MEXICO CITY – Having hit new highs in financial results during the company’s second quarter, Grupo Bimbo SAB de CV is determined to protect profit margin improvements, said Daniel Servitje, chairman and chief executive officer. Toward that end, the company is taking a number of steps, including raising prices in North America during the current quarter, he said.
Overall, Grupo Bimbo generated record profits in the second quarter ended June 30 while boosting return on equity by 280 basis points. Operating income of the company’s North America business, though, was 2.8 billion pesos ($140 million) in the second quarter, down 31% from 4.1 billion pesos in the second quarter of 2020, but up sharply from 1.3 billion in April-June 2019. Sales were 42.7 billion pesos ($2.15 billion), down 13% from 49.1 billion a year earlier.
Operating income was held back, in part, by a $38 million charge related to the company’s multi-employer pension plan liabilities, to reflect current interest rates. Adjusted EBITDA, which excludes the effects of the MEPPs charge, was down 11% in North America in the second quarter, and EBITDA margin widened to 40 basis points, to 13.3%.
Excluding the effects of foreign currency market moves, North American sales were up 0.9% during the second quarter compared with the same period in 2020. Bimbo said the sales gain reflected strong branded product sales, market share gains in several categories and rebounding foodservice business. Measured against 2019, second-quarter sales were up 18% in peso terms and 12.5% in dollar terms.
“(The North America) business performed very well during the quarter, led by sweet baked goods, buns and rolls and snacks,” Mr. Servitje said during a July 28 call with investment analysts. “Our front-line execution was strong, and we continue to manage trade promotions prudently to maximize return on investment. Our top-line run rate when compared to pre-pandemic levels were very strong. The strength was driven by consumer demand, increased household penetration and the investments we have made and continue to make in our main brands. The private label run rate has remained soft, while foodservice is beginning to rebound as schools and restaurants manage reopenings.”
Amid extraordinary upward pressure on costs, Mr. Servitje said Bimbo was committed to being sure the company avoids “a decline in our margins” over the course of the current inflationary cycle.
“We have been very proactive on understanding the impacts that we had from our commodity costs and other inputs,” he said. “And we have been able to address them in the different markets through different levers. One, obviously, is pricing. And another lever is trade optimization or revenue growth management. And finally, in some cases also, we have complemented that with productivity initiatives.”
Elaborating on actions Bimbo is taking in the face of higher costs was Fred Penny, president of Bimbo Bakeries USA.
“We are going to take a price increase from a North America standpoint in Q3 because we need to,” Mr. Penny said.
He said the price hike would be combined with utilization of the other levers cited by Mr. Servitje, including revenue growth management steps aimed at optimizing trade spend and “quite frankly, really significant work on productivity.”
“We don’t know where the inflation is going to head,” Mr. Penny added.
On the flip side, Mr. Penny expressed satisfaction with Bimbo’s second-quarter results. He particularly noted continued sales strength in the second half of the April-June quarter. He said Bimbo lapped “huge demand spikes” in the first half of the second quarter.
“Q2 has been an interesting quarter,” he said. “If you think back to the fact that the first half of the quarter, we were cycling huge demand spikes from a year ago obviously when the pandemic first hit. What’s been a very positive result for us has been that as we’ve gotten into the back half of, we’ve seen fairly impressive run rates to a year ago, frankly surprising to me that we would have been able to run positive to a year ago.”
He said volume was slightly higher than a year earlier which, “given the huge demand of a year ago,” should be viewed as a major plus.
Asked about strong profit margins, Mr. Penny said the significant number of premium brands in Bimbo’s portfolio has been a benefit as has been the results of capital investments aimed at lowering the company’s cost base.
In response to a follow-up question about price increases, Mr. Penny declined to offer specifics but emphasized the magnitude of the challenge.
“This is a complicated issue, quite frankly,” he said. “We’re in an environment where the inflation, at least from my perspective and my time in the industry — I can't recall an environment like this where commodities, labor, etc., were as volatile as they are. There’s not much you can look at right now, whether it’s a commodity, whether it’s labor, whether it’s transportation, etc., where there isn’t a lot of volatility and pricing pressure. I’m confident that we’re dealing with that head-on, and we’re going to manage it.”
Net majority income of Grupo Bimbo in the second quarter was 3.1 billion pesos ($156 million), up 19% from 2.6 billion in the second quarter last year. Sales were 83.8 billion pesos ($4.22 billion), down 2.9% from 86.3 billion. Sales were up 6.6%, excluding the effects of foreign exchange rate market movements. The company’s adjusted EBITDA reached an all-time high and EBITDA margins widened by 120 basis points, to 14.4%. Versus the second quarter of 2019, adjusted EBITDA was up 7% and net sales rose 16%.
“I am more than proud that our teams reached record profits for a second quarter and net sales growth of 6.6%, excluding FX effect,” Mr. Servitje said. “We continue to see strong demand and extraordinary run rates in our core business. We held and grew market share across our key categories and saw a recovery of those channels and categories that suffered during the pandemic. As we move forward, we will continue to invest in our associates, our brands, in the entire value chain, in our sustainability strategy and in our digital transformation projects to achieve our vision.”