Bimbo poised for largest capital spending ever
by Josh Sosland
MEXICO CITY — Grupo Bimbo S.A.B. de C.V. has budgeted $780 million for capital spending in 2012, the largest total in the company’s history, said Daniel Servitje, chief executive officer.
Mr. Servitje discussed the capital expenditure plan together with the overall outlook for 2012 in a Feb. 23 conference call with investment analysts. The call followed the release of 2011 financial results.
The new year will be one of transition for the company, he said.
“The integration of the Sara Lee operations on two continents will enhance revenue and operating income but will continue to be dilutive on a margin basis,” Mr. Servitje said. “This will be a year of significant investment in further extending the market penetration of international operations, achieving synergies in the United States and furthering a strategy of being a low cost producer.
“The capex budget for Grupo Bimbo is the largest in our history.”
The $780 million in spending compared with $400 million in 2011, he said. While much of the money will be allocated for manufacturing, “investments in logistics and systems” also will be made, he said.
The company said a “good portion” of the investment will go into the United States.
“These investments are part of the broader strategy to advance toward our 2015 vision, with four strategic initiatives under way,” Mr. Servitje said. “Specifically, these are the help, the push in our wellness initiative where we were looking to continue to improve the nutritional profile of our portfolio. Two, having a low cost supply chain where we are focusing on an area such as global and regional procurement opportunities and the manufacturing footprint of the whole group.
“Three, the leadership and management model where we’re aligning objectives, processes, and indicators to enhance accountability and empowerment. And lastly, talent development. We’re looking at expanding and diversifying the leadership bench to drive profitability and support the long term growth of the company.
“These are all global strategies, but they are being planned and executed locally with specific benchmarks for each operation.”
Reviewing the Sara Lee integration, Mr. Servitje said a national sales team structure has been put in place operating in 12 territories. He described the approach as focused on brand and category management aimed at serving a “broad range of customers and consumers while centralized support functions are eliminating redundancies and capturing efficiency.”
He expressed confidence that $150 million in gross synergies would be captured within three years.
“As for the divestitures in the United States, we continue to move forward with that process and hope to come back to you in the coming weeks with an update,” Mr. Servitje said.
Asked about the pricing environment in the U.S. baking market, Guillermo Quiroz, chief financial officer, said it was “more stable.”
“We’re not foreseeing big changes on either side,” he added.
Asked about legal issues associated with Hostess Brands, Mr. Quiroz said Bimbo is remaining involved in pension liability issues and is watching the process closely.
“As you know, this bankruptcy process for Hostess is a very new one,” Mr. Quiroz said. “It just is starting. We really don’t know what is going to happen at the end. Basically, they have asked a judge to be exempt from the payments for the employer plans, but that is completely normal, customary. And also the rest of the members of the plan, which are 24 more employer plans that Hostess participates in, are legally opposing to that authorization.
“It will take a long time so we really don’t know what to tell you right now. The only thing we are doing is that we are taking the necessary legal steps to be very, very close to the process.”