Milling & Baking News - November 29, 2011 - 14

Financial Results 

for the balance of the year, Steve Kinsey, executive vice-president and chief financial officer, said the D.S.D. business enjoys robust sales, meeting the company’s expectations. On an operating income basis, he said the segment will see profits that are flat to up 5%, though with real challenges in the final quarter. “Fourth-quarter input costs will be up the most, quarter over quarter, as compared to the other quarters this year,” he said. “Though we have taken some pricing actions, gross margin continues to be under pressure and is forecast to be down on an annual basis.” As a result, he said full-year earnings will be toward the lower end of the company’s guidance range. For 2012, the D.S.D. business should hit long-term revenue targets and the Tasty business is “well within reach” of goals established

at the time of the acquisition. Mr. Kinsey said input from investment analysts together with the role ingredients play driving the company’s results led Flowers to defer its initial earnings forecast for 2012 and instead offer a preliminary cost outlook. He said “cost headwinds” are anticipated during the first half of 2012 “making for some difficult year-over-year comparisons.” “Market volatility adds a degree

of uncertainty to the back half at this point,” he said. “Therefore, we believe it’s more productive to continue to assess our coverage opportunity and offer firmer guidance with our year-end call in early February.” Based on ingredient coverage as it currently stands, the company forecast input cost increases of 4% to 8% in 2012. Asked about the company’s approach to ingredient hedging, Mr. Deese suggested some rethinking may be in order if volatility persists. “I would say that our strategy has been six to nine months (coverage) for many, many seasons and years,” he said. “That is still true. Over the long pull that has worked, but as we are keenly aware, though, if this volatility does persist, that strategy will have to change probably, or be tweaked or looked at more closely.” MBN sales were C$1,362 million ($1,313 million), up 10% from C$1,238 million. Looking ahead to the remainder of 2011, Weston Foods said it expects continued sales growth and satisfactory operating performance with earnings reflecting seasonally lower operating margins. “Weston Foods will continue to mitigate higher commodity and energy costs through pricing and continued cost reduction initiatives in an effort to achieve full-year operating margins in line with those in 2010,” the company said. “Looking ahead to the first half of 2012, higher commodity and input costs are expected to continue to put pressure on operating margins when compared to the same period in 2011.” Overall, net income at George Weston rose 50% in the third quarter to C$264 million ($254.6 million), equal to C$1.44 per share on the common stock, up from C$176 million, or C$1.26 per share, in the same period of fiscal 2010. Sales rose 2% to C$10,061 million ($9,700 million) from C$9,826 million. For the first nine months of fiscal 2011, net income was C$526 million ($507 million), or C$3.81 per share, up 54% from C$341 million, or C$2.38 per share, in the same period a year ago. Net sales were C$24,740 million ($23,857 million), up 1% from C$24,472 million. MBN
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Weston Foods income falls 34% in third quarter, sales up 10%
TORONTO — Operating income for the Weston Foods division of George Weston Ltd. was C$77 million ($74.3 million) in the third quarter ended Oct. 8, down 34% from C$116 million in the same period of fiscal 2010. Net sales were C$545 million ($525.5 million), up 10% from C$494 million a year ago. George Weston said fresh bakery sales increased approximately 0.9% in the third quarter compared with the same period in 2010, mainly due to the positive impact of higher pricing across key product categories partially offset by lower sales volumes. “Although overall volumes declined year-to-date, growth was realized in the D’Italiano and Country Harvest brands,” Weston said. “The introduction of new products, such as Country Harvest Ancient Grains, Country Harvest Raisin Cinnamon with Whole Wheat, Wonder+ SimplyFree, Gadoua MultiGo Flat Bagels, Pitas and Tortillas, and the Première Fournée de Weston line of artisan inspired breads, contributed positively to branded sales in the third quarter of 2011 and year-todate. In addition, late in the third quarter of 2011, Weston Foods relaunched the Wonder and Gadoua
14 / November 29, 2011 Milling & Baking News

MultiGo lines of breads that are free of artificial additives including preservatives, colors and flavors.” Frozen bakery sales increased approximately 28% in the third quarter, mainly due to the acquisition of Keystone, a U.S.based maker and supplier of frozen cupcakes, donuts and cookies, and ACE, a Canadian manufacturer and

supplier of artisan and Europeanstyle rustic bread varieties. Excluding these acquisitions, frozen bakery sales increased by approximately 4%, primarily due to higher sales volumes and higher pricing. Biscuit sales, principally wafers, ice cream cones, cookies and crackers, increased approximately 2% in the third quarter of 2011, due primarily to the positive impact of higher sales in cookies and crackers, partially offset by lower sales in wafers, cones and cups. For the nine months ended Oct. 8, operating income at Weston Foods was C$151 million ($145.6 million), down 34% from C$228 million in the same period a year ago. Net

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Milling & Baking News - November 29, 2011

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