Strong business for Bimbo in North America in 2020
Grupo Bimbo SAB de CV’s North American business saw strong fourth-quarter sales driven by growth in sales across all major categories of branded products. The EBITA margins were significantly widened.
Bimbo Bakeries USA’s operating income for the year ended December 31, 2020, was 11.2 billion pesos ($542 million), an 84% increase from $6.09 billion in 2019. Sales increased 22% from 144.01 billion in 2019 to 176.4 billion pesos ($8.545 billion).
BBU operating income increased by 148% from 1.47 billion pesos ($177 million) in October to 3.64 billion pesos ($177 million) in the fourth quarter of 2019. Sales increased by 19% to 44.54 billion pesos ($2.16 billion) from 37.37 billion pesos in the previous year.
Bimbo reported that all major categories saw robust business in North America. Convenience and foodservice channels lacked strength. The company’s robust sales, advantageous commodity prices, and productivity gains were the main causes of the 270 basis point increase in EBITDA margins during the fourth quarter. Expenses associated with COVID-19 were offset.
According to Diego Gaxiola, chief financial officer, Grupo Bimbo had a record-breaking year, which included the impressive results in North America.
“We doubled our gross cash flow in 2020, hit record levels for net sales and adjusted EBITDA, and achieved the lowest leverage in the previous ten years,” stated Mr. Gaxiola. “We are ready to continue strengthening our financial position and we are starting 2021 stronger than ever, even with the challenging comparison.”
The chief executive officer, Daniel Servitje, reviewed the fourth-quarter results during a conference call with investment analysts on February 24. He noted several noteworthy aspects, such as the record profit margins.
According to Diego Gaxiola, chief financial officer, Grupo Bimbo had a record-breaking year, which included the impressive results in North America.
“We doubled our gross cash flow in 2020, hit record levels for net sales and adjusted EBITDA, and achieved the lowest leverage in the previous ten years,” stated Mr. Gaxiola. “We are ready to continue strengthening our financial position and we are starting 2021 stronger than ever, even with the challenging comparison.”
The chief executive officer, Daniel Servitje, reviewed the fourth-quarter results during a conference call with investment analysts on February 24. He noted several noteworthy aspects, such as the record profit margins.
“School closures continue throughout the pandemic due to a lack of demand as consumers continue to favor branded products. Volumes in the private label category and in foodservice are also soft.” Our adjusted EBITDA margin hit a record high, driven by robust sales, declining commodity prices, and productivity gains from prior investments. These factors were somewhat offset by one-time costs associated with the coronavirus and statistical investments in our brands.
Responding to an analyst question, Fred Penny, president of BBU, cautioned that the outlook for 2021 in the United States rests on the success of the currently expanding vaccination program and other efforts to curtail the COVID-19 pandemic. He said Bimbo and other food companies likely will be unable to match second-quarter sales figures, when panic buying by consumers was rife.
“So the question then becomes what’s going to happen in the back half of the year, and that really depends on lots of things like availability of vaccine, when are schools going to be fully back in, when are colleges going to be fully back in, what happens with changes in work from home versus work from office, etcetera,” he said. “And that remains to be seen. I wouldn’t want to overly speculate on that. But we’ve had strong brand performance across most of our categories. We’re working hard to continue that. And at the same time, we hope for recovery in segments of our foodservice business, if you think about that as a different channel.”
Reflecting the company’s optimism about the future, Mr. Servitje said capital expenditures are expected to total close to $1 billion.
“We think we will have very strong capex for 2021, which basically reflects the delayed projects as well as specific categories where we need to increase our capacity given the growth that we had in our product lines,” he said. “So that happens all around the world, and that’s why we are basically strengthening the capex program as well as to include significant investments in renewing our IT infrastructure and becoming more digitalized in our different processes.
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“We’re also upping our investments in electric vehicles and, in some cases, also investing in renewable energy on our rooftops and in some other areas. But the majority of the investments go basically to the plants, the bakeries and increasing the developing capacity. And let me tell you that, definitely, we will also take a look at the opportunities in terms of share repurchasing as we have done in the past.”
Later, Mr. Servitje said almost half of the capital expenditures — $400 million to $500 million — will go to regular maintenance initiatives, one of three capex budgets he identified.
“We have the other two buckets that we have also been investing proactively, which is growth and productivity,” he said. “In terms of growth, this is the one that is going to be demanding more resources for 2021, either in new lines, new plants. We are also investing a little bit more, although it’s not entirely moving the needle as big as these growth initiatives, is on the digital transformation and technology investments that we plan to do in the company for ‘21 and I’m sure it will be the case for 2022.”
According to him, the combined capital expenditures in most years amount to $700 million to $800 million.
Mr. Gaxiola provided 2021 advice. Due to the pandemic’s disruptive nature, Bimbo is comparing 2021 to both 2020 and 2019, the year before the pandemic.
“For 2019, we anticipate a low to high teens growth rate for adjusted EBITDA and a low double-digit growth rate for sales,” he stated. “But our sales and adjusted EBITDA will essentially stay flat compared to 2020.”
Grupo Bimbo also announced the acquisition of Modern Foods, a well-known baking business in India, and an agreement to buy a production plant in Medina del Campo, Spain, from Cerealto Siro Foods. As a significant step toward its goal of achieving 95% renewable electricity by 2023, the company announced that it has increased its use of renewable electricity to 80% globally from 49%.
Regarding the investment in Spain, Mr. Servitje stated that the facility produces sweet baked goods for customers as well as Mercadona, a significant grocery chain.
“We are able to join the Spanish sweet baked goods private label market thanks to this acquisition,” he stated. “Regulators still need to approve it.”
Grupo Bimbo’s net majority income increased 13% from 291.93 billion in 2019 to 9.11 billion pesos ($443 million) in 2020. Sales increased 13% to 331.05 billion ($16 billion) from 291.93 billion pesos in 2019.
Bimbo’s net majority income increased by 58% to 2.89 billion pesos ($140 million) in the fourth quarter of 2019 from 1.83 billion in the last quarter of 2019. Sales for the fourth quarter increased by 12% to 84.78 billion pesos ($4.107 billion) from 74.46 billion.