MEXICO CITY — Despite stronger-than-expected performances by many of its global businesses, strength in the value of the Mexican peso weighed on second-quarter financial results at Grupo Bimbo SAB de CV.
Focusing on the company’s core results, Daniel Servitje, chairman and chief executive officer, was upbeat about Bimbo’s numbers.
“We reached record levels of net sales, which grew at a double-digit rate excluding foreign exchange effects, and the adjusted EBITDA margin expanded 50 basis points and also posted record levels for a second quarter,” he said. “This is a result of the strength of our brands and the hard work of our associates who have done an outstanding job executing at the point of sale, with laser focus in the baking and snack industries. We are committed to achieving our year-end objectives and will continue to invest in our business to expand our brands globally.”
Offering an update on the company’s guidance during a July 25 investor call, Diego Gaxiola, chief financial officer, described how better-than-expected results this year as measured in local currencies faced an offsetting negative effect from strength in the peso. The value of the Mexican peso versus the US dollar has climbed 9.5% this year, 22% over the past 12 months and 38% from its March 2020 low. Mr. Gaxiola noted that 70% of Bimbo’s business is outside of Mexico. The net effect is a cut in the company’s sales guidance and EBITDA guidance.
“So as compared to our initial sales guidance, we have an impact of more than six percentage points,” he said. “Whereas in local currency, we are performing above our initial expectation we are adjusting our sales guidance only from mid- to high single-digit to low to mid-single-digit rates.”
The foreign exchange swings will chop away five percentage points of Bimbo EBITDA in 2023, the company said.
“But also because of our performance being better than expected, we are now adjusting the guidance to a range of mid- to high single-digit growth from the previous high single-digit expectation,” Mr. Gaxiola said. “So as you can see, we are still expecting a margin expansion, and trends continue to be strong, and we remain confident we will reach our expectations and surpass it in local currencies.”
Operating income of the North American business of Grupo Bimbo in the second quarter was 3.31 billion pesos ($196 million), down 31% from 4.80 billion pesos in April-June 2022. The division’s operating margin was 6.8%, down 290 basis points from 9.7% a year earlier.
Adjusted EBITDA in North America was 5.35 billion pesos ($317 million), up 0.3% from $5.34 billion a year earlier. Adjusted EBTIDA margin was up 20 basis points, at 11%. The improved margins were attributed by the company principally to the strong sales performance, a favorable price/mix and “strong execution and cost control initiatives, partly offset by cost inflation related to commodities and labor.”
Sales during the quarter were 48.56 billion pesos ($2.88 billion), down 1.8% from the second quarter last year. In dollar terms, sales jumped 11.8%, “mainly reflecting the carryover from the successful implementation of price increases and favorable mix,” the company said. Bimbo said the company gained share in the second quarter in the premium product and snacks categories.
During the conference call, the Bimbo executives were asked about how the US competitive landscape was changing, particularly in the sweet goods category and whether BBU was feeling pressure from retailers either to step up promotions or to ease up on price increases.
Mark Bendix, executive vice president of Grupo Bimbo, said softness in US volumes was reflective of overall category weakness and an “evolving economy” rather than of market share losses. Against the weakness in unit volume trends, BBU has benefited from higher prices, he added.
“Salty snacks and premium (baked foods) have delivered for us in the second quarter,” he said. “So you are seeing a favorable mix. And in terms of more competition, I think in sweet baked goods there’s always good competition in the US. In this quarter, I think it’s a little bit complicated in that across most categories, you’ve seen some decline because all of the categories, if you look at just edibles in total are down 4.4%. And we’re maintaining our shares in those categories, but there is a net volume decline because of the challenged consumer.”
Regarding retail prices, Mr. Bendix said Bimbo has maintained “disciplined pricing execution” in the face of ongoing inflation and at the same time is “keeping a keen eye” on market dynamics.
“(Inflation) hasn’t mitigated yet in the US, and our retailer partners, they understand that, and they’re seeing it,” he said. “So we’re not feeling that pressure. But we’ll continue to look at our demand elasticity trends and our channel mix so that we can adjust and meet our evolving needs of both of our customers and consumers so that we continue to drive margin management through our business in the US.”
On a company-wide basis, elasticity has been most pronounced in bread, Mr. Servitje said.
“We have experienced elasticity in particular categories, I would say mostly on the sliced bread category,” he said. “And it depends country by country, but that is where we are. And we are reacting to these with the particular programs in each country, focused on restoring the opportunities that we find in this category and in some channels.”
Net majority income of Grupo Bimbo in the second quarter was 3.95 billion pesos ($234 million), down 36% from 6.15 billion a year earlier. The drop was attributed to the MEPPS benefit in the second quarter of last year, equating to $90 million. Excluding the impact of the MEPPS benefit, net majority income fell 11% in the quarter with margins 60 basis points tighter. Higher financing costs pressured profitability, the company said.
Sales were 100.37 billion pesos ($5.95 billion), up 4.1% from 96.42 billion pesos)
While inflation remains a challenge for the company, its impact is easing, Mr. Gaxiola said.
“We will gradually start to see tailwinds during the second half of the year, but more on the fourth quarter,” he said. “This coupled with the operating leverage coming from sales growth and productivity benefits from past investments in CapEx and OpEx as well as a positive effect coming from FX rate hedges will result in the margin expansion that we are expecting for the year.”
In summarizing important corporate developments during the quarter, Bimbo noted its acquisition of National Choice Bakery, the settlement by Canada Bread of allegations of price fixing dating back to several years before Bimbo acquired the business and Bimbo’s decision to issue 15 billion pesos in sustainability-limited bonds. Bimbo said it was the largest corporate SLB issuance in Mexican history.Bimbo said the company now is operating with 100% renewable energy in China, Morocco and Kazakhstan, increasing to 24 the number of countries Bimbo now operates with 100% renewable electricity.