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Good morning. My name is Richard, and I'll be your operator today. At this time, I would like to welcome, everyone, to the First Quarter 2020 Industrias Bachoco's Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Maria Jaquez. Maria, you may begin.
Thank you. Good morning, and welcome to Bachoco's First Quarter 2020 Conference Call. We released our financials yesterday after the market closed. If you need a copy of the release, please visit our website or request it from our Investor Relations department.
This morning's call contains certain information that could be considered forward-looking statements regarding anticipated future events and performance. These statements reflect management's current beliefs based on information currently available and are not guarantees of future performance and are based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our annual report or 20-F, which could make our current results differ materially from the forward-looking statements discussed in this call.
Except as required by applicable laws, Industrias Bachoco undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Lastly, unless otherwise indicated, the amounts mentioned in this conference will be figures of 2020 with comparative figures for the same period of 2019 in Mexican pesos. As a reference, the exchange rate as of March 31, 2020, was MXN 23.80 per U.S. dollar. Here with me are our CEO, Mr. Rodolfo Ramos; and our CFO, Mr. Daniel Salazar. Now I will give the call to Mr. Ramos.
Thank you, Maria, and good morning, everyone. Even with most of the conditions that we observed during the fourth quarter of '19 prevailed during the beginning of the first quarter of '20, supply and demand quickly got back in balance, allowing us to improve our results quarter-over-quarter. In Mexico, we observed an improvement in demand, particularly in our traditional markets, which allows to improve, not only in terms of volume sold, but also in prices.
In our U.S. operations, we observed some improvements in leg quarters and low prices, but continued observing pressure on white meat prices. Nonetheless, a better sales mix and more volumes sold, allowing us to reach a double-digit increase in net sales in this geography. Regarding our raw materials, corn and soybean meal prices, remained stable during the quarter. However, the Mexican peso depreciation at the end of the quarter partially offsets that benefit. As a result of conditions above, our total volume increased 6.3%, which in combination with better prices in poultry led us to an increase in total sales of 9.9% for the first quarter of 2020 when compared to the same period of 2019.
We reported an EBITDA of MXN 947.3 million with a margin of 6% and earnings per share of MXN 3.61 for the quarter. The company remained in a healthy financial condition, as we reached a net cash level of MXN 16,527.8 million, which will allow us to continue to support of our growth plans.
We are aware of the challenges and changes that our industry is going through. As part of our commitment with our people, business, community and planet, this year, we released our first public ESG report in which we integrate our main actions regarding this very important topic. For us, the focus on these 4 pillars are essential to be a competitive company in order to face any challenges that may come ahead, allowing us to be close to our consumers in a sustainable way every day.
Now Daniel will join us for a discussion of the financial results.
Thank you, Rodolfo, and good morning, everyone. As a result of the conditions, Rodolfo mentioned before, our company's first quarter of 2020 net sales totaled MXN 15,738.4 million, MXN 1,414.8 million or 9.9% higher than the MXN 14,323.6 million reported in the first quarter of '19. This increase was mainly a result of higher volumes sold across our business lines. For the quarter, sales in our U.S. operation represented 29.7% of our net sales, above -- of the 28% we reported in the same quarter of 2019.
The total cost of sales was MXN 13,557.3 million for the quarter, representing an increase of 8.3%. The increase in cost of the quarter was mainly due to more volumes sold, both in Mexican and U.S. operations. Gross profit for the quarter was MXN 2,181.1 million with a gross margin of 13.9%, a higher margin when compared with the 12.6% reported in the same period of 2019, mainly as a result of higher volumes sold.
Total SG&A for the quarter was MXN 1,572.7 million, representing 10% of our total sales, an increase of 6.7% compared with the first quarter of '19 in absolute terms. SG&A is mainly affected also by the higher volumes sold. However, as a percentage of sales, it was slightly lower than the 10.3% reported in the same period of 2019. Operating margin for the first quarter of 2020 was 3.8% compared to a 2.3% reached in the same period of 2019. Our EBITDA margin was 6% for the quarter, an increase when compared with the 4.6% in the first quarter of '19.
For the quarter, we have had a net financial income of MXN 2,426.5 million compared to a net financial income of MXN 76 million for the same period in 2019. This was a result of higher financial income, mainly due to an ex valuation since we have an important portion of our cash position in U.S. dollar terms.
Our total taxes were MXN 860.3 million for the quarter, higher than the MXN 108.7 million recognized in the same quarter of 2019. This increase was due to higher profit before taxes. All of the above led us to a positive net income of MXN 2,166.6 million for the quarter, resulting in a 13.8% net margin. This profit is higher than the MXN 298.8 million we reported in the first quarter 2019.
Net income per share was MXN 3.61 for the quarter.
Now going into our balance sheet. We kept a healthy financial structure with a net cash level of MXN 16,527.8 million, as Rodolfo mentioned before, when compared with the net cash of MXN 14,254.3 million we had at the end of the year 2019.
Our CapEx was MXN 292.7 million, a decrease of MXN 116.5 million when compared to the same period of 2019. Even when we are still in the path to support our organic growth, we are being more selective in the choosing of our projects in order to make sure that those CapEx provide the most synergies in volatile conditions we might face in the months to come.
In our 2020 Annual Shareholders Meeting we had last week, the company announced the payment of cash dividends in the amount of MXN 1.32 per share or MXN 15.84 per ADR. That's all. Thank you, and I will now turn the call back to Rodolfo for final comments.
Thanks, Daniel. Now we are entering into the second quarter facing unprecedented conditions globally. In the months to come, COVID-19 impacts are still difficult for us, not only regarding global markets, but also regarding the way people used to do things with us, particularly in the markets in which we compete. At the beginning of the second quarter, we are already starting to see some changes in the consumption dynamic. We are observing some changes between commercial channels, which are being the most affected in this regard. Nevertheless, we consider that we have the capacities and the flexibility in our people and facilities to act accordingly to those changes and challenges to come.
We are fully committed with our role as an essential sector. As a result, we are doing our best effort to supply our markets to make sure that our products reach the final customers in a timely and safe and clean form. With that, we reinforce our commitment with our people, community and business in order to always offer fresh, nutritious and healthy products, increasing the food quality of the consumer every day. With that, we will now take your questions.
[Operator Instructions] And our first question comes from Mr. Miguel Tortolero from GBM.
Congrats on the results. The first one, considering the evolution of the first quarter with a weak January and February and very strong March, how are you seeing volumes and pricing dynamics evolving during this part of the second quarter? And the second question is regarding plant shutdowns in the U.S. We have seen some news on shutdowns, especially on pork plants, which is creating some pork meat shortage. Have you seen any disruption in your operations? And what is it that you're doing to prevent any potential shutdown? And also in this regard, could you share your thoughts in terms of the potential effects on prices of the other proteins like chicken?
Well, the second question about the plants. Yes. In United States, we have seen some plants that shutdown because of this problem -- the COVID-19 problem. And that accounts close to 25% to 30% of the total capacity in the United States. But here in Mexico, 100% of the capacity is running, so the plants are running at full capacity. Our facilities are running at 100% capacity, and I don't see any effects. And about the prices, for sure, Mexico is a very important importer of pork, so I think can affect prices here in Mexico, that's a possibility because of prices at the end are going to be affected there because of the shortage that you already mentioned.
So chicken plants, even in the States, there is some disruption, but it's not that -- being like in pork. The most affected is pork, then beef and less affected is poultry in the United States. And here in Mexico, I haven't seen any plants affected by this problem. And everybody, including Bachoco, is -- we are doing everything in order to keep our people safe. We implement a lot of things. For instance, we move our people in dedicated service buses, and we reduced the capacity of those buses by half. We test the temperature of any employee that go into these -- those buses. We provide mask and a lot of measures that we did in order to maintain the safe distance and a lot of other measures to prevent -- to maintain free of any infection of our employees and trying to do our best in order to maintain the actual status in that regard.
About -- the first question about the volumes. In the first quarter, the offer was in very good balance with the demand. We saw at the end of the quarter, an increase in demand, mainly because the panic shoppers and that a lot of people overstock, mainly in eggs and chicken. I see those products were very good received for the consumers, has a very good price for these healthy products and safety in terms of [ inner belief ], and for that reason, a lot of consumers prefer those products and they at times jump in and increase a little bit the demand at the end of the quarter. In the second quarter, we are seeing reduction in the demand because of the economic crisis. There is a lot of people with no jobs. And we are seeing a very tight economic situation. So the consumption and our projections for the second quarter, it's very difficult to predict what is going to happen, but we are seeing lower demand.
Our next question on line comes from [ Alberto Rodriguez ] from [ CON ].
Rodolfo and Daniel, many congratulations on a very solid quarter. I have 2 questions, very quick questions. Do you hear me okay?
Yes.
Okay. The first question, I mean, all this COVID situation touches you with a very solid sound -- a very sound balance sheet. Cash at hand I think was roughly 42% of the market cap. It would seem that there's going to be several companies who're still facing liquidity -- very difficult situations regarding liquidity and this could bring some opportunities for you. My question was -- if you could tell me, if you look at the situation as an opportunity to use part of this cash that you have in the balance sheet, and if that's so, do you think there's opportunity to grow in the poultry business in Mexico, or it would have to be in other items?
And the second question is, SG&As grew only 7% this quarter, below revenues. Daniel, you mentioned that as a percentage of sales, it has reduced somewhat. However, if I'm correct, depreciation grew significantly around 35%. So it would seem that SG&A -- cash SG&As grew -- it basically decreased roughly 0.8%. So if you could tell us what your guys are doing in SG&As and how are you containing these expenses?
The third one, if you could tell us, in Mexico, what's going on regarding the channels. You mentioned a little bit about food service. However, I believe retail should be strong. But I have some questions about -- regarding what's going on with The Street markets. Is that going on -- The Street is going on okay or is that being interrupted? And again, congratulations on the very solid quarter.
Thank you very much, Alberto. Well, the first question about the opportunities. Well, every time there is going to be opportunities there. But let me first tell you about the brand. I think it's my appreciation that consumers are looking for safe and healthy product and the brand right now becomes more important. And Bachoco is the leader brand all over the Mexico with a very good recognition of the quality and the service of our brand. We have a very, very good asset, I think, with our brand. And I think in this moment, brands are going to play a very important role.
The second thing about the liquidity and, for sure, it's very good to be in that position. We have seen a little bit of increase in our accounts payable -- excuse me, collect, because some customers ask for an additional period. Mainly, hotels and restaurants, they are asking for an increase in their credits. So we are just facing a little bit of problem there. But it's a very, very small part of our business. So 5% of our business is that.
The other channels that you mentioned has been running normally, but with a less demand because of the economic problem. People has no money, the power of -- the buying power has been reduced. So we are seeing a reduction in the demand because of that.
Retail, as you mentioned, has been the strongest channel. And a lot of people that used to eat out of home, right now, is buying in the retail, and there is an increase in the e-commerce. But I think the retail is the strongest one.
The second question is SG&A -- is about the SG&A. About the SG&A, we reduced our delivery cost because -- for several reasons. We are reducing the total mileage that we are moving our products. And in the other hand, the fuel prices are a little bit better than a year ago. So we could capitalize those savings in order to reduce our total SG&A as a percentage of the sales.
Another important reduction in all expenses, Alberto, because about half of our people in the offices are doing home office. So we are reducing our facilities expenses and also we avoid all the travel expenses because our people are working from home, and we stop all the meetings that are needed some travels to do. So in that regard, we are reducing some expenses as well.
Our next question on line comes from Ulises Argote from JPMorgan.
Just one follow-up there, Rodolfo. The 25% to 30% capacity closed in the U.S. that you mentioned earlier, is this related to chicken or is this the industry, in general? And then -- yes, sorry.
So it is pork. It's the reduction in the capacity in pork, just pork.
Yes. Okay. Okay. And if we think on chicken, do you know more or less what's kind of the impact there for the chicken industry?
The chicken industry, what is happening there is, there is some plants that reduced the speed, some plants in half capacity. But no one at this moment is shut down for more than 1 or 2 days. So the total reduction is no more than 10% till date because of the reduction in the speed, not because they shutdown. But we have -- in our facilities, we are running at 100%. We don't -- but there is some companies that publicly say that they are having problems with employees, with the labor, because the people is not showing up. But at this moment, we have no problems in our facilities there in Arkansas, Alabama, Oklahoma and Georgia.
Okay. Perfect. And then 2 other quick questions, if I may. First, are you seeing any changes there in the trade dynamics mainly for chicken prices, let's say, that are coming from the U.S. into Mexico? And then if you can provide us a little bit more color on how your hedges are looking into the second quarter, mainly on the back of the peso depreciation and kind of the impact that we should expect that to have like in the overall cost structure?
Well, the prices of -- the U.S. prices in the last part of the quarter and the beginning of this quarter, mainly the leg quarter prices went down sharply. So we saw an increase in the imports to the border, not to the inland, just in the area of the border, we saw more U.S. leg quarters there. Other than that, we didn't see any other effect. There was some that went into the northern states of the country, but it was very, very low volume. So the only effect is the leg quarters and just in the -- in border. So we haven't seen any important effect in that regards.
And somehow, this reduction in prices -- in the U.S. prices are somehow compensated by the peso depreciation. But the most important effect in our Mexican operation, because the peso depreciations in our cost of grains, because remember that we import more than -- around 50% of our meat, so in that regard our cost has suffered a little increase because of that.
That's the second question. That's the effect of the raw materials on the exchange rate.
And would you happen to have -- make any guidance for EBITDA margin? I mean, I know, it's early to tell, but kind of directionally where we could see it on the back of these effects for the second quarter, in particular?
No Ulises, in this time, we cannot do that because there is a lot of uncertainty. We -- for sure, we have an effect, as Rodolfo mentioned, in the volumes, but we don't know how much on -- how fast the industry will recover. So it's very difficult to predict what should be the results for the second quarter right now.
Okay. Perfect. And congrats.
Thank you.
Thank you, Ulises.
[Operator Instructions]
We have a question on line from [ Jorge Mauro ] from [ Plamenta ].
My question is regarding prices. I mean are you seeing any pressure from the government? Or I mean you are operating as usual. I'm talking about any kind of price caps or interest-bearings in your normal business?
Well, we have several requirements of, in particular, regarding the egg prices. We have a very strong brand in egg product and the egg industry, but our market share in the eggs segment is very -- is just 5%. So we just answer those requests. And we are operating normal business as usual. Well, it's -- right now, there is no business as usual, but in that regard, yes. No problem with prices, and there is not any interview in this segment.
Okay. And just a follow-up, if I may. Can you give us a sense on the different trends between live chicken and processed chicken? I mean are they behaving relative one to the other?
Well, the reduction in demand is in all the channels. So there is the same situation with the live and the same situation with the public markets, the traditional markets. The only market -- the most effective is the food service because all the hotels are shutdown, the restaurants, the dine-in restaurants, they are close. But in the other hand, there's some food service companies and they have a drive-through or home delivery, so the delivery is getting more and more important every day. So those segments of the food service are in a better position. And we are trying to give some ideas to them to -- in order to increase their sales.
On the retail, right now, I think it's in a normalized status. So we see the retail normalized. We see the food service struggling with the dine-in and the hotels. And the live and the traditional market, the situation there is reduction in the demand because of lack of the power of the buyer, the economic power of the buyer.
[Operator Instructions]
And at this time, I'm showing we have no questions in queue. At this time, I'd like to turn the call over to our presenters for closing comments.
Okay. Thank you all for joining us this morning. If you have any further questions, please contact our Investor Relations, Maria, who will be glad to assist you. Thank you very much. Stay safe.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.