Industrias Bachoco, S.A.B. de C.V.
Q1 2015 Earnings Call Transcript

Published: 24 Apr 2015

[Operator:]

Welcome to the First Quarter 2015 Industrias Bachoco Earnings Conference Call. My name is Lorene and I will be your operator for today's. [Operator Instructions]. I will now like to turn the call over to Mr. Rodolfo Ramos, Chief Executive Officer of Industrias Bachoco. Mr. Ramos, you may begin.

[Rodolfo Ramos:]

Thank you very much. Good morning everyone and thank you for joining Industrias Bachoco first quarter 2015 earnings call. Our financial results were released after the market close. If you need a copy of the release please visit our website and request it from our investor relations department. Before we continue I will ask [indiscernible] to read the cautionary statement regarding forward-looking statements.

[Unidentified Company Representative:]

Thank you, Rodolfo and good morning everyone. This morning calls contain certain information that could be considered forward-looking statements concerning anticipated future events and performance. These statement reflect management's current belief based on information currently available, and 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 in 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 obligation 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 2015 with comparative figures for the same period of 2014 in Mexican pesos. As a reference, the exchange rate as of March 31, 2015 was 15.26 pesos per U.S. dollar. Now I will give the call back to Rodolfo.

[Rodolfo Ramos:]

In general conditions we have been mentioning in the last past quarter, continued during the first quarter of this year. In the market in which we participate. In the Mexican industry we absorbed a strong demand for poultry products and a balanced supply during the quarter. This condition has been present in the U.S. market. In Mexico we increased our evolving produce and so in our main product lines except in like swine. This increase of course mainly in our poultry business line both chicken and [indiscernible] supported by our growing project we have been implementing or elevating broader mix in some of our production process. Also as we have mentioned before our projects and processes implemented for carrying closer to our cost for improving flexibility, continuing to giving benefits that we were able to support our volume increase with that over supply any of our distribution channel. Our balance sheet business continued growing to new [ph] level. And this particular one, our best foods products saw 6% -- represents 6% of our balance sheet sales in the quarter. Talking about cost in our Mexican operation we had seen no effects of [indiscernible] in our cost per unit due to depreciation of the Mexican peso, U.S. dollar. We have been able to compensate these effects with productivity as well as with the reduction in price of our main raw material in U.S. terms. In our U.S. operation taking Georgia as a reference, prices of boneless skinless breasts as well as whole chicken prices were above 2014 during the quarter, while prices of late quarter on the other [Technical Difficulty]. Around of hatching eggs in the U.S. grew between 2% and 2.5% from the quarter has comparatively the same quarter of the last year. It is important to mention that very strong results of our U.S. operation is during this quarter has compared with the same period of 2014. The depreciation in the exchange rate of the Mexican peso U.S. dollar increased our U.S. operation results for about 15% when consolidated in Mexican pesos, however most of the improvements came from higher volumes sold and an important improvement in operating margins. We have been listening about flu cases in some states off United States these cases caused some pressure in exporting market and considerably prices of this product. In particular none of our facilities in the U.S. has been affected and we’re strengthened all of our biosecurity measures. At the same time we’re working to reduce the impact on late quarter prices we export. At the end of the quarter saw futures of corn around $4 per bushel and around $320 per short corn in the case of soybean yield. In-line with our expectation for this time of the year, condition described before allow us to reach an area of 1860.7 million in the quarter, 68% about the EBITDA reported in the same quarter of 2014. This is equivalent to EBITDA margin of 16.3% which we consider satisfactory for the first quarter. Earnings per share totaled MXN0.211 per share and/or MXN25.29 per ADR. Our financial results further extended our balance sheet, a condition that will enable us to support our growth plan we’ve reached a net cash level of 10,781.3 million at the end of the quarter. Our capital expenditure in these first quarter increased to 154.5 million mainly allocated to elevating some of our bottlenecks in our processes as well as for the steady improvement. We expect to keep or to increase the level of CapEx for the next quarter. As we have mentioned of our industry, there is volatility and demand high level of commitment. We will continue working to capture the opportunities we have for the upcoming quarters. At this point I will turn the call over to [indiscernible] for a discussion of the financial results.

[Unidentified Company Representative:]

Thank you, Rodolfo and good morning again. Our financial performance during the first quarter of 2015 showed improvement compared with the same quarter of 2014 because of several conditions that as Rodolfo mentioned. The company net sales were 11,460 million in the quarter, 18.3% above the profit in the same quarter of 2014 as a result of our increase in the volume sold as well as the increases in prices in both of the market. Our 3.5% [indiscernible] is due to the change in the Mexican peso U.S. dollar exchange rate as we consolidate our total resource in Mexican pesos. In the quarter sales of our U.S. operations as a percentage 24.5% of the net sales above the 20% we just reported. Cost of sales totaled 8722.4 million for the quarter 11.1% above the total volume forecast in the first quarter of 2014. The increase in the cost of sales is mainly attributed to an increasing of total volume sold. For the quarter total SG&A were 1008.3 million equivalent to 8.8% of our total sales, our result shown as compared with the 9% we reported in this quarter of 2014. The increase in total SG&A was a consequence of increase in volume sold and additional expenses due to [indiscernible] to further improve our service and flexibility to our customers. EBITDA in the first quarter was 1860.7 million, 63% in margin, above the 11.3 margin EBITDA was reported in the first quarter of 2014. Net financial income for the quarter was 181 million compared with the income of 50.8 million in the equivalent quarter of last year. Due to our strong position in cash mainly and improvements in net sales [ph] and in our investment portfolios. Total taxes were 577.4 million in the first quarter more than twice the amount we indicated in the equivalent period of last year. As profit before tax practically was slightly below the first quarter of last year. For the quarter the company recorded in it's income of 1255.37 million, representing earnings per share of MXN2.11 per share. Going into the balance sheet, we give the financial structure with increasing total assets of 1304.7 million were compared to the year of 2014. This is mainly attributable to increases in the cash and cash equivalents, our total liabilities decreased 28.7 million during the quarter. Our net cash was 10,781.3 million at the end of the quarter. We attained 254.5 million of capital expenditure in the quarter and I will now turn the call back to Rodolfo for final comments.

[Rodolfo Ramos:]

Now looking forward, we expect the Mexican economy to grow between 2% and 3% during the 2015 however we have to be watching closely the Mexican pesos U.S. dollar exchange rate which is on the high level of productivity this year. According with the current trend in hatching eggs for the use, we continue expecting a disciplined growth in the poultry industry in the Mexico and in the U.S. for the first half of the year. But probably we will see a high growth rate in the second half of the year. We’re entering the second quarter of the year usually the best of the year, we began in good shape but let's see how our market behaves. We will continue our own plans, we expect our CapEx to be between a $130 million and $150 million for the whole 2015. We will continue focusing on those things we can't control and managing the other ones as best as we can depending on the market condition in our industries. With that we will now take your questions.

[Operator:]

[Operator Instructions]. And our first question comes from Pedro Leduc from JPMorgan. Please go ahead.

[Pedro Leduc:]

The two questions the first one being the United States revenues up 47% and pesos nearly 30% in the local currency. Could you guys please elaborate that of what drove the surge in local currency revenues there for small volume price related if it's something specifically structural that we should expect to hold them through the remainder of the year or if it was just something very unusual for this quarter there, that’s the first question. The second one would be let's say working capital related, we saw a cash conversion cycle improvement in basically all lines and the inventory days, the receivables days and even longer payable terms. So if you guys could tell us if we could expect this to hold as long throughout the remainder of the year that will be great. Thank you.

[Rodolfo Ramos:]

Regarding the first question, the double sales increase around 40% but 50% of that increase is because of the exchange rate and the cost volume increase 16.6% and that is 47% - is 26.4% in terms of EBITDA and energy complexes. The duplication of the exchange rate is 30%.

[Pedro Leduc:]

Okay. So your mention of volume increase of 16% in United States, is that right?

[Rodolfo Ramos:]

No, it's 13% as of date, the depreciation of the multi-complex. And for the next quarter as well in terms of volume it's going to be sustainable because of the comparison with the last year. But we expect to have more stable exchange rate.

[Pedro Leduc:]

Okay.

[Rodolfo Ramos:]

Thank you.

[Operator:]

Thank you. And our next question comes from Miguel Mayorga from GBM. Please go ahead.

[Miguel Mayorga:]

Michelle [ph], Daniel and Rodolfo, congratulations for the strong results. I have two questions, the first one I would like to hear your comments regarding different price levels of poultry, mainly within Mexico. And how do you see prices performing during the rest of the year? You previously have mentioned that you expect the slowdown for the second half of the year, do you continue to foresee the same scenario, and that would be the first question.

[Rodolfo Ramos:]

As I mentioned today, the second quarter normally is the beginning and we don't see any difference in prices [ph] at this moment but for the second half of the year, we are expected more normalized EBITDA. We had rest of the year, the EBITDA continued about the normal level is what we are expecting.

[Miguel Mayorga:]

Perfect. Thank you, Rodolfo. And the second question is related – could you give us your view regarding the bird flu output that is news in the US, and what impact this could be having on your results over there?

[Rodolfo Ramos:]

Sure. We determine from there all breaks and some states of The United States, mainly in wild bird and cutiflox [ph]. At this moment we don't have any facilities affected there. We delay into our land because of – we are just improving and putting more effort to maintain our biosecurity level in our facility. The effect in the market has been in international market because some countries banned eggs from the USA. For that reason we wanted doing some different by maintaining the prices of less orders [ph].

[Miguel Mayorga:]

Perfect, Rodolfo. Thank you and congratulations.

[Rodolfo Ramos:]

Thank you, Miguel.

[Operator:]

Thank you. And our next question comes from a follow-up from Pedro Leduc from JPMorgan. Please go ahead.

[Pedro Leduc:]

Thank you for the follow-up. I'm wondering just verification on the day-in announcement which is of course so much higher than the last one after 2013. Excitedly increased payout ratios as well, let's say 20% of last year net income but also way below that you guys could be paying. Let's say like this of course isn’t right done but we are keeping the flexible strong balance sheet, actively looking for growth opportunities and the figures could update us on any of this we should expect something let's say in the second half of the year now, if it be organic or something major inorganic. Thank you.

[Rodolfo Ramos:]

There is another [ph] considering to expand that business with organic because in [indiscernible] in US, let's begin just outside growth, we are looking for latnam [ph] and even taste. But we are analyzing all the purchase but we mainly in our poultry that's what you say chicken. At this moment, this is not the best moment to conclude anything because of the Hindus [ph] very good way. So it's not a very good time for that decision.

[Pedro Leduc:]

Okay, okay. And just by any chance let's say comes in the year and you're so, are you going to be holding let's say close to $1 billion in that cash by then, should – could we expect maybe like, say an extraordinary dividend midway or do we have to run rate until the next year’s 1Q to see if there is an uptake. Just wondering how this thought process goes. Thank you.

[Rodolfo Ramos:]

Yes, we understand that we are in present debt and we are thinking our cash flow and supporting our growing plans. On the next run rate we announced the bigger end for this year, it was announced yesterday as already said there was shareholder meeting and we ran it that day. At the moment we don't have any positive for any total intention to begin [ph].

[Pedro Leduc:]

Alright, let's keep trying that. Thank you.

[Operator:]

Thank you. And our next question comes from Michael Henry from Cleveland Research.

[Michael Henry:]

Good morning, thank you for taking my question. There has been some data from the US Government saying that there are more broiler eggs coming into Mexico than there has been historically. And I was just wondering what your view is on this, whether you expect Mexico as a country to continue to taking these elevated levels of eggs or you think the breeder flock in Mexico is expanding and this isn’t going to be necessary going forward? Thank you.

[Rodolfo Ramos:]

Yes, I mean it's important in certain amounts of passing eggs, remember after the Avian flu outbreak in Mexico in 2013 we announced that part of our production would be moved into the United States. So whenever we are bowling around 26% of our eggs are coming from US and that figure is going to continue for the rest of the year. The center passes are country and the Avian flu is under control but it's not eradicated yet, so we will prefer to have disburse quick in order to get all the new and used area of the country.

[Michael Henry:]

Okay, thank you.

[Rodolfo Ramos:]

Welcome.

[Operator:]

Thank you. [Operator Instructions] And our next question comes from Fernando Olvera from BBTA. Please go ahead.

[Unidentified Analyst:]

Hi, hello, good morning. I was just wondering if you can both continue the strong quarter and the best comparison you may take in the next nine months. Can you give some idea about the growth that we can expect in sales and EBITDA for 2015?

[Rodolfo Ramos:]

We're expecting a growth in the Mexican industry for instance 2%, we are expecting it to grow two points above that. At US we are expecting a world [ph] yield higher because remember we announced in the last year the volume from the productivity is – which we are expecting at around 10%. So the other estimated around will be growing at around by to 4% to 6% around the number. About that and remember that we also said that we expect similar margins in this year as compared with 2014 and in recent years even when this quarter or the financial results were better than the first quarter of 2014. However we should be careful about the [indiscernible] use in which the decision may be different. So that in general we ask that.

[Unidentified Analyst:]

Okay so if I hear correctly and sales will grow around 5% - 6% and margins will remain stable?

[Rodolfo Ramos:]

As compared with the [indiscernible] is correct.

[Operator:]

Thank you. And I'm showing no further questions at this time. I will now turn the call over to Mr. Ramos for closing remarks.

[Rodolfo Ramos:]

Thank you all of you for joining us this morning and if you’ve any further questions please contact our investor relations area who will be very glad to search an answer for you for your questions. Thank you very much.

[Operator:]

Thank you. And thank you ladies and gentlemen, this concludes today's conference. Thank you for participating and you may now disconnect.