Weston Foods operating income rises 6% in fiscal '06

by Eric Schroeder
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TORONTO — Improved sales growth, primarily due to price increases in key product categories combined with changes in sales mix to help boost fiscal 2006 operating income 6% to C$256 million ($219 million) at Weston Foods. Adjusted operating income, which included C$46 million in restructuring charges, including C$26 million in employee termination benefits and other exit related costs, C$19 million of fixed asset impairment and accelerated deprecation and a loss of C$1 million on the sale of fixed assets, totaled C$325 million for the year, up 8%.

Net sales in the year ended Dec. 31, 2006, were C$4.4 billion ($3.77 billion), down 0.6% from fiscal 2005. The company cited a sales increase of 3.8% offset by the negative impact of foreign currency translation, which impacted Weston Foods sales growth by approximately 4.4%.

For the fourth quarter, Weston Foods posted operating income of C$67 million, up from C$48 million in the fourth quarter of 2005. Net sales were C$1 billion, up 0.6% from C$980 million.

Weston Foods said its operating income and margin growth in 2006 were adversely affected by higher energy costs as well as higher distribution costs compared to 2005, in particular in the United States. The company said it continues to focus its manufacturing capacity for more efficient production runs and where appropriate, outsourcing shorter-run products to contract manufacturers. In addition, Weston Foods is in the process of evaluating strategic and cost-reduction initiatives related to its manufacturing assets, distribution networks and administrative infrastructure with the objective of ensuring a low-cost operating structure.

During the fourth quarter of 2006, Weston Foods approved a restructuring plan to downsize its fresh-baked sweet goods facility in Bay Shore, N.Y. The plan involves the transfer of full-size dessert cake and cookie production to existing Weston Foods facilities. Once the downsizing is complete, Weston Foods said the Bay Shore location will be "a more focused facility producing primarily danish and pie products." This restructuring is expected to be completed by the third quarter of 2008. In connection with the restructuring, Weston Foods expects to recognize a total fixed asset impairment charge of C$4 million and a total charge of C$6 million for employee termination benefits and other exit related costs over the next 18 months.

Also during the fourth quarter of 2006, Weston Foods approved a plan to close an ice cream cone baking facility in Los Angeles and transfer the production to existing Weston Foods facilities. This restructuring is expected to be completed in the first quarter of 2007. As a result of this restructuring, Weston Foods expects to recognize total accelerated depreciation of C$3 million and a total charge of C$2 million for employee termination benefits and other exit related costs.

In addition to its actions in Bay Shore and Los Angeles, Weston Foods also approved several other restructuring plans in 2006, including:

• Restructuring a portion of the distribution network in Quebec, which is expected to be completed by the end of 2007;

• Closing a fresh bakery manufacturing facility in Quebec, which also is expected to be completed by the end of 2007; and

• Closing a frozen bagel facility in Nebraska, which was completed early in the third quarter of 2006.

During the fourth quarter of 2006, Weston Foods recognized C$16 million of restructuring and other charges in connection with all of these restructuring plans as well as other plans approved in previous years. These restructuring and other charges consisted of C$8 million of employee termination benefits and other exit related costs, C$7 million of fixed asset impairment and accelerated depreciation and a loss of C$1 million on the sale of fixed assets.

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