TORONTO — Strong demand for fresh packaged bread products was not enough to offset sluggish foodservice sales and depressed interest in items sold in the bakery case at grocers, according to Weston Foods.
Operating income in the Weston Foods segment of George Weston Ltd. totaled C$1 million ($712,000) in the first quarter of fiscal 2020 ended March 21, down 90% from C$10 million in the same period a year ago. Adjusted EBITDA, meanwhile, rose 13% to C$52 million ($37 million) from C$46 million. Sales decreased 3.7% to C$535 million ($381 million) from C$516 million.
“Weston Foods supplies both retail and foodservice customers,” said Richard Dufresne, president and chief financial officer of George Weston Ltd., during a May 5 conference call with analysts. “Based on physical distancing requirements and closures across the foodservice industry, customer demand has decreased by more than 50% in this segment, which represents about 20% of Weston Foods sales.
“In addition, Weston Foods retail business has also been affected. While retail customers are buying more fresh bread, customers are not purchasing bakery case or celebratory items. The increase in packaged bread does not offset the declines in foodservice and other retail categories.”
In addition to changes in customer demand, Mr. Dufresne said Weston Foods is investing in pay premiums and pay protection for frontline employees and health and safety measures. He said Weston Foods is incurring increased costs of approximately C$1 million per week since the first week of the second quarter. To mitigate these increased costs, Weston Foods is continuing with its transformation program and is taking additional measures to significantly reduce cost, Mr. Dufresne said.
Luc Mongeau, president of Weston Foods, said the company’s long-term growth is based on expansion of its donuts and artisan business, with a split between retail and foodservice.
“When it comes to foodservice … we’re in close contact with the largest QSR (quick-service restaurants) operators in North America,” Mr. Mongeau said. “I talked to them personally, to the largest top 10 over the last few weeks. We monitor the situation very closely. As our innovation on donuts and artisan is based on deeply rooted consumer shopper, foodservice operator insights, and we’re confident that … as these foodservice operators reopen their operations that we should be able to benefit from that growth.”
Mr. Mongeau said Weston Foods has four baking plants that are temporarily closed — three related to COVID-19 and one related to a decrease in demand. He said the company has put robust protocols in place that on average allow Weston to reopen baking plants within a period of four days after a positive COVID-19 case. In the case of facility shutdowns, the average downtime has been between 11 and 15 days, he said.
Overall, George Weston posted income of C$582 million, equal to C$3.78 per share on the common stock, which compared with a loss of C$488 million a year ago. George Weston said last year’s loss mainly was attributable to an unfavorable year-over-year impact of adjusted items totaling C$691 million, including the impact of the fair value adjustment of the Trust Unit liability. Sales increased to C$12,333 million from C$11,173 million.