Winter weather not to blame for poor profits, say experts

Severe winter weather should be seen less as an excuse for poor performance and more as opportunity by companies to fixproblems before Mother Nature brings any more surprises, managementexperts and others say.

"The weather is being used a lot more this year as an excuse,whether it's real or not," said Adrian Mastracci, a portfoliomanager with KCM Wealth Management Inc. in Vancouver.

"Everybody's getting into the weather bandwagon ... even [U.S.Federal Reserve chairman]Janet Yellen was talking about theweather. Maybe the weather bandwagon is being overdone."

Sectors from retail to restaurants and transportation have blamedthe weather for less-than-stellar earnings during the past fewmonths, with companies including Canadian National Railway, CanadianPacific Railway, Red Lobster and Sears commenting on the role ofwinter in their results.

Winter should be a 'wake-up call'

The winter season, characterized by record low temperatures, icestorms and heavy snowfall across the country, closed stores andrestaurants for days at a time, shut down major transportationroutes and kept consumers housebound.

But Mastracci and Fraser Johnson, supply chain and operationsmanagement expert with the Ivey Business School at WesternUniversity, both say that while the weather undoubtedly causedheadaches for many companies, it's not the only culprit.

"At the end of the day, it's always a management issue," saidJohnson.

"We can't control the weather but we can control our ability tobe able to react to problems related to the weather: problems related to natural disasters, a problem related to an unexpecteddisruption in the supply chain, which could be as minor as a truckbreaking down while it's in transit."

He says this winter should be seen as a wake-up call toorganizations, prompting them to think about how to improve the waytheir goods are delivered from suppliers.

Companies such as Canadian Tire, he notes, have worked out asophisticated inventory systems and profited from the same winterwallop that has hurt others.

The Toronto-based retailer saw a 17 per cent profit surge in thefourth-quarter as customers flocked to its stores to load up oneverything from ice chippers to power generators, salt and
toboggans.

Lean inventoriesmagnifyweather impacts

Even before the bad weather hit, however, another major retailer,Target Corp., "dropped the ball" on its Canadian launch because ofinventory issues that shouldn't have occurred and took too long toresolve, Johnson added.

"Part of the problem that we have is that organizations havebecome very lean over the last two decades or so,they've reducedtheir inventories," said Johnson.

"In a global supply chain, when you have anything from badweather or border problems or a natural disaster, it tends to have aripple effect."

David Kincaid, chief executive of Toronto-based consulting firmLevel5, said the companies that bucked the trend have built up anappropriate range and inventory level on merchandise associated witha severe weather spell. They are also the agile retailers that canquickly fill a need or address a problem, he said.

Storms impacting other sectors too

But it isn't just retailers that have suffered. This has been oneof the worst years for flight cancellations in both Canada and theU.S. And storms that shut down major highways delayed the deliveryof parts to manufacturers and the shipment of finished products tomarket.

"The automotive industry in January and February was hit reallyhard by the bad weather," Johnson said.

"Every minute a typical car plant will produce an automobile, sothe cost of shutting [it]down has huge financial implications forthe organization."

According to Johnson, there are measures companies can take toavoid similar problems next year. He suggests ensuring inventory isavailable in strategic positions in supply chains, so that companiesare not held hostage by weather-related problems, as well as workingwith suppliers to have inventory available in locations close to thecompany's distribution centre.

It's also possible that this downside will bring some upside inthe spring, as manufacturers try to make up for lost production andcustomers are eager to enjoy the sunshine and return to stores, hesaid.

But Kincaid warned companies against trying to make up for lowvolume by cutting prices, saying that while such a move may drawcustomers in, it will make them unwilling to pay higher prices wheninventory levels return to normal.

"The (retailers) that aren't completely using price as themitigator to their shortfall are likely the ones that, come spring,are going to benefit," he said.