MEXICO CITY — A combination of higher prices and volume growth in certain categories helped lift adjusted operating profits and sales at the North American business of Grupo Bimbo SAB de CV during the first quarter of 2022. The company said another round of price hikes is in the process of being introduced.
Operating income of Bimbo’s North American business was 4.24 billion pesos ($208 million), down 18% from 5.16 billion pesos in the first three months of 2021. Adjusted for differences in multi-employer pension plan liability benefits in the 2022 and 2021 quarters, operating income was up 13%, while the company’s operating margin narrowed 30 basis points, to 8%.
Bimbo said its margins were pressured by higher cost of sales and an inflationary environment in North America. For 2022, the company recorded a $73 million cash benefit related to the adjustment of its MEPP liability related to interest levels. A year earlier, the benefit was $109 million.
Bimbo sales in North America in the first quarter were 45.58 billion pesos ($2.24 billion), up 17% from 38.96 billion pesos in the first quarter last year. Dollar sales were up 16%. In addition to successfully implementing pricing increases in North America, Bimbo said the company generated sales volume growth in mainstream bread, buns and rolls, sweet baked foods and snacks.
“We grew share in most of our categories despite a very difficult operating environment,” Daniel Servitje, chairman and chief executive officer, said in an April 27 conference call with investment analysts. “We successfully implemented productivity initiatives and a second price increase across our portfolio, while experiencing volume growth and market share gains as we continue to be the first choice of our consumers in most categories.”
Bimbo’s adjusted EBIDTA in North America was essentially flat in the first quarter — up 0.1% from the same quarter last year. Its adjusted EBITDA margin narrowed 180 basis points to 10.8% from 12.6% in the first quarter last year. The contraction, Bimbo said, mainly was due to a higher inflationary environment, including commodities, labor costs and shortages across the supply chain. Bimbo said these factors were partially offset by favorable brand mix and productivity gains from past restructuring efforts.
Diego Gaxiola, chief financial officer at Bimbo, said Bimbo is raising its top-line guidance for 2022 to low double-digit growth from high single-digit.
“Considering this updated top-line growth and the high inflationary environment that we’re facing, we maintain the range of adjusted EBITDA at mid- to high single digits,” he said. “So as you can see, we still expect to see some margin pressure in 2022.”
Mr. Servitje added, “We are cautiously optimistic about the future as we face a dynamic and evolving environment.”
Mr. Gaxiola said the company is well hedged.
“Our main raw materials are wheat, packaging and fats and oils,” he said. “As of the end of the first quarter, we had already hedged 85% of our mix for 2022. And we continue to do so according to our policy, which goes from 4 months up to 18 months. This strategy is aimed at providing visibility to each operation in order for them to plan their commercial and pricing strategy on a timely basis.”
Fred Penny, president of BBU, said challenges associated with inflation will play out throughout 2022.
“We’re in the process of implementing another round of pricing, given what I would call extraordinary run-up in many of our input costs,” he said. “I think it’s important to note that not all of our input costs are hedgeable. In some cases, we’re seeing significant runups in the short term that we’re going to have to deal with in the back half of the year. In addition to that, beyond the pricing, I would say that we're aggressively going after any and all productivity opportunities, mix management, revenue growth management.”
He noted that inflation is not limited only to commodities.
No signs have yet emerged consumers are pushing back against the higher prices, Mr. Penny said.
“To date, we’ve not seen any significant elasticity impacts from the pricing actions we had to put into the market,” he said. “I will say that the additional pricing we’re being forced to take now, given the significant inflation, is just out. And we’re monitoring that, and we will be monitoring closely by category for potential impacts. And if we see that, we’re going to have to react.”
Similarly, he said retailers have not resisted higher prices “because they’re facing the same” inflationary pressures.
“We’re putting another pricing into the market in the near term here because we have to,” he said. “And hopefully, we’re going to be able to execute that effectively. But I think in general, so far, the markets have recognized the need to deal with the extraordinary inflation.”
Net majority income of Grupo Bimbo in the first quarter was 4.47 billion pesos ($219 million), up 10% from 4.05 billion pesos in the 2021 first quarter. The company’s profit margin narrowed 30 basis points. Inflationary costs and the smaller MEPPs benefit pressured profitability but largely were offset by overall strong sales, efficiencies in selling and administrative expenses, lower financing costs and an overall tax rate of 34%, versus 37.7% the year before. Sales were 93.32 billion pesos ($4.58 billion), up 18%.
“Top-line performance was exceptional, as we reached a record level of sales for the first quarter and gained market share in several categories,” Mr. Servitje said about the company’s quarterly results. “Our volumes grew across all organizations as a reflection of the high demand we are experiencing and that our brands are resonating with our consumers. The salty snacks, buns and rolls, snack cakes, bakeries and confectionery categories outperformed, as did our Mexico and Latin America regions and our QSR business.”
Mr. Servitje said the Russian invasion of Ukraine occurred only days after the last earnings call and that Bimbo owns one plant in Ukraine and one in Russia. The plants primarily serve quick-service restaurants and, combined, account for less than 0.5% of total Bimbo sales. He did not explicitly comment on whether either or both plants are currently operating, but he implied Bimbo branded products no longer are being sold in Russia.“Our priority and biggest concern is the well-being of our associates in both countries, and we are helping them to do different actions to protect their safety,” he said. “They will continue to receive support from us through these difficult times. We decided to suspend sales of our Bimbo brand and hold new investments as well as new capital and marketing investments in the country.”