Toronto-based agribusiness giant George Weston has seen its Q1 net earnings per share increase 40% to C$0.80 (US$0.59), compared to C$0.57 in 2001.

Adjusting for the discontinuance of goodwill charges, net earnings per share increased 17 cents or 27% over last year. Trailing year net earnings per share, excluding goodwill charges, unusual items in the Q4 2001 and the effect of the 2000 budgeted income tax rate changes, improved 19% to C$4.44 from C$3.74 earned during the corresponding period at the end of the Q1 2001.

During the Q1 2002, the company completed the sale of the Western portion of Bestfoods Baking (including certain licence and distribution arrangements) to Grupo Bimbo, SA de CV for about C$950m, which was used for debt repayment.

Operating highlights

Q1 sales increased 17% or C$880m over last year to C$6bn. Food Processing sales were up 71% to C$1.2bn. The 2001 acquisition of Bestfoods Baking (renamed George Weston Bakeries Inc.) contributed additional sales in line with expectations. Excluding the effect of this acquisition and the 2001 Connors dispositions, sales were 6% ahead of last year. The US fresh and frozen baking operations and Neilson Dairy enjoyed a period of solid volume growth with generally firm pricing. The Heritage fresh salmon operation continued to suffer through a period of extremely depressed world market prices for fresh salmon although overall pricing has improved slightly on the Q4 2001. Food Distribution, operated by Loblaw Companies, had sales up 9% to C$5bn for the Q1. Strong sales growth was experienced in all banners across the country with Q1 same-store sales increasing over 5%. Food price inflation remained low.

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Operating income increased 29% or C$67m to C$302m for the Q1. Excluding the C$17m net charge as a result of implementing the new Canadian accounting standard for stock-based compensation and other stock-based payments in 2002, operating income was up 36% on 2001.

Interest expense for the quarter increased 33% to C$61m as a result of increased net average borrowing levels, from the 2001 Bestfoods Baking acquisition, partially offset by a decline in borrowing rates. Interest coverage (operating income divided by interest expense) of 5.0 times for the quarter compared to 5.1 times for the comparable period in the prior year. The effective income tax rate of 34.9% decreased as compared to the prior year, in line with declining Canadian federal and provincial income tax rates and the fair value impact of the Loblaw Companies equity forward contracts.

Capital investment reached C$227m in the Q1 as the company continues to maintain and renew its asset base and investing for growth across the US. Projected 2002 capital investment remains at about C$1.4bn. Operating cash flow, excluding the Q1 cyclical working capital investment, improved to C$302m from C$211m in 2001, principally from improved earnings.

During the Q1 2002, the company issued C$250m of 5.90% Medium Term Notes (MTN) due 2009 and C$150m of 7.10% MTN due 2032. It also issued C$8m of Series B Debentures at a weighted average interest rate of 2.61% due on demand.

During the Q1, the company renewed its Normal Course Issuer Bid to repurchase up to 6,573,395 of its common shares, representing about 5% of the stock outstanding. It also entered into equity derivative agreements based on 78,300 of its common shares for an average of C$103 per share. After the quarter end, it entered into equity derivative agreements based on 526,700 of its common shares for an average of C$116.79 per share.


Solid sales and operating income growth are expected for the remainder of 2002. Food Processing continues to benefit from the US integration and growth opportunities, while steady growth is being achieved in Canada. Depressed world market prices for salmon may slightly dampen income. Food Distribution maintains its relentless investment programme and drive for sales and operating income growth.