Grupo Bimbo, S.A.B. de C.V. (BIMBOA) Earnings Call Transcript & Summary

Good day, and welcome to the Grupo Bimbo's Second Quarter 2026 Results and Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alejandro Rodriguez Bas, CEO of Grupo Bimbo. Please go ahead.

Good afternoon, everyone, and thank you for joining us today. With me on the call are our Chief Financial Officer, Diego Gaxiola; and the President of Bimbo USA, Greg Koehrsen, together with several members of our finance team. Before turning into the numbers, I would like to express our deepest solidarity with the people of Venezuela and all those affected by the recent earthquakes, including members of our Bimbo family. Our hearts go to everyone affected by this tragedy. Through our alliance with Save the Children, we're helping to channel humanitarian aid to the affected communities, and we have launched a campaign through which people can donate. We encourage anyone who wishes to contribute to do so through this initiative. Grupo Bimbo will match contributions up to $1 million to help extend the reach of this support. To all our friends and colleagues in Venezuela, we stand with you, and we will continue supporting you through the recovery process. I also want to extend my heartfelt appreciation to our more than 152,000 associates across the globe. Their dedication, their passion for our brands and their day-to-day commitment serving consumers are what continue to power the growth of this company. These results belong to them. Now turning to the results. We carried our momentum forward this quarter, delivering solid net sales growth on a current neutral (sic) [ currency-neutral ] basis and further expansion of our adjusted EBITDA margin reaching 14.4%. What is most exciting is the quality of this growth. Even against demanding backdrop in some of our markets, both price mix and volumes moved in the right direction. Growth and margin expansion were led by our 2 largest markets, North America and Mexico, with EAA also delivering strong contribution. North America continued to build on its own recovery, posting a second consecutive quarter of positive sales growth and at a faster pace than the first quarter. This sustained return to year-over-year growth confirms that the region is improving even as consumers remain under pressure, supported by strong revenue growth management strategy and sharper execution. Perhaps the most encouraging data point this quarter is that we have gained market share across every category in the U.S. for the first time since 2020. This is particularly noteworthy, given that several industry categories continue to face volume pressure. The fact that we're gaining share across all categories and in most cases, growing sales, highlights the effectiveness of our commercial execution, innovation pipeline and revenue growth management strategy. Combined with a double-digit EBITDA margin and another quarter of margin expansion, these results clearly demonstrate that our transformation initiatives are delivering tangible and sustainable benefits and are resonating with consumers. Mexico delivered another standout quarter showing that we can keep growing profitably even as consumers tighten their spending. The momentum was broad-based across nearly every category and channel, underpinned by the best-in-class service levels, disciplined execution, and the enduring power of our brands. Results in both North America and Mexico were in part supported by incremental consumption associated with the World Cup. EAA continued to shine. Growth was broad-based across the region, with nearly every organization growing in local currency despite a tough comparison base, complemented by the contribution of the Don Don and Bonel acquisitions. It is not -- it is worth noting that this will be the last quarter in which Don Don generates an inorganic effect on our numbers as we acquired it in May of 2025. Latin America delivered mixed results. Net sales grew in local currencies and profitability held up well across nearly every country. The one exception was Brazil. which, as we anticipated, it's still reflecting the effect of the Wickbold integration process. The related efficiencies will take time to fully materialize. Looking ahead, we remain mindful of the volatility and uncertainty in the global environment, including ongoing geopolitical tensions. That said, we have strong conviction in the resilience of our business, in the strength of our people, and in the effectiveness of our strategy. We are well positioned to navigate this environment and to continue delivering strong, consistent and sustainable results for our shareholders. With that, let me turn the call over to Diego, who will walk you through the financial details. Diego, over to you.

Thank you, Alejandro, and good afternoon to everyone. We appreciate you taking the time to join us today. This was without a doubt, an exceptional second quarter, a strong validation of how well we are executing our strategy across the company, the strength of our business model, the operating efficiencies embedded in many of our operations and the breadth of our geographic and category diversification. We are especially pleased with these results given the complexity of the operating environment in several regions and the ongoing geopolitical headwinds. Despite the backdrop, we delivered strong performance across several key financial metrics, propelled by healthy organic growth in local currencies, the strong operating execution and continued margin expansion. Stripping out the FX translation effect, net sales grew 4.5%, marking our strongest second quarter performance since the second quarter of 2023. The adjusted EBITDA margin reached 14.4%, reflecting solid execution, the productivity benefits of our long-term strategic investments including the North America transformation project, continued supply chain efficiencies, and a disciplined G&A expense management. One of the highlights of the first quarter was our free cash flow generation. The strong EBITDA performance together with improvements in working capital, allowed us to generate approximately MXN 12 billion of free cash flow, even after investing approximately MXN 7 billion in CapEx. This strong cash generation also allowed us to deleverage the company at the same time that we returned more than MXN 5 billion to shareholders through dividends and share buybacks. Finally, we're raising our full year guidance. Even though we're expecting a higher inflationary environment impact for the year as a result of the ongoing geopolitical developments, our business has performed better than what we expected. The strong results delivered during the second quarter together with the continued benefits from our transformation and productivity initiatives and the strong operating execution across the organization, give us more confidence in our ability to generate additional efficiencies during the remainder of the year. Therefore, we are raising our EBITDA margin expansion guidance to the range of 70 to 120 basis points for 2026. And we continue to expect net sales, excluding the FX to grow at a mid-single-digit rate, which translates into a flat to a low single-digit decline in Mexican pesos. On CapEx while we remain fully committed to our long-term strategic priorities. We are refining our full year outlook based on the phasing of certain investments in line with evolving volume trends and market conditions. We now expect CapEx to be in the range of $1 billion to $1.2 billion for the year, compared to our previous guidance of $1.2 billion to $1.4 billion. While we're not providing guidance for 2027 at this stage, let me share a few thoughts on the environment we are currently seeing. We do expect the inflationary environment to remain challenging. We have seen upward pressure across several key inputs, including wheat, resins and energy and current market conditions suggest that some of these pressures could persist into next year. That said, we believe we are well positioned to navigate this environment. Our productivity pipeline remains strong, supported by automation initiatives, supply chain efficiencies and disciplined cost management. Combined with our revenue growth management capabilities and the continued growth of the business, we expect these actions to help mitigate the inflationary pressures over time. Thank you. And with that, let's move on into the Q&A. So operator, please go ahead.

[Operator Instructions] The first question comes from Ben Theurer with Barclays.

Just a quick one following up and maybe the one for Greg. Looking into the U.S. business, which kind of like kept a relatively good momentum. So I wanted to understand, similar to what you provided a quarter ago, how the performance was across the different categories that you usually report just in comparison to a private label but then also against your peers and where you see maybe opportunity to gain further momentum, market share or whatever you want to call it? And then I have a very quick follow-up for Diego on the guidance.

Yes, absolutely. Thanks, Ben, for the question. I appreciate it. We were very happy with our performance during the second quarter. As Alejandro and Diego mentioned, we were share positive in all the categories in which we play. And what I would say is that the foundation for that was our continued improved commercial execution, both in terms of how we go to market with our DSD system and then also how we have remained disciplined around pricing and promotion activities. So we feel like we have really established ourselves well in the second quarter and carry momentum going forward. You also asked about private label. Private label, we see as not just a threat. It's actually an opportunity. We value the offerings within our branded portfolio, but we're also a producer of private label as well, and we use it strategically with some of our key customers. So we continue to see positive momentum in both our branded business and also our private label business.

Okay. Perfect. And then Diego, just if you could clarify real quick. I remember first quarter when you gave the EBITDA margin guidance initially, it was $60 million to $110 million, but it included like that 20 basis point headwind from the Iran conflict. Is it fair to assume that the now increase of margin by 10 basis points, it's just because of less of an impact from Iran? Or is there something else that helps you offsetting what the 20 basis points that you've mentioned about 3 months ago as a headwind? How should we think about it? What's driving the increase here?

Yes. Very good question, Ben. Yes. In fact, I mean, at the end of the first quarter, we did anticipate like a $50 million impact in inflation for the remaining 9 months of 2026. As the conflict has continued, and we have seen additional inflation than what at that time we were expecting, we now have a higher impact. It's more in the range of $70 million to $90 million for the year. Of course, this is including what we already faced during the second quarter. So this basically translates to something around 35 to 45 basis. But even though we increased the impact from this inflationary impact we are increasing the guidance approximately 10 additional basis. So if we were to exclude this additional inflationary impact, our guidance would have been even more positive. So I don't know if I was clear, Ben.

Yes. Basically, it would have been 30 basis points if it would have been unchanged, but now it's only 10, correct? Yes, how to think about it, give or take. Okay, super clear, thank you very much Diego, and congrats.

The next question comes from Renata Cabral with Citigroup.

My question will be towards the Mexican operations, and we saw volumes growing and there's some mentions about the World Cup. So I would like to understand if you can give some color on how much the World Cup helped here? On the same line? So if you can give some color on if you see any signs of consumer improvement in the quarter. And related to EBITDA margin in Mexico, if those levels you think are sustainable?

Thank you, Renata, for the question. So let me divide it in 2 pieces. The World Cup and its benefit. We had a positive contribution from the World Cup. Buns and rolls and snacks are part of the festivities. We had favorable momentum across all channels. But the reality is the incremental tailwind rather than -- it was an incremental tailwind rather than the primary driver for performance. So it's really been our ability to service and be present this summer. Now the Mexican consumer. I think we have a resilient consumer environment in Mexico. Demand for our categories remains healthy, and this summer has proven to be for the third time in consecutive quarters in the mid-single-digit sales growth and we have benefited from a favorable seasonal dynamic. So what we see ahead is the ability to sustain this momentum. Now the reality is our strategic initiatives are working and despite that in some spaces, there are softness we continue to enhance our value proposition. We continue to capture seasonal opportunities by being there at the moment of consumption. We're investing in driving engagement, reminding consumers that we're ready to serve, and finally, strongly executing at the point of sale, and that has helped us to reach a record EBITDA margin.

And Renata, this is Diego. An answer regarding the commodities and also in terms of what we think on the sustainability of our margins in our operations in Mexico. In terms of commodities, as of the end of the second quarter, we haven't really seen still the impact that started to happen because of the conflict, generally speaking. Why? Because, as you know, we have a hedging strategy that provides the visibility for the different operations of the company. And because of this strategy, we still haven't seen the impact. What I mentioned is that it's looking tougher for 2027 as we continue to execute this strategy. We are taking positions today at a higher cost of the one that we're facing in 2026. So definitely, we will have some impact and some headwinds regarding inflation for 2027. Early to tell on more details, but as I said, we feel confident that we're going to be able to continue to generate efficiencies and productivity initiatives, and continue with the transformation in the U.S. that will help us offset the potential impact that we're foreseeing today. In terms of Mexico, being able to sustain the margin, I would say, yes, and not only that, I mean, in fact, we're targeting with a long-term view to continue to have improvement in the margin of Mexico. Now as of the end of June on an accumulated basis, we have 100 basis of incremental margin, which is very positive. We have had a very good operating performance. We had the positive effect of the World Cup that contributed a little bit to the margin expansion in the second quarter and also remember that in the first quarter, we had the positive extraordinary income of selling the minority participation that we used to have in La Moderna, and this created an extraordinary positive effect. But even excluding these effects, we're seeing a good year, a strong performance and we do not have a reason not to believe that we're going to be able to continue seeing improvements in our profitability in Mexico and, of course, in the other operations as well.

That was really helpful. And congrats on the results.

The next question comes from Lucas Mussi with Morgan Stanley.

Congrats on the results. Two quick questions. First one on the U.S., maybe if you could share a bit more color on how much do you see your innovation pipeline, new lines, new SKUs, maybe the participation of the healthiness and wellness portfolio has played out in your performance in the last 2 quarters or so where you were able to go back to the positive sales growth. So a bit more color on innovation as it pertains to your top line growth, if you could share a bit? And then my second question to maybe to Diego, is, we have seen your eliminations EBITDA or your other EBITDA is slightly negative this quarter. It has been mostly positive for the last couple of years. So I don't know if it was an accounting issue or an accounting one-off. But if you could share some thoughts there just for us to understand a little bit better how to think about your eliminations or your others line going forward?

Absolutely. This is Greg. Thanks for the question. As it relates to innovation and specifically, I think your question was around health and wellness, we've been pretty pleased with the results of our innovation in the health and wellness space. Two things I think we've talked about in the past, but just to highlight them again, our Thomas' high-protein bagels and our Sara Lee half loaves continue to outperform our expectations that we've had. So it's given us an opportunity to really lean into consumer spaces that value, let's say, health and wellness and premium. I would say, too, in addition to that and just to go back to some of the things that we talked about earlier is we're present in 83% of U.S. households. So we participate in a premium or health and wellness portion of the market. We participate in mainstream, and we participate in more value segment of the marketplace. And because of that, we have offerings that we can make to every consumer cohort within the United States, which we're very happy about. And so because of that, our offerings of innovation, not only along health and wellness, but even around indulgence has been performing in a way that we've met our expectations and even exceeded our expectations. And just to underline a little bit the execution that we have -- the execution gains and improvement that we've made in our operations are really impacting the full breadth of our portfolio in the health and wellness and premium segment and also in mainstream and value. And I'll turn it over to Diego for the second question.

So Lucas, regarding the eliminations, I'm going to be completely honest and open here. I do not have the color, but I will make sure that the IR team gets back to you and gives you a little bit more on the potential accounting effects that we had during the quarter. I'm probably sure that it's something unique for the quarter that would not necessarily prevail for the coming periods.

The next question comes from Alejandro Fuchs with Itau.

Congratulations on the results. I just have one very quick one in terms of capital allocation, maybe for Diego. Now with the new guidance expected for CapEx and the very strong cash flow generation this year, what would be some of the priorities to allocate this better free cash flow generation? And if you could maybe elaborate a little bit which of the projects on the CapEx side, are you going to be pushing forward or why the lower CapEx?

Yes. Alejandro, Well, I mean, definitely, cash generation has been better than what we expected, as I already mentioned, because of the operating performance and also some CapEx projects that are running behind schedule, and it has been a little bit harder to execute the program. But I would say that the capital allocation of the company is not changing. I mean, we have had and we will continue to have the #1 priority to put money back into the business. It's been the case, even though it's behind what we thought. It's almost $400 million in the first half. And as I said, we're expecting something between $1 billion to $1.2 billion. So it's going to be the highest use of our cash generation for the CapEx. And of course, this includes the 3 buckets, it's maintenance, growth and productivity. So dividends, buybacks will continue to be more or less to the same extent, we already paid a dividend of 2026. So we do not see anything additional or extraordinary.

The next question comes from Antonio Hernandez with Santander.