Shift to more profitable composition boosts Gruma USA income

MONTERREY, MEXICO — The retail channel within the US division of Gruma SAB de CV has proven to be “very resilient” in face of the coronavirus pandemic, leading to strong results in the third quarter of fiscal 2021, said Adolfo Fritz, investor relations officer of the Monterrey-based tortilla maker.

“The client base we have been able to build for our better-for-you line has enabled us to create some stable levels of growth for these products, which is part of our strategy to increase their composition in the portfolio from single digits to 25% currently,” Mr. Fritz said during an Oct. 21 conference call with analysts. “Our plan is to keep on pushing forward to further expand the composition with these products, making our portfolio even more profitable over time. This retail base of clients was coupled with the solid support from our foodservice operations, which have been growing in line with economic recovery in this region and the solid performance of our corn flour operations.”

Operating income at Gruma USA in the third quarter ended Sept. 30 totaled 1.81 billion pesos ($89.63 million), up 1% from 1.8 billion pesos in the same period a year ago.

Sales volume at Gruma USA increased 4% in the third quarter, while net sales increased 6% to 13.39 billion pesos ($663.07 million) from 12.62 billion pesos.

“Net sales grew by 6% in the US division supported by changes to our portfolio mix progressively shifting to a more profitable composition,” Mr. Fritz said. “It is our purpose to continue this trend as we keep supplying the strong demand that we’re seeing for our products in various regions of the country, but particularly in the Northeast. Furthermore, at our corn milling business, we increased the price of our products during the quarter. Please note that compared to 2019, our total net sales in the US have also grown by 17%, giving us a great momentum in that business.”

Gruma said operating margin at Gruma USA fell 80 basis points during the third quarter to 13.5% from 14.3%. Meanwhile, cost of sales as a percentage of net sales improved to 57.9% from 56.2% in the third quarter, resulting mostly from additional cost pressures, Gruma said.

“Labor continues to be a weighing factor in our (cost of goods sold) as we keep on hiring new personnel to smooth out the cost of overtime,” Mr. Fritz said. “We don’t see additional labor costs increasing and are certain that the incremental amount of (cost of goods sold) we experience will be diluted over time as we keep on hiring during the year. With this performance, our US division yielded a flat EBITDA while EBITDA margins contracted 110 basis points compared to 3Q ‘20. However, margins should be restored as the new set prices in our tortilla products are implemented during the fourth quarter.”

Mr. Fritz said Gruma invested approximately $65 million in capacity expansions at its plants in Indiana, Spain and Malaysia, maintenance work in Omaha, Neb., as well as in wastewater treatment systems at the company’s corn flour plant in Evansville, Ind. Additionally, Gruma invested $45 million to purchase the property at its tortilla plant in California, which previously was being leased, he said.

Overall, majority net income at Gruma SAB de CV in the third quarter was 1.48 billion pesos, down 10% from 1.65 billion pesos a year ago. EBITDA was 3.69 billion pesos, down 7% from 3.95 billion pesos, while sales rose 2% to 23.9 billion pesos from 23.47 billion pesos.