Grupo Bimbo SAB de CV

BMV:BIMBOA

Earnings Call Transcript 2020-Q3

[Operator]

Good day, everyone, and welcome to the Grupo Bimbo's Third Quarter Results Conference Call. [Operator Instructions] 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 like to 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. Good afternoon, everyone. On behalf of Grupo Bimbo, I hope that you and your families are healthy and staying safe during these times. Thank you for joining us today. Connected on the line today is our CFO, Diego Gaxiola; our BBU President, Fred Penny; and several members of our finance team. We are very pleased to report another record quarter, in which the pandemic-driven patterns continue. Thanks to the efforts of our frontline associates, who have executed with excellence and dedication during these unprecedented times, we have been able to capture significant opportunities across our markets. We continue to experience very strong results in our North America and Latin American regions. The QSR business, which was affected by COVID-19, is starting to show sequential improvement. We expect these positive trends to continue through the end of the year, thanks to our strong and diversified global portfolio and the trust that our consumers have in our brands. We are fully committed and determined to continue feeding and nourishing the world with the excellent execution demonstrated each and every day by our valued associates. Now taking a look at the regional results of the third quarter. North America posted a strong 23.5 growth -- percentage growth percent in peso terms. And while there was a benefit from the FX, sales in dollar terms increased 8.5%. This growth, along with a significant margin expansion, was driven by continued high demand from at-home consumption, influenced by the coronavirus pandemic and the consumers' shift to reliable brands. Volume growth was very strong across the retail channel, which includes grocery, mass merchandisers and cloth. We experienced market share gains across most categories. And while e-commerce continued to grow at elevated rates, it's still a relatively small percentage of our total sales. This strong performance was partially offset by weak volumes across the QSR, food service and convenience channels as they remain under pressure due to COVID-19. Our adjusted EBITDA margin reached a record level at 14.4%, reflecting the strong sales performance, lower commodity prices and productivity benefits from past investments, which were partially offset by onetime expenses incurred due to the coronavirus. In Mexico, sales increased nearly 1% as a reflection of better performance mainly across the retail and traditional channels as well as in the buns, bread and cakes categories. We also experienced a sequential improvement in the sweet baked goods category. Nonetheless, the salty snacks and confectionery categories as well as the convenience, vending, wholesale and food service channels remained under pressure due to COVID as well. Adjusted EBITDA margin contraction was mainly attributable to the sales mix and onetime expenses associated with COVID-19, such as labor and distribution requirements and safety equipment. As the end of the year approaches within a challenging consumption environment in Mexico, we will continue to proactively strengthen our portfolio and improving revenue growth processes and execution at the point of sale in all our channels. In Latin America, the 10% sales increase and the extraordinary margin expansion of 310 basis points were due to strong performance in the bread and tortillas categories throughout the retail channel, notably in the Latin Centro division, Peru, Brazil and Chile. Results were also benefited by FX rates, but partially offset by weak results in Argentina, where macroeconomic environment and consumption habits continued to be challenging. In terms of profitability, several initiatives were implemented, such as zero-based budgeting and turnaround project in Brazil, which supported increase in EBITDA. In EAA, sales increased 21% as a result of FX rates benefit and healthy results across the QSR business in the U.K. as well as strong performance of the bread and bun categories throughout the region. Results were partially offset by weak performance in Iberia, which was negatively affected by consumption habits due to the pandemia and also the lack of tourists in Spain and Portugal. The EBITDA margin expansion of 50 basis points was mainly explained by good sales growth and better results in China, including lower integration expenses. Finally, we are pleased to announce that we increased our ownership in our JV Blue Label Mexico, which provides a wide range of services to small merchandisers in Mexico, such as sale of electronic airtime, bill payments, payments with credit, debit and food vouchers, and cash-back transactions. Our commercial brand is Qiubo, and with this transaction, we aim to promote growth and productivity in the traditional channel using our technology. We welcome our new associates to the Grupo Bimbo family. And I would like now to turn over the call to Diego, who will walk you through our financials. Please, Diego, go ahead.

[Diego Cuevas, executive]

Thank you, Daniel. Good afternoon, everyone, and thank you for joining us today. I would like to start with a summary of our financial results for the quarter, which were outstanding. We reached record levels of sales and adjusted EBITDA. We are clearly benefiting from being a global and diversified company in terms of channels, categories and geographies and from participating in a resilient industry, as most of our revenues are in hard currency and volume has been impressive in most of our markets, especially in North America. I would like to highlight that for the third quarter, our hard currency revenues represented more than 60% of our total sales and close to 60% of our adjusted EBITDA. Operating income increased 47% due to the 18% increase in our adjusted EBITDA and lower other expenses, mainly because during the third quarter of 2019, we had a negative effect from our MEPPs reserve of a little bit more of MXN 904 million. And this year, we had a small benefit of MXN 150 million. Our financing cost increased 6%, reflecting higher interest expenses due to an unfavorable FX rate versus the third quarter of last year. The net effect of these factors yielded a significant improvement in net majority income of 85% and a record net margin of 4.2%. Turning to the balance sheet. We closed the quarter with a net debt to adjusted EBITDA ratio of 2.2x. Our total debt decreased by MXN 6.5 billion as compared to the last quarter, mainly because of the strong cash flow generation. So far, we have prepaid an additional USD 200 million of our previously drawn revolving credit facility. So we ended the quarter with $118 million outstanding in our credit facility. With this, we currently have close to $1.9 billion available in our credit line, which provides us with flexibility and liquidity for the future. As we keep a flexible amortization profile with an average maturity of 13.3 years and an average cost of 5.7%. Our net operating working capital, which mainly considers accounts receivables, inventories and suppliers, has improved significantly by 2 days over the same period of 2019, which is equivalent to MXN 1.8 billion, mostly due to an improvement in our accounts receivables as well as with the suppliers. For the first 9 months of the year, our gross cash flow was 2.7x higher when compared to the same period of last year. Our free cash flow before dividends and share buybacks totaled nearly MXN 13 billion, from which we have returned MXN 5.7 billion to our shareholders through MXN 3.3 billion in the buyback program and close to MXN 2.3 billion in dividends. In this regard, we made a decision to cancel more than 169 million shares, which represent nearly 4% of our shares outstanding as we continue to proactively manage our capital structure to increase shareholder value and reinforce our commitment for sustainable long-term value. Finally, I would like to confirm our outlook for the year, having an expectation of a low double-digit growth rate for our sales; mid to high teens for our adjusted EBITDA; a better effective tax rate from the previous estimate, as we now expect to close the year between mid to high 30s; and finally, we are also adjusting our CapEx estimate to be in the range of $550 million to $600 million. We are optimistic about the future as our results continue to be strong. Our teams are doing an extraordinary job, and our global diversification continues to pay off. That concludes our remarks. So please, we can proceed to the Q&A.

[Operator]

[Operator Instruction] And our first question will come from Fernando Olvera with Bank of America.

[Fernando Olvera Espinosa de los Monteros, analyst]

I also hope everyone remains safe. My first question is related to Mexico. Can you comment what would have been the performance this quarter of the EBITDA, excluding the onetime expense related to the pandemic? And the second one is regarding your share buyback program. How should we think about it going forward? And if you are going to cancel the repurchase of shares on a regular basis or not.

[Daniel Servitje Montull, executive]

Diego, would you take the questions?

[Diego Cuevas, executive]

Yes. Yes, Daniel. Fernando, on the first question, regarding the performance without the COVID extraordinary expenses, Fernando, I would say that the EBITDA will be still below what we did last year, just excluding the expenses, again, because the most negative effect that we are facing in Mexico because of the pandemic is in the top line with some particular channels that are completely shut down and some other categories that have been negatively affected because of the pandemic, okay? And could you repeat the second question, please, Fernando? Did you have another question?

[Fernando Olvera Espinosa de los Monteros, analyst]

Yes. Sure. It was -- it is regarding your buyback program that how should we think about it, I mean, going forward? And if you are going to cancel the repurchase of shares on a regular basis.

[Diego Cuevas, executive]

Yes. Let me tell you, again, as we mentioned in the last conference call, as long as we continue to have a strong financial position as is clearly -- as we do today and we see an opportunity regarding the price of the stock, we're going to continue to be active. We still have more than MXN 8 billion in our legal reserve. In terms of the frequency of the cancellation, I would say that at this time, we did have to hold an extraordinary shareholders' meeting because the amount of shares, almost 270 million shares that we had on the treasury, it was a lot. It was almost 4%. So we thought it did make sense to have this extraordinary meeting. I think that from time to time, what you could expect is that we will cancel the shares on the regular shareholders' meeting in April.

[Operator]

Our next question will come from Álvaro García with BTG Pactual. Pardon me, our next question will come from Ricardo Alves with Morgan Stanley.

[Ricardo Alves, analyst]

On the U.S. performance, I mean, big performance on the volume side, indeed. I mean, we've been following news and stress across the categories. Can you talk about the competitive dynamic, particularly in snacks and sweet baked goods in the U.S. recently? I mean strong performance at a category level. We can follow that, but it seems -- and you actually mentioned that in the press release, you're grabbing significant market share from the competition. So what is driving that? How or why is that happening? If you could provide some color there on the competitive landscape.

The second question, just a follow-up to Diego's point on taxes. I mean can you just explain -- elaborate a little bit more of what's driving the lower taxes in the quarter? And obviously, in your guidance for the year -- if I'm not mistaken, your guidance before was high 30s to low 40s. So your thought on that would be appreciated.

[Fred Penny, executive]

Daniel, I would be happy to take...

[Daniel Servitje Montull, executive]

Yes. Go ahead, Fred.

[Fred Penny, executive]

I'd be happy to take the question on sweet goods. Well, the first thing I would say is that we're pleased with the performance across virtually all of our categories, not just sweet goods. But I think to your point, we've outperformed in sweet goods in terms of growth relative to the category and gaining market share. And it really cuts across all of our brands, including snacks. So it would be the Entenmann's brand, being both sweet goods, Marinela snack cakes and Barcel salty snacks that have all been performing well. To some degree, it's driven by some strong product innovation and expansion of some new products, but I think in large part, it's the strength of the brands and the portfolios with really solid execution by our front line. And hopefully, we'll see that continue.

[Diego Cuevas, executive]

Ricardo, this is Diego. Let's say a little bit on structurally what we have on the effective tax rate so probably everybody has a better understanding of even though it has been improving, why is it still above the statutory rate in Mexico. First, if we depart from the 30%, which is the statutory rate in Mexico, I would say that you have to take into consideration that in Mexico, we have a negative impact because of the partial deduction from social benefits. And also, we have tax, which has a fiscal implication, although not a financial impact on the P&L, which is the, what we call, inflationary tax. These 2 together represent around 7%, 7 percentage points on the consolidated tax rate. I would say, from there, we have another negative impact that has been decreasing substantially, which is the effect from the operations that have loss before taxes. And as you know, we have a very conservative approach towards the accounting treatment. So we have been creating a deferred tax. And this has been pushing also the effective tax rate above that level. This quarter, clearly, we're seeing an important decrease as compared to last year as well as last year was better than the previous one. And in this regard, we also feel optimistic that this negative impact will continue to decrease. And even though if in some point of time we start to generate profits in these specific operations, it's going to have a very positive impact on the effective tax rate because we did not create the deferred tax. So that profit, let's say, will go on an accounting perspective without taxes. And then also consider the -- that we have an operation all over in many different countries, probably just to mention, the U.S., that it's a very big operation in our P&L. And the statutory rate is more in the 26%. So putting this -- everything together, we ended for the 9 months at 37%. As I mentioned during my speech, we believe we're going to be between 35% to 38% by the end of the year. And we think that this will continue to recover slightly in the coming years.

[Operator]

Our next question will come from Álvaro García with BTG Pactual.

[Alvaro Garcia, analyst]

Appreciate the space for questions. My question -- my first question is for Fred, perhaps. There's been a clear preference for branded products. So I was wondering if this has led to additional shelf space in the U.S., given sort of some of the velocity and some of your key products. That's my first question.

[Fred Penny, executive]

Yes. Álvaro, I hope you're doing well. Yes, if you look at the category trends in commercial bread and buns, pretty much across the board, you would see the branded participants with fairly solid performance, strong numbers. That's in the context of a category that's performing overall strong, I would say, probably double digit -- low double digit on a revenue basis for the total category. We've had some shelf space gains that have helped us, but I wouldn't call out anything significant. It's just the overall lift we've seen across our brands since the -- essentially since the pandemic started. And I guess, I would be remiss if I didn't take the opportunity since I've got the question and the window to recognize and acknowledge really what I think has been an incredible job by our associates, in particular, our frontline. This -- we're now into this going on 7 months, I guess, operating at elevated levels in a challenging environment as we all know we're living in. And I wanted to take the opportunity to recognize them, but thanks for the question.

[Alvaro Garcia, analyst]

My second question is on Blue Label. Daniel, I suppose the question is sort of what prompted you to take a majority stake now? And maybe if you could expand a bit on sort of the strategy, the longer-term strategy behind it?

[Daniel Servitje Montull, executive]

Yes, Álvaro. Well, this is a minor investment, and the opportunity came because of the relationship with the venture -- the other venture stockholder. And we've been working with this initiative for a good number of years, and we believe that there is potential to do better and to do more to expand our service. And basically, that's what we're aiming to do, and we feel that there's an opportunity to better serve our customers with an expanded portfolio of services.

[Operator]

And our next question will come from Barbara Halberstadt with JPMorgan.

[Barbara Virginia Halberstadt, analyst]

I have like 2 questions today. One is, since you're generating so much cash, what -- how can we think about the cash allocation strategy for next year if you're thinking of doing something with the 2022 maturities ahead of the due date? And the second question is on the improvement on the working capital front. Particularly, you mentioned the receivables in the suppliers line. If we should continue to expect further improvements on those 2 items or if they should stabilize at these levels we're seeing for the quarter.

[Daniel Servitje Montull, executive]

Go ahead, Diego.

[Diego Cuevas, executive]

Yes. A well, let me -- it's a little bit hard right now to talk about 2021. It's a very uncertain situation that we're living. What I can tell you is that we are still committed to generate free cash flow and continue to deleverage the company. And again, it's still early to talk about the specific amounts. Regarding the working capital, it has been improving, I would say, probably since 2 years ago, since the end 2018. There is still room to see an additional improvement, particularly in suppliers. We have been working very hard on supply chain finance program in North America, the U.S. together with Canada, which, I mean, has been bringing a lot of benefits, still some additional room for improvement. And of course, in some other operations, we also see a potential of improvements. And in accounts receivables, I would say, it's stable. We might see some improvements probably for next year where we will see a slight decreases in inventories that spiked a little bit because of the current situation that we have been living.

[Operator]

Our next question will come from Felipe Ucros with Scotiabank.

[Felipe Ucros Nunez, analyst]

Diego and team, I hope you guys are doing well. Congrats on the results, and thanks for the space for questions. Let me start with this one. Some companies are already rolling out some new labeling in Mexico. So I wanted to see if you guys have done any of that and how you feel it's coming along. Specifically, I don't know if you guys already have this number, but I imagine you do. As a percentage of sales in Mexico, can you give us an idea of what percentage of the portfolio will be affected by the implementation of the labeling law? And then my second question is related to EAA and Latin America. Between volumes and FX, can you tell us which driver was the most impactful one on the top line?

[Daniel Servitje Montull, executive]

Well, on the new labeling, we have been able to comply with all the deadlines that were set forth. It was a short window, but fortunately, our teams were quite dedicated and fast on responding to this huge challenge. I'm grateful to their work. The new labeling for us is -- it was of a complex nature. We had to print almost 1,500 new packages in a couple of months. So it's significant. So far, I would say that the impact in terms of volumes, it's not -- it's early to tell, but we're finding that our volumes are stable compared to the previous months. And we've been able to reformulate and get great recipes from our labs and/or breads, buns, our SANISSIMO brand without any black [indiscernible]. And we have also options on the tortillas side and the [ toasted ] and bread crumbs categories with products that don't have labels. But all the snacks and all the, basically, sweet baked goods and cookies do have at least one label. On the EAA and LatAm, Diego, would you like to take that question?

[Diego Cuevas, executive]

Yes, Daniel. Felipe, in EAA, because of the peso devaluation, around 70% of the growth -- of the 20% growth, a little bit more than 20% came because of the devaluation of the peso. In the case of LatAm, it's on the other side. We had a negative effect. There are some currencies such as the real in Brazil that devaluated more than the Mexican peso. So excluding the FX in LatAm, the growth would be more in the low to mid-teens.

[Operator]

Our next question will come from Lucas Ferreira with JPMorgan.

[Lucas Ferreira, analyst]

Since we're seeing a pretty good environment for the U.S., how should we think about the pricing? And then that ties to my second question, which is the increasing raw material prices. We have been seeing a very steep increase in soft commodity prices and oilseeds. So wondering if you can update us on your hedges and if you think that there are opportunities for you to adjust your prices to cope with this potential threat on the cost side. So that's my first question.

[Daniel Servitje Montull, executive]

Lucas, I'll defer to Fred on the first part. And on the commodity outlook, yes, we have seen an increase in commodity prices, especially for wheat in the recent weeks. We have our standard policy for hedging, and we had been hedging for some months. So at this point in time, we're not feeling the pressure, and we're well covered. But certainly, if these high prices stay where they are or get even higher, we would have to think on reflecting those costs. But that's where we are in the commodity cycle at this point. And Fred, if you want to answer the other part.

[Fred Penny, executive]

Yes. Absolutely, Daniel. Lucas, thanks for the question. We -- since -- really since the COVID-19 pandemics began in Q2 right into Q3, we've had to try to manage our promotional activities to balance capacity constraints and capacity demands with what the market was requesting. And so we've continued to do that. We have begun, I would say, later in Q3 to where we felt we could manage to do it from a capacity standpoint to be -- open up somewhere promotional activity. But really across most of the categories, I would say, almost all of the categories, it's been a challenge to balance the capacity to the demand so that we're not shorting any given region or any given channel or any given customer, and that's been what we've really been focused on through the last, call it, 6 months plus now.

[Lucas Ferreira, analyst]

Fred, so just to follow up on this one. Since we're seeing sort of a third wave of COVID in the U.S., if you have any issues on your -- in the production side or anything that could be concerning that you would highlight to us.

[Fred Penny, executive]

Well, I think at the run rates we've been experiencing in Q3, I would say, I think we can manage the capacity issues. Quite frankly, I'm more concerned, as my management team is. I think we can manage the capacity. I'm really more concerned about the spikes we're seeing, the discussions and the forecasts of a second wave and what that all means in terms of our ability to keep all of our associates safe and execute every day. And that's just the reality that everybody has to deal with these days. But if the run rates and the demand stay in the ranges they've been in, in Q3, I think we can continue to serve the market fully.

[Lucas Ferreira, analyst]

And if I may, on a different subject, on the M&A subject. I think you guys have been mentioning that since your leverage kind of allows you to think about acquisitions again, you would be looking at opportunities. There were some news in the press recently about your interest in maybe some assets in India. So wondering if you can comment about -- if we should expect anything for maybe later this year or next year in terms of acquisitions and remind us in terms of what the size is and regions you're looking at.

[Daniel Servitje Montull, executive]

Yes. Well, we don't talk specifics about our opportunities on the M&A side. But let me tell you that, in general, we always continue to look at the landscape and review our opportunities with the different business divisions. And in general, I would say that we haven't changed our profile of investments that we mentioned in our conference. So you can expect continuity on what we've been saying in the past.

[Operator]

Our next question will come from Luis Yance with Compass.

[Luis Yance, analyst]

Daniel and Diego, congrats, again, on the results. Just 2 questions on my side, both on Mexico. First one is on the top line, I know you mentioned there are certain channels that dragged that performance. Just wondering if you could share with us kind of what was the sales growth by channel to get a sense how much was the drag from food services, and how strong, I guess, was some of the other markets like retail or the traditional store, that would be helpful. So that's the first question. And then also on the margin side, if you could elaborate a little bit more about the nature of the compression. I know you mentioned sales mix and COVID expenses. Just wondering if on the sales mix, it had to do more with change in mix between channels or whether you're actually seeing trade down and maybe a change in mix within products and whether you expect that to continue as we move into the fourth quarter or you expect some sort of improvements. And also, if those COVID expenses are truly onetime or some of them will actually remain as part of doing business in this post-COVID world.

[Daniel Servitje Montull, executive]

Well, on the COVID side, they will remain as long as COVID stays here. On the mix of the channels, we saw, I would say, more on the line of double-digit declines on segments like food service, wholesalers and the C-store channel; and more affected were categories that were linked to impulse buying that were more on-the-go eating snacks, more importantly, than items for the pantry. So I think that can give you a sense of a color of the impact. But we're not seeing a change within the category trading down or something like that. So it's more impulse items versus pantry items.

[Operator]

Our next question will come from Héctor Maya with Santander.

[Héctor Manuel López, analyst]

Congratulations on the results. Just a couple ones. For Mexico, you mentioned about the pressure in certain channels, such as convenience, due to the pandemic. And then I just wanted to know if, so far, you have started to see a slight recovery in convenience. Or if you have continued seeing this trend during October, the weakness trend, just to see how you're seeing the evolution there.

[Daniel Servitje Montull, executive]

Yes. It's recovering, although it's not at the same level as the other channels that are doing well. So certainly, convenience has been one of the channels that has had to bear the impact of the convenience here and in other countries as well.

[Héctor Manuel López, analyst]

And the second one would be for Fred. Just with the acceleration in online and e-commerce since the onset of the pandemic, I'm also curious if you could give us some more details on the e-commerce channel in North America and how it has been developing.

[Fred Penny, executive]

Héctor, thanks for the question. If I got it right, you're asking specifically about e-commerce for the North America or the U.S. business?

[Héctor Manuel López, analyst]

The U.S. business, specifically.

[Fred Penny, executive]

Yes. It's been extremely strong. I'd say that it's still a relatively small -- in total, a relatively small portion of our total revenue base, but the growth rates have been extremely strong. We've invested behind it. We're going to continue to invest behind it. And I think it's consistent with the growth we've seen. I think it's consistent with the consumer behavior, obviously, in the sense that consumers, if they can, are choosing to not go into a physical store and whether it's click and collect or literally delivered to their home, that's really accelerated, I'd say, almost dramatically in the last 6 months since COVID hit. So we'd expect to see that continue. One of the questions in my mind is, when we get to some semblance of post-COVID normal, whatever that looks like, to what degree of the accelerated e-com trends is going to continue or are they going to slow down, time will tell.

[Operator]

Our next question will come from Ben Theurer with Barclays.

[Benjamin Theurer, analyst]

And congrats, Daniel and Diego, to the results. Just 2 quick ones. So first, thanks for updating the CapEx number. We saw actually the velocity was a little slow so far in spending. Could you elaborate a little bit on where you basically saved on CapEx to what was the initial guidance of around $700 million down now to $550 million to $600 million? And how much do you -- of that do you think you will need to step up spending in subsequent years? That would be my first question.

[Daniel Servitje Montull, executive]

Diego, do you want to answer?

[Diego Cuevas, executive]

Yes, Daniel. Let me tell you that last time in July that we put up the guidance again, and we mentioned the $700 million, which was below the range that we mentioned back in the Bimbo Day in November, it's because we were reopening the appetite to invest in all the different projects that we had in the pipeline, either for growth, for productivity or maintenance. But reality is that restarting the whole process has taken a little bit more time, and this is why we're seeing a delay. It's not that we canceled projects. It is that there's going to be delay in the time that we took the decision to invest until the cash flow is required for the investment. So definitely, Ben, as you are asking, we are going to see an effect in 2021. Still, we don't have the number, but we feel -- I mean quite sure it's going to be a substantially bigger number than the one that we will end in 2020, and sure, it's going to be a little bit more than the typical CapEx that we have had every year.

[Benjamin Theurer, analyst]

Okay. Perfect. I guess, those investments are needed anyway. Now one last question and really more like trying to understand a little bit the dynamics and what you're thinking about the different markets into next year. So we got the question, talked about the commodity cost headwind, which was one of the things I wanted to address anyway and the potential need and the risk for maybe having to raise prices as a result of that if commodity prices remain as high. So in light of likely a more -- in light of likely a weaker macroeconomic environment in most of the operating regions, how do you feel about the ability to actually push those prices through? Or would you think of what you've been gaining in market share and relevance? Just particularly in retail, you would like to defend that and maybe take a little bit of hit of a margin, but just to maintain those sales and then think of price increases at a later stage? Just to understand a little bit the dynamics and the strategy going forward.

[Daniel Servitje Montull, executive]

If I may, what I would tell you is that we relied mostly on decisions made by our local teams in each country. And within each country, they are responsible for, one, delivering on the targets of profitability and sales. And secondly, we want them to also have a good performance in the market. So decisions on pricing and on what do they do in the marketplace, it goes market-by-market. And we haven't changed our policy, and that's the way we run our business.

[Operator]

Our next question will come from Miguel Tortolero with GBM.

[Miguel Angel Tortolero, analyst]

Daniel and Diego, thanks for the space for questions. The first one is regarding the U.S. I mean, profitability improvements have been very clear in the last couple of quarters. And as you mentioned, part of it is explained by the strength in top line, which has been driven by at-home consumption, which may probably normalize to some extent. The question here is, how sustainable would you say that current levels are going forward? And the second one, in this same line, when the pandemic is over and we go back to normality, whatever that is, but what would you say is on Bimbo's hands to retain some of the increased demand weakness in the last couple of quarters?

[Fred Penny, executive]

Daniel, I'll take the first question. I'll take Miguel's first part. I think like every -- like most CPG companies, certainly, CPG food companies, we're trying to figure out what the future could look like even before we get to a post-COVID whatever normal might be. And we're monitoring various forecasts, and we'll see where that nets out. I wouldn't want to give any predictions because the estimates are pretty broad-ranging. I think we're confident in the fact that we've -- over the last, call it, 6 months, now we've gained a large number of new consumers and new households into our brands. We're investing incremental marketing support behind that to try to retain as many of those new consumers as possible as we get into the post-COVID or a more normal situation, which I think should serve us well in terms of our margins going forward. And we're seeing some of the benefits of the continued investments we've been making to drive productivity through the organization, CapEx investments, et cetera. We're continuing to look at that. And I think that's an important part of our strategy and our thinking going forward as we work through this and get to a more normal category run rate, whatever that might be.

[Daniel Servitje Montull, executive]

Could you go back to the other question, please?

[Miguel Angel Tortolero, analyst]

The second one is, whenever we go back to normality, what would you say is on Bimbo's hands to retain some of the increased demand weakness in these last couple of quarters?

[Daniel Servitje Montull, executive]

Yes. Well, it's sort of the same response as Fred's. We gained new households in most of the countries, and we're implementing plans to retain them as much as we can. We're measuring penetration. We're fine-tuning our marketing investments. And we're upping up our game in quality and innovation so that these new households can stay longer with us as long as we can.

[Operator]

Our next question will come from Alessia Apostolatos with HSBC.

[Alessia Apostolatos Formiconi, analyst]

I have a couple of questions. Firstly, can you please share some more color on your pricing strategy in the U.S.? Are you keeping pace with your competitors?

[Fred Penny, executive]

Alessia, you're probably not going to like the answer, but I'm not going to be specific about pricing strategy. I think I answered the promotional question earlier. Certainly, whether it's Nielsen or IRI, it would give you a good sense for what the category is doing. We've really been focused heavily on ensuring that we can meet market demand across all of our categories. Our capacity capabilities are not equal across all categories. Some are more restricted than others. And so we've done our best to manage production capacity with promotional activity to ensure that we're meeting market demand as best as we can. But I wouldn't want to speculate on forward pricing strategy or forward promotional strategy.

[Alessia Apostolatos Formiconi, analyst]

And on that issue, on the U.S., do you see your U.S. margin as sustainable going forward once the food service and QSR channels normalize?

[Fred Penny, executive]

Well, it's important to understand that food service -- fresh frozen food service is a relatively small portion of our full portfolio. It has been certainly impacted fairly significantly in a negative way with COVID and will benefit from that coming back. But it is not going to be a material impact on overall North America results if that happens.

[Alessia Apostolatos Formiconi, analyst]

But are we expecting your U.S. margins to -- I mean you reported some pretty great margins today. Do you see this as a new normal going forward?

[Fred Penny, executive]

Well, I'm not going to give guidance. Let's stay tuned and see what happens to the market. We're living in an extraordinary time right now with consumer demand that's completely shifted to in-home consumption that we've not seen before. And everybody is trying to figure out to my earlier point what this is going to look like as we get back to something, hopefully, more normal, whenever that is.

[Operator]

Our next question will come from Ricardo Alves with Morgan Stanley.

[Ricardo Alves, analyst]

Very quickly. And sorry if this was asked, I may have missed. But are you guys giving any color on COVID-19 expenses in the third quarter, maybe quantify the impact as in the second quarter or not?

[Diego Cuevas, executive]

I can take it, Daniel. For the quarter, COVID expenses were a little bit more than 100 basis of our consolidated revenues. It is different by market. We're not disclosing the expenses by each region. And the accumulated impact, it's also above 100 basis for the 9 months ended. I remember that in the second quarter, it was close to 2 percentage points. It has been coming down, but we're still seeing this negative effect.

[Ricardo Alves, analyst]

Got it. 100 basis points. Very clear.

[Operator]

This concludes the question-and-answer section. At this time, I would like to turn the floor back over to Mr. Daniel Servitje for any closing remarks. Please go ahead.

[Daniel Servitje Montull, executive]

Well, thank you very much for your participation and your questions. And as always, our Investor Relations team is open to any of your questions or comments. Thank you very much, and hope to see you in the next presentation.

[Operator]

This concludes today's presentation. You may disconnect your lines at this time, and have a nice day.