Industrias Bachoco SAB de CV
BMV:BACHOCOB
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Industrias Bachoco SAB de CV
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Good morning. My name is Sylvia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2020 Industrias Bachoco Earnings Conference Call. [Operator Instructions]
Thank you for your attention. I will now turn the call over to Maria Guadalupe Jaquez. Maria, you may begin.
Thank you. Good morning, and welcome to Bachoco's Third Quarter Results 2020 Conference Call. We released our financials yesterday aftermarket closed. If you didn't get 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 its anticipated future events and performance. These statements reflect management's firm belief based upon 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 2020 with comparative figures for the same period of 2019 in Mexican pesos. As a reference, the exchange rate as of September 30, 2020, was MXN 22.11 per U.S. dollar.
Here with me are our CEO, Mr. Rodolfo Ramos; and our CFO, 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, as economic activities began to revive after the lockdown measures during the previous quarter, we observed improvements in the demand, which, at the end, result in an unusually good third quarter.
During most part of the third quarter of 2020 in Mexico, we observed good pricing conditions, mainly as a result of good balance between supply and demand in our poultry segment and an optimized sales mix. As a part of our diversification strategy, this quarter was -- we integrated the result of our most recent business arrangement. Sonora Agropecuaria SASA, which boosts the performance of our other business line.
On the other hand, in the U.S., even when the lift of confinement measures result in improvement in our value-added segment, we kept observing low prices, particularly for the [ liquors ] and white meat. We consider this was a result of oversupply conditions in all the meat types in that market.
Even with our volume prices and segment benefits from somehow from these conditions, our current exposure to the commodity market offset that advantage. The condition mentioned above allow us to reach a net sales of MXN 18,292.4 million for the third quarter of 2020, which is 19.5% higher when compared to the same period of 2019. From that increase, 15.3% was to the highest net sales in poultry and 4.1% due to higher sales in others. After the first 9 months of the year, our sales totaled MXN 50,462.7 million, which is 8.5% higher than the total sales reported in the same period of 2019.
Regarding our cost, we kept observing negative effects to the Mexican peso depreciation, which affected our raw material cost. However, we managed to offset some of these effects with operational efficiencies in our live and processing operations.
Our SG&A for the total quarter was MXN 1,600.8 million, which is 8.8% of our sales. This rate is lower when compared the 9.8% reported in the third quarter of '19. This is a result of the focus we have in controlling our controllables.
With that, we reached an EBITDA of MXN 1,828.2 million for the third quarter of 2020, higher than the MXN 1,505.8 million of the same period of '19, an EBITDA margin of 10% and 9.8%, respectively.
As of the first 9 months of 2020, we reported an EBITDA of MXN 3,213.1 million and MXN 4,644 million for the same period of 2019, with margins of 6.4% and 10%, respectively. At the bottom line, we're reaching earnings per share of MXN 1.38 for the quarter, delivering value to our stockholders despite current challenging conditions.
Our balance sheet remains strong as we reached a net cash level of MXN 15,696 million. This strong position allow us to give back some -- to our society through our social responsibility initiatives. During the quarter, we extended our donation program Apoyo de Corazón in combination with public and private institution, we donate more than 209,600 kilos -- 296,000 kilos of chicken, which benefit more than 1.2 million people across the country. Our plan is to keep this program in the coming months as we are aware of the commitment that we have with our society in this difficult time.
At this point, I will turn the call to -- over to Daniel for a discussion of the financial results.
Thank you, Rodolfo, and good morning, everyone. As a result of the conditions Rodolfo mentioned before, our third company's quarter 2020 net sales in total to MXN 18,292.4 million to MXN 2,979.5 million or 19.5% higher than the MXN 15,312.9 million reported in the third quarter of '19. This increase was mainly a result of higher prices in our main business lines.
Our earnings in the 9 months of 2020, we reported a net sales of MXN 50,462.7 million, which is 8.5% higher than the net sales in the same period of '19. In the quarter, sales of our U.S. operations represented 28.3% of total sales, which is at the same level we reported in the third quarter of last year. This was mainly a result of the depreciation of the Mexican peso quarter-over-quarter.
Cost of sales in the third quarter was MXN 15,107.6 million and MXN 43,239.4 million in the first 9 months of the year. This represents an increase of 18.9% for the quarter and 12.6% for the year. This was mainly driven by the depreciation of the Mexican peso, which not only has an early impact in our main raw material cost in peso terms, but also had a negative impact in the consolidation of our U.S. operation as the net interest results.
As a reference, the Mexican peso depreciation was around 13% for both the quarter and the first 9 months when compared to the same period of 2019.
Gross profit for the quarter was MXN 3,184.7 million with a gross margin of 17.4% and 22.2% over the gross profit reported in the third quarter of 2020.
For the first 9 months of the year, we reached a gross profit of MXN 7,223.3 million with a margin of 14.3%. This amount is 11.2% lower than the gross profit decrease in the 9 months of 2019. Total SG&A for the third quarter of 2020, was MXN 1,600.8 million or 8.8% of total sales compared to the MXN 1,497.6 million and 9.8% of total sales of the third quarter of last year.
For the 9 months of 2020, SG&A totaled MXN 4,740.6 million (sic) [ MXN 4,740.5 million ] or 9.4% of total sales compared to a MXN 4,522.8 million and 9.7% of total sales of the 9 months of 2019. On the other hand, we have other expenses of MXN 99.2 million for the third quarter of 2020 compared to the other income of MXN 73 million of the same period of 2019.
In this line, with the COVID-related expenses not applicable to SG&A, in addition to the sales of [indiscernible] assets as well as other by-product.
Operating income for the third quarter of 2020 totaled MXN 1,484.4 million and operating margin of 8.1% higher than the MXN 1,181.8 million and the 7.7% margin reached in the third quarter of 2019.
This operating income for the 9 months of 2020, was 2,171.5 million, an operating margin of 4.3% lower than the MXN 3,680.7 million and the 7.9% margin reached in the same period of 2019.
EBITDA margin for the third quarter was 10%, which is higher than the 9.8% EBITDA margin of the third quarter of the last year. For the 9 months of the year, EBITDA margin was 6.4% lower than the 10% reached in the same period of 2019. In the third quarter of 2020, we have a net financial expenses of MXN 267.5 million, a net financial income of MXN 2,036.8 million in the 9 months of 2020. Those figures compared to the net financial income of MXN 405.7 million and MXN 573.3 million for the third quarter of '19 and the 9 months of '19, respectively. The decrease in the quarter was a result of an appreciation of the Mexican peso with respect to the value record in the second quarter 2020.
For the third quarter of 2020, we have income taxes of MXN 359.2 million, lower than the MXN 474.4 million in the third quarter of '19. For the 9 months of 2020, our total taxes were MXN 1,208.3 million, which is 3.1% lower than the MXN 1,246.4 million reported in the same period 2019.
All the above led us to net income of MXN 858.1 million for the quarter with a margin of 4.7%. For the first 9 months of 2020, the net income totaled MXN 3,000 million with a net margin of 5.9%. The net earnings per share was MXN 1.38 for the quarter, while for the 9 months of the 2020, we reached a net income per share of MXN 4.93 compared to the net income per share of MXN 1.85 and MXN 5 for the same period of 2019, respectively.
Going into our balance sheet. Total assets increased to 4.2% when compared to the year-end of 2019. Our net cash position was MXN 15,696 million at the end of the quarter, higher than our net cash level of MXN 14,254.3 million at the beginning of the year. Our CapEx was MXN 1,570.1 million, and we have maintained our plans of spending around $1 million by the end of 2020. Those projects will support our strong organic growth and maintain our facilities at a high level of productivity.
Well, with that, I will turn the call back to Rodolfo for final comments.
Thank you, Daniel. During the quarter, we observed the poultry industry very focused on adapting to new condition and new levels of demand. We are entering the fourth quarter of 2020, in which we have to face the challenges that might come. So far, we think that our landscape will be more favorable in Mexico than in the United States, at least in the short term. Therefore, in that geography, we are working towards making our products mix more efficient and trying to step out of the commodity market as much as we can.
In addition, all in soybean meal current prices will put pressure in our cost of sales. So being efficient in our production processes will be key to partially offset that effect. We will also be focused on the integration of the SASA operation in order to capture the synergies that we were identified so far. So far, we are on track on this regard. Last, but not the least, we will reinforce our commitment with our communities as we work on the third phase of our social responsibility strategy.
With that, we will now take your questions.
[Operator Instructions] And the first question comes from Héctor Maya from Santander.
Congratulations on the results. Just a couple of questions. I wanted to know for the U.S. do not have approximately 5% sales increase in dollars. Just wanted to know if this was mostly explained by volume or how much from that came from higher prices. And if you could help us understand if the demand reduction and oversupply in the U.S. that you have been seeing recently has continued or how that environment has been changing recently.
In terms of volume, here in the States, we increased 4.2%. And the rate of the balance is in price, so it's a little bit more in price than volume. So we increased the price and 4.2% the volume.
And regarding the oversupply and diminished demand in the U.S.?
Well, the oversupply, we exposed $100 or so supply because right now, the prices of like orders are very low according to the UV. And the breast meat flats white meat. It's still very low compared with regular or normal prices. So we are seeing an oversupply, so the prices are lower than normal, mainly in [ liquors ].
Our following question comes from Ulises Argote from JPMorgan.
A couple on my side as well. The first one, I think, on kind of following up on the remarks that you were making on the incremental cost there for corn and soy, anything else that you guys could do to kind of manage the pressure here beyond the hedges, beyond kind of this production efficiencies that you kind of mentioned? Is there any space for you to increase the buying of corn in the domestic market? If I'm not mistaken, you usually buy like 60% to 80% in the U.S. market. So would that kind of help you guys at all?
And maybe if you can also comment on how you are seeking on this regard kind of on the profitability levels for next year, should we be thinking going back to levels similar to 2019 or even better than those levels? What's more or less the outlook that you guys have on this?
Well, about the opportunities to buy corn here domestically, I think Bachoco is very well positioned to have the benefit of that local crops. And you're right, we have increased one of the most important strategies in order to reduce our raw material cost to acquire some domestic crops or corn in northwest, in the central part of the country, not northeast even. So we can have a better corn or grain input cost.
For 2021, it's very difficult to predict what is going to happen. Normally, it takes from 4 to 6 months to trans pass the cost increase to the market. So at this moment, it's very difficult to predict that because we are going to have a different situation with the demand side. It's not going to be 100% normal yield. So it's going to be -- it's going to depend of the balance again and then supply and demand. We have more or less trend line of the supply, but the demand, it's very difficult to predict the demand at this time.
Okay. That's perfect. And then one follow-up in Mexico, if I may. Kind of on the improving prices, obviously, that we saw during the quarter. Did you see or are you seeing any kind of pressure from other domestic players kind of increasing the supply levels to kind of try to take advantage of these higher prices? Or how are you feeling that the demand is kind of evolving? I mean the supply is already evolving on that side.
Well, it's -- I really don't know what our competitors are doing in terms of their strategies, in terms of volume. But what I can tell you is that in the demand side, poultry or chicken is the best protein at this moment. It's the more affordable, it's the quality and everything, all the advantage and then the chicken it has. So we are taking some market share of the other proteins as an industry, not just as a company. The industry is expanding the capital consumption even in a crisis -- economic crisis because of -- because it is a very affordable protein.
Next question comes from Emiliano Hernández from GBM.
Can you comment on the dynamics you're seeing in the pork market in Mexico as well as in the export market? What are you expecting in terms of prices and demand going forward in this market?
Well, now the pork industry is very active exporting to China. So pricing in -- prices in Mexico has been good for the producers in this last month. The volatility in the pork live market is very high. But right now, the prices are in a good shape, light pork. That -- right now, we have the -- a balance between our white production and our processing and export prices because when the live market is very high, that hurts the company in the process swine. So with our balance, the synergies that we are making with our live production, our -- and our new part of the business, which is processed, we are well balanced and we are having good times with export to China, Japan even the United States. So it's -- right now, it's a good time for the pork industry.
[Operator Instructions] We have no further questions at this time.
Okay. If there are not any questions -- thank you. Thank you, everyone, for joining us this morning. If you have any other questions, please contact our Investor Relations area, who will be glad to assist you. Thank you very much.
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.