This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk01: Good morning. My name is Hilda, and I will be your conference operator today. At this time, I would like to welcome everyone to the first quarter 2022 Industrias Bachoco earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. Thank you for your attention. I will now turn the call over to Maria Jaques. Maria, you may begin.
spk02: Thank you. Good morning and welcome to Bachoco's first quarter 2022 conference call. We released our financials today before the market opened. If you need a copy of the release, please visit our website or request it from our investor relations department. This conference call contains certain information that could be considered forward-looking statements regarding anticipated advance and performance. The statement reflects management current beliefs based on information currently available and are not guarantees for future performance and are based on our estimates and assumptions that are subject to risks and uncertainties, including those described in our annual report for 20F, which could make our current results differ materially from the forward-looking statement discussed in this call. Acceptance required by applicable law Industries Bachoco undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of uninformation, future events, or otherwise. Lastly, unless otherwise indicated, the amounts mentioned in this conference call will be figures of 2022 with comparative figures for the same periods of 2021 in Mexican pesos. As a reference, the exchange rate as of March 31, 2022, was 19.89 pesos per U.S. dollar. Here with me are our CEO, Mr. Rodolfo Ramos, and our CFO, Mr. Daniel Salazar. Now I will give the call to Mr. Ramos.
spk09: Thank you, Maria, and good morning, everyone. The first quarter of the year was full of challenges and uncertainties, particularly related to corn and soybean meal markets. which had a negative impact in our cost of sales, increasing it by 27% versus the same period of 2021. In that regard, we kept working on the things that we can control, which allowed us to compete better under those conditions. During the quarter, we were very focused on operational efficiencies, sales mix improvement, increasing our market share, and the integration of RIC Alimentos. In terms of operational efficiencies, while we are constantly looking for opportunities in our Mexican operation, it is worth to highlight the results of our US team. In 2021, we share with you the negative operating impacts of labor shortages in this geography. In this regard, our team worked very diligently on attracting and retaining talent. This has been key for us to bring back our facilities to competitive levels. While we consider that there is still room for improvement, we are certain that we are heading toward the right direction. In terms of the first quarter of 22 net sales, Not only we observed good pricing levels both in the United States and in Mexico, but also we integrated RIC Alimentos to our mix. RIC is a company dedicated to multi-protein processing and marketing with production centers in the state of Puebla, Mexico, as well as approximately 21 stores located across Puebla, Oaxaca, Veracruz, and Tlaxcala. With this acquisition, not only are we adding to our portfolio products of higher value, but also entering the segment of properly owned stores. We are looking forward to captures and the identified synergies as a result of the actions implemented and mentioned above. our total sales increased 25.9% when compared to the first quarter of 2021, which was not enough to offset the 27.1% increase in cost of sales. At the end, that pressure, our EBITDA margin, which was 14.4% in the first quarter of 2022, compared to the 15.1% reported in the first quarter of 21. As we stated earlier in our press release, we remain committed to our road strategy. In that end, we reported a capex of $915.2 million for the quarter, which compared to the $555.7 million for the same period of 2021. We are certain that our financial and operating discipline will allow us to continue supporting our road plans while facing the uncertainties and volatilities of the market in which we compete. That, at this point, are difficult to predict. Now, Daniel will join us for a discussion of the financial results.
spk03: Thank you, Rodolfo, and good morning, everyone. As a result of the conditions Rodolfo mentioned before, our company's first quarter of 2022 net sales totaled 24,367 million, 5,009.4 million or 25.9% higher than the 19,357.6 million reported in the first quarter of 21. Total cost of sales for the quarter was 19,240.5 million pesos representing an increase of 27.1 percent when compared to the same period of 2021. The mentioned combination resulted in a gross profit of the quarter of $5,126.5 million with a gross margin of 21 percent. This compares to a gross profit of $4,218,021.8 percent margin reported in the same period of 2021. The total SG&A for the quarter was 1,999.1 million, representing 8.2% of total sales, which compares to the 1,637.3 million, and 8.5% of total sales achieved in the first quarter of 2021. Operating margin in the first quarter of 2022 was 12.9%, compared with the 13.2% reached in the same period of 2021. Our EBITDA margin was 14.4% for the quarter, an increase when compared with the 15.1% in the first quarter of 2021. For the quarter, we had a net financial expenses of $218. 35.7 million compared to the net financial income of 319.6 million for the same period of 2021. This was a result of the revaluation of the Mexican peso versus the US dollar at the end of the first quarter of 22. Our total taxes were 778.4 million for a quarter, slightly lower than the 803.9 million recognized in the same quarter of 2021. All the above led us to a net income of $2,128 million for the quarter, resulting in an 8.7% net margin, compared to the $2,074.6 million and 10.7% margin reported in the first quarter of 2021. The net income per share was $3.6%. 60 pesos for the first quarter of 2022 compared to the 3.51 pesos for the same period of 2021. Our capex was 915.2 million and increased when compared to the 565.7 million in the first quarter of 21. Part of this increase is related to the integration of RIC Alimentos assets. In our 2022 annual shareholders meeting, We had last one day the company announced the buying of cash dividends in the amount of 1.64 pesos per share or 19.68 pesos per ADR. That's all, and thank you, and I will now return the call back for final remarks, Rodolfo.
spk09: Thank you, Daniel. As we enter in the second quarter, certain conditions of the commodities market remain. So far, we have been able to offset part of that negative impact through our hedge strategy, operating efficiencies, sales mix, and pricing, both in the Mexican and in the US market. However, we are aware that the benefits related to our hedging strategy at some point will be reduced. In that regard, Our operating and financial discipline will be key, not only to better face the uncertainties of our industry, but to be able to grow with profitability under a volatile landscape. With that, we will now take your questions.
spk01: Thank you. If you have a question, please press 01 on your touchtone phone. If you wish to be removed from the question queue, please press 02. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press 01 on your touchstone phone. We have a question from Luis Gillard from GBN.
spk05: Hi Rodolfo, Daniel, good morning. Thanks for taking my question. Can you hear me?
spk03: Yes, go ahead.
spk05: Perfect, thank you. So, thank you for the question. So, Rodolfo, I mean, the current circumstances, inflation, commodities, etc., as you mentioned in your remarks, have certainly made it difficult for short-term investors to really sees the business long-term prospects. And it was nice to hear you ramp up CAPEX this quarter to continue growing the business. So can you share with us, how do you see Bachoco's growth potential and profitability for the long-term and has anything changed that view?
spk09: Well, it's very complicated to predict what is going to happen in the future because the volatility that we have been seeing in the commodity markets has been huge. So it's very difficult to predict how it's gonna be those commodities. But in terms of the market, I've been seeing stability in terms of the balance between demand and offer. So that can give us some color about the pricing. The problem is to predict the cost. So I can tell you that the pricing is going to be strong, but I really don't know how it's going to be the raw materials, mainly grains and soybeans in the new feature.
spk05: Correct. So, I mean, yeah, the short term is complicated, but thinking long term, do you see your EBITDA margins and especially the growth of the industry and yourselves to, you know, be faster than what we're seeing, maybe faster even than GDP growth?
spk09: Well, we are expecting in the long term to... maintain our EBITDA very close to what we had in the past. All those increases in the cost, in the midterms, we are going to be able to translate that cost to the pricing. So in that regard, we are seeing a normalized
spk05: Thank you, Rodolfo. That was great. Thank you.
spk01: Thank you. Our next question comes from Juan Ponce from Bradesco BBI.
spk04: Hi, Rodolfo. Daniel, thank you for taking my question. We have seen you actively pass down the pressure, the cost pressure amid this very challenging environment, which led to really strong top-line growth. Do you see any demand being impacted in the near future or what should we expect from the plan to control inflation and how could it impact Machoco?
spk09: Well, obviously with the higher prices, the demand can be reduced. But the advantage is with chicken. Chicken is at the moment the cheapest protein. So we are expecting to maintain the demand on this protein in the near future. And even we are seeing it mainly in the United States, a very tight supply of meat because of the catchability of the breeders. And that's causing a reduction in the availability to find baby chicks. So the market is going to be tight. The supply is going to be tight. So we are not expecting a problem with the balance between offer and demand, which can tell us that we can have normalized results in terms of of the margins.
spk04: Got it. Thank you very much. Gracias Juan.
spk01: Thank you. Our next question comes from Ulises Argote from JP Morgan.
spk07: I guess thanks for the space for questions. A couple here from my side. So I think the first one there was on the news flow a couple of days ago, this outbreak of bird flu, I think in the state of Coahuila. So anything relevant there that we should have in mind in terms of precisely that kind of supply output that you were commenting on?
spk09: Well, right now we have just knowledge of this and the state of Coahuila. And we have some farms around there. But right now, we tied our biosecurity measures in order to prevent any problem in that area. Right now, we are just sampling all of our farms in order to be aware if there are any problems. At this moment, the results have been negative, but it can be a big challenge in that area. We are not so exposed with our farms because, as you know, Our footprint is all the country. We have farms in every location, in every geography into the country. We have, at this moment, around 30% of our hatching egg supplies coming from the States. At this moment, we feel very comfortable with our sourcing of hatching eggs to maintain production in Mexico, even in the States.
spk07: Okay, thank you. Yeah, that's super, super helpful. And then the other one, maybe a follow-up to the previous question on that plan that the government is set to announce on controlling inflation. Chicken obviously has been one of the items that has been named there on that basket of products. So anything that you can share with us in terms of that, any expectations, that would be very helpful as well.
spk09: Yeah. The government is trying to establish a program to control the inflation, and they include 24 goods. Among those 24 goods is whole chicken, eggs, beef, and some parts of pork. Among others, there are 24 products. But those are the products that affect us. They said there's not going to be price control, which is very important. And there's going to be some help for the distribution, including the reduction on the taxes of the gasoline and diesel. And There are some actions to improve the efficiencies in the transportation of the goods. So there are some areas that they are working in order to reduce the cost, reduce the transportation cost, and the margins in the goods. sales of the products and the retails or traditional in the traditional market. So there's some actions that next week there's going to be a follow-through meeting to see what actions can work. They announced and they are the in this case they are presenting us a program to increase the domestic production of corn, which is very good, but the effect is not going to be immediately. It's a long-term action, which is very good, but the effect is not going to be here. So we are going to be very close to this initiative in order to see what can be what can we do and we are going to do our best in terms of inflation control.
spk07: Okay, no, that is perfect. Thank you so much for the details there. And just maybe the final one, any updates that you can provide or any updated timeline on the share acquisition offer that was announced a couple of weeks back? Thank you.
spk03: No, at this point, we don't have any additional information apart of what the announcement that we provide. Once, of course, we have additional information, we will share with all you guys.
spk07: Okay, perfect. Thank you very much.
spk03: Thank you.
spk01: Thank you. Our next question comes from Alan Alaniz from Santander.
spk06: Thank you so much for, for taking my question. Good morning and congratulations on the results. Pretty impressive results. Um, I want to follow up on the previous, the previous question regarding the scenarios in terms of, uh, of, I mean, there's an elephant in the room, right? We're talking about operations for, for a company that might not be public in a few months. So, uh, so, um, I mean, the, the, the, the tour making results in the stocks not moving. So, uh, i guess the way to frame the question is is what are the scenarios and what are the what the timing for that potential tender offer from the majority shareholders and how does it affect or not the operations of the company in the foreseeable future we cannot answer that question alan because we don't have a additional information when the family will make the filing to the authorities but what we can share with you is that the companies
spk03: operating in the same way we haven't had, and we neither foresee any additional changes in the operation of the company. So we are very focused on working and giving the results as we usually have delivered for the company. So at this point, we don't have any additional information.
spk06: Got it. That's very useful already, Daniel. So basically, if and when this family makes the filing, That filing will, what's the procedure there? I mean, the board will receive a notice that the family has made a tender offer. The price has been already made public, right? Almost 82 pesos. Then what happens next? I mean, would you call for a shareholders meeting? How long does that take? I just want to get a sense of the whole timing of how this evolves once the catalyst is triggered by the filing. of the official tender offer by this family?
spk03: Well, as far as I know, once the family, once the authorities authorize the tender offer, the board of the company will give an opinion on the price in the 10 following days once the offer is authorized. It's the only thing that I know that the company, the board of the company should do. But as I said before, the company in this process is neutral, so this is an externality for us, actually.
spk06: Yeah, no, understood, understood. This is something among the shareholders, not for management, it's to you. I mean, but basically it's just to understand better because you're closer to the whole situation than any of us. Basically, if and when the family files, then the board will give an opinion. If they think it's a fair or not an unfair, they'll give their reasons. But then you have to go to a shareholders meeting, right?
spk03: Yes.
spk06: Okay. Got it. No. Okay. Well, again, congratulations on the results and best of luck with the other process, which I think right now it's, everybody's mind and that's what's controlling the price of the stock in any case. Thank you.
spk03: Thank you, Alain. Thank you, Alain. Thanks.
spk01: Thank you. As a reminder, if you have a question, please press 01. The next question comes from Jay Hill from Tweedy Brown.
spk08: Hi, Rodolfo. Hi, Daniel. Good morning. Good morning. Yeah, guys, so in the context of this proposed tender offer by the controlling shareholders, I want to ask you a hypothetical question. So hypothetically, if Tyson's Chicken or some other strategic buyer offered 81.66 pesos per share for 100% of Bishoko, all 600 million shares, I want to know how would you, as the management team of Bishoko, the CEO and the CFO, advise the board on the fairness of that hypothetical offer price?
spk03: Jay, I cannot give you an hypothetical answer for an hypothetical question. Actually, the company cannot offer have an opinion in this tender offer. So it's unfair to try to answer that question.
spk08: Well, I mean, Daniel, I mean, look, book value is now basically 50 billion pesos. It's 83 pesos per share. The tender offer price of 81.66 pesos per share is now below even book value. So I want to make that point. And then Daniel, can you tell me, so when the formal tender offer documents come, you said within 10 days the board is going to opine on the fairness of the offer. Is it the entire board of all 12 members that are going to opine on the fairness, or is it the only four members?
spk03: independent directors that are non-conflicted that are going to opine on the fairness of the offer price as far as i know that the board is the one that should share the opinion based on the on the on the directors that are completely independent so the the um
spk08: So just the independent directors you would expect, the four independent directors will be the one opining on the fairness of the price. That's right. That's right. Okay. And I guess just the final other point, I mean, if you look at all of the precedent mergers and acquisitions of companies that are similar to Bishoko and you evaluate the tender offer price, And the EV to sales, price to book, EV to EBITDA, EV to normalized EBITDA. I can tell you that the price looks extremely low relative to all other similar transactions. And so I guess as a shareholder of Bishoko, I think you guys have put together terrific results here. But we're counting on the independent directors here. to fulfill their fiduciary duty of negotiating on behalf of minority shareholders with the controlling shareholder in this situation?
spk03: I cannot answer that, Jay. As far as I know, the only duty that this independent director is to have an opinion on the fairness of the price, but not to negotiate anything tender offer with the investment community. It would be up to them to analyze.
spk08: Yeah. Would the independent directors that are going to opine, would they hire a completely independent investment bank to do a proper fairness appraisal
spk03: Yes, I think they should do that in that way, yeah. Okay, terrific. I appreciate it. Thank you, Daniel. Thank you, Jay.
spk08: Thank you, Jay.
spk01: Thank you. Our next question comes from Don Noon from VN Capital Management.
spk00: Good morning or good afternoon, gentlemen. Just to follow up on that last point, can we assume that the board or the independent directors have already hired a financial institution to give them a fairness opinion? Because I guess 10 days is clearly not enough time to receive the tender offer and turn around a fairness opinion, I don't think. So can we assume there's currently a financial institution retained by the independent directors?
spk03: Well, I cannot answer that question because I don't know if they have hired someone else. But what I can say is that According with the terms that the authorities are taking for authorized tender offer, this will take probably more for weeks once the family members start filing to the authorities. So this will occur in the next two months at least, I think.
spk00: Okay, so the 10 days is not really a real number. It's going to take longer.
spk03: Yes, but because the 10 days starts once the authority authorizes the tender offer. So if the family hasn't started the filing, the authorities will take, as I mentioned, more than a month analyzing the documentation in order to approve the tender. Okay. It will take place in the next month or two months at least. Okay, thank you. Thank you. Thank you, Don.
spk01: Thank you. If you have any questions, please press 01 on your touchstone phone. At this moment, we have no further questions. I would like to turn the call over to Mr. Ramos for closing remarks.
spk09: Okay. Thank you all for joining us this morning. If you have any further questions, please contact our investor relations area, who will be glad to assist you. Thank you very much, everyone.
spk01: Thank you. This concludes today's conference call. We thank you for participating. You may now disconnect.
Disclaimer