While pricing within the U.S. commercial bread business remains intensely competitive, signs of improving bread demand have emerged in recent months, said Fred Penny, president of Bimbo Bakeries USA.
Mr. Penny commented on the U.S. bread market in an Oct. 27 conference call in connection with Bimbo’s third-quarter financial results.
As previously reported, the North America business of Grupo Bimbo S.A.B. de C.V. had operating income of 2,181 million pesos ($113 million) in the third quarter ended Sept. 30, down 10% from 2,429 million pesos in the third quarter of 2016. Quarterly sales were 33,161 million pesos ($1,720 million), down 3.8% from 34,460 million pesos.
Year-to-date operating income was 5,859 million pesos ($304 million), up nearly 4% from 5,655 million pesos. Sales were 101,367 million pesos ($5,261 million), up 3% from 98,254 million pesos.
Sales in U.S. dollar terms actually increased about 1% during the first quarter.
In response to an analyst’s question during the conference call about North American results, Mr. Penny said, “Overall, we had a good quarter.”
“We’re seeing some improvement, some buoyancy in the total commercial bread category, with the total category being slightly better than it’s been in prior quarters,” he said. “Relative to our performance, we’ve experienced growth in the core bread business and even more significantly in our sweet goods category. And the sweet goods category, overall, as a total category, is performing fairly well. And it’s really a combination of our focus on strategic brands, some innovation and then the programming that we’ve brought to the market.”
On the other hand, bread pricing has become no less competitive, he said.
“I know that I sound like a broken record on this, but the category continues to be competitive, although, I would say, that there hasn’t been anything of significance in one direction or another in terms of the overall pricing we’ve seen,” he said. “My own view of it is that it’s more a combination of consumers probably feeling better over time as the economy has continued to improve and be relatively solid. And I’d like to think that it’s what we’re doing in the marketplace with our products and our programs.”
Commenting on what Bimbo has done in the marketplace, Daniel Servitje, chief executive officer of Grupo Bimbo, noted a continued focus on the company’s strategic brands — Artesano, Barcel, Little Bites and Entenmann’s mini cakes.
“We have gained market share in categories like mainstream bread and sweet baked goods,” he said. “This helped offset softness in our private label business. At the same time, commodity and energy costs also provided a bit of a tailwind this period, although less than in the first half of the year.”
Mr. Servitje said Bimbo made an acquisition in the United States, but he did not offer much detail. He said Bimbo acquired a “small, refrigerated bakery good maker.”
“We’re excited about it because it comes with a perfect complement to our portfolio, as refrigerated represents a new channel for us for our U.S. business,” Mr. Servitje said. “And for Canada, not only did volumes improve, but so did our dollar market share. And this was particularly notable in the branded portfolio as well as in the tortillas and breakfast categories.”
Weaker margins at Grupo Bimbo during the quarter reflected higher distribution costs in North America, which in turn were related to weak sales in the frozen category, which the company said currently is in the midst of a restructuring. A positive offset were waste reduction initiatives.
Mr. Servitje noted four baking plants have been closed in 2017 — two in Canada and two in the United States.
“In Canada, this is a process we initiated in 2014 after the acquisition when we started with 16 plants,” he said. “And today, we generate the same volume with 11 plants, and we’re continuing with a transformation plan in terms of the E.R.P. (enterprise resource planning) and I.T. (information technology) platform migration processes. That too, is near completion. Furthermore, we’re redesigning our frozen business to fully leverage our capabilities in a growing category. As a result, adjusted EBITDA margin slightly contracted 10 basis points.”
During the third quarter Bimbo sales in Canada were boosted by new product launches, including Dempster’s whole grain with chia as well as sales from the company’s recently acquired Stonemill Bakehouse business.
Net majority income at Grupo Bimbo in the third quarter was 1,709 million pesos ($89 million), down 33% from 2,537 million pesos during the third quarter last year. Sales were 65,164 million pesos ($3,394 million), down narrowly from 65,390 million pesos in the same period in 2016.
Year-to-date consolidated income was 4,203 million pesos ($219 million), down 28% from 5,812 million pesos. Nine-month sales were 196,584 million pesos ($10,233 million), up 7% from 183,279 million pesos.