George Weston Earnings Call Insights: Bakery Operations, Fresh Category

On Tuesday, George Weston Limited (TO:WN.TO) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Bakery Operations

Perry Caicco – CIBC World Market: Just the question on the bakery operations. The 4.2% impact of higher pricing was that exactly even across fresh, frozen and biscuits or was there some lever to fresh or perhaps frozen?

Pavi Binning – President: Perry, in terms of the – sort of price increases these were price increases that we actually took last year and they were across the majority of the categories. They were on specific categories that were sort of held out overall. As we reported last year, pricing certainly in certain of our markets, particularly in United States, was pretty tough to get. But in terms of as an average that’s pretty good for most of the categories out there.

Perry Caicco – CIBC World Market: So, if we look at the fresh category, if we simply take the sales result, the minus 0.5 and we subtract 4.2, do we get very close to the volume trend on fresh?

Pavi Binning – President: Yeah, you’re not far away.

Perry Caicco – CIBC World Market: What’s the pattern been on price increases so far in 2012 and how much you’re expecting to get in the first half of this year?

Pavi Binning – President: Perry our view is that pricing is certainly very difficult in both Canada and the U.S. in all the bakery categories, and at this point in time, we are not really anticipating any significant pricing for the remainder of this year. We’ve obviously got the benefit of roll over pricing, but that isn’t sufficient to cover the year-on-year increase in commodity costs and that’s why we talk about the pressure on our margins.

Fresh Category

Irene Nattel – RBC Capital Markets: Just continuing on the subject of the fresh bread category. Certainly, if we look at the progress over the last three quarters, we’ve seen a decline in what looks like tonnage sales last consumption, but Canada Bread on their call said that the category as a whole is down about 3%. So, either consumers are massively avoiding bread as it had a few years ago or more likely we’re seeing a change in consumer behavior, liquidation of household inventories or maybe just switching. Can you talk a little bit about within the fresh category, what you’re seeing at the low end versus the high end, whether you think that we’ve bottomed and what any consumer research you might have done; can you help us understand what’s behind all this?

Jairo Senise – President, Weston Foods: This is Jairo Senise and what appear to be some macroeconomic trends, but certainly pricing in 2011 had an affect also. We are investigation the trends right now, and to see if this is something that the consumer is moving towards other segments, but it’s not showing that.

Irene Nattel – RBC Capital Markets: So, there is no indication, let’s say, I mean, when you and maybe this is too hard to get at, but certainly when you look at your basic rates in wheat, are you seeing big kind of pulsing around promotions that might suggest that consumers are really building stockpiles and liquidating or are you seeing anything like that?

W. Galen Weston, O.C. – Executive Chairman: Naturally, price and promotion can help, and we saw in the last half of the last year, lots of promotions that we haven’t seen in the first quarter of this year.

Irene Nattel – RBC Capital Markets: Interesting. If I may I suppose direct this question to yourself and to (indiscernible), it’s been what, six weeks, two months now that both of you have been there, and just wondering about any thoughts around the cash balance, deployment of the cash balance, where it might be deployed, any sort of shifts that we’re seeing in terms of thinking versus what we might have seen six months ago or a year ago?

Pavi Binning – President: Irene, I can’t resist taking this question. So, I’m sure (indiscernible) may have a view, but we’re working very, very hard in terms of looking at opportunities for us to develop the business as we move forward and deploy the cash. We’ve build a very strong strategy and corporate development team. Our focus is to grow and develop the business that we have and build strong leadership positions resulting in value creation over the long term. That’s what we’re focused on, and you wouldn’t expect as to sort of on this call talk about sort of specific activities, but I know that was meant for Jairo and Richard, but I sort of couldn’t resist, Irene, jumping in.

Irene Nattel – RBC Capital Markets: Thanks, Pavi, much appreciated.

Richard Dufresne – CFO: The only thing I would say, Irene, is that I have been here six weeks and my focus has been on learning the business. I don’t know well which is the bakery business and that’s what I am fully immersed into right now.