Milling & Baking News Corporate Profiles - 2019 - 60

COMPANY OVERVIEW

Grupo Bimbo S.A.B. de C.V.
Price increases prove to be double-edged sword at B.B.U.
determination to improve the profitability of its North American business has
paid dividends this year for Grupo Bimbo
S.A.B. de C.V., but at a cost. While profits were
up for Bimbo in the most recent quarter, a decision to raise prices to offset higher costs has
put sales under pressure.
"We've had fairly significant inflation headwinds, which were actually greater this year
than they were last year," said Fred Penny, president of Bimbo Bakeries USA, Horsham, Pa., in
August. "And we made the decision last year to
address the inflation headwinds that we knew
were coming. We've actually priced, I would
say, well ahead of the total category. And as a
result, we've seen some volume softness, particularly in traditional sliced bread where the
price sensitivity is higher than in some other
categories where we haven't seen the same
level of impact."
Mr. Penny said further price adjustments may
be forthcoming in response to the soft volume
trends.
"We're working our way through whether
there are adjustments needed," he said. "In the
quarter, we also had some volume impact from
some private label business that we exited and
from the termination of a Sunbeam licensing

agreement. And then thirdly, we made a decision, and I think is the right one, to execute
some relatively aggressive portfolio optimization to drive efficiencies through our supply
chain and to better position our core brands
and our core products, our most important
brands and products to grow in the marketplace. So you take those three dynamics that
impacted our top line. I'll tell you without obviously specifics that we're going to continue to
work on trade optimization going forward, and
we will adjust that as necessary to ensure that
our core brands and our core products are going and responding to what we see in the marketplace from a pricing standpoint."
In its most recent quarter, ended June 30,
B.B.U. operating income was 1,276 million
pesos ($66.7 million), compared with a loss
of 213 million pesos during the second quarter last year. Previous-year results included
a loss of 1,960 million pesos in connection

with a voluntary separation program and an
organizational restructuring in Canada. In the
current year, the company took a $55 million
non-cash charge related to the adjustment of
the company's multi-employer pension plan
liability, reflecting current interest rate levels.
While better than results a year earlier, Bimbo's
1,276-million-peso profit in the second quarter
of 2019 was down sharply from 2,272 million
pesos in the second quarter of 2017.
Second-quarter North American sales were
36,235 million pesos ($1,842 million), down
1.9% from 36,920 million pesos in the same
period a year earlier. A significant part of the
sales decline was attributed to foreign exchange rate pressure.
Volumes were soft because of "the implementation of price increases, portfolio optimization initiatives, continued compression of the
private label category, exit of a license agreement in the U.S. and business interruption in a
plant in Canada," the company said.
Over the course of the year, Bimbo closed a
number of baking plants.
In October 2018, the company said it would
close a bread and bun plant in Madison, Wis.,
by the beginning of 2019. In February 2019,
Bimbo said it was closing its sliced bread

Chief executive officer -
Daniel Servitje

Grupo Bimbo net sales

Grupo Bimbo net income

Grupo Bimbo share price

4,630

2016

60 \ November 2019

4,630

2017

5,808

2018

in millions of Mexican pesos

per share in Mexican pesos
44
41
38

252,141

267,515

288,266
35

2016

2017

2018

32
Oct.
2018

Dec.

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Milling & Baking News Corporate Profiles - 2019

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