George Weston bets on healthy, indulgent foods

George Weston Ltd. is investing in two seemingly contradicting areas of growing consumer demand for its bakery division -- healthier baked goods and indulgent foods.

Luc Mongeau, president of the food processing and grocery company's Weston Foods bakery business, said Tuesday it was working on innovation in its artisan and alternative bread products, and recently built organic production capabilities into its Kitchener, Ont. facility.

But Weston Foods is also focusing on goods of the less-healthy variety amid surging demand for products such as donuts.

"We are innovating in indulgent product," Mongeau said on a conference call discussing George Weston's latest quarterly results. "There is a strong demand for product that delivers greater indulgence, and we are benefiting and growing in these areas with our portfolio."

The bread industry has been under pressure in recent years as consumers look for healthier or artisan versions of the food staple, while also grappling with increased competition from discount retailers.

George Weston, however, has also been under pressure after its admission last year that it and its main subsidiary, Loblaw Companies Ltd., had participated in what they say is an industry-wide arrangement to co-ordinate the price of bread for at least 14 years.

Mongeau's comments on growing demand for certain segments came as George Weston raised its dividend and reported a first-quarter profit of $180 million. The company said it would now pay a dividend on its common shares of 49 cents per share, up from 45.5 cents.

The increase came as George Weston reported its profit attributable to common shareholders amounted to $1.40 per diluted share. That was up from $108 million or 84 cents per diluted share in the same quarter last year.

However, on an adjusted basis, which excludes a number of one-time items, George Weston said it earned $178 million or $1.38 per share compared with $184 million or $1.43 per share a year ago.

Sales in the quarter totalled $10.74 billion, down from $10.80 billion in the same quarter last year.

Galen G. Weston, who is chairman and CEO of George Weston, said the quarter was "marked by significant headwinds."

He told analysts that Loblaw, in which George Weston is the largest shareholder, delivered solid results amid "external pressures from minimum wage and health care reform."

"Weston Foods business performance has been impacted by challenging inflationary pressures and cost relating to the transformation program," he said.

In November, George Weston launched a three-year transformation plan which includes restructuring the organization and simplifying operations.

In this most recent quarter, Weston Foods recorded restructuring and other related costs of $15 million, largely related to the transformation program and the previously announced closure of an unprofitable manufacturing facility in the U.S.