Weston Foods operating income falls in quarter

by Eric Schroeder
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TORONTO — Operating income of Weston Foods fell 19% to C$104 million ($84.9 million) in the third quarter ended Oct. 4. The company pointed to "significant increases in the price of flour, fuel and other input items" as a key factor behind the weaker year-over-year comparison.

According to Weston, the year-over-year change in operating income reflected income of C$12 million related to the net effect of stock-based compensation and the associated equity derivatives, and a charge of C$63 million related to the commodity derivatives fair value adjustment.

Weston Foods sales were C$1,410 million ($1,151 million), up 8.5% from the same period a year ago. Weston said foreign currency translation negatively affected sales growth by approximately 0.6%. Price increases across key product categories combined with changes in sales mix contributed 10.9% growth during the quarter.

Overall volume at Weston Foods decreased by approximately 1.8% for the third quarter of 2008.

The company said fresh bakery sales rose approximately 13% in the third quarter, driven by price increases in key product categories combined with changes in sales mix.

"For the third quarter of 2008 and on a year-to-date basis, branded volume increases in the Thomas’ and Arnold brands in the United States and D’Italiano brand in Canada were offset by volume declines in other categories," Weston said. "Sales growth in whole grain and whole wheat products exceeded the sales growth of white flour based products. The introduction of new and expanded products, such as Thomas’ 100 Calorie Bagel, Thomas’ 100 Calorie English Muffin, Arnold Double Breads, Arnold Sandwich Thins, Arnold Soft Naturals, D’Italiano Thintinis, Gadoua Vitalite, Wonder+ Headstart and products under the Weight Watchers licensed brand, contributed positively to branded sales growth during the third quarter of 2008 and year-to-date."

Weston said fresh-baked sweet goods sales, primarily sold under the Entenmann’s brand, increased a little more than 4% due to price increased focused promotional activity. The volume decline was attributed to softness in key full-size categories, including the impact of item rationalization, partially offset by volume growth in certain hand-held categories, including Entenmann’s Little Bites and Entenmann’s Donuts.

Frozen bakery sales increased approximately 6% during the third quarter, driven mainly by price increases combined with changes in sales mix.

Looking ahead, the company said it expects Weston Foods to achieve "satisfactory operating performance for the remainder of 2008," but added that "it is difficult to predict the impact on reported earnings of mark-to-market adjustments resulting from a continuation of volatility in commodity markets, changes in the net effect of stock-based compensation and the associated equity derivatives."

Net income of George Weston in the third quarter ended Oct. 4 was C$179 million ($146.3 million), equal to C$1.28 per share on the common stock, unchanged from the same period a year ago. Sales were C$10,611 million, up 4.4% from C$10,163 million.

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