Industrias Bachoco SAB de CV
BMV:BACHOCOB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
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.
Industrias Bachoco SAB de CV
You don't have any saved screeners yet
Good afternoon. My name is Karen. I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2021 Industrias Bachoco Earnings Conference Call. [Operator Instructions]
I will now turn the call over to Andrea Guererro. Andrea, you may begin.
Thank you, Karen. Good afternoon, and welcome to Bachoco's Third Quarter 2021 Conference Call. We released our financials today before the market opened. If you need a copy of the release, please visit our website or request it from our Investor Relations department. This afternoon'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 be -- could make our current results differ materially from the forward-looking statements discussed in this call. Except as required by applicable law, and users Bachoco undertakes no obligation to publicly update or revise any forward-looking statement, 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 year of 2020 in Mexican pesos.
As a reference, the exchange rate as of September 30, 2021, was MXN 20.6 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, Andrea, and good morning, everyone. As we mentioned in our press release issued today, we faced challenging conditions during the quarter, but still were able to deliver positive results. In Mexico, we observed a typical uplift in demand for this time of the year, which result in a reduction of around 4% in poultry prices when compared to the first half of 2021. However, also for this segment, we achieved an increase of 9% versus the third quarter of 2020.
In the U.S., main commodity prices such as breast and leg quarters, remained strong versus 2020 for both the quarter and the year-to-date. Particularly for this third quarter, we continue to have pressure on the cost side. Grain and soybean meal prices in U.S. dollars remained high, even factoring in the positive impact of the 9% appreciation of the Mexican peso.
We observed grain around 50% higher than the third quarter of 2020, while soybean meal was in the range of 20% above the same period in peso terms. This caused an important impact in our cost of sales and in our margins. In our other segments, volumes sold was down close to 5%, mainly driven by our balanced feed and pork businesses. Balance feed market have experienced some pressures as a result of the high raw material cost.
On the other hand, the downside in pork is a result of adjustment made as part of our integration process in SASA. The aforementioned condition led us to an EBITDA margin for the quarter of 5.6% versus 10% achieved in the same period of 2020. Regarding year-to-date results, our total sales increased 19.8% when compared to the same period of 2020, with an EBITDA margin of 10.7% versus 6.4% margin in the first 9 months of 2020.
Despite the challenges, we continue with a very solid financial structure, attending to our customers and selling all of our production volumes. Therefore, our plans continue towards growth and efficiencies. Strategies then allow us to be better prepared to face the challenges of the industry in which we compete while delivering positive results.
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 conditions Rodolfo mentioned, our company's third quarter '21 net sales increased 10.6% in the quarter when compared with the third quarter of 2020. The increase is a result of higher prices in our business lines for the 9 months of the year. Sales were 19.8% higher than the same period of 2020.
In the quarter, sales of our U.S. operations represented 26% of total sales compared with 28.3% reported in the equivalent quarter of 2020. This was a result of an increase in the participation of our Mexican operation. Cost of sales for the third quarter was MXN 17,619 million and MXN 49,659.7 million for the 9 months of the year.
This represents an increase of 16.6% of the quarter and 14.8% for the year. This increase was due to a higher cost of our raw materials, both in dollar and Mexican peso terms. Gross profit for the quarter was MXN 2,610 million with a gross margin of 12.9% compared with the 17.4% gross margin for the third quarter of 2020.
For the 9 months of the year, we reached a gross profit of MXN 10,787.9 million with a margin of 17.8%. This amount is 49.3% higher than the gross profit reached in the same period of 2020. Total SG&A for the third quarter of 2020 was MXN 1,790.9 million and MXN 5,157.4 million, year-to-date, representing an 8.9% and 8.8%, respectively, when compared to sales.
For the third quarter of 2021, we reported an operating income of MXN 738.4 million, with a margin of 3.7%. The operational income for the 9 months of 2020 was MXN 5,386.1 million with an operating margin of 8.9% higher when compared to the 4.3% reached in the same period of 2020.
The EBITDA margin for the third quarter was 5.6%, that is lower than the 10% EBITDA margin for the third quarter 2020. For the accumulated 9 months of the year, the EBITDA margin was 10.7% higher when compared with the 6.4% reached in the same period of 2020.
In the third quarter of 2021, we reported a net financial income of MXN 459.6 million and MXN 682.2 million for the 9 months of 2021 compared with a net financial loss of MXN 267.5 million and the net financial income of MXN 236.8 million for the third quarter and 9 months of 2020, respectively.
Our total taxes were MXN 380.6 million for the quarter. For the first 9 months of 2021, our total tax were MXN 1,733.3 million. All the above led us to a net income of MXN 817.4 million for the quarter, with a net margin of 4% for the accumulated 9 months of 2021. The net income totaled MXN 4,335.1 million with a net margin of 7.2%.
Moving into our balance sheet, we maintained structure with an increase in total assets of 8.2% when compared to the year-end of 2020. Our net cash was MXN 18,269.7 million at the end of the quarter, 10.5% higher than our net cash level at the beginning of the year.
Lastly, CapEx was MXN 2,251.1 million which is 43.4% higher when compared to the same period of 2020.
Well, thank you, and I will turn the call back to Rodolfo for final comments.
Thank you, Daniel. Now we are entering into the fourth quarter, in line with the seasonality. Pricing in Mexico for the beginning of the quarter remains weak. Normally, demand starts to pick up towards the end of the year. Pricing of corn remains high year-over-year, but soybean meal is now very close to the level of 2020.
In the U.S., even though breast meat is starting to come down, it is still higher than previous years. However, grain cost and labor will be challenges to overcome until the year-end. We expect to continue with our CapEx above maintenance levels as part of our organic growth strategy. Even when we observe uncertain conditions ahead, we continue to focus on our growth plans. We have a very solid financial structure to support our projects and which will allow us to face challenges than the future can present.
With that, we will now take your questions.
[Operator Instructions] And we do have our first question from Fernando Olvera from BoA.
I have 2, if I may. The first one is related to the poultry business in Mexico. Can you give us an update on how is the balance between supply and demand so far in October? And can you share what is your view about pricing in this quarter and in 2022?
That's the first one, and then I have one more related to the U.S.
Well, the balance of supply and demand for the rest of the year is going to be tight in terms of supply. Normally, the beginning of the fourth quarter, the demand is very weak. That's a normal situation because people will spend more money in other issues like in the beginning of the school and they came from vacations, and they are a little bit [ poor now ] in terms of money.
And on the other hand, the supply is good because the weather has started to change and then the daily gains start to improve. So we have a little bit more supply and with a weak demand. All the years, normally this part of the year is the weakest of the year. But at the end of the year, we are expecting a good demand. The money is going to be there and we are expecting a better balance between supply and demand.
And that is going to -- we are expecting that, that situation is going to remain for the first quarter of 2022.
Great. And regarding pricing, you have -- now on pricing.
It's very difficult to predict the price. But when you have a good supply and demand that we are expecting for the last part of this quarter, the fourth quarter. We expect to maintain our margin -- our regular margins for that time -- for that time of the year because right now, we have the problem with the cost. And we are expecting better cost for the last part of the year because soybean meal and corn prices have been going went down a little bit.
And so we are going to collect those -- that cost at the end of the year. So we expect to have normalized margins for the rest of the year and the beginning of the first quarter.
Great. And my second question is related to the U.S. I don't know if you to quantify how much of the pressure on margins came precisely from labor shortages and distribution constraints in the U.S.
Well, as you mentioned, labor is after the cost of the raw materials, labor is a very, very important issue in the states. And as discussing -- I cannot tell you at this moment what is the percentage of the margin that is taking that increase in labor. But we have to be competitive, and we have to be competitive in terms of salaries.
So we had an increase in cost because of that. And we experienced some shortages of labor. A couple of months ago or something like that. Right now, we are in our way to fully staff our plants. And we expect to be totally fully staffed at the end of the year.
And we do have our next question from Emiliano Hernández from GBM.
Just a quick one on my side regarding the filing that you made to issue up to MXN 10 billion in debt certificate. Can you share the strategy there? And what would the usage of the proceeds would be taken into account that you have already around MXN 18 billion in net cash.
Thank you, Emiliano. Well, the rationale behind this strategy is to have an open financial avenue for Mexican peso debt in the Mexican market. Because before that, we didn't have authorized program for getting that market. So actually, we don't have a specific proceeds for this capability. We saw the program only to have the capability to do so.
The idea is to have this possible financial capability for future acquisitions or future growth strategy. Actually, we don't have a precise proceeds for this capability.
And we do have our next question from Alan Alanis from Santander.
Congratulations on the results. The first question is more about the elasticity of pricing in Mexico. Are you seeing any difference. It seems that you're being able to take pricing in the mid-teens and volumes are holding up. Any comments that you can make in terms of the changes or if it remains the same, the elasticity of the Mexican consumer and the consumption of poultry.
Well, thank you, Alan. Well, the prices of the chicken is better than the last year. The problem is the cost because of the raw material. But right now, the prices are good in terms of the equivalent of the last year. So we expect that the prices are going to hold that level. And even we expect better prices for -- at the end of the year. Saying that, we are seeing, as I mentioned before, the margins are going to be more or less in line with the seasonality of the last part of the year.
Right now, the levels of the pricing, it's very weak, as I mentioned before, but we are expecting the rebound in those prices. Remember that more than 50% of the Mexican market is kind of a commodity. Live market is -- accounts for 1/3 of the market. And the traditional market is with the live and the traditional markets are -- they account for more than 50% of the total market.
So the volatility is there. And right now, we are seeing a recovery in the prices in line with the seasonality. And right now, we are in just in front of the debt that date, which is November 2. And normally, that day is a very good day for chicken consumption.
Got it. Got it. Yes. I mean it should be very, very resilient versus other proteins and as you said, a lot of it is the commodity. Let me ask you a different question. And start by saying that the objective of the question is just to understand I'm not suggesting that you do one thing or another. I just want to understand.
You have almost, I mean, $1 billion of cash right now. And then you have this approval for issuing bonds for another MXN 10 billion, which is another $500 million. So your ammunition or your weapons are you can deploy $1.5 billion without any big problem.
Now whatever you acquire, whatever you deploy on that. My sense, and correct me if I'm wrong, is that it will be at a multiple that is higher than the 3.5x EBITDA that you are currently trading. In other words, whatever you acquire, it will have to be at 6 or 7 or maybe depending if it's processed food, more higher than that.
And I guess the question here is why -- I mean you can use 2/3 of your available cash and buy your own shares. What's the rationale behind not doing that? Behind, say, yes, I know that my stock is trading at 3.5x EBITDA. But I still think that it will be better in the long run for all the shareholders, particularly the controlling shareholders to continue doing acquisitions at a multiple that might be well, in some instances, below from, Daniel, maybe twice as much as your multiple is trading.
And again, my objective is try to understand what's the thinking of the Board and the control group. I don't know if it's a fair question or not. Hopefully, it is.
Yes. Thank you, Alan. Of course, this is a possibility and this is something that we have discussed with the Board. But our priority is to deploy this bunch of money in continue growing and the speed of our inorganic growth in the future. If we do what you are suggesting, somehow could slow down our speed in the future growth. Anyway, it's a valid question and option that we are evaluating among other options.
But the rationale for not doing that in this moment is because our priority is to deploy the money for our organic and inorganic growth strategy.
Got it. And then the inorganic growth, your preference is right now for pork over poultry and maybe pork in yes, that's fair, correct?
Well, not necessarily. In Mexico, we are looking for different kind of proteins, different kind of business lines and the poultry is more outside Mexico.
And we do have our next question from Ulises Argote from JPMorgan.
Just one quick follow-up here on the cost side of the equation. I think the rest of my questions have already been answered. But can you comment a little bit on how the costs are shaping up now towards the fourth quarter in particular and maybe into the first part of 2022. Kind of factoring in your 3-month rolling hedge. Did we get the peak here in the third quarter in terms of cost pressure? Or do you still kind of expect to see that lingering for a couple of quarters more.
Well, now the cost of corn and soybeans are more or less stable. Corn is holding at around 5.3%, but is still higher than the last year. But I think, has been stable for the couple of months, and I think it's going to remain for the rest of the year. And in terms of the freight and things like that, we already closed some of our ever vessel freight up to -- at least for the first quarter of 2022.
So our basis in terms of freights are already booked at a very decent levels. Basis -- we have the whole year basis and right now, we are looking for the basis for the first quarter of 2022. And those markets are very firm. And for that reason, we are looking for those -- to book that kind of product.
Gas and other issues that impact the cost. We have not -- we don't have any hedge about gas or even soybean oil. And we are just following those markets in order to seek an opportunity to book those ingredients or materials to hedge our consumption in that regard. Labor is an issue. Labor by far is 20%, 30% higher than the last year.
And this year in Mexico, we are expecting an increase according to the regular inflation which is around 6%, 7%. I think the minimum wage is going to increase that level. And at this stage, I think it's going to remain high. They are already high, and I think it's going to remain with that trend. The important thing about labor in the states is availability.
Because we need to cover and to fully staff our plants, and we are struggling in order to achieve that in that matter. So that's the situation. That's what we are expecting in terms of the cost. Right now, can you see oil is close to $90, $85 per barrel. So it's very, very high. So that's going to impact that.
Yes, that's super helpful, Rodolfo, so basically, from your comments, I get that we shouldn't really expect any less pressure in the cost side of the equation, let's say, for the fourth quarter, right? That kind of sequentially should be very similar to what we saw right now in the third quarter.
Yes. Yes.
And we do have our next question from Jay Hill from Tweedie Brown.
I'm going to sort of piggyback on the question that Alan asked earlier. But look, over the last decade, it's very clear to me that Bachoco has been managed extremely well, and you guys have created a lot of shareholder value. But this value is not currently being recognized in the stock market.
And just to give you a sense of the value creation, I think given sort of the cyclical nature of your business, I believe the best long-term measure of value creation is your growth in tangible book value per share, plus cumulative dividends paid per share over time. And since 2010, on this measure, you've grown tangible book value per share plus cumulative dividends per share at a compound annual rate above 11%.
Over that same period, you guys have generated an average return on equity of a little over 11%, which is really a great result despite the fact that you guys have an inefficient capital structure with large net cash that you've held throughout this period. So look, the stock market is clearly not recognizing the strong long-term financial track record that your company has generated.
To me, Bachoco is ridiculously cheap on any normalized earnings valuation measure. Guy earlier talked about 3.5x EBITDA. But on any sort of long-term measure of normalized earnings, your stock is extremely cheap. It's frustrating to be a shareholder. I suspect your Board is also frustrated and also recognizes the very cheap valuation.
So my question to both of you is, look, you've got this large net cash position currently represents over 40% of the market cap and you've got this very low stock market valuation. Why doesn't the Board adopt a shareholder repurchase plan? That's one.
And then two, I know you guys want to do M&A that's great. I think there's enough money to do both. And then I have a follow-up.
No. Yes, of course, you are right. You have made a good analysis, and we have discussed that with you before. And as I mentioned to Alan before, this is an option that we are evaluating among others. So it's is a possibility given the current value that the company is performing.
But as I mentioned before, our priority is to deploy the money that we have for our old strategy. Of course, we need to speed the -- to increase the speed of our M&A activity. But you're right, there is not an obstacle in we performing both options. In any case, this is something that we are evaluating right now. We don't have any decisions in that regard.
Well, I appreciate that response, Daniel. And I hope the Board will seriously consider repurchasing shares. Again, I think you could repurchase shares and do buybacks. And then I would also just to piggyback on what Alan said earlier, look, there's always a trade-off between how should -- what's the best use of spending the shareholders' money? Is it on M&A? Or is it on share repurchase?
And I would find it hard to imagine that you could find an M&A candidate that's more attractive than buying your own shares in the open stock market. So please, please consider that. I think it makes a ton of sense for all of your remaining shareholders.
Thank you, Jay. Of course, we sure that whatever we decide, we will take into consideration the best interest of our investment community.
[Operator Instructions] And we do have our next question from [ Juan Ponte from Bradesco ].
Regarding the electricity bill currently in the lower house, I would like to hear your thoughts on the potential impact on your business. What percent of the cost is electricity? And how much is -- of the energy is sourced from private producers?
Well, all the utilities or energy bill accounts for no more than 3% of our total cost. That includes gas, natural gas, propane plus electricity. Electricity percent is 2.5% of our total cost. So the impact is going to be very, very low.
On the other hand, right now, we have our own generation that allow us to have at least 20% lower cost than the regular cost of the CFE. So it's -- the impact is going to be no material.
And we do have our next question from Fernando Olvera from BoA.
Just a quick one. Can you explain the higher CapEx this quarter, please? And if you have any update about the acquisition of RYC Alimentos.
Well, in terms of the CapEx, the increase is because we are increasing the speed of our pipeline of capital expenditure, not for additional capital expenditure that we are -- that we want to perform. And regarding the RYC Alimentos, we are still waiting for the antitrust authorities authorization.
What we really know is that they are -- the concern that they have is -- regarding the anti the noncompete provision that we include in the SPA. So we don't know if the authorities will ask us to change that provision or not. But we are in that point of the review. Probably in the next month, we will have a resolution, and we will let you know as soon as we know.
And I am showing that there are no more questions at this time.
Okay. Thank you, everyone, for joining us this morning. If you have any further questions, please contact our Investor Relations area, who will be glad to assist you with your questions. Thank you very much.
This concludes today's conference call. You may now disconnect.