Q3 2020 George Weston Ltd Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the George Weston Limited 2023rd quarter results Conference call at.
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The hand, the conference over to your speaker today Aerosphere. Thank you. Please go ahead.
Thank you Mariama and good morning, everyone.
Welcome to the George Weston Limited third quarter 2020 results conference call.
I'm joined this morning by gallon Weston, our chairman and CEO, we true do frame, our president and CFO and liquid on show President of Weston fit.
Before we begin today's call I want to remind you that today's discussion will include forward looking statements.
Such as the Companys beliefs and expectations regarding certain aspects of its financial performance in Twentytwenty and for.
True years.
These statements are based on assumptions reflect managements current expectation I.
As such the are subject to a number of risks and uncertainties that could cause actual results or events to differ materially from our expectations.
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 date. They are made the company of screens any intention or obligation to update or revise any forward looking statements, whether as a result of new information future events or other ways.
The other than what is required by law.
Also certain non-GAAP financial measures may be discussed or referred to today. Please refer to our annual report on other materials filed for the Canadian Securities regulators for a reconciliation of each of these measures to the most directly comparable GAAP financial measure.
Just a lot of other companies limited and choice properties of both released their third quarter results, you'll focus today's call on the performance of our Weston food segment.
I will now turn the call hybrid of Richard.
Thank you Terry and good morning, everyone.
As all of ours or operating companies continue to respond to the challenges of the pandemic in the third quarter on.
The rest for results demonstrate the stability and the resilience of each of our businesses.
During the third quarter, our businesses continue to take thoughtful and deliberate actions in response to the pandemic I'm proud of our colleagues for their commitment to meeting the needs of customers and tenants.
Through the third quarter Loblaw remain focused on providing value to customers.
<unk> observed sequentially, improving performance of tonnage market share and margin.
We continue to invest in the safety of colleagues on customers.
George properties results reflected solid earnings and an increase in rents the collected.
In addition choice resumed investment activity in the quarter, completing we're entering agreements the buy and sell the number of properties.
Capital recycling remains a focus for choice as it aims to improve the overall the quality of its portfolio.
Since the end of the second quarter choice is complete the door entered into agreements to dispose of 341 million worth of properties and acquire some for about $335 million.
What's the foods remains committed to driving operational improvements realizing benefits from its transformation program and the of developing strong customer relationships and delivered strong improvement versus the second quarter.
On a consolidated basis, George West of the limited reported revenues of $16.2 billion, an increase of 6.5 per cent compared to the last the last year driven by law.
The company incurred cool the 19 related costs of about $93 million related to safety and security measures to protect colleagues customers tenants and other stakeholders.
The company reported adjusted diluted net earnings per share of $2 35, the decrease of 19 cents per share compared to the same period last year.
The decrease is largely driven by our normal income tax rate this year versus a lower one last year.
For the third quarter, George with the limited the corporate free cash flow was $307 million, an increase of $273 million over last year, driven by favorable changes in cash flow from operating businesses and proceeds from our participation in Loblaws normal course issuer bid.
Within food third quarter result, improved versus the second quarter. However, the continue to be on affected by COVID-19.
I'm encouraged by the improved sales trends of the questions wouldn't the quarter. Despite continued challenges in certain retail and food service categories.
In the quarter for Sun foods incurred $4 million worth of corporate costs relating to increased health and safety measures to protect colleagues for six versus $16 million in the second quarter.
What's the food sales were $592 million, the decrease of $46 million or 7.2% for says the same period last year, an improvement versus the minus 14% reported in the second quarter.
Within food the adjusted EBITDA was $62 million, a decrease of $10 million versus the same period last year, primarily driven by lower sales higher input costs and COVID-19 related costs again, an improvement again, an improvement versus the second quarter.
Adjusted EBITDA margin was 10.5 per cent in the quarter and that number is in line with what we delivered in 2019.
For the full year.
One of the what's the food continued to face challenges presented by the pandemic is observing encouraging signs during the third quarter can.
The continued to realize the benefits from its transformation program it demonstrated operational and service level improvements and sustained and Ginnie cost savings initiatives the.
The listen food steam continues to gain traction with strategic partners, winning new business in artisan Donuts and bagels.
The four weeks following the end of the third quarter with some food continue to observe improving sales trends.
However, we still see volatility.
However, we still see volatility.
In addition, the for week run rate for Cohen, <unk> 19 related cost was approximately $400000.
The demand for quality baked goods remained strong despite continued challenge associated with moving Nike.
Overall, our third quarter results were encouraging with each of our operating companies progressing there of strategic priorities, while taking measured on an appropriate action in response to the challenges presented by the pandemic well.
I will now turn the call over the Galan.
Thank you Richard and good morning, everyone. During the third quarter, our businesses continued to face into the challenges of the complex operating environment with confidence maintaining the steadfast commitment the colleague customer on tenants safety doing.
Doing so they delivered stability in their operations as loblaw resisted pressure to increase prices at the time when Canadians needed value most of the talk customer satisfaction scores reached all time highs.
Choice properties benefited from the strength of its necessity based portfolio of tenants, maintaining 97% occupancy during the quarter on collecting 98% of contractual rents up from 89% in Q2.
And as Richard highlighted Weston food saw sequential improvement in its performance the service levels increased.
Each of these cases, our businesses demonstrated their ability to respond to changing conditions. The strong underlying operating performance gives us conviction about the future.
During the quarter, we invested in that future, making strides against the strategic priorities in each of our companies Loblaw maintained momentum in every day digital retail with ecommerce growing on a 175% led by online grocery.
The launched the PC money online bank account further strengthening the profit the PC optimum loyalty loop on.
And the advanced the connected health care strategy with the launch of PC health in the maritime as well as an investment in Maple the virtual clinic platform that is already offering care to patients out of 160 of our pharmacies in British Columbia.
The same time choice properties resumed its investment activity and capital recycling continues to improve the overall quality of their portfolio, while strengthening the balance sheet as Richard mentioned since the end of the second quarter choice on total transaction activity valued at over 675 million.
Demonstrating the ability to make strategic advances despite the challenges presented by the pandemic.
And finally I'm encouraged by the results of Weston foods improved operational metrics sustained SGN, a savings and their success in winning new business from strategic customers in artisan on donuts the.
The business is headed in the right direction.
In the face of these extraordinary circumstances I'm proud of how our teams continue to respond I want to thank the dedicated individuals at every level of the group.
For their commitment to safely serving our customers and tenants while moving their businesses forward we.
We have a clear strategy remain committed the long term value creation. Thank.
Thank you I'll now turn the call over for questions.
Thank you as a reminder to ask the question you on the to press the star one on your telephone.
The withdraw your question press, the pound or hash key please stand by while we compile the Q on a roster.
Your first question comes from Peter Clark with BMO capital markets. Your line is open.
Hi, Good morning, Emily food for Peter.
So.
We know the.
What are the negative impact it for Tyson after a couple of quarters. So I think that's it.
The last price.
And what is the current environment for.
Term price increases.
Oh, there, where we werent negatively impacted by pricing and the ER and the quarter on we were impacted by negative volumes in the quarter.
Oh, Okay I see.
Okay now let's switch.
To the current service.
Service Channel I am really any of these I know they just Richard I just want to I just want to add in the press release, we talk about the combined the effect of pricing and mix and it's the combined effect of both the pricing was positive and mix was negative but the the sum of both was negative. So that's that's why.
We wanted to clarify that.
Oh, okay. Okay. The I I must the just read the first part and do not see any mix [laughter].
[laughter].
The.
Okay.
That's true.
The country, we know there's so many uncertainties of coal.
Dining restrictions, but it was sort of the sales perhaps.
Thank you for free how did you enter and exit the quarter with respect to food service sales and the insight would be helpful. Thank you.
Yeah, we're very happy with the recovery that we're seeing and true three of our food service business for give you a bit more on details our food business was food service business was on minus 38 versus last year in true two and in Q3 of where were minus Oh for that's driven by.
By a very strong recovery in our quick serve restaurant on business, where we're also seeing very good performance from our artisan alternatives on doughnuts on business.
Great that's one of <unk>.
And with the new line, that's expected to come on line before the end of 2020 like.
Are there any operational now.
Perhaps during Q3 and has the project the capacity for all of these line impacted in many ways like all of it.
And we've got a series of lines on our coming up and 20 2020. Your most same nowhere announcements on our new Bagel line, which is up and running our new Donuts line or just the outside of Nashville that is up and running on as well on we've got some of our capital that will be up so on your capacity.
On income kicks that will be up and running in the months to all of through from this saw a lot of his capacity is already spoken of and part of it as well will allow us to grow in the near future.
Thank you that's all my questions.
Your next question comes from Irene the talent with RBC capital markets. Your line is open.
Hi, Thanks, just following up on on the last question. The don't net line is that the on the one touch line and Ah first I guess, yeah. It is that the one touch line and the how how is that coming along.
Oh it is not the of the one touch line on moving on to one touch one touch is of progress, saying, Oh, well I talked cuts quite well still on schedule for launch early next year and we're going through the first production on trial runs right now.
And how are the first production trial runs I like the.
The taste delicious and the Lion share productions on the.
The question on trial, all going very well very encouraging.
I agree with the look good the <unk> I.
I agree with Luca Irene the taste really good actually.
Okay.
She stops same that because based on the can scrambling [laughter] just sticking sticking with it would start of the concept of I guess value add of baked goods.
You know I think the Q4 tends to have the seasonal bomb Halloween Thanksgiving Christmas.
Any insights you can give us in terms of demand for it for those types of like of higher margin products, but like what have you seen quarter to date and how are you thinking about the U.S. Thanksgiving in particular.
Oh of course, there's still a lot of of volatility of but what we can see so far is a way of a very solid on a U.S. Thanksgiving season were very strong performance in our part of categories for example.
Good afternoon excellent yep.
I read I, just want to add like a price doesn't have the same margin of the rest of the portfolio there were a bit lower so of so we're very very pleased with the the volume, but like for you need to know that that's the that's a factor that the falls into place and the into our performance in every Q4 of that we go through.
Okay. That's that's actually very helpful. And then one more if I might just switching gears a little bit of.
Could you update us on your current thoughts around around M&A, please particularly in the banking sector.
I read the way the can comment on the on a on M&A or the.
Okay, We don't we don't do that sorry.
Okay. Thank you.
Your next question comes from Mark Petri, what's the IB see your line is open.
Hi, Good morning, I just wanted to follow up on a couple of things with regards to price thing you mentioned hiring for cost for the quarter, but commodity costs are continuing to rise I'm just curious what your outlook is for pricing.
For the next little bit.
We don't comment on any oh forward pricing.
The what we're seeing from of comedy commodity standpoint, as we saw increases in oils and sugar and we'll see the stabilizing going forward.
Okay and with regards to the cobot cost did I hear you say its run rate right now is the 400000 a month.
Right.
The other question caused by the I have a pretty good idea of what you were asking so as Richard mentioned corporate costs were roughly a million a week and Q2 and Q3, we saw that come down to about 300.
Thousand or week of what we're seeing most recently as these coming down to roughly about 100000 dollar on.
Per week again, there's a lot of volatility <unk> associated with it but the dynamic but right now where the audra thousands Weve got 100000 per we've got very strong protocols robust protocols in place and now were bakeries, which gives us confidence that we can operate our bakeries effectively in this new environment.
Okay. Thanks.
That is what I was looking for thank you.
And then with regards to the sales trend back on the Q2 call you had mentioned you're sort of trending it down about 5% the quarter came in a little bit below that I'm. Just curious was that mostly changes in the retail trade or mostly in food service.
You mentioned earlier, we saw we saw very strong recovery and the overall the in food service and a slower recovery and the Oh the retail business.
Okay and then my last question I mean, obviously, there's been significant of people in consumer behavior over the last of all eight months of of the pandemic and it seems like grocers are taking a renewed look at you know things like store offerings. The prepared food, but also you know assortments category management and things like price.
But label penetration and I guess I'm, just sort of curious when you think of but all of those different moving parts.
How do you sort of think of both the opportunities or threats for Weston foods.
For me on you know.
Start with the on the demand for baked goods remains extremely strong sort of the opportunities out of how do we get on delicious baked goods to consumers and this new reality a lot of the trends that you Josh highlighted actually play and now were a play in our favor the big opportunity.
For US right now is really elevating the reinventing the bulk of Ben so the the the bulk of doing up a display of for example on to ensure that we can get a debt issues or nuts to consumers in a oh and this.
And just sort of changing environment, but otherwise many of the translating our food.
Okay. Thanks for actually just one other one.
On you know obviously, there's also been of huge consumer trend towards online grocery or it doesn't seem like your categories necessarily lend themselves terribly well to that channel or.
Or at least you know being over penetrated in that channel, but I'm. Just curious how you think about that interest in the context of your business and what sort of opportunities.
You see.
With the growth in online and thinking maybe even if not from a product perspective than from a marketing perspective.
Yes, we've been investing and elevating our E commerce capabilities for for many years, we're working with tier retailers, both traditional brick and mortar who go into E. Commerce on pure E commerce retailers, we've been working with them for for for many.
The years, ensuring that we Oh, we out the of love the bakery category and these new platforms. So.
Lots of innovation in terms of marketing initiative to make sure that these items of pop up on the.
The right time of the right place when people are shopping online and as one of the about elevating the quality of our products. So they can retain the integrity true the different supply on the supply chain. So lots of cash flow collaboration happening weight or retailers across North America on this we feel good about it.
All right that's very helpful. Thanks on the best.
The group.
Your next question comes from Patricia Baker with Deutsche Bank.
Your line is open.
Oh, Thank you very much and good morning, everyone just with that very strong recovery in food service with it only down 4% a year on year can you just talk about what a capacity utilization you have at your plants one of the running at currently.
The overall, we're running out of roughly 75 per cent capacity, the or a couple of categories, where we're a bit of tighter, but we're on our investment of new capacity coming on line will allow us to meet the growing demand.
Thank you very much for that the Ben you did you did provide us with those metrics on food service and you did indicate that you have the slower recovery on retail can you tell us how you know.
How how how how much retail was down in the in the quarter relative to Q O Q2.
Yes, so remember retelling of Q1, we were up plus true yeah.
Sure the two or retail was down minus 10.
And true tree of retail was down the minus eight.
Okay. Thank you very much that's very helpful.
Welcome.
Your next question comes from Chris Lee the stage I'd add your line is open.
Oh, Hey, good morning, everyone. On this is Jim on the credit.
Thanks, a lot for take on the question. So my first question is on some of the appears and all that out there of benefiting from consumers trading of share.
The up from heavily bunch of kind of products.
The retail channel during the pandemic RBC of as well and what percentage of the of retail business as private label.
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As the large portion of our.
More than one of the 40% of our our retail business is is private labels were seeing a good performance of our branded business on both of our private label on as well. So we're not seeing a on a significant change.
Okay, great and.
And my second question is relating to the promotional environment and in the retail channel hasn't become more intense and third quarter for since the second quarter.
The D. I know, what you're going to repeat the question on the line called so we put into the weaker in here Oh.
Oh, sorry on just just relating to the promotional environment in the retail channel just wondering for has become more intense in the third quarter versus the second quarter.
Very similar.
Okay, great and that's all the questions. Thanks a lot.
I'm showing no further questions at this time I will now turn the call back over to care of Spears for closing remarks.
Thank you Mariama and thank you everyone for your time. This morning, if you have any follow up questions. Please don't hesitate to contact way on myself.
Mike Your calendars from March for 2020 line when we report our full year 2020 results.
Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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