Q3 2019 Earnings Call

This conference call.

At this time, all participants are in listen only mode.

The speakers presentation therell be a question and answer session to ask a question. During this session you'll need to press star one and your telephone.

Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to hand, the conference over to Terasquare Senior Director Investor Relations. Thank you. Please go ahead.

Thank you Denise and good morning, everyone.

Going to George Westin Limited third quarter 2019 results conference call.

I'm joined this morning by killing lifting our chairman and CEO to do frame, our president and CFO and Nucor Jones President of West Texas.

These statements are based on assumptions.

Managements current expectations.

I thought they are subject to a number of risks and uncertainties that could cause actual results were events to differ materially from our expectation.

These risks and uncertainties are discussed in the company's materials filed with the Canadian regulators any forward looking statements speak only as of the beat their me. They compete disclaims any intention or obligation to update or revise any forward looking statement, whether as a result could mean for me.

Feature that we're on the one other than what is required by law.

Also certain non-GAAP financial maybe discuss referred to today. Please refer to our annual report other materials filed with the Canadian Securities regulators for a reconciliation.

Measures to the most directly comparable GAAP financial measure.

Well I would come at it and choice properties both really.

As a result, we will focus today's call.

Our western.

With that I will turn the call over to Richard.

Thank you and good morning, everyone.

Let me start by saying that we are pleased with the results for the quarter.

Our businesses performed well with good operating and financial results.

On a consolidated basis, George what's the limited reported revenues of $15.2 billion, an increase of 2.4 per cent compared to last year.

Net earnings available to common shareholders was $69 million compared to net earnings of $51 million last year.

On an adjusted basis net earnings available to common shareholders increased by $103 million to $391 million, mainly driven by the positive contribution of the company's direct ownership in choice properties.

The result of last year spin out.

The decrease in income tax expenses, driven by the disposition of the portfolio of properties by choice.

And the improvement in the underlying operating performance at Loblaw.

We reported adjusted diluted net earnings per share two dollarsfifty four an increase of 29 cents for sure or 12.9% compared to last year.

Lowball delivered on its financial framework in the quarter the drug retail business had another strong quarter into food business improved sales performance compared to Q2.

Management is committed to strategy, making targeted and measured investments to improve same store sales and tonnage and driving processing efficiencies to support investments to position the company for the future.

Through buyback program Loblaw repurchased approximately 4.3 million shares during the quarter or older ship now sits at approximately 51.8%.

George properties delivered another quarter of strong result choice continues to focus on owning operating and developing a portfolio of high quality assets.

Choice to further improve its balance sheet in the quarter inline with our strategy.

What's in foods performance was in line with our expectations for the quarter.

Sales were $638 million up from 630 $630 million sorry in Q3 of last year.

What's in foods adjusted EBITDA was flat, excluding the positive impact if I have for 16 and to prior year net gain on the sale leaseback of a property.

[noise] adjusted EBITDA was impacted by productivity improvements and the net benefits realized from what's been foods transformation program offset by higher input and distribution cost and an increase in performance related compensation accruals.

We are pleased with the positive momentum we see it wasn't truth.

Management is delivering results, including operating operational efficiencies shrunk customer engagement and benefits from the transformation program.

The team continues to focus on winning new business it has growth categories and driving operational efficiencies.

There's still lots of work to do what we're encouraged by our Q3 results as we continue to stabilize the business.

We have updated the full year outlook for Western foods.

Note that we now expect full yourself to be positive compared to last year attributed to the positive impact from foreign currency translation.

As we look at the final quarter of 2019 or ability to drive value or George What then we'll be from the continued performance of law, one choice and the sterilization of whats themselves.

I will now turn the call work together. Thank you Richard the third quarter was another period of solid operating and financial results across our portfolio of businesses Loblaw continue to execute against that strategy focused on stable trading while unlocking process processing efficiencies to fuel investments in its strategic growth areas.

Amidst a competitive marketplace loblaw improved its food sales trend with measured margin investments. However, the job is not yet done and it remains a continued area of focus for the business.

<unk> properties performed well during the quarter demonstrating its commitments to owning high quality portfolio of properties.

Well further strengthening its balance sheet for the future.

And lastly, Weston foods demonstrated momentum as the business continued to stabilize improving trend is encouraging and gives us further confidence in our transformation towards becoming north America's Premier bakery.

As we exit the third quarter, we're pleased with the performance of George Weston each of our portfolio businesses continued to show a commitment to executing against our strategies in turn delivering long term value for our shareholders I'll now ask the operator to open the line for questions.

Thank you ladies and gentlemen, Tosca question. Please press Star then the number one under telephone keypad.

<unk> for just a moment to call the Kenny roster.

Your first question comes from Peter Sklar with BMO capital markets. Your line is open.

Good morning.

Increased.

<unk> 0.6 person you mentioned.

Right.

I was just wondering how much of it.

How price is gonna be moving forward into 2020.

Yes, the impact of price was very limited and true true on the positive trend was really mostly we had a very solid summer and our summer bonds, a business and we continue to out to grow a war going on.

Business.

Well it seems that inflation is really becoming a theme and and the food industry and in North America, I prefer focusing on driving efficiency and productivity gain to lot to mitigate the impact of inflation.

Yeah. So while we're on that topic can you tell us a little bit more about.

Just to fix about.

Promotional program that you've been.

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How much more.

Oh the productivity improvements.

Yes, or transformation program is a pop as a tree your program. So we're about to complete a year or two were Oh, we're happy with where we are at this point of world on track to deliver our objective.

And just the mechanics question with regards to sales outlook. So.

Without FX, we should expect.

On the 2019 sales to be slightly below 28 team. So that would be 2018 sales number also stripping for the FX.

Yes, if we if we look at our self performance excluding FX that's been growing for every quarter. So far this year. So that's that's how Ah where we've been looking at our performance so far.

Thanks.

Your next question comes from Irene Nattel with RBC capital markets. Your line is open.

Thanks, and good morning, everyone. If we could see Q3 EBITDA run rate on an equivalent 12 week basis, it looks as though you're up about 10% versus the first half of the year is that sort of the similar should we expect a similar kind of progression in Q.

For.

Morning Irene.

Thank you for as an important quarter for us.

And Uh huh, so a we we need to see a we need to see it come to an end before I before we can comment and we will update our outlook for a 2020 once we released Q4 numbers.

Okay I totally understand let me ask the question it differently [laughter], presumably if you're going to achieve your financial objective as we move through late 2019 and into 2020, we need to seen acceleration in year over year EBITDA.

Okay. So that's that's reasonable okay. So when you say that you are on plan, we should interpret it that way.

Yeah, if it's the same US sales if you look at our EBITDA performance, though it's been improving quarter over quarter. So far this year. So that's what that's we're encouraged by that but like Q4 is an important quarter, It's Christmas and U.S. Thanksgiving. So so we need to see a through to a.

To to deliver a year.

Okay and got some innovation work you've been doing in the down that area. It seems to be an important element as we.

Essentially in the Gulf forward possession of the business is there any commentary you can give us any insights you can give us and how that's progressing.

Yeah. This is a progressing really walling true treaty, we continue to off to drive innovation, our dog in a business by launching a premium going up so cookie tops doorknob stuff, we launched in the off in the U.S.

We're happy with the growth, we're seeing our donuts business and true for of this year, we're gonna be adding two lines. Two lines are gonna come up for capacity as we will be on satisfying demand for a foodservice contract we won in the U.S.

Excellent and then just finally, one question Oh, we know that Loblaws had a negative Thanksgiving yet for you guys I see me what is shipped earlier, but is there anything we should keep in mind, because the shift in timing of Canadian Thanksgiving.

Thanks thing.

Yeah, I mentioned also in the U.S., there's a there's a bit of a calendar shift does not have any impact on you know.

All the calendar did not impact us. So there was no impact in the quarter from Canadian Thanksgiving.

And the U.S. ship, a week or will not impact quarter over quarter result.

Great. Thank you.

[noise] I tend to ask a question. Please press star why not get telephone keypad. Your next question comes from Mark Petri with Sabby see your line is open.

Hi, this is actually Christie.

My first question is.

Sens.

Capacity utilization across categories.

I'm also wondering about which categories.

In the quarter.

Yes, so part of our transformation program as the out into the optimization, our network where to place now where we're I'm satisfied with the efficiency of the level of quite utilization what on our network why the place where we can lead to a near term demand and were.

At a place where we cannot capacity of demand materialize. So for example earlier this year, we Oh, we added a lot in an hour artisan business to meet growing demand there as mentioned earlier, we all bring online two additional lines off in Q4 for Oh I would do announce.

Business and were under protest self commissioning.

The line will build all well be adding capacity and I were bagels business early.

In 2020, so growth in Q3 was driven by growth and a slight growth in Q3 was driven by growth in our donuts business, an alternative business as well.

Okay, great. Thanks, and can you.

Which geographies.

More sales.

This capex investment.

Yeah, that's mix, so the capex investment or split within and between Canada, and U.S., So bagels investment and Canada Donuts investment right now or in the all in the U.S. The artisan line was added in gas me South Carolina.

Yeah, the growth of our business is split between retail.

And Oh and food service, what dislike grew up with a slight bias in the all in the U.S.

Okay. Thanks.

Just in Canada.

Picking up in the bakery category I'm just wondering if.

<unk>.

Your level of cost increases or if it's really just to capture.

We as mentioned earlier I mean inflation is really a theme.

Cross transportation labor, and Oh and cost of materials ongoing into we're focusing the bulk of our efforts and partnering with retailers in food service operators and driving efficiencies and productivity gains to mitigate to mitigate these isn't pocs and play.

I think is really a loss reserve.

Okay. Thank you.

[noise] there are no further questions kept at this time, a kind of call back over to presenters.

Thank you Denise and thank you everybody for your time. This morning, if you have any follow up questions. Please don't hesitate to contact where myself.

And please mark your calendars for February 26, when we report our fourth quarter 2019 results. Thank you.

This concludes today's conference call you may now disconnect.