Food company George Weston has announced rises in sales and net earnings for the third quarter of 2005, despite distribution problems at its Loblaw subsidiary.

Sales increased CAD9.7bn (US$8.3bn) for the quarter, compared with CAD9.3bn in the same period a year ago. There was a negative impact on sales growth due to foreign currency translation of approximately 1.0% and a positive impact of approximately 1.5% from the consolidation of certain Loblaw independent franchisees.

Operating income of CAD478m for the third quarter of 2005 compared to CAD505m in 2004. Net earnings were CAD196m, compared with CAD168m a year ago.

Loblaw experienced disruptions in the flow of inventory to its stores in particular in western Canada resulting from the supply chain restructuring and from certain supply chain systems conversions undertaken as part of the creation of a national information technology platform. In addition, the new third party-operated general merchandise warehouse and distribution centre for eastern Canada has not reached planned operating efficiency or capacity as quickly as expected.

Additional incremental direct costs of CAD20m were incurred in the handling, storage and movement of inventory in light of these disruptions. As well, these disruptions of supply resulted in lost sales to Loblaw, reducing expected sales growth in the quarter by approximately 0.8% to 1.2% when compared to last year.

A charge was recorded in the third quarter relating to an audit and proposed assessment by the Canada Revenue Agency relative to GST on certain products sold during prior fiscal periods on which GST was not appropriately charged and remitted. In light of this proposed assessment, Loblaw has assessed and estimated the potential liabilities for GST and PST in other areas of its operations. Accordingly, a charge of CAD40m was recorded by Loblaw in the third quarter to reflect the best estimate of all such potential tax liabilities of which management is currently aware.

Group interest expense and other financing charges decreased to CAD88m from CAD116m in 2004, primarily as a result of non-cash income of CAD14m (2004 - non-cash charge of CAD18m) reflecting the accounting for the forward sale agreement of Loblaw common shares.