MEXICO CITY — With sales of mainstream bread, buns and sweet goods surging, adjusted operating income of the North American business of Grupo Bimbo SAB de CV was indicated at 1.9 billion pesos ($77 million) in the first quarter ended March 31, up 16% from 1.7 billion pesos in the first quarter of 2019. Sales were 36.1 billion pesos ($1.5 billion), up 10% from 32.8 billion in the first quarter of 2019.

As reported, the North American business sustained a loss of 1.2 billion pesos ($48 million), dragged down by a $154 million non-cash charge related to the adjustment of the company’s multi-employer pension plan liability to reflect slumping interest rates. While Bimbo did not disclose adjusted operating income for North America, Milling & Baking News based the 1.9 billion peso estimate on the company’s disclosure that the increased MEPP liability reduced company-wide operating income by 3.1 billion pesos.

In trading early April 28 on the Mexican Bolsa, shares of Grupo Bimbo were trading at 34.87 Mexican pesos, up 1.72 pesos, or 5%.

Adjusted EBITDA in North America, as reported by Bimbo, which excludes the MEPPS liability charge, was 3.7 billion pesos ($150 million), up 9% from the first quarter of 2019. EBITDA margins fell a tenth of a percentage point to 10.3%.

Bimbo attributed the modest margin contraction to higher administrative expenses and “challenges faced by foodservice customers,” which were partially offset by productivity initiatives across the supply chain and by lower restructuring expenses.

Daniel Servitje, chief executive officer of Bimbo, in an April 27 conference call said the higher administrative expenses were connected to accounts receivables related to the foodservice business.

The sales increase of 10% reflected volume growth and exchange rate moves. Dollar sales climbed almost 6%. The sales increase in North America compared with increases of 6% in Mexico, 3.8% in Latin America and 1.8% in Europe, Asia and Africa (EAA). From 5.3¢ at the start of the year, the value of the Mexican peso edged upward in January and February before plunging in March, closing above 4.2¢. The average for the quarter was 4.9¢.

“The mainstream bread, buns, snacks and sweet baked goods categories all outperformed across the region in multiple channels such as grocery, mass merchandising and club,” Bimbo said. “This was partially offset by weak volumes across the QSR (quick-service restaurant) and foodservice businesses due to the COVID-19 outbreak.”

During the call, Mr. Servitje offered greater detail about how sales picked up during the quarter and afterward.

“We saw increased demand, especially in the last two weeks of March as consumers stocked up on food and shifted rapidly to eating more at home,” he said. “Many of our plants and distribution routes are operating at full capacity, given the great demand for bread, buns, sweet baked goods, cookies and tortillas, mainly in the modern channel.

“Our teams have been working tirelessly to support our customers, consumers and associates and to continue operating effectively with no major disruptions so far.”

New product launches, such Thomas’ Pick Me Ups and mini croissants also contributed to sales gains.

QSR and overall foodservice business has been under “significant pressure,” Mr. Servitje said, adding that the channels account for less than 10% of the company’s total sales.

Asked about the company’s mix of QSR business by region globally, Mr. Servitje said the ratio was about the same everywhere except EAA, where it is higher.

“We’re seeing that in China (we are) starting to recover the QSR market as well as Korea,” he said. “And we are hopeful that we will start to see a good trend over the coming quarters in terms of how fast they can get back to their previous levels.”

Asked by an analyst whether restaurants in China are presently operating at 40% of capacity, Mr. Servitje said the actual figure is “a bit higher.”

“And we’re seeing an upward trend every week since they restarted their economy,” he said.

He said most baking plants that supply foodservice have the capability to shift to retail, if demand supports such a pivot.

Mr. Servitje said no Bimbo plants globally currently are closed because of illness within plants. Four bakeries are closed because of poor QSR demand associated with COVID-19 — one each in France, South Africa, and Morocco and Kazakhstan. The company’s baking plant in Wuhan, China, recently reopened.

In a financial review of the company’s business, Diego Gaxiola, chief financial officer, began by telling the analysts Bimbo is conducting a complete review of capital expenditure plans for coming months as part of an effort to preserve cash in a difficult economic environment. Asked about the review, Mr. Gaxiola said major projects were not being canceled, only postponed. The company had budgeted 400 million to 450 million pesos ($16 million to $18 million) in maintenance capital spending for 2020 and hasn’t landed on a final figure for the year.

 “On top of the maintenance capex, we’re not going to take out anything,” he said. “There are some projects, strategic projects that were already in place that we started at last year, but it doesn’t make sense to stop the investment. And there are some other strategic projects with a very good return, that because of the cash flow generation that we have been able to achieve, we will go forward with these projects. So there are some I would like to say they are not going to be canceled. They are going to be postponed until we see things start to stabilize with the health crisis. And definitely this will help on the cash flow generation, we feel. I am very confident that instead of being something between 700 million to 800 million it is going to be below that number, but still, we haven’t finished the detail in order to provide good guidance. And I’m sure we will do it in the next conference call.”

Asked about the MEPPs charge, Mr. Gaxiola said Bimbo makes a cash contribution of just more than $100 million a year, a figure he said has been stable at that level.

He expressed guarded optimism that government reform to deal with the unfunded liabilities associated with MEPPS may be forthcoming.

Bimbo announced several COVID-19 initiatives launched in response to the pandemic, beginning with the establishment of committees to “closely monitor the safety of the company’s associates and the performance, needs and strategies to supply our customers.”

Responding to recommendations of local authorities in the markets where it operates, Bimbo has taken a number of steps, including a “redoubling” of social distancing efforts.

“For those teams whose role allows it, and depending on local circumstances, different formats of labor flexibility have been implemented, such as remote work, guards or special shifts,” Bimbo said, “We provided additional hygiene steps daily and the right equipment and required temperature checkups at our facilities to ensure the safety of our frontline association.”

Bimbo said a recent $720 million draw on a revolving credit facility allowed the company to refinance a 2020 bond and increase the company’s liquidity, “prioritizing flexibility and financial strength.”

The company said high-volume stock-keeping units have been prioritized to maximize production and noted the reopening its Hazelton, Pa., plant in the United States because of elevated US demand.

Bimbo said it has donated 200 million pesos ($8 million) globally through a number of initiatives, including product donations to food banks and foundations, economic resources for the construction of a temporary hospital unit in Mexico, box lunches for medical personnel from public hospitals and face masks for small merchants in Mexico.

Net majority income of Grupo Bimbo in the first quarter was 20 million pesos, down 99% from 1.3 billion pesos a year earlier. Sales were 74.4 billion pesos ($3.1 billion), up 7% from 69.5 billion a year earlier.

Adjusted net majority income rose 42% to 1.9 billion pesos, and the company’s net margin widened 60 basis points, reflecting “strong operating performance and lower financing costs.”

Mr. Servitje said sales in Mexico accounted for 32% of the company’s total.

“We are unwavering in our determination to successfully navigate the challenge of these complex times and we have the resilience and agility to do so,” Mr. Servitje said. “Our experienced leadership in every country and our production capabilities enable us to serve consumers during this time of disruption and extraordinary demand.”