Gruma, S.A.B. de C.V. (GRUMAB) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Gruma's Second Quarter 2022 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Adolfo Fritz, Gruma's Investor Relations Officer, who will present earnings results. And then we will open the Q&A session where Mr. Raul Cavazos, Gruma's Chief Financial Officer, and team will be available to answer additional questions. I would now like to turn the conference over to Ms. Fritz. IRO. Please go ahead, sir.

Good morning, and welcome to our second quarter 2022 conference call. We're pleased to be here and thankful for the opportunity to share our results with you. With me today, as always, are Mr. Raul Cavazos Morales, Gruma's CFO; and Rogelio Sanchez Martinez, Gruma's Corporate Finance VP. To start, we'll take a few minutes to share with you the fundamentals and the results for the quarter, and then we'll open it up to any questions you may have. Like so many other companies around the world, Gruma today is focused on managing the relentless rise of inflation stemming from both raw material supply and monetary policy. The dynamics describing our performance are twofold: one, strong and resilient demand; and two, protection of profitability in light of inflation. Strong demand has kept volumes in our tortilla business at healthy levels across the world. In the U.S., we saw volume growth in single digits, while significantly higher brand awareness and a full recovery of economic activities in Europe is supporting double-digit growth in both retail and foodservice tortilla. Meanwhile, the Asia and Oceania division was mildly affected by the COVID lockdowns in China, although this was partially offset by a recovery in Australia following the floods last quarter as well as by a solid performance in Malaysia. Volumes in our corn flour business also performed very well during the quarter. Strong demand in the U.S. division comes on the back of greater preference for staple foods in this inflationary environment, while the ongoing recovery of corn milling volumes sold in Europe provided a solid ground for our operations during the quarter. Partially offsetting this growth temporarily is a higher comparison base in the second quarter of last year at GIMSA. As a result, total volumes grew 2% during the quarter compared to last year and with a positive outlook, thus easing worries related to potential demand elasticity. We remain focused on managing the impact of inflation on our P&L with various strategies since the first quarter of last year. As a result of these efforts and a strong demand we're witnessing in each of our segments of interest, revenues grew by 19% relative to a year ago. As I just mentioned a minute ago, inflation remains a challenge, one we've been tackling since the first quarter of last year. This quarter, although we have seen an easing of labor cost growth on a sequential basis relative to a year ago, costs have increased not only from labor, but also from supply constraints in other raw materials, which keep hindering prices across the board. That said, these other raw materials, however, represent a low percentage of our total cost structure, and overall, it is not of primary concern. The balancing between revenue growth and cost growth resulted in a flat EBITDA expansion relative to last year. However, after normalizing EBITDA from extraordinary gains in 2Q '21, our real estate sale, EBITDA did in fact grow by 3%. This was supported by the dynamics I just mentioned as well as by a richer mix of products sold relative to a year ago. In terms of capital allocation, we invested $67 million in 2Q '22 targeted at our plant in Indiana and capacity expansions and production line upgrades in our plant in Dallas. In the U.S., overall demand has proven to be very resilient thus far despite the high levels of inflation. A wide array of product offerings in the U.S. has enabled us to benefit from the different dynamics taking place within each of the markets we cater to. Growth has been boosted by corn product demand in addition to demand for top-end Mission products such as Better For You brand, whose growth has been stable compared to previous years and we're not currently seeing any significant trade-downs within our SKUs overall. In fact, demand is very strong in both the retail and foodservice tortilla segments, particularly in the Northeast, all of which prompted tortilla volumes to increase by single digits in the U.S. In our corn flour business, consumer pulled back on dining out in the face of rising prices, and industrial clients moving away from direct corn purchases increased demand for cornflower significantly as it is a core ingredient for everyday meals and corn products. This helped expand our volumes sold in this segment by single digits as well. Combined, both business lines supported a 5% volume growth and a 20% revenue growth in the U.S. for the quarter. As a combination of all these factors, we're pleased to report that EBITDA increased by 7% over last year. Profitability, as measured by EBITDA per ton, grew by 3%. We expect the market fundamentals in the U.S. to remain positive for our operations along with our capability to manage cost growth, as we have successfully demonstrated since this wave of inflation hit the global markets. We continue with good news on demand at our subsidiary in Mexico. Although volumes were temporarily hurt by a 1% contraction relative to last year, demand for cornflower keeps being consistent with its traditional value for Mexicans in their everyday meal. Keep in mind that this contraction was not a result of lower demand, but because of a much higher comparison base in the second quarter of last year. Moreover, the ongoing inflation and given the low-cost staple foot it represents relative to others within the same basket of goods, we're poised to experience further volume growth over the course of the next month. Sales grew by 16% in 2Q '22, while cost pressures in this division, although milder in terms of labor than in the U.S., have been pushed further by the ongoing inflation across the world. EBITDA remained flat or experienced 8% growth on a sequential basis. Since the 1Q '21, our subsidiary in Europe has had an explosive momentum in the retail channel than compared to years prior. This quarter helps to further underscore this performance as tortilla volumes soared 17% relative to a year ago and supported not only by the retail channel in this division, but also by the foodservice channel, which presented a steady growth, altogether a very positive outlook of the channels. Corn flour did not have the performance we would have wanted during 2021. However, since the first quarter of the year, it reverted its results. Growing demand for corn byproducts and derivatives in the continent have driven our corn milling volume growth of 11% and supported total volume growth in the European division of 13% in addition to a 33% sales growth. Cost dynamics keep things the same we've seen since the first quarter of the year, with energy and fuel in particular being at very high levels in addition to the ongoing inflation on raw materials. In Asia and Oceania, as expected, the lockdowns that took place in China impacted our operation temporarily by contracting volumes in the subsidiary by 6%, despite having had a very positive performance in Malaysia and Australia, where volumes expanded by 14% and 6%, respectively. The situation in China also dragged on sales, which contracted by 5% despite the good performance in Malaysia and Australia. The combination of the lockdowns in addition to the effective inflation on the subsidiary's cost structure impacted our EBITDA negatively by 45% relative to last year. I mentioned a minute ago, however, the situation is temporary, and we expect volumes and profitability to recover as China keeps reopening. At our subsidiary in Central America, we're very pleased by the way volumes have expanded as economics keep recovering and have introduction of new SKUs, which have spurred strong demand for cornflower into regions the subsidiary caters to. As a result, volumes grew by 7% relative to a year ago, while sales presented a 27% growth for the quarter. With this performance, EBITDA grew 120% compared to 2Q '21, while EBITDA per ton reached a growth of 104%. In all, we're very pleased with the results that we were able to achieve and, more importantly, with the way market fundamentals for our products have been evolving and also responding with the rising inflation around the world. We're excited about the prospects of the second half of the year as we continue protecting profitability while servicing a soaring demand. With that, I would like to open the call for questions from our listeners today. Can you help us with that, operator, please?

[Operator Instructions] Our first question is from Antonio Hernández with Barclays.

This is regarding the overall foodservice trends you mentioned in some parts of operating regions. How is that performing? But have you seen maybe a different trend towards the end of the quarter compared to the beginning of the quarter, especially with this inflationary environment? That's the first part. And the second part of the question also related to this adverse consumer environment. You mentioned that, for example, in the U.S., you haven't seen any trade-down. But what are the other regions as well?

Sure. Thank you for your question. No, we've actually seen a very positive response from consumers in all segments that we cater to. Europe is doing extremely well. As you can see from the results, we've had a very -- pretty good trend in terms of our sales there. In terms of consumer response, demand is very, very strong there as well. So that also resonates in Mexico and the rest of the region. I would tell you that from a revenue-generating perspective, the fundamentals look fantastic. They're pretty sound the way they are today. We don't see -- we haven't seen any slowdown in that regard. Like all other companies around the world today, I would say that the main focus other than the positive fundamentals in the market has been a focus on mitigating the effects of inflation on costs, but from the revenue-generating perspective of the business and the financials, things look great.

Okay. And that's for both foodservice as well as...

It is correct for both.

Our next question is from Felipe Ucros with Scotiabank.

So maybe a follow-up on the question that I think you just said on down-trading, because in your comments, if I heard correctly what you talked about the U.S. also, I think the precise words were no significant amount of down-trading. So just wanted to make sure before I ask my other question, you are actually seeing some down-trading, it's just not significant? Or could we say that there's no down-trading still?

Now you could say it's now down-trading at all at this point. What I was referring to is -- I mean the focus right now, obviously, the expansion of our Better For You view brand has kept going on. It has not slowed down. Our consumers there have not traded down any products. They're still buying the product, [indiscernible] very much, and they manage very strong there. We have seen minimal trade down, I would say, in the middle of the lateral products maybe, but not in the top-end products, which has been important for us in terms of the expansion we're trying to achieve. What we have seen is an incremental degree of purchases or needs for corn products and tortillas made out of corn, specifically chips as well. And that's just increased the pie, if you will, in terms of demand and in terms of sales. But there hasn't been any slowdown or trade-down in the main products that we today.

Okay. Great. That's very clear. That covers my follow-up. So now to my main question. Obviously, commodities have traded down significantly, especially grains the last 1.5 months or 2 months, if you want to call it. And as of the last call, you guys have made a very smart decision not to hedge at those levels of volatility in prices that we were seeing when we had the last call. So just wondering what you've decided to do now, because it seems like a very nice window to roll forward the hedging, but I didn't see anything in the report. So just wanted to see what you guys have decided to do on that front.

No -- yes. As you know, from our last communication, last conference calls that we've had, we're not saying -- well, we cannot disclose at this point the levels of hedges or the hedging and anything regarding hedging at this point. We're just continuing the same policy we've had for the longest time now, and we're just trying to navigate the waters of inflation at this point. So that's everything that I can disclose at this point.

Got it. So nothing on that front. Perfect. And if I can ask a last one. You have mentioned in previous calls that there's some issues with labor in the U.S. You have had to work around the fact that you didn't have enough people, paying some overtime that obviously was weighing quite a bit on the SG&A for the USA. It seemed to correct it quite a bit this quarter. So just wanted to see if this is kind of what we should expect as a normalized level or if there's still some more normalization to go in the next few quarters?

No, I would say that's the same level you'd see going forward. As I mentioned in the opening remarks, obviously, when you compare costs year-on-year, you'll have growth there. They're not even comparable at this point. But on a sequential basis, things are more stable than they were before, and they tend to be like that for the rest of the year. We don't see an issue with labor sequentially that we've also -- so we're not -- our focus on labor has somehow moved away from that variable, and we're just focusing on other things right now.

Our next question comes from Bernardo Malpica with Compass Group.

My question is regarding Central America performance. There was a significant EBITDA margin expansion of more than 500 basis points to almost 13%. I mean in your guidance, of course, this was the region where you expected the most growth, but I think it was actually surprising. So I mean just to understand, how sustainable is this close to 13% EBITDA margin? I mean was it a onetime improvement? Or could we see this EBITDA margin in the region around this number going forward? That would be my first question.

Yes. Thank you. So yes, that would be the actual level, if you will, that we see things on a normalized level. What happened in Central America at this point is, or during the quarter, better said, is that we started introducing or expanding the distribution of some SKUs that are happening are very well received by the market. We've had tremendous success with those, and we're going to continue expanding and continue distributing those products or those SKUs in the market as we go forward. So we're expecting very good results going forward from that subsidiary.

Perfect. And just also a question both on Asia and Central America. Together, they still represent around 10% of the revenue, 3% of the EBITDA, at least with the numbers of this quarter. With this improving numbers and trends, for example, in Central America, is there an objective as of how much more relevant you want these regions to be a percentage of your revenues? Or do you just want to grow the regions without a specific objective?

Right now, we don't specifically have a target in place. Right now, our focus and the focus of our CEO is obviously profitability, a great focus on quality and get the product to wherever the market is and wherever the greater demand man is and just being extremely innovative with our product offerings. So that's the focus of the strategy, and we don't have a specific objective in place.

Our next question is from Alan Alanis with Santander.

A few questions here. The first one, it has to -- I mean we know that the volatility that we're seeing in corn prices is not unusual. But could you educate us a bit in terms of what explains the decline of more than 20% in the last couple of weeks in the price of corn? And any view going forward, since you're a very big buyer of corn, regarding the prices of corn? And connected to that question, something specific for Gruma, we're seeing an increase in base inventory. The inventory levels, if we're doing the calculations correctly, went up from 63 to 83 days year-over-year in terms of -- 83 days of -- is this a new level? Or is this something that is something very temporary in terms of the inventory levels measured in terms of number of days going forward for Gruma? Those would be my questions.

Thank you for your question. Sure. So in regards to your first question, there are many factors playing around behind the fundamentals that are driving the price of corn right now. I would say that the first one is, given the volatility in the overall markets, funds that have been or have had a very strong position in commodities have been selling them off actually. They're trying to mitigate their risks and they're -- so it's just a balancing out of funds as well -- forward positions. That's one. The second one is the talks right now of, I would say, a potential channel of distribution for corn and the talks that are being held with -- in Turkey with Russia, that is also up in -- I mean probably the right wording is not up in the air, but the -- I mean it's still going on. So it's still a variable to take in mind to see if they will reach an agreement or not. But right now, because it's still in the air and there are hopes that their agreement will be reached, that's another point of, I would say, bearish fundamental on the prices of corn specific. And that's why combining both things, the selling of the positions of hedge funds plus this hope that the market has in regards of these countries reaching an agreement for a safe distribution channel of the conflict zone to the rest of the world, that keeps hopes up. And of course, another variable as well is where the current price of gasoline demand is a little bit sensitive there, even in spite of there being summer season, which the price -- the highest peak season gasoline consumption in the U.S., as -- most are being consumed as much as -- so there is another "bearish" fundamental for corn right there. So those, I would say, would be 3 points that I would signal to for the reasoning behind the drop in prices in corn specific. In regards to the inventory levels, we have made a point to have enough inventory, given the situation in the world, how it is right now, to have enough inventory for distribution. So we're building up on that. That's obviously correlated with the growth that we've had in debt so far. However, going forward, I think -- we believe we've reached, I would say, the levels that we want to in inventories. And that is why both inventories and our debt should stabilize going forward.

That's very clear. So we should expect this level of inventories to stay stable going forward. One last question. Anything you can comment -- and I'm going to ask a completely different -- that's my last question. Anything you can comment regarding the impact of any potential government measures in Mexico regarding the controls -- the price controls, like the agreement or the soft agreement that they had with -- I know it was with tortilla, not with corn flour. But anything you can comment regarding the measures that the authorities are taking in the sense of the prices of...

Yes, sure. Look, they have their own agenda. And I think that they have, I would say, a social responsibility for -- given the situation that we're living under right now. In our case, we've always had a social responsibility, given the product that we're talking about here. So we'll always act socially responsible, more so with -- something that we've always done and more so with the evolution of ESG as it is today. So we'll always act responsibly and social -- with the market. So whether there is a -- whether the government is doing or has a plan for price controls or not, we don't really -- we will always act responsibly and socially...

Our next question is from Sergio Matsumoto with Citigroup.

Sergio Matsumoto from Citigroup. My question is on the hedging at GIMSA. So I know that there was a hedging gain last year and, this year, there was a slight loss. I just wanted to get more color on the nature of the hedge. The press release mentioned it was corn, but was it also related to the Mexican peso? And given that these were already done and you kind of have the levels already, would you expect a similar kind of year-over-year change going forward? Or should it moderate in the coming quarters?

Sure. Thank you for your question. Well, part of our business, as everyone knows, as -- I mean one of our main raw materials obviously is corn. So yes, the volatility that you see there goes in line with the volatility of the peso corn. And as we have in the past and as we always do, we have hedging positions. And when the valuation of those hedging positions have volatility, that's what you see in our other income line -- in our income statement. So in order to forecast that, I would say that it would be a little bit challenging to tell you how that would be going forward. But as always, there will be some times we will have gains and sometimes we have losses depending on the [ availability ] of the corn in the futures market. So I would tell you that, that is part of the business. And on a cumulative basis, I think we're doing pretty well with everything that we've done there.

Yes. I guess my question is perhaps -- would you characterize last year's gain as something that was outsized, like more than usual? Or is it -- and would -- or would you expect something in a similar magnitude going forward?

No, I would -- it's a very difficult question to answer. I would tell you that it's just -- the magnitude of what you see in that line, it's totally correlated with the levels in COGS. So it just compensates or offsets the levels or the growth rates that you see in COGS. Because -- they're obviously connected because of the purpose of the actual hedges that we have for those raw materials. So depending on how these 2 variables move, that's how and when you will see a magnitude, whether it be a gain or a loss, in that line or the other income line.

Okay. Understood. And my second question, if I may, is would you have an updated guidance as a result of how things have transpired in the first half?

No. Actually, we're feeling pretty comfortable with the way things have been evolving, with how the market is behaving, how the consumer is accepting the product, the demand that we're seeing in the market. So we're not concerned about our guidance, and we're keeping it.

Our next question is from Álvaro García with BTG.

Two questions. One, a follow-up on the guidance. Would it be fair to assume -- and it's sort of connected to pricing. Would it be fair to assume additional pricing actions in the U.S. Last call, you mentioned you were sort of staying put and waiting for your regular cycle price increase. But not sure if it would be fair, given your comments on maintaining this guidance to see additional pricing actions in the U.S. in the second half.

Yes. Thank you for your question, Álvaro. So I just said, we feel very comfortable with the guidance as is. If inflation keeps being a drag on our costs, we'll always strive to protect profitability and pass on additional cost to revenues. So it's just a matter of...

Okay. And then one question on Asia. It's -- your sales and your volumes have moved in line. Seems there's limited -- I would have expected to see more pricing. I was wondering if that was a mix thing. If you could maybe try to give a little bit more color on the impact that China had or if Australia was also seeing sort of weaker results. So just a little bit more color on Asia would be great.

Sure. Sure, no problem. So in Asia, the main factor there was obviously China. With the lockdowns taken place during the quarter, that hindered operations. Obviously, everyone was in lockdown there. In Australia, if you remember, from a quarter ago, we had floodings there. So things are sort of recovering. They have not reached their peak level of performance that they would normally have on a "normalized" level. So going forward, obviously, as China keeps reopening, their economy things should improve on that front. And Australia, I would say that it would be recovering within the next quarter or so once the repercussions of the floodings get diluted over time. But I would say that the numbers that you see in front of you are numbers that are -- that take into consideration these 2 variables to adjust extraordinary events and actually pick up back to normal once the reopening of China takes place and once Australia starts being at the normalized flow of operations.

Our next question is from Luis Yance with Compass.

It's actually 2 follow-ups on previous questions. The first one is on your guidance. I know you just said that you feel pretty comfortable about your guidance. But could you just talk a little bit more about the granularity of your guidance, if there's any areas where you feel there's upside surprise that may compensate for other areas that you feel there could be some downsides to our prices, and what are those areas? In particular, when I look at your guidance, I guess, the top line looks pretty strong so far, right, mainly driven by pricing, but it looks pretty strong. But particularly on the margin side, just wondering if that's kind of where the downside is, especially in a market like the U.S. where we've seen a little bit over 200 basis points of margin contraction in the first half, which would imply that to get to your guidance, you would have to have margin expansion actually in the second half. So if you could comment on that, that would be my first question.

Sure. Look, depending, I would say on how costs or the trend of costs during the second half of the year and depending on the growth rate that they have right now, as you probably are aware, obviously, we've been playing catch-up on costs. They're just growing at such an unprecedented rate that we have to catch up with the growth in cost every time we feel there is a need to pass on the cost to our revenues. But other than that variable in the sense of the cost of raw materials or any disruptions that there could be in terms of supply with what I was mentioning a minute ago in terms of the fundamentals of corn, the result of the talks right now with the distribution channel is crucial for the -- to see the real driver behind corn and how that behaves in pricing, it just depends really. You have that -- those bearish fundamentals on that side, but you also have bullish fundamentals in the sense of weather conditions. Right now, there is heat all over the place. So it's just a variable. We'll have to see how it behaves going forward. And based on that and based on the distribution of the supply of other raw materials, we'll have to also see how things unfold. Right now, we've been able to manage the ongoing inflation across our entire cost structure very effectively. We've been having a great year in terms of consumer demand. So we feel great in terms of EBITDA per ton, which is the metric that we use internally to measure the profitability of the business in this environment at least. We're right on track to achieve the guidance we set of mid-single-digit growth. So with that -- with those fundamentals and with that profitability goal, we feel that there is -- we are on the right track, and we're very solid with specific -- when it relates to guidance.

Great. And my second question goes back to the hedges, and I totally understand that for competitive reasons, you don't want to disclose, I guess, the level of hedges. But is there something you could share with us, at least qualitatively, in terms of the hedging, things like whether we should expect you guys to be fully hedged as usual by the October-November time frame or maybe you push something into it, at least, I don't know, 50% or more has been hedged already, whether you hedge in the peaks. Anything you could comment on that area would be really helpful for us.

Unfortunately, the one thing I can comment is the same comment I just shared with you, which is that we're following the same policies that we've always had. We have here a great treasury department that's focused and that's continuously monitoring the pricing of the corn, the corn futures. And we're doing the right thing to try to mitigate inflation. That's everything that I can share with you.

Our next question comes from Luis Willard with GBM.

Just to follow up a little on the inventory question Alan made. I mean is it fair to assume that this inventory buildup that you're seeing could help you potentially to ease your cost pressure in the coming quarters during -- I mean if corn prices continue to drop. That will be the first.

I'm sorry. I think that -- I don't know if it's your phone, but I couldn't catch the details of your question. I think it was related to the cost pressures.

Yes. So I hope this is better. So it was a follow-up on the inventory question. Basically, it was -- is it fair to assume that as you build up inventory of corn prices, let's say, closer to stock prices that have been coming down in the recent weeks. Is it fair to assume that this inventory buildup could help potentially ease cost pressures in the coming quarters for you?

That's a great question. And it really depends. And I hate that I have to say the answer, it depends. But the truth of the matter is that in inventories, you have different harvests, if you will, of different types of corn. So it just depends on what corn gets out of the inventory into COGS to know the real cost of your raw materials. So it's hard to say how things will behave with the current inventory in terms of COGS and its costs, but just I would say that it's fair to assume that our inventories have a mix of pricing related to corn and all the layers of inventory that we have.

And if I may have another one, maybe this one is a bit more philosophical. But do you find opportunities to increase the penetration of corn flour in an environment like this with high inflation, where consumers could potentially start being import price-sensitive? Any comments on that regard would be great.

No. I would say corn flour penetration is doing quite well, whether you see it in Central America, whether you see it in Mexico or whether you see our operations in the U.S. This environment, as I mentioned a minute ago, has spurred a lot of buyers that focus on staple foods. And among the staple food basket, I would say that corn flour and corn related products like tortilla is at the bottom in terms of pricing. So I would say that it's a very attractive product at this point for consumers to have in their basket of goods. And we -- as it is a staple food, there is not a lot of sensitivity, if you will, in regards to our products. So it's hard to say how better off or worse off we are in this environment. But we have seen a pickup in demand recently due to the focus on these type of products overall.

Our next question is from Ulises Argote with JPMorgan.

Hope all is well. So just a couple of more here from my side. So first in -- with the normalization of corn costs that we're seeing, do you think it will be more challenging to pass on pricing there in the U.S., particularly with the retailers over the coming months? And any comment that you can make on how maybe this can impact the competitive dynamics and industry price? Or do you see any potential, I don't know, even maybe for short-term decline in prices from competitors? Any color that you can share on that front I think would be really good. And then I have another couple of questions here.

Sure. No problem. So I think that you have to look at it as an entire universe right now, as an entire segment. Everyone is going through the same cost pressures, and everyone is subject to this inflation that we're living with right now. Right now, as you very well said and as it's known, the price of corn and commodities overall have dropped significantly because of the reasons that I gave a few minutes ago. However, that inflation is still here, and it's still a drag on our cost structure. And like I said, not only our company, but I think every other company around the world, competitors and other companies that do their business within the food and beverage industry will have to focus on managing those costs. So I think that despite of the price of corn, the way it is right now, and because it just literally is on the edge of tilting towards a sustainable level because of the unknowns in terms of the drivers that are driving this drop, I would say that things are business as usual. I wouldn't say that just because of that, there is a change in environment that we're living or a change in handling things.

Okay. That's, I think, clear enough. And then sorry if I sound like a broken record here, but a follow-up also on the hedging also. Obviously, you're not giving a lot of details there, but maybe on the strategy, if you can remind us if you will include Mexico as well into the hedging for 2023? And also how that strategy looks like for the other regions, if you could share any detail there, that would be highly appreciated.

Sure. So we do have a strategy to include Mexico in hedging positions, the U.S. of course as well. In terms of Europe, it really depends on the region or the country, if I may say. So it's more opportunistic than not in Europe. But again, as I said, that's something that we've done traditionally. And especially now in this environment, it's something that is -- obviously creates a lot of questions that we're not probably asked before in years where the commodity prices were historic lows. But it's part of our policy to cover those countries and those regions of the world. So we will be doing that.

Okay. Perfect. And just the last one, if I may, here. So on the move to dollar reporting, so this has obviously been a topic that we've been hearing a lot about. And it's kind of more related to -- if you are considering kind of listing the company in the U.S. to capture better multiples in this, like a first step into that, and maybe any color that you can share on any discussions that you've had on that front.

Thank you. No. Right now, there are no discussions in place to list the company in the U.S. The reporting in dollars was just based on the fact that the majority of operations are outside of Mexico, with our main market being the U.S. And it was just, I would say, an easier way to transmit to the market the fundamentals in each market, and that's why we did it. We did not -- we haven't even considered or contemplated, in any discussion, possibility of us listing in the U.S.

[Operator Instructions] Our next question is from Felipe Ucros with Scotiabank.

So it does seem that there's enough space to do a couple of follow-ups. Maybe the first question is on the rationalization that you guys were doing in Mexico. You're rationalizing clients. So that had a little bit of impact on volumes in the last few quarters. But I didn't see a mention of it in the report. So just wanted to ask if you're essentially done with that process? Or is it still affecting volumes and how much longer we can expect that process to go on? And then another question that I had was -- maybe I'll let you answer that question before I ask a follow-up.

Sure. So the bulk of the process, I think it's done. If there is -- if we continue doing that, it will be on a selective basis, I would say, on an opportunistic basis. That's a [ bit of word ] for it. So we're done with that. Right now, the way volumes behave relative to last year had to do more -- as you're probably aware, because you read the release and we -- I said it in my opening remarks, but have to do more with a higher comparison base rather than the selectivity process that we had in place. So that's over with. And if you see something else mentioned about that, it would be on a selective or an opportunistic basis.

Perfect. That's very clear. Just wanted to make sure that it's still going on. So that's very clear. And then my other question was on A&O and Central America. And I remember I asked that question maybe 1 or 2 quarters ago about hedging. And you told us that you don't actively do hedging on those 2 regions. So kind of a little bit of a follow-up to what [ release said ]. But given that A&O and Central America typically don't do hedging and that spot prices have been coming down, should we be expecting those margins to improve the next quarters? I mean based on corn prices have come down -- obviously, we don't know if they're going to stay there, but...

That was exactly my answer. So I think that everybody is counting on that based on the fundamentals, I guess, the latest news regarding those fundamentals that we talked about at the beginning of the call. But there's others that balance them out, right, like I was saying. Practically, the U.S. and Europe, all over the place, there is 60% probability that La Niña will hit South America now. So there is -- there are a lot of fundamentals that counter that bearish fundamental. And right now, it would be a wild guess to tell you that the price of corn will stay that way and that we're going to increase margins and such. We'll have to wait and see how everything plays out. That one -- those things that we're waiting to see, which is the talks with Russia and those channels of distribution that we talked about. We have to wait and see if China doesn't come back and start buying more corn even instead of selling it, given the pricing. We have to wait and see if right now where the summer gasoline prices are -- like I said, they're very high in the U.S., as you probably know. Ethanol is not being demanded as much. There's a lot of selectivity in terms of what you spend your money on. But people are on vacation. Who knows how things will unfold. Now that the pricing of corn is this way, maybe there will be more demand for gasoline. So there is a lot of variables that can change from one day to the other. At this point, it's very, very hard to say or count on a low price of corn to margin expansion.

No, right. And I'm not looking for you to kind of weigh the fundamentals and tell us where corn is going to go. What I'm really asking is, what -- prices of corn right now are below where they were before the war and futures have fallen even more. But that kind of implies that the average price of corn, and if they stay where they are -- I'm not asking you to guess where they're going to be. But if they stay where they are, that -- should that imply better margins for those regions?

Well, look, if they stay where they are, it could potentially increase margins, sure. But you also have to take into consideration that we also compete with direct point purchases for the corn, though. So it's a kind of difficult question to answer in that sense. But everything else taken equal, if things remain the way they are in terms of price of corn, we could potentially increase market share.

Our next question comes from [ Jorge Mora with Fundamenta ].

My question is regarding margins and the guidance. I mean in order to, let's say, deliver nearly 100 bps for the year, you should expect a slight expansion in margins in the second half, as you are implying with the guidance. So my question is, should we expect this to happen via higher prices? Should we expect higher prices in the U.S. mainly? Or are you actually -- when looking at your cost base in the second half relative to the first half, should we expect a decrease in cost per ton?

Thanks for your question. Look, really, the margin question is something that is up in the air, given the inflationary environment that we're living in. Right now, we feel very comfortable with the guidance as is, but we feel more comfortable because we're right on target with our EBITDA per ton, which is our measure of profitability. Right now, it's very hard to measure profitability on the margins because of inflation. So right now, internally as a company, as long as we keep our guidance and the mid-single-digit growth that we set as an objective in terms of EBITDA per ton, we feel very comfortable and satisfied with the profitability of the company.

Perfect. Sorry, my bad then. Is there a guidance of flat to 100 basis point contraction in margin for the full year? Maybe I'm mistaking that.

No, no, you're totally correct. We said there was -- the guidance for margins was flat to 100 basis point contraction. We also said that implied, given the inflationary environment that we're living in, that could be misrepresented. So the profitability measure in our guidance as well that we provided was a mid-single-digit growth in EBITDA per ton.

Right. Okay. Yes, I got it. So you have high inflation in the end that dilutes your margin, but you deliver on the EBITDA per ton.

That's correct.

There are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Well, thank you again, guys, for being with us today and joining us on our call. We look forward to hearing from you or seeing you in future events. Or if you decide to contact us for further questions, we would like to take them. Take care, and have a great day.

Ladies and gentlemen, this concludes Gruma's Second Quarter 2022 Earnings Conference Call. Thank you for your participation. You may now disconnect.