Grupo Bimbo: reports third quarter 2010 results

Mexico City / MX. (bw) Grupo Bimbo S.A.B. de C.V. reported its results for the third quarter ended September 30, 2010. Performance in the third quarter remained on trend from the first half of the year, with results driven by volume growth, in every region, although recovery remains weak, lower product prices in the United States, and the impact of currency exchange rates.

Net sales in the period were 29,6 billion MXN; 0,7 percent higher compared to the same period of last year, reflecting a continued recovery in Mexico, where sales rose 4,5 percent in the period, and solid 6,9 percent growth in Latin America. While sales in the U.S. in Dollar terms fell 1,5 percent due to lower prices, sales in peso terms declined 4,4 percent as a result of a lower FX rate compared to the third quarter 2009.

The consolidated gross margin contracted 0,4 percentage points over the same quarter of last year to 53,4 percent; due mainly to lower product prices and marginally higher raw material costs, both in the U.S. market. However, operating income and Ebitda rose slightly as operating expenses were scaled back in the period, which resulted in stable margins at a consolidated level.

Net majority income totalled 1,5 billion MXN for the quarter, a decline of 13,6 percent from the same period of 2009 due to higher financing costs and a increase in the tax rate. As a result net margin contracted by 80 basis points.

Net Sales in millions of Mexican Pesos (MXN)

3Q2010 3Q2009 % Change Net Sales 9M2010 9M2009 % Change
14’440 13’818 4,5 Mexico 42’795 41’077 4,2
12’163 12’717 (4,4) United States 35’800 37’407 (4,3)
3’656 3’419 6,9 Latin America 10’165 9’764 4,1
29’562 29’352 0,7 Consolidated 86’689 86’395 0,3

Mexico: Net sales in the quarter totalled 14,4 billion MXN; a 4,5 percent increase from the year ago period reflecting volume growth mainly in categories such as sweet baked goods and snacks. All channels reported higher sales, in part due to strong promotional activity around the country, while the modern channel continued to outperform. In the nine month period, sales rose 4,2 percent to 42,8 billion MXN.

United States: Net sales declined 4,4 percent in Peso terms over the year ago period to 12,2 billion MXN; primarily due to the impact of currency translation. In Dollar terms, sales fell 1,5 percent from the third quarter of last year, as higher volumes could not offset pricing pressures resulting from a challenging economic and competitive environment. Among the top performing lines in the quarter were Bimbo Bread and Sandwich Thins. On a cumulative basis, sales in Peso terms declined 4,3 percent in 2010 to 35,8 billion MXN, while in Dollar terms sales fell 1,2 percent.

Latin America: Net sales rose 6,9 percent from the same quarter of last year to 3,7 billion MXN, as a result of higher volumes across the region and strong performance in Brazil, Colombia and Chile. New clients and an expanded distribution network helped drive results. Sales in the first nine months of 2010 rose 4,1 percent over the same period of last year to 10,2 billion MXN.

Gross Profit

The consolidated gross margin contracted by 0,4 percentage points over the year ago quarter to 53,4 percent. Despite positive performance in Mexico and Latin America, driven by the more favourable exchange rate in both regions and lower commodity costs in some key raw materials, the consolidated gross margin was negatively impacted by the 1,8 percentage point decline in the United States. This was the result of lower average product prices, and slight commodity pressure following a long period of declining costs. On a cumulative basis, the consolidated gross margin expanded by 0,5 percentage points to 53,1 percent; driven by improvements in Mexico.

3Q2010 3Q2009 Change pp Gross Margin (%) 9M2010 9M2009 Change pp
56,6 56,3 0,3 Mexico 56,0 54,1 1,9
49,8 51,6 (1,8) United States 49,9 50,9 (1,0)
42,2 42,1 0,1 Latin America 41,6 43,0 (1,4)
53,4 53,8 (0,4) Consolidated 53,1 52,6 0,5

Operating Expenses

Operating expenses, as a percentage of sales, declined 0,4 percentage points in the quarter to 41,9 percent. A significant decline in administrative expenses was able to offset (a) higher distribution costs resulting from the increase in fuel prices; (b) a greater level of investment in advertising and promotion intended to boost consumption and drive volumes; and (c) the addition of new routes, primarily in Latin America. On a cumulative basis, operating expenses as a percentage of sales remained nearly unchanged at 43,1 percent compared to 43,0 percent in the year ago period, due to the same above mentioned factors.

Operating Income in millions of Mexican Pesos (MXN)

Operating income in the third quarter of the year rose 1,2 percent and the consolidated margin expanded slightly from 11,4 percent in the year ago period to 11,5 percent in the current quarter. On a cumulative basis, strong results earlier in the year helped offset pressures in the current quarter; consolidated operating income rose 5,3 percent in the first nine months of 2010, while the margin improved by 0,5 percentage points to 10,1 percent.

3Q2010 3Q2009 % Change Operating Income 9M2010 9M2009 % Change
2’288 2’009 13,9 Mexico 5’452 4’622 17,9
1’047 1’301 (19,5) United States 3’141 3’474 (9,6)
64 66 (2,5) Latin America 125 258 (51,5)
3’389 3’350 1,2 Consolidated 8’716 8’275 5,3

On a regional basis, operating income in Mexico rose 13,9 percent in the quarter and 17,9 percent year to date, while the margin improved by 1,3 and 1,4 percentage points, respectively, to 15,8 percent and 12,7 percent, mainly as a result of higher absorption and control over costs and expenses.

In the United States, control over administrative and advertising expenses was sufficient to offset the planned increase in distribution undertaken to enhance the penetration of the Company´s brands; nonetheless, these factors were unable to compensate for the impact of lower prices and the revaluation of the Peso. Operating income in the quarter declined 19,5 percent, while the margin contracted 1,6 percentage points over the year ago period to 8,6 percent. On a cumulative basis, operating income in the United States declined 9,6 percent, while the margin contracted 50 basis points to 8,8 percent.

In Latin America, quarter over quarter operating performance was stronger across the region, most notably Colombia, Chile and Brazil. Nonetheless, operating income in the region as a whole declined 2,5 percent and 51,5 percent from the year ago quarter and nine months, respectively, while the margin decreased 0,1 and 1,4 percentage points. This reflected a combination of quarterly sequential improvement, gross margin pressure and higher investment made in new routes planned in order to increase market penetration and the client base.

Comprehensive Financing Result

Comprehensive financing resulted in a 808 million MXN cost in the third quarter, compared to a cost of 625 million MXN in the same period of last year. This was primarily the result of a financial expense, namely commission, on a bank loan that would have been amortized over future periods but was recognized in full on the current income statement due to the prepayment of such loan, which furthered the Company´s strategic objective of attaining a more sound financial structure.

Net Majority Income

Net majority income in the third quarter declined 13,6 percent from the year ago period to 1,5 billion MXN, while the margin contracted 0,8 percentage points to 5,1 percent. These decreases primarily reflect the aforementioned pressure on the gross margin, financing result and an increased tax rate. In the first nine months of the year, net majority income fell 4,2 percent, while the margin contract by 30 basis points to 4,6 percent.

3Q2010 3Q2009 % Change Net Majority Income 9M2010 9M2009 % Change
1’497 1’733 (13,6) Consolidated 4’020 4’196 (4,2)
3Q2010 3Q2009 % Change Net Margin (%) 9M2010 9M2009 % Change
5,1 5,9 (0,8) Consolidated 4,6 4,9 (0,3)

Operating Income plus Depreciation and Amortization (Ebitda)

Ebitda in the quarter rose 1,6 percent to 4,3 billion MXN, while the margin expanded ten basis points to 14,5 percent. On a cumulative basis, Ebitda rose 5,9 percent in the first nine months of the year and the margin expanded by 0,7 percentage points.

3Q2010 3Q2009 % Change Ebitda 9M2010 9M2009 % Change
2’687 2’422 11,0 Mexico 6’670 5’868 13,7
1’388 1’595 (13,0) United States 4’183 4’320 (3,2)
229 235 (2,7) Latin America 612 715 (14,5)
4’293 4’226 1,6 Consolidated 11’463 10’823 5,9
3Q2010 3Q2009 Change pp Ebitda Margin (%) 9M2010 9M2009 Change pp
18,6 17,5 1,1 Mexico 15,6 14,3 1,3
11,4 12,5 (1,1) United States 11,7 11,5 0,2
6,3 6,9 (0,6) Latin America 6,0 7,3 (1,3)
14,5 14,4 0,1 Consolidated 13,2 12,5 0,7

Financial Structure

As of September 30, 2010, the Company´s cash position totalled 4,9 billion MXN, compared to 9,1 billion MXN in 2009.

In July, the Company made a 1,0 billion USD payment towards debt obligations, comprised of a 200 million USD paydown from cash holdings to debt due in 2010, and the prepayment of 800 million USD of 2012 obligations using proceeds from the a senior notes offering completed at the end of June. These transactions further the Company´s strategic objective of achieving a healthy financial structure and longer average maturities.

Total debt at September 30, 2010 was 32,7 billion MXN, compared to 41,6 billion MXN in the year ago period. The average maturity of the Company´s liabilities is more than five years; short-term debt comprised three percent of the total and the remaining 97 percent was long-term. The currency mix was 49 percent in Mexican Pesos (MXN), with the remaining 51 percent in U.S. Dollars (USD). The total debt to Ebitda ratio improved to 1,9 times, compared to 2,9 times in September 2009.

Strong cash generation and debt prepayments in the past twelve months resulted in a lower year over year net debt position: 27,7 billion MXN at September 2010, compared to 32,6 billion MXN registered last year.

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