Bimbo sees more plant closings in 2014 and beyond
by Josh Sosland
MEXICO CITY – Having closed or announced the pending closing of five U.S. baking plants in the six months, additional capacity rationalization is likely in the year ahead, said Daniel Servitje, chairman and chief executive officer of Grupo Bimbo S.A.B. de C.V., and Fred Penny, president of Bimbo Bakeries USA.
The executives discussed the outlook for Grupo Bimbo during a conference call conducted in connection with the release of company earnings.
“We expect some others (closings) to be announced during the year,” Mr. Servitje said. Additionally, discussing other prospects for the B.B.U. business, Mr. Servitje said Bimbo would step up introduction of better-for-you baked foods in the year ahead.
Mr. Servitje said the fourth quarter ended Dec. 31 brought many positives for B.B.U. He said sales growth exceeded 4%, excluding the effects of the divestiture of the Sara Lee business in California. He said Sara Lee snack cake sales growth and the overall sweet goods category were particular bright spots.
More generally, he described 2013 as a “pivotal year” for Grupo Bimbo.
“We accelerated the integration of major acquisitions, generated the highest EBITDA in our history and spent record cap ex to modernize our manufacturing sites,” he said. “We made significant progress on our strategic initiatives and delivered solid financial and operating improvements while we de-levered rapidly.”
In addition to noting the plant closings, Mr. Servitje highlighted the company’s new baking plant in Lehigh, Pa.
“(The plant) started up operations a few weeks ago, and as one of the most efficient and modern facilities of its kind, it will further contribute to our productivity efforts,” he said.
Asked whether 2014 would end the wave of plant closings for B.B.U., Mr. Penny said probably not but suggested the pace would be slower in the years to come.
“I think on the major restructuring of our manufacturing footprint we’ll be certainly much further along, closer to having completed the major elements of the restructuring as we exit 2014,” he said. “But I’d also say that we're going to continue to evaluate ongoing investments that are going to take our costs down further. And so I certainly wouldn’t rule out additional work beyond that, but not of the magnitude that we've had the last couple of years.”
Plant locations already closed or slated for closing include Sioux City, Iowa; Nashville; Wichita, Kas.; Elk Grove, Calif.; and Easton, Pa.
Steve Mollick, chief financial officer of B.B.U., said the U.S. business of Grupo Bimbo achieved nearly $200 million in overall synergies in 2013, a level he said the company plans to build on in 2014.
Commenting on the competitive landscape for baked foods in the United States, Mr. Penny emphasized the word “competitive.”
“I would say overall it has remained competitive,” he said. “The reemergence of some of the Hostess brands that had liquidated I think has added to that. And to a degree, depending on the category, whether it's sweet baked goods or bread or buns, the answer will vary a bit. But the marketplaces remain competitive, and I think in some cases segments of consumers have continued to feel stressed and continue to look for value, which you have to respond to obviously if you’re in the category. So I’d say I’'s mixed, but I’'s been competitive.”
Looking forward, Mr. Servitje said Grupo Bimbo in 2014 will benefit from an improved macroeconomic picture in “several of our key markets,” further synergies and improvements in the company’s Latin American business.
“The Canada Bread acquisition will contribute to performance once this transaction is closed and consolidated,” he said. “And lastly, across the entire organization we’ll continue to launch new products, particularly those with a healthy profile, and we will bring existing product into new markets, thereby increasing the penetration of our portfolio. Furthermore, we expect additional savings to come from our global procurement initiative.”
In terms of negatives on the horizon, Mr. Servitje acknowledged the company will face challenges. He cited a special excise tax on production and services in Mexico.
In a review of the company’s financial results and balance sheet, Guillermo Quiroz, c.f.o. and chief administrative officer, expressed confidence that Bimbo would not be burdened unduly by debt, even after the Canada Bread acquisition. He said the ratio of debt to EBITDA was 2.3 times in December 2013 and is quickly approaching moving toward 2 times.
With the Canada Bread acquisition, the figure will rise again to 3.1. Mr. Quiroz said the ratio was as high as 3.3 times EBITDA in 2009, shortly after a major acquisition from George Weston Ltd. After falling in the years that followed, the ratio rose again to 3.1after the Sara Lee acquisition.