Grupo Bimbo reported results for the first quarter ended March 31, 2012. For the first time, the Company is reporting its results under International Financial Reporting Standards. Figures for prior corresponding periods have been adjusted accordingly. The principal effects on the profit and loss statement are:
i) employee profit sharing (PTU for its Spanish acronym) registered above the operating line;
ii) higher depreciation costs reflecting updated asset valuations; and
iii) different accounting treatment for employee benefits.
Sales in the first quarter totalled 40,9 billion MXN, a 38,7 percent increase over the year ago period driven by healthy organic growth (11,6 percent), mainly in Mexico and Latin America, and the integration of the Sara Lee operations in the United States and Iberia and Fargo in Argentina (27,1 percent).
The consolidated gross margin reflected higher raw material costs, the impact of the Peso devaluation on the Mexico operation and the higher cost structure of the Sara Lee operations in the United States and Iberia, resulting in a 100 basis point contraction. At the operating level, the expected dilution from the Sara Lee operations and integration-related expenses further contributed to a 3,4 percentage point decline in both the operating and Ebitda margins.
Net majority income reflected performance at the operating level and higher financing costs that were offset by a lower effective tax rate, resulting in net margin contraction of 2,4 percentage points to 1,5 percent.
Net sales in the first quarter totalled 17,4 billion MXN, a 13,7 percent increase from the year ago period reflecting stable volume growth across all channels, and the benefit of pricing initiatives. The bread, sweet baked goods, cookies and salted snacks categories outperformed in the period.
Net sales totalled 17,9 billion MXN in the quarter. Contributing to the strong 62,1 percent rise over the year ago period was the integration of the Sara Lee operations (55,5 percent) and organic growth (6,6 percent) driven by favourable FX rates and pricing initiatives taken last year which fully offset the decline in overall volumes. Growth categories included Bimbo and Marinela sweet baked goods and Thomas´ English muffins.
Net sales rose 38,3 percent over the same quarter of last year, to 5,4 billion MXN, reflecting strong organic growth (23,1 percent) across the region, with notable contributions from Brazil, Chile and Colombia as a result of the Company´s ongoing market penetration efforts and the integration of Fargo in Argentina (15,2 percent).
Sales were in line with expectations, with good performance in the supermarket and institutional channels.
Consolidated gross profit in the quarter rose 35,9 percent from the year ago period, while the consolidated gross margin was 49,9 percent, 100 basis points lower than in the previous year. This reflected higher raw material costs in Mexico and the United States, the impact of the peso devaluation in Mexico, costs related to the new Topeka plant in the United States, and the higher cost structure of the Sara Lee operations in the United States and Iberia. It should be noted that the gross margin in Latin America showed an improvement of 4,8 percentage points due to lower average input prices and labor costs, as well as production improvements.
Operating expenses as a percentage of sales increased 2,3 percentage points in the quarter to 45,7 percent. This was primarily due to the Sara Lee operations in the United States and Iberia, which have higher expense structures, and the integration-related expenses.
Operating income in the first quarter fell 23,7 percent to 1’697 million MXN while the margin contracted 3,4 percentage points as a result of gross margin pressure and the aforementioned integration costs and dilution effect of the Sara Lee acquisitions in the United States and Iberia.
On a regional basis, operational efficiencies in Mexico helped to absorb fixed costs and partially offset gross margin pressure, resulting in a 1,6 percent rise in operating income in the quarter and limiting the decline in margin to 1,1 percentage points, or 8,5 percent.
In the United States, operating income fell 72,9 percent due to: i) gross margin pressure; ii) the expected dilution from the new operations; ii) twelve million USD in integration-related expenses including expenses related to the closure of four plants, part of the effort to create a more efficient asset base; iii) seven million USD from the effects of the purchase price allocation of the Sara Lee acquisition; and iv) ongoing investments in expanding the distribution network. This resulted in a 6,7 percentage point decline in the margin, to 1,4 percent.
In Latin America, strong sales growth and healthy gross margin performance, combined with the greater efficiencies of scale derived from the Company´s market penetration efforts, contributed to the swing to an operating profit from a loss last year, with a 5,2 percentage point improvement in the operating margin.
In Iberia, expected integration costs and the restructuring of the operations led to a 118 million MXN operating loss in the quarter.
Comprehensive Financing Result
Comprehensive financing resulted in a 712 million MXN cost in the first quarter, compared to a 444 million MXN cost in the same period of last year, reflecting i) higher interest expense due to a higher level of debt; ii) 70 million MXN of a financial expense, namely commissions on the syndicated loan of April 2011 (used to refinance existing obligations and to fund in part the acquisitions), that would have been amortized over future periods but were recognized in full on the current income statement due to the prepayment of the loan; and iii) a 73 million MXN exchange loss compared to a 68 MXN exchange gain in the previous period.
Net Majority Income
Net majority income in the first quarter decreased 47,3 percent compared to the first quarter of last year, to 601 million MXN. In terms of net majority margin, operating performance and higher financing costs were somewhat offset by a lower effective tax rate in the period, resulting in a 2,4 percentage point contraction to 1,5 percent.
Operating Income plus Depreciation and Amortization (Ebitda)
Ebitda in the quarter decreased 6,8 percent to 2,9 billion MXN, while the margin contracted 3,4 percentage points to 7,0 percent, reflecting performance at the operating level.