Canadian grocery giant George Weston Ltd. squeezed out a tiny profit in the second quarter despite a large foreign exchange loss, the company said Friday.
George Weston, which is majority owner of Loblaw Companies Ltd., earned $4 million on its net earnings line for the three months ended June 20. That compared to a profit of $118 million for the same period one earlier.
On a per-share basis, however, the company compared its results on a continuing earnings basis. In that case, George Weston lost five cents a share versus a gain of 84 cents a share for the same three months one year earlier.
The recession crimped sales expansion, the company said.
As well, George Weston was whipsawed by some accounting changes that resulted in a 61 cent-a-share foreign exchange charge to the company's bottom line.
Despite the continued operations loss, however, George Weston said the quarter was pretty reasonable.
"Loblaw is progressing in its turnaround efforts, balancing improvements in its food offering, product innovation and customer value while at the same time managing store renovations and infrastructure improvements," George Weston said in its quarterly earnings press release.
Loblaw saw overall sales rise 2.8 per cent to $7.2 billion in the second quarter of 2009 versus the same time one year earlier.
Bakery division sold to Mexican company
George Weston's food division experienced a sales drop of 21 per cent in the second quarter. That plunge, however, was largely the result of the sale of the company's U.S. bakery division, which was completed in the first three months of the company's fiscal year.
Back in May, the Canadian company closed a deal to hand off the bakery division to Grupo Bimbo, a Mexican food maker, for $2.5 billion US.
That agreement helped George Weston secure enough cash to chop its debt load by 92 per cent to $369 million in the June quarter versus $4.5 billion by the end of the June quarter in 2008.
The firm also used cash from the previous sale of its dairy division, the issuing of some Loblaw securities and the securitization of its PC Bank receivables to slash its outstanding borrowings.
On the negative side, the Grubo Bimbo transaction also forced George Weston to account for the subsidiary, which held the bakery business in a different fashion.
The financial result was a $90 million foreign exchange charge that reduced George Weston's income by 61 cents a share.
The company said the first half of the year was strong considering the tough economy. But, George Weston expects the commercial environment to become even harsher in the last six months of the year.
"Loblaw's second quarter earnings improvement was largely driven by cost and gross margin, but that trend is not expected to continue," George Weston said.
For example, Loblaw's operating margin — whatever is left over from its sales once the direct costs of selling its products are subtracted — reached 4.5 per cent in the second quarter, up from 3.8 per cent in the second three months of 2008.
George Weston now believes that, for the rest of the year, the supermarket chain will have difficulty replicating the cost savings achieved in the second quarter through more efficient product management and lower labour expenses.