Milling & Baking News - March 14, 2017 - 10

Financial Results X

Servitje highlights 'underlying'
realities of U.S. baking market
MEXICO CITY - Generally upbeat
overall on 2016 operating results for
Bimbo Bakeries USA, Daniel Servitje
said a superficial look at financial figures "masks important underlying"
realities. In a Feb. 24 conference call
with investment analysts, the chief executive officer of Grupo Bimbo S.A.B.
de C.V., said B.B.U. in the fourth quarter and throughout 2016 made important headway in building sales of its
branded bread portfolio while also
widening profit margins.
As previously reported, operating
income of the North American business of Grupo Bimbo was 7,161 million pesos ($363 million) in the fiscal
year ended Dec. 31, 2016, up 43% from
5,024 million pesos in 2015. Sales were
135,219 million pesos ($6,860 million),
up 16% from 116,399 million pesos.
Mr. Servitje said the sales gain was
entirely due to the weaker peso and
that sales in dollar terms actually declined 1%.
Elaborating on the underlying reality, Mr. Servitje noted that U.S. commercial bread sales are "soft industry
wide" and that private label was absorbing the brunt of the decline. At
the same time, he sounded a warning
bell about the profitability of the company's super-premium organic bread
business.
"B.B.U. grew its branded volume and
sales, primarily driven by Sara Lee, and

offset by declines in our non-branded
business," he said. "Eureka, our D.S.D.
(direct-store delivery) organic brand,
grew significantly, although it's quite a
challenging category from a profitability perspective."
In Canada, commercial bread sales
volume was soft, too, but other categories enjoyed growth, including breakfast

Grupo Bimbo financial results
North America segment

Million Mexican Pesos
Net sales
Adjusted EBITDA
EBITDA margin

2016
135,219
12,735
9.4%

Change
from
2015
16.2%
32.1%
1.1

items, tortillas, organic baked foods and
artisanal products, Mr. Servitje said.
While not without profitability headwinds, the earnings story overall was
positive for B.B.U., Mr. Servitje said.
"Operating income in North America rose over 40% and adjusted EBITDA
margin expanded 110 basis points, on
the back of lower raw material costs, a
decline in restructuring activity in the
U.S. and lower distribution expenses
in the region, which more than offsets
the investments in Canada and the
frozen bread business and a non-cash
charge for pension liabilities," he said.

Bimbo acquires Canadian maker
of slow fermented sliced bread
TORONTO - Canada Bread Co., Ltd., a subsidiary of Grupo Bimbo S.A.B. de C.V., has
acquired Stonemill Bakehouse Ltd. Financial terms of the transaction were not disclosed.
Based in Toronto, Stonemill Bakehouse makes slow fermented craft bread baked in
stone ovens using non-G.M.O. certified and organic ingredients. The company partners
with Prince Edward County farmers for locally grown rye
and spelt.
The company's bread products are sold under the Stonemill Slow Crafted brand and are available in several varieties, including Sprouted 3 Grains, 11 Whole Grains, Bavarian
Light Rye and Sprouted Flax.
The acquisition is expected to position Canada Bread for
further growth, complementing its current product portfolio
and its distribution and manufacturing footprint. Stonemill
employs approximately 100 associates and operates one
production facility in Scarborough and a store in St. Lawrence Market in Toronto.
Late last month, Bimbo announced the acquisition of
Panettiere, a frozen baked foods business based in Bogota,
Colombia. MBN

10 / March 14, 2017 XMilling & Baking News

In the United States, Mr. Servitje said
Bimbo will drive profitable growth and
productivity gains "through continued
optimization of our product portfolio,
greater efficiency within our supply
chain and improved D.S.D. execution."
In Canada, Mr. Servitje said a "rational
pricing strategy" together with an unwavering commitment to quality and
brand investment "will keep our bread
business on track for profitable growth."
"We made notable progress on the
ERP (enterprise resource planning)

4th quarter
36,965
3,521
9.5%

Change
from
2015
12.7%
13.9%
0.1

migration in Canada and across our
North America frozen baking business," he said. "It's a complex and expensive process, which will finally be
completed in 2017.
"We will continue to streamline our
manufacturing footprint this year as
well, following the one plant closure
in 2016 and greater consolidation of
our operations. In fact, we doubled
the capital investment in productivity projects year on year, which helped
absorb inflation and led to savings."
Expanding on the pension issue,
Mr. Servijte said Bimbo took a net $21
million charge during the year in connection with multi-employer pension
plans (MEPPs) in North America.
"As disclosed over the past few years,
we have been proactively working to
identify and implement solutions for a
number of our underfunded plans," he
said. "Solutions involve the exiting or
restructuring of our participation in order to manage future risk and provide
certainty. The charge included the actual or expected restructuring of three
MEPPs, which was partially offset by
the impact of higher discount rates."
Responding to inquiries from analysts, Fred Penny, B.B.U. president, said
he sees improved EBITDA margins
ahead for B.B.U. and he "feels good"
about the division's performance in the
fourth quarter and the entire 2016 year.
At the same time, he expressed caution
in view of the likely disappearance in
2017 of commodity tailwinds the company enjoyed the year before.
While overall unit sales declined,
sales of branded products were up for
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Milling & Baking News - March 14, 2017

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