Bimbo’s profits reached a record level.
Chairman and CEO Daniel Servitje stated that Grupo Bimbo SAB de CV is committed to safeguarding profit margin gains after the company’s second quarter financial results reached all-time highs. According to him, the corporation is making a variety of efforts in that direction, one of which is boosting pricing in North America for the current quarter.
In the second quarter, which concluded on June 30, Grupo Bimbo increased return on equity by 280 basis points and overall made record earnings. However, the company’s North American division’s operating income for the second quarter was 2.8 billion pesos ($140 million), a 31% decrease from 4.1 billion pesos in the same period in 2020 but a dramatic increase from 1.3 billion in April–June 2019. 42.7 billion pesos ($2.15 billion) in sales were lower than 13% less than 49.1 billion in the previous year.
A $38 million charge for the company’s multi-employer pension plan liabilities was partially offset by operating profits in order to reflect current interest rates. In the second quarter, North America’s adjusted EBITDA—which does not include the impact of the MEPPs charge—dropped by 11%, while the EBITDA margin increased by 40 basis points to 13.3%.
North American sales increased by 0.9% in the second quarter as compared to the same time in 2020, excluding the impact of fluctuations in the foreign exchange market. According to Bimbo, the increase in revenue was due to the foodservice industry’s recovery, high sales of branded products, and improvements in market share across multiple categories. Sales during the second quarter of 2019 increased by 12.5 percent in dollars and 18% in pesos.
During a call with financial analysts on July 28, Mr. Servitje stated, “(The North America) business performed very well during the quarter, led by sweet baked goods, buns and rolls, and snacks.” “We executed our front-line strategy well, and we’ll keep managing trade promotions carefully to optimize return on investment. In comparison to pre-pandemic levels, our top-line run rate was very strong. The demand from consumers, rising household penetration, and the investments we have made and will continue to make in our primary brands have all contributed to the strength. As restaurants and schools handle reopenings, foodservice is starting to recover, but the run rate for private labels has remained modest.
Mr. Servitje stated that Bimbo was dedicated to ensuring the business avoids “a decline in our margins” for the course of the current inflationary cycle, despite the unusual upward pressure on expenses.
“We have demonstrated great initiative in recognizing the effects that our commodity costs and other inputs have had on us,” he remarked. And by using various levers in the various markets, we have been able to address them. Obviously, the first is cost. Trade optimization or revenue growth management is an additional lever. And lastly, we have added productivity initiatives to it in certain instances as well.
Fred Penny, president of Bimbo Bakeries USA, went into further detail about the steps that Bimbo is taking to offset rising expenses.
Mr. Penny stated, “We have to take a price increase from a North America standpoint in Q3.”
In addition to the price increase, he stated, “quite frankly, really significant work on productivity” and revenue growth management measures targeted at trade expenditure optimization will also be employed, as mentioned by Mr. Servitje.
Mr. Penny continued, “We don’t know where the inflation is going to head.”
Conversely, Mr. Penny voiced his contentment with Bimbo’s performance throughout the second quarter. He highlighted the sustained strength of sales in the second part of the April-June quarter in particular. He claimed that throughout the first part of the second quarter, Bimbo experienced “huge demand spikes.”
He remarked, “Q2 has been an interesting quarter.” “If you look back to the first part of the quarter, we were experiencing significant surges in demand from when the pandemic first struck, which was obviously a year ago. The fact that, as the second half of the year has gone on, we’ve seen very amazing run rates compared to a year ago—it honestly surprises me that we would have been able to run positive compared to a year ago—has been a very great outcome for us.
He said volume was slightly higher than a year earlier which, “given the huge demand of a year ago,” should be viewed as a major plus.
Asked about strong profit margins, Mr. Penny said the significant number of premium brands in Bimbo’s portfolio has been a benefit as has been the results of capital investments aimed at lowering the company’s cost base.
In response to a follow-up question about price increases, Mr. Penny declined to offer specifics but emphasized the magnitude of the challenge.
“This is a complicated issue, quite frankly,” he said. “We’re in an environment where the inflation, at least from my perspective and my time in the industry — I can’t recall an environment like this where commodities, labor, etc., were as volatile as they are. There’s not much you can look at right now, whether it’s a commodity, whether it’s labor, whether it’s transportation, etc., where there isn’t a lot of volatility and pricing pressure. I’m confident that we’re dealing with that head-on, and we’re going to manage it.”
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In comparison to the same period last year, Grupo Bimbo’s net majority income climbed by 19% to 3.1 billion pesos ($156 million) in the second quarter of this year. From 86.3 billion to 83.8 billion pesos ($4.22 billion), sales fell 2.9%. After adjusting for fluctuations in the foreign exchange rate market, revenues rose by 6.6%. The company’s adjusted EBITDA reached a record high, and its EBITDA margins rose by 120 basis points to 14.4%. Comparing the current quarter to the second quarter of 2019, net sales climbed by 16% and adjusted EBITDA improved by 7%.
“I am extremely proud of our teams for achieving record profits in the second quarter and a 6.6% increase in net sales, excluding the foreign exchange impact,” stated Mr. Servitje. “In our primary business, we are still witnessing exceptional run rates and robust demand. In all of our major categories, we maintained and increased our market share, and the channels and categories that were most negatively impacted by the epidemic recovered. To realize our ambition, we will keep making investments in our associates, brands, the entire value chain, our sustainability plan, and our digital transformation initiatives as we go forward.