Monterrey-based Sigma Alimentos food group, reported lower earnings in the first quarter of 2017 amid an increase in raw-material costs and the expense of new plants in Spain and the United States.
The meat and dairy business, part of Mexican conglomerate Alfa, booked operating income of US$ 85 million (-28%) and earnings before interest, tax, depreciation and amortization (EBITDA) of US$ 135 million (-17%), a result the company said was "in line with guidance".
During first quarter, Sigma sold approximately 413,000 tons of food products, up 3% from the same period of 2016, supported by growth across all regions, with Mexico a notable standout.
Revenues totaled US$ 1.35 billion, affected by the strong U.S. Dollar average exchange rate, which rose 13% year-on-year against the Mexican Peso. Excluding the FX impact, revenues increased 3%.
In Mexico, sales in pesos were 12% higher year-on-year, reflecting higher sales volumes and price adjustments to absorb higher raw material costs.
In Europe, sales in Euros were 3% above 2016 driven by higher sales volume. In the U.S., sales were comparable to last year.
Sales in Mexico accounted for 41% of the quarter’s total, while Europe represented 36%, the U.S. 15%, and Latin America 8%.
Alfa’s subsidiary pointed out the impact of exchange rates on its raw material bill. In the Americas, the price of some of Sigma’s key raw materials remained below 2016 levels. Specifically, turkey breast was 60% lower, while pork hams remained at similar levels.
By contrast, turkey thigh and milk prices were up 26% and 19%, respectively, although they were still below the levels observed in 2013 and 2014. In Europe, pork prices increased during the second half of 2016 and have stay flat since, causing 1Q17 prices to be 13% above when compared to the same year-ago period.
“In Mexico, the strengthening of the U.S. Dollar vis-a-vis the Peso has offset much of the potential cost savings from such favorable commodity price environment, as the industry participants import most of its meats from the U.S.”, said the company in its quarterly report.
Sigma also cited the start-up costs of new facilities in Spain and the U.S. “In the U.S., we incurred ramp-up costs of a new bacon facility in addition to short term impacts on margins related to fast increases of bacon costs. In Europe, start-up costs of the new Burgos plant in Spain also contributed to lower results”.