Grupo Bimbo SAB de CV
BMV:BIMBOA
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 |
60.93
89.25
|
| 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.
Grupo Bimbo SAB de CV
You don't have any saved screeners yet
Good morning, everyone, and welcome to Grupo Bimbo's First Quarter 2019 Results Conference Call. If you need a copy of the press release issued yesterday, it is available on the company's website at www.grupobimbo.com.
Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the company's financial and operating performance.
All projections are subject to risks and uncertainties and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements.
I would now turn the call over to Mr. Daniel Servitje, Chairman and Chief Executive Officer of Grupo Bimbo. Please go ahead, sir.
Good morning, and thank you very much for joining us. I'm here with Diego Gaxiola, our CFO; our BBU President, Fred Penny; and several members of our finance team. I will get us started this morning with the results for the quarter and an update on our global operations. Diego will provide the financial review, and then we can continue with questions from those joining us on the call.
We started 2019 coming off a record year in which we successfully navigated a challenging environment, delivering growth and profitability.
This quarter, we have good organic sales performance in key markets, as well as from acquisitions completed in the last 12 months such as Mankattan in China and Nutra Bien in Chile.
These results combined with efficiencies and growth of supply chain contributed to an EBITDA margin expansion of 30 basis points.
This quarter was marked by high volatility in several markets, including the high inflationary environment in the U.S. and the macroeconomic conditions in Argentina, both of which I will touch on in more detail shortly.
I would now move on to a more specific explanation of the performance by region. In Mexico, we experienced a slowdown in our volumes. However, sales were almost 4.1% with growth across all channels in most categories.
The convenience channels outperformed as did the bread, buns and cake categories.
Regarding adjusted EBITDA, which experienced unfavorability from the FX rate and pressure from higher raw material cost. But savings from the initiatives such as Zero Based Budgeting were able to partially offset this. In North America, net sales rose 2.5% in peso terms. Mainly due to the benefit of FX. Our dollar sales are equal to last year. We implemented price increases and experienced growth in our strategic brands such as Artesano, Entenmann's and Barcel snacks.
We achieved sales and market share gains in the sweet baked goods category within the region as well as in the bread category in Canada.
However, this results continue to be pressured by the declining sales in the private-label, breakfast and mainstream categories.
Adjusted EBITDA margin for the quarter expanded 130 basis points due to our growth in strategic brands, benefits from past [ in base ] investments, including organizational restructuring such as VSP and route optimization as well as the intercompany commercial strategy, which more than offset the commodity, energy and transportation inflation. We expect this inflationary pressure to continue in the region. We will leverage revenue growth management to generate efficiencies in promotional strategies, improve our product mix and drive increased profitability through supply chain optimization, focusing on some operations where we have opportunities.
Moving on to Latin America, I would like to start with Argentina, where political and market unrest coupled with the depreciation of the currency had a significant impact on consumption and inflation, resulting in volume decline and a contraction in our margins.
In Brazil, we continue to face a challenging market in terms of consumer behavior and cost pressures, mainly in labor and raw materials. We're still in a turnaround process and defining the necessary measures to ensure the sustainable path in the country.
Although our sales in Latin America are lower than last year in Mexican pesos in local currencies we posted growth and we were able to deliver positive adjusted EBITDA due to the strong performance in Chile, Peru, Colombia and the whole Central American region.
We remain reasonably optimistic looking forward as we were to turn around our [ larger ] markets.
Lastly, EAA, top line expansion was mainly attributed to the acquisition of Mankattan, strong performance of the QSR business and the favorable exchange rate.
In Iberia, we began to realize the benefits of the integration. However, the sweet baked goods category continued its underperformance.
This concludes my comments on our operations. I would like now to invite Diego to review the detailed financials. Please go ahead.
Thank you, Daniel. Good morning and thanks, everyone, for joining the call. As Daniel mentioned we started 2019 with a good first quarter, delivering sales growth of 3.6%, driven mainly by the growth in EAA, a positive performance in most of the channels and categories in Mexico, and to a lower extent, a positive currency effect, due to a weaker peso as compared to the same quarter of last year.
It is worth highlighting that our business today is more diversified than it has ever been. With Mexico representing 30% of our sales, and therefore, approximately 50% of our revenue is denominated in [ hard ] currency.
We posted an EBITDA growth of almost 7%, and despite the pressure seen from commodities, labor and transportation, the margin expanded 30 basis points, resulting from good operating performance and savings achieved from the restructure and investment implemented in the past.
Therefore, we will continue to work on identifying and successfully executing these kind of restructuring initiatives. Going forward, as part of our long-term profitability goals, despite the potential impact in the short-term. As you know, we implemented IFRS 16 this quarter, which resulted in first the recognition of our leases amounting to MXN 21.7 billion. From the P&L the operating leases expenses are now recognized in the VMA and in the cost of financing.
Initially, the adoption has a negative impact on our net income. To better describe the performance of our business and have a fair comparison, we will continue to report adjusted EBITDA with the same [ tautology ] that has been presented in the past. And in addition to these metric, we will also report the new metric adjusted EBITDA, which is earnings before interest taxes, depreciation, amortization and rates.
To summarize the first quarter P&L impact due to the adoption of IFRS 16 are as following.
On the operating leases expenses, we had a reduction of MXN 1 billion, which are not recognized in the EBITDAR metric. Second, we have an -- an impact on the amortization for MXN 1.1 billion, and we also now recognize a financing cost of MXN 238 million. So as a result, we had a negative impact of MXN 190 million in our net income.
Moving on to our financing cost, the 27% increase was partially explained by the effect of the adoption of IFRS 16, as well as by the change in our debt currency mix, in which we increased the portion of Mexican pesos and reduce the exposures to Canadian and U.S. dollars in the second quarter of last year.
As for our effective tax rate, we are in line with our guidance, closing the quarter [ at ] 41%.
Net income, which includes the negative impact of MXN 490 million experience a slight growth of 1.5%.
The earnings per share was MXN 1.23, and our return on equity increased 90 basis points to 7.7%.
Regarding our balance sheet, I would like to comment on the working capital, which reflect the difficulties that we have been facing regarding the collection of the positive balances of the PAT in Mexico that we haven't been able to collect due to the fact that we can no longer compensate taxes.
Additionally, I would like to highlight that our debt position was MXN 90 billion at the end of the quarter, which is similar to how we ended the year, while our total debt-to-adjusted EBITDA ratio stood at 2.8x. Lastly, as you know, we held our annual shareholders meeting this Monday with the approval of a dividend payment equivalent to $0.45 per share and then increasing the share repurchase program legal reserve totaling MXN 5.2 billion.
That concludes our remarks this morning. So Alison, please proceed with the Q&A session.
[Operator Instructions] Our first question today will come from Lucas Ferreira of JP Morgan.
My first question is on Latin America. Just wondering if you could give us more details on this results. How much of this shortfalling in the results and profitability actually came from Argentina? How much of that you expect to report in the coming quarters from Brazil? If you can, at least, give us some color on how we should be seeing the profitability of that division going forward into 2019? And my other question is on the U.S, looking at the gains you guys made on especially expenses. My question is how much more improvements should we expect going forward? Or you think these measures are recently taken such as just -- these are already reflected in the results and should be -- and that should be served at the new level of profitability we could expect for the business?
Hi, Luca, this is the Diego. I would take the first one regarding Latin America. As you know, we do not disclose this specific information by country. What we can tell you is, as I mentioned during the conference is that we have a negative comparison in Argentina, mainly because of the macroeconomic situation that we have been facing, a lot of inflation, weak consumption, so it has been hard to pull up price increases in line with inflation, and at the same time, we are seeing a very weak environment.
So that's -- that has a heavy weight on the numbers of Latin America. And probably the second negative reason is the performance of Brazil where we still are seeing some [ complications ].
On the other hand, we had a positive and a strong performance in other markets such as Chile, Colombia and the whole Central American region. And the second one probably, Fred...
Yes, I've got it Diego. Good morning, Lucas. I guess, let me start by saying that I'm pretty satisfied with the earnings performance of North America and BBU and the margin improvement in the quarter, given the external pressures we experienced. As you might have seen, I'm sure you did the top line, it was essentially flat USD, reflecting some external pressures that we saw in the market, the impacts from the government shut down, delayed [ snack ] payments, delayed tax refunds, et cetera. And I'm sure everybody will recognize the polar vortex issues, the brutally cold weather in the middle of the country, which affected our business. So all in all, having said that in terms of some top line pressure, we're pretty satisfied with where we came out on the earnings. I would say, I'm somewhat cautious in terms of the top line pressures we're seeing and so therefore I would say that, the margin improvements that are reflected in Q1 are more consistent with what I would expect to see as we move forward.
The next question will come from Felipe Ucros of Scotiabank.
So let me start with this one on Mexico. After 2 very impressive years, it looks like the pace of sales growth declined a little bit from what had been in the high single digits or even double digits in some quarters. And it decelerated to about half of that this quarter and that was particularly surprising, given the calendar effects with Easter this quarter, which, in most cases, is positive, but I don't know, specifically in your case, how that affects things? So I was wondering if you could explain the drivers around the deceleration? And what you expect in the coming quarters for Mexico?
Yes, Felipe. Good morning. What I can tell you is that certainly, economy is not as strong as it was in the previous quarters. But we're just starting and we need to basically, gosh, measure a little bit better what's the market? And how things are going in this quarter to assess. This is basically a temporary issue or it's a little bit more structure -- so we basically are in the process of understanding what's going to be the growth trajectory for the next quarters.
Understood. Great. And if I can do a follow-up on the intercompany commercial strategy that you described in the report. Can you give us some more details on what that entailed? And whether that's going to be present in the coming quarters?
Yes, this is basically between some operations that we have for Mexico to the U.S. We're having a different pricing structure and commercial strategy in order to fuel the future of growth of some of the specific eateries in the U.S.
The next question will come from Alan Alanis of UBS.
Couple of questions, the first one more on the commercial side. Have you changed at all any receivable rules -- or accounts receivable rules, because I'm seeing quite substantial increase in your days of accounts receivables of almost a week year-over-year in the consolidated basis. I'm trying to understand, if there was any change in the commercial practice of the company, in one of the major territories, I guess, would have to come from the U.S. or Mexico. That's the first question? Second question is more of an accounting question, but take the first one first, please.
Yes. Hi, Alan. No, we haven't changed either the accounting method or our policies. We are having some issues in some operations. And also, we have in our numbers, of course, the effect of the FX, not because of [ weight ] that the U.S. and the others markets have on our consolidated numbers.
Got it. Okay, okay. Do you think that this decision that you mention are one-off? Or should we -- this be a new level of receivables for Bimbo?
No, I think we're going to be able to go back to the previous level. We were implementing a lot of initiatives focused on improving our working capital on accounts receivables, as well as with accounts payable that we feel optimistic about the cash flow generation that we might have from this quarter till the end of the year.
Got it. Okay. And the last question is, it has to do with IFRS 16. Could you help us understand why, I think, Bimbo was the only one who's indicating an impact at the net income level. It seems that the other food and beverage companies in Mexico, all of your peers, some of them also with very large operations outside of Mexico, including the United States, are saying that the impact was basically on the -- at the EBITDA level, but not at the net income, meaning that whatever adjustments you're doing on the operating income line in terms of leases, you're just turning them into financial expenses and they should wash off and not have an impact on net income. However, for Bimbo, you are mentioning that you had an impact on IFRS 16 on -- because -- at the net income level, if you could help us understand better, that would be highly appreciated.
Yes, sure. I mean, I don't know what other companies are doing, what I can tell you about is our specific case. The way we're amortizing the asset that we created because of the net present value of the right of use on all the leases, which was almost MXN [ 22 ] billion. The way that the [ queue ] works is that at the beginning, we have to amortize a little bit more with the combination of the financing cost. So to give you an idea, this is pretty much similar to when you get a -- like a credit and like where you would have to make the total payments, but it's a little bit more higher at the beginning. It will in some point of time, will be lower than what we're paying and of course, net on the life of the asset, it will have a few effect on the net income.
Got it. So basically what you're saying is, by putting this the long-term leases and assets, you -- yes, got it. You are amortizing 2x? And then initially, you're expecting that this is just a higher interest payment than the one that you were doing equivalent as if it was a lease?
Exactly, exactly. At the beginning and then it will be the opposite, let's say, on the second half of the full life of the lease as well. Assuming that we -- they're the same leases, we will see a benefit in the -- at the end of the period.
Got it, got it. Okay, helpful, with the other companies as well to see why one company is doing it in one way and the others, the other, but I appreciate it.
The next question will come from Alex Robarts of Citigroup.
I mean, I do want to go back just to the Mexico top line trend? And then the second one is on the dollar sales growth in the U.S. I appreciate you kind of explaining that there was a partial offset of the Mexican sales growth in the quarter from this intercompany -- or change in the intercompany commercial strategy. But if you could, kind of explain what exactly was the impact of this change. In other words, when you think about 4% Mexican sales growth in the quarter, I guess, as far as I can see, that's the slowest quarterly growth since the fiscal reform in 2014. And I'm wondering if you had a chance to kind of break out what that sales growth would've been without this intercompany commercial strategy change? And what was the specific issue that was going on in between the U.S. and Mexico, that would be great. Just getting some more granularity there, if that's possible?
Yes, Alex, as it was mentioned, we did see a slowdown in Mexico. We do have the company commercial strategy that is hurting a little bit on the top line of Mexico with raw materials so although we're not disclosing the specific number, but I can tell you that the growth would be similar in the mid-single digit range.
Okay. And just, I mean, the reason why you decided to stop doing these -- so I guess just anecdotally that seems to be a couple of percentage points that were explained by this, kind of strategy that you had going. And I'm thinking about how we -- think about the historical numbers, I mean, is it typically something that's been going on? And why now are you -- did you decide to stop doing these intercompany interaction?
No, no. It's not -- yes, it's not that we're stopping the intercompany operations. In fact, what we're having is a different commercial strategy to fuel the growth of some specific eateries -- some specific products in the U.S. So we are changing a little bit the commercial structure in which Mexico is selling to the North America operation.
So then just to conclude, if it's safe then to understand this since this is the change this quarter, we'll have 3 more quarters of this change on a year-on-year basis and that can have kind of -- is that right?
Yes, it was a change implemented at the end of last year.
Got it. Okay, so we have a couple of more quarters of that.
And Alex, I mean, in reality, revenue of Mexico is not materially impacted on this one, so the sales of Mexico are basically a Mexican issue and we're -- it has to do mainly with the slowdown of what we're seeing in -- consumer purchase intent basically.
Okay, okay. So it's not so much of a delta. That's very helpful. And just the second one was on the U.S. dollars sales growth, I guess, which you've mentioned and we understand, it was flat in the quarter. And I appreciate the polar vortex and delayed tax payment issues and refunds and such. But if we think about, perhaps the underlying trend, we're seeing some of these Mexican companies that the consumers in the United States -- the Mexican consumer stock, sorry, in the United States, some having different levels of success with looking for price, rate increases, and some are getting some flexibility enabling to move up on price through rate, others not. How are you seeing the retail environment today for pricing? And did you think, in the quarter -- did you, and perhaps this year, do you think there's some room to execute a rate increase during the year?
Yes, Alex, good morning, it's Fred. Let me take that one. That was just on the quarter, and I'm glad you appreciate the polar vortex and snap, et cetera, but just on the quarter, there was noise in the quarter beyond that, we had some private-label drag, which was a combination of trend and exiting some business. We exited in the fourth quarter a licensing -- a branded licensing agreement, which has some drag in the quarter. But then in our core categories, I would say, it's really been mixed results. So our sweet baked goods business is exceptionally strong, continues to perform well. In mainstream bread and in bread in general, I think we're seeing, because we put a fair amount of pricing into the market in '18. We're seeing some volume pressure from that pricing. That's something we're going to have to monitor closely and continue to work on refining our pricing strategies as needed. But quite frankly, given the inflation pressures we faced last year and we're continuing to face this year, we've got to continue to push for price realization, while we balance that in terms of the impact that it has on our volumes.
But the supermarkets right now, are there any indications, Fred, that I mean, do you think there's room, I mean, some seems that some categories, they seem to be pushing back and others, no. Or is that going to be just something we're going to see during the year?
Yes, I don't want to speculate on other categories, I mean, we -- I think we've worked hard to improve price realization. In particular through revenue growth management, because we know we have to. As you know, it's a price-sensitive category. We're -- and especially when you talk about mainstream bread, the category has moved. The question is, is there more room without further volume drag, and I think that's what we have to work through. And I guess stay tuned, we'll see -- as we go through the year, whether we're able to generate additional price realization without negative volume impacts along the way.
[Operator Instructions] Our next question will come from Isabella Simonato of Bank of America.
It's Fernando Olvera on the line. Can you hear me?
Yes.
I have one, if I may. My question is related I think something more strategic in the U.S. I read a news that [ nonetheless ] is exploring adding [ CVD ] to its products, [ mainly ] snacks. So I would like to hear your thoughts on this issue, I mean, is this something that you would explore at some point?
Yes. Daniel, Do you want me to take that?
All right. Go ahead, Fred.
No -- It's Fernando, correct?
Yes.
Yes, good morning, Fernando. No, we -- it's an interesting question, certainly there's a lot of noise, seemingly everybody is selling CVD somewhere. We have no imminent plans to put it in any of our products. I guess, having said that, never say never, but it's certainly not on our radar screen in the near term.
Okay. Great. And well, in this case, if I may, just to make a second question, I mean, given the recent decline on wheat prices and concerning your hedges. I was wondering if you can comment, when could we expect some benefits or when do you expect to see some benefits on your results, given this decline?
Yes. Hi, Fernando. Well, as you know, we already have 100% hedged the commodities for 2019. So we will start to see the benefits more towards the first half of 2020. Once we start to see in our P&L, the cost of the commodities that we're hedging today.
Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the floor back to Mr. Daniel Servitje for any closing remarks -- or pardon me, we did have a question -- pardon me, we do have a question that came into the queue. Our next question will come from Álvaro García of BTG.
The question is for Diego. I was wondering if you could help quantify the IFRS 16 impact to your EBITDA margin, particularly in U.S. As much as we understand, your explanations to Alan on the negative impact to net income. I'm assuming your reported EBITDA included some sort of positive impact. I just wanted to clarify if that was on a like-for-like basis? Or if you reported a 130 basis points expansion, included -- that positive IFRS 16 impact?
Yes, Álvaro. Well, first of all, on a consolidated basis, what we have been trying to accomplish is, for all of you to have a fair comparison and a clear understanding on the results of the company by having the 2 metrics. The EBITDA, which has the traditional weight of being computed and then you have the EBITDAR. It is also important to mention that we are keeping the EBITDA internally and externally because all our covenants, bank covenants are based on the EBITDA, not the new measure EBITDAR. So we do not have an effect on the leverage of the company, either from the profit or because of the new liability that we have.
Now on a consolidated basis, you can see that the impact that we have between EBITDA and EBITDAR, it's a little bit more [ to ] MXN 1 billion. And this is the equivalent to a 150 basis. On a per region basis, I will say that, it's very similar what we have in Mexico and North America, it's very similar to the consolidated effect, because that's where we mainly have the bigger difference.
Great. That's very clear. So your reported EBITDA is under your previous accounting framework?
Sorry, can you repeat question, please?
So the adjusted EBITDA that you provided, not the EBITDAR, but the EBITDA that you provided is reflective of, let's say, that EBITDA considers [ every rent ] expense as you used to last year?
Yes, exactly. Sorry, it's an apples-to-apples comparison, and you now perfectly understand operationally, what's going on in each of the segment.
Our next question will come from Héctor Maya of Santander.
I just wanted to know that for Mexico, if you have seen any signs of improvement so far in April in terms of consumer environment? And if you have seen so far in terms of costs like labor and energy, it's an improvement also?
Yes. Hi, Héctor. No, it's basically the same trend. I think it's still early to say that we have seen a shift in the top line in Mexico, the consumer environment as well as with the inflationary pressures that we have in the U.S. and in other organizations. As I said before, that we already hedged the commodities mainly for the full year of 2019, as well as with the exchange rate [ of less ] hedged some quarters ago.
So we will start to see the benefit of lower commodities and a stronger peso more in 2020.
This concludes our question-and-answer session. At this time, I'd like to turn the conference back over to Mr. Daniel Servitje for closing remarks.
Well, thank you all for your time today. And as always, please do not hesitate to contact us with any further comments or questions you may have.
The conference has now concluded. We thank you for your participation.