MEXICO CITY — New product introductions and strength in core branded products helped the U.S. and Canadian baking businesses of Grupo Bimbo S.A.B. de C.V. gain share in a difficult market, said Daniel Servitje, chief executive officer.
In a conference call with investment analysts July 27, Mr. Servitje added color to strong financial results posted by Bimbo in the United States and company wide in the second quarter ended June 30.
At 2,063 million pesos ($109 million), operating profit at the U.S. and Canadian business was up 36% from 1,520 million pesos in the same period a year earlier. Net sales were 33,613 million pesos ($1,779 million), up 19% from 28,307 million pesos.
Mr. Servitje said U.S./Canadian sales in dollar terms were nearly flat.
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| Daniel Servitje, c.e.o. of Bimbo |
“While there was a single-digit growth in our strategic brands across the region, these were offset by weak non-branded volumes,” he said. “In the U.S., industry data is showing that consumption of commercial and mainstream breads remain soft. However, our dollar share of the total bread category is higher year over year, most notably in mainstream and premium.
“This performance reflects continued innovation, increased and focused marketing in strategic brands and selected investments in new products. Recent national launches of Eureka! organic and Oroweat Extra Grainy breads are examples of innovation in the category.”
Mr. Servitje described the private label bread market as “challenged,” but the good performance of the company’s strategic brands together with attractive commodity prices and productivity improvement have boosted profits.
By contrast, the company’s Canadian business was more challenging, especially the commercial bread market.
“We’re struggling to maintain visibility in the market and it may take some time to see some prime growth,” he said. “At the operational level, cost structure benchmarking is aimed at supporting productivity.”
Stepped-up capital expending is being deployed at plants in Canada, moves expected to deliver good returns in coming years, Mr. Servitje said.
Still greater detail into the improved results was offered by Fred Penny, president of Bimbo Bakeries USA. While certain tailwinds will ebb in the second half of 2016, others will continue to lift B.B.U., he said. Gross profit margins in the second quarter widened to 53.8% from 51.2% in the second quarter of 2015. Year-to-date margins were 53%, up from 50.4%.
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| Fred Penny, president of Bimbo Bakeries USA |
“We had really three components that drove gross margin expansion in North America, favorable product mix, commodity favorability, to your point and in the release, and productivity efforts across our supply chain,” he said. “And as we think about the second half, I’d say we expect the commodity favorability to lessen, it will lessen. I’d expect continued improvement or continued margin improvement from mix and from our productivity efforts ongoing in the second half, although at somewhat lower levels than we experienced in the first half.”
In a soft overall bread market, Bimbo branded sales rose 1% despite a drag from stock-keeping unit rationalization taking place as B.B.U. optimizes its portfolio, Mr. Penny said.
He predicted continued branded sales growth ahead, adding that current overall sales trends with regard to branded and private label will remain in place going forward.
Mr. Servijte also commented on the recently completed Panrico acquisition in Europe.
The $209 million transaction was first announced in July 2015, but only recently received approval from Spanish and Portuguese competition authorities. The company’s sales in 2014 were about $300 million. The company is a leading baker in Spain and Portugal in the sweet goods and buns and rolls categories. The company’s packaged bread business was not included in the transaction. The acquisition includes brands such as Donuts, Qé!, Bollycao, La Bella Easo and Donettes.
“We will end up with seven plants and approximately 2,000 associates,” he said. “We expect to capture substantial synergy opportunities during the integration process on the order of €40 million to €50 million on a yearly basis with an investment of €70 million in integration costs.”
Net majority income of Grupo Bimbo in the second quarter was 1,906 million pesos ($101 million), up 10% from 1,729 million pesos in the second quarter of 2015. Net sales were 60,626 million pesos ($3,212 million), up 14%.
For the six months ended June 30, Grupo Bimbo net majority income was 3,189 million pesos ($169 million) up 23% from 2,600 million pesos. Sales were 117,202 million pesos ($6,210 million), up 13%.
