Following a year of record profits, sales and volume, Grupo Bimbo SAB de CV in 2022 faces challenges from tight labor, inflation and uncertainty over consumer spending, said Daniel Servitje, chairman and chief executive officer.
Still, Mr. Servitje said the company was “cautiously optimistic” about the outlook for the new year.
“We are laser-focused on what we can control and believe we will overcome these challenges and succeed in the year,” he said.
Operating income of the North America segment of Grupo Bimbo was 16.08 billion pesos ($794 million), up 44% from 11.2 billion pesos in 2020. The company’s operating margin widened 280 basis points during the year to 9.1%, from 6.3% in 2020. Net sales in the region were 176.3 billion pesos ($8.7 billion), nearly unchanged from 176.4 billion a year earlier but still up 22% from 144 billion in 2019.
Company-wide, Grupo Bimbo operating income jumped 34% during 2021, strength the company attributed to “productivity savings across the value chain coming from past restructuring investments, distribution efficiencies and cost-cutting projects.” Bimbo also cited a $108 million non-cash benefit from the adjustment of the company’s MEPPs (multiple employer pension plan) reflecting current interest rate levels.
While operating margins widened, gross margins narrowed slightly during 2021, pressure the company attributed to “higher commodity costs across every region.”
In the fourth quarter, North America operating income was 4.7 billion pesos ($232 million), up 29% from 3.64 billion pesos in the fourth quarter of 2020. Operating margin in the quarter was 9.3%, up from 8.2% in the fourth quarter of 2020 and compared with 3.9% in the fourth quarter of 2019. Net sales during the quarter were 50.3 billion pesos ($2.48 billion), up 13% from 44.5 billion in the fourth quarter of 2019.
EBITDA margins in North America narrowed 170 basis points in the fourth quarter, reflecting inflationary pressures affecting commodities as well as labor costs and shortages across the supply chain.
“This (inflationary pressure) was partially offset by favorable branded mix, productivity benefits from past restructuring investments and cost saving initiatives,” the company said.
The strong fourth-quarter sales in North America, up 12.4% in US dollars, were propelled by market share gains, higher prices and “excellent in-store execution,” Bimbo said. The company continued, “Mainstream, premium buns and rolls, sweet baked goods and snacks categories outperformed, as did the modern channel.”
In a Feb. 22 call with investment analysts, Mr. Servitje said Bimbo gained market share in North America in the fourth quarter “despite a very difficult operating environment.”
“Our front-line teams did an outstanding job navigating a number of challenges, which included the impact of weather-related events throughout the third and fourth quarters,” Mr. Servitje said. “We successfully implemented productivity initiatives and price increases throughout our portfolio and saw volume growth and market share gains as we continue to be the first choice of our consumers in most categories. Our top-line run rate, when compared to pre-pandemic levels, continue to be very strong.”
Mr. Servitje attributed the brisk sales to strong consumer demand and investments the company has made and continues to make in its brands. Private label business was soft, and foodservice demand showed life during the quarter.
During the call, Fred Penny, president of Bimbo Bakeries USA, said the North American business has raised prices twice — once, at the end of the summer, and a second time in early 2022. Whether further increases will be necessary is impossible to answer at present, he added.
“I think the retailers have recognized the need to offset some of the inflation pressures,” he said. “Having said that, we’re working really hard to offset as much of the inflation as we can through all the options we have, cost-cutting, productivity, trade optimization, et cetera. And we’re going to continue to do that. As I think forward inflation, it’s a question mark in terms of is it going to get worse or not. And so, I wouldn’t want to opine on whether there will be another price increase. We’ll see. But clearly, we’ve needed to take pricing, and we’re going to continue to evaluate it as the year unfolds.”
Only a few weeks after the second price increase, Bimbo has not yet seen consumer resistance to higher expense, Mr. Penny said.
“But it’s not all equal,” he said. “The categories are different. I think it’s going to take some more time to figure out whether we are going to see elasticity issues on the pricing. And I’d say also, it’s a complicated issue with everything going on — omicron coming down, school reopenings, etcetera, mask mandates being dropped. I think much of this has to do with how consumer behavior changes going forward. And we’ll have to wait and see for a few more weeks, if not months.”
Mr. Penny said Bimbo was pleased with the performance it achieved given the inflationary pressures the company has faced.
“I think we’re going to have continued margin pressure, although I think we’re going to also have the opportunity to deliver improved top-line and bottom-line performance,” he said. “The big question is, where does inflation go from here, does it get even worse than it already is? Can we cover it through whether it’s price or productivity or other efforts? I think that remains to be seen. But I’m confident we’re going to manage through the inflation pressures as best we can and hopefully continue to deliver fairly solid performance.”
Responding to a question, Diego Gaxiola, chief financial officer, said the worsening security situation in Ukraine poses potential hazards for Bimbo. He added that Bimbo is well hedged going into 2022.
“This is an additional risk, particularly for wheat,” he said. “We do not disclose the specific hedges that we have by commodities, but as part of our hedging strategy, what I can tell you is that we ended 2021 with approximately 70% of the commodity needs that we have for the full year. Now this doesn’t mean that we will not see any impact because at the end we will continue to do the hedging strategy. And as wheat goes up, we will start to face inflation, probably more an additional inflation toward the end of the year and 2023.”
Grupo Bimbo net majority income in 2021 was 15.9 billion pesos ($785 million), up 75% from 9.1 billion in 2020. Net majority margin widened to 4.6% from 2.8% in 2020. Net sales were 348.9 billion pesos ($17.2 billion), up 5% from 291.9 billion.
Highlights of the year included the company’s strongest return on equity in 10 years — 15.2%. During the year the company completed six strategic acquisitions, including two in the United States, two in India, one in Spain and one in Brazil.
Fourth-quarter net majority income was 4.82 billion pesos ($238 million), up 67% from 2.9 billion pesos a year earlier. Net majority margin widened in the final quarter of the year to 5%, up from 3.4% the year before. Net sales were 97.45 billion pesos ($4.81 billion), up 15% from 84.8 billion.
The strong performance in the quarter was attributed to the company’s strong sales and operating performance together with lower financing costs and a lower effective tax rate.