George Weston Reports Q2 Earnings Drop Following Bread Price-Fixing Settlement
George Weston Limited (TSX: WN) reported its unaudited financial results for the second quarter of 2024, marking a period of solid performance for its subsidiaries overshadowed by significant financial impacts from legal settlements.
The company reported revenue of $14.09 billion for the quarter ended June 15, 2024, reflecting a 1.5% increase from $13.88 billion in the same period last year. However, net earnings available to common shareholders fell to $400 million, or $2.97 per share, from $498 million, or $3.55 per share, in the prior year—a 19.7% decrease. This decline was attributed to several adjusting items, including significant charges from the settlement of class action lawsuits.
The settlement of class action lawsuits related to an industry-wide bread price-fixing scheme that negatively impacted net earnings by $253 million. The lawsuits, which have been ongoing since 2017, accused Loblaw and other major grocery chains of conspiring to fix the prices of certain packaged bread products from 2001 to 2015. The total settlement amounted to $500 million, with George Weston paying $247 million and Loblaw $253 million. The settlement is pending court approval.
CEO Galen G. Weston commented on the settlement: “This settlement marks an important step in resolving a challenging chapter in our history, allowing us to focus on the future growth and performance of our businesses.”
George Weston’s retail chain Loblaw saw its revenue rise to $13.95 billion, up from $13.74 billion in the second quarter of 2023. The increase was driven by higher retail and financial services revenues. Food retail sales reached $9.65 billion, reflecting a 0.2% same-store sales growth. Drug retail sales also increased to $4.01 billion, driven by strength in the beauty category and ongoing momentum in healthcare services, despite exiting certain low-margin electronics categories.
Operational efficiency was evident as Loblaw continued to focus on cost control and retail excellence. The company said that its internal food inflation rates were below the national average, with Canada’s Consumer Price Index for Food Purchased from Stores declining for the sixth consecutive quarter.
On the other hand, Choice Properties reported revenue of $336 million, a 1.8% increase from $330 million in the same period last year. The segment continued to operate with high occupancy levels and achieved strong leasing and same-asset net operating income (NOI) growth. The successful completion of $788 million in financings, with an average term of 9.6 years and an average interest rate of approximately 5.0%, further solidified its financial position.
In the second quarter of 2024, George Weston reported that its adjusted EBITDA increased by 4.2% to $1.81 billion, up from $1.73 billion. Adjusted net earnings rose by 4.5% to $394 million, compared to $377 million in the same quarter last year. Adjusted diluted net earnings per common share saw a 9.3% increase, rising to $2.93 from $2.68. The company’s free cash flow for the quarter was reported at $282 million.
George Weston continued its share repurchase program, buying back 1.8 million shares for $339 million. Additionally, the company entered into an automatic share purchase plan (ASPP) to facilitate further share repurchases during periods when the company is not active in the market.
The company also participated in Loblaw’s NCIB, selling1.3 million common shares for $190 million to maintain its proportional ownership interest.
Outlook
After the quarter ended, George Weston redeemed a $200 million senior unsecured debenture bearing a 4.12% interest rate. This move is part of the company’s strategy to optimize its balance sheet and reduce debt.
Looking ahead, the company maintains a positive outlook for 2024, expecting continued growth in adjusted net earnings driven by its subsidiaries’ strong performance. Loblaw aims to grow its retail earnings faster than sales, with plans to invest $1.8 billion in capital expenditures net of property disposals. Choice Properties focuses on stable cash flows and net asset value appreciation, targeting 2.5% – 3.0% year-over-year growth in Same-Asset NOI and maintaining strong leverage metrics.
The financial results fell short of some analyst expectations. Adjusted earnings per share of $2.93 missed the consensus forecast of $3.04 per share, as surveyed by FactSet.
George Weston last traded at $211.81 on the TSX.
Information for this briefing was found via Sedar and the sources mentioned. The author has no securities or affiliations related to the organizations discussed. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.
