Mexican food producer Gruma (GMK) is back in the black. The maker of Mission tortillas and other brands is successfully passing the costs of higher food inputs on to consumers in its Mexican, U.S., U.K., Chinese, and Latin American markets.
It's also lowering financial costs. For the second quarter of 2011 net sales hit $1.1 billion, up 13 percent from the same period a year earlier, driven by price increases in most subsidiaries to offset higher raw-material prices.
The company's majority net income crept back into positive territory, hitting $9 million versus a $15 million loss a year ago thanks to lower financing costs and higher operating income. Sale volumes increased 1 percent to 1.15 billion tons due to stable volumes in Mexican and Central American markets.
According to the Standard and Poor's ratings agency, rising inflation rates in Latin America won't affect food producers too much.
"Although rising inflation is encroaching on Latin American consumer goods companies, we expect ratings to remain somewhat stable in 2011 because of strong demand, good capital markets, and cost cutting initiatives," S&P analysts write in a recent report on the sector.
"Most producers, especially companies that have a strong market position and portfolio, have been able to pass the rising costs on to their customers. Companies also have become more efficient and lessened expenses to maintain acceptable margins," S&P says.
Decreasing unemployment rates, rising incomes, consumer confidence, and higher consumer spending are contributing to Standard and Poor's stable outlook for the sector. "We expect strong demand in 2011, which should partly offset the strain of inflation on consumer goods producers," analysts write.
Stakes for sale
Standard and Poor's has assigned a positive outlook for Gruma on sentiment that when the company sold a small stake in Mexican financial institution Grupo Financiero Banorte it freed up money to pay down debt.
"The ratings on Gruma continue to reflect an aggressive financial profile and its exposure to external factors affecting its operations, such as commodity prices and conditions in Venezuela. The company's satisfactory business profile, including its leading position as a corn-flour and tortilla producer; strong brand recognition; and geographically diversified cash flow mitigate these factors," they write.
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