MEXICO CITY — Volume growth in the company’s North American business helped pace a record first quarter for Grupo Bimbo SAB de CV. Strong US demand for branded bread, buns, breakfast products such as bagels and English muffins, sweet goods and snacks more than offset weak demand from foodservice and convenience store customers, the company said.
Overall, Grupo Bimbo sales reached a record 79 billion pesos ($3.9 billion) in the first quarter ended March 31.
“We started off 2021 with the best first quarter in our history in terms of sales, profits and margins, following a remarkable year for Grupo Bimbo,” said Daniel Servitje, chairman and chief executive officer. “Trends continue to reflect the hard work of our associates and the strength of our brands, and we continue to benefit from being a diversified company.”
While deeply gratified by the first-quarter results, Mr. Servitje and other Bimbo executive warned that sledding will be tougher in the second quarter and the second half of the year.
“We have begun to cycle difficult comparisons, driven by the pandemic-induced buying that occurred in some of our geographies starting in March of last year,” Mr. Servitje said in an April 28 conference call with investment analysts. “So in the second quarter of 2021, we will see the full effects of the panic shopping behaviors experienced during the second quarter of 2020. Although this will be challenging, we expect our 2021 run rates to demonstrate strong performance versus 2019. We remain fully committed and confident with the guidance that we provided.”
Operating income of the North American business of Bimbo was 5.12 billion pesos ($250 million) in the first quarter, compared with an operating loss of 1.17 billion pesos in the first quarter last year. First-quarter operating profit was more than treble the 1.67 billion pesos earned in the first quarter of 2019. Net sales were 39 billion pesos ($1.94 billion), up 8% from 36.1 billion a year earlier and up 19% from 32.8 billion in 2019. Bimbo said net sales during the quarter were up 6.1% in dollar terms from 2020, driven principally by volume growth.
Operating profits in the first quarter of 2020 were adversely affected by a $154 million non-cash charge related to the adjustment of multi-employer pension plans (MEPP) liabilities. Excluding the impact of the MEPPs, Grupo Bimbo’s adjusted EBITDA was up 20%. The North American business EBITDA margin was 12.6%, up from 10.3% in 2020 and 10.4% in 2019.
In addition to sales growth, Bimbo attributed the strong result in North America to favorable branded mix, trade efficiencies and productivity benefits from past investments, which partially were offset by increased strategic investments in brands. Mr. Servitje said e-commerce sales were double levels from a year earlier.
The challenges looming for Bimbo extend beyond comparisons with last year’s panic-driven pandemic buying, he said.
“Looking ahead, we are facing a significantly higher inflationary environment,” he said. “More specifically, we’re seeing increases in commodities, freight and labor costs, and we will be taking actions to cover these cost increases.”
Numerous analysts during the call asked about the prospective impact of escalating costs, prompting Diego Gaxiola, group chief financial officer, to “offer a bit more color on commodities.”
“Most of the commodities are already hedged according to our hedging strategy and our hedging policy,” Mr. Gaxiola said. “So the impact that we would see in our results is going to happen more in the second half. And the annual impact that we will have because of the commodities increase in 2021, without taking into consideration the different strategies that are being implemented, as Daniel already discussed about it, it’s going to be less than a percentage point.”
Mr. Gaxiola said the second quarter will bring the most difficult comparison with 2020, but third and fourth quarters will present challenges as well.
“That’s mainly because of the extraordinary volumes that we have, mainly in North America,” he said. “Of course, there are some expenses that we faced last year, particularly related to COVID that we also believe are going to be lower this year. But we’re going to lose part of the marginability that we were able to achieve because of these extraordinary volumes. So that is why, basically, in terms of sales and EBITDA, we’re expecting to see a flat margin. So having this increase in the first quarter, we do expect to see a decrease, particularly in the second quarter.”
Fred Penny, president of Bimbo Bakeries USA, affirmed that several weeks into the second quarter, Bimbo business in the United States is not keeping pace with last year. He said peak sales in 2020 occurred in the 11th week of the year.
“Obviously, we’re running — whether it's Nielsen or whatever the measure — we’re running negative to year-ago numbers, but we’re running strong numbers to pre-COVID 2019,” he said. “So we’ve seen gains in market share. We’ve seen gains in household penetration. And we’ve really been focused on executing behind our core brands, our best brands and products. We’ve invested incremental marketing dollars targeted to retain as many of the households that we gained through the pandemic and hopefully build on our share gains. I would say all in all, I feel pretty good about where the run rates are. There is a big question of what’s going to happen as we get into the second half of the year.”
Mr. Penny said considerable uncertainty continues to surround the company’s business outlook for the second half of the year.
“I anticipate that we would see some categories slow down as things get back to normal,” he said. “But I also would say that there have been shifts in consumer behavior, and there’s still open questions about when all schools are fully back, all colleges are fully back, work from home versus back in office, etcetera, that I think are going to continue to favor more consumption at home.”
First-quarter net majority income at Grupo Bimbo was 4.1 billion pesos ($200 million), versus 35 million peso in January-March 2020 and up from 1.32 billion in 2019. Sales were 79.14 billion pesos ($3.94 billion), up 7% from 74.25 billion a year earlier and up 14% from 69.52 billion in the first quarter of 2019.
For the full year, Bimbo is expecting low double-digit growth rate in sales and mid- to high teens in EBITDA, relative to 2019. Versus 2020, the company believes sales and EBITDA likely will be flat.