Integration costs and payouts plunge Grupo Bimbo's net profit 87%

By Kacey Culliney

- Last updated on GMT

Photo: Grupo Bimbo
Photo: Grupo Bimbo

Related tags Grupo bimbo Mexico

Grupo Bimbo's second-quarter net profit shrank 87%, hit by a $105m payout for its US voluntary redundancy program.

The bakery major posted a net profit drop of 86.9%, adding up to just MXN$195m ($10.4m) compared to MXN$1.4bn ($79.5m) in the second-quarter of 2017. This dip happened despite an overall net sales rise of 11.2%.

$105m non-cash payout in the US

Daniel Servitje, CEO of Grupo Bimbo, said the voluntary redundancy program or 'Voluntary Separation Program' undertaken by Bimbo Bakeries USA in the second-quarter had been done to accelerate the company's mission of becoming a “leaner and much more agile organization.”

The company said the program, along with other initiatives, had seen a net headcount reduction of around 600 positions at Bimbo Bakeries USA.

“As a result, Grupo Bimbo took a non-cash charge of US$105m in the second quarter. This one-time charge mainly reflected associate severance and benefits-related costs that will immediately benefit the company starting in the third quarter and in the long term,”​ the company said.

Fred Penny, Bimbo Bakeries USA president, said the program would improve cash flow and profitability as it had a payback of less than two years. Penny said overall business was strong in the US with “very solid growth”​ in mainstream bread – the biggest category in the market – primarily in volume or tonnage terms, as well as growth in breakfast.

Mankattan deal - 'higher integration costs'

Earlier this month, Grupo Bimbo completed its acquisition of China baking group Mankattan​ for an undisclosed sum, a move it said would aid growth in branded bakery and foodservice across China.

Speaking to investors in the Q2 earnings call, Servitje said the company would now kick start full integration of its China operations, which would involve additional costs.

“We will be moving all the production to our new Mankattan plant from which we expect integration expenses to be in the range of $20-25m in the coming months and part of the next year,”​ he said.

Once post-acquisition integration was completed, he said Bimbo would start to see the benefits of this important buy.

“Whilst cash flow was negative [this quarter], we have a positive expectation for the rest of the year,”​ he said.

“Next quarter, we're not going to have expenses so we'll start to see the benefits from the integration and restructure.”

Mexico still strong despite a 'year of caution'

Back in May when the bakery major announced its Q1 results, Servitje warned of potential disruption to business in light of the significant, upcoming general election in Mexico.

He said the company would remain“cautious and concerned” ​about possible volatility and change in the direction of the country.

With the election now passed, he told investors Grupo Bimbo was looking forward to working with the incoming administration to make the country “stronger and more prosperous”.

In business terms, Grupo Bimbo experienced a “very solid quarter”​ in Mexico, he said, with growth across all channels, regions and categories. Net sales were up 13% on Q1 and represented 30% of Grupo Bimbo's total sales for the quarter - “and we're not foreseeing big changes in the coming months”.

​...For next year, much will depend on what happens with the incoming government, its policies and the changes it might implement on consumer behavior and business. That's not very clear so far,” ​Servitje said.

Sales for Q2 in Latin America were less strong, rising just 1.2%. The national trucker strike in Brazil​, a weak consumption environment in Argentina, national disruptions in Nicaragua, and the change in accounting methods used for Grupo Bimbo's Venezuelan operation all impacted results.

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