MEXICO CITY — Consumer demand has been resilient in the face of steadily rising prices, perhaps more resilient than expected, according to top executives at Grupo Bimbo SAB de CV. Commenting on financial results and answering analysts’ questions, Bimbo’s leaders extensively discussed the pricing and demand environment for baked foods amid the highest cost inflation in a generation.

“We haven’t seen consumers trading down as demand continues to be very strong, and it is reflected in our volume growth,” Diego Gaxiola, chief financial officer, said during a July 21 conference call.

While demand has held up and Bimbo has raised prices repeatedly, the company has endured margin pressure as it fights to keep up with costs.

Operating income of the North America business of Grupo Bimbo in the second quarter ended June 30 was 4.8 billion pesos ($233 million), up 84% from 2.61 billion pesos in the second quarter last year. Sales during the quarter were 49.45 billion pesos ($2.4 billion), up 16% from 42.54 billion pesos in the second quarter a year earlier.

Results were boosted by a non-cash benefit associated with a $90 million adjustment in the company’s multi-employer pension plan liability due to rising interest rates. Bimbo’s EBITDA margin, which excludes the MEPP liability adjustment, was 10.8% in the second quarter, down 2.1 percentage points from 12.9% in the second quarter last year. EBITDA margins in the first quarter of 2022 also were 10.8%.

“North America region margin contraction of 210 basis points was mainly due to a higher inflationary environment, including commodities, labor costs, as well as challenges and shortages across the supply chain,” Bimbo said. “This was partially offset by the strong sales performance, favorable branded mix and productivity benefits from past restructuring investments.”

Daniel Servitje, chief executive officer, said inflation has been felt in prices for commodities, freight and labor. Additionally, the company has grappled with supply chain challenges and shortages.

“We have been leveraging many tools to affect this rising inflation, including revenue growth management strategies, category and product mix, pricing actions and pursuing many product productivity initiatives,” he said. “We will continue this approach throughout the year to proactively look for restructuring opportunities across the value chain and to deploy our digital transformation strategy. Looking ahead to the second half of the year, we remain confident we will be able to reach our goals and guidance.”

Echoing Mr. Gaxiola’s comments about demand elasticity, Fred Penny, president of Bimbo Bakeries USA, said the business he oversees “has held up well” both in terms of tonnage and revenue. The company’s latest price increase is quite recent, but to date, signs of price elasticity from this price move and earlier ones have been minimal, he said.

“So we feel pretty good about that across most of our categories, not all of our categories, and we’re continuing to evaluate in a really difficult inflationary environment, the need for potentially additional pricing later in the year,” Mr. Penny said. “The inflation pressures continue to be strong pretty much across the board.”

Mr. Gaxiola said the company is 100% hedged for 2022, adding that Bimbo is dealing with ingredient purchases made earlier in the year.

“What we’re going to see are basically previous prices of commodities, which were higher, and that’s going to be reflected and putting some additional pressure to our gross margins in the second half of the year,” he said. The company has just barely begun taking coverage for 2023.

Asked about episodes four or five years ago when Bimbo had to reverse course on price increases because of customer and consumer resistance and whether the company faces similar risks now, Mr. Penny identified major differences from the pricing environment in the late 2010s.

“The first is the obvious one, which is the impact that COVID has had on consumer behavior and consumption at home,” he said. “If you had asked me maybe a year ago or 1.5 years ago, was that sustainable or was that going to continue, I would have been skeptical, and I would have probably said I think it might revert to a degree to more food away-from-home consumption.

“But the reality of it is that really hasn’t panned out. Now we’re 2.5 years into the COVID pandemic. I think consumers have discovered that they can consume more food at home with value, whether they do that by e-com buying or click-and-collect or whatever the format is, certainly, that has been a huge shift that the industry hadn’t experienced prior.”

A second difference identified by Mr. Penny is the magnitude of current inflation and its “breadth and depth” versus what was experienced a few years back.

“We’ve had prior years where we’ve had significant commodity inflation or a runup in wheat, and then it came back down,” he said. “But we're in a different place altogether now with broad-based inflation and pressuring almost all of our input costs. And so I think that’s given not just our industry, but many industries, sort of a wake-up call of how do you deal with that. And I think the result of that is that pricing has been put into the market that needed to go into the market. And so far, it’s held up, but we’ll see where we go from here.”

Asked whether the softening economy has been reflected in weaker demand from foodservice customers, Mr. Penny said not yet.  While conceding the situation could change if economic weakness worsens, Mr. Penny added, “I would say, in general, (foodservice demand) has been more of a recovery mode continuing to come out of the impacts of COVID over the last couple of years. We’ve not seen a significant shift in foodservice business to the downside.”

Grupo Bimbo net majority income was 6.15 billion pesos ($299 million) in the second quarter, more than double 4.03 billion in the second quarter last year. Net sales were 96.43 billion pesos ($4.7 billion), up 18% from 81.65 billion the year before.

“Top-line performance was exceptional in this second quarter, as we reached a record level of sales and saw broad-based share gains across our portfolio,” Mr. Servitje said. “Our volumes strongly grew across all our regions as a reflection of the high demand we are experiencing as our brands continue to resonate with our consumers. We will continue to invest in our brands as we move forward.”

With strong second-quarter sales and pressure on margins, Bimbo has updated its 2022 guidance. The company now expects top-line growth in the low- to mid-teens, up from previous guidance of low double digits, Mr. Gaxiola said. He said adjusted EBITDA will grow at a high single-digit rate.

Bimbo is trimming its capital expenditure forecast for 2022, Mr. Gaxiola said. The reduction reflects a slower pace of projection completion rather than cutbacks in planned investment.