“The Entenmann’s business, today, is losing money,” Gary Prince, Weston Foods U.S.’s president, said. As a result, Prince stated that the company wrote down about 25% of the carrying value of the company’s cake assets and its Entenmann’s trademark.
George Weston conducted the impairment review during the fourth quarter. The review analyzed the land, building, machinery and equipment associated with baking facilities in Bayshore, N.Y.; Albany, N.Y.; and Carlisle, Pa. After the review, the company determined that the carrying value exceeded the estimated undiscounted cash flows expected from the use and eventual disposition of these production assets.
The devaluation of the Entenmann’s brand presents a significant roadblock for the company’s future profitability. The cake brand accounts for about 25% of the company’s direct store delivery portfolio.
The company cited many reasons for the brand’s decline, including a high fixed-cost manufacturing structure, continuing commodity and employee-related cost pressures, the difficult pricing environment in the cake category, and changing consumer eating and shopping preferences.
“The main problem is in the full-size knife and fork cake and Danish business,” Prince said. Prince also said that consumers are moving away from white-flour based products.
To reverse the brand’s decline, Prince said the company is reviewing manufacturing and distribution costs. “Today, management is evaluating all options, and I do not rule out exiting certain markets and product categories,” Prince said.
Besides the $66 million impairment charge, George Weston took a $9 million charge related to the restructuring and exit costs associated with certain cost reduction initiatives during the fourth quarter.
These charges caused Weston Foods’ fourth quarter operating income to plummet to $4 million compared to last year’s $61 million.
Weston Foods’ fourth quarter sales decreased 12.1% to $916 million compared to last year. These sales were impacted negatively by about 8% due to foreign currency translation and by about 7.5% due to an extra week in the company’s fiscal 2003.
On the positive side, strong frozen pie sales and the continued growth in whole grain and premium products boosted sales. However, these gains were offset by consumer trends away from white flour-based products.
George Weston already has initiated cost-cutting measures throughout its manufacturing and distribution network. The company finalized plans to close its St. Louis frozen dough plant during the fourth quarter. The company also shut down two plants and a distribution center in Canada.