Gruma: shares plunged after significant losses

Monterrey / MX. (gru) Gruma S.A.B. de C.V., one of the world´s leading tortilla and corn flour producers, in the past week fell the most in more than 14 years after the Mexican Stock Exchange removed a two-week trading ban. Monterrey, Mexico-based Gruma fell 8,45 Mexican Pesos (MXN) or 59 percent, to close at 5,85 MXN in Mexico City trading, the biggest drop since May 1994. According to Bloomberg the shares have plunged 85 percent in the past year. But let´s have a look at Gruma´s financial statement for the third quarter 2008.

Highlights

• Sales volume remained flat as higher sales volume in Gimsa was offset by lower volumes in the rest of the subsidiaries.
• Net sales increased 17 percent, driven mainly by price increases implemented in most subsidiaries to offset higher raw-material costs.
• EBITDA decreased one percent, and EBITDA margin declined to 7,5 percent from 8,9 percent. Better margins in Gimsa, Gruma Venezuela, Molinera de Mexico, and Gruma Centroamerica were offset by lower margins in Gruma Corporation.
• Debt increased to 772 million USD, resulting mainly from corn procurement during the summer crop season, the final payment on the Agroinsa acquisition, and the construction of the tortilla plants in California and Australia.

Results of Operations – Q3/2008 versus Q3/2007

• Sales volume was flat at 1’079 thousand metric tons as higher sales volume in Gimsa was offset by lower volumes in the rest of the subsidiaries.
• Net sales increased 17 percent to 10’553 million MXN due primarily to higher prices in all subsidiaries—in particular Gruma Venezuela, Gruma Corporation, and Molinera de Mexico—which were implemented to compensate for higher raw-material costs. Sales from non-Mexican operations constituted 70 percent of consolidated net sales.
• Cost of sales as a percentage of net sales increased to 69,5 percent from 67,5 percent, driven mainly by Gruma Corporation. In absolute terms, cost of sales rose 20 percent, to 7’335 million MXN, due mainly to higher raw-material costs in Gruma Venezuela, Gruma Corporation, and Molinera de Mexico.
• Selling, general, and administrative expenses (SG+A) as a percentage of net sales, improved to 26,0 percent from 26,7 percent, driven mainly by better absorption due to higher prices. In absolute terms, SG+A rose by 14 percent, to 2’744 million MXN, resulting primarily from Gruma Corporation, Gruma Venezuela, and, to a lesser extent, Gimsa.
• Operating income decreased eight percent, to 475 million MXN, and operating margin declined to 4,5 percent from 5,7 percent, both results driven by Gruma Corporation.
• Other expense, net, was twelve million MXN, compared with income of 623 million MXN in the same period of 2007.This change was due mainly to the gain on the sale of Banorte shares during third-quarter 2007.
• Comprehensive financing cost, net, was 2’916 million MXN versus 153 million MXN in third quarter 2007. The increase resulted mainly from non-cash losses on currency derivative instruments, which represented anegative mark-to-market value of approximately 291 million USD.
• Gruma´s share of net income in unconsolidated associated companies (primarily Banorte) totalled 177 million USD, twelve percent lower than in third quarter 2007.
• Taxes resulted in income of 568 million MXN, compared with an expense of 464 million MXN in third quarter 2007,due mainly to positive deferred taxes in connection with the aforementioned non-cash losses on currency derivative instruments.
• Gruma´s total net loss was 1’707 million MXN versus net income of 724 million MXN in third quarter 2007; the change came from the losses on currency derivative instruments. Gruma´s majority net loss was 1’765million MXN, compared to a majority net income of 799 million MXN in the same period of 2007.

A detailed description of the results Gruma S.A.B. de C.V. has printed as PDF file (8 pages | 275 KB) under the headline «Gruma: Third Quarter 2008 Results».

_{Addition: «Fitch Ratings Downgrades Gruma» (2008-10-13)
(…) The rating actions follow significant marked-to-market losses on derivative instruments due to extreme exchange rate volatility currently in the financial markets. These derivative positions expose Gruma to large potential losses over time as these instruments roll-off during the next three years. Near term, liquidity will be modestly impacted as Gruma posts collateral on certain forward sales contracts. Management indicates that most of the forward contracts do not contain collateral call provisions. Gruma currently has approximately 140 million USD in cash and committed credit facilities, and no significant maturities until July 2010. Gruma reported that forward US-Dollar sales contracts were negatively valued at approximately 684 USD at October 08, 2008. The maturities of these contracts range from a few months to approximately three years. At June 30, 2008, total on-balance-sheet debt reached 620 million USD, which was almost entirely US-Dollar denominated (…).Gruma has short term debt maturities totaling approximately 96 million USD and cash and marketable securities valued at 97 million USD. Gruma owns an 8,62 percent stake in Grupo Financiero Banorte S.A. de C.V. (Banorte), one of the largest financial groups in Mexico and one of the few listed retail banks in Mexico. The market value of Gruma´s stake in Banorte is at present around 275 million USD.}