MEXICO CITY — Moody’s Investors Service on April 21 upgraded the credit ratings of Grupo Bimbo SAB de CV to Baa1 from Baa2. The ratings agency assigned Grupo Bimbo a stable outlook.
Moody’s attributed the upgrade to an improvement in Bimbo’s operating results and leverage metrics.
It has been six years since Bimbo’s last large debt-funded acquisition — East Balt Bakeries — and in the intervening period, Bimbo has reduced its ratio of adjusted debt to EBITDA to 2.0 at the end of 2022 from 4.0. Moody’s said Bimbo’s EBITA-to-interest expense ratio during the period fell to 3.2 times from 5.0.
Bimbo’s Baa1 ratings also incorporate the company’s solid business position as a global leading producer of baked foods with a very strong brand portfolio and an extensive distribution network, Moody’s said.
The company’s strong operating performance has been sustained despite higher raw material costs and inflation, Moody’s said, noting that Bimbo’s 2022 EBITA margin was 10.4%, up from 10.2% the year before. Margin pressure will persist in 2023 due to continuing cost pressures and “weakening consumer demand in Bimbo’s main markets,” Moody’s said. Still, thanks to a continued successful pricing strategy and efficient product mix, the company is expected to sustain its operating performance.
“Today’s rating upgrade also reflect Moody’s view that Bimbo has entered into a mature phase in its business life cycle reducing event risk,” the ratings agency said. “In 2022, Bimbo sold its confectionery business Ricolino to Mondelez International, Inc., as part of its strategy to focus on its core baked goods business and to grow and develop its salty snacks segment. Recent acquisitions by Bimbo include St. Pierre, a leading baking player in the premium brioche category in the US and the UK and Vel Pitar bakery in Romania. These operations showcase Bimbo’s strategic focus and did not prevent the company to reach an adjusted leverage of 2.0x. Given its leading position in main markets, we do not expect further M&A activity that will result in Bimbo deviating from current credit profile. For 2023, Moody’s expects adjusted leverage to peak at 2.3x but to remain closer to 2.0x through 2025.”
Moody’s also credited Bimbo for exercising an option to redeem outstanding subordinated perpetual notes, temporarily using a $1.93 billion revolving credit facility. While the refinancing increased Bimbo’s adjusted debt by $250 million, Moody’s said Bimbo will ultimately reduce its funding costs through the transaction.
In its financial results for the first quarter of 2023, Bimbo said its total debt as of March 31 was 93 billion pes ($5.2 billion), up from 84 billion on Dec. 31.
“The increase was primarily due to the reclassification of the subordinated perpetual notes as debt, which was partially offset by foreign exchange movements,” Bimbo said.
Bimbo’s average debt maturity was 12.6 years with an average cost of 6.4%. Long-term debt accounted for 80% of the company’s total debt with 46% denominated in US dollars, 42% in Mexican pesos and the balance in other currencies.
Moody’s said Bimbo’s stable outlook is premised on Bimbo’s ability to maintain strong credit metrics over the next 12 to 18 months, solid profitability and no major acquisitions. A subsequent credit upgrade is possible if Bimbo’s credit metrics strengthen further, with debt-to-EBITDA remaining below 2.0 times and its retained cashflow to net debt holding above 27%.As of March 31, Bimbo’s net debt to EBITDA ratio was 1.7 times, down from 1.8 times a quarter earlier.