Strength in the U.S. division led to improved sales and earnings at Gruma SAB de CV in the first quarter of fiscal 2016.
For the first time, Gruma provided a breakdown of its U.S. and European operations, which previously had been combined as Gruma Corp. In the first quarter ended March 31, Gruma USA had operating income of 1.191 billion pesos ($68.1 million), up 31% from 908 million pesos in the same period a year ago. Net sales also increased, rising 1% to 8.562 billion pesos ($490.3 million) from 8.513 billion pesos.
|Raul Cavazos, CFO of Gruma.|
“Net sales grew 1%, which is a higher rate than volumes, and was driven by the change in the sales mix toward the retail segment and toward wheat flour tortillas and smaller counts in general. Part of this was offset by lower corn flour prices in connection with lower corn costs.”
Cavazos said Gruma believes there still are further opportunities in the U.S. division to grow revenues and enhance profitability. To that end, he said the company expects margins could be expanded to a range of 18% to 19% in the mid-term.
Asked how Gruma expects to achieve those margins, Cavazos responded, “One, we are quite confident that the strength the company has developed over time — the strong brand recognition, our leadership position in the market, the economy of scale and the distribution capabilities we have in Gruma Corp., as well as the innovation in products … — all of this, among others, are basically the way to support the strategy we are following in Gruma Corp. Then, we are quite comfortable that we will be in the same trend. Of course, as everybody can think, once you are improving the margins at this level, always it is going to be a little bit more complicated to improve it. But in our plans, we have contemplated that, we have considered, and again we are quite confident that we have room for growth, and this is going to be something in-between 18% to 19%.”
Gruma also plans to further reduce its SKUS to focus on higher-margin products. Cavazos said the company currently has about 550 to 600 SKUS but hopes to trim that number to about 400 by the end of 2016 or beginning of 2017.
Another way Gruma expects to achieve higher margins is by cutting freight costs. Cavazos said the company currently is experiencing additional freight expenses because it is running at max capacity at some of its plants. The company is building new plants that will ease some of the capacity restraints, leading Gruma to be more efficient on transportation and freight costs, he said.
Overall, majority net income at Gruma SAB de CV in the first quarter ended March 31 was 1.267 billion pesos ($72.6 million), up 29% from 983 million pesos in the same period a year ago. EBITDA was 2.475 billion pesos, up 24% from 1.995 billion pesos, while sales increased 17% to 15.831 billion pesos, up from 13.522 billion pesos.