Grupo Bimbo SAB de CV

BMV:BIMBOA

Earnings Call Transcript 2019-Q2

[Operator]

Good morning, everyone, and welcome to Grupo Bimbo's Second 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.

[Daniel Servitje Montull, executive]

Thank you very much, Allison. Good morning, and thank you very much for joining us. I am here with our CFO, Diego Gaxiola; our U.S. President, Fred Penny; and several members of our finance team. I'll 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.

From the vantage point of midyear, I can tell you that it has been a -- it's been challenging as we have navigated to a volatile and uncertain environment in several markets like Mexico, Argentina and Brazil. However, sales grew 1.7%, excluding FX effect. An effective focus on cost controls, productivity benefits from past investments and lower restructuring charges led to significant year-over-year growth in operating income and net majority income.

I'll now move on to more specific explanation of the performance by region. In Mexico, we continue to experience a slowdown in our volumes across most channels, specifically the traditional channel. And as it is our largest, it had a negative impact on our results. The South region and the sweet baked goods and snack categories also underperformed. We also had unfavorability coming from the FX rate and pressure from higher raw material costs. But savings from initiatives such as zero-based budgeting were able to partially offset this.

Our salted snacks and confectionery businesses in Mexico have historically been operated together under the Barcel organization banner. To create greater focus on these categories and take advantage of opportunities in the marketplace, we have decided to separate the businesses and now make Ricolino a stand-alone Grupo Bimbo organization. Now Barcel will be focused exclusively on the salted snacks business, facilitating its ability to increase customer reach and look for opportunities to expand in new markets.

In North America, the sales decline was driven by volume softness resulting from the implementation of price increases to deal with inflation headwinds, portfolio optimization initiatives, continued compression of the private label category, the exit of a license agreement in the U.S. and temporary business interruption in a plant in Canada due to an extreme drought across Québec. These factors were partially offset by outperformance in the sweet baked goods, bagel and the snack categories and pricing and trade efficiencies in the U.S. as well as market share gains in Canada, mainly in the mainstream bread category.

Adjusted EBITDA margin for the quarter expanded 110 basis points, primarily due to the positive effect of past restructuring initiatives and favorable portfolio mix arising from growth in strategic brands. These factors more than offset commodity, energy and transportation inflation as well as restructuring investments in the U.S., the temporary business interruption at the plant in Canada and the MEPPs charge. Going forward, we will continue to leverage revenue growth management to generate efficiencies in promotional strategies, improve our product mix and drive increased productivity through our supply chain optimization.

Moving on to Latin America, we have seen a continuation of trends this last quarter, particularly related to challenges in Argentina and Brazil, which drove year-over-year decline in sales. In Argentina, political and market unrest, coupled with the depreciation of the currency, had a significant impact on consumption and inflation resulting in a volume decline and contraction of our margin.

In Brazil, we're still facing a challenging market in terms of competition environment, consumer behavior and cost pressure. We continue to identify and implement countermeasures to ensure a sustainable path forward in the country. Despite weak sales performance in Latin America, we were able to deliver positive adjusted EBITDA due to strong performance in countries like Chile, Colombia and Peru. We remain reasonably optimistic looking forward as we continue to transform our larger markets.

Lastly, in EAA, top line expansion was mainly attributed to the acquisition of Mankattan in China, strong performance of the QSR business as well as good results in Spain, notably in the sweet baked goods category. The operating income shift to a positive result as we started to see the benefits from past investments and the synergies achieved. This concludes my comments on our operations.

And I would like now to invite Diego to review the detailed financials. Please, Diego, go ahead.

[Diego Cuevas, executive]

Thank you, Daniel. Good morning, and thanks, everyone, for joining the call. As Daniel mentioned, we are seeing a continuation of many of the trends we discussed last quarter with challenges in some markets and good results across other operations that help us to offset the pressure from raw materials, currency fluctuations and complicated macroeconomic conditions in some specific markets.

Second quarter operating income increased substantially as we continue to leverage the benefits of the implementation of past restructuring initiatives such as the VSP program in the U.S. and the organizational restructure initiative in Canada, which was offset by the $55 million noncash charge related to MEPPs liability reflecting current interest rates levels. We continue to work to optimize cost and expenses, so we can further enhance our market position by innovative introduction of successful categories into new regions, expansion of our QSR business and the integration of Mankattan in China, greatly enhancing our market position in the country.

As a reminder, prior year results included the $105 million noncash charge associated with the VSP in the U.S. As many of you are aware, we consistently focus on investments for the long term, and we will continue to work on identifying and successfully executing these kind of strategic initiatives that will create shareholder value over time.

Moving on to our financing cost. The 8% increase is basically explained by the effect of the adoption of the IFRS 16 into our financial statement. As for our cumulative effective tax rate, we closed at 38%, which is slightly below our year-end guidance. As a result, net income, which includes the negative impact of the MEPPs charge and the implementation of IFRS 16, rose more than 500%. The earnings per share was MXN 1.44, and our return on equity increased almost 400 basis points.

Regarding our balance sheet, the working capital continues to reflect the delay that we have experienced in the collection of the positive balances of the VAT in Mexico. Finally, our debt position was MXN 89 billion at the end of the quarter, lower than year-end. Our total debt to adjusted EBITDA ratio stood at 2.8x, as we continue with the commitment to delever the balance as we move forward. That concludes our remarks this morning.

So Allison, please proceed with the Q&A session.

[Operator]

[Operator Instructions] Our first question today will come from Luca Cipiccia of Goldman Sachs.

[Luca Cipiccia, analyst]

I wanted to ask maybe a little more color on the comment that you made about Mexico. Just to get a better grasp of what is it that you're seeing, especially as I think you attribute most of the weakness in the traditional channel and what would be the explanation? I also noticed last -- the quarter -- I mean the top line last year was pretty strong. There were some calendar shift this year. So maybe if you could separate, elaborate a little bit more on the Mexican performance. What is organic? What is particular dynamic specific channel and any part of differentiation that you can make across the market or the portfolio?

[Daniel Servitje Montull, executive]

Luca, yes, we felt a slowdown in our revenues in Mexico. As I mentioned, it was mostly happening in the mom-and-pop channel and regionally in the South part of the country as well. We are working our way through smart initiatives in each markets, try to recover our past trend. Although the global -- the national macroeconomic growth is slowing down as has been mentioned in the press. Nevertheless, we're seeing also that with good views, the macroeconomic stability and the peso exchange rate is staying as it was before. So that's also giving us a little bit more color on what we could expect for the upcoming semester. So all in all, we're working mostly in the ground to try to take the opportunity that we can find. But there is a general slowdown in the economic growth as it has been already mentioned.

[Luca Cipiccia, analyst]

And if I can ask just a follow up. I mean the last couple of years you've done pretty remarkable job in improving the profitability in Mexico from already high levels. Do you think that in the context that you describe, from that perspective things may have peaked or there are other initiatives in the pipeline where you would say there could be additional opportunities from where we're today margin-wise?

[Daniel Servitje Montull, executive]

Yes. I would say that -- I mean, we're never satisfied with our performance. We try to do better every year, and we have to be also conscious of the macroeconomic circumstances that we're facing and the market challenges. Nevertheless, I would say that our team here in Mexico is very committed to finding all the granular growth opportunities that we can find and execute as they know here to do. So my take is that we're -- even if in -- the general macroeconomic sense it is what it is. We're trying to find opportunities for growth.

[Operator]

The next question will come from Isabella Simonato of Bank of America Merrill Lynch.

[Isabella Simonato, analyst]

My questions are margins in both Mexico and North American division. You attributed the commercial strategy between Mexico and the U.S. part of the performance of margins in North America and Mexico in opposite directions, right. Can you elaborate what sort of impacts we're looking for each division from such strategy in terms of profitability? And in that same line, when we look at gross margin performance across-the-board, raw materials impacted most of the divisions, but we still saw gross margin in North America expanding year-on-year. If you could also give us a little bit more color how you will offset raw materials pressure in North America on a gross margin level.

[Diego Cuevas, executive]

Isabella, this is Diego. Regarding the commercial strategy that we committed in the previous quarter, basically, the ideal strategy is to fill the growth of some products that we're exporting from Mexico and probably with the biggest effect on the U.S. as a mirror. So this is helping, and this is -- might probably answer your second question. We are seeing the positive effect on gross margins as well in North America because of having a lower cost of sales since we reduced the price of some products.

[Isabella Simonato, analyst]

But when we look at margins in Mexico from such strategy, we understand -- you explained that margins are negatively impacted by that. Can you -- do you have a sense of how much or how we account for that?

[Diego Cuevas, executive]

Yes. In the case of Mexico, it's around 1 percentage point, the effect that we have on the margins on a negative side and a little bit less than that on a positive effect in North America.

[Operator]

The next question will come from Benjamin Theurer of Barclays.

[Benjamin Theurer, analyst]

I would like to stay in the U.S., North America. Could you elaborate a little bit on the different initiatives in the different categories, what you're doing on pricing and what you're planning and the magnitude of those price increases, just to get a little bit of a sense on the sensitivities and the impact you ultimately had on volume as you mentioned that there was a decrease because of the price increases? Just to understand how much you actually have been raising prices already and what are your plans for the back half. If you still see further price increases need to happen or are you done with that strategy? That will be my first question.

[Fred Penny, executive]

Daniel, Diego, I'll take that if you wish.

[Diego Cuevas, executive]

Yes, go ahead.

[Fred Penny, executive]

Yes, Benjamin. Thanks for the question. Let me start where I think I spoke about this at the prior call. We've had fairly significant inflation headwinds, which were actually greater this year than they were last year. And we made the decision last year to price -- to address the top -- the inflation headwinds that we knew were coming. We've actually priced, I would say, well ahead of the total category. And as a result, we've seen some volume softness and more particularly in traditional sliced bread where the price sensitivity is higher. In some other categories, we haven't seen the same level of impact. And so as I think about going forward, let me go a little further on the volume.

So one of the issues we've been wrestling with is the need for pricing and the impact of volume, and we're working our way through whether there are adjustments needed. In the quarter, we also had some volume impact from some private label business that we exited and from, I think, Daniel mentioned the termination of a Sun-Maid licensing agreement. And then thirdly, we made the decision -- and I think it's the right one -- to execute some relatively aggressive portfolio optimization to drive efficiencies through our supply chain and to better position our core brands and our core products, our most important brands and products to grow in the marketplace. So you take those 3 dynamics and they impacted our top line. I will tell you without obviously specifics that we are going to continue to work on our trade optimization going forward, and we will adjust as necessary to ensure that our core brands and our core products are growing and responding to what we see in the marketplace from a pricing standpoint.

[Benjamin Theurer, analyst]

Okay. Perfect. And then just one minor question. I mean, first of all, congrats on EAA being operating income positive. That was clearly a massive step forward compared to last year. Do you feel comfortable now that going forward you're going to be in that positive operating income level? Or were there some things that just benefited during the quarter to help you cross the line of breakeven? Or how shall we think about that business, just how shall we think about that business for the back half and into 2020?

[Daniel Servitje Montull, executive]

Thank you very much. All in all, I think that we're happy with the trends that we're seeing both in the EAA region and the QSR business that we've seen with it. And we're organizing our efforts to move in that direction as well for the future.

[Benjamin Theurer, analyst]

Okay. So sustainability above breakeven, that's fair to assume?

[Diego Cuevas, executive]

Sorry. Can you repeat it?

[Benjamin Theurer, analyst]

So to be sustainably above breakeven like just what we've seen in 2Q '19, correct?

[Diego Cuevas, executive]

Yes, definitely. And in fact, we're still working on the synergies and the integration of the acquisition of Mankattan. We are at the final stage of moving the Bimbo Beijing plant to the Mankattan facility, and this will also bring some additional uplift in the margin. So we do see it sustainable.

[Operator]

Our next question today will come from Alan Alanis of UBS.

[Alan Alanis, analyst]

A little bit of context just before I do it. We're seeing food and beverage companies around the world severely punished or massively rewarded depending on their top line growth, and Bimbo is no exception. I think that, I mean, we're seeing the stock down 7% today and despite you reporting a very solid increases in your net income and your profitability. So could you help us understand a bit more what's the long-term view that you have in terms of the top line growth for Bimbo, particularly in -- with respect to existing categories and new categories, baked good versus salted snacks and so forth? And how much do you think of, okay, this category should grow X, Y or Z in these regions, and we should be gaining or maintaining market shares in these regions? So we can adjust our long-term models, if you be so kind, Daniel, please.

[Daniel Servitje Montull, executive]

Well, thank you very much, but we won't be able to give a specific guidance on any segment for the coming years in terms of our growth outlook. What I can tell you is that we are seeing opportunities even in mature markets for specific segments that are growing very nicely and with a long-term good perspective. We're also reviewing, as Fred mentioned, how can we strengthen our portfolio, what can we do to shed some underperforming SKUs, and we'll continue to do that. And that might have an impact in our current phase, but this is a company that -- it's focused on long term and long-term profitability and sustainability of our business model. And we have to sometimes take short-term actions that will impact the growth of our business. We'll do it as long as we can have a better future for our business.

So in that sense, what I would say is that the market is not a general -- it's not moving in a general direction. It depends country-by-country. And within each country, the categories that do perform change from one to the other. All in all, I would say that we're happy with what -- the actions that we're taking, and our strategy for the remainder of the year is focused more on execution and to change the trends in the specific categories that we think that we can improve, but we won't shy from taking decisions that might impact the business in the quarter.

[Alan Alanis, analyst]

Got it. And just a quick follow-up on that same line of thinking. Could you give us some context of what's happening with private label? I mean, what's your view in private label? How much do you want to participate? How much do you want to exit? Is it really growing much faster than the other categories and so forth?

[Daniel Servitje Montull, executive]

I can give you a broad overview and have Fred to talk a little bit more about the specifics in the U.S. So for us, private label is basically another line of business in the different markets in which we participate. And we do have a reasonably important private label business in many countries. And we are partnering with our customers in the different markets and seeing how these products could improve their business as well as improve our profit in each of the markets. In some instances, the model is working very well, and we will continue to support it jointly. In others, there might be some circumstances that led us to either exit some private label business, which is not profitable. And in others like in the U.S., the situation is that the private label brands in general have been for the past years in a decline. And as we participate significantly from that business, we also share the burden of that decline. Fred, I don't know if you want to add anything else in this regard.

[Fred Penny, executive]

No, I think that's a pretty comprehensive answer, Daniel, not much I can add. I think you hit all the key points. I'd only reiterate that it's an important part of our overall portfolio, and we have to manage it. And it's a dynamic piece of the business as well, because there are changes that occur in the category, and we have to navigate them. But it's an important part of our overall business, but it has been contracting as a category.

[Operator]

The next question will come from Lucas Ferreira of JPMorgan.

[Lucas Ferreira, analyst]

Sorry to insist on Mexico, but if you can give more details about what exactly happened, which were the categories that suffered the most in the South, if the consumer is trading down? If you can also comment a little bit on your market share, how it behaved in -- specifically in the South of Mexico? And finally, assuming that this is more of, let's say, Mexico top-down slowdown, what changes in your strategy, specifically Mexico? I mean how can you create more affordability? How you can create probably new categories or invest in different categories to kind of offset this slowdown? So if you can be a bit more specific in Mexico.

And finally, my last question is on CapEx. If you can remind us what you guys have planned for this year and next year in terms of CapEx and potentially capital allocation as well. If you can comment since your leverage has been coming down.

[Daniel Servitje Montull, executive]

Well, yes. In general, I would say that we had some categories that grew year-over-year in volume and revenues. And there were others that were facing more problems. I would say that in channels, the greatest decline we had in wholesale, basically in the confectionery and snacks business. And we're now starting to see a little bit of the rebound in the first weeks of this month. But that was the case in channel by channel as well as what we mentioned in the mom-and-pop segment, and that was in the whole country.

Obviously, we're trying to have specific strategies for each of the channels and regions, and part of that is having some more affordable products or more smaller portions that can accommodate the right price back architecture. So that is happening and it's going as we speak.

And regionally, what we saw was a greater impact in the South. I mean, we were firing up in all cylinders last year. And sometimes this happens. I mean the good things don't last forever, and I'm sure that our teams are doing what they can to reverse the trend. So I'm optimistic that some of the strategies that we're putting in place will allow us to have a better second half in terms of volume, but we'll see how it goes, depending also on the macroeconomic situation in the country.

[Diego Cuevas, executive]

Regarding the CapEx, the initial expectation that we have for the full year was to invest $800 million. As of the end of the second quarter, we already invested close to $300 million. I mean updating a little bit the guidance, I think it's going to be more in the range of $700 million to $750 million. And for next year, it's going to be something similar to what we have seen this year and as well last year.

[Operator]

Our next question will come from Alex Robarts of Citigroup.

[Alexander Robarts, analyst]

I was keen to actually go back to the U.S. on a gross margin question, but also, I guess, the second one is related to the MEPPs charge. So I mean, as we think about the benefits you've gotten from the VSP, clearly, the efficiencies at the OpEx level has been a positive trend. We lapped that in full kind of starting in this 3Q. And as we think about your restructuring optimization initiatives, it seems that the next area that you can continue to focus on driving efficiencies is in the production footprint.

And so kind of this is a big picture question, but as you think about where you are right now in the U.S., for your production footprint, remind us how many plants that you've got, where can you go optimally over the next 12 months as far as any further restructuring there? And might that be a question of both restructuring but offsetting and optimization savings? How could we think about what that production footprint is for you going forward? Is it an opportunity? Or is it kind of also a short-term cause of further restructuring expenses, which -- charges which you talk about in the press release as well this 2Q?

Second question is on MEPPs, and we haven't seen a MEPP related charge in a while, I guess, if I recall, and the $55 million that is booked. Why now, and is it a function really of how the rates have been going over the last couple years? Or is it really a function of how you expect the rates to be to fund those liabilities? And I guess, as I see it now, it's about MXN 3 billion that you're paying in the MEPP expense annually. I guess, it's about 15% or so of your EBITDA. What kind of color could you give us as to where that MEPP expense -- that cash MEPP expense is going over the medium term?

[Fred Penny, executive]

Diego, maybe you could -- let me take Alex's U.S. question on assets and footprint, et cetera, and then you can handle the MEPPs question that he has. So Alex, good morning, and thanks for the question. Yes, you're right. We are lapping VSP, ISP, and we'll have to make -- as we do that, we're going to have to make up for the savings and the productivity that, that program gave us. I believe we have 60 bakeries currently, maybe 1 or 2 off on that, but we have 60 bakeries in BBU in the U.S. As I'm sure you're aware, since the Sara Lee acquisition, we've done a major amount of restructuring in our asset footprint. We closed, I think, I'm going to say, 20 or 21 facilities, built a couple of new ones, upgraded several. That's a piece of work we're going to continue to do.

I believe we've got opportunities to take cost over the longer term out of the entire supply chain, from the bakeries through our distribution logistics part of our network and right to the front line in terms of the systems we're using to deliver product to our customers every day. And without being specific about it, I will tell you that we have a significant number of initiatives across that entire supply chain. That will take some time to execute. They are significant, and that will cause some money in terms of restructuring, but they're going to reward us with a more efficient lower-cost business as we go forward. So if you think about the size and scale of the business we're running and the supply chain complexity of it, we should always be focused on figuring out ways to take more cost out. And if that requires investments in restructuring, then that's what we're going to do.

[Diego Cuevas, executive]

Okay. Thank you, Fred. Alex, good morning. Regarding the MEPPs, first, let me tell you that the contributions that we have made up to the second quarter for the first 6 months of the year, it's a total of MXN 1.3 billion. So that's something in the range of $70 million. And you're right. I mean, this represents approximately 2% something in that range of the revenues of the U.S. We expect that contribution to continue to be there. So it might probably be for the full year in the range of $140 million. That's the cash contribution, and that's the effect that we have on our P&L.

Now the effect that we recognized in the second quarter has to do with a noncash effect that has to do 100% with the variation that we had on the interest rates. As you know, interest rates have come down. So we needed to adjust the present value of the liability of the future cash flows that we have on the different programs. And because of that, we needed to increase the value of the liability $55 million, and that has to be recognized as well through the P&L.

[Operator]

[Operator Instructions] Our next question will come from Felipe Ucros of Scotiabank.

[Felipe Ucros Nunez, analyst]

I wanted to focus a little bit on your EAA division. The result was good, obviously. I think growth was close to mid-teens if you look at it in euros, which is probably the functional currency given the size of Spain. But obviously, the Mankattan inorganic effect is still in there. So I was wondering if you could give us an idea of where organic growth is at, just to confirm our estimates on this one. And then my second one is on prices on the U.S. You already touched on it, but I wanted to do a small follow up on what Benjamin asked. And it seems obviously the increase caused some pains around volumes. And in our experience, it's usually correct only in a couple of quarters. It's not such a painful deal. But I was wondering if you could give us an idea of what the elasticity looks like and when you expect the consumer to kind of forget about the price increase, if you will, or if you definitely think that you're going to have to reverse some of that price action, because it seems like your comments were going in that direction?

[Daniel Servitje Montull, executive]

Okay. I will take the EAA question. And I will say that the 2 drivers of our growth in EAA were one in the inorganic acquisition of Mankattan that will be more or less half of it, and the other one was the organic growth of the QSR business that we have throughout the region, China, Europe, Russia. So that's the other part of the growth. In Iberia, we had growth in the sweet baked goods business, and we had some decline in some of the other categories. So that's more or less the growth. The U.K. also good growth in the bagels business as well. So it's a mixed bag, but half of the growth was inorganic and the other one was organic.

[Fred Penny, executive]

Felipe, let me make a quick comment on the pricing question. We are going to make some adjustments. I won't obviously be specific about where, but we are going to make some adjustments where we feel we need to based on what we've seen in terms of consumer and category responses. But obviously, we're also interested in holding as much of the pricing as we can hold. And we just go to work our way through that category-by-category and brand-by-brand.

[Operator]

Our next question will come from Álvaro García of BTG.

[Alvaro Garcia, analyst]

Quickly on Barcel and Ricolino actually. You mentioned that you're splitting them up sort of from an operating standpoint. And what are some of the specific items that held Ricolino and Barcel -- or Barcel, excuse me, back from better performance by operating jointly in the past? That's my first question. And then my second question on the working capital front there. I was wondering if you can remind us some of your recent initiatives on -- we saw some movement there on taxes payable. If you can remind us what's going on there, please.

[Daniel Servitje Montull, executive]

Álvaro, just on the Barcel and Ricolino split, what we're trying to have is dedicated management teams that focused on the particular set of the competitors that they are facing, the market dynamics that they have. And we'll keep on having all the synergies that we have had in the past and more that we can have in our Mexican operation. But we have -- we want to have especially on the management side teams that are accountable and focused on the specific opportunities. So we believe that a narrower set of site will allow them to progress more quickly than in the past. And I'll let you, Diego, answer the other question.

[Diego Cuevas, executive]

Yes. Álvaro, as I mentioned in my script, working capital has deteriorated, mainly because of taxes. As you know, we operate in Mexico with a 0% VAT. So we have a positive balances of VAT that until the end of the year we had the possibility to compensate between taxes, what was called the universal compensation in Mexico. And that was banned from the new administration. So we have been doing the whole process in order to get the positive balance of the VAT. It has been a slow process virtually now starting to flow. But at the very beginning, it was very complicated, very demanding in terms of the integration of information that we needed to provide, but we're now feeling a little bit more optimistic in order to be able to get that money back.

[Operator]

Our next question will come from Julie Chariell of Bloomberg Intelligence.

[Julie Chariell, analyst]

Wanted to switch gears a little bit and talk about some areas in second half as far as the outlook. In the U.S., as one area, you talked about price increases and maybe making some adjustments there. I'm wondering if in the first half perhaps the competition didn't sort of follow along with price increases, maybe lost some share there, and is there potential do you think for the competition to begin to catch up to you with pricing and then maybe having more of an even playing field in the second half? Also Argentina outlook in the second half, they have kind of anniversaried the start of the biggest use with currencies and rates and so on. I'm wondering do you see any possibility of stabilization there. And then on the raw material side if you're seeing some of the cost that you have potentially getting a little bit better, maybe with wheat, sugar packaging, just what the trends are there.

[Daniel Servitje Montull, executive]

Okay. I'll take first the Argentina question and a little bit of the outlook for commodities. And on Argentina, we've been a little bit more optimistic. We're starting to see basically that the business is starting to stabilize and start to grow in some categories, some channels. It's early to tell, but we're thinking that the worst is over, and we'll see if that is the case in the coming months. On the commodity side, as you know, we're hedged on many of our commodities, and what we do -- what we're seeing is what happened in the U.S. on the corn commodity. It's impacting the wheat prices. Again, it's early to tell, and we'll see what happens in the coming months, but that -- there is a hike in the wheat prices, and we'll see what goes on. It won't have an impact in the short term, but that's the story on the commodity side.

[Fred Penny, executive]

Julie, I'll take the pricing question for U.S., and I'll reiterate what I said to a couple of earlier questions and maybe where I started. And if you look at total commercial bread coming into the year to deal with the inflation headwinds we knew we were going to have, we put pricing in the market. We priced, I would say, well ahead of the total category, total commercial bread category. And we've seen various impacts on volume depending on the specific segment you're talking about. So as I said earlier, we're going to make some adjustments where we believe we need to.

Having said that, I think, it's also important to understand that it's a fairly diversified portfolio we have, and there's complexities in it in terms of where the elasticity shake out. We're in muffins, we're in bagels, we're in slice bread, we're in premium bread, we're in buns and rolls, we're in sweet baked goods with 3 different brands, and all of them respond differently in terms of the category and our specific brands. And so that's one of the -- it's been a big focus for us in terms of revenue growth management. It will continue to be. And we'll adjust if we need to and where we need to.

[Daniel Servitje Montull, executive]

Well, thank you, all, for your time today. And please do not hesitate to contact us with any further comments or questions you may have.

[Operator]

Thank you. This concludes today's presentation. We thank everyone for joining us today. You may disconnect your line at this time, and have a nice day.