MEXICO CITY — The North American segment of Grupo Bimbo S.A.B. de C.V. sustained an operating loss of 213 million pesos ($11.4 million) in the second quarter ended June 30, a marked reversal from an operating profit of 2,272 million pesos in the same quarter of 2017. Sales were 36,903 million pesos ($1,975 million), up 8% from 34,204 million pesos in the same period last year.
Pressing Bimbo Bakeries USA into a loss during the quarter was the completion of the company’s previously announced voluntary separation program. Associated with the program, Bimbo took a charge against earnings of $105 million (1,960 million pesos).
Excluding special charges, Bimbo said the North American segment’s second-quarter EBITDA was down 6%.
Other factors affecting profitability were the costs of integrating acquisitions and pressure from commodity and energy inflation in North America.
In a July 25 conference call with investment analysts, Fred Penny, president of B.B.U., characterized North American EBITDA as essentially even with a year ago, with EBITDA margin narrowing a bit.
“I would characterize it at least from a B.B.U. standpoint as fairly solid performance, given the significance of the inflation headwinds we faced in the quarter,” he said.
Commodities are one of several headwinds Bimbo and other baking companies face, Mr. Penny said.
“Like many other industries, we’re certainly feeling the effects of a much tighter labor market,” he said. “It manifests itself in longer recruitment time to fill positions, and it’s just something that we’re going to have to deal with.”
Accounting for the 8% sales increase in North American sales, half was attributed to foreign currency effects.
“(The balance) was attributable to a good performance in Canada, particularly the bread category; also, in growth in the U.S. reflected increasing prices, growth in strategic brands and the snacks category, as well as the integration of Bimbo Q.S.R. and Bays English muffins,” Bimbo said. “These factors were partially offset by soft volumes mainly attributable to private label volume declines.”
Mr. Penny added, “We’ve been very heavily focused on driving our strategic most important brands, and we’re seeing that come to fruition for us, and we’re going to continue to do that going forward.”
The voluntary separation program affected about 15% of B.B.U.’s salaried staff, numbering about 600.
First announced in April, the company said the purpose of the program was to create a “lean organizational design” to “better position B.B.U. for profitable and sustainable growth by enhancing operational and administrative efficiencies.”
Mr. Penny called the program “an important part of our transformation” toward growth, productivity and greater profitability.
“The completion of this program will help increase cash flow and improve profitability, as it has a payback of less than two years,” Mr. Penny said. “Furthermore, a leaner, stronger and less complex organizational structure allows us to respond to new opportunities with greater agility.”
Bimbo said the $105 million charge in connection with the separation program represents associate severance and benefits. Benefits from the program will accrue to the company beginning in the third quarter, Mr. Penny said.
Asked during the conference call about the program, Mr. Penny described it as an important step forward for B.B.U.
“This is a significant event,” he said. “It was a major undertaking to do, and we did not take it lightly. I have to say also that I give credit to the leadership team of B.B.U. in the U.S. on the manner in which it was executed and the timeline in which this was executed. We’re talking about from conception to execution, probably no more than three months’ time.”
Among the other positive outcomes from the initiative he mentioned earlier, Mr. Penny said the separation program would “create opportunities for high potential talent to move more quickly through the organization and contribute in a greater way to B.B.U.”
Daniel Servitje, chairman and chief executive officer, commented during the call on another important Bimbo second-quarter initiative — the acquisition of Mankattan Group, a major baking company in China.
Mankattan bakes sliced bread, cake, buns and Yudane (a Japanese-style sandwich bread) as well as other baked foods.
“We’re delighted to welcome Mankattan’s 1,900 associates to the Grupo Bimbo family,” Mr. Servitje said. “They have built a sizable customer base in key urban markets and the business complements and enhances our current product portfolio, distribution network and manufacturing facilities. Not only does the addition of Mankattan strengthen our presence in the country, it also provides us with a platform to grow the market of branded packaged baked goods, as well as the food service channel throughout China. This is a vital growth market for us and an acquisition that bolsters our global profile.
“I would like to note that the integration plan encompasses the closing of our current Beijing facility, and we will be moving all the production to our new Mankattan plant, from which we expect integration expenses to be in the range of $20 million to $25 million in the coming month and part of the next year.”
Net majority income of Grupo Bimbo in the second quarter of 2018 was 195 million pesos ($10 million), down sharply from 1,497 million pesos in the same period last year. Adjusted income in the quarter was 1,880 million pesos ($101 million), up 26%. The adjustment excludes the effects of the voluntary separation program and higher financing costs. The gain in adjusted earnings was due to stronger operating results and a lower effective tax rate.
Grupo Bimbo net sales in the second quarter were 72,417 million pesos ($3,880 million), up 11% from 65,115 million in the second quarter of 2017.