Following the release of full year results that showed record sales increases in 2005, Grupo Bimbo warned that various cost pressures will make it difficult to maintain such momentum in the coming year.
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Mexico’s largest food company and one of Latin America’s largest bakeries reported net profit of MXN2.83bn (US$269m) an increase of 6.2% from 2004. Full year sales increased to MXN56.1bn in 2005, a 6.7% rise. However, in a conference call yesterday (23 February) Daniel Servitje, Bimbo CEO, offered a cautious outlook for 2006, predicting single-digit growth but warning of the challenges presented by higher raw materials costs.
“From the Katrina effect we suffered some increases in packaging costs and those will be reflected mostly this year,” he said. “The market is a little volatile in terms of wheat… Sugar, as of now, is OK in Mexico, but we were hit in the US. We also had some increases in products related to snacks, potatoes basically.”
Bimbo is hedged against increases in the price of wheat for the next six months, but Servitje said that the company does expect to see some impact on operating performance if prices remain high.
In order to offset these cost pressures, the company said that it would be introducing price increases of between 3-4% in the US. Bimbo also hopes to improve manufacturing efficiency and introduce automated production lines in a number of facilities.
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By GlobalDataServitfe said that the company intends to increase capital expenditure to $300m, a 50% rise, and that this would largely be spent on increasing production capacity at existing plants. The company will also continue to look for strategic acquisitions. Spending “will largely be targeted at capacity expansion in many of our divisions, as well as upgrades to existing facilities across the company,” he stated.
