Grupo Bimbo hopeful about unit volume trends

MEXICO CITY — Weak unit sales trends in the third quarter of 2023 in North America appear to be easing, said executives of Grupo Bimbo SAB de CV.

The executives commented on third-quarter results Oct. 26 in a conference call with investments analysts. Rafael Pamias, chief operating officer, said Bimbo’s North American sales rose 6% in the quarter ended Sept. 30, excluding the effects of the rising value of the Mexican peso versus the US dollar. Growth was notable in buns and rolls, breakfast products and salty snacks.

“However, volumes were soft, consistent with the overall category, but more than offset by carryover pricing, which was implemented in 2022,” he said. “It is relevant to mention that the rate of decline is slowing sequentially. In fact, in the first weeks of October we saw share gains on our sweet baked goods and English muffins businesses, which are critical to the overall success of achieving North America’s top- and bottom-line objectives.”

Adjusted operating income of Bimbo’s North American business was flat during the third quarter. Operating income as reported was 3.12 billion pesos ($170 million), down 39% from 5.16 billion pesos a year ago and compared with 3.31 billion pesos in the second quarter of 2023. Results a year ago included a $66 million multi-employer pension plan non-cash benefit.

While Grupo Bimbo’s overall adjusted EBITDA margin widened to record levels in the third quarter, North American margins narrowed by 80 basis points. The contraction was attributed by Bimbo to “continued, but moderating, inflation and unfavorable mix performance, which was partially offset by productivity benefits across the supply chain.”   Boosting the company’s overall margin was a 140-basis point widening in Mexico and 100-basis point widening in EAA (Europe-Africa-Asia).

Net sales during the quarter were 47.2 billion pesos ($2.6 billion) in North America, down 11% from 53 billion a year earlier. Excluding the effects of foreign exchange swings, net sales rose 6%, a gain Bimbo attributed principally to price increases implemented last year.

“This was partially offset by an unfavorable mix and volume softness across categories,” Bimbo said.

While he did not project unit sales growth in the fourth quarter, Mr. Pamias said Bimbo expects volume performance to improve relative to the third.

“This improvement will be a direct result of the innovative and effective commercial strategies we are currently implementing in the marketplace,” he said. “We remain confident in our ability to overcome these challenges and drive the growth trajectory in the right direction.”

Asked for further details about the North American business in the fourth quarter, Mark J. Bendix, executive vice president, said cost inflation is moderating and supply chain performance has been improving.

“And we made meaningful progress on our cost savings and productivity initiatives, which in turn, led to that improvement in our service level,” he said. “So all in all, we’re looking at many facets in this dynamic environment, and we are cautiously optimistic for the fourth quarter.”

To a question about the sweet baked goods category, Mr. Bendix said volume decreases of 2.7% for the category have been roughly in line with the 2.1% decrease in food unit volume overall and 2.3% for bread. Private label and value brands have gained unit and dollar share, he said.

“So we continue to invest in our marketing, delivering enhanced programs and trying to deliver excitement in our brands,” he said. “We recognize that sales growth was up across all categories driven by prior year pricing actions for the most part.”

He called Bimbo’s share performance “soft” in mainstream, breakfast and sweet goods, adding that the company gained share in premium, buns and rolls as well as snacks.

Commenting later in the call on the company’s market share, Mr. Bendix said Bimbo largely had held on to share gains achieved during the COVID-19 pandemic.

“Now the last quarter has been challenging, but we remain optimistic that our initiatives of promotion, productivity and innovation will continue to add momentum for us,” he said.

To grow its sweet goods business, Mr. Bendix said Bimbo was investing in “portability,” seeking “to become relevant” in addition to channels such as convenience stores.

Mr. Bendix, also in response to a question, discussed Bimbo’s private label business at some length, noting that the category has gained share while also experiencing volume softness.

“We’re seeing that there’s been a challenged consumer and certainly a dynamic environment,” he said. “Our mainstream premium buns and rolls, and breakfast and sweet baked foods were challenged as consumers traded down the private label and value-based retailers. Consumers are largely gravitating toward value and channel in club and mass as well as private label. Also, some premium buyers are also trading down to mainstream.”

Even as Bimbo focuses on its branded business, Mr. Bendix said private label was a significant business for the company and “plays an important role in our portfolio.”

“Our goal is to ensure that we’re continuing to improve the profitability and efficiency of our non-branded business,” he said.

Also in response to a question, Mr. Pamias said it was too early to assess any potential effects on sales volume from the increased popularity of GLP-1 drugs such as Ozempic as well as other anti-obesity medications.

“We’re looking and studying it seriously, like any upcoming trend or change in consumer habits,” he said. “We do believe at this point that it is too early to tell the effects, also the side effects and potential scalability. What we can also tell you is that when we take a look at our categories, our overall sentiment is positive.”

Even though sugar costs are up nearly 50% over the last 12 months, Diego Gaxiola, chief financial officer, said Bimbo remains upbeat about prospects for easing inflationary pressures and margin improvement.

“Overall, we feel positive, as I mentioned, in terms of the commodity cost that we will pay, not only in the fourth quarter but in the coming quarters,” he said. “And we will start to see the decline on many of the commodities, wheat being the most relevant one in our portfolio. We’re finally starting to see this decline in prices because of the hedging strategy that we have in place.”

While the sugar price surge is noteworthy, Mr. Gaxiola said the commodity accounts for less than 3% of Bimbo’s total cost of sales.

Net majority income of Grupo Bimbo was 4.18 billion pesos ($230 million), down 31% from 6.06 billion in the third quarter last year. Excluding special items, net income was down 11%. The decrease was attributed to “higher financial costs.” At 3.1 billion pesos ($170 million), costs were up 32% from the same quarter in 2022 “attributable to higher interest expenses because of a higher debt position, the accounting effect of the refinancing of the US dollar subordinated perpetual notes early in the year, as well as higher interest rates.”

Net sales were 99.2 billion pesos ($5.5 billion), down 3.4% from 102.7 billion pesos in the third quarter last year. Excluding foreign exchange effects, sales were up 8%.