Bimbo Bakeries USA snacks
Strong sales of its snack products helped Bimbo Bakeries USA achieve higher operating income in 2017.

MEXICO CITY — Strong sales of its snack products and core brands helped Bimbo Bakeries USA overcome a number of baking sector challenges and achieve higher operating income in 2017.

Operating income of the North America business of Grupo Bimbo S.A.B. de C.V. was 7,701 million pesos ($415 million) in the year ended Dec. 31, 2017, up 8% from 7,161 million pesos in 2016. Bimbo’s North American operating margin in 2017 was 5.6%, versus 5.3% in 2016. Net sales were 137,662 million pesos ($7,411 million), up 1.8% from 135,219 million in 2016.

The improvement in profitability was attributed principally to non-operating factors: a) a modest non-cash gain related to the value of multi-employer pension plan liability and lower North American restructuring expenses. On a company-wide basis, non-cash charges for Grupo Bimbo were lower in 2017 than in 2016.

By contrast, adjusted B.B.U. EBITDA in 2017 was down slightly from the year before due to a non-recurring inventory adjustment in the fourth quarter of 2016.

Grupo Bimbo bread in Canada
Bimbo's bread category in Canada contributed to higher sales in 2017.

“(Higher sales in 2017 were) primarily due to good performance of the snacks category strategic brands in the U.S. and the bread category in Canada, to exchange rate benefit, and a 0.4% contribution from the integration of the U.S. operation of Bimbo QSR,” the company said. “Nonetheless, continued pressure in the private label, premium and frozen categories continued to weigh on sales.”

In the fourth quarter, operating income was 1,842 million pesos ($99 million), up 22% from 1,506 million in the same period of 2016. The segment’s operating margin in the fourth quarter widened by a full percentage point from the year before, to 5.1%. Net sales were 36,295 million pesos ($1,954 million), down 1.8% from 36,965 million in the final quarter a year earlier.

By contrast, gross margins in the fourth quarter were pressured due to higher raw material costs in the United States as well as a “different business mix arising from the incorporation of Bimbo QSR,” the company said.

Bimbo said the fourth-quarter sales decline was due to foreign exchange rate effects. After gaining value over most of the year, the peso’s value versus the U.S. dollar declined in the last quarter of 2017.

Daniel Servitje, Bimbo
Daniel Servitje, chairman and c.e.o. of Grupo Bimbo

For the company overall, Daniel Servitje, chairman and chief executive officer, described 2017 as a “transitional year in terms of investment and positioning our company for long-term growth and value creation.”

Net majority income of Grupo Bimbo S.A.B. de C.V. in 2017 was 4,630 million pesos ($249 million), down 22% from 5,899 million pesos in 2016. Sales were 267,515 million pesos ($14,403 million), up 6% from 252,141 million pesos. Sales growth was attributed principally to acquisitions as well as organic growth in Mexico.

Bimbo said its overall income was down for the year because of operating income pressure, higher financing costs and a higher effective tax rate of 52.6%.

During the year, the company took a one-time non-cash charge of 706 million pesos ($38 million) “arising from the enactment of the Tax Cuts and Jobs Act in the U.S.”

Fourth-quarter net majority income was 427 million pesos ($23 million), up 397% from 86 million in the final quarter the year before. Sales were 70,931 million pesos ($3,819 million), up 3% from 68,862 million pesos.

Bimbo said its aggregate debt at yearend totaled 94.3 billion pesos ($5.1 billion), up 14% from 82.5 billion a year earlier. The increase mostly was due to the acquisition of Bimbo QSR. Bimbo closed in October on its purchase of East Balt Bakeries. The higher debt raised the company’s debt-to-EBITDA ratio to 3.5 from 2.8 at the end of 2016.