Servitje revises timetable for Sara Lee closing
July 25, 2011
by Josh Sosland
MEXICO CITY — While taking longer than earlier expected, completion of the Grupo Bimbo S.A.B. de C.V. acquisition of the North America Fresh Bakery business of Sara Lee Corp. should be completed before the end of September, said Daniel Servitje, chief executive officer.
Mr. Servitje briefly discussed the pending acquisition July 22 in a conference call with investment analysts in connection with the release of Bimbo’s second-quarter financial results.
“In terms of the Sara Lee acquisition, we expect it to close this quarter,” he said. “Obviously, this is somewhat later than our initial forecast. We are confident that we will be able to start with the integration plans soon. We have a team working through this complex process, and we’ll update you as we can. The real work of the acquisition begins on day one. We have an integration plan ready to go, one that will put us on the journey to operating a new B.B.U.”
Bimbo first announced last November its planned acquisition of the Sara Lee business, predicting at the time the transaction would be completed during the first half of 2011. In late April, Bimbo was projecting an “early summer close.” In his latest remarks, Mr. Servitje did not elaborate on reasons for the delay.
A difficult commodity market was the principal factor stymieing earnings growth at Bimbo in the second quarter, Mr. Servitje said.
As previously reported, net majority income of Bimbo in the quarter ended June 30 was NP1,054 million ($90,725,000), down 16% from the same period a year ago. Sales rose 4% to NP29,999 million ($2,582 million).
Operating profit in the United States during the second quarter of fiscal 2011 was NP1,035 million ($89,097,000), down 8%. Sales fell 6%, to NP11,492 million ($989,326,000).
“Clearly, the raw materials environment was very challenging,” Mr. Servitje said. “The basis of comparison was tough with the increasing commodity costs for a weighted basket of our key inputs at around 20% and 30% for wheat flour alone.”
He said the company was able to offset the higher costs, to a degree, “with tight control of administrative expenses and certain efficiencies in Mexico.”
Elaborating on U.S. results, Mr. Servitje said while sales fell 6% as reported, sales were up 2% in dollar terms because of higher prices. Still, he characterized the U.S. consumption environment as “soft.”
“I want to point out that our overall market share has remained stable, and there are some bright spots, like the double-digit volume growth in Bimbo bread and the Bimbo Marinela sweet baked goods,” he said.
Beyond sharply higher costs for ingredients, Mr. Servitje said the company was hit by a 50% rise in fuel costs. Still, margins fell only slightly, by 20 basis points.
“I should note that our margins are on par with where they were at the year-ago period, both for the quarter and six months, but within a vastly different inflationary environment,” Mr. Servitje said.
Asked during questions and answers to elaborate on the U.S. baked foods market, Mr. Servitje added detail to his characterization of B.B.U.’s market share as “stable.”
“We did see a fall in market share in some of the categories; mainly, what we refer to as mainstream bread,” he said. “But, in other categories, we did experience growth and market share growth. Overall, our volume went down 5%, and we are seeing it gradually come back a bit. But it’s still in its infancy, this comeback. The pricing was affected, obviously, because of commodity price increases. And we are now feeling that the pricing actions were the right ones. And we expect, in that sense, that the environment will be more stable in the remainder of the year.”
Mr. Servitje went on to estimate Bimbo’s hedged coverage of ingredients at about six months on average.
Responding to a question about the competitive pricing environment, Mr. Servitje suggested other bakers too have responded to higher costs with higher prices.
“The market overall (is) probably lagging in some cases, but the market overall is moving in the direction that, as commodity cost increases, they do raise prices,” he said. “But not necessarily all in the same time or in the same percentage.”
In an update on another topic, Mr. Servitje said a new B.B.U. baking plant at Topeka, Kas., began production in June “on time and on budget.” He said the plant is baking bread and buns for distribution in the central part of the United States.