TORONTO — Executives at George Weston Ltd. said earlier this year that significant investments in capital would have an adverse effect on operating income in its Weston Foods business during fiscal 2015. That outlook rang true in first-quarter results issued May 12.
Operating income in the Weston Foods segment totaled C$41 million ($34 million) in the first quarter ended March 28, down 33% from C$61 million in the same period a year ago. Adjusted operating income fell 14% to C$45 million ($37 million) from $52 million. Sales, meanwhile, increased 12% to C$504 million ($420 million) from $449 million.
“The quarter one results accordingly reflect lower operating income as a result of the investments that we are making,” Pavi Binning, president of George Weston, said in a May 12 conference call with analysts. “In the quarter, we did benefit from volume growth and some pricing, but material and other input costs were also higher. Our outlook for Weston Foods for 2015 remains unchanged.
“For the full year, Weston Foods expects a decline in adjusted operating income due to the costs associated with capital expenditure, investments in innovation and capabilities, and higher input costs, including the negative impact of foreign exchange. These costs will be partially offset by pricing, volume growth, and productivity. On the comparable 52-week basis, management continues to expect the declines in adjusted operating income to be greater in the first half of the year than in the second half.”
While discussion of the first-quarter results was fairly brief, Mr. Binning did highlight a few areas of interest to the grain-based foods industry.
“We are building a new cake facility in Indianapolis,” Mr. Binning said. “There’s a line that’s going to be coming up in the next three or four weeks.”
The facility, which will be part of Maplehurst Bakeries, L.L.C., a division of Weston Foods, was expected to be operational in March 2015. Weston invested more than $77 million to renovate and equip the 180,000-square-foot facility in Lebanon, Ind. The facility will house the company’s warehouse, distribution and manufacturing operations for its cake and cupcake products.
“We’re investing in crackers at our Front Royal (Va.) facility. I expect that to be up towards the end of the first quarter. And then also, we’re investing in the cookies, and we just got some capacity that’s up and running at our Kitchener (Ont.) facility, and also we’re working on North Sioux City (S.D.). Different businesses, the capacity is coming on at different points in time, but it will be through the sort of from the second quarter onwards for the balance of the year.”Overall, George Weston posted net earnings of C$167 million ($139 million), equal to C$1.23 per share on the common stock, up 39% from C$120 million, or 86c per share, in the same period a year ago. Sales increased 37% to C$10,409 million ($8,662 million).