Milling & Baking News - May 7, 2019 - 20

Financial Results

Bimbo North America quarterly
income rises on cost-saving initiatives

and the January closing of the Bays English muffins baking plant in Detroit.
Providing additional color on the
company's U.S. operations, Fred Penny,
president of Bimbo Bakeries USA, said,
"We had some private label drag, which
was a combination of
trend and exiting some
business. We exited in the
fourth quarter a branded
licensing
agreement,
which had some drag
in the quarter. But then
in our core categories, I
would say, it's really been
mixed results.
"Our sweet baked
goods business is exceptionally strong and continues to perform well. In
mainstream bread, and in
bread in general, I think
we're seeing, because we
put a fair amount of pricing into the market in '18,
we are seeing some volume pressure from that
pricing. That's something
we're going to have to monitor closely
and continue to work on refining our
pricing strategies as needed. But quite
frankly, given the inflation pressures we
faced last year and we're continuing to
face this year, we've got to continue to
push for price realization, while we balance that in terms of the impact it has on
our volumes."
Mr. Penny was asked by an analyst
whether there is even any room, and
BIMBO BAKERIES USA

MEXICO CITY - Operating income of
the North America business of Grupo
Bimbo S.A.B. de C.V. increased 36% in
the first quarter ended March 31 while
sales also moved higher during the
period.
Bimbo Bakeries USA operating income
in the first quarter was 1,661 million pesos ($87.8 million), up from 1,223 million
pesos in the first quarter last year. Net
sales were 32,830 million pesos ($1,735
million), up 2.5% from 32,043 million pesos a year earlier.
"In North America, net sales rose 2.5%
in peso terms, mainly due to the benefit
of FX," said Daniel Servitje, chairman
and chief executive officer of Grupo
Bimbo, during a May 2 conference call
with analysts. "Our dollar sales are
equal to last year. We implemented price
increases and experienced growth in our
strategic brands such as Artesano, Entenmann's and Barcel snacks.
"We achieved sales and market share
gains in the sweet baked goods category
within the region, as well as in the bread
category in Canada. However, these results continue to be pressured by the declining sales in the private label, breakfast and mainstream category."
Bimbo said its 130-basis-points expansion in operating margin in North America was due to savings from the Voluntary Separation Program in the United
States and an organizational restructuring initiative implemented in Canada.
Gains partially were offset by higher restructuring expenses in the United States
related to route restructuring initiatives

Gruma USA operating income
dips 8% in first quarter
MONTERREY, MEXICO - Operating income at Gruma USA in the first
quarter ended March 31 totaled 1,299
million pesos ($68.4 million), down 8%
from 1,412 million pesos in the same period a year ago.
Net sales at Gruma USA increased
3% in the first quarter of fiscal 2019 to
10,259 million pesos ($540 million) from
9,936 million pesos.
"And what we're doing now, we're
launching to the market new products,
value-added products, particularly
on corn and with flour tortilla," Raul
Cavazos Morales, chief financial officer,
said during an April 25 conference call
with analysts. "We already launched
20 / May 7, 2019

Milling & Baking News

the whole wheat (in chia and quinoa),
the whole wheat honey oat, the whole
wheat sprout ... as well as mini or street
tacos. We already launched street tacos with yellow corn as well as whole
wheat carb balance. With all these new
products, we are taking advantage in
the prices."
Mr. Cavazos Morales said Gruma
does not expect it will need to sacrifice
EBITDA margins in order to gain market share or to gain or to move on the
top line on sales.
Gruma said operating margin at Gruma USA declined to 12.7% from 14.2%
during the first quarter.
Cost of sales as a percentage of net

whether supermarkets are pushing back
in any of the categories in which Bimbo
is a major player.
"I don't want to speculate on other
categories," he said. "I mean, I think
we've worked hard to improve price
realization. In particular through revenue growth management, because we
know we have to. As you know, it's a
price-sensitive category we're in, especially when you talk about mainstream bread. The category has
moved. The question is, is there
more room without further volume drag, and I think that's what
we have to work through, and I
guess stay tuned, we'll see as we
go through the year, whether we'll
able to generate additional price
realization without negative volume impacts along the way."
Net majority income of
Grupo Bimbo was 1,318
million pesos ($69.7 million), up 1.5% from 1,298
million pesos in the same
period last year. Sales
were 69,573 million pesos
($3,677 million), up 3.6%
from 67,149 million pesos.
The company's operating
income in Mexico increased
3.1%, and sales there were up 4.1%.
Bimbo said net sales in Mexico were
driven by strong results in the bread,
buns and cakes categories.
"Outperformance of Medias Noches
buns and the Bimbo Cero Cero bread
brand also contributed to growth," the
company said. "These results were partially offset by an intercompany commercial strategy implemented between
subsidiaries of Mexico and the U.S." MBN
sales improved to 58.1% from 57.5% in
the first quarter, Gruma said.
Gruma said it incurred $30 million
in capital expenditures during the first
quarter. During the quarter, the company allocated expenditures to the United
States (in connection with additional
production lines at a tortilla plant in
Dallas and additional capacity at a tortilla plant in Florida), to Mexico (for a
tortilla plant near Puebla), new corn
silos at GIMSA and maintenance and
general technology upgrades.
Overall, majority net income at Gruma S.A.B. de C.V. in the first quarter
was 1,029 million pesos, down 20%
from 1,282 million pesos a year ago.
EBITDA was 2,871 million pesos, up 7%
from 2,692 million pesos, while sales
rose 6% to 18,579 million pesos from
17,532 million pesos. MBN
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Milling & Baking News - May 7, 2019

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