Baker George Weston takes wait-and-see approach to further price increases

TORONTO – Baked goods company George Weston Ltd. (TSX:WN) says it is taking a wait-and-see approach before deciding whether to put through further price increases to cover the rising cost of raw materials.

The company started charging 3.5 per cent more this spring as it dealt with the rising cost of commodities such as flour, which has risen dramatically over the past year.

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But in a conference call Friday, the company said it is being cautious about putting through price increases in the rest of this year because it doesn’t want to significantly damage demand for its goods, which include major brands like Wonder, Ace Bakery and D’Italiano breads.

“We have some pricing plans for the back half of the year but we’ll watch it period by period and see what’s happening before we take the pricing,” said Ralph Robinson, president of Weston Foods.

“The way the second half looks right now, we would expect our margin over commodities to be down slightly.”

The company reported 22.7 per cent higher profits in the second quarter, as it sold more food, partially due to the late Easter season.

George Weston said that despite the price increases, its sales volumes grew 10.6 per cent during the quarter, mainly due to its Keystone and Ace Bakeries businesses, which it bought late last year. Sales grew 0.7 per cent to $7.53 billion from $7.48 billion.

But the company said its sales volumes would have increased regardless, even if it had not been for those new businesses.

The company, which is the main shareholder of grocery giant Loblaw Co. (TSX:L) reported profits of $157 million or $1.13 per share, an increase from $128 million or 91 cents per share a year ago.

Adjusted earnings per share were $1.34, above analyst expectations of $1.11 per share, according to estimates compiled by Thomson Reuters.

The company said productivity improvements leading to lower costs also helped boost operating income, which was somewhat offset by higher fuel costs and more promotional spending.

The company’s costs were lower as net interest expenses and other financing charges dropped nearly 15 per cent to $98 million on lower non-cash charges tied to the fair value adjustment of its forward sale agreement for 9.6 million Loblaw common shares.

In its Weston Foods division, sales rose to $407 million from $359 million.

Also on Friday, the company named Pavi Billing as its new president. Billing had served as the company’s chief financial officer, and George Weston is currently seeking a replacement CFO.

Weston joined other food companies like Maple Leaf Foods (TSX:MFI) and Tim Hortons (TSX:THI) in raising prices this spring due to the soaring costs of key commodity ingredients like wheat, corn, sugar and vegetable oil, which have gone up as much as 50 to 100 per cent over the last year at a near-record rate.

Combined with higher transportation costs, George Weston has said higher expenses could have a negative impact of up to $65 million this year, and the company has warned it could increase prices even more by the end of the year if costs continue to rise.

Economists have estimated Canadians will be paying between five and seven per cent more for groceries on average by the end of the year due to bad crops around the world, more farmers selling their corn for ethanol fuel rather than food and the effect of the economic recovery driving prices higher.

George Weston is controlled by the Weston family. One of the family’s private companies, Selfridges Group Ltd., announced Friday it plans to acquire landmark Montreal department store Ogilvy for an undisclosed amount.

Selfridges Group also owns high-end department store chain Holt Renfrew, Selfridges in the United Kingdom, Brown Thomas in Ireland and De Bijenkorf in the Netherlands.