TORONTO — George Weston Ltd. said it plans to pump the brakes on the transformation plan taking place within its Weston Foods unit following early mixed results in the first year of the three-year program.

Galen G. Weston, chairman and chief executive officer of George Weston Ltd., made the announcement on Nov. 20 during a conference call with analysts to discuss third-quarter financial results.

“At Weston Foods, we continued to underperform against our expectations,” Mr. Weston said. “We are one year into an ambitious plan, and it has had mixed results. Although we remain optimistic about the business’s future, we have taken decisive action to slow down the transformation program and are carefully managing the pace of change so that management can focus on the top line. While the program has improved our ability to manage costs and to simplify the business, not all the benefits have flowed to the bottom line. We have fallen short on customer service that has adversely impacted our sales. Put simply, we are not yet operating at the high standard that we expect of ourselves.

“Looking forward, we remain committed to our strategy and encouraged by several positive things, which are happening. Business fundamentals are improving with less waste, more productivity and a better ability to forecast our results. We are also seeing sales momentum in key growth areas, such as artisan and pre-fried donuts. While our recent performance continues to be disappointing, we are confident that management is focused on the right areas to position Weston Foods for the future.”

Operating income in the Weston Foods segment of George Weston Ltd. totaled C$47 million ($35.3 million) in the third quarter of fiscal 2018 ended Oct. 6, down 43% from C$83 million in the same period a year ago. Adjusted EBITDA, meanwhile, fell 16% to C$164 million ($123.2 million) from C$195 million. Sales decreased 6% to C$1,615 million ($1,212.9 million) from C$1,716 million.

Weston Foods Country Harvest bread and bunsAsked how Weston Foods plans to slow the transformation program, Luc Mongeau, president of Weston Foods (Canada) Inc., said the focus will be on areas where there is an impact on customers.

“So basically we are slowing down the implementation of our ERP, SAP program,” Mr. Mongeau said. “...We’re reducing the number of s.k.u.s (stock-keeping units) that we are discontinuing by about 20%. And we’re reducing as well the amount of capex that we’re investing in the business to allow us to … bring stabilization to the business and significantly improve our service levels so we can return the entire business to growth.”

Mr. Mongeau said the original plan was to discontinue about 1,000 s.k.u.s. With the 20% reduction the company now plans to eliminate about 800 s.k.u.s., he said.

Despite the year-one challenges in Weston’s three-year turnaround plan, Mr. Mongeau said the company remains “inspired” by the way the program is going.

“So on one end, the program is doing extremely well,” he said. “In the areas of productivity, reduction of waste, improvement of downtime, we’re seeing very promising signals. In the areas of cost containment, we’re seeing very good results as well. And as the same thing in our simplification of our business, we’ve got a business structure that’s much simpler than it was before, allowing us to make faster decisions and better decisions. The program does create a disruption with customer service levels. And our aggressive s.k.u. discontinuation unfortunately negatively impacted customers, and that’s why we’re taking the decision to slow down the pace of the program. Slowing down in the areas where there are direct customer impacts to allow us to return the business, the top line of the business, back to growth.”

Overall, George Weston posted net earnings of C$65 million in the third quarter, equal to C$0.40 per share on the common stock, down sharply from C$434 million, or C$3.25 per share, in the same period a year ago. Sales increased to C$14,862 million from C$14,648 million.