The sale of Weston Foods is reportedly going well.
According to Richard Dufresne, president and chief financial officer of George Weston, the sale of Weston Foods, the baking section of George Weston Ltd., is probably going to be disclosed this fall.
On July 30, in conjunction with the presentation of George Weston’s second-quarter financial results, Mr. Dufresne gave an update to the investment community regarding the Weston Foods sale process during a conference call with analysts. Although it was better than the second quarter of the 2020 fiscal year, Weston Foods nevertheless experienced an operational deficit in the most recent quarter.
“We are in contact with a wide range of potential buyers regarding the sale of Weston Foods, and the process is well under way,” Mr. Dufresne stated. Numerous strategic and financial purchasers have expressed interest in our offering, and we are presently at the second round of the process. This autumn, we hope to be able to make the transaction public.
When asked if the difficult economics of the baking industry now will harm Weston Foods’ potential valuation, Mr. Dufresne advised potential purchasers to recognize that baking is currently dealing with transient issues that will eventually be overcome.
“The majority of those interested in the process have prior experience in our industry and are genuinely dealing with similar problems as us,” he stated. Therefore, we have faith that they will expose this.
On March 23, Weston made intentions public to begin the Weston Foods sales process. George Weston’s operational company comprises two divisions: retail and foodservice. It also bakes a variety of products such as bread, rolls, cupcakes, donuts, biscuits, cakes, pies, cones, wafers, and artisan baked delicacies. Wonder, Ace Bakery, Country Harvest, All but Gluten, and D’Italiano are some of its brands. The company runs 40 baking factories and other facilities in Canada and the US and employs over 5,000 people.
The timing of the sale, according to Mr. Dufresne, could depend on how competitive the bidding process turns out to be, but it should be finished by the end of December.
The George Weston Ltd. subsidiary of Weston Foods reported an operating loss of C$6 million ($4.8 million) for the second quarter that concluded on June 19, which represents an improvement over the C$49 million loss for the same period in 2020. Weston attributed C$20 million of the C$43 million reduction in operating loss to improved underlying operating performance and the remaining C$23 million to unusual items. Compared to C$48 million a year earlier, Weston Foods experienced an operational loss of C$6 million ($4.8 million) for the 24 weeks that concluded on June 19.
Sales for Weston Foods were C$431 million ($346 million) in the second quarter of 2021, up C$19 million, or 4.6%, over the same time in 2020. Sales increased 12.1% when the negative effects of the COVID-19 pandemic in the second quarter of 2020 were taken out, according to Weston. This was after accounting for the unfavorable impact of foreign currency translation.
“The negative impact of changes in sales mix partially offset the impact of increased volumes in the foodservice and retail categories on sales,” according to Weston.
Sales for the first half of the year were C$903 million ($724 million), down $44 million, or 4.6%, from the same time in 2020. The negative impacts of a 4.7% foreign exchange rate translation were considered in sales. When this component is taken out of the equation, sales rise by 0.1%, mostly as a result of higher volumes and a partial offset by the pandemic’s negative influence on sales during the same period previous year. The COVID-19 epidemic, limits on in-person sales in 2021, and an increase in foodservice sales volumes offset declines in retail and Girl Scout cookie sales as important components of the mix shift.
In comparison to the same period last year, Weston Foods’ overall business circumstances improved during the second quarter. However, once the government-mandated lockdowns ended and the commercial obstacles caused by the COVID-19 pandemic subsided, the company faced additional difficulties due to rising input costs, rising labor expenses, and a shortage of manpower.
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“Sales grew in foodservice and retail as government-mandated lockdowns were lifted in many regions of Canada and the United States,” the company said. “In addition to the increase in sales, lower pandemic-related costs and continued productivity improvements contributed to the year-over-year earnings growth. In the second quarter, Weston Foods was faced with higher-than-expected input, labor and distribution costs. The higher costs, together with labor availability challenges, negatively impacted sales and earnings. These factors were primarily the result of a surge in global demand for consumer goods as economies began to reopen following the lifting of many lockdown restrictions. Weston Foods has taken steps, including pricing, to help mitigate the impact of cost inflation, and expects the labor availability challenges will ease over time. The business is well-positioned to meet the increasing demand from its customers and continue to offer superior products and services.”
Mr. Dufresne stated on the call that the inflationary storm quickly gained traction and would probably have a negative impact on performance in the second half of the year.
He stated, “As the economy started to recover from the negative impact of COVID, both the inflation and labor availability challenges are notable for the speed, breadth, and severity of their impacts on the industry, and both relate to a surge in global demand.” These difficulties affected Weston Food’s capacity to fulfill rising consumer demand, or sales, and reach its profitability goals. It is anticipated that these difficulties will continue in the latter part of the year.
The company’s chairman and CEO, Galen G. Weston, concurred with Mr. Dufresne’s optimism regarding the sale process, but he also mentioned that the business was facing new obstacles.
“We have been pleased with the level of interest from potential buyers of Weston Foods, as Richard mentioned,” Mr. Weston stated. “Luc (Mongeau, president of Weston Foods) and his colleagues have been actively working to mitigate the industry’s present labor issues and inflation at the same time. With its industry-leading bread assets and high customer engagement, Weston Foods’ fundamentals are still strong, and we continue to believe that the company has the potential to create significant, incremental value when managed well.
George Weston Ltd.’s adjusted net income increased by 96% to C$272 million ($218 million), or C$1.78 per share on the common stock, in the second quarter that ended on June 19 compared to C$139 million, or C$0.91 per share, in the same period the previous year. Sales increased by 4.6% to C$12.9 billion ($10.3 billion) from $12.4 billion in the same quarter previous year. After $378 million, or C$2.45, in the first half of 2020, George Weston’s adjusted net income for the year to date was C$515 million ($413 million), or C$3.37 per share, a 36% increase. Sales increased by 2.4% to C$25.3 billion ($20.3 billion).