Milling & Baking News - November 8, 2016 - 25

Large pockets of growth lift B.B.U.
financial results in third quarter
Continued from Page 1

increased market share, and there was
solid performance in pastries and English muffins in Canada," the company
said. "However, overall North American consumption trends for packaged
bread continued to weigh on industrywide performance."
Year-to-date operating income was
5,655 million pesos ($302 million), up
54% from 3,668 million pesos in January-September 2015. Sales were 98,254
million pesos ($5,247 million), up 18%
from 83,603 million pesos.
Operating margins in North America were 7.1% in the third quarter,
up from 5.9% in the same period last
year. Year-to-date margins were 5.8%,
up from 4.4% in January-September
2015. Operating margins for Bimbo's
business in Mexico were 16.2% in the
quarter and 14.8% year-to-date.
Daniel Servitje, chief executive officer of Grupo Bimbo, and Fred Penny,
president of B.B.U., offered an upbeat
assessment of the performance of the
North American division of Grupo
Bimbo's business in an Oct. 28 conference call with investment analysts.
Mr. Servitje said the gain in sales
could be attributed entirely to swings
in foreign exchange rates. Measured in
dollars, sales were flat. Still, he said the
company enjoyed a number of "bright
spots" with regard to sales of key brands,
including Sara Lee, Thomas' and Little
Bites. The company also enjoyed a "nice
uptick" in its U.S. organic bread business "both in terms of sales and market
share." He credited investments Bimbo
has made in its Eureka! brand. In July,
Bimbo said it was expanding distribution of Eureka! nationally.
Overhanging results in the United
States has been a difficult environment
in the bread business, Mr. Servitje said.
"Bread category consumption remains weak," he said. "This has been
led by an important decline in the private label category. However, our dollar
share of the bread category continues to
improve year-over-year. This is attributable to the s.k.u. (stock-keeping unit)
rationalization over the last year and a
more targeted promotional strategy."
Turning to steps B.B.U. has taken
to improve efficiencies, Mr. Servitje
noted the closing of the company's
Hastings, Neb., baking plant and its
continuing search for "additional efficiencies across the value chain."
"Our key strategies at this point
bakingbusiness.com / world-grain.com

are focused on flexible and efficient
manufacturing, improving our D.S.D.
(direct-store delivery) network, zerobase budgeting and product portfolio
optimization," he said.
In Canada, where Bimbo has made
major investments over the last two
years, a challenging environment persists, Mr. Servitje said.
"Volumes remain soft in the commercial bread category, while we
saw positive growth in the breakfast,
sweet baked goods and snack cat-

Bimbo North America
financial results
Quarter ended Sept. 30
(In million Mexican pesos)
2016
Sales
34,459
Gross margin
53.4%
Operating income 2,429
Adjusted EBITDA
3,626

2015 Change
30,361 13.5%
52.8%
0.6
1,806 34.5%
2,831 28.1%

egories, and the successful launch of
organic bread under the Grace Baking brand in our frozen business," he
said. "Ongoing restructuring efforts
include the closure of the North Bay
plant, as previously announced, and
benchmarking across the whole supply chain to support productivity.
These year-over-year efficiency gains
helped offset volume challenges. We
also continue to advance the system
integration and ERP (enterprise resource planning) migration process."
Commenting on a 150-basis-point
improvement in EBITDA margins versus the same quarter last year, Mr. Servitje cited lower U.S. restructuring and
distribution expenses, more than offsetting investments the company has
made to update its business in Canada.
Responding to questions from analysts, Mr. Penny said "commodity favorability" has helped B.B.U. results
as have "meaningful productivity and
mix favorability in our business." He
said these growth catalysts should
continue to lift results going forward.
Fleshing out Mr. Servitje's comments on B.B.U. results, Mr. Penny
said branded sales were flat during the third quarter while strategic
brands grew 2% to 3%.
"Our non-branded business, private
label food service and typically private
label, declined in the quarter as it's been

Financial Results

declining really for over a year now,"
he said. "And I'd also note the private
label phenomenon is not limited to our
category. Private label is declining in
over 50% of all food categories. So it's
not strictly a bakery category issue."
Given that B.B.U. has eliminated
about 300 s.k.u.s over the past year, Mr.
Penny said he "feels good about our
top-line performance on branded."
"Total category consumption, to
your point, continues to be pressured," Mr. Penny said. "I think it's
in the 2% range on tonnage, more like
flat to slightly down on sales. And
that's a challenge, but I also believe
that overall consumption isn't necessarily down as much as what commercial bread consumption might be and
that it is moving to other categories
and other channels, in-store bake and
other channels that may not be getting
captured in commercial bread category and I.R.I., for example."
Amid declining category sales, pressure to keep prices down has not abated, Mr. Penny said.
"The competitive environment, I
think is competitive," he said. "And I
said in prior comments on this topic that
at the end of the day, the consumers and
the customers are going to determine
the level of competitiveness with how
they perceive prices and what they're
willing to pay. So we're working, as we
have been, on improving our price realization where we can. It is challenging
to do that in the bread business. But for
our business, our total bread business,
we've improved our price realization
quarter-on-quarter, quarter three to
quarter two, and we continue to look for
more opportunities to do that."
Net majority income of Grupo Bimbo was 2,541 million pesos ($131 million) in the third quarter, up 12% from
2,270 million in the same period in
2015. Consolidated sales were 64,785
million pesos ($3,460 million), up 15%
from 56,352 million pesos in the third
quarter of 2015.
Year-to-date earnings were 5,707
million pesos ($305 million), up 17%.
Sales were 182,130 million ($9,726 million), up 14%.
Total Grupo Bimbo debt as of Sept.
30 was 81.5 billion pesos ($4.4 billion),
versus 67.8 billion on Dec. 31, 2015.
"This 20% increase was primarily due
to a 13% U.S. dollar revaluation that
increased the Mexican peso value of
U.S. dollar-denominated debt and the
financing for the Donuts Iberia acquisition," the company said. In July, Bimbo
completed the acquisition of Panrico
S.A.U. in Spain and Portugal. MBN
Milling & Baking News XNovember 8, 2016 / 25

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Milling & Baking News - November 8, 2016

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