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 per cent in U.S. dollar terms this year, compared with an average 15 per cent 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 per cent, while Industrias Bachoco SAB, Mexico’s largest poultry producer, has returned 24 per cent.
The peso has dropped 14 per cent 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.”
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 per cent last quarter, compared with 24 per cent for six Brazilian peers.
Bloomberg News, edited by ESM
