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(Reuters) - Canada's largest food processor and distributor George Weston Ltd WN.TO expects its profit for the year to drop as increased costs at its grocery affiliate Loblaw Ltd (L.TO) dents margins.
Last week, Loblaw, Canada's largest grocer, had posted lower-than-expected results as discounting and increased costs pressured profit margins.
George Weston expects full year 2012 operating income at the unit to be down year-over-year.
Hurt by the margin squeeze at Loblaw, George Weston said it expects adjusted basic net earnings per share for 2012 to be down year-over-year, marking its first decline in three years.
The company also expects 2012 sales growth to be modest at its other affiliate, Weston Foods, hurt by higher commodity and input costs in the first half of the year.
It said Weston Foods is continuing its efforts to cut costs as it looks to achieve full-year operating margins in line with those in 2011.
Margins at Canadian grocers are feeling the squeeze as Wal-Mart Stores Inc (WMT.N) expands its food offerings in the country. Competition will heat up further early in 2013, when Target Corp (TGT.N) opens its first Canadian stores.
For the fourth quarter, George Weston reported a marginal rise in net income to C$173 million, or 72 Canadian cents a share, from C$172 million, or 70 Canadian cents a share, a year ago.
On an adjusted basis, the company's profit grew by almost 9 percent to C$1.01 per share.
Revenue rose 3.5 percent to C$7.63 billion.
Shares of Toronto-based George Weston were mostly flat at C$63.71 in morning trade on Thursday on the Toronto Stock Exchange.
Reporting by Arnav Das Sharma in Bangalore; Editing by Saumyadeb Chakrabarty