Mexico Food Makers Crush Competition Behind Healthy Debt Levels

  • Returns for top 4 food producers average 14 percent this year
  • Mexico companies have lowest average debt-to-earnings ratio

Mexico’s largest food producers are outperforming regional competitors as a slumping peso boosts profit margins.

Mexico’s largest tortilla, bread, mayonnaise and chicken makers have gained investors an average 14 percent in U.S. dollar terms this year, compared with an average 15 percent loss for food companies across Latin America, according to data compiled by Bloomberg. Gruma SAB, the world’s largest tortilla maker, has returned a region’s best 32 percent, while Industrias Bachoco SAB, Mexico’s largest poultry producer, has returned 24 percent.

The peso has dropped 14 percent this year against the U.S. dollar, which has made exports from Mexico’s food companies more attractive. That’s helped to swell margins and keep debt levels from rising, according to Mauricio Martinez, equity analyst at Mexico City-based Corporativo GBM Sab de CV. The average gross margin for the four Mexican food makers in the past quarter was the best in the region, while the average debt-to-earnings ratio was the lowest, the data show.

“All of these companies have a solid debt balance, with none that have a leverage level considered unsustainable or worrisome,” Martinez said in a phone interview from Mexico City. “Compared to Brazilian food companies, which are generally very leveraged, the Mexican companies have very healthy debt levels.”

Buy Ratings

At least 60 percent of analysts surveyed by Bloomberg have a buy rating on three of Mexico’s four largest food companies by market value: Gruma, Bachoco and Grupo Herdez SAB. Grupo Bimbo SAB, the world’s largest bread maker, has lost investors 9.8 percent this year in dollar terms and is rated buy or hold by 20 of 23 analysts surveyed by Bloomberg. Herdez, producer and distributor of foods and condiments such as dressings and mayonnaise, has returned 6.8 percent.

The fall in the Mexican peso has benefited the country’s principal food companies that sell a large percentage of their products to U.S. and international consumers and pay operational expenses in pesos, according to Brian Flores, senior equity analyst at Interacciones Casa de Bolsa SA in Mexico City. The gross margins for Mexico’s largest food producers averaged 40 percent last quarter, compared with 24 percent for six Brazilian peers.

The additional financial room generated by the devalued peso has allowed these companies to pursue opportunities for further international expansion, Flores said. Bimbo, Bachoco, Gruma and Herdez didn’t respond to calls or e-mailed messages seeking additional comment. 

“These companies are continuing to see a benefit on behalf of the exchange rate,” Flores said. “They sell an important part of products in dollars in international markets, which is being reflected in their margins.”

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