Gruma Sab De Cv Unsp/Adr

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to GRUMA's first quarter 2025 earnings conference call. During today's call, all parties will be in a listen-only mode. Following the speaker's remarks, the conference will be open for questions. If you have a question, please press the star followed by the number one on your touchtone phone. Please press star zero for operator assistance at any time. For participants using speaker equipment, they may be necessary to pick up your handset before making your selection. I would now like to turn the call over to Mr. Adolfo Fritz, Groomers and Best Relations Officer, who will present earnings results, and then we will open Q&A session where Mr. Raul Cavazos, Groomers Chief Financial Officer and team, will be available to answer additional questions. I would now like to turn the conference over to Mr. Fritz.

Thank you. Good morning and welcome to our first quarter 2025 conference call. We're pleased to have you on the line and thankful for the opportunity to share results with you. With me today, as always, are Mr. Raul Cavazos Morales, Gourmet CFO, and Rogelio Sanchez-Martinez, Gourmet's Corporate Finance VP. To start, we'll take a few minutes to discuss the fundamentals and results from the quarter, and then we'll open it up to any questions you may have. We're very pleased with the results for the first quarter of the year as our company once again has shown its resilience and ability to deliver the desired results despite challenges in the overall market. As you know, the start of 2025 has seen changing fundamentals and market dynamics, which have been proportional to the uncertain outlook for the U.S. economy and its potential effects on global trade and ultimately on the consumer. Thanks to Gruma's global footprint and geographical diversification, we feel we are in a privileged position to face the challenges that may be ahead as a result of these potential changes in the economy. In the U.S., there is clear evidence that the average consumer is more selective than a year ago. However, our better-for-you line performed very well and in line with historic growth, remaining the core driver of growth at the retail channel, as did other SKUs along the array of products we offered. In fact, when compared sequentially, our product lines experienced a slight acceleration, potentially indicating future growth despite today's economic environment. We continue to focus on recovering volumes in the tortilla food service channel, while in the rest of the world, Europe keeps expanding favorably, and results in Australia supported growth in our Asia and Oceania operations, even as China continues to experience volatility in terms of fully recovering demand. With these fundamentals as context, our tortilla operation declined by 1.4% in terms of volumes and mainly in the back of the evolution of the U.S. food service channel. In terms of corn flour, our Mexican operations saw temporary decline in volumes in the back of a few clients starting regular operations later than expected. However, our division in Central America performed very well and in line with our expectations to the extent there is a need for future investments to have capacity. The European corn milling business, meanwhile, threw volumes down with a tough comparative base and the now usual logistic challenges which we hope will subside in the future. In all, Consolidated volume for the first quarter of the year was 1 mm tons, or a 1.3% decline relative to a year ago. The effects of a weaker Mexican peso on reported financial numbers, coupled with mainly a decline of cornflower volumes at GIMSA and corn milling volumes in Europe, along with lower revenues at GIMSA, resulted in a 6% decline in sales, reaching $1.5 billion. Had the peso not depreciated relative to last year, sales would have been flat. Nevertheless, we achieved EBITDA of $276 million, representing 4% growth in the period or 8% growth without the effects of the Mexican peso depreciation. This resulted in 13% higher earnings, reaching $126 million. In terms of the balance sheet and working capital management, we increased inventories by 12% given the potential of a drier harvest with lower yields in Mexico. To mitigate this potential risk, we took an additional short-term debt and inventories grew proportionally. Nevertheless, our leverage, as measured by net debt to EBITDA, remains at very healthy levels at 1.2 times. At this point, we don't foresee any changes or meaningful shifts to our current leverage levels. This quarter, we focused our capital investments on our planned and needed capacity expansion in Central America, the replacement of manufacturing equipment, the purchase of additional land for a milling operation in the U.S., and overall global maintenance work that weighed on HIMSA. We invested approximately $50 million in the quarter and in line with our budget for the period. Moving on to the performance in each one of our subsidiaries in the U.S., although growth has been slower, we're still seeing growth in our retail channel despite market dynamics that have changed the overall environment. We've seen a weakening in consumer sentiment and uncertainty in the economic outlook, which have further supported consumer selectivity. This has resulted in increased competition within the category among our competitors and private labels as they seek to recover market share lost over the last eight months. It is important to note that this competition is more at the standard product level and not meaningful enough at this point in terms of value-added products. As a matter of fact, as I mentioned a minute ago, the performance of our Better For You product line has been in line with our expectations, and we are very pleased not only with its current results, but also with its outlook as a main driver for future growth at the U.S. retail channel. Our philosophy and strategy have not changed, but we will be ready to address the situation should it further escalate during the upcoming quarters. All in, the retail channel thus far is performing according to budget. Our expectations is still to deliver growth on an annual comparative basis and even more so on a sequential basis. In the food service channel, however, on a yearly comparison basis, the decline in volumes that took place in previous quarters is still dragging the revenue and volume results for the business units. However, we see encouraging recovery on a sequential basis as we have been able to recover important accounts since the start of the year. In the U.S. division as a whole, volume and sales declined by 2% and 3% respectively, while EBITDA still grew by 6% and EBITDA margins stood at 22% for the quarter. In Mexico, the overall picture of the subsidiary is that the environment is stable and the operation is yielding stable results, as it always has done in the past. That said, during the quarter, some of our clients delayed their usual start of operations in addition to volumes sold last year as part of governmental humanitarian programs related with the aftermath of Hurricane Otis in Acapulco. Therefore, we saw volumes decline by 2%. Notwithstanding the setback, demand for our product continues to be very favorable from tortilla makers and wholesalers alike, which we expect to continue over the course of the year. Revenues contracted by 2% and EBITDA declined by 1%. Our European division continues with its promising expansion into retail channels as it keeps adding more distribution across the continent. The single-digit growth achieved at this channel was overshadowed by the performance of the core milling business, where the marginal decline in sales volume reflects ongoing logistic challenges, and in this quarter specifically had a much tougher base of comparison relative to 1Q24, given extraordinary corn volumes sold last year that did not take place during the quarter. Had we not sold this core volume, the subsidiary would have grown by 4%. With these fundamentals, volumes decreased 3% as a result of the core milling operation's performance. Sales grew by 7%, and EBITDA expanded by 20%, supported by the results of the tortilla operation in this division. In Central America, demand for a product continues to be buoyant as we keep expanding innovative product offerings across the market to subsidiary serves. We have seen cost inflation in certain items such as fuel, freight, labor, and so many factory expenses, which has increased our usual costs, but nothing that kept this division from outperforming the first quarter of 2024 and delivering historic performance altogether. We're excited about the potential and outlook for this subsidiary. And in order to reach our goals, we will need to add capacity during the year to cope with the strong demand that has been accelerating as we expand our product offerings in this market. At the end of the first quarter of the year, volumes grew by 2% and sales increased 1%, with EBITDA growth of 5%. EBITDA margin was 16.8%. Asia and Oceania continue with the same trend we saw in previous quarters, with Australia and Malaysia outperforming China's lackluster commercial activity. At this point, we're assuming a similar performance from China for the rest of the year, but just as it happened this quarter, we're confident about the outperformance from our other two operations in this division. The growth in costs we experienced in the quarter was due to indirect manufacturing costs, which we believe will subside into future quarters, and higher labor costs. The costs will be absorbed once the full operation in China starts ramping up to normalized levels. Given these factors, the subsidiary experienced 2% growth both in volume and sales, but the rise in costs offset this growth resulted in an 11% decline in EBITDA. In all, We're pleased with the results for the first quarter of 2025, and we remain in line with our original budget and expectations for the year. As you know, there is a significant number of variables in the global economy today, some of which are far beyond what anyone would have expected in 2025. As we communicated in our last conference call, our guidance was crafted with challenges in the horizon during the year, and we're not new to operating with challenging environments, knowing that they also create opportunities. We have a defensive business model and product line and the best team to execute our strategy and find opportunities in this market. This is why we feel confident about overcoming the obstacles that may or may not come our way during the year and our ability to deliver solid results for our shareholders. With that, I'd like to open the call for questions from listeners today. Can you help with that, please, operator?

Thank you, sir. We'll now begin the question and answer session. As a reminder, if you have a question, please press the star followed by one on your touchtone keypad. If you would like to withdraw your question, press the star followed by the number two. If you're using speaker equipment, you will need to lift your handset before making your selection. One moment while we poll for questions. Our first question is from the line of Ben Thurr with Barclays. Please proceed with your question.