MONTERRY, MEXICO — Positive trends in the tortilla category helped Gruma USA close a positive third quarter in fiscal 2023, in spite of economic conditions showing mixed signals about the possibility of a recession in the United States. Demand for company products, especially for the better-for-you product line, also contributed to the positive quarter.
Operating income at Gruma USA in the third quarter, which ended Sept. 30, totaled $150.7 million, up 21% from $124.7 million in the same period of last year. Meanwhile, net sales totaled $939.5 million, up 14% from $826.2 million in the same period of last year, reflecting the passing of incremental costs and expenses to the top line of the income statement as well as a more profitable sales mix towards the tortilla business and with a greater composition of value-add products, Gruma said.
During the company’s third-quarter earnings call on Oct. 19, Adolfo Werner Fritz, head of investor relations at Gruma SAB de CV, discussed how the company will keep up this positive performance in the fourth quarter.
“…we really have a very good momentum in terms of the performance of the company's products,” Mr. Fritz said. “We believe that at this point, as I just mentioned, we're surpassing the guidance for the year. And if you're looking for guidance for the fourth quarter, I really would just assume the same performance we had during the third and streamline that towards the end of the year. With that, you probably have a very good proxy as to what level we'll be closing the year at.”
Both the demand trends in US retail and foodservice are also quite exceptional, Gruma said.
“Well, the reality, the two channels have had a great performance,” Mr. Fritz said. “In retail, the main driver there has been really the quality of the product and also the focus that there is today in our better-for-you product line that itself has grown significantly, and we're just pleased to see the performance and acceptance for the product itself. And that is a huge incentive for us to keep innovating what we've done so far. So that's on the retail side…. And the foodservice space, it's up quite a bit from dynamic.”
Gruma said the operating margin at Gruma USA grew 90 basis points during the third quarter of 2023 to 16% from 15.1% in the third quarter of 2022. Meanwhile, cost of sales as a percentage of net sales in the third quarter of 2023 improved 10 basis points to 58.1% from 58.2% in the third quarter of 2022, due to higher raw material costs in all divisions and higher labor costs, Gruma said.
Mr. Fritz discussed how Gruma USA’s operating margin can continue to grow in the long term as overall business continues to grow in the United States.
“In terms of the strategy we have for margins in the long term would obviously be to the US as we already have 80% present in the retail space, we would love to increase our presence or our composition within that better-for-you line,” Mr. Fritz said.
Mr. Fritz also discussed how the company has been hedging to cover specific needs such as raw material costs.
“Well, as everyone knows, we do have an internal more than a policy of practice of hedging 12 months prior to our needs in the US that is and that is different because the harvest are two times in the year versus one time in the US,” Mr. Fritz said. “But so far, what pertains to corn, we do have our needs covered so far. In terms of our other raw materials, for example, wheat. We have partially covered ourselves there. Now the reason being is that the wheat price dropped dramatically, and we decided to leave that portion open, but it's still the remainder.
“So … it should be around 60% hedged on that front in the US. With that being said, it is obvious that the hedges that we're seeing attractive relative to the levels that we had prior to this year. So we're operating with right now. However, we're cautioning investors and market participants has not to take this as a direct benefit of margins, given that we have inflationary pressures on other items outside of raw materials that are still ongoing.”
Overall, majority net income at Gruma SAB de CV in the third quarter of 2023 was $136.2 million, up 77% from $77.1 million in the third quarter of 2022. Moreover, EBITDA in third quarter of 2023 was $278.5 million, up 34% from $208 million in the third quarter of 2022, while net sales in the third quarter of 2023 rose 18% to $1.66 billion from $1.44 billion in the third quarter of 2022.