Bimbo's Short-Term Challenges Are Intensifying, But There's Value For The Patient Investor

If Grupo Bimbo’s (OTCPK:BMBOY) (BIMBOA.MX) Osito, its white teddy bear mascot, were real, it would be pretty black and blue after the last couple of quarters. While Bimbo’s margin-improvement efforts in the U.S. do seem to be paying off, the company has seen a long run of market share losses compress revenue growth. Worse still, Mexico’s economy has slowed significantly and new labeling laws could weaken volume further, while the Latin American operations south of Mexico remain underperforming.

I was pretty cool on Bimbo back in late June, preferring Gruma (OTC:GMKKY), and Gruma shares have outperformed by about 20% as Bimbo’s near-term outlook has eroded. Given the ongoing share loss in the U.S. and near-term challenges in Mexico, I can’t say Bimbo has already seen the worst of this cycle, and the near-term challenges are meaningful. On the other hand, if the company can manage just 3% to 3.5% revenue growth and 75bp to 100bp of FCF margin improvement over the long term, the shares look priced for a long-term annualized return in the high single digits.

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Bimbo's Short-Term Challenges Are Intensifying, But There's Value For The Patient Investor