Bimbo expects volumes to pick up in US in second half

Bimbo expects volumes to pick up in US in second half

Bakery giant Grupo Bimbo, after seeing underlying sales volumes in the US come under pressure during the first six months of the year, has predicted improvement in the second half.

Mexico-based Bimbo has seen its sales come under pressure domestically as local consumers react to a recent sales tax on certain foods. However, the company said volumes improved sequentially in the second quarter. In the US, the signs are core volumes worsened between April and the end of June.

Bimbo yesterday (23 July) posted a 7.8% rise in second-quarter sales from its new combined operations in the US and Canada. The new division houses Canada Bread, the Canadian bakery business Bimbo acquired from Maple Leaf Foods in May and the deal boosted its top-line performance.

However, Bimbo said organic net sales slipped 4.1%. Deal-making had an impact here, too, with Bimbo's disposal of former Sara Lee assets in California last year no longer in the numbers.

Nevertheless, the sale only accounted for 2% of the drop. The extreme weather earlier in the year had hit sales in the first quarter but, speaking to analysts after the results, Bimbo's managements outlined the challenges in the US bakery market.

"The commercial bread category remains challenging, with the re-entry of the [former] Hostess bread brands. Our own branded business remains stable but private-label volumes, which we supply, is down 7%, with softness across sever of these customers," Daniel Servitje, Bimbo's chairman and CEO, said.

Last autumn, Bimbo's main US rival Flowers Foods started to re-introduce the former Hostess Brands bread labels it acquired from the defunct baker.

Fred Penny, president of Bimbo's US arm, said competition had increased in a stagnant US bread market. However, he told analysts Bimbo was satisfied with the performance of its portfolio and expected sales volumes to pick up in the second half of 2014.

"In terms of the second quarter, even the first half, we're satisfied with how our branded bread business has performed from a share and volume stand-point, given the more competitive market dynamics," Penny said. "We've got the former Hostess brands back in the market. To the extent that the market has a flattish-to-a-bit-down overall volume performance, that makes the market more competitive. From our stand-point, we're very comfortable with how our brands have responded."

More broadly, Penny said he was expecting volume trends to pick up across Bimbo's US business.

"We're looking for continued strong performance from our breakfast segment, which is a big piece of our portfolio, improvements in the back half of the year in our sweet goods business and in our premium bread segment and we're fully cycling the California divestiture. I'd look for improving volume trends," he told analysts.

One area where Bimbo appears to need to do more work in the US is in the growing gluten-free and organic bread segments. At present, less than 5% of sales are in these areas.

Penny insisted Bimbo was looking at building that side of its business further. "Gluten-free and organic are relatively small parts of our portfolio today but clearly there are consumer dynamics in both of those cases that suggest that there is ongoing growth there so we are focusing on expand in both of those categories."