Industrias Bachoco SAB de CV

BMV:BACHOCOB

Earnings Call Transcript 2022-Q3

[Operator]

Good morning. My name is Hilda, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2022 Industrias Bachoco Earnings Conference Call. [Operator Instructions] I will now turn the call over to Maria Jaquez. Maria, you may begin.

[Maria Jaquez, executive]

Thank you. Good morning, and welcome to Bachoco's Third Quarter 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 2022 with comparative figures of the same periods of 2021 in Mexican pesos. As a reference, the exchange rate as of September 30, 2022, was MXN 20.13 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.

[Rodolfo Ramos, executive]

Thank you, Maria, and good morning, everyone. This third quarter behaved according to the expected seasonality by showing lower margins compared to the first half of 2022. However, as we remain focused on efficiencies and sales mix, our overall results show an improvement versus the third quarter of '21.

Our cost of sales continued to be negatively impacted by higher corn and soybean meal prices, both in U.S. dollars and in Mexican pesos. Those main raw materials alone showed increases of around 20% versus the same period of '21.

During the third quarter of '22 in terms of poultry markets in Mexico, we observed a slowdown in demand, which is a characteristic of this time of the year. This effect put some pressure on our net price compared to the first half of 2022.

Despite that challenge, as a result of our commercial focus on sales, channel mix improvements and service, we were able to show better pricing when compared to the third quarter of '21. Regarding our other segments, we kept focus on operational efficiencies, both in SASA and [indiscernible], and we consider we are heading towards the right direction.

About our U.S. operation during the third quarter of '22, we started to observe some slowdown on commodity markets, particularly for white meat and [ late quarter ] prices. Despite those challenges, and by working towards efficiencies, we managed to keep delivering positive results. The aforementioned resulted in report sales will increase of 20.9% for the quarter and 24.5% for the 9-month period when compared to the same period of 2021. While in terms of cost of sales, we showed an increases of 20.3% for the quarter and 22.7% for the 9 months of 2022. This led us to an EBITDA of MXN 1,525.8 million with a margin of 6.2% for the third quarter of '22 compared to the MXN 1,127.4 million and 5.6% of the third quarter of '21.

Challenging conditions in terms of raw material cost has also required higher investment on working capital. However, our financial discipline allow us not only to cover those requirements, but also to maintain a healthy financial position, reaching a net cash level of MXN 16,413.5 million, which will allow us to face potential uncertainties in the near future and to continue supporting our growth strategies. Now Daniel will join us for a discussion of the financial results.

[Daniel Salazar, executive]

Thank you, Rodolfo, and good morning, everyone. As a result of the conditions I've mentioned before, our company's third quarter 2022 net sales totaled MXN 24,457.8 million, MXN 4,228 million or 20.9% higher than the MXN 20,229 million reported in the third quarter of '21. Total cost of sales for the quarter was MXN 21,189.7 million, representing an increase of 20.3% when compared to the MXN 17,619 million for the same period of 2021. In terms of the first 9 months for the year, cost of sales increased [ 22.47% ] versus the same period of 2021. Gross profit for the quarter was MXN 3,268.1 million with a gross margin of 13.4%, which is higher when compared to the MXN 2,610 million, 12.9% reported in the same period of 2021. For the first 9 months of the year, we reached gross profit of MXN 14,308.2 million, with a margin of 19%. This amount is higher than the gross profit of MXN 10,787.9 million and 17.8% margin risk in the 9 months of 2021.

Total SG&A for the second quarter was MXN 2,114.2 million, representing 8.6% of our total sales, which compares to the MXN 1,790.9 million, an 8.9% of the total sales achieved in the third quarter of '21. For the 9 months of '22, we reported an SG&A of MXN 6,236.7 million or 8.3% of total sales, while in the 9 months of '21, we reported MXN 5,157.4 million and 8.5% of total sales.

Operating income for the third quarter of 2022 totaled at MXN 1,131.2 million and operating margin of 4.6% higher than the MXN 738.4 million and 3.7% margin reached for the third quarter of 2021. Operating margin for the 9 months of 2022 was 10.8% compared to the 8.9% reached in the same period of 2021. Our EBITDA margin was 6.2% for the quarter, an increase when compared with 5.6% in the third quarter of '21.

For the first 9 months of the year of '22 and '21 EBITDA margins were 12.3% and 10.7%, respectively. For the quarter, we had a net financial income of MXN 116.5 million and MXN 38.6 million for the 9 months of 2022, compared to the net financial income of MXN 459.6 million for the third quarter of '21 and MXN 682.2 million for the 9 months of '21.

Our total taxes were MXN 285.3 million for the third quarter compared to MXN 380.6 million recognized in the same period of 2021. For the 9 months for 2022, our total taxes were MXN 2,117.9 million, higher than the income taxes of MXN 1,733.3 million for the same period of 2021. All the above led us to a positive net control in interest income of MXN 972.1 million and 3.97% margin for the third quarter of '22 compared to MXN 843.8 million and [ 4.178% ] margin reported in the third quarter of '21.

For the 9 months of 2022, net control and interest income totaled MXN 6,072.7 million with 8.1% margin, which is higher than the MXN 4,420.9 million, 7.3% margin of 9 months of '21. Going into our balance sheet, we kept a healthy financial structure with a net cash level of MXN 17,413.55 million at the end of September '22, and this has allowed us to keep with our CapEx allocation plans, which showed an increase of 31.3% when compared to the same period in 2021. Thank you, and I will turn the call back to Rodolfo for final comments.

[Rodolfo Ramos, executive]

Thanks, Daniel. Now we are entering in the fourth quarter, which historically is a good one in terms of volumes sold. Particularly in the United States, we think that most of the negative impact of the slowdown of prices will be seen in the fourth quarter of '22. In terms of cost, even when we have seen soybean meal prices starting to decline, there is a lot of uncertainties in this arena, so we will remain following closely those trends while being disciplined with our hedging policy.

We will remain focused in serving all of our commercial channels and be close to our final customers and consumers bringing high-quality products to their table. Even when the near future can be volatile as a result of the macroeconomic uncertainties in the country in which we compete, we continue to focus on our growth plans. We have a very solid financial structure that enable us to support our projects and add value to our investors.

In this regard, it is key for us to continue focusing on those things we can control while delivering positive results in terms of profitability and growth. With that, we will now take your questions.

[Operator]

[Operator Instructions] We have a question from Juan Ponce from Bradesco BBI.

[Juan Ponce, analyst]

So we saw this morning reports on bird flu places in Mexico stayed than previously in Jalisco. How much do these states represent total supply? And do you think it will be contained? And in the same context, what are your views on the government waiving importation requirements to stimulate supply?

[Rodolfo Ramos, executive]

Yes, the report of [indiscernible] just one wild bird, I think, it was a falcon, and they found it and obviously dead and they discover it was positive to [indiscernible] influenza. But that's it. And there is no other reports that it was very close was in an area of the Jalisco state, and that's the report just in wild birds and backyard but it's not in the commercial. And all these outbreaks are under control according to the [indiscernible].

[Juan Ponce, analyst]

Okay. And what are your views on the government weighting importation requirements [indiscernible]? Do you think there is a risk in terms of sanitary regulations, et cetera?

[Rodolfo Ramos, executive]

Well, we are -- and the whole industry is following the rules of the sanitary officials. So even we subscribe the act, we are going to follow all the rules of all the measures to maintain this, the health of the industry in terms of diseases and all the risk, that any importation can cause in Mexico. So -- but Bachoco as a company agreed to keep working with the actual regulations. And I think it's the same thoughts of all the whole industry to keep the country in the same way in terms of health and biosecurity.

[Operator]

[Operator Instructions] And at this moment, I show no further questions. I would like to turn the call back to you for any final remarks.

[Rodolfo Ramos, executive]

Thank you all for joining us this morning. If you have any further questions, please contact our Investor Relations area who will be glad to assist you. Thank you very much.

[Operator]

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.