Industrias Bachoco's CEO Discusses Q4 2013 Results - Earnings Call Transcript

|
 |  About: Industrias Bachoco, S.A.B. de C.V. (IBA)
by: SA Transcripts

Industrias Bachoco S.A.B. de C.V. (NYSE:IBA)

Q4 2013 Results Earnings Call

February 7, 2014 11:00 AM ET

Executives

Rodolfo Ramos - Chief Executive Officer

Daniel Salazar - Chief Financial Officer

Analysts

Miguel Mayorga - GBM

Fernando Olvera - BBVA Bancomer

Alberto Rodriguez - GBM

Tony Pollack - Aegis

Pablo Bernal - Sherpa Capital

Operator

Welcome to the Industrias Bachoco Announces Fourth Quarter and Full Year 2013 Results Conference Call. My name is Hilda, and I will be your operator for today. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session.

I will now turn the call over to Mr. Rodolfo Ramos. Mr. Ramos, you may begin.

Rodolfo Ramos

Thank you. Good morning. And welcome to Industrias Bachoco’s fourth quarter and 2013 year end conference call. Yesterday, we have issued our earnings release including and review of our financial performance. If you didn’t receive a copy of this release, the accompanying financial summary, they are available in our website.

Before me continue, I will ask our CFO, Daniel Salazar to provide us with a cautionary statement regarding forward-looking statements.

Daniel Salazar

Thank you, Rodolfo, and good morning, everyone. This morning’s call contain certain information that could not be -- couldn’t be considered forward-looking statements concerning anticipated future events and performance.

These statements reflects our important belief based on information currently available, are not guarantees of future performance and based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our annual report Form 20-F which could cause our actual results to differ materially from the forward-looking statements contain in this presentation.

As a result, there can be no assurance that actual results will be consistent with this forward-looking statements, accept as required by applicable law, Industrias Bachoco undertakes no obligation to fully update or revise any forward-looking statements, whether as a result of new information, future event or otherwise.

And further I’d like to state, the amounts mentioned in this conference will be Mexican Pesos, the exchange rate at the end of the day was 13.09 pesos per U.S. dollars.

Well, now I give the floor back to Rodolfo.

Rodolfo Ramos

Thank Daniel. Well, the fourth quarter of 2013 recovered an oversupply condition mainly in the chicken business in Mexico at the beginning of the quarter. With weaken market prices this situation changed in the second part of the quarter when demand became strong due to the holiday season.

(Inaudible) in the U.S. market condition in general improved during the year compared with 2012. When conditions soften during the fourth quarter compared with the second and third quarter of 2013.

On the other hand we have more stable production costs that we achieve positive operating results in the quarter, with EBTDA of $582.7 million and 6% of EBITDA margin, while our net earnings per share were negative $0.75 pesos or $9.05 pesos per ADR. This is mainly due to our one-time charge in deferred taxes that didn’t affect our cash flow (inaudible) this cost is (inaudible).

Regarding fiscal 2013 we can complete that we had a good year. We achieved record net sale of $39,710.7 million more than $3 billion. This represents an increase of nearly 1% of our fiscal 2012. We also reached our record EBITDA amount of $$3,935.9 million for an EBITDA margin of 9.9%.

During the year, we faced several challenges along the way the grain costs for our [products] consume were at for most part of the year as compared to 2012, dealing with this situation we faced by the end of the year, but most significant was the outbreak of avian influenza that affects some of our facilities in the central region of Mexico.

As we reported opportunities to the market, this situation tested our potential response we were able to quickly recover our non-production levels which were totally established by the end of the third quarter.

As a consequence, we recovered our marketplace we had the outbreak. While we achieved the constant supply of products to our customer providing that we are a strong and flexible company not only in our balance sheet but also in our operations and processes.

Our U.S. operation once again reached positive operation results. We quickly integrated our regional operation in our company that was our second application in United States. We have not reached the results we can achieve this year and we will continue achieving working on that.

Even when we are happy with the efforts of our people demonstrated by including our levels of quality and service to our customers, and the continued work to reach efficiency, we now directly have upper room to include our operational performance and sales institutions. We will continue work to capture the opportunities we have for the coming year. Our financial results explained using our balance sheet.

This thus enabled us to support our growing plan while the company remains a leader of the poultry industry in Mexico and an important player worldwide with a solid and trusted brand. Our capital expenses were $741.9 million and were mainly allocated to productivity improvement and replacement projects for keeping our facilities in good shape and beginning to get some bottlenecking our operations and processes.

At this point, I will turn the call over to Daniel for the discussion of the financial results.

Daniel Salazar

Thank you, Rodolfo. Well our financial performance during the fourth quarter and full year 2015 are reflective of the internal and external conditions that Rodolfo just mentioned. The company’s fourth quarter of ‘13 net sales totaled $9,738.3 million, 9% below the $10,705.3 million reported in fourth quarter of 2012. This resulted from a reduction in prices across the company’s main business line, partially offset by a 3.7% increase in chicken volume sold.

Net sales for the 2013 increased by 0.9% when compared with 2012, mainly due to better prices in our main product lines, partially offset by lower volumes sold during the second and third quarter of 2013. Last year’s sales of our U.S. operation represented 21.4% of the net sales.

Cost of sales totaled at $8,524.1 million, 6.7% lower than $9,135 million reported in 2012. The decrease in cost of sales is mainly attributed to approximately 3.9% reduction in volume sold and to more favorable material costs that represented approximately 1.8% reduction in cost.

Our total SG&A expenses in the fourth quarter totaled $924.3 million. It represented 9.5% of our net sales. For the year 2013, our SG&A expenses totaled $3,373 million, practically the same level of 2012. In both years, SG&A data represented 8.5% for 2013 and 8.6% for 2012 of net sales.

We continued the efforts to keep our total SG&A under control in all our processes, supported by improvement in methods and information technologies that allow us to keep better tracking of our expenses.

EBITDA in the fourth quarter reached $582.7 million and $3,935.9 million or 9.9% of margin EBITDA of sales in 2013. As Rodolfo mentioned, it was an historical amount of EBITDA for the company.

Net financing income for 2013 totaled $112.6 million compared with income of $165 million in 2012. Due to strong cash and investment levels, the company has reported positive net financing income in every quarter in both years.

Talking about income tax here, our main subsidiary is subject to special regime, the simplified regime that until December 31, 2013 was subject to a preferred tax rate of 21%.

As a result of the Mexican Tax Reform approved in the last year and applicable from January 1st of this particular year, the preferred rate of 21% phased it out and now subject to our general rate that is 30%. This impacts consequently in the fourth quarter of 2013. The company recognized an extraordinary one-time charge as a result of the tax rate change in accordance with the accounting principles -- international accounting principles.

This amount totaled $668.1 million and will not affect the company’s cash flow. It’s only deferred taxes that will not materialize in the future. Total taxes were $709.2 million in fourth quarter of ‘13 and $1,304.6 million in 2013. These amounts include the one-time charge described above.

For the fourth quarter, the company reported a net loss of $452.5 million representing a net loss of $0.75 pesos per share or net loss of $9.05 peso per ADR, mainly due to the extraordinary tax rate. Excluding this one-time charge, we will have a net income of $0.36 pesos or $40.31per ADR.

Net income for the year 2013 totaled $1,910.4 million or $3.18 and $38.20 pesos per share and per ADR respectively. We had healthy financials starts over the year with cash investments of $7,714.5 million as of December 31, 2013. This represents an increase of $2,573 million when compared with the December 31 of 2012 while our total liabilities decreased $246.9 million.

Additionally in 2013 we spent $741.9 million on capital expenditures, plus we paid $950.1 million in dividend as we properly declared in our press release. Our derivatives position in ’13, in particular the exchange rate derivatives as we have none of them at the end of the year.

Well, thanks. And I turn the call back to Rodolfo for final comments.

Rodolfo Ramos

Thanks, Daniel. Looking forward, we expect an improvement in the Mexican economy, which according to analysts is expected to grow between 3% to 4% in 2014. After the record crops reported in U.S. and Mexico, we expect less volatile pricing in corn and soybean meal. And according with improving trends in hatching eggs produce, we also expect a disciplined growth in the poultry industry in Mexico and in the U.S. We will continue to focus on those trends. We can control and manage the other ones at best. We can defend it on the market condition in our business lines.

With that, we will now take your questions. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) We have a question from Miguel Mayorga from GBM. Please go ahead.

Miguel Mayorga - GBM

Hello, Rodolfo and Daniel. First of all, I would like to thank you for taking my question and congratulate you on the quarter. We also would like to now have -- our first question is regarding how chickens play on demand are doing in Mexico, how do you expect prices to move in the first quarter and whole year? And then, we were wondering if you could give us more guidance on the operational performance, specifically in the U.S? And lastly, regarding taxes, we would like to know how much taxes were effectively paid during the quarter? Thanks.

Rodolfo Ramos

The first one, it’s -- according to the information that we have, we are expecting moderate growth in the Mexican and U.S. industry because of the greater (inaudible). We are seeing more or less the same levels on the large deal, so we don’t expect to have enough hatching eggs to produce more than chicken. So we are expecting a supply, a normal supply of chicken for the quarter -- over the next quarter and company year.

In the tide of demand, the industry according to the analysts is going to grow 3% to 4%, so we can expect a good balance between offer and demand. And with the prices of the raw materials and namely corn and soybean, we are expecting cost reduction, so I am positive for the next half year.

According to the second question, the U.S. industry and the Mexican industry are -- the industry suffers from a differences. So if not compare U.S. -- it is very difficult to compare the industries directly, but in general we have a better margins here in Mexico than the USA mainly because the Mexican poultry industry is more integrated than the industry in generic space.

And I am going to ask Daniel, our CFO to respond to the last question.

Daniel Salazar

Well, as I recall you asked Miguel, how much of the income taxes are effectively paid, is that your question?

Miguel Mayorga - GBM

Yes, Daniel.

Daniel Salazar

Well, as I mentioned in the total amount of tax, it’s included the one charge-off, the $660 million, but around half of that is forex tax and half of that is tax effectively paid in the quarter - only for the quarter. Is that you're watching?

Miguel Mayorga - GBM

Yes, yes, Daniel. Thank you.

Daniel Salazar

Okay.

Miguel Mayorga - GBM

Thank you, Rodolfo and Daniel.

Unidentified Participant

You're welcome.

Operator

Thank you. (Operator Instructions) The next question comes from [Jeronimo Contreras from Bachoco]. Please go ahead. Mr. Contreras, your line is open please go ahead.

Unidentified Analyst

This is [Mauricio], do you hear me?

Rodolfo Ramos

Yes.

Unidentified Participant

Yes.

Unidentified Analyst

I would like to know if you have plans to grow in other proteins like beef, you already stand in that protein but if you want to increase your participation in that kind of protein in Mexico?

Rodolfo Ramos

At this moment, no. We are participating in chicken, staple eggs, and small amount of swine and but in beef, no, at this moment no.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question comes from Fernando Olvera, from BBVA Bancomer.

Fernando Olvera - BBVA Bancomer

Hi. Hello. Do you hear me?

Rodolfo Ramos

Yes.

Daniel Salazar

Yes.

Fernando Olvera - BBVA Bancomer

Hello. Rodolfo, Daniel, congratulations for the call. And my question is in terms of working capital, you show a good improvement in quarter. Can you tell us the reasons behind such improvement? And if this is sustainable and what -- and what can we expect going forward?

Daniel Salazar

This is Daniel. Yes, Fernando, the main reason of the improvement is caused by the inventory reductions and mainly by the reduction of prices of the raw materials. That's the main reason.

Fernando Olvera - BBVA Bancomer

All right. And so, well, in this case we can expect the working capital in terms of dyas that just registered at the end of fiscal 2013, is sustainable in 2014, assuming that prices will remain low?

Rodolfo Ramos

If we see the prices of the raw materials as we expected, there for the answer is could be yes. But remember that there is seasonality in the acquisition of raw material during the year. According to the crops, Mexican crops, so this particular level it's not sustainable during in quarter-by-quarter. Only year-by-year, the answer should be, yes, but quarter-by-quarter it should be different. Does that answer your question?

Fernando Olvera - BBVA Bancomer

Yes, yes. And the other question I have is regarding the account payables. Usually, also well a higher leverage, and this is -- there is a specific reason why improve or why the leverage increased?

Rodolfo Ramos

Well, typically in the year end we have the last weeks without making any payments because and (inaudible) arrears help a lot, so it is we used to increase our account payable in that particular small but it is not a common situation during the year.

Fernando Olvera - BBVA Bancomer

Okay. Perfect. Thank you very much.

Rodolfo Ramos

You're welcome.

Operator

(Operator Instructions) The next question comes from Alberto Rodriguez from GBM.

Alberto Rodriguez - GBM

Hello, Rodolfo, hi Daniel, congratulations on very strong full year figures. My question and thank you for the call. My question was regarding the CapEx outlook for 2014. I don't know if you could elaborate a little bit more on that, where should be -- would it be allocated, what should we be expecting and basically that's it.

Rodolfo Ramos

Well, our normalized loan is around $50 million per year. In the next year we are expected to increase to about $100 million depending of the loans that we define.

Alberto Rodriguez - GBM

Could you elaborate a little bit more on where do you, would you invest it?

Rodolfo Ramos

Sure. We are planning to spend that amount mainly to increase our productivity, to increase our yields and some yield and we are expecting to have in our processing plants and some in the (inaudible).

Alberto Rodriguez - GBM

Perfect. Thank you very much.

Rodolfo Ramos

Mainly half of that amount is going to be for both purposes.

Alberto Rodriguez - GBM

Thank you.

Operator

Thank you. (Operator Instructions) We have a question from [Enrique Castillo] from GBM. Please go ahead.

Unidentified Analyst

Hi. Good morning and congratulations on the results and on the call. I was wondering if you could share with us a little bit of the priority that you have in terms of the use of the useful debt to the net cash position that you are holding right now? Thank you.

Daniel Salazar

Okay. Thank you, [Enrique]. Well, in terms of priorities, the cash position is will be related to the growth strategies, included not only the organic growth that Rodolfo have mentioned it, but also the acquisition we bought in Mexico and outside Mexico, and also took over our working capital new strategy become with overall strategy. Does that answer your question?

Unidentified Analyst

Yes. Thank you so much.

Daniel Salazar

Okay. You’re welcome.

Operator

(Operator Instructions) Our next question comes from Tony Pollack from Aegis.

Tony Pollack - Aegis

Good morning. Could you tell us is there any new vaccines or anything that you are using to prevent another outbreak of avian flu?

Rodolfo Ramos

Right now the Mexican authorities is regulating the vaccine so we are using the vaccine authorized for the (inaudible) which is Department of the -- the Agricultural Department and control the situation. But right now the avian flu is under control, not indicated but we will use vaccine we will be able to, it will be controllable with that. Right now we don’t have any problem in our facilities.

Tony Pollack - Aegis

Okay. Thank you.

Rodolfo Ramos

You’re welcome.

Operator

(Operator Instructions) We have no further questions at this time. I would like to turn the call, I am sorry we do have one last question. I do apologize. It is from Mr. (inaudible) from Arcentia.

Unidentified Analyst

Good morning. This is (inaudible) and thank you very much for the call. I just would like to ask if the one-time charge and taxes is coming from the 21% to 30% change in the tax rate, are you expecting any further charges in the future. And second is of course there is some fiscal fact that was announced when President Peña Nieto was in [Divos] is something in your industry that you are working for this fiscal part or are you expecting any additional news regarding factors?

Unidentified Participant

Okay. Well, regarding the first question, the answer is not at all. The one charge the only one that we prevent for the tax problem. In the case of the second part of the question, we are analyzing the part. Right now we don’t foresee any additional effect that the industry could take action on that but there is something that we are analyzing right now.

And well, also the one charge that you mentioned, you are right, is only the impact of the changing the rate from 21% to 30% that’s all and the only one that we are foresee in the future for this particular reason.

Unidentified Analyst

Perfect. Did you get any benefit from let’s say yet to or using half of other -- as you have that -- managed impact, do you have any other benefits like get or are you expecting from consolidation any additional charges?

Daniel Salazar

No, because in the case of consolidation, we didn’t consolidate it and we won’t consolidate for fiscal purposes and in the case of (inaudible) we in all these years, (inaudible) watching play. We didn't have a negative effect, so right now don't have a benefit from that.

Unidentified Analyst

Okay. Thank you very much.

Rodolfo Ramos

You're welcome.

Operator

Thank you. (Operator Instructions) We do have a question from Pablo Bernal from Sherpa Capital.

Pablo Bernal - Sherpa Capital

Hello. Thanks for the call. My question is regarding your dividend plans for next year. You're anticipating in paying any dividends. And also, could you talk a little bit more about your CapEx for the next couple of years?

Daniel Salazar

Okay. Well, the dividend as you mentioned, it was anticipated the dividend of this year by December. But we have no plans right now to pay another dividend during the year but this is something that is not a final decision. We need to have what they’ve all decided in the future. And in the case of the CapEx, as we've also mentioned, we wouldn't agree to our level of CapEx for the following two years at least something around 100 million per year, on the area of growth, our revenue strategy. You're welcome.

Operator

Thank you. The next question comes from (inaudible).

Unidentified Analyst

Thank you. Hello everybody, thank you for the call. My question is regarding this year. If you can give us some idea of the trending prices on volumes of your products for this years -- weeks of this year? Thank you.

Rodolfo Ramos

As I mentioned earlier, we are expecting a stable market because of the balance in the corporate and bank. And you are expecting better cost. So we can just -- we are seeing a very previous good year. And in terms of volume, we are taking to growth around 7% to 8% something around but it's going to be our growth, our strategy growth.

Unidentified Analyst

So I understand demand and pricing for January and on the first week of February is stable, isn’t it?

Rodolfo Ramos

Yes, yeah.

Unidentified Analyst

Okay.

Rodolfo Ramos

We are expecting (inaudible). There is no (inaudible) supply (inaudible) like so, it has (inaudible) to increase the production. So with our strategy to produce very less including the growth that we have in the U.S. or (inaudible) supply that relates to achieve our strategic growth for the next year.

Unidentified Analyst

Okay. Thank you very much.

Rodolfo Ramos

Thank you.

Operator

Thank you. (Operator Instructions) And at this time, we show no further questions. I will like to turn the call over to Mr. Ramos for final remarks.

Rodolfo Ramos

Okay. Thank you all. And again after this morning and if you have any further question, please contact our investor relations area. We will be very glad to provide an answer for your questions. Thanks.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. We thank you for participating. You may now disconnect.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!