston, which has a limited presence in the U.S. fresh bread business, would take on Rubschlager, Mr. Binning added, “It’s something that we believe — certainly in terms of the customers both in Canada and the U.S. — there is demand for it. But clearly, as you know, we’ve been looking at this for the U.S. market now that the non-compete that we had is gone away.
“Chicago is going to be our base until we develop the business as we move forward, and then we’ll look at how best to sort of look at the manufacturing footprint going forward.”Overall, net income at George Weston decreased in the first quarter to C$147 million ($134.7 million), equal to C$0.78 per share on the common stock, from C$225 million, or C$1.19 per share, in the same period of fiscal 2013. Sales rose 1.5% to C$7,612 million ($6,975 million) from C$7,494 million.