Servitje sees pluses in Mexico, Latin America, Iberia

by Josh Sosland
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MEXICO CITY — After one of the tougher quarters in recent memory for the Mexico business of Grupo Bimbo S.A.B. de C.V., efforts to reverse downward volume trends are beginning to bear fruit in the company’s home market, said Daniel Servitje, chief executive officer.

In a July 23 conference call with investment analysts, Mr. Servitje was optimistic about prospects for Mexico, Iberia and Latin America. While a large proportion of the call was devoted to developments in the United States and Canada (see related story), the Bimbo c.e.o. said improving results in other markets have been a matter of considerable attention at the company.

Operating income of the Mexico business in the second quarter was 2,326 million pesos ($180 million), up 12% from the second quarter of 2013. Net sales were 17,692 million pesos ($1,366 million), down 0.5% from the second quarter last year.

“Volumes have improved sequentially over the course of the year, reflecting marketing and promotional efforts combined with point of sale initiatives,” the company said.

Elaborating on why Bimbo sees better trends in Mexico even as sales volume continues to decline, Mr. Servitje noted the 3% decline in second-quarter sales volume was significantly narrower than the 6% decline in the first quarter. Mr. Servitje said consumers became more cautious with the imposition, effective Jan. 1, of the I.E.P.S. (Impuesto Especial de Productos y Servicios), a special tax on production and services aimed at discouraging excessive consumption of certain calorie dense products.

To a limited degree, a “more stable consumer environment” was a contributing factor in the smaller sales decline in the second quarter, Mr. Servitje said.

 “Perhaps even moreso (it was an indication of) our multipronged commercial efforts that include targeted promotions and marketing campaigns, better execution of the point-of-sale, new launches, ongoing product innovations and the introduction of multiple presentation sizes to make our products more accessible for a range of budgets,” he said.

In Europe, Bimbo’s smallest division, the company sustained an operating loss of 39 million pesos ($3 million) in the second quarter, much smaller than the 72 million peso loss in the second quarter of 2013. Sales jumped 29% to 1,637 million pesos ($126 million), bolstered by United Kingdom business gained in connection with the May 2014 acquisition of Canada Bread by Grupo Bimbo.

“I am pleased to report continued progress in Iberia, driven by our efforts to support the business with new product launches, successful brand differentiation, and solid execution at the point of sale,” Mr. Servitje said. “This, combined with the benefits of our new U.K. business, helped push sales up 29% in peso terms. Furthermore, with good progress optimizing our cost structure, performance at the operating level resulted in a 45% reduction in losses for the period.”

In Latin America, where Bimbo recently announced an expansion through the acquisition of an Ecuadorian baker, Mr. Servitje said improvements have been broadly achieved.

Bimbo operated at nearly a breakeven level in the second quarter in Latin America, sustaining an operating loss of 27 million pesos ($2 million), versus a 540 million peso loss in the comparable quarter in 2013. Second-quarter sales were 5,758 million pesos ($445 million), up 8%.

“I am pleased to report stronger sales in almost every country in the region,” he said. “Performance was driven by a more robust product portfolio, new packaging, and greater penetration in the key sales channels. Furthermore, during the quarter the region posted an important 95% cost in its operating loss, reflecting more efficient operations in almost every country and a stable Brazilian operation after completing the restructuring process of last year.”
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