With ‘new opportunities in the marketplace,’ B.B.U. sales up

by Josh Sosland
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MEXICO CITY – While profits were under pressure for the full year and the final quarter of 2012, the U.S. business of Grupo Bimbo S.A.B. de C.V. enjoyed sales gains late in the year because of marketplace changes, the company said.

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.

The U.S. operating margin in 2012 was 1.4%, versus 6.5% in 2011. But in the fourth quarter, the margin was 2.5%, versus 3.5% in the fourth quarter of the year before.

While not commenting directly on B.B.U. operating profits in the earnings announcement, the company said integration expenses in the United States totaled $56 million, a figure greater than the operating income total of less than $41 million.

Regarding the 6% rise in fourth-quarter sales, Bimbo noted an additional month of Sara Lee operations in 2012 versus 2011 partly accounted for the difference, as the company has now more than lapped its acquisition of the Sara Lee business.  The higher sales also reflected “pricing actions taken in late November, and volume growth at the end of the period due to new opportunities in the marketplace,” the company said.

Hostess Brands, Inc. ceased operations in late November 2012, instantly removing a large amount of capacity and a major competitor from the marketplace.

“These gains were partially offset by a less favorable dollar-peso exchange rate; sales in dollar terms would have risen 11.1%,” Bimbo added. “Sequential volume growth continued to trend positively, with the sweet baked goods and breakfast categories outperforming in the period.”

Overall operating expenses as a percentage of sales grew in the fourth quarter at Grupo Bimbo, in part because of the higher expense structure of the Sara Lee operations in the United States, especially distribution expenses, Bimbo said.

“These effects were partially offset by the benefits obtained from synergies and waste reduction initiatives in the United States totaling approximately $44 million and credited to operating expenses,” Bimbo said. “For the full year, synergies and waste reduction initiatives generated approximately $120 million in savings.

“Additionally, as a result of International Financial Reporting Standards compliance, operating expenses benefited from the reclassification of the annual financial expense relating to pension funds in the U.S. and Mexico. The 513 million pesos reclassified from operating expenses to financial expenses compares to the 265 million pesos similarly reclassified in the fourth quarter of 2011.”

Overall operating expenses at Grupo Bimbo represented 44.6% of net sales in 2012, compared to 43.5% in the 2011.

Bimbo’s effective tax rate for 2012 was 47.3%, up from 35.6% in 2011. The higher rate reflected a fourth-quarter tax charge that raised the company’s effective rate in the final quarter to 82%, versus 40.3% the year before.

“This reflects mainly a more conservative approach toward the expected recovery of previous fiscal losses in Brazil, in accordance with International Financial Reporting Standards,” the company said. “This new approach suggests that the amortization of previously registered losses may take longer than initially expected. To reflect the aforementioned, a tax charge was registered during the period to partially cancel deferred income tax benefits. Notwithstanding, the company retains its legal right to amortize any losses in that market indefinitely.”

Net majority income of Grupo Bimbo in 2012 was 2,028 million pesos ($162 million), down 60% from 25,090 million pesos in 2011.  Sales were 173,137 million pesos ($13,851 million), up 30% from 133,506 million pesos.

In the fourth quarter, net majority income was 176 million pesos ($14.1 million), down 81%. Sales were 42,276 million pesos, up 9%. A major part of the decline for the quarter and the year was the tax charge taken in the final quarter.

“Performance in the period (fourth quarter) was largely in line with the trends noted during previous quarters of the year,” the company said. “Underlying improvements across multiple markets, most notably volume recovery in the United States, were somewhat offset by the lower-than-expected performance in Brazil where a soft consumption environment was compounded by expenses incurred in adjusting the company’s business model in that operation, primarily in the distribution strategy.”
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