Weston Foods operating income climbs 29%

by Eric Schroeder
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TORONTO — Operating income of Weston Foods rose 29% to C$99 million ($97.8 million) in the first quarter ended March 22. The company said it experienced significant increases in the price of input items, especially flour, but was able to raise prices and manage sales mix toward higher margin products.

According to Weston, the year-over-year change in operating income reflected a charge of C$2 million related to restructuring, a C$13 million charge related to the net effect of stock-based compensation and the associated equity derivatives, and income of C$24 million related to the commodity derivatives fair value adjustment.

Weston Foods sales were C$1,013 million ($1 billion), down 5% from the same period a year ago. Weston said foreign currency translation negatively affected sales growth by approximately 10.6%. Price increases across key product categories combined with changes in sales mix contributed 6% growth during the quarter.

Overall volume at Weston Foods increased by approximately 0.1% for the first quarter of 2008.

The company said fresh bakery sales rose approximately 9% in the first quarter, driven by price increases in key product categories combined with changes in sales mix.

"Branded volume increases in the Arnold and Thomas’ brands in the United States and D’Italiano brand in Canada were offset by volume declines in other categories, particularly in food service and private label products," 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’ Mini Bagels, Thomas’ 100 Calorie Bagel, Thomas’ 100 Calorie English Muffin, Gadoua Vitalite, Wonder+ Headstart and products under the Weight Watchers licensed brand, contributed positively to branded sales growth during the first quarter of 2008."

Weston said fresh-baked sweet goods sales, primarily sold under the Entenmann’s brand, decreased approximately 2% due to lower volumes for the quarter. The volume decline was attributed to softness in key full-size categories that were partially offset by growth in hand-held categories, such as the Entenmann’s 100 Calorie Little Bites.

Weston noted that profitability in the U.S. fresh-baked sweet goods segment fell as a result of redundancy and start-up costs incurred as part of the restructure plan to downsize its Bay Shore, N.Y., facility and transfer full-size cake production to new manufacturing assets located in Hazleton, Pa.

Frozen bakery sales increased approximately 7% during the first quarter, driven mainly by price increases combined with changes in sales mix and timing of customer orders.

Biscuit sales, including wafers, ice cream cones, cookies and crackers, rose about 6% in the first quarter, due in large part to higher volume of Girl Scout cookie sales.

Net income of George Weston in the first quarter ended March 22 was C$131 million, equal to C$0.91 per share on the common stock, down from C$104 million, or C$0.70 per share, in the same period a year ago. Sales were C$7,337 million, up narrowly from C$7,221 million.

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