MEXICO CITY — While Grupo Bimbo SAB de CV generated record financial results in its most recent quarter, margins have remained under pressure with no letup on the immediate horizon, top executives of the company said. Additionally, high prices have led consumers to trade down to lower-priced options.

“Despite significant inflation pressures impacting every aspect of our business, we improved our profitability,” Daniel Servitje, chief executive officer of Grupo Bimbo, said in an Oct. 27 conference call with investment analysts. “However, as expected, adjusted EBITDA margin contracted 120 basis points. As inflationary pressures continue, we have seen improving trends in private label and some branded volume elasticity. We continue to innovate, invest in our brands and remain confident that the breadth of our portfolio positions us favorably to navigate through macroeconomic uncertainties.”

As part of the earnings announcement, Bimbo said it has acquired St Pierre Group, a baker of premium brioche-style products based in the United Kingdom.

Profits of Bimbo’s North American business were solidly higher despite the tighter margins in the third quarter ended Sept. 30. Sales were higher in the quarter. Operating income in the quarter was 5,159 million pesos ($260 million), up 63% from 3,162 million in the same period last year. Results were boosted by a $66 million non-cash benefit related to an adjustment of Bimbo’s multiple-employer pension plan (MEPP) because of higher interest rates. Adjusted EBITDA of the North American business, which excludes the effects of the MEPP adjustment, was 6,213 million pesos ($313 million), up 10% from 5,661 million a year earlier. Adjusted EBITDA margins in the quarter were 11.7%, down 120 basis points from the third quarter of 2021 but significantly better than the 10.8% EBITDA margin in the second quarter of the current year.

Net sales in the third quarter were 52,955 million pesos ($2.67 billion), up 20% from 44,028 million a year earlier. Sales were up 19% in US dollars, performance the company attributed to the “successful implementation of the pricing strategy across categories and channels, while experiencing continued market share gains in all categories.”

Mr. Servitje said higher prices have begun to cause modest “slippage in volume” in the United States and Canada. He said Bimbo is being careful about price increases, using “revenue and growth management practice to help our consumers navigate in this environment.”

Mr. Gaxiola said the prices also have led consumers to turn to lower priced options.

“We have started to see some down trading, if you will, which I don’t think is unexpected given the amount of inflation that consumers are dealing with, the amount of pricing that they’ve had to incur,” he said.

Later in the call, Fred Penny, president of Bimbo Bakeries USA, was asked whether a shift toward premiumization would be slowed given the current inflationary environment. He noted that Bimbo Bakeries USA is well positioned in multiple categories, including “mainstream bread and buns” and up to premium brands such as Arnold, Brownberry and Oroweat. He traced Bimbo’s pricing actions over the past two years.

“Through three price increases, our brands pretty much across the board have held up well,” Mr. Penny said. “What we’ve been doing to support that is continuing to invest more and more in terms of brand marketing and brand support, and we continue to refine how we do that and to make our dollars work harder, if you will. And I think that’s paid dividends in an environment where we’ve had to take pricing. We continue to put innovation into the market and we’re going to continue to do that going forward.

“I think the issue of down trading and price elasticity, frankly, what we’ve begun to see is some evidence, given the amount of pricing that the industry and others have put into the market out of necessity. But I’m pretty confident in the strength of our brands and the resilience of our brands. Now, predicting the future here is difficult because we’re in uncharted territory in terms of the sheer inflation we’re dealing with and the need for the pricing that we’ve been taking. But all in all, I think we’re — I would say we’re pretty positive about the strength of our brands and the resilience and the consumer acceptance of our brands. We really cut across the full range of value, if you will, in our portfolio, an important strength that we have.”

Additional price hikes will be necessary, Mr. Penny said. He added that this will need to be coupled with even greater attention to managing costs and driving productivity across the company.

“Whether it’s transportation, labor, which is one of the biggest issues we’re dealing with temporary help, I can go down the list,” he said. “And we’ve got to get more aggressive about managing those costs to take costs out of our business as we do what we have to do from a market standpoint on pricing. But pricing is not the only lever that we have to pull, and we’re going to be much more aggressively focused on cost reduction going forward.”

The 120-point drop in profit margins from a year ago was attributed to a highly inflationary environment, including for commodities and labor costs. Also pressuring margins were “challenges and shortages across the supply chain,” Bimbo said.

“This will continue throughout the rest of the year, even with our successful pricing strategy and revenue growth management initiatives, resilient volumes and efficiencies in the supply chain,” said Diego Gaxiola, chief financial officer of the margin pressure. “Specifically, we will see more pressure during the fourth quarter because of the commodity hedges we implemented back when the Russia-Ukraine war began, but we remain confident that we will accomplish our expectations for the year. We have also achieved productivity savings coming from capital and restructuring investments we have made, which enable distribution efficiencies, automation improvements and integrated systems solutions.”

In 2023, commodity prices are expected to remain volatile, Mr. Gaxiola said.

“We are hedged an important part of the first half of the year, and we will continue to hedge according to our policy,” he said. “Even with the uncertainty of the economic environment, we are optimistic that 2023 will be a year where we would continue to realize the benefits of our growth strategy and productivity initiative.”

Net majority income of Grupo Bimbo in the third quarter was 6,062 million pesos ($306 million), up 51% from 4,021 million pesos in the third quarter of 2021. Net sales were 102,821 million pesos ($5.2 billion), up 20% from 85,659 million.

The quarter was the first ever that Bimbo sales topped 100 billion pesos, Mr. Gaxiola said.

Adjusted EBITDA was 14,505 million pesos ($732 million), up 20% from 85,659 million in the third quarter last year. Bimbo credited the sales increase to strong price/mix performance and volume increase.

Reflecting a rising interest rate environment, Mr. Gaxiola said Bimbo’s financing cost jumped almost 24% in the quarter. A slight increase in the company’s borrowings also contributed.

“Top-line performance was exceptional in this third quarter,” Mr. Servitje said. “We reached a record level of sales and profits, our volumes continued to grow despite price increases and our revenue growth management initiatives are increasingly being reflected in our results. The inflationary environment we are currently living in has been very challenging, yet we have been able to navigate through it thanks to the resiliency of our categories and the high demand for them, the hard work of our associates, the trust of our consumers and customers and the strength of our brands which continue to resonate globally.”

Mr. Gaxiola said Bimbo volumes and sales have exceeded the company’s expectations despite the many challenges the company faces.