MEXICO CITY — An especially sluggish start of the year for the baking business and across the food sector proved a serious drag for quarterly sales at Bimbo Bakeries USA. In an April 27 conference call with investment analysts, executives from Grupo Bimbo S.A.B. de C.V., B.B.U.’s parent, said the company held its own during the quarter.
As previously reported, operating income of the North American business of Grupo Bimbo S.A.B. de C.V. was 1,406 million pesos ($74 million) in the first quarter ended March 31, up 21% from 1,163 million pesos in the first quarter of 2016. Sales were 34,002 million pesos ($1,789 million), up 13% from 30,181 million. The sales gain was attributed primarily to swings in foreign exchange rates.
|Guillermo Quiroz, c.f.o. of Grupo Bimbo|
“Despite overall softness in the market, we had a good start for the year,” Guillermo Quiroz, chief financial officer, said of B.B.U. results. “We grew market share with notable performance in both mainstream bread and sweet baked goods, partially offsetting pressure coming from our non-branded business, frozen and premium, the latter arising from a more competitive environment.
“As for our strategic brands in this market, better execution and focus are helping sales to trend positively. We feel good about our numbers considering market conditions. Our level of profitability is better, and we will continue to put our focus on growing our brands, pushing for greater efficiency with our supply chain and improving our D.S.D. (direct-store delivery) network.”
Mr. Quiroz said the closing of two baking plants, one in Sunbury, Pa., and a second in Lubbock, Texas, increased restructuring expenses during the quarter.
He painted a similar picture of the company’s situation in Canada.
“Volumes were soft in the overall commercial bread category due to a challenging competitive environment,” he said. “Yet our numbers were better than the market’s, with good results coming from categories like breakfast and snack cakes.”
Results in Canada continued to be affected by investments Grupo Bimbo is making there, including work on an enterprise resource planning migration (expected to be completed later in the year) as well as “efficiencies to achieve a leaner manufacturing profile,” Mr. Quiroz said. The company has closed two sales centers and plans to close two baking plants in coming months.
Commenting briefly on Grupo Bimbo’s recent acquisition of Stonemill Bakehouse in Toronto, Mr. Quiroz said the slow-crafted baking specialist will “help strengthen our competitive profile in the growing crafted bread category.” He said the Toronto-based company has annual sales of about C$18 million ($13 million).
“It has an excellent brand position and organic capabilities,” Mr. Quiroz said. “And in fact, we have already launched a new line of Stonemill organic bagels.”
Speaking about the North American business broadly, Mr. Quiroz credited the 21% gain in operating income and 120-basis-point widening of EBITDA margins to improved productivity, favorable product mix, foreign exchange and commodities.
Asked by an analyst about U.S. volume trends, Fred Penny, B.B.U. president, said branded sales were flat, but “focus brands” achieved growth. The picture was worsened by an especially poor start to the year in sectors extending far beyond, but also including, baking.
|Fred Penny, B.B.U. president|
“I’d add that in the first quarter, the first few weeks of the year, the first month of the year was extremely soft market-wide across many categories, particularly in the northeastern part of the United States,” he said. “And so the category got off to a slow start. You can see that evidenced in most product categories, food and nonfood, in terms of where the market was early on. But our trends improved as we went forward.
“I would say that in the bread space, in commercial bread, the market has been a bit more competitive, and I think that’s a reflection of the fact that there has been some softness and, obviously, the participants are trying to get some volume. But I wouldn’t characterize it as a major difference from where the business was last year or the category was last year.”
Similarly, Mr. Penny said B.B.U. has clung to what he described as a “fairly clear strategy on what we’re trying to do to generate top-line growth.” The strategy features a focus on key strategic brands with the investment of incremental marketing dollars toward those brands.
“At the same time, and this is also very important from the standpoint of our strategy, we’ve been working hard to improve our overall price realization through trade promotion effectiveness, and we continue to do that,” Mr. Penny said. “And in the quarter... my view of this is we did a very good job of that. Our price realization was actually slightly up.”
Pressed for further clarification of U.S. sales trends, Mr. Penny cited data pegging commercial bread and sweet goods as a $13 billion category, down in units and down during the quarter about 2%, weaker than the last four quarters overall. Still, he said growth opportunities have been identified within the broader baking business.“The sweet goods category overall actually has been growing, and we’re getting our share of that growth,” he said. “And so we have growth in some categories, some softness due to some competitive pressures and others. But I’m still tending to be optimistic about the ability through focusing on our best brands and investing in them correctly to generate growth, and we’re seeing that. But at the same time, we’re also working to make the overall portfolio more efficient. And so some of our nonstrategic stock-keeping units are continuing to be rationalized out, and that’s obviously a bit of a drag that we have to overcome. The main reason for our top line being slightly down is a continuation of softness in private brands, private label volume. And the negative run rate on private label hasn’t really changed much from what it was in 2016.”