Industrias Bachoco SAB de CV
BMV:BACHOCOB
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
52 Week Range |
72.9
92
|
Price Target |
|
We'll email you a reminder when the closing price reaches MXN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Welcome to the Third Quarter 2018 Industrias Bachoco Earnings Conference Call. My name is Hilda, and I will be your operator for today's call. [Operator Instructions]
Please note that this conference is being recorded. I will now turn the call over to Ms. Maria Jáquez. Maria, you may begin.
Thank you. Good morning, and welcome to Bachoco's Third Quarter 2018 Conference Call. We released our financials yesterday after 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 law, 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 2018 with comparative figures of the same period of 2017 in Mexican pesos. As a reference, the exchange rate as of September 30, 2018, was MXN 18.72 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. As we mentioned in our press release issued yesterday, we've faced more-than-expected challenging third quarter in both of our operations in Mexico and in The United States.
In The United States, the continuous increase in chicken meat supply and the increase in supply of competing meat like pork and beef led us to oversupply condition and lower prices across the industry, mainly in the spot market.
Even when our Albertville operation allow us to capture some benefits of those market conditions if that's not enough to compensate that reduction in commodity prices.
In Mexico, we observed our poultry industry growing around its normalized rate. However, we observed a lower-than-expected levels of demand more than what is typical for a third quarter, affecting our prices negatively mainly in traditional markets, where we sell an important part of our total volume.
On the cost side, we saw the impact of high raw material costs in dollar terms from the second quarter due to our inventory and coverage strategy. This, in combination with our depreciation of the Mexican pesos around 6.5 in the quarter when compared with the third quarter of '17, impacted our cost of sales across our business lines. The aforementioned condition led us to an adjustment in our gross and operating margin, and left us with an EBITDA margin for the quarter of 0.5% versus 10.2% of the same period of 2017.
Regarding year-to-date results, our sales increased 6.1% when compared to the same period of 2017, with our EBITDA margin of 9.1% versus 12.2% margin in the first 9 months of 2017. However, we continued with a very solid financial structure, attending to our customers and selling all of our production volumes. Therefore, our plan continues towards growth, closer to our customers and efficiencies. This strategy has, in fact, lead us to be better prepared to face the challenges of the industry in which we compete and improve our results at the same time.
At this point, I will turn the call over to Daniel for a discussion of the financial results.
Thank you, Rodolfo, and good morning, everyone. As a result of the condition Rodolfo mentioned before, our company's third quarter '18 net sales decreased 0.7% in the third quarter when compared with the third quarter of '17. The decrease is a result of lower prices in our poultry segment, partially compensated with an increase of volume sold and lower volume sold in our other segments line. This led us to an increase in product sales of 6.1% for the 9 months of the year as compared with the same period of 2017.
In the quarter, sales of our U.S. operations represented 30.1% of total sales versus 30.2% we reported in the equivalent quarter of 2017. Cost of sales for the third quarter was MXN 12,955.6 million and MXN 38,149.7 million for the 9 months of the year. This represents an increase of 10.4% for the quarter and 9.9% for the year. This increase was due to a higher cost of raw materials in dollar terms affected as well by the depreciation of the Mexican pesos versus the U.S. dollar of about 6.5% in the quarter and 0.7% in the year.
Gross profit for the quarter was MXN 1,158.9 million, with a gross margin of 8.2% compared to 17.5% gross margin for the third quarter of '17. For the 9 months period, we reached a gross profit of MXN 7,481.4 million, with a margin of 16.4%. This amount is 9.7% lower than the gross profit we reached in the same period of 2017.
Total SG&A for the third quarter of 2018 was MXN 1,499.1 million and MXN 4,373.7 million year-to-date, representing an increase of 11.3% and 12%, respectively, when compared to the same period of the previous year. Part of this increase is due to higher volume sold of our poultry business as well as a few increases in -- mainly in Mexico.
For the third quarter of 2018, we reported an operating loss of MXN 260.5 million, a negative operating margin of 1.8%. The operating income for the 9 months of 2018 was MXN 3,218.4 million, with operating margin of 7.1%, lower when compared with the 10.3% reached in the same period of 2017. The EBITDA margin for the third quarter was 0.5% lower than the 10.2% EBITDA margin for the third quarter of '17. For the accumulated 9 months of the year, EBITDA margin was 9.1%, lower when we compared with the 12.2% reached in the same period of 2017.
In the third quarter of 2018, we reported a net financial loss of MXN 63.6 million and a net financial income of MXN 404.8 million for the 9 months period of 2018. The negative impact for the quarter was mainly due to FX valuation of our U.S. dollar's position as the Mexican pesos strengthen it at the close of the third quarter of 2018 when compared with the close of the second quarter of 2018.
Our total taxes were negative by MXN 136.6 million for the quarter. And for the first 9 months of the midyear, our total taxes were MXN 973 million. This is due to lower operating results when compared to the same period of 2017.
All the above led us to a net loss of MXN 187.5 million for the quarter, with a negative net margin of 1.3%. For the accumulated 9 months of this year, the net income totaled MXN 2,650.1 million, with a net margin of 5.8%, which is lower than the net income and margin of the same period of 2017. The net income per share was negative by MXN 0.32 for the quarter and positive MXN 4.4 for the 9 months of this 2018.
Going into our balance sheet, we kept a healthy financial structure with an increase in total assets of 1% when compared to the year-end of 2017.
Our net cash position was MXN 12,382.6 million at the -- sorry, yes, at the end of the quarter, 6.7% higher than our net cash level at the beginning of the year. Our CapEx was MXN 1,329 million, which is lower when compared to the same period of 2017, when we registered our Albertville Quality acquisitions.
Well, that is all. Thank you, and I will turn the call back to Rodolfo for final comments.
Thank you, Daniel. We are entering the fourth quarter, which is challenging condition ahead of us. In the U.S., oversupply of main protein is expected to remain, even when we had seen a slight improvement recently mainly in wings. We expect condition in Mexico to improve as we advance towards the end of the year as fourth quarter seasonally is very less in volumes sold terms. Also, we expect that macroeconomic uncertainty decrease further in Mexico once the new presidential administration takes position in early December. We expect to continue with our CapEx above maintenance levels as part of our organic growth strategy. Even when we observe adverse conditions, we continue to focus on our growth plan. We have a very solid financial structure that supports our target and allow us to face challenges [ and the future 10% ]. We will continue focusing on those things we can control and managing the other ones as best as we can depending on the market condition in our industry.
With that, we will now take your questions.
[Operator Instructions] Our first question comes from Ulises Argote from JPMorgan.
A couple of questions here on my side. First, looking at the release, we see that the -- that volumes on the other segment is the one that was hit really bad. Can you please give us a bit more color on that? And what you're seeing in terms of dynamics in that front? And the second question, just in terms of maybe looking at the hedging strategy, are you planning to do any changes or any adjustments now, given the negative impact that you had on that front during this quarter?
The first question about the volume, the volume was affected for our [ compensate ] for our balance sheet. In terms of chicken, we [ growth ] our volume in line with the industry in both the end markets in Mexico and in The United States. So in poultry, I can say that the volume was in line of that -- of the expansion of the industry, around 3%. The decrease was in the [ comp fee ]. And about the second question, our policy of hedging is that to have no more than 2 months in advance. But with customers when we closed the operation, we hedged the raw materials in order to fix the cost because we have a fixed price for a period that can be up to a year -- no more than a year. So we've hedged those contracts, and that's -- and the remaining part, which is the majority is considered with no more than 2 months in advance.
And on the other the hand, we -- remember, that we have our net U.S. dollars terms cash position that allow us to face somehow the volatility of the exchange rate right now. We are around 35% of our total cash position in U.S. dollar terms.
Okay. And just a follow-up, if I may. Are you seeing any changes in the pricing dynamics either for Mexico or the U.S.? Or do you expect any changes, let's call it, for the next 6 months in that front?
The price in Mexico we expect an improvement as we are moving at the end of the year. Normally, December is a very good month in terms of volume and prices. So we expect low prices for the end of the year in Mexico. In The United States, we don't see an improvement, just a leverage in wings. But breast meat and leg quarters, we are expecting that the prices remain [ as ] level than actually we have.
[Operator Instructions] The next question comes from Luis Miranda from Santander.
It's a -- just one follow-up to Ulises in relation in [ cost ]. As you mentioned, I recall for the third quarter and from your previous answer, I understand that you might see some pricing problems in the fourth quarter, but also do you expect that volumes could also continue the same trend of the fourth -- in the third quarter? Or we should see a more normalized level in the fourth quarter? And also, in terms of cost in the short term, we have been hearing a lot of pressure in terms of distribution, fuel, energy and recently the volatility in the FX. Does this add additional pressure for your operating results in the short term?
Yes, the increase in a few -- that's everywhere in the market. We were affected in the third quarter. And we expect the same levels for the fourth quarter. So the impact is already there. And in terms of raw materials, we are seeing a better position for the fourth quarter than the third quarter because our hedging strategy is too much. So right now, the raw materials mainly corn and soya bean are a little bit better than in the third quarter. So we have -- we are going to have a positive impact for the fourth quarter. And on the other hand, the uncertainty of the exchange rate in this quarter, the third quarter, was affected in comparison with the same price of the dollar of the third quarter of '17. We had a devaluation of 6.5% quarter -- compared quarter by quarter of the last year. So this -- for the fourth quarter, we are expecting better prices at the end of the quarter, and we are expecting better cost even. The impact in the 9 months in terms of the fuel and gas has been -- in terms of -- the total cost is around 1% -- less than 1%, and that is included in SG&A.
[Operator Instructions] We have a follow-up question from Mr. Ulises Argote from JPMorgan.
Just wondering, if you have -- I mean, I know it's kind of tough and a bit early, but do you have any sense of what margins could look like for next year, meaning the first quarter, will probably have a tough comp. But looking at the next -- at the final part of the year we should probably face easier comps. So do you have any sense of where we could stand there kind of on your 9% to 11% EBITDA margin guidance that you have?
Yes. The next year, there's a lot of uncertainties here in Mexico and in The United States. But we are expecting an EBITDA in the lower end of the normalized range, which is around 9%. But then the main issue is to what is going to happen with the processing power of the consumers here in Mexico. If we have an increase and decrease in the GDP, we are going to have a good demand, at least we are expecting -- with the actual projection of the GDP, we are expecting an EBITDA around 9%.
[Operator Instructions] The next question comes from [ Jennifer Romero from Bancomer ].
Just 1 question. In terms of CapEx and dividend policies, are there going to be any changes for 2019?
No. Basically, we remain the same with the same strategy to maintain the same level of CapEx to grow according with our growing plans and a little bit above the industry. That means that we will maintain a level of above MXN 100 million for year in the CapEx. And in the dividend, actually we don't have a written policy, but we expect to maintain the same level of payments for the year.
[Operator Instructions] The next question comes from Eduardo Estrada from Blackrock.
I have 2 questions. One, well, we have seen in the information of the Secretariat of Economy in Mexico a rebound in the price of the poultry, the chicken in Mexico in October. I know that the most important month will be December. But if it's for real, are you having better prices in October? And secondly, well, can you explain a little bit now the situation of the industry in the U.S.? And if that gives you an opportunity to try to do some acquisition given the difficult situation for some other producers?
Well, the first one is the prices in October are more in line with the prices at the end of the quarter. We have basically seen just a slight recovery but it's not that much. We are expecting a peak in the prices for the next week itself because of one particular day, the Death Day. The demand for that particular day is very good. So we are expecting a peak in prices. But with the supply ran out in Mexico, we are not sure if that -- those prices are going to keep running for the whole fourth quarter or mainly in November, the month of November. December normally the demand is better, so the prices too. In terms of the Secretariat of Economy, we do see the inflation rate in the last half of the month, chicken and eggs contributed to reduce the inflation. So we had -- for that particular part of the month, we had a decrease in real terms of the prices. About the acquisitions so to speak at this moment, we cannot [ clarify ] because all the time we are looking for some opportunities, and we have the financial position in order to acquire any operations that can be attractive and we can see if that's an opportunity. But at this moment, we don't have any target in the short term.
[Operator Instructions] At this moment, we show no further questions.
Okay. Thank you, everyone, for joining us this morning. If you have any other questions, please contact our Investor Relation area, who will be glad to assist you with your questions. Thank you very much.
Thank you, all.
Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.