Gruma USA metrics strong despite earnings, sales slippage

MONTERREY, MEXICO — Second-quarter results within the Gruma USA unit of Monterrey-based Gruma SAB de CV reflected a “rebalancing” of the company’s product portfolio, mirroring the paced recovery of the global economy as businesses return to pre-pandemic levels.

“The tortilla business, whose footprint expressed mainly in the United States and Europe, exhibit a return shift toward the foodservice channel as it has been recovering, mirroring the progress in the vaccination effort across the world, resulting in food and leisure establishments reopening their doors to the public,” Raul Cavazos Morales, chief financial officer, said during a July 22 conference call with analysts. “As for the retail channel, it is showing remarkable growth in Europe and resilience in the US, given the strong client base we had been building over the past few years.

“That said, it has slowed down slightly in this region relative to last year’s remarkable performance. Also, it is still well beyond our historical metrics. In fact, according to IRI consumer panel, Gruma has been identified in the operator of top brands in the US to have significantly penetrated the market in 2020 and retained more than 50% of gain during 2021.

“We are excited about this news and are confident that our strong client base will help us further grow our (franchises) and the presence of our tortilla across the country while increasing profitability. Similar to what happened to volumes in the tortilla business in the US, the high activity in corn operation last year was challenging to replicate, given the additional demand at the dawn of the pandemic. This effect had been similar across all the regions in global corn flour operations.”

Operating income at Gruma USA in the second quarter ended June 30 totaled 1.70 billion pesos ($84.72 million), down 8% from 1.85 billion pesos in the same period a year ago.

Sales volume at Gruma USA was flat in the second quarter, but net sales decreased 1% to 12.45 billion pesos ($620.44 million) from 12.53 billion pesos.

Gruma said operating margin at Gruma USA fell 100 basis points during the second quarter to 13.7% from 14.7%. Meanwhile, cost of sales as a percentage of net sales improved to 57.3% from 55.9% in the second quarter, resulting mostly from the change in the sale mix and additional cost of labor, Gruma said.

“We remain confident about our future performance in the region, given the market dynamics that we have seen related to our tortilla operations,” Mr. Cavazos Morales said. “We have been successful in retaining the majority of the client base we generated in 2020. In addition to that, our focus on continuous innovation on products that match consumer lifestyle change such as our better-for-you product line with full growth across the US as people keep discovering the benefit and versatility of their tortilla.”

Gruma said it incurred $63 million in capital expenditures during the second quarter. During the quarter, the company allocated expenditures to construction and capacity expansions at new tortilla plants in Indiana and Spain; wastewater treatment systems at corn flour plants in Evansville, Ind., and Edinburg, Texas; and maintenance and general technology upgrades across the company.

Mr. Cavazos Morales said Gruma expects to start operations at its Omaha, Neb., facility in August. The plant has been down since 2015.

“That (startup) will allow us to increase the production capacity as well as to save some money in terms of distribution since we will produce by the … Midwest instead of importing from, let’s say, Dallas or California,” he said. “And the product, we will provide from Omaha, Neb., and we want to be a short distance for that.”

Overall, majority net income at Gruma SAB de CV in the second quarter was 1.53 billion pesos, down 13% from 1.75 billion pesos a year ago. EBITDA was 3.72 billion pesos, down 8% from 4.02 billion pesos, while sales fell 7% to 22.45 billion pesos from 24.15 billion pesos.

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