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Canada’s primary stock market is in negative territory year-to-date (-6.36%) due to massive headwinds, such as rising interest rates and recession fears. However, the bright spot is the better-than-expected earnings reported by TSX companies.
According to a report from Refinitiv (on August 18, 2022), second quarter (Q2) 2022 earnings of 54.3% of companies were above analysts’ expectations. For example, George Weston (TSX:WN) is the shining star in the consumer staples sector. The $22.42 billion company aspires to generate value and, so far, it’s shaping up to be true. The stock is a strong buy now for its market-leading businesses.
Business overview
George Weston’s operating segments have been reduced to two after it sold the entire bakery business of Weston Foods in 2021. In 2022, the company’s strength comes from its retail and real estate businesses. Its interests or ownership shares are in Loblaw AND Choice properties. Both are also publicly listed companies in Canada.
Loblaw is a leading food and pharmacy company in the country. It has a network of corporate and independently operated stores in various communities across Canada. Choice Properties, a real estate investment trust (REIT), owns and operates retail properties leased to need-based tenants. The portfolio also includes industrial, office and residential properties.
Financial highlights
Galen G. Weston, chief executive officer (CEO) of the successful enterprise, said: “George Weston’s strong and market-leading businesses continue to drive long-term value while executing against their strategic agendas … Loblaw and Choice Properties delivered strong and stable operating results during the second quarter and are well positioned in the current economic environment.”
In the three months ended June 18, 2022, total revenue increased slightly by 2.7% versus Q2 2022. However, net earnings available to common shareholders increased 487% year-over-year to $634 million. According to management, the favorable net year-over-year impact of adjusting items of $472 million was a reason for the revenue increase
Loblaw delivered solid operational and financial results during the quarter. In addition to the positive trend in its food retail business and the strong performance of brick-and-mortar stores, its drug retail business continues to drive overall margin expansion.
Choice Properties also delivered solid operating results in the second quarter. Its net income in the first half of 2022 increased by 1,530.4% to $375 million compared to the same period in 2021. The focus of George Weston’s real estate business is long-term.
The REIT aims to provide net asset value appreciation through sustainable growth in net operating income and capital preservation. Its short-term plan is to continue executing its mixed-use industrial development projects.
Finally, George Weston derives free cash flow (FCF) from continuing operations from dividends and distributions received from Loblaw and Choice Properties. At the end of Q2 2022, FCF was $377 million, or an increase of 41.7% from the same quarter in 2021.
Strong shareholder returns
As of this writing, WN trades at $154.88 per share and is up 6.48% year-to-date in a challenging environment. The dividend yield of 1.67% is modest but safe due to the very low payout ratio of 22.08%. Moreover, this consumer products stock has delivered strong returns for shareholders.
George Weston’s total return in 3.01 years is 55.52%, a compound annual growth rate of 15.8%. The company’s main selling points and competitive advantages are its market-leading businesses.