TORONTO — Operating income in the Weston Foods segment of George Weston Ltd. totaled C$21 million ($16.1 million) in the second quarter of fiscal 2018 ended June 16, down 13% from C$21 million in the same period a year ago. Adjusted EBITDA, meanwhile, fell 11% to C$48 million (C$36.8 million) from C$54 million. Sales decreased 8% to C$468 million ($358.9 million) from C$509 million.

In a July 31 conference call with analysts, Richard Dufresne, president and chief financial officer of George Weston, said the decline in adjusted EBITDA reflected a decline in sales and higher input and distribution costs, partly offset by productivity improvements and benefits realized from the company’s transformation program.

He added that Weston Foods’ sales are expected to trend in a similar direction during the second half of fiscal 2018 and will be negatively affected by volume declines, including the loss of sales from key customers and continued product rationalization.

“The largest contributor to the sales decline in the second quarter has been the s.k.u. (stock-keeping unit) rationalization as part of our transformation program,” Mr. Dufresne said. “This is having a positive impact to cost and complexity, ultimately, freeing up capacity for more profitable business. However, it’s also having a negative effect on sales performance as we see the slow ramp-up of the replacement volume. We’re in the midst of key aspects of the transformation plan, and while we are seeing benefits, there are also pressure points occurring throughout the business.”

Elaborating on the transformation plan, Luc Mongeau, president of Weston Foods, said the company is pleased with the progress on organizational changes associated with the plan.

“It is important to note that this exercise is not just about cost reduction,” he said. “We now have a leaner workforce, but we have added talent in targeted areas.”

He added that Weston’s actions are allowing the company to respond faster to emerging trends, a strategy geared toward winning in the marketplace.

Mr. Mongeau said Weston Foods’ s.k.u. rationalization efforts have addressed 60% of the company’s targeted s.k.u.s. As a result, the company has seen a reduction in sourcing of unique ingredients and the removal of low volume s.k.u.s, which disrupt Weston’s bakeries’ efficiency, he said.

“Eliminating these s.k.u.s enables the business to our customers to have a focused and simplified portfolio of relevant products for the consumer,” Mr. Mongeau said.

Overall, George Weston posted net earnings of C$28 million, equal to C$0.21 per share on the common stock, down 83% from C$160 million, or C$1.23 per share, a year ago. Sales decreased to C$11,245 million from C$11,436 million.