Servijte ‘pleased’ with B.B.U. performance

by Josh Sosland
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MEXICO CITY – “We feel confident about the position the new B.B.U. is taking in the current market environment,” said Daniel Servitje, president and chief executive officer of Grupo Bimbo S.A.B. de C.V. Mr. Servitje said he was “pleased with the performance this year” of Bimbo Bakeries USA.

Mr. Servitje gave the brief comments during a Feb. 22 conference call with investment analysts in connection with Bimbo’s fourth-quarter financial results.

“I anticipate building on our momentum this year as our integration efforts progress, we leverage a common IT platform, continue with our waste reduction initiatives, and maintain a targeted focus on category growth,” Mr. Servitje said.

He referenced two “state-of-the-art” baking plants under construction by B.B.U. in the United States, located in Rockwall, Texas, (east of Dallas) and Lehigh Valley, Pa., (in the Philadelphia area). The plants will be operating later this year, he said.

As previously reported, operating income of the United States business of Grupo Bimbo S.A.B. de C.V. totaled 1,118 million pesos ($89.4 million), down 68% from 3,500 million pesos in 2011. Net sales were 78,927 million pesos ($6,312 million), up 47% from 53,810 million pesos in 2011.

In the fourth quarter, U.S. operating income was 506 million pesos ($40.5 million), down 26% from 681 million pesos in the fourth quarter the year before. Sales were 20,447 million pesos ($1,636 million), up 6% from the same period in 2011.

During the conference call, Fred Penny, executive vice-president of B.B.U., commented on the auctions of Hostess Brands, Inc. assets, to be conducted in coming weeks. In response to an analyst’s question he again did not rule out Bimbo participation in the auctions, even though the company has not been named a stalking horse bidder in any of the four planned auctions.

“For the question relating to the Hostess auction process, I believe we have mentioned on previous calls that there may be some assets that could make some strategic sense for us,” he said. “We continue to evaluate those assets, as the process unfolds. But, beyond that, I don't think we should be speculating on how that auction process may actually unfold. We'll just have to see how that plays out.”

Mr. Penny, who during the call was named successor to Gary Prince as B.B.U. president, effective June 1, was complimentary of work done by B.B.U. employees to fill the marketplace vacuum created when Hostess ceased operations in mid-November.

“I'd like to comment on what our teams in the U.S. operations accomplished in a very short amount of time, upon the Hostess exit,” he said. “They worked tirelessly and did an unbelievable job in responding to what the marketplace needed when Hostess vacated markets, both for current and new customers. And, it really was a tremendous piece of work, and it's a real testament to the people that we have. I would say if you were to look at (SymphonyIRI) data, our share improvements were in the range of 2 to 3 percentage points, which would be consistent with our overall share position in the market.”

In comments on non-U.S. markets, Mr. Servitje said Bimbo has made significant moves to shore up its business in Brazil, where “results are clearly not meeting our expectations,” he said.

“Sales momentum in that market had already been slowing for most of the year due to the weaker consumption environment in the country,” Mr. Servitje said. “This led to lower absorption of fixed costs and a negative impact on our margin. We had an unsatisfactory performance. We have undertaken a turnaround process starting with a change in management. This new team will take on comprehensive restructuring process that will focus most notably on revamping our I.T. systems and strengthening our distribution models, particularly in the small-store channel. As part of this process, we decided to register two one-time, non-cash (accounting) charges in the quarter, the first related to the restructuring of the distribution network and the second for a cancellation of deferred income tax benefits. We believe these measures are an important step in getting the operation back on track to where it should be.”

Looking ahead into 2013, Mr. Servitje expressed concern about the consumer environment, especially in Spain, Portugal and Brazil.

“Gross margins are likely to come under pressure with the rise in commodity prices,” he said. “That said, we expect sales trends to continue their positive trajectory and that our integration efforts combined with continued operational improvements will generate healthier margins going forward.”

Areas of focus in 2013 for Grupo Bimbo laid out by Mr. Servitje will be:

  • Debt reduction
  • Improving operations in Brazil and Iberia
  • Integration progress in the U.S. (Sara Lee) and Argentina (Fargo), while capitalizing on U.S. momentum
  • Implementing waste reduction initiatives company-wide with any eye toward becoming a low-cost operator
  • Addressing external risk factors such as commodity movements where purchasing and hedging policies play a role
Emerging consumer trends Bimbo’s research and development teams are evaluating.
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