Grupo Bimbo sets records for revenue, earnings, and profit margins.
MEXICO CITYGrupo Bimbo SAB de CV had a record-breaking first quarter thanks in part to volume increase in its North American operations. According to the firm, negative demand from clients of foodservice and convenience stores was more than offset by strong US demand for branded bread, buns, breakfast items including bagels and English muffins, sweet goods, and snacks.
For the first quarter that concluded on March 31, Grupo Bimbo’s revenues totaled a record 79 billion pesos ($3.9 billion).
“After an incredible year for Grupo Bimbo, we began 2021 with the best first quarter in our history in terms of sales, profits, and margins,” chairman and CEO Daniel Servitje stated. “We continue to benefit from being a diversified company, and trends continue to reflect the hard work of our associates and the strength of our brands.”
Although Mr. Servitje and other Bimbo executives expressed their deep satisfaction with the first-quarter performance, they cautioned that the second quarter and the second half of the year will present greater challenges.
During a conference call with investment analysts on April 28, Mr. Servitje stated, “We have begun to cycle difficult comparisons, driven by the pandemic-induced buying that occurred in some of our geographies starting in March of last year.” Therefore, the full impact of the panic buying behaviors that occurred during the second quarter of 2020 will become apparent in the second quarter of 2021. We anticipate that, despite the difficulty, our 2021 run rates will perform well in comparison to 2019. We are still totally dedicated and confident in the direction we gave.
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In the first quarter of this year, Bimbo’s North American company saw operating income of 5.12 billion pesos ($250 million), up from 1.17 billion pesos operating loss in the same period the previous year. Over three times as much was made in the first quarter of operating profit as in the first quarter of 2019, which was 1.67 billion pesos. 39 billion pesos ($1.94 billion) was the net sales amount, up 19% from 32.8 billion in 2019 and up 8% from 36.1 billion in the previous year. According to Bimbo, volume growth was the main factor driving net sales for the quarter, which increased 6.1% in dollar terms from 2020.
The first quarter of 2020 saw a $154 million non-cash charge associated with the adjustment of multi-employer pension plans (MEPP) obligations, which had a negative impact on operating earnings. When the MEPPs were taken out of the picture, Grupo Bimbo’s adjusted EBITDA increased by 20%. The business EBITDA margin for North America increased to 12.6% from 10.3% in 2020 and 10.4% in 2019.
Bimbo credited the impressive performance in North America, in addition to sales growth, to positive branded mix, trade efficiency, and productivity gains from prior investments, which were somewhat offset by higher strategic brand investments. E-commerce sales, according to Mr. Servitje, have doubled from a year ago.
According to him, Bimbo’s upcoming difficulties go beyond the panic-driven pandemic buying of the previous year.
“We are facing a significantly higher inflationary environment going forward,” he declared. “More precisely, labor, freight, and commodity costs are rising, and we will be taking steps to offset these cost increases.”
Diego Gaxiola, group chief financial officer, was asked by several analysts during the call to discuss the potential effects of rising expenses, so he decided to “offer a bit more color on commodities.”
According to our hedging strategy and philosophy, the majority of the commodities are already hedged, Mr. Gaxiola stated. Thus, the second half of the study will witness a greater impact than the first. Furthermore, as Daniel has already mentioned, the annual impact of the 2021 commodity price increase will be less than a percentage point if the various tactics being used are not taken into account.
According to Mr. Gaxiola, the comparison with 2020 will be most challenging in the second quarter, but there will also be difficulties in the third and fourth.
“We have extraordinary volumes, mostly in North America, which is the main reason for that,” he stated. Naturally, there were some costs that we had to deal with last year that we also anticipate will be less this year, especially those associated with COVID. However, a portion of the marginability that these exceptional volumes allowed us to attain would be lost. For this reason, we essentially anticipate a flat margin in terms of sales and EBITDA. Therefore, after this first-quarter increase, we do anticipate a decline, especially in the second quarter.
A few weeks into the second quarter, Fred Penny, president of Bimbo Bakeries USA, said that the company’s operations in the US are not keeping up.
He stated, “Clearly, we’re running negative numbers compared to the same period last year, but we’re running strong numbers compared to pre-COVID 2019,” using Nielsen or any other metric. Thus, market share has increased. Gains in home penetration have been observed. Additionally, we’ve been putting a lot of effort into executing behind our top brands, which are our core items. In an attempt to keep onto the majority of the families we were able to acquire during the epidemic and maybe increase our market share, we have increased our marketing spending. Overall, I think the run rates are about where I would like them to be. What will happen as we get into the second half of the year is a major concern.
According to Mr. Penny, there is still a great deal of uncertainty over the company’s business prospects for the second half of the year.
“As things return to normal, I expect that certain categories will slow down,” he stated. “However, I would also point out that there have been changes in consumer behavior, and there are still unanswered questions regarding when all colleges and schools will reopen, whether it will be possible to work from home instead of going back to the office, etc., all of which I believe will continue to favor more consumption at home.”
Grupo Bimbo’s net majority income for the first quarter of 2020 was 4.1 billion pesos ($200 million), up from 1.32 billion in 2019 and 35 million pesos from January to March of 2020. Sales increased by 14% from 69.52 billion in the first quarter of 2019 and by 7% from 74.25 billion a year ago to 79.14 billion pesos ($3.94 billion).
In comparison to 2019, Bimbo anticipates low double-digit growth in sales and mid- to high teens in EBITDA for the entire year. According to the corporation, revenues and EBITDA would probably remain unchanged in 2020.