Gruma USA operating income climbs 13% in second quarter

by Eric Schroeder
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Gruma Mission and Guerrero tortillas
In the second quarter, Gruma USA's operating income jumped 13% from the same period a year ago.

MEXICO CITY — Better operational performance in the United States continued to boost earnings at Gruma S.A.B. de C.V. in the second quarter of fiscal 2017.

In the second quarter ended June 30, Gruma USA had operating income of 1,313 million pesos ($70.6 million), up 13% from 1,163 million pesos in the same period a year ago. Net sales, meanwhile, decreased 1% to 9,346 million pesos ($501.5 million) from 9,454 million pesos.

Gruma said operating margin improved to 14% from 12.3% resulting mainly from the improvement in cost of sales, which as a percentage of net sales improved to 57% from 58.5%, driven by both the tortilla and the corn flour operations.

Gruma Mission corn tortillas
Gruma said corn flour sales volume increased 3%.

“This reflected lower raw material costs, especially corn and wheat flour; the shift in the sales mix toward the retail segment in the tortilla business; and better sales mix toward high margin products,” Gruma said.

The decline in sales in the U.S. business reflected a 1% decrease in sales volume.

Providing more detail on the sales volume decline, Gruma said, “Corn flour sales volume increased 3%, driven by share gains through better quality and service; higher sales to snack producers; and higher sales to food service distributors and wholesalers, who benefited from growth at independent Mexican food restaurants. The tortilla business declined 3%, driven by the food service channel in connection with the company’s decision to stop supplying some s.k.u.s (stock-keeping units) in order to continue focusing on high margin products. Also, food service sales volume was affected by weaker performance of some customers.”

Gruma food service
Gruma's food service sales volume was affected by weaker performance of some customers.

In a July 21 conference call with analysts, Raul Cavazos, chief financial officer, said Gruma is increasing production capacity in its corn flour plant in Evansville, Ind. The expansion is being undertaken to accommodate Gruma’s growth on the East coast. With more production space in Evansville, Gruma will be able to trim freight costs that might have been associated with trying to ship corn flour from the company’s Mexico operations to the East coast, Mr. Cavazos said. But Gruma also plans to take a look at its Mexico operations for possible expansion.

Raul Cavazos, Gruma
Raul Cavazos, c.f.o. of Gruma

“What I can tell you is that maybe we will increase again the production capacity in our Mexicali plant just to increase the support from our Mexican operations to our U.S. operations,” Mr. Cavazos said. “In other words, you will see in the (future) the support from our Mexican operations to our U.S. operations.”

Overall, majority net income at Gruma S.A.B. de C.V. in the second quarter ended June 30 was 1,417 million pesos ($76.2 million), up 31% from 1,081 million pesos in the same period a year ago. EBITDA was 2,642 million pesos, up 18% from 2,242 million pesos, while sales increased 14% to 16,348 million pesos, up from 14,280 million pesos. 
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