Grupo Bimbo SAB de CV

BMV:BIMBOA

Earnings Call Transcript 2022-Q3

[Operator]

Good afternoon, everyone, and welcome to Grupo Bimbo's Third Quarter Results Conference Call. If you need a copy of the press release issued earlier today, it is available on the company's website at 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 will 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. Thank you very much. Good afternoon, everyone, and thank you for joining us. Connected on the line today is our CFO, Diego Gaxiola; BBU's President, Fred Penny; and several members of our finance team. Top line performance was exceptional in this quarter. We reached a record level of sales and profits. Our volumes continued to grow despite price increases. Our revenue growth management initiatives are increasingly being reflected in our results, and we continued to win market share across multiple markets and categories.

The inflationary environment we're currently living in has been very challenging, yet we have been able to navigate through it, thanks to the resiliency of our categories and the high demand for them. Obviously, the hard work of our associates, the trust of our consumers and customers and the strength of our brands, which continue to resonate globally. We remain fully committed with our investments for the long haul as we see potential to continue growing in multiple categories and markets as well as improving productivity, cost management programs and digital solutions throughout our company. For instance, we have invested over 40% of our CapEx in Mexico this year, where we remain strongly committed.

I am glad to share that in September, we completed the acquisition of St. Pierre, the leader in the premium branded fast-growing brioche category in the U.S. and the U.K. St. Pierre will bring synergies to both operations and complements our brands and categories, especially in the in-store bakery segment. Our Bimbo global race also took place in September in 15 cities in-person and in more than 100 locations virtually. We ended up bringing together more than 340,000 participants globally, and thanks to everyone's participation. We have been donating over 6.8 million slices of Grupo Bimbo's bread to food banks.

As we advance on our ESG journey, during the quarter, the Bimbo China organization started operating with 100% renewable electricity. We will also be adding 1,001 electric vehicles to our fleet in Mexico. And with this, we will operate more than 2,300 vehicles with 0 carbon emissions. We are, by far, the largest company in Latin America with this electromobility. And on corporate governance matters, Merco ranked Grupo Bimbo as the company with the best corporate reputation in Mexico.

Now reviewing the quarterly results by region, North America had a very strong top line performance as sales grew 19% in dollar terms, primarily due to price. We are pleased to have continued to hold or grow dollar share across all our categories. Despite significant inflation pressures impacting every aspect of our business, we improved our profitability. However, as expected, adjusted EBITDA margin contracted 120 basis points. As inflationary pressures continue, we have seen improving trends in private label and some branded volume elasticity. We continue to innovate, invest in our brands and remain confident that the breadth of our portfolio positions us favorably to navigate through macroeconomic uncertainties.

Our focus remains to offset inflationary pressures through productivity, pricing and revenue growth management strategies while aiming on winning share in our branded categories. In Mexico, sales improved by over 20% attributable to volume growth, favorable price product mix and price increases as well. Our main channels and categories posted double-digit growth, most notably the convenience, retail and traditional channels and the bread, sweet baked goods, snack cakes, cookies and snack categories, as we have gained market share in most of the categories where we are present.

Our gross margin contracted by 150 basis points, given the inflationary pressures, especially in commodities but nevertheless, our operating leverage from higher sales and efficiencies in our operating expenses helped to fully offset this effect, and we were able to maintain our adjusted EBITDA margin at 18.9%.

To update on the Ricolino divestiture, we're still waiting for the final authorization from 2 countries. And the good news is that we already received the approval from the Mexican authorities. So we expect to close the transaction in the coming days. In EAA, excluding the FX effect, sales increased more than 23% and this was due to price increases and volume growth throughout most countries, notably India and the whole QSR business in the region.

The adjusted EBITDA margin contraction of 230 basis points, resulted from FX headwinds, high inflation and a negative product mix effect in Iberia, arising from an increase in private label and weak results in China.

Going forward, we are focused on innovation across our product portfolio with new launches such as Cruapan, a bread with a croissant texture on the inside and on advancing towards reaching our low-cost producer model.

Moving on to Latin America, net sales excluding the FX effect, increased over 39%. This was driven by strong volumes and favorable price product mix effect across every one of our organizations in that region. Sales growth was also benefited by the inorganic contribution from the acquisition of Aryzta in Brazil last year.

We reached a record EBITDA margin for our third quarter, and this was attributable to several factors, including the operational leverage from incremental sales, the productivity benefits across the value chain and the strong results in Colombia, Brazil and Argentina, the last 2 from the successful implementation of turnaround initiatives. In fact, Brazil reached a record quarter.

I would now like 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. As a reminder, according to the accounting standard, we are reporting Ricolino as a discontinued operation. So we also adjusted 2021 results to make it comparable.

I would like to start with a summary of our financial results for the quarter, which were extraordinary, especially when we consider the challenging comparison from the strong results in the third quarter of 2021, overall inflation and the complicated operating environment in some countries. Our net sales exceeded our expectations reaching more than MXN 100 billion for the first time in the history of Grupo Bimbo. And our operating margin expanded 140 basis points, mainly due to the strong sales performance, efficiencies in distribution network and lower administrative expenses, coupled with the MEPP noncash benefit of $66 million.

On the other hand, our adjusted EBITDA margin contracted as expected by 60 basis points, mainly due to higher commodity prices from our hedges in place, a high overall inflationary environment in all our operations and a challenging labor market in North America and some European countries. This will continue throughout the rest of the year, even with our successful pricing strategy and revenue growth management initiatives, resilient volumes and efficiencies in the supply chain.

Specifically, we will see more pressure during the fourth quarter because of the commodity hedges we implemented back when the Russia-Ukraine war began, but we remain confident that we will accomplish our expectations for the year. We have also achieved productivity savings coming from capital and restructuring investments we have made, which enabled distribution efficiencies, automation improvements and integrated system solutions.

Our financing cost increased by almost 24%, mainly reflecting higher interest expenses and to a lesser extent, slightly increased in our leverage. Our cumulative effective tax rate stood at 33%, which continues to reflect a benefit from our turnaround businesses that have been performing substantially better than in previous years. As a result, the net effect of these factors yielded an improvement in net majority income of nearly 51% and a significant margin expansion of 120 basis points, reaching 5.9%. Our return on equity closed at a record level of 16.7%.

Now turning to the balance sheet. Thanks to our strong operating results. We closed the quarter with a net debt to adjusted EBITDA ratio of 2x, and our total debt closed at MXN 100 billion. The increase was primarily due to the capital investments, share buybacks and the acquisition of St. Pierre. Our net operating working capital, which mainly considers accounts receivables, inventories and suppliers, has improved significantly by 4 days over the third quarter of 2022, which is equivalent of close to MXN 3.7 billion, mostly due to the improvements in accounts payable.

On a very positive note, given the strength of our business and extraordinary results of the third quarter, we are one more time upgrading our guidance for 2022. Our expectation for net sales is coming from low to mid-teens to a growth of mid-to high-teens. Considering this updated top line growth and the inflationary environment that we're facing, we now see the adjusted EBITDA at low double digit. So as you can see, we still expect to see some margin pressure in the fourth quarter of 2022, as we have shared with you in previous calls.

In terms of our expectation for the effective tax rate, there is no change to our guidance, and we continue to expect a low to mid-30s effective tax rate. Finally, as to our CapEx, we have the same expectation of ending the year with approximately $1.3 billion.

As you can see, despite the multiple challenges we're facing on several fronts, we continue to see a strong 2022 as our volumes and sales continue to exceed our expectations and our commodity needs are fully hedged, which gives us visibility and confidence that we will be able to reach this updated guidance.

Looking ahead into 2023, commodities continue to be volatile. We are hedged an important part of the first half of the year, and we will continue to hedge according to our policy. Even with the uncertainty of the economic environment, we are optimistic that 2023 will be a year where we would continue to realize the benefits of our growth strategy and productivity initiatives.

Now we can proceed with the Q&A session. Thank you.

[Operator]

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

[Fernando Olvera Espinosa de los Monteros, analyst]

I have 2. The first one is related to volumes. Can you comment what was the performance by market and how do you expect it to evolve in 2023, given the high inflationary environment? And where do you see the main challenges? And my second question is related to North America. Thinking about your distribution channels, which ones have you seen the main improvement regarding market share and how sustainable is the gain of such market share?

[Daniel Servitje Montull, executive]

Yes. Fernando. On the first question, we -- all in all, we had a slight increase in our volumes globally. It changes by category and region. But all in all, the sort of the largest growth in volume was from the Rio Grande to the southern part of the South Cone in America. That's where the bulk of the growth came from. But I would say that most of the markets still hold on very, very -- on a very healthy base given sort of the impact of the cost increases and the price increases we had to endure.

[Fred Penny, executive]

Yes. Fernando, just quickly, I'll comment on North America, given the absolute or sheer scale of our -- of the importance of, call it, grocery and mass. That's clearly what's driving our overall performance. I think we're making progress in all channels. But in general terms, we've either held or grown share pretty much in every key category that we're a distributor in.

[Fernando Olvera Espinosa de los Monteros, analyst]

And regarding volumes, how do you expect them to behave in 2023? And where do you see the main challenges?

[Daniel Servitje Montull, executive]

Well, that's a 60,000, 40,000 question, my friend, what can I tell you. So far consumers are -- have been resilient, and we are trying to be very careful on our price increases globally, and our teams are doing the best they can to make sure that they have an offer that resonates with our consumers everywhere. So let's see how it goes. So far -- I would say, so far, in general, very good.

[Diego Cuevas, executive]

And Fernando, and all -- we're going to be providing guidance for 2023 in the next conference call. I mean, on that call, we're going to be able to give you a little bit more color on the expectation for the year.

[Operator]

Our next question will come from Ben Theurer with Barclays.

[Benjamin Theurer, analyst]

I wanted to ask if you can provide a little more detail or just commentary around performance in the different channels, foodservice versus retail. Have you seen different growth dynamics here? And how have your pricing strategies within foodservice versus retail received pushback or not? Has it been easier in one or the other is it indifferent that would be like kind of a conceptual first question.

[Daniel Servitje Montull, executive]

Ben, I will have to tell first that it's never easy to go through a price increase. So it's something that we take it very seriously and our teams, about a significant time to make sure that we're doing the right decision for our consumers, our customers and our business. Having said that, what I can tell you is that our QSR and foodservice business, all in all has been recovering from the dip that we had in the COVID days. So there is a good growth in volume in that segment of our business. And having said that, the largest bulk of our business is in the branded business, which is what comprises sort of the big number that we presented in our sales growth today.

[Benjamin Theurer, analyst]

And then if we think about it, I mean, you obviously -- you made some commentary about the different markets. But one of the thing I was wondering is, in light of where your portfolio is, you've done a couple of acquisitions, you've done some divestments. How should we think about your going forward strategy as to M&A or divestitures within just general capital allocation? And given the strength of the balance sheet, anything on dividends, share buybacks you can share along those lines?

[Daniel Servitje Montull, executive]

On M&A, I think that we have been so -- I would say, very consistent over many years, and we continue to look for opportunities that can add value to our company. We have a -- we're very explicit in our strategy of being a grain-based foods company. And whatever we do, we -- I mean, we do it with a long-term vision and path. And so far, I will say that with the long-term view, those investments have paid up off. And that's the same sort of strategy that we're employing this year. And on the other comments, I don't know, Diego, if you want to respond.

[Diego Cuevas, executive]

Yes. Sure, Daniel. I would say first, you mentioned, Ben, that we have done a couple of acquisitions. It's only one, so St. Pierre...

[Benjamin Theurer, analyst]

In the longer periods of time. More recently, it was one, but over the course of your history, you've done multiple.

[Diego Cuevas, executive]

I probably got the question wrong. So the -- as you saw, the financial position of the company is very strong. The leverage ratio ended at 2.0x. Cash flow has continued to be very strong as well. Gross cash flow for the first 9 months of the year was more than MXN 20 billion. The dividend that we paid this year was $0.65. We have been growing dividends every year. It is possible that if we continue to see this strong financial position plus the strong cash flow generation that we will continue to increase dividends going forward. I mean not just for the following year, but more on a consistent basis.

And as Daniel mentioned on acquisitions, we will continue to execute the same strategy and in divestitures, we already answered this probably a couple of times in the last 2 calls. It's not really that we're selling businesses. The sale of Ricolino was a strategic decision to be able to focus more heavily on our 2 main industries, the baking industry and the snacking, and confectionery business was not necessarily inside this strategy. So that was the reason for selling this business. So there are no other businesses that were intend to sell or any market that we have the intention to exit.

[Operator]

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

[Ricardo Alves, analyst]

Really impressive performance top line in North America and across the regions. My question is going to be in North America, though. My first question, if I may. When you're thinking about profitability into the fourth quarter and your pricing strategy -- this is probably a question to Fred. The -- you've been increasing prices, if I'm not mistaken, in July, you did that. Just wondering how your competitors are reacting to that?

And if you have a sense of how are they positioned as it pertains to costs as well in the fourth quarter. I mean, of course, you don't have the view from within, but I would guess that maybe you can have the sense by -- if the competitors are following you or not. If you were able to implement another round of price increases, is that something that you are considering given that the base cases for a higher cost base into the fourth quarter. So just wondering how is the competitive environment into the fourth quarter considering the high inflation costs and considering that you have been able to implement pretty strong pricing across the board.

My second question -- I don't know if maybe to Diego, but can you provide a little bit more details on the financials of St. Pierre's acquisition maybe whatever financial metrics that you can share, just for us to have a sense of the -- it's pretty impressive that you closed the quarter already at 2.0x as you highlighted in the release as you highlighted in the conference call. But just wanted to make sure that, that's already 100% with the acquisition behind us, maybe if you can share exactly the numbers behind that, just so that we can have an idea of what could be your underlying cash flow generation. I appreciate the time.

[Fred Penny, executive]

Ricardo, let me take your first question. And I think I've talked about this in prior calls. I don't want to speculate on where the competition might be or might not be. I can tell you, and I'm sure you know this, consumer products companies, whether they're food or nonfood have been facing and continue to face like we do, just incredible amounts of inflation, and frankly, I've not seen before in my time in the industry and that it's pretty much across all elements of the business, all elements of our supply chain. And so we had -- we put a third price increase into the market. I think it was July 8th. And I think there's a need for more pricing, and we're going to do that.

Given the headwinds we're facing, particularly in Q4 and Q1 of 2023, we kind of know -- we know the inflation scenario, and we know the coverage. So we're going to do what we have to do relative to pricing. It's difficult, but it needs to be done. But I will also say that we're putting an even greater focus now than we have in the past, not that we weren't focused on it on aggressively managing our costs and driving productivity through the organization.

One thing that we've experienced, and I believe others have as well over the last call it, 2.5 to 2.75 years now since the pandemic began is significant pressures on our supply chain incremental costs, whether it's transportation, labor, which is one of the biggest issues we're dealing with temporary help, I can go down the list. And we've got to get more aggressive about managing those costs to take costs out of our business as we do what we have to do from a market standpoint on pricing. But pricing is not the only lever that we have to pull and we're going to be much more aggressively focused on cost reduction going forward.

[Diego Cuevas, executive]

And Ricardo, now, regarding your questions around St. Pierre, there is not much information we can share. What I can tell you is that it's a business that has a premium branded brioche category and it's operating in the U.S. and U.K. Unfortunately, there is no more information that we can share as of today.

In terms of the cash flow expectation for the year, I would say, without considering the transaction of Ricolino as Daniel mentioned, we expect to be able to conclude the sale of this asset in the coming days. So just to be clear, without considering these additional resources, we believe that cash flow will be strong. As you know, we just upgraded the guidance with a double-digit growth in EBITDA, although it's going to be an intensive quarter in terms of the investment plan.

We have a lot of projects, as we speak, going on. We're conscious that we will need to put a lot of capital into the CapEx program, which will give us the opportunity and will enable the company to continue to grow, and it's a critical part of our growth strategy for the future. So it's going to be intensive. Now, with the Ricolino transaction, considering their resources after taxes, the effect on our leverage can be in the range of approximately 0.5x, 0.4, 0.5x. So I mean, considering the cash flow plus the resources that we're going to get from Ricolino, we might probably end the year with a leverage more in the range of 1.6x. So it's a very strong balance sheet for Grupo, the lowest in many years.

[Ricardo Alves, analyst]

On the St. Pierre, can you at least just confirm if the transaction is already 100% done? Or you cannot comment on that either?

[Diego Cuevas, executive]

No -- yes, I can confirm that. It's completely closed. We already paid for the transaction. It was at the very end of the third quarter. So it had practically no effect on the P&L, just on the balance sheet because it was -- I don't remember the exact date at the very end of September.

[Operator]

Our next question will come from Alan Alanis with Santander.

[Alan Alanis, analyst]

Couple of questions. One of them around down trading. I mean you referred to negative product mix in Iberia during the quarter. I guess the first question is what are the risks or are you seeing any similar risks of down trading in other regions, just Mexico and North America. And the second question, maybe for Fred has to do with North America. It seems that this is one of the regions where you deemphasized the word volume and you're emphasizing the word market share. So we must ask, is the industry growing? Is the industry decelerating overall in terms of baked goods in the United States? And what are the risks that we might be seeing also some down trading in the United States that we've seen in Iberia?

[Daniel Servitje Montull, executive]

Yes, Alan. On the first question, I mean, it's always something that we're very conscious about and we try to find the right algorithm for the company in the long haul. And when we have to raise prices as we had to in this particular moment, I mean, we raised them, but we're always trying to use the best sort of toolkit of our revenue and growth management practice to help our consumers navigate in this environment. So all in all, so far, we -- that's where we started to see a slippage in volume a little bit. Also, it's happening in the U.S. as well and Canada. But that's where it stands right now.

[Fred Penny, executive]

Yes, Alan. I'd echo Daniel's comments on North America, we are -- we have started to see some down trading, if you will, which I don't think is unexpected given the amount of inflation that consumers are dealing with, the amount of pricing that they've had to incur. I do think the category, the bread -- commercial bread category tonnage has been relatively stable. And I think one of the things that I believe at least is in our favor is that we're still -- we're not -- the category is not up as much in terms of pricing as a number of other categories -- CPG food categories are.

And I believe we still offer consumers a significant value despite the fact that we've had to take the pricing that we've taken. But I think as just now mentioned, the big question here is what does the future look like, assuming inflation continues at the rate it's continuing. And I think we all hope it doesn't. But we're going to have to be prepared to navigate it whatever it does, so we'll see.

[Alan Alanis, analyst]

Now, last question, Daniel, just on Latin America. You've done an amazing job in turning around that region. Could you -- one or 2 comments on what are the keys that your success right now in Brazil and what are you seeing that as one of your largest Latin American markets?

[Daniel Servitje Montull, executive]

Yes. Latin America has had a wonderful year and I think that it's a result of the work of maybe the last 2 or 3 years in the different countries. So, we had to go through a very thorough turnaround projects in some countries that came basically through a cost reduction program, a review of our go-to-market strategies and obviously on our capabilities of the different teams in the region.

I would say that most of what we have done is already or where we plan, it's already accomplished, and now we're executing on different strategies. And the most important one that we have, I would say, in all the regions, but very significant also in LatAm is that we're in the phase of expanding our capacity, manufacturing capacity, building out plants in some cases and putting up many lines.

In the future, as it always happens, we will, in the start-up phases incur in extra costs in the different countries and higher depreciation. But this is basically a growing region for us as it's still compared to Mexico or North America, a region that still has opportunity of growing and penetrating households. So we're -- we have, as I mentioned before, a very long range view on our investments, and this is the right thing to do to basically make sure that we accompany this growth in volume, and we don't start having fill rate issues in these markets.

[Alan Alanis, analyst]

That's very clear regarding what to expect there in Latin America regarding the pace and the rollout of your investments. And again, congratulations to you and to the whole team. Very impressive.

[Operator]

Our next question will come from Felipe Ucros with Scotiabank.

[Felipe Ucros Nunez, analyst]

Daniel, I'll echo all my other peers. -- congrats on another great set of results, absolutely impressive. So the 2 main questions I had have already been asked, which were about pricing, whether you needed to do more pricing or not. But at least you have addressed it in North America, so I guess I'll ask you about the other regions. Do you need to do more pricing in the other regions in 3Q -- sorry, in 4Q and first Q of next year.

And then the second one was about elasticity, but you addressed that as well. So let me go a step forward or into the second derivative of that question, which is, let's say, down trading continues materializing as you've reported and many of the other companies in the sector have been reporting this quarter. What's the affordability strategy, I guess, for the consumer from your perspective, from Bimbo’s perspective to accommodate a consumer that is going through a lot of pain.

[Daniel Servitje Montull, executive]

Yes. On the pricing question, Felipe I mean, it varies countries by countries and categories by categories. But I would say that up to now, we have been sort of agile in implementing the pricing decisions that we face and given the particular input costs that have been affecting also in the different regions, which is not the same thing in each region or country. So -- but as a general term, I think that when the impact is happening or will be happening, we try to adjust our prices in sort of in the needed range.

So we -- I mean we're still going to be facing input costs for next year. That's a fact. So we have a significant amount of price increases in commodities and other areas of our P&L that have already been basically marked or even purchased in the future's aspect. And we will be having a pricing sort of actions done in the coming, I would say, quarter and next quarters although they are not going to be as significant as they were this year. So that's the impression I have regarding our sort of next pricing outlook for Grupo Bimbo.

And the second question was if you can repeat it, please?

[Felipe Ucros Nunez, analyst]

Yes, of course. It was about the second derivative, if let's say that the consumer starts down trading as we, Bimbo, respond to it. What's the affordability strategy to sort of accommodate a consumer that is maybe moving from higher price gets to lower priced goods or different categories. How do you sort of try and capture that consumer?

[Daniel Servitje Montull, executive]

Well, in many markets, we have a different portfolios that covers different range of, I would say, consumer aspirations or demands. And I mean, we hope that we can -- if we lose some consumers on the upper end of the spectrum that we can hold them on, on the mainstream side or even on the lower tier. And besides that, we -- as you know we try to cover consumers whatever they purchase their goods. And in the case of LatAm, the mom-and-pop stores are very sensible to prices. And we also have to adjust regularly on sort of the affordability of our portfolio in that segment.

We have done it in the past, and I think that we have capabilities to do it if needed. So far, as I was saying, LatAm has been including Mexico, a region that has had a very good behavior on our revenues and volumes.

[Felipe Ucros Nunez, analyst]

Very clear. Congrats again on the results.

[Operator]

Our next question will come from Alvaro Garcia with BTG.

[Alvaro Garcia, analyst]

I won't ask about stock trading as much as I'd love to continue to talk about that. But one question on the tax rate, 31%, say, at the lower end of your range. I know you maintained the guidance for the rest of the year. But if you could talk about the dynamics behind that and how you think about that LatAm making money, Europe making money into next year? That would be very helpful. And then my second question, I guess, also for Diego, would be on multiemployer pension plans.

I don't have the number with me now, but I believe it's something around MXN 120 million a year that we see on your P&L that's reflected in your SG&A, that are sort of contributions to what would be your more underfunded plans. And I'm wondering, given what happened with longer-term rates and given how that liability to a certain degree, has come down, is that number -- is that cash contribution that we see in your P&L has potentially come down or if it's unrelated?

[Diego Cuevas, executive]

Yes. Okay. On the first one, the effective tax rate for the first 9 months of the year, it's 33%, which is in the middle of our expectation. I think we're going to close the year in low to mid-30s, something pretty similar to what we have for the 9 months of the year. As you have seen, there is substantially less volatility on the effective tax rate as opposed to some years ago.

One of the main effects that has helped a lot is the improvement on the turnaround business. We always took a very conservative stand towards the businesses that we're losing money without creating the deferred tax asset. So this is now helping because many of the businesses, as an example, Brazil, Argentina, they are now profitable, but we have a lot of tax benefits, tax rates that are not necessarily on our balance sheet and are helping us also on the tax rate.

On the other hand, as we have continued to see an important growth, although with a reduction on the margin from North America, BBU has continued to grow in terms of earnings before taxes. And it's one of the markets in which we have one of the lowest tax rate. So that is also helping. As you know, it has a lower tax rate than the one that we have in Mexico. So I think it's going to be a stable environment. My guess is that this positive trend will continue to be here. There is still some room for improvement, not as big as the improvement that we have seen in the last 4, 5 years. But I feel quite positive that we're going to be able to have a slightly better tax rate in the long term.

Now, regarding MEPPS on your question, there is no correlation, Alvaro. The effect on the liability has to do because of the interest rates. As you clearly know, the higher the rate, the lower the liability, although the contribution that we have to make, it's quite similar. So that hasn't really changed.

[Alvaro Garcia, analyst]

And one last one on working capital. Diego, another 4 days year-over-year, again, driven by the suppliers, I feel like it's been 3 years running now of positive sort of improvements there. Is there more scope to improve that? Or is it fair to assume that we've sort of hit max improvements at this stage? Any color there would be helpful.

[Diego Cuevas, executive]

Yes. No -- to be honest, I'm also a little bit surprised with what we have been able to accomplish. It's above our expectation. I think that this year, the driver has been more in Mexico, we were able to expand the financing program with suppliers and extending the days. We extended the lines of credit that we have, and that has helped substantially in terms of the working capital. As you know, 2, 3 years ago, we implemented the supply chain finance program in North America, the U.S. and Canada together, and that also had a very important improvement.

I wouldn’t like to say that there is still no room for improvement, probably not 4, 5 days. I think we're getting close to the optimal level, but we will continue to work very hard on still finding even if it's half a day or 1 day, whatever we can improve on the working capital and continue to have a more solid cash flow generation.

[Operator]

Our next question will come from Carlos Laboy with HSBC.

[Carlos Alberto Laboy, analyst]

Fred, can you speak in North America to the challenge of driving premiumization, brand building, innovation in this environment of consumer down trading. And can you speak also to the healthier brands, the upper end brand brands out there? Are these vulnerable you think, in this environment? Or do they tend to be more resilient because of the type of consumer that's going after them? What can you tell us about consumer behavior around those brands as well?

[Fred Penny, executive]

Yes, Carlos, let me take the crack at it. I would say, first with the fact that we're in multiple categories from, I'll call it, as you know, call it mainstream bread and buns up to premium bread with our Arnold, Brownberry, Oroweat brands into the breakfast category with Thomas' muffins and bagels. And then we've got a pretty broad sweet baked goods portfolio as well, recognized strong consumer accepted brands.

This goes back to the issue of pricing and the extraordinary inflationary environment that we've been dealing with here in North America, certainly in the last, call it, 18 to 24 months. Through 3 price increases, our brands pretty much across the board have held up well. What we've been doing to support that is continuing to invest more and more in terms of brand marketing and brand support, and we continue to refine how we do that and to make our dollars work harder, if you will. And I think that's paid dividends in an environment where we've had to take pricing.

We continue to put innovation into the market and we're going to continue to do that going forward. I think the issue of down trading is -- and price elasticity, frankly, is what we've begun to see some evidence of given the amount of pricing that the industry and others have put into the market at a necessity. But I'm pretty confident in the strength of our brands and the resilience of our brands.

Now, predicting the future here is difficult because we're in unchartered territory in terms of the sheer inflation we're dealing with and the need for the pricing that we've been taking. But all in all, I think we're -- I would say we're pretty positive about the strength of our brands and the resilience and the consumer acceptance of our brands. And we cut it -- I think Daniel made the point. We really cut across the full range of value, if you will, in our portfolio, an important strength that we have.

[Operator]

[Operator Instructions] As there are no more questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Daniel Servitje for any closing remarks.

[Daniel Servitje Montull, executive]

Well, thank you very much for all the attendees. As always, if you have any additional questions or comments, please relay them to Estefy and the Investor Relations team at the Grupo Bimbo and we hope to hear you and see you in the next conference call. Bye-bye.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.