TORONTO - Bakery and grocery company George Weston (TSX:WN) says jts net earnings fell 40 per cent in the fourth quarter, helping to pull full-year profits down amid restructuring and other charges aimed at shoring up its competitive position.
"Weston Foods delivered satisfactory operating results despite a challenging environment," executive chairman W. Galen Weston said Thursday during a conference call with analysts.
"In 2012 the company continued to focus on long-term value creation for shareholders," Weston said, noting incremental investments in the "customer proposition" and other improvements by grocery chain Loblaw (TSX:L).
Galen Weston directly and indirectly owns 63 per cent of George Weston which, in turn, is the majority shareholder of Loblaw and Weston Foods, the bakery division.
The grocery business in Canada is seeing increased competition not only among traditional players, but also through expansion by new entrants such as Walmart and Target, which is expected to open the first of its Canadian stores this year.
Target's official launch date hasn't been announced but some locations are expected to open by the end of March, the first of at least 124 planned stores.
It's also an environment where profits need to be driven by productivity and innovation, company president Pavi Binning told the analysts.
Binning said the company's results "came in as we expected" with adjusted operating profits slightly ahead of the prior year, driven primarily by productivity improvements.
"In terms of price increases, what I would sort of say is that the pricing environment remains tough out there," he said in answer to a question.
Although George Weston has announced price increases of "a few per cent" in its fresh bakery business effective in February "our objective is to cover commodity costs," he said.
Meanwhile the company, is moving to increase into double digit territory the "very small" percentage of sales represented by new products like gluten-free bread, while also focusing on the health and nutritional benefits of wheat in promoting other key bakery items.
George Weston reported earlier that fourth-quarter net earnings attributable to shareholders fell to $65 million or 43 cents per share in the 12 weeks ended Dec. 31.
That was down from $109 million or 77 cents in the same 2011 period even as revenue climbed 1.2 per cent to almost $7.73 billion from $7.64 billion.
George Weston said the earnings decline was primarily caused by the impact of the forward sale agreement for 9.6 million Loblaw common shares and restructuring and other charges. Those were partially offset by foreign currency translation.
Adjusted basic net earnings were $1.02 per share compared with $1.01 in the same period in 2011. The increase was due to an improvement in the operating performance of the company's two operating segments, partially offset by a higher effective income tax rate.
However, Loblaw also saw a contraction in its bottom line in the fourth quarter when it reported last week. Canada's largest grocer said its Q4 net income was $143 million or 43 cents per share, down $31 million or 17.8 per cent from $174 million a year earlier.
The figures included a $61-million restructuring charge equivalent to 16 cents per share as Loblaw cut about 700 jobs, mostly involving head office and administrative positions.
For the full year, George Weston reported net income attributable to shareholders of $486 million or $3.45 per common share on revenues of $32.74 billion.
That was down 23.5 per cent from net earnings of $635 million or $4.58 per share on revenue of almost $32.38 billion in 2011.
Chief financial officer Richard Dufresne said the adjusted earnings were the best gauge of the company's operations and noted that the outlook for 2013 is for sales growth to be moderate, with adjusted operating margins to remain in line with 2012 as Weston Foods invests in growth, marketing and innovation.
"The benefits from these investments are expected to be realized increasingly over the year, commencing in the second quarter," he said.
