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Weston Bakery truck trailers sit in Toronto.Louie Palu/The Globe and Mail

George Weston Ltd. is raising its quarterly dividend by about 5.6 per cent even though the bakery and grocery company's profit has been squeezed.

Weston's net earnings attributable to shareholders fell to $160-million or $1.14 per share in the 16 weeks ended Oct. 6. That's down from $264-million or $1.94 per share of net earnings a year earlier.

The Toronto-based company, which controls the Loblaws retail company and Weston Foods bakery business, fared better on adjusted earnings but said 2012 full-year adjusted earnings will be down from last year.

Adjusted earnings for the third quarter of this year was equal to $1.49, up 5 cents per share from last year.

"The increase was primarily in income tax expense, partially offset by a decline in the operating performance of Loblaw Companies Ltd.," Weston said.

"The decline in the operating performance of Loblaw was primarily due to an increase in labour and other operating costs and incremental costs related to investments in information technology and supply chain, partially offset by increases in gross profit and foreign exchange gains and higher operating income from its Financial Services segment."

The quarter's adjusted earnings beat a estimate compiled by Thomson Reuters. It called for adjusted earnings per share of $1.41 on revenue of $10.2-billion.

Weston said the Loblaws division will also drag down its full-year adjusted earnings in 2012, while Weston Foods' full-year sales will be slightly lower than 2011.

Nevertheless, Weston says the quarterly dividend will rise by two cents per share to 38 cents.

Loblaw operates more than 1,000 stores across Canada under numerous banners, including Great Canadian Super Store, Provigo, No Frills and Atlantic Superstore.

Weston holds the rights to the Wonder Bread name in Canada and the company said last Friday it has no interest in acquiring the manufacturing assets or brand names of Hostess in the U.S., which said it's going out of business.

The company, based in Irving, Texas, has bakery operations across the United States but several of its brands – including Wonder Bread – are made for the Canadian market by other companies.

Economists predict that food prices may grow by as much as four per cent next year as drought conditions in the U.S. are expected to inflate costs. And analysts have noted that food producers like Weston could face higher costs on their key ingredients, like flour and sugar.