Profits rise, but B.B.U. adjusted sales pressured in fourth quarter

by Josh Sosland
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Bimbo breads - Sara Lee Artesano, Thomas Swirl breads
Grupo Bimbo experienced successful introductions of Sara Lee Artesano and Thomas’ Swirl Breads in the U.S.

MEXICO CITY – The North American baking business of Grupo Bimbo S.A.B. de C.V. generated strong reported results in 2015, but the company also indicated underlying volume pressures during the final quarter of the year.

Operating income of the North American Bimbo business (Bimbo Bakeries USA) was 5,024 million pesos ($276 million) in the year ended Dec. 31, 2015, up from 392 million pesos in 2014. Sales were 116,399 million pesos ($6,402 million), up 29% from 90,375 million pesos in 2014.

For the fourth quarter, operating income was 1,356 million pesos ($75 million), compared with an operating loss of 1,881 million pesos in the fourth quarter of 2014. Fourth quarter sales were 32,796 million pesos ($1,804 million), up 28% from 25,672 million pesos in the same period in 2014.

Operating margin for B.B.U. in 2015 was 4.3%, up from 0.4% in 2014. For the fourth quarter, the margin was 4.1%, versus a -7.3% margin in the last quarter of 2014.

Lifting fourth quarter operating income in North America were lower restructuring expenses – 1,007 million pesos ($55.4 million), versus 2,259 million in the same period the year before. New integration costs in Canada lessened this benefit, specifically related to a migration to new enterprise software there.

The 29% increase in sales in the fourth quarter at B.B.U. was attributed principally to an exchange rate benefit and acquisitions. Results also reflected one additional week during the quarter. Underlying sales trends were challenging.

“Notwithstanding notable growth in the sweet baked goods, snacks and breakfast categories, successful introductions of Sara Lee Artesano and Thomas’ Swirl Breads in the U.S. and Campagnard in Canada, volumes in the bread category were under pressure due to pricing initiatives implemented in the first half of the year,” Grupo Bimbo said.

Grupo Bimbo net majority income in 2015 was 5,172 million pesos ($284), up 47% from 3,518 million pesos. In the fourth quarter, net majority income was 301 million pesos ($17 million), versus a net loss of 229 million pesos in October-December 2014. The 2014 fourth quarter results reflected a non-cash charge totaling 2,022 million pesos ($111 million), related to multi-employer pension plans in the United States.

Higher indirect production costs and the strength of the U.S. dollar’s effect on raw material costs in Mexico resulted in a 210 basis point contraction in the margin there.

“Conversely, lower average raw material costs in North America and Latin America led to a significant margin improvement of 290 and 160 basis points, respectively,” Grupo  Bimbo said.

With the weaker fourth quarter, operating profits for the year in Mexico were 10,920 million pesos ($601 million), up 8% from 10,134 million pesos in 2014. Profit growth for the year was brought down by a weak fourth quarter, for which operating profit in Mexico was 2,589 million pesos ($142 million), down 26% from 3,505 million in the final period of 2014.

For the year, sales in Mexico were 76,295 million pesos ($4,196 million), up 6%. Net sales in Mexico were 19,692 million pesos ($1,083 million) in the fourth quarter, up 6% from 18,586 million pesos.

The higher sales in the fourth quarter reflected higher volumes lifted by “a better consumption environment” and successful new product introductions, the company said.

Total debt outstanding Dec. 31 was 67.8 billion pesos ($3.8 billion), up from 62.2 billion at the end of 2014.  Over the course of the year, Grupo Bimbo continued to pay down debt in line with this focus on deleverage.

“The (debt) increase was primarily due to a 17.8% U.S. dollar revaluation that increased the Mexican peso value of U.S. dollar-denominated debt,” the company said. The company’s average debt maturity was 8.4 years with an average cost of 4.5%.

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