George Weston Ltd. (TSX:WN) reported a drop in its first quarter profit and warned of ongoing earnings pressure amid higher costs and expansion plans.
The company, which has been struggling as customers continue to turn away from frozen and baked goods and toward healthier food choices, posted a profit of $109-million, down 32.7 per cent, from $162-million in the same quarter of 2013.
Earnings per share were 78 cents compared with $1.19 year-over-year with the Toronto company saying the decrease was due to the year-over-year unfavourable impact of the forward sale agreement for 9.6 million Loblaw common shares and a number of other items.
Adjusted earnings per share remained flat at 83 cents and adjusted operating income increased to $318-million from $313-million year-over-year, while sales were up 1.6 per cent at $7.61-billion.
Loblaw completed a $12.4-billion deal to acquire Shoppers Drug Mart at the end of March, a purchase that will allow it to better compete against retail giants such as Walmart and provide cash flow of about $1-billion to pay down debt.
But George Weston is also facing fresh competition from Grupo Bimbo, a Mexican company that has acquired Maple Leaf Foods' (TSX:MFI) Canada Bread (TSX:CBY) subsidiary, and is continuing to look for growth opportunities.
Weston Foods on Monday purchased Rubschlager Baking Corp., a maker of rye breads in Chicago. Financial details of the deal were not immediately available.
George Weston president Pavi Binning said the results were in-line with the company's expectations, given the competitive retail environment and higher commodity and input costs, but warned its second-quarter results will also face pressure from higher costs.
In the first quarter, Weston Foods sales increased by 5.9 per cent to $449-million, up from $424-million year-over-year, with a foreign currency translation positively impacting sales by about 4.9 per cent.
For full year 2014, the company expects modest sales growth from the Weston Foods segment, but said adjusted operating income is expected to decline due to such things as plant start-up costs, marketing, and the performance of its frozen dough business.
Its Loblaw division increased sales in the quarter by 1.2 per cent to $7.2-billion, helped by an increase in revenue from its financial services segment which includes President's Choice Bank, a subsidiary of Loblaw.
The company also said it was increasing its quarterly dividend to 42 cents, up from 41.5 cents.