MEXICO CITY — Consumer shifts to private label and value channels pressured the North American business of Grupo Bimbo SAB de CV in the second quarter of 2024, the parent company’s new chief executive officer said. Operating income of the North American business tumbled in the quarter.

Soft top-line results were “due to private label and consumers migrating to private label and value channels” and “constrained” consumption, said Rafael Pamias, CEO, in a July 24 conference call with investment analysts. The call was the first as CEO for Pamias, who on May 1 succeeded Daniel Servitje in the role. During the call Pamias and other Bimbo executives spoke optimistically about traction the company’s brands were gaining in North America while also voicing caution about a generally weak consumer environment.

Operating income of Bimbo’s North American business in the three months ended June 30 was 1.78 billion pesos ($95.4 million), down 46% from 4.41 billion in the second quarter last year. Operating margin tightened to 3.9% from 6.8%. Net sales in North America were 43.37 billion pesos ($2.32 billion), down 7% from 48.56 billion pesos a year earlier. Excluding the effects of foreign exchange, sales were down 3.4%. Bimbo said the sales decrease mostly was due to a difficult comparison with the second quarter last year when sales were up 12%. Other factors cited included “an industry-wide weaker consumption environment and strategic exits of some non-branded business.”

Bimbo said sweet baked goods and salty snacks performed well during the quarter.

Explaining the tighter margins, Bimbo cited weaker volume and “transformational investments across the value chain.”  Bimbo said the investments would “enable long-term growth and strong productivity benefits.” Additionally, the company said strength in the Mexican peso raised the cost of importing product from Mexico.

“This was partially offset by lower commodity costs and strong productivity benefits,” the company said.

Diego Gaxiola, chief financial officer, noted that Bimbo’s North America business saw margins under pressure despite lower commodity costs, a tailwind he said the company had anticipated.

“As was mentioned six months ago when we talked about the expectations for 2024, we were also expecting to see even an easier comparison for the second half of 2024,” he said. “And that’s why we, because of commodities, but also because of the performance that we have started to see in the US and some other countries, we feel confident that we will start to see margin expansion for Grupo Bimbo in the second half.”

Elaborating on the situation with private label, Pamias said the company has made the conscious decision to exit certain private label businesses that “frankly just didn’t make sense for us,” and he added that consumers are becoming more value conscious. He said private label will remain a “strategic part” of Bimbo’s business, principally where “it makes sense with our customers and we’re building partnership with customers.”

“We’re strongly a branded company and we’ll continue to be so,” he said.

Pamias said Bimbo was evaluating its approach to promotions to ensure pricing is competitive and that the company maintains “the right price-volume equation.”

“Our promotional activities continue to drive consumer engagement and market penetration while supporting an anticipated modest sequential improvement in volume throughout the remainder of the year,” he said. “We continue to expand our distribution to meet the consumer where they shop and provide the right value for them aligned with channel and value pack offerings, and we’re building on our tailwinds as we see continued growth with the Rustic brand, Artesano bread brand, Marinela brands and our salty snacks business.”

While Pamias and other Bimbo executives were generally upbeat about prospects for remainder of the year in North America, Gaxiola said Bimbo was holding its guidance steady for the balance of the year “mainly because the overall consumer environment in North America continues to be challenging.” This concern offset the benefits of strong results during the second quarter in Bimbo’s Mexico and Europe/Asia/Africa businesses.

Mark Bendix, executive vice president, emphasized the effects of a tough consumer environment on the North American business.

“We’ve seen that across other CPGs (consumer packaged goods companies),” he said. “…But consumers want more value to stay with our brands and so to meet that consumer, we’re providing different tactics to be deployed in a very strategic manner to ensure a positive ROI (return on investment) for Grupo Bimbo. We continue to expand our distribution to meet the consumers wherever they shop. We continue to invest in our brands through innovation.”

Bendix said the Rustik, Artesano and Marinela brands were “resonating very well.” He said easier comparisons in the second half of 2024 are fueling optimism about prospective results.

“We continue to see inflationary pressures moderate versus the prior year, but certain agricultural commodities may continue to be elevated as we know,” he said. “We’re adding manufacturing, distribution and go-to-market capacity to support our growth. And we believe we have the right people, the strategies and advantage capabilities to succeed in the marketplace.”

Meanwhile, the company has announced plans to close three baking plants in the United States.

Expectations that the Mexican peso will soften in value contribute to optimism about the US business in coming months, Gaxiola said.

“As you know, we have an important amount of imports in the US of products produced in Mexico that today are expensive to the US market that we believe will start to be a little bit more profitable in our US operations,” he said.

Net majority income of Grupo Bimbo SAB de CV was 3.32 billion pesos ($178 million), down 16% from 3.96 billion in the second quarter last year. Sales were 98.09 billion ($5.25 billion), down 1.9% from 100.04 billion a year earlier. Net sales were up 4.4% for the quarter in Mexico, 4.3% in Europe/Asia/Africa and down 1.6% in Latin America. Operating income rose 9% in Mexico and 1,300% for EAA while decreasing 7% in Latin America.