George Weston cake
Weston plans to invest in cakes, donuts and biscuits.

TORONTO — Weston Foods, a division of George Weston Ltd., delivered third-quarter results in line with company expectations, reflecting the impact of increased capital expenditures and incremental investments in the business, said Pavi Binning, president of George Weston Ltd.

Operating income in the Weston Foods segment totaled C$56 million ($42 million) in the third quarter ended Oct. 10, up 10% from C$51 million in the same period a year ago. Adjusted operating income, meanwhile, fell 14% to C$70 million ($52 million) from C$81 million. Sales increased 13% to C$649 million ($485.7 million) from C$574 million.

In the third quarter, Weston Foods recorded restructuring and other charges of C$14 million and C$18 million, respectively, including C$5 million of accelerated depreciation. The charges primarily related to a restructuring plan approved in the third quarter of 2015 to close a cake manufacturing facility in the United States. Weston said it expects the closing to be completed by the end of the second quarter of 2016 with production transferring to other facilities.

Pavi Binning, George Weston Ltd.
Pavi Binning, president of George Weston Ltd.

“I’m pleased with the results,” Mr. Binning said during a Nov. 24 conference call with analysts. “I think that certainly in terms of the objectives that we set for the foods business at the beginning of the year, and the plan that we laid out, we are absolutely following that plan. In terms of the sequential trends, clearly as we’ve been saying in our outlook statement now for some time, we are expecting an improvement in Q4 and clearly will be reporting on that in March of next year.

“What I would say is that the improvements are largely dependent on the capital program that we are implementing, and that capital program is going to extend into the first half of next year. So therefore, I expect to see some improvement in Q4, Q1 and Q2. There’s a lot of capacity coming on-line that will be complete by the summer of next year, and it’s really in Q3 and Q4 that you will begin to see the growth being driven by that new capacity investment.”

Mr. Binning said the major areas Weston is investing in are cakes, donuts and biscuits.

“In terms of building capacity, in each of these areas, if we look at cake, donuts and the biscuit business, we were out of capacity and therefore unable to grow,” he explained. “And so the only way we were going to grow, particularly in the United States, was actually to make sure that we had the capacity in place. So that’s where the majority of the investment is going.”

Overall, George Weston posted net earnings of C$161 million ($120.5 million), equal to C1.66 per share on the common stock, which compared with C$53 million in the same period a year ago. Sales increased 2.9% to C$14,386 million ($10,771.6 million).