MEXICO CITY -- Operating income of the U.S. and Canadian baking business of Grupo Bimbo S.A.B. de C.V. was 1,033 million pesos ($80 million) in the second quarter ended June 30, nearly unchanged from 1,031 million pesos in the second quarter of 2013. Net sales were 21,548 million pesos ($1,668 million), up 7.8% from 19,986 million pesos in the prior year quarter.
Operating margin for the U.S. and Canada business tightened to 4.8% in the second quarter from 5.2% in the same period in 2013.
Included in the 2014 quarter were 38 days of Bimbo ownership of Canada Bread. Bimbo closed its acquisition of the company May 23. The business is a maker of fresh baked foods in Canada, frozen bread in North America and baked foods in the United Kingdom. Bimbo is including the North American business of Canada Bread in what it is now calling its U.S. and Canada region. The U.K. business, together with Bimbo’s Iberian baking business, will form the company’s Europe region.
During the quarter, Bimbo on June 24 issued $800 million in bonds due in 2024 and $500 million due in 2044 to refinance the Canada Bread acquisition.
Breaking down the 7.8% sales increase for the U.S and Canada business, Bimbo said 7.6% reflected the incremental sales from the Canada Bread acquisition and favorable effects of foreign exchange movements. Organic net sales in dollar terms fell 4.1%, of which 2 percentage points reflected the company’s divestiture of the Sara Lee brand in California. A more competitive market environment also factored in the sales decline.
“The muffins, bagels and rye bread categories continued to outperform,” Bimbo said of the second-quarter sales in the U.S. and Canada.
Overall operating expenses as a percentage of sales for Grupo Bimbo rose 40 basis points to 44.9%, reflecting higher distribution costs in all the company’s regions.
“In Mexico and U.S. and Canada, this was due to low absorption of fixed costs as a result of weak volume performance, while in Latin America and Europe it reflected market penetration efforts,” Bimbo said. “In U.S. and Canada the aforementioned factor was fully offset by ongoing synergies and waste reduction initiatives in the United States ($37 million), combined with the benefit of Canada Bread, which has a more efficient cost structure for selling, general and administrative expenses.”
U.S. integration costs in the quarter were $47 million in the quarter, versus $37 million in the same period a year earlier, costs described as related to Bimbo’s “asset strategy and optimization of the distribution network.”
Operating income in the first half of 2014 in the United States and Mexico was 1,127 million pesos ($87 million), down 34% from 1,707 million. The operating margin in the period fell to 2.8% from 4.5%. First-half sales were 20,265 million pesos ($1,569 million), up 4.9% from 19,324 million pesos.
Net majority income of Grupo Bimbo in the second quarter was 1,617 million peso ($125 million), up 73% from 937 million pesos in the same period last year. Consolidated sales were 45,540 million pesos ($3,525 million), up 5%.
Year-to-date net majority income was 2,142 million pesos ($166 million), up 42% from 1,506 million in the first half of 2013. Sales were 87,654 million pesos ($6,785 million), up 3.5%.Commenting on results in Mexico, Bimbo said sales were down slightly because of pricing initiatives begun in late 2013 and “challenging industry dynamics that impacted volumes.”