Industrias Bachoco SAB de CV (NYSE:IBA)
Q1 2016 Earnings Conference Call
April 29, 2016, 10:00 ET
Maria Jaquez - IR
Rodolfo Ramos - CEO
Daniel Salazar - CFO
Welcome to the First Quarter 2016 Industrias Bachoco Earnings Conference Call. My name is Sylvia, and I will be your operator for today's call. [Operator Instructions]. I will now turn the call over to Maria G. Jaquez. Maria, you may begin.
Thank you, Sylvia. Good morning and welcome to Bachoco's first quarter 2016 conference call. We released our financials yesterday before the market opened. If you need a copy of the release please visit our website or request it from our Investor Relation department.
Before we continue, I will read the cautionary statement regarding forward-looking statements. This morning's call contains certain information that could be considered forward-looking statements. These statements reflect management's current belief based on our information currently available, and are not guarantees of future performance. They are based on our estimates and assumptions and are subject to risks and uncertainties, including those described in our Annual Report or 20-F, which could make our current results differ materially from the forward-looking statements discussed in this call. Except as required by the applicable law, Industrias Bachoco undertakes no obligations to publicly update or revise any forward-looking statements whether as a result of new information, future events, or otherwise.
Lastly, unless otherwise indicated, the amounts mentioned in this conference call will be figures of 2016 with comparative figures for the same period of 2015 in Mexican pesos. As a reference, the exchange rate as of March 31, 2016, was 17.29 pesos per U.S. dollar.
Here with me are our CEO, Mr. Rodolfo Ramos and CFO, Daniel Salazar,
Now, I will give the call to Mr. Ramos.
Thank you, Maria and good morning everyone. As we mentioned in our release yesterday the conditions we face in this quarter were similar to those we faced during the second semester of 2015. In Mexico, we continue high volatility macroeconomic conditions even when the Mexican peso was close to a similar level in the December 2015. It was moving in a wide range during the quarter. When compared with the equivalent quarter of 2015 the Mexico peso depreciated nearly 17% on the other side, the inflation rate in Mexico continued at a low level and the economy continued growing. Regarding the poultry in Mexico for this quarter, the supply we serve remained strong even when we didn’t observe any important growth in supply when compared with the last quarter of 2015. We estimate a growth of around 5% to 6% when compared with the first quarter of '15 which is about historical growth rates of 2% to 3% which is about historical growth of 2% to 3%, however we also observed good levels on the demand side.
All of our production was observed by our market and the conditions improved mainly toward the end of the quarter we observed these conditions in all the commercial channels from light chicken to further processed products. Regarding other industry in the United States according to USDA information, chicken grew about 1% during the quarter according to Georgia top data, prices were lower for the quarter as compared to year-over-year mainly in the case of lake waters and breast meat. According to the same-stores exports of poultry products from the U.S. to Mexico has not been growing when compared to 2015.
About our main raw materials the industry in general has benefited from this staple cost of corn and production in soybean meal cost in U.S. dollar terms. In Mexico, we were not able to fully capitalize as this condition has the exchange rate compensated U.S. price adjusted which is in our production cost.
Talking in particular about our company, our sales volumes increased across most of our main product lines during the quarter. Our total volume grew more than 7% year-over-year leading the higher volumes in chicken and balanced feed. This volume growth has allowed us to increase our total sales for the quarter by 3.8% when compared with the first quarter of '15. I will like to mention the result in our balanced feed business, we were able to grow our [indiscernible] with good financial resource supported by our pet food product line.
During the quarter we announced the conclusion of the acquisition of our fully cooked land located in Oklahoma City, this plant will allow us to continue moving from the commodity sales to full project process products and continue with our [indiscernible] plans in our U.S. operation.
Other conditions about allow us to reach an EBITDA of 921.1 million with an EBITDA margin of 7.8% for the first quarter of 2016, lower than the one reach in the first quarter of '16 and in-line with our expectation for the whole 2016 year. Our balance sheet continues to be strong, conditions that will enable us to support our growth plan.
Now Daniel will join us for a discussion of the financial results.
Thank you, Rodolfo and good morning everyone. The company's first quarter in '16 net sales totaled 11,839.3 million, $33.3 million or 3.8% more than the $11,406 million reported in the first quarter of '15. This increase is a result of more volumes sold in our main product lines during this quarter, partially compensated by weaker poultry prices than in the same quarter of 2015.
For this quarter, sales in our U.S. operations represented 26% of our total net sales above of the 24% we reported in the equivalent quarter of 2015. The cost of sales was 10,012.2 million pesos for the quarter, this represents an increase of 14.8% for the quarter. This increase in cost for the quarter was mainly due to our higher volume sold as well as an increase in unit cost primary impact by the increase for our main raw materials in Mexico pesos terms.
Gross profit for the quarter was $1,827.2 million with a gross margin of 15.4%, a lower margin when compared with 23.5% reported in the same period of 2015. Total SG&A for the quarter was $1,121.8 million representing an increase of 11.3% when compared to the same period of the previous year.
The valuation is mainly due to a higher volume sold, however we believe to have an opportunity here and we will be working to keep our expenses at the same level as a percentage of total sales. Operating margins in the first quarter of this year was 5.9% compared with the 14.6% reached in the same period of 2014. This operating margin is mainly attributed to lower gross profit at higher SG&A in the first quarter of 2015. The EBITDA margin reached was 7.8% for the quarter, a decrease when compared with 16.3% from the same period of 2015. For the quarter, the net financial income was 436.5 million mainly due to financial exchange gains and improvement in interest earning in our investment portfolios backed by our levels of cash.
Our total taxes were $235.8 million for the quarter, lower than $557.4 million recognized in the same quarter of 2015. All of the above led us a net income of $596.9 million for the quarter, resulting in a 5% net margin, a lower profit than the net income reached in the first quarter of 2015. The net income per share was 0.99 pesos for the quarter.
Going into our balance sheet, we kept a healthy financial structure with our net cash level of 10,615 million compared with a net cash of 11,161.9 million we had at the end of the past year. Our CapEx was 669.9 million just mainly to support our organic growth and maintaining our facilities at high level of productivity and the fully cooked plant acquisition that Rodolfo mentioned before.
Related to the volatility of the Mexican Pesos that was continued in this year, the company will keep it's hedging discipline.
Thank you and I will turn the call back over to Rodolfo for final comments.
Thanks, Daniel. As I mentioned before the first quarter results improved towards the end of the quarter. We are entering the second quarter which is directly the best quarter of the year given the second quarter of '15 results we exterminate. We see it may be difficult to repeat it. However, the second quarter of '15 is beginning in a good shape, so we expect to the leader good results for the second quarter. We are offsetting a good demand later and our inventory are in a good shape too.
We still have many opportunities to improve in our productivity in our SG&A, and we will continue working hard to capital this opportunities. We are seeing some more activities in our May raw materials market at the beginning of the quarter and we did follow them closely to make the proper decision. We expect the poultry industry with a more normalized growth in Mexico and in the U.S. quarter-over-quarter. We expect to continue with our CapEx about few months later, and we will continue focusing on those things, we can control and managing the other one and better we can depending on the market conditions in our industry.
With that we will now take few questions.
Thank you. [Operator Instructions] And our first question comes from Miguel Majorca [ph] from GBM.
Thank you for taking my questions. I would appreciate if you could share with us how your U.S. operations performing? And also I would appreciate if you could give us your view regarding how you could deploy your cash in terms of M&A in the middle term if you are seeing any opportunities in the pipeline. Thank you very much.
Mike, would you please repeat your first question?
Yes, sorry. The first one is I would appreciate having more color regarding the U.S. operations - under that one, we can hear some of it's regarding Euro money pipeline? Thank you.
Talking about our U.S. operations, we consider it at our performance is going to grow. We somehow reduce our volume because the exchange - the changes that we perform in our plant in order to improve our product mix in the other times we are increasing our - or let's say, we are keeping our dependency on the commodity prices. We actually reduced more than 10% our dependency on the commodity products. We came have 72% of commodity to 63%, it will put us in a much better situation to compete in the future. Also in dollar terms, our cost reducing and we somehow are capitalizing the opportunities of the raw materials production.
In terms of M&A, as we have mentioned before, we are very actively looking for opportunities, not also in the U.S. but also in Latin America countries. We are not keen on particular process currently but we are making some progress in defining and looking for particularly opportunities to taking our inorganic growth. Not also outside Mexico, we are also looking opportunities in Mexico in order to attend, in other categories, in other business line.
Perfect Daniel, thank you very much.
And the next question comes from Pedro Leduc from JPMorgan.
Hi, good morning. Thank you for taking the questions. Nice quarter. Just quickly on how we should think about this recent appreciation of the Mexican peso cycling into your raw material costs, this situation already see some signs in the second quarter and it is therefore that you in the call earlier mentioned second quarter shooting up to be good. Or the good is more related to pricing strength that you are seeing? This will be the first. Thank you.
If we see the depreciation year-over-year, it was around 20%. And this is not more than 5% our cost of goods. And the current appreciation of the Mexican peso, we being to compete, actually we even disintegrating the Mexican operations - we see much better balance between supply and demand and we see an opportunity to increase our prices and to translate part of this increasing cost.
Okay. So not more from the pricing sides, as I understand. And on the second question, it would be more on the competitive environment in Mexico. If you could talk about maybe if smaller players are facing in the sort of dearth flow interruptions. And then on the bigger player, pilgrims which in the U.S. at least has been talking about agreement with Cosco and you supply that in Mexico, if you're having any negotiations there? And how you're seeing their behavior in the market in terms of supply/demand so far? Thank you.
The first being cost - are very good customers, we have a beautiful legend with them which applies on - is picturized product for them. And we don't see any with the announcement of the - to produce some chicken in the states. So I think as opportunities come to close the relationship with them. In terms of the balancing of demand here in the country, I see more disgear, I see more normal highs and the growth of the industry around 2% to 3%. Remember the large deal, we expand the operation about 5% to 6% and the market saw that. So we've taken more normalized standard in industry. And because of prices the other things, mainly beef is very expensive, I see more opportunities for chicken being best source of protein. So I don't expect any order supply and I think the market is going to be more stable.
I'm complementing the answer, even that we observed an increasing rate in the supply at the beginning of the year, given the quarter - the first quarter, we observed a much better balance at the end of the quarter. So the results in the last month of the quarter was much better than the first. So we enter into the second quarter with a much better position in terms of balance between the supply and demand.
The next question comes from Gabriela Benjamin [ph] from New Lands.
Hi, thank you. My question is on the influenza. There have been some recent back up and immediate some recent outbreaks that supposedly have been controlled but I was just wondering your reason that and if you think it's really controlled?
Yes, there was some outbreaks and then part of the country and influenza that's other area. And those outbreaks are under control. At this moment, we don't have anything major and we don't have any problem in our facilities. So I think the problem is always under control in that particular area of the country.
Great, thank you. And then if I could just follow up on pricing, are you seeing any relief from experts coming from the U.S. this year as compared to last year? And how come you think that year-over-year you're still going to suffer? Just little comment on those two things.
The imports to Mexico have been varying according to the [indiscernible] around 10% year-over-year. Then it has on high and losses from states, that's mainly our concern. But I think this is not going to affect in the Mexican market because all the products are coming to Mexico in a normal situation from other states. And likewise the prices have been increasing lately. And with the exchange rate, I have seen the problem with import to Mexico for the rest of the year. And according to the U.S., the export to Mexico didn't growth significantly till last year.
Yes, on those account that's a depreciation that we saw. The news that I'm taking from the export from United States to Mexico.
Okay, thank you.
And we have no further questions at this time. I'm sorry, we have Pedro online with JPMorgan.
Hi, thank you for the follow-up. Just quickly on the dividend that you just announced and nice yields together with the sector, an average in Mexico but of course you have potential to do much more and running is still a very cost of the net cash position and with credit markets lurking, we'd imagine that you could perhaps look to finance it M&A or something. So that will be the first question, I mean what led you to increase the dividend payments? And then on the second question, if there is actions on place for perhaps the liquidity can increase. Good demand for them, but…
Well, the dividends were announced this week in the annual shareholders meeting. And as you probably know, it was certain, 1.3% per share or 2% of dividend yield. We don't foresee any additional family dividend for this year because we are very focused on trying to conclude our time on inorganic growth rate strategy. On the other hand, in order to little bit of the shares, we are already working very closely with our investment commodity of how we invest. So in order to be very close in our - what we are doing, what we are think about the future of the couple and sharing with them all the power, the position you only forward.
All right, let's keep it going then. Thank you.
And no further questions.
Okay. Thank you all for joining us this morning. And if you have any further questions, please contact us investor relations area who will be glad to assist you. Thank you.
Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.
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