George Weston Ltd. (TSX: WN), one of Canada’s leading processors and distributors of food products, announced third-quarter earnings on November 18, and its stock responded by rising 0.11% higher in the trading session. Let’s take a look at three of the most important factors from the report to determine if we should use this lack of movement as a long-term buying opportunity, or if there is something holding it back that should deter us from investing today.
1. Earnings per share and revenue exceeded analysts’ expectations
Here is a chart of George Weston’s reported earnings per share and revenue in the third quarter compared to what analysts had anticipated, and its actual results in the same period a year ago.
|Earnings Per Share||$1.59||$1.54||$1.28|
Source: Financial Times
George Weston’s earnings per share increased 24.2%, and its revenue increased 34.6% compared to the third quarter a year ago. In the first nine months of fiscal 2014, the company’s earnings per share have increased 15.3%, to $3.77, and its revenue has increased 25.4%, to $32.18 billion, compared to the same period a year ago.
2. EBITDA rose and the EBITDA margin expanded
In the third quarter, George Weston’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 48.6%, to $1.10 billion, and its EBITDA margin expanded 80 basis points, to 7.9%. These strong results were driven by costs of inventories sold increasing just 29.9% compared to the company’s 34.6% revenue growth. Year to date, George Weston’s EBITDA has increased 34.9%, to $2.52 billion, and its EBITDA margin has expanded 50 basis points to 7.8%.
3. $194 million in free cash flow generated
Finally, George Weston generated $734 million in cash flow provided by operating activities, made $198 million in interest payments, and invested $342 million in capital expenditures, resulting in $194 million of free cash flow. The company used this free cash — and the $1.45 billion in cash and cash equivalents on its balance sheet to begin the quarter — to pay out $108 million in dividends to common stockholders, $110 million to minority stockholders, and $22 million to preferred stockholders. It ended the quarter with $1.3 billion in cash and cash equivalents on its balance sheet, so it could easily raise its dividend or authorize a share-repurchase program in the fourth quarter.
Should you buy George Weston today?
George Weston is one of the largest food processors and distributors in Canada, and the growing demand for its products at grocery stores, convenience stores, and restaurants led it to incredible financial growth in the third quarter. The company’s earnings per share spiked 24.2%, and its revenue jumped 34.6%. But its stock rose just 0.11% in the trading session that followed.
I think long-term investors should use this lack of movement in George Weston’s stock as a buying opportunity, because at current levels, it trades at a mere 16.4 times forward earnings estimates and has a respectable 1.8% dividend yield.
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Joseph Solitro has no position in any stocks mentioned.