Strong U.S. operations boost Gruma earnings

by Eric Schroeder
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Mission tortilla products, Gruma
Average prices in Gruma's tortilla business helped to offset the corn flour price reductions.

MEXICO CITY — Strong operational performance in the United States again boosted results at Gruma S.A.B. de C.V. in the third quarter of fiscal 2017.

In the quarter ended Sept. 30, Gruma USA had operating income of 1,438 million pesos ($77.1 million), up 14% from 1,257 million pesos in the same period a year ago. Net sales, meanwhile, fell 1% to 9,882 million pesos ($530.6 million) from 9,947 million pesos.

Gruma said operating margin improved to 14.6% from 12.6%, reflecting lower raw material cost, better sales mix and benefits from selling, general and administrative expenses and hedging activities.

The decline in sales reflected corn flour price reductions in October 2015 that were implemented to reflect lower corn costs, Gruma said. However, average prices in the tortilla business, resulting mainly from the shift from food service to the retail segment, helped to offset the corn flour price reductions, the company said.

Corn flour
Gruma's decline in sales reflected corn flour price reductions in October 2015 .

Gruma experienced a 1% increase in sales volume to 342,000 tonnes from 340,000 tonnes the year before.

“Corn flour sales volume rose 5%, driven by 1) higher sales to manufacturers of tortilla-related products due to successful promotions at large restaurant chains; 2) higher sales to food service distributors and wholesalers, who continue to benefit from growth at independent Mexican food restaurants and small tortilla companies,” Gruma said. “The tortilla business declined 2%, driven by the food service channel in connection with the company’s decision to stop supplying some s.k.u.s (stock-keeping units) in order to continue focusing on high margin products. Also, food service sales volume was affected by weaker performance of some customers.”

Cost of sales as a percentage of net sales improved to 56.7% from 58%, Gruma said, driven by tortilla and corn flour operations.

Guerrero tortillas, Gruma
Gruma experienced a 1% increase in sales volume to 342,000 tonnes from 340,000 tonnes the year before.

“This reflected mostly 1) lower raw material costs, especially corn and wheat flour; 2) the shift in the sales mix from food service to retail in the tortilla business; and 3) better sales mix toward high margin products within retail tortilla,” Gruma said.

Gruma said it incurred $58 million in capital expenditures during the third quarter and $187 million year to date. During the third quarter, the company allocated expenditures to the United States (in connection with the expansion of a tortilla plant in Florida and a corn flour plant in Indiana), to Europe (for a new tortilla plant in Russia), to Asia (for a new tortilla plant in Malaysia), and to Mexico (for a new tortilla plant and the reopening of a corn flour plant in Central Mexico).

Overall, majority net income at Gruma S.A.B. de C.V. in the third quarter was 1,535 million pesos ($82.5 million), up 11% from 1,383 million pesos in the same period a year ago. EBITDA was 2,806 million pesos, up 16% from 2,412 million pesos, while sales increased 12% to 17,209 million pesos from 15,313 million pesos. 
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