Grupo Bimbo, S.A.B. de C.V.

Good day and welcome to the Group of Monroe second quarter 2025 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Rafael Pamir, CEO. Please go ahead.

Rafael Pamir, CEO, Good afternoon, everyone, and thank you for joining us. Connected on the line today are our CFO, Evo Gagiola, Executive Vice President, Mark Bendix, along with several members of our finance team. Before we begin, I would like to take a moment to express our deepest condolences for the passing of Don Roberto Servizio Sendra, one of Grupo Bimbo's visionary founders, but Roberto was not only instrumental in building and expanding the company into what it is today, a global leader in the baking industry, but he also embodied the values that continue to guide us, integrity, humility, hard work, high-quality standards, and a deep commitment to people and society. His legacy is woven into the fabric of our organization, and we remain profoundly grateful for his leadership and inspiration. On behalf of the entire group of Bimbo family, we honor his memory and extend our heartfelt sympathies to Daniel, his family, and loved ones. Now moving into our second quarter results. Our second quarter results clearly demonstrate the extent and resilience of our business as we continue to navigate a complex and rapidly evolving environment across multiple markets. What sets us apart is the power of our highly diversified model, spanning geographies, channels, categories, and currencies, which provides the flexibility to deliver strong results today while we are strategically investing for the future. We are pleased to report a sequential acceleration in sales growth. Our operations outside the U.S. maintain strong momentum, achieving record performance in either sales or everyday margin. In North America, our teams made significant progress in unlocking productivity across the supply chain despite a challenging environment and succeeded in regaining share in key categories that had been under pressure for several quarters. Innovation remains at the core of our growth agenda. Our innovation rate has now surpassed 12% and we're actively firing up volume everywhere. At the same time, we are unlocking value from prior investments and laying the foundation for long-term sustainable growth. We're managing the present with discipline, but we're not standing still. We're looking into strategic investments, entering new business models, and pursuing targeted acquisitions that strengthen our competitive position and accelerate value creation. We remain dedicated to advancing our ESG strategy. While we recognize the progress achieved, We continue to be focused on reducing our carbon footprint and are committed to enhance our portfolio by delivering the best nutritional experience with simpler and more natural recipes. We're proud to report that 99% of our daily consumption products, including our core categories of bread, plantain rolls, tortillas, bagels, and English muffins, are now free from artificial flavors and colorants. These mentioned categories represent roughly 50% of our net sales globally and more than 70% of our sales in the U.S. We continue making solid progress towards our health and wellness targets. By year end, we expect 100% of our bread, buns, and breakfast portfolio to have positive nutrition, meaning the achievement of health star rating score plus or equal 3.5 stars. We're also broadening our focus to remove artificial colors from all of our products by the end of 2026. Looking further ahead, we've set a clear ambition for 2030. 100% of our baked goods and snacks will be made with simple, natural recipes, ensuring our products remain safe, nutritious, affordable, and accessible to consumers worldwide. Now, looking into the results by region, in Mexico, we delivered sales growth of 3%, despite a softer consumer environment, and on top of the record results achieved in the second quarter of 2024, reaching a new all-time high for the business. This performance was driven by a favorable mix and strong momentum across key categories such as buns and rolls, cookies, cakes, and pastries. Nearly all channels contributed to this growth. with particularly strong results in convenience and traditional. It is worth noting that these results include a negative calendar effect from the shift of Easter week. Excluding this impact, sales would have grown by 4%. We remain encouraged by the resilience of our business and brands and their consistent ability to generate value. Our record high margin of 20.3% underscores the extent and flexibility of our operating model enabled by a favorable mix and lower cost of sales. We are prioritizing volume performance and meet short-term volatility with successful initiatives, focusing on the right price-back architecture to meet evolving consumer needs across segments. We are also strengthening our brand equity through innovative product launches such as Artesano Masa Madre, Bimbo Half-Loved Bread, a valued price cookies portfolio, and field premium pastries. We are committed to enhance our portfolio by delivering the best nutritional, oh, sorry. At the same time, we continue to our long-term strategy with discipline, investing to position the business for sustainable growth, aligned with our recent public commitment of investing over $2 billion in Mexico from 2025 to 2028. In North America, excluding FX, sales declined more than 4%, reflecting continued softness in U.S. consumption as value-seeking behavior persists. We are also lapping the impact of last year's strategic exits from certain non-branded clients, which happened in October on the U.S. and this quarter in Canada. We remain committed to strengthening our revenue growth management strategy and enhancing our value proposition through innovation that aligns with evolving consumer preferences. Our recently launched price value bread portfolio is effectively addressing shifting consumption dynamics, while our continued expansion in artisanal breads supports our premium offering. At the same time, we have gained market share in key categories such as branded buns and rolls, snacks, and mainstream bread, which had experienced several quarters of declines but are now stabilizing for us. This performance underscores the resilience and breadth of our portfolio. We're also capturing the benefits of the transformation project initiated a year ago with a strong notable productivity gains across our supply chain, including manufacturing, administrative, and logistic initiatives. As a result, our EBITDA margin has been improving sequentially, rising from 5.9 in Q4 24 to 7.4% in Q1 2025, and reaching 9% this quarter. Moving on to Latin America, excluding FX effect, we set a record for a second quarter for net sales, fueled by robust volume and sales momentum across every organization, showcased by the double-digit growth achieved in Latin Sur, Brazil, and El Salvador, along with consistent gains in Colombia and Chile. This robust top-line growth, combined with a solid volume performance and disciplined cost management, resulted in an adjusted EBITDA margin expansion of 100 basis points. Chile and Colombia continued to deliver strong profitability, while the Latin Sur and Latin Central divisions stood out with exceptional performance, further reinforcing the region's positive trajectory. During this quarter, We acquired the remaining 40% stake of our business in Colombia. The acquisition of Panific also contributed to a lesser extent to the growth of the region. Please be advised that we are still waiting for the authorization of the acquisition of Wikibold in Brazil, which we expect in the second half of the year. In Europe, Asia, and Africa, excluding FXFX, sales increased by nearly 7%. This performance was primarily driven by the consistent strength of the BIMBO QSR business unit, India, Romania, and the UK, and the contribution from the acquisitions we completed in the last 12 months, including in Tunisia, in Romania, and one month of in the Balkans. The adjusted EBITDA margin was benefited by the strong sales performance, lower commodity costs, and administrative expenses, along with the accretive effect from past acquisitions. However, these gains were upset by weaker results in our branded business in China, as well as the combined effect of minimum wage increases and the phase-out of wage subsidies in Romania. I'm happy to share that we closed the acquisition of Dondon, a leading player in the baking industry in Southeast Europe with operations in four countries. Serbia, Slovenia, Croatia, and Montenegro, and exports to several others. Dondon has a strong, well-established brand, a robust manufacturing footprint, and an extensive distribution network. This acquisition is accretive and complements our recent investment in this region, characterized by solid growth and high per capita bread consumption. With this acquisition, we now operate in 39 countries, and through some strategic partnerships, we serve a total of 76 countries worldwide. With this, I would like now like to turn over the call to Diego, who will walk you through our financials. Please, Diego, go ahead. Thank you, Rafa. Good afternoon, everyone, and thank you for joining us today. We saw an honorable performance across key regions this quarter, with net sales reaching historic levels for a second quarter. This success was driven by our focus on innovation, productivity benefits in key markets, such as North America, and engaging both customers and consumers throughout most regions. As anticipated, I shared during our last earnings call, our EBITDA margin contracted mostly due to the continued challenging environment in North America. In defense of ongoing volatility, we continue to take deliberate actions that position us to generate sustained value for our shareholders over the long term. Our total debt close at 157 billion pesos, representing a 6 billion increase compared to the end of 2024. This was primarily driven by the acquisitions completed during the year and our ongoing CapEx program, which reached $486 million as of the end of June. These effects were partially offset by the appreciation of the Mexican peso. Despite this investment, our net debt to adjusted dividend remained unchanged from the end of 2024 at 2.9 times. Our disciplined approach to financial management enabled us to navigate macroeconomic challenges with prudence. In the face of external pressures, we continue to prioritize operational efficiency, cost control, and strategic resource allocation to project margins and drive long-term value creation. Supported by a strong financial foundation and a fully available $1.93 billion committed revolving credit facility, we are well positioned to adapt to a changing market dynamics while remaining focused on sustainable growth. As noted during our previous earnings call, We anticipated a challenging first half of the year in terms of margin, primarily due to the continued pressure in North America from the transformation initiatives and a challenging consumer environment. It's important to note that the majority of the investments related to our transformation project began in the third quarter of 2024, creating a difficult year-over-year comparison during the first half of 2025. That said, we continue to anticipate an improvement in the second half of the year, driven by ongoing operational enhancements and a more favorable year-over-year comparison. These factors reinforce our confidence in delivering area margin expansion during the second half. Importantly, we are already beginning to see the benefits from this investment as evidenced by our sequential margin improvement in North America from 5.9% in the fourth quarter to 7.4 in the first quarter and closing the second quarter at 9%. To conclude the call, we are revising our full year guidance because of having a stronger peso. We now anticipate an average exchange rate of 19.75 pesos versus the 20 pesos 50 cents that we previously expected. This 75 cents change represents an impact of 250 basis points on our top line growth. So we are adjusting our full year outlook reflecting this change. For sales, we now expect a mid single digit growth rate from the previous high single digit growth rate. For our adjusted dividend margin, We anticipate a slight improvement compared to the previous guidance of a slight margin contraction. We now expect a slap to a very slight margin contraction for the full year. As mentioned before, we foresee a margin expansion in the second half, which will contribute to this expectation for the full year. As for CAPEX, we are lowering our guidance to be between $1.3 to $1.4 billion from the $1.4 to $1.5 billion initially expected. And finally, regarding the leverage ratio, since the change in guidance is driven by a stronger peso, we now expect our net leverage ratio to close the year at around three times, as a portion of our debt is denominated in US dollars. Despite the challenges we have faced this year and the ongoing uncertainty across key macroeconomic environments, we remain confident in our long-term strategy. As a highly diversified global company and industry leader, We are well positioned to navigate . Our unwavering commitment to investing in the business, driving growth, and delivering sustainable value to all our stakeholders continues to guide our actions. Thank you for your time, and we can now move to the Q&A session.

Thank you. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. First question comes from Tiago Ardeo with CIDI. Please go ahead.