Industrias Bachoco, S.A.B. de C.V.
Q3 2016 Earnings Call Transcript

Published: 30 Oct 2016

[Operator:]

Welcome to the Q3 2016 Industrias Bachoco Earnings Conference Call. My name is Shenaz [ph], and I will be your operator for today's call. 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 Maria Jaquez. You may begin.

[Maria Jaquez:]

[Technical Difficulty]. We released our financials yesterday after the market closed. If you need a copy of this release, please visit our website or request it from our Investor Relations department. This morning's call contains certain information that could be considered forward-looking statements regarding anticipated future events and performance. These statements reflect management's current belief based on information currently available, and are not guarantees of the future performance and are based on our estimates and assumptions that 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 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 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 September 30, 2016, was 19.36 pesos per U.S. dollar. Here with me are our CEO, Mr. Rodolfo Ramos, and our CFO, Mr. Daniel Salazar. Now, I will give the call to Mr. Ramos.

[Rodolfo Ramos:]

Thank you, Maria. Good quarter, we had an accordance to usual dividends on domestic and poultry industry, meeting our challenging quarter. In Mexico, the economy kept growing at an inflation rate continued at relatively lower. On the other hand, the Mexican pesos we made with a high level of volatility regarding the exchange rates with respect to the U.S. dollar. When compared with the equivalent field of 2015, the Mexican Peso yielded about 14%. Condition in the Mexican poultry industry for the quarter worked. We observed a normalized growth in supply and good levels of the demand site. Our prices compared what the second quarter of 2016, according to the USDA, reports of chicken's imports from United States into Mexico has been decreasing when compared to the same period for 2015. So the nine months of 2016 we estimate imports into Mexico remain around 12% to 13% of total consumption. In the stable rate industry, we observed order supply conditions and low prices for the whole quarter because the poultry industry in the United States; according to the USDA information, chicken eggs grew in a range of 1% to 2% during the quarter. According to the Georgia, the prices were weaker year-over-year. On the cost side, the industrial kept analyzing benefits from lower raw material costs in U.S. dollar terms. Regarding our company, we increased our total sales in Mexican peso terms. They were to a higher volume talk and prices increased in our main product line; particularly in our order base decline we reached an increase of 14.4% in sales for the first nine months of the year. We continued improving our sales meet in our dealers operations as we include our production processes and reduce our function to the commodity market. In regards to raw materials, we typically finish on the Mexican peso, continued affecting raw material cost and consequent with our total cost of sales. Conditions described allow us to reach an EBITDA of $1,233 million in the quarter, slightly higher when compared to the EBITDA reported in the third quarter of '15. Our EBITDA margin was 9.8% for the quarter and 11.9% for the nine months of 2015. We continue working towards our growth plans by investing in projects to validate bottlenecks in of our key production processes. As a result, our CapEx reached $1,827.4 million for the nine months of the year. Our financial result strengthened our balance sheet as we reached a net cash level of $11,238.9 million and this condition will enable us to continue to support our growth plans. At this point, I will turn the call over to Daniel for a discussion of the financial results.

[Daniel Salazar:]

Thank you, Rodolfo, and good morning everyone. Our total sales increased 11.3% in the quarter as compared with the third quarter of 2015, as a result of more sold and prices increases in our poultry and other business lines. This lead to an increase in total sales of 9.4% for the first nine months as compared with the same period of 2015. In the quarter, sales of the U.S. operations represented 25.2% of net sales, around the 24.6% in the same period of 2015. The cost of sales in the third quarter was $10,676.9 million and $30,7492 million for the nine months of 2016, an increase of 15.9% for the quarter and 14.6% for the year. These increases in costs of sales are mainly attributed to higher volumes sold and higher raw material cost in Mexican peso terms. Gross profit for the quarter was $1,954.3 million with a gross margin of 15.5%, a lower margin on comparison in the 18.9% report in the same period of 2015 as we're increasing the cost of first, our increases in prices. For the first nine months of 2016, we reached a gross profit of 7,064.5 million pesos and a gross margin of 18.7%. This amounted to 8.8% lower than the gross profit reported in the same period of 2015. Total SG&A for the third quarter of 2016 were $1,219.2 million and $3,526 million for the first nine months of this year, representing 9.7% and 9.3% of our total sales respectively. Based on margin, increase for the third quarter was 9.8%, a decrease when compared with 7.8% for the same period 2015. For the nine months period, the EBITDA margin increase was 11.9% lower than the one generated in the equivalent period of 2015. In particular, we registered other income of $257.4 million for the quarter, mainly due to trace of some unused assets which gave us a positive result. For the third quarter 2016, the net financial income was $136.2 million and $417 million for the nine months of 2016, both higher than those reported for the same period of 2015. Those increases are mainly due to higher interest income. Our total taxes were $319.1 million for the quarter, slightly lower than compared with the total taxes reported in the same period of 2015. For the nine months of 2016, total taxes were $1,263.8 million which is lower than the income taxes for the same period of 2015. All of the above led us to our net income to $809.7 million with a net margin of 6.4%. This income is 3% higher than the net income reached in the third quarter of 2015. For the nine months of 2016, the net income totaled at $2,986.6 million with a net income margin of 7.9%. Net income per share was 1.35 pesos for the quarter and 4.97 pesos in the first nine months of 2016. Going into our balance sheet, we kept a healthy financial structure with an increase in total assets of 5.9% when compared to the year-end in 2015 with an increase of 9.6% in our stockholders equity. Other net income -- our net cash at the end of the quarter was $11,238.9 million and our capitals deferred nine months were $1,827.4 million. Thank you all I will return the call back to Rodolfo for final comments.

[Rodolfo Ramos:]

Thank you, Daniel. Looking forward as we stated our typical third quarter; we are entering in the fourth quarter with a good levels of demand, it's normally secluded for this time of the year. We expect a normalized growth rate into quite for the remaining of 2016. According to the USDA, every mention of the U.S. conquest [ph] is good, leading us to think that the confusion would remain at similar levels in the quarterly month. Also we are serving a great conquest on Mexico. We will continue positive on our growth plans and efficiency in this cases. With that, now we will take your questions.

[Operator:]

Thank you. We will now take questions. [Operator Instructions] And we have a question from [indiscernible].

[Unidentified Analyst:]

Thank you, hello, everyone; congratulations on the results. I was wondering if you could share with us more detail regarding the income in connection with the sales of unused asset and then we should assume this effect is non-recurring?

[Rodolfo Ramos:]

And the most important thing of that income is that the sales of an older farm located in the north, it is at the country. That's -- that was required many years ago and that plant was unused because the lines become -- used rental, subdued land. So we sold it at 200 million pesos; and the cost was 30 to 35. So we have a net income or profit of around 175. And the other parts of the -- the provisions and we cancelled about $50 million from some tracks and the company but [indiscernible] results. So that is -- and it's just sometime.

[Unidentified Analyst:]

Terrific, got it. Thanks.

[Operator:]

And we have a question from Miguel [ph].

[Unidentified Analyst:]

Thank you for taking my question. I would appreciate if you could share with us more details regarding the outstanding performance that we are witnessing among your other segment. As we have witnessed for the nine months of the year, a growth of 17%. So I would appreciate if you could share with us your thoughts regarding how would we issue -- think about these segments going forward. Thank you.

[Rodolfo Ramos:]

We have another segment, we have our pet foods and our -- this plant located in [indiscernible]. So we increased our participation in the business sector and in the component fees mainly to our pet food like. I mean we're ahead -- in those lines we have better results than the last quarter for the last period, same period exactly.

[Daniel Salazar:]

Yes, basically we grew more than in the fourth segment -- in other segment.

[Unidentified Analyst:]

Yes, and do you think it would be fair to estimate that these little lines should be growing double-digits; should be performing double-digit growth for 2017?

[Rodolfo Ramos:]

We expect them to have -- to be get to vote in this -- in that segment of the company years. We're not saying that growth have recovered from in the first nine months, the answer will be yes.

[Unidentified Analyst:]

Okay, thank you Rodolfo. Thank you, very helpful.

[Operator:]

And we have a question from Carlo Careo [ph]. Please go ahead.

[Unidentified Analyst:]

Hi, thanks again for taking the call. I have a few questions regarding the cash position in particular to any M&A opportunities that you guys have seen for the end of the year. I was wondering if you could give us little bit more color on that?

[Rodolfo Ramos:]

Well, basically we are still working and looking for some opportunities but actually we have -- not in a very -- let's say in a process that leave us a possibility to hand up with assumed fraction in this year. So basically we think that we will have more used to -- share with you by the next year.

[Unidentified Analyst:]

Okay, thank you. And just two more questions. How are you expecting the prices for some of your other segments by the end of the year, maybe early 2017? And if by 2017 you guys have some coverage on your supply costs? Thank you.

[Rodolfo Ramos:]

Yes, in terms of the prices of the order of items, we want to state the pricing activity because those -- normally those segments are more stable prices. So we just take more or same levels or stable prices for the next year. And the second one is at the supply -- the raw materials -- as you know, the actual growth then is on [indiscernible] as we're performing very well, the amount is good according to the USDA figures. So we don't expect a price, a cost increase in terms of costs of the raw materials; we expect a more or less same prices at the actual levels. In terms of the volatility of the peso which will affect our operations here in Mexico. It feels that -- I mean we are expecting [indiscernible].

[Unidentified Analyst:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] And excuse me, it looks like we have a question from Eduardo Estrada [ph]. And Eduardo, your line is now open, please go ahead.

[Unidentified Analyst:]

I have two questions. Can you explain us a little bit situation of the industry in the U.S. because as you mentioned, well, they have been able to export more but the market is still very weak, so can you explain us what is happening there and what do you -- what are you expecting for the future? And also can you tell us what do you see is going to happen with the market of eggs because of pressures in the [indiscernible] for long time in Mexico and its also interclass in the States. Thank you.

[Rodolfo Ramos:]

About the first question in the U.S. market, right now the actual prices are around -- the prices going from 15% -- 20%, 22% lower than the year before. So prices here -- I think that prices are going to remain until -- with that trading but the important thing is that the company has been able to change or pursuit our product mix to more -- by the processing product than allow us to capitalize the weakness of the commodity prices. And the second one was to -- the table eggs, right now we're seeing another supply of table eggs here in Mexico and even in the United States. So right now we are facing the lowest price from many, many years. So we're not -- in that channel regards, we happen -- very much here in Mexico because we have a very strong price as branded most of our eggs here in Mexico with premium. So we are facing a hard time but we are in a better position to compete and to play this situation.

[Unidentified Analyst:]

Okay, thank you very much.

[Rodolfo Ramos:]

Thank you.

[Operator:]

Thank you. And I show no further questions at this time.

[Rodolfo Ramos:]

Just have a team that -- they have an additional personal question from Daisy Morgan [ph]. Is that right?

[Operator:]

Yes, please queue up if you do have a question.

[Rodolfo Ramos:]

If there are some problems in the communication systems, we can't answer her. She'll question later.

[Unidentified Analyst:]

Hello, can you hear me?

[Rodolfo Ramos:]

Yes, go ahead.

[Unidentified Analyst:]

Hi, thank you. Thanks for the question. If you -- from where you stand today, the first quarter pricing and cost; is it fair to assume that we are perhaps behind the worst of feed cost pressure for you, so it's horribly more normalized and what did that normalize did for you guys 10 to 12 [ph] maybe? And also from what you're seeing of supply of products from the U.S. into Mexico, how is that faring? We're seeing data regarding fertilized everything supply from the U.S. to Mexico rising a lot, so if you can provide us some color until -- if it's perhaps a leading indicator for supply building up in Mexico or if you just see it as just seasonal? Okay, thank you.

[Rodolfo Ramos:]

About hatching eggs, as it mattered; we see an increase of inputs into the Mexico affairs of hatching eggs but it's seasonal because the last year their performance was a bit more or less the same. We've got [indiscernible] from the beginning of the year and then in the month of August we have a camp 4.6 million. And the 70% happened in this year so we are expected to more normalize the push into September. So run out at there in terms of [indiscernible]. Right now we're 0.35% of our requirement. And right now we are finding some operations here in Mexico and be able to reduce that exposure to around 30%; so more or less one-third of our requirements are coming from this space. And the other statement -- I hear top line with the plan. Well, I think from additional commenting in that regard. We are actually expanding our hatching eggs capacity in mixing our operations that the other reason because [indiscernible] we've reduced our exposure to the import from the United States and the second question was related with the supply in Mexico, am I right?

[Unidentified Analyst:]

Yes and if you could talk a little bit about the fee, the cost dynamics as we are perhaps behind the worst with this 3Q?

[Rodolfo Ramos:]

Probably yes, we brought the -- main reason is the peso depreciation because in dollar terms we have seen a lower cost in our supply from U.S. And Mexican operation was hardly affected by the peso depreciation allowing 14% of increase in the depreciation has affected our cost of goods sold in Mexican peso. According with the recent supply, we probably seem the highest cost in the previous month.

[Unidentified Analyst:]

Okay, understood. And the pricing for poultry appears to be quite solid and for the fourth quarter so far that you have seen?

[Rodolfo Ramos:]

Right now we are back in the quarter in a good position. And we have taken the end of the quarter normal prices for the season. So we are expecting a normal quarter compared with full quarter in terms of prices.

[Unidentified Analyst:]

Okay, thank you.

[Rodolfo Ramos:]

Thank you very much.

[Operator:]

And I show no further questions at this time. And then -- excuse me, there are no further questions at this time.

[Rodolfo Ramos:]

Okay. Thank you all for joining us this morning. And if you have any further questions, please contact our investor relations who will be glad to search for an answer to your questions. Thank you very much.

[Operator:]

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