MONTERREY, MEXICO — Emphasizing that there is “little positive anyone could say about the coronavirus outbreak,” the “defensive nature” of its business led to strong first-quarter results — especially in the United States — at Gruma SAB de CV, said Raul Cavazos Morales, chief financial officer.
“This defensive nature was proved on our sales volume, which rose 6% during the quarter where the US division was the main contributor, in absolute terms, where they commanded 9% and 15% volume and net sales growth, respectively,” Mr. Cavazos Morales said during an April 23 conference call with analysts. “Moreover, the change in sales between channels in the US as consumers stop eating at restaurants and substitute those volumes by acquiring tortillas at supermarkets and grocery stores has improved our margins. In Mexico, although the tortilla industry is very stable on a per capita consumption basis, we also grew above expectations.”
Operating income at Gruma USA in the first quarter ended March 31 totaled 2.02 billion pesos ($81.7 million), up 28% from 1.58 billion pesos in the same period a year ago.
Net sales at Gruma USA increased 13% in the first quarter of fiscal 2019 to 14.1 billion pesos ($560.7 million) from 12.49 billion pesos.
To accommodate customer requests, Mr. Cavazos Morales said Gruma has eliminated some tortilla stock-keeping units (SKUs), efficiently reduced a few others and ramped up production of the most important ones. As a result, the company has been able to supply more volume to grocery stores.
Gruma USA currently has 80% of its volume going to retail and 20% to foodservice, Mr. Cavazos Morales said. However, in terms of sales, approximately 87% is coming from retail and only about 13% from foodservice,” he noted.
“We have a very good performance of our value-added products,” he said. “We have our star product — which is low-carb tortilla — growing in a very good way. … In terms of net sales, we are talking about an increase of 10%. But the low-carb tortillas have a contribution margin higher than 40%, which is substantially higher than some other kind of products. Volumes are increasing about 40% of low-carb tortilla in the US. This is the star of our products, commanding the increase on the retail. And this is going to be basically the same trend. We are expecting the same trend.
“The low-carb tortilla has been going up during the last, let’s say, 12 months in a very important way. And we don’t see any kind of change or important change going forward for the rest of the year and going in the future.”
Gruma said operating margin at Gruma USA improved 160 basis points during the first quarter to 14%.
Cost of sales as a percentage of net sales improved to 57% from 58.1% in the first quarter, Gruma said.
Gruma said it incurred $26 million in capital expenditures during the first quarter. During the quarter, the company allocated expenditures to a tortilla plant in Dallas, expansion of a tortilla plant in Spain and maintenance and general technology upgrades.
Mr. Cavazos Morales said Gruma still expects to incur approximately $250 million in capital expenditures during fiscal 2020, but he did acknowledge that several projects have been delayed because of the coronavirus pandemic.
Commenting on the coronavirus impact on its employees and production at its facilities, Mr. Cavazos Morales said the company has had approximately 100 infections at its US plants, with the most significant impact being felt at its plant in Mountain Top, Pa. While most of the people infected have recovered and are back at work, he said Gruma is still working to get all wheat flour production lines at the plant up and running. The plant has eight production lines, and at one point had reduced operations to just two lines. The facility is currently back up to six production lines, he said.
Elsewhere, Mr. Cavazos Morales said Gruma has had infected employees at facilities in Fife, Wash., and two different locations in California. Overall, though, he said the impact has been minimal.
He said Gruma is taking the temperature of every employee before entering a facility or office and is providing masks, gloves and sanitizers. Additionally, in many cases Gruma provides transportation for its employees. In those instances, the company is sanitizing the buses after each route and has mandated social distancing practices so that individuals are not sitting close to one another.
He said these practices are taking place throughout Gruma’s global operations.
Overall, majority net income at Gruma SAB de CV in the first quarter was 562 million pesos, down 45% from 1.03 billion pesos a year ago. EBITDA was 3.51 billion pesos, up 22% from 2.87 billion pesos, while sales rose 16% to 21.54 billion pesos from 18.58 billion pesos.