MEXICO CITY — Operating income of the North American business of Grupo Bimbo SAB de CV fell sharply in the third quarter ended Sept. 30. While Bimbo attributed the decrease principally to investments the company was making in the business to improve efficiencies, lower sales in the quarter, as measured in US dollars, also were a factor.

At 1.77 billion pesos ($88 million), operating income in North America was down 43% from 3.12 billion pesos in the third quarter last year. Net sales were 49.93 billion pesos ($2.49 billion), up 6% from 47.24 billion pesos in the same period a year ago. Excluding the effects of foreign exchange, quarterly sales in North America were down 5%.

Operating profit margin tightened by 1 percentage point, to 8.8%, Bimbo said.

The earnings decrease was “primarily due to investments in North America’s value chain, which will enable long-term benefits, and to the closure of three facilities in the US to maximize the industrial footprint,” the company said. Bimbo noted that baking plants were shuttered during the quarter both in Canada and Spain.

A partial offset to the margin pressure was lower commodity costs and productivity benefits, Bimbo said.

Bimbo attributed the sales decrease to “the continued industry-wide weak consumption environment and strategic exits of some non-branded business.” A partial offset in the quarter were unit share gains in the bagels, sweet baked goods and snacks categories.

In his opening remarks during an Oct. 29 call with analysts, Rafael Pamias, chief executive officer, highlighted how strong results outside of the United States helped offset disappointing performance in North America. In addition to robust growth in Mexico, Pamias said Bimbo achieved “remarkable results” in EAA (Europe, Asia and Africa), generating record EBITDA margins for the region, at 10%.

“These successes helped offset the difficult environment in North America where, while we observe improvements compared to the first half of the year, consumption remains soft,” Pamias said.

Economic uncertainty remained a headwind for Bimbo’s US business in the third quarter, Pamias said. He cited a “continued industry-wide weak consumption environment driven by a stressed consumer seeking value from extended inflation pressures,” to explain the drop in sales, adding that the company’s decision to strategically exit certain non-branded business also was a factor.

“Within this tough context, the good news is that we are generally seeing a slightly improved trend sequentially,” he said. “In fact, our branded business is already flat on a volume basis, and we have grown unit share in bagels, sweet baked goods, and snack categories.

“We continue to evaluate promotions to ensure we have competitive pricing in the marketplace and enable the right price volume equation, while continuing to drive consumer engagement and market penetration. We are making efforts to expand our distribution to meet the consumer where they shop and provide the right value for them through price pack architecture aligned with the channel.”

A weakening of EBITDA margins, down 140 basis points, was attributed by Pamias to “strategic investments to lower our cost and expanding our value chain to increase our capabilities to better serve more customers and consumers.”

Commenting on the sales decline, Diego Gaxiola, chief financial officer, said the biggest factors were investments the company has been making to “transform our value chain” and one-time expenses associated with baking plant closings. He added that top-line weakness was a factor to a “lesser extent.”

Asked whether promotional activity was on the increase, Mark Bendix, executive vice president of Grupo Bimbo, discussed the company’s efforts to strike the right level of promotional activity while also investing in other ways to offer consumers greater value. Examples he offered included price reductions, promotions, smaller offerings and improved in-store availability. The efforts have “slightly improved volume,” Bendix said.

“I will say that we’re not seeing the same kind of response in promotions that we had seen in previous years,” he said. “So we’re using our RGM (revenue growth management) process to continue to evaluate our promotions and gearing our new efforts on price pack architecture to meet the changing consumer need. We plan to continue to compete and to focus to provide the right value propositions that meet the needs of all of our consumers across all of our categories and all of our channels. We’re using and developing new offerings to win that value conscious consumer.”

Bendix also mentioned the unit market share gains in the bagels, sweet goods and snacks categories. He called the categories important to the company’s success in the United States.

Another non-cash factor weighing on results in the quarter, cited by Gaxiola, was higher interest rates, requiring Bimbo to take a charge against earnings for its remaining multi-employer pension plan liability.

Looking forward, Bimbo executives highlighted hopeful signs in consumption trends while also cautioning that fourth-quarter business is likely to still be characterized as week.

While charges already have been taken in connection with the announced plant closings, Gaxiola said Bimbo expects further cash and non-cash charges during the fourth quarter of this year. He said the company still expected to be “on target” with its guidance for the year, though he acknowledged that the North American business has not met expectations.

“With the soft consumer environment, we believe the fourth quarter will be a little bit on the same trend,” he said.

Net majority income for Grupo Bimbo SAB de CV in the third quarter was 3.7 billion pesos ($180 million), down 12% from 4.18 billion a year earlier. Sales were 106.05 billion pesos ($5.3 billion), up 7% from 98.78 billion.

In addition to the strong performance in Europe, Asia and Africa, the company enjoyed a jump in EBITDA margin in Mexico to nearly 22%, boosted by strong volume.

“This quarter’s results were good and a perfect example of the benefits of being a well-diversified company not only in terms of categories and channels, but also in terms of currencies,” Gaxiola said. “We achieved an all-time high in sales, a favorable mix evolution, and we continue to benefit from lower commodity prices and the acquisitions made in the past, resulting in a record adjusted EBITDA margin for a third quarter.”

Overall adjusted EBITDA was 15.6 billion pesos ($774 million), up 8%, with the margin widening 10 basis points to a record 14.7%. It was the second straight quarter the company’s adjusted EBITDA margin was a record high.

Total debt at Bimbo as of Sept. 30 was 146 billion pesos ($7.25 billion), up from 110 billion as of Dec. 31.

“The increase was primarily due to financing for capital expenditures, strategic investments during the year and the impact of the 16.1% depreciation of the Mexican peso,” Bimbo said.

The company said its average debt maturity was 11.5 years with an average cost of 6.6%. Just over half of the company’s debt is denominated in US dollars with 38% in Mexican pesos, and 9% split between Euros and Canadian dollars.

Bimbo’s net debt to adjusted EBITDA ratio was 2.8 times. Responding to a question about the company’s debt, Gaxiola said it was a bit higher than the company targets.