East Balt multigrain buns
Grupo Bimbo sees its recently acquired East Balt business spurring global growth.

MEXICO CITY — Operating income of the North America business of Grupo Bimbo S.A.B. de C.V. rose in the second quarter ended June 30, but the company cited numerous drags on profitability and sales during the period.

In addition to announcing financial results, Grupo Bimbo issued further background information on its recently announced agreement to acquire East Balt Bakeries from One Equity Partners. The backgrounder noted that East Balt has achieved solid global sales and EBITDA growth over the last five years.

At 2,272 million pesos ($127 million), operating income of Bimbo’s businesses in the United States and Canada was up 10% from 2,063 million pesos in the second quarter of 2016. Quarterly sales were 34,024 million pesos ($1,905 million), up 1.8% from 33,613 million.

Bimbo Bakeries USA plant in Sioux Falls, South Dakota
Bimbo closed two U.S baking plants in the first quarter.

Year-to-date operating income was 3,678 million pesos ($206 million), up 14% from 3,226 million. Sales were 68,206 million pesos ($3,820 million), up 7% from 63,794 million. 

Enhanced efficiencies helped lift operating income in the United States, though two labor strikes in Canada were a drag. Bimbo closed two U.S. baking plants in the first quarter, and charges associated with the moves and other restructuring expenses weighed on profitability over the six-month period.

Bimbo attributed the year-to-date sales gain to an exchange rate benefit, the growth of branded business (especially its strategic brands) and market share gains in the United States. The Little Bites brand in the United States and tortilla and bagel categories in Canada were strong performers. Drags on the business were poor sales of private label and frozen baked foods as well as pressure on the premium category. As a result, dollar sales during the six-month period declined 1%.

Grupo Bimbo frozen baked foods
Poor sales of frozen baked foods were a drag on the business.

Net majority income at Grupo Bimbo in the second quarter was 1,497 million pesos ($84 million), down 19% from 1,847 pesos during the second quarter last year. Sales were 65,115 million pesos ($3,646 million), up 7% from 61,040 million pesos in the same period in 2016.

Year-to-date consolidated income was 2,493 million pesos ($140 million), down 24% from 3,275 million pesos. Six month sales were 131,195 million pesos ($7,347 million), up 11% from 118,115 million pesos.

In addition to the impact of tighter profit margins, the lower majority income was due to a higher effective tax rate (44.5%, versus 41.2% in the second quarter last year). The increase reflected, in part, higher U.S. profits and a higher tax rate there.

East Balt bun on chicken sandwich
Leading East Balt customers include McDonald’s, Wendy’s, Burger King, KFC, Pizza Hut, YumChina, Subway and Nando’s.

Offering additional color about the East Balt acquisition, Bimbo said 32% of East Balt’s sales are in the United States, 25% in Asia and 43% in the rest of the world. The company operates three plants in the United States, five in Western Europe, two in Russia/Ukraine, four in the Middle East and Africa and seven in Asia. Leading East Balt customers include McDonald’s, Wendy’s, Burger King, KFC, Pizza Hut, YumChina, Subway and Nando’s.

East Balt’s annual sales of $420 million have been growing at a 3.6% compound rate over the last five years while EBITDA of $70 million has been growing at a 7% rate.

For Grupo Bimbo, the transaction will be accretive to margins, earnings per share and profitability, Bimbo said. East Balt will give Bimbo better access to global markets “where bread consumption through the Q.S.R. (quick service restaurant) channel is high,” the company said.

When the transaction is completed, Grupo Bimbo will be operating 196 baking plants in 32 countries together with 56,000 routes, 1,700 sales centers and 2.9 million points of sale. The company will have 136,000 associates.