Mexico City / MX. (gb) Grupo Bimbo S.A.B. de C.V. reported its first quarter 2016 results, ended March 31, 2016. Highlights: Net sales rose 13.2 percent reflecting FX rate benefit and solid organic growth in Mexico and Latin America. Gross margin expansion of 110 basis points was driven by lower raw material costs in most regions. Operating income increased a significant 50.6 percent, with a 170 basis point expansion in the margin, due to lower restructuring expenses and a disposal of assets. Adjusted Ebitda rose 35 percent, reflecting productivity efficiencies in Mexico and a 230 basis point margin expansion in North America. Net majority income grew 57.6 percent, with a 70 basis point expansion in the margin.
Net Sales
Mexico: Net sales in Mexico rose 5.9 percent over 2015, primarily driven by stronger volumes arising from a solid consumption environment, increased client penetration and positive performance in every channel and categories like buns, bread, cookies, confectionery and salty snacks; this was partially offset by continued pressure in the sweet baked goods category.
North America: Net sales grew 21.0 percent in the quarter mostly as a result of the exchange rate benefit and growth in strategic brands such as Thomas’, Sara Lee, Little Bites, Ball Park, Nature’s Harvest, Dempster’s and Barcel, among others, due to increased marketing investment, as well as focused price and promotional strategy. Continued growth in the sweet baked goods, snacks, buns, flatbreads and frozen categories was offset by pressure in premium bread and private label. However, the branded mainstream bread category in the US began to trend positively, benefited by new product introductions.
Latin America: The 4.8 percent rise in net sales reflected positive volume performance, most notably Brazil, Peru and Central America, despite challenging economic conditions and currency volatility in some markets. Highlights in the period included healthy performance in the tortillas category and Bisnaguitos, as well as product launches such as Bimbo Snacks.
Europe: The 13.3 percent improvement in net sales in the region reflected the FX rate benefit, as the bread category in Iberia remained under pressure during the period due to a challenging competitive environment that reflected pricing dynamics among private label players.
Gross Profit
Consolidated gross profit for the first quarter increased 15.4 percent, with a 110 basis point expansion in the margin to 53.5 percent, driven by lower raw material costs in most regions. In the case of Mexico, the margin contraction reflected the impact of a stronger US Dollar on raw material costs.
Profit before other income and expenses
Profit before other income and expenses increased 28.8 percent in the period, with an 80 basis point expansion in the margin to 7.1 percent. This increase reflected marketing, distribution and manufacturing efficiencies in Mexico, as well as lower administrative expenses in Latin America.
Operating Income
Operating income rose 50.6 percent over the prior year, with a 170 basis point expansion in the margin to 6.8 percent, mainly on the back of lower restructuring expenses in the US and a disposal of assets in Mexico. These factors were somewhat offset by integration-related costs in Canada and Europe, specifically the migration to a new enterprise software in Canada and costs related to plants closures, one in Canada and another in Spain.
Comprehensive Financial Result
Comprehensive financing resulted in a 1’248 million MXN cost in the period, compared to 974 million MXN in 1Q15, or 274 million MXN higher. The increase reflects the incremental interest expense related to the change in the Mexican Peso / US Dollar FX rate, which increased the Mexican Peso value of US Dollar denominated interest expenses.
Net Majority Income
Net majority income rose 57.6 percent, with a 70 basis point expansion in the margin to 2.4 percent, attributable to solid operating performance, that more than offset the higher effective tax rate of 39.9 percent, compared to 36.9 percent in the same period of last year. This increase primarily reflected the impact of no longer carrying a deferred income tax benefit in Brazil. Earnings per share for the period totalled 0.29 MXN, compared to 0.19 MXN in the prior year.
Adjusted Ebitda
Adjusted Ebitda increased 35 percent, while the margin expanded a significant 170 basis points to 10.2 percent. This was primarily due to the aforementioned productivity efficiencies in Mexico and a 230 basis point expansion in the North American margin.
Financial Structure
Total debt at March 31, 2016 was 68.8 billion MXN, compared to 67.8 billion MXN at December 31, 2015. Average debt maturity was 8.1 years with an average cost of 4.4 percent. Long-term debt comprised 88 percent of the total; 75 percent of the debt was denominated in US Dollars, 24 percent in Canadian Dollars and 1 percent in Euros. The total debt to adjusted Ebitda ratio was 2.8 times compared to 2.9 times at December 31, 2015. The net debt to adjusted Ebitda ratio was 2.5 times.
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