MEXICO CITY — Sales growth across all key categories of branded products fueled strong fourth-quarter sales at the North American business of Grupo Bimbo SAB de CV. Adjusted EBITA margins widened sharply.
For the year ended Dec. 31, 2020, operating income of Bimbo Bakeries USA was 11.2 billion pesos ($542 million), up 84% from 6.09 billion in 2019. Sales were 176.4 billion peso ($8.545 billion), up 22% from 144.01 billion in 2019.
In the fourth quarter, BBU operating income was 3.64 billion pesos ($177 million), up 148% from 1.47 billion in October-December 2019. Sales were 44.54 billion pesos ($2.16 billion), up 19% from 37.37 billion pesos a year earlier.
Bimbo said business in North America was strong across all key categories. Foodservice and convenience channels were weak. The company’s fourth-quarter EBITDA margins widened 270 basis points, mostly due to the strong sales, favorable commodity prices and productivity savings. COVID-19 related expenses were an offset.
The strong North American results were part of a record year at Grupo Bimbo, said Diego Gaxiola, chief financial officer.
“In 2020 we reached record levels for net sales and adjusted EBITDA, we doubled our gross cash flow and reached the lowest leverage of the past 10 years,” Mr. Gaxiola said. “We start 2021 stronger than ever and despite the tough comparable, we are ready to continue strengthening our financial position.”
Reviewing fourth-quarter results during a Feb. 24 conference call with investment analysts, Daniel Servitje, chief executive officer, identified numerous highlights, including the record profit margins.
“We were able to gain market share in all our branded categories, especially in breakfast from the Thomas’ bagels brand, buns and rolls driven by Ballpark brand strength and sweet baked goods where Entenmann’s outperformed the category. We also continue to see strong performance of the retail channel, which includes grocery, mass merchandising and club, and the e-commerce channel more than doubled its size. We gained millions of new households due to the exposure of our brands in the pandemic, which we intend to retain by continuing to add incremental marketing investments and excellent in-store execution.
“Due to the lack of demand as customers continue to lean toward branded products, volumes continue to be soft across the private label category and in foodservice as institutions, and school closings persist through the pandemic. Our adjusted EBITDA margin reached a record level, reflecting the strong sales performance, lower commodity prices and productivity benefits from past investments, which were partially offset by one-time expenses incurred due to the coronavirus as well as statistic investments in our brands.”
Responding to an analyst question, Fred Penny, president of BBU, cautioned that the outlook for 2021 in the United States rests on the success of the currently expanding vaccination program and other efforts to curtail the COVID-19 pandemic. He said Bimbo and other food companies likely will be unable to match second-quarter sales figures, when panic buying by consumers was rife.
“So the question then becomes what’s going to happen in the back half of the year, and that really depends on lots of things like availability of vaccine, when are schools going to be fully back in, when are colleges going to be fully back in, what happens with changes in work from home versus work from office, etcetera,” he said. “And that remains to be seen. I wouldn’t want to overly speculate on that. But we’ve had strong brand performance across most of our categories. We’re working hard to continue that. And at the same time, we hope for recovery in segments of our foodservice business, if you think about that as a different channel.”
Reflecting the company’s optimism about the future, Mr. Servitje said capital expenditures are expected to total close to $1 billion.
“We think we will have very strong capex for 2021, which basically reflects the delayed projects as well as specific categories where we need to increase our capacity given the growth that we had in our product lines,” he said. “So that happens all around the world, and that’s why we are basically strengthening the capex program as well as to include significant investments in renewing our IT infrastructure and becoming more digitalized in our different processes.
“We’re also upping our investments in electric vehicles and, in some cases, also investing in renewable energy on our rooftops and in some other areas. But the majority of the investments go basically to the plants, the bakeries and increasing the developing capacity. And let me tell you that, definitely, we will also take a look at the opportunities in terms of share repurchasing as we have done in the past.”
Later, Mr. Servitje said almost half of the capital expenditures — $400 million to $500 million — will go to regular maintenance initiatives, one of three capex budgets he identified.
“We have the other two buckets that we have also been investing proactively, which is growth and productivity,” he said. “In terms of growth, this is the one that is going to be demanding more resources for 2021, either in new lines, new plants. We are also investing a little bit more, although it’s not entirely moving the needle as big as these growth initiatives, is on the digital transformation and technology investments that we plan to do in the company for ‘21 and I'm sure it will be the case for 2022.”
Combined in most years, the capex spending totals $700 million to $800 million, he said.
Mr. Gaxiola offered guidance for 2021. Because of the disruptive nature of the pandemic, Bimbo is setting comparisons for 2021 against 2019, a pre-pandemic year, as well as 2020.
“Versus 2019, we are expecting a low double-digit growth rate for our sales and mid- to high teens for our adjusted EBITDA,” he said. “While versus 2020, our sales and adjusted EBITDA will remain essentially flat.”
Other recent developments highlighted by Grupo Bimbo included an agreement to acquire a production plant in Medina del Campo, Spain, from Cerealto Siro Foods and the acquisition of Modern Foods, a leading baking company in India. The company said it has raised its use of renewable electricity globally to 80% from 49%, a major step toward a commitment to achieve 95% renewable electricity by 2023.
Of the investment in Spain, Mr. Servitje said the plant manufactures sweet baked goods for Mercadona (a major supermarket chain) and other customers.
“This acquisition allows us to enter the sweet baked goods private label market in Spain,” he said. “It’s still subject to regulatory approval.”
Net majority income of Grupo Bimbo in 2020 was 9.11 billion pesos ($443 million), up 13% from 291.93 billion in 2019. Sales were 331.05 billion ($16 billion), up 13% from 2019 sales of 291.93 billion pesos.
In the fourth quarter, Bimbo’s net majority income was 2.89 billion pesos ($140 million), up 58% from 1.83 billion in the final quarter of 2019. Fourth-quarter sales were 84.78 billion pesos ($4.107 billion), up 12% from 74.46 billion.