San Pedro Garza García / MX. (gr) Gruma S.A.B. de C.V. reported Q2/2018 financial results. Highlights:
- Gruma’s performance in the second quarter 2018 showed net sales growth in all regions, and expanded consolidated Ebitda margin, driven in large part by Gruma USA.
- Consolidated sales volume rose 2 percent driven primarily by Gimsa and Gruma USA. Net sales grew 9 percent in connection with volume growth, price increases at Gimsa, and the Peso weakness effect principally on figures for Gruma USA and Gruma Europe. Net sales growth offset an impact of MXN 148 million resulting from the adoption of International Financial Reporting Standard 15 (IFRS 15), effective January 2018, by which some selling expenses are reclassified as a deduction to net sales.
- Consolidated Ebitda rose 9 percent driven by increases from all subsidiaries and from the Peso weakness effect, which represented about 40 percent of the consolidated increase. Ebitda margin improved 10 basis points.
- Majority net income was affected by a higher effective tax rate mostly from deferred taxes, as 2Q17 benefited from the use of tax-loss-carry-forwards.
- Sales and Ebitda from non-Mexican operations represented 73 percent and 74 percent, respectively, of consolidated figures. The company reported USUSD 1.2 billion of debt at quarter-end, USUSD 66 million more than at the end of 1Q18. Net Debt/Ebitda ratio was 1.6x
Consolidated results of operations
Q2/2018 versus Q2/2017
Sales volume grew 2 percent to 1,029 thousand metric tons. Volume growth at all subsidiaries was partially offset by strong reductions at Gruma Europe, which resulted from volatility in the corn milling business.
Net sales rose 9 percent to MXN 18,942 million and were higher at all subsidiaries. Sales volume growth, prices increases at Gimsa at the beginning of the year, and the Peso weakness contributed to the improvement.
Cost of sales as a percentage of net sales rose to 62.2 percent from 61.4 percent. Excluding the effect from the adoption of IFRS 15, net sales as a percentage of net sales would have increased to 61.7 percent, driven by rising costs on several inputs, especially in the U.S. In absolute terms, cost of sales increased 10 percent to MXN 11,779 million, mostly in connection with sales volume growth, the Peso depreciation, and rising costs for several inputs. The Peso weakness impact represented about 33 percent of the increase.
Selling, general and administrative expenses (SG&A) as a percentage of net sales improved to 24.2 percent from 25.1 percent, primarily driven by better absorption and the adoption of IFRS 15, which led to a decline in SG&A, representing a benefit of 60 basis points. In absolute terms, SG&A rose 4 percent to MXN 4,577 million, due to the Peso depreciation effect. The adoption of IFRS 15 had a positive impact of MXN 148 million.
Other expense, net, was MXN 67 million compared to MXN 7 million. The increase resulted primarily from losses on hedging activities at Gimsa, versus gains last year.
Operating income grew 7 percent to MXN 2,519 million. Operating margin decreased to 13.3 percent from 13.4 percent. Ebitda increased 9 percent to MXN 3,097 million. Ebitda margin improved to 16.4 percent from 16.3 percent.
Net comprehensive financing cost was MXN 358 million, MXN 19 million more, primarily in connection with (1) higher interest expense driven mainly by higher debt and higher interest rates; and (2) foreign exchange losses this year as opposed to gains last year. However, Gruma reported gains on foreign exchange rate hedging related to corn procurement at Gimsa, which mostly offset the aforementioned negative impacts.
Income taxes were MXN 854 million, 62 percent more, and the effective tax rate was 39.5 percent. This was driven by a negative variation of MXN 363 million of non-cash taxes due mostly to the use of tax-losscarryforwards in 2Q17.
On cash taxes, the benefit from the corporate tax reduction in the U.S. has been partially offset by additional taxes in Mexico coming from inflationary gains on net monetary liability position as a result of higher debt and higher inflation in Mexico.
Gruma expects its effective tax rate going forward to be around 35 percent-36 percent. However, the company continues to analyze ways to optimize its fiscal structure, which could result in a reduced effective tax rate through lower cash and non-cash taxes.
Majority net income declined 9 percent to MXN 1,308 million driven primarily by the impact from non-cash taxes.