2000 Second Quarter Results
Maseca
Scott Kolb (212) 484 5222
July 25, 2000
HOLD
Maseca’s 2Q00 operating results were somewhat in line with our estimates, but weaker in profitability terms.
Volumes fell about 5.5%, and sales prices were 8.4% lower as well, leading to a consolidated sales decline of 13.5%,
while we expected a decline of 12.0%. The lower sales prices reflect lower corn costs, and translate to COGS as well,
as this line dropped 19.7% for the quarter. (As we warned last quarterly, with a bountiful crop of corn being reported
in many areas of the world, we are not sure that prices will be recovering much this year). Gross profit therefore rose
by 7.3%. Operating expenses were 3.2% lower than last year, due to the closing of the Chalco plant. However, due to
lower volumes and sales prices, as a percentage of sales, these expenses rose 2 full pp. We would not expect much
improvement in this number, as freer competition will also impact these expenses negatively. We are not as sure as we
had been about Maseca’s growth prospects for the rest of the year, and think now that margins will not reach company
targets of perhaps 12%. The lack of conversion to corn flour is troubling, and does not seem to be reversing itself in
any way. Our expectation for year end multiples is from current levels of 5.8x to 5.2x. Thereafter, comparisons
become a bit more difficult upon which to grow from a margin standpoint, although volumes could certainly help.
Maseca indicated that it is expecting volumes to be flat for the year, indicating very slight growth in 2H00. What the
industry really needs is an upturn in corn prices, which is not foreseeable in the near future. The valuation, which we
had seen as cheap previously, appears fair to us now, so we rate the stock as a HOLD.
July 25, 2000 Price :
52 Week Range:
Shares Outstanding:
Market Capitalization:
Ps 4.25
Ps 6.41 To 3.87
918.4 Million
US$ 416.5 million
Price/Book:
0.8x
ROE
7.1%
ROA
7.5%
Enterprise Value: US$ 454.4 million
INCOME STATEMENT (thousands of constant pesos as of June 30, 2000)
1H99
Margin
1H00
Margin
Net Sales
2,573,105
100.0% 2,353,263
100.0%
Cost of Goods Sold
2,013,782
78.3% 1,687,485
71.7%
Gross Profit
559,323
21.7%
665,778
28.3%
P/E on June T12
P/NCE T12
P/EBITDA T12
EV/EBITDA T12
10.7x
6.1x
5.3x
5.8x
Change
-8.5%
-16.2%
19.0%
2Q99
1,326,667
1,021,757
304,910
Margin
100.0%
77.0%
23.0%
2Q00
1,147,218
820,136
327,081
Margin
100.0%
71.5%
28.5%
Change
-13.5%
-19.7%
7.3%
Operating Expenses
420,971
16.4%
418,546
17.8%
-0.6%
218,566
16.5%
211,668
18.5%
-3.2%
Operating Profit
138,352
5.4%
247,232
10.5%
78.7%
86,344
6.5%
115,413
10.1%
33.7%
Integral Cost of Financing
Interest Expense
Interest Income
Foreign Exchange Loss
Monetary Loss
(82,315)
35,441
59,539
(46,488)
(11,729)
-3.2%
1.4%
2.3%
-1.8%
-0.5%
(9,872)
8,038
34,791
(2,866)
19,747
-0.4%
0.3%
1.5%
-0.1%
0.8%
-88.0%
-77.3%
-41.6%
-93.8%
#N/A
(26,207)
12,444
30,242
(5,440)
(2,968)
-2.0%
0.9%
2.3%
-0.4%
-0.2%
-0.3%
0.5%
1.7%
0.0%
0.8%
-86.6%
-53.1%
-35.5%
#N/A
#N/A
Other Financial Expenses
Pretax Income
Taxes
15,580
205,087
15,748
0.6%
8.0%
0.6%
(650)
257,754
79,158
0.0%
11.0%
3.4%
#N/A
25.7%
402.7%
8,476
104,074
(13,545)
0.6%
7.8%
-1.0%
558
118,355
35,505
0.0%
10.3%
3.1%
-93.4%
13.7%
#N/A
Non-Cons. Subsidiaries
Extraordinary Items (gains)
Minority Interest
Net Income
Earnings Per Share
0
0
8,203
181,136
0.197
0.0%
0.0%
0.3%
7.0%
0
0
7,733
170,863
0.186
0.0%
0.0%
0.3%
7.3%
#N/A
#N/A
-5.7%
-5.7%
0
0
4,163
113,457
0.124
0.0%
0.0%
0.3%
8.6%
0
0
3,551
79,299
0.086
0.0%
0.0%
0.3%
6.9%
#N/A
#N/A
-14.7%
-30.1%
EBITDA
EBITDA Per Share
264,598
0.288
10.3%
371,483
0.404
15.8%
40.4%
149,891
0.163
11.3%
177,819
0.194
15.5%
18.6%
BALANCE SHEET (thousands of constant pesos as of June 30, 2000)
Jun-99
% of T.A.
Jun-00
% of T.A.
Total Assets
6,960,878
100.0% 6,230,194
100.0%
Cash & Equivalents
294,884
4.2%
17,338
0.3%
Other Current Assets
2,119,929
30.5% 1,935,525
31.1%
Long Term
15,106
0.2%
16,769
0.3%
Fixed (Net)
4,259,200
61.2% 3,936,803
63.2%
Deferred
16,792
0.2%
75,999
1.2%
Other
254,967
3.7%
247,760
4.0%
Total Liabilities
1,305,551
18.8% 1,250,809
20.1%
Short Term Debt
106,986
1.5%
24,890
0.4%
Other Current Liabilities
208,801
3.0%
275,114
4.4%
Long Term Debt
595,824
8.6%
0
0.0%
Other Liabilities
393,940
5.7%
950,805
15.3%
Shareholders Equity
5,655,327
81.2% 4,979,385
79.9%
Minority Interest
436,432
6.3%
347,728
5.6%
(3,500)
5,840
19,492
450
9,701
FINANCIAL ANALYSIS
Current Ratio
Short Term Debt to Total Debt
Foreign Liab. to Total Liab.
Net Debt to Total Equity
Total Liab. to Total Equity
Jun-99
Jun-00
7.6x
6.5x
15.2%
100.0%
45.7%
3.8%
7.2%
0.2%
23.1%
25.1%
1H99
1H00
A/R Turnover (days)
49
43
Inventory Turnover (days)
101
56
A/P Turnover (days)
5
11
WC net of debt to Sales
43%
36%
Interest Coverage Ratio
9.1x
50.5x
Total Debt to annualized EBITDA
1.3x
0.0x
ENTERPRISE VALUE (EV) = Mkt cap. + Net Debt + Minority Int.
NCE = Net income + Monetary Loss + Fx Loss + Depreciation
ROA=T12m Op Profit to Avg. Assets; ROE=T12m Net Profit to Avg. Equity
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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2000 Second Quarter Results
Maseca
Operating Results
Results for 2Q00 were in line with our expectations, perhaps a little worse. Volumes dropped 5.5%, and reflect a capacity utilization
rate of only about 63.5% of total installed capacity (69.3% taking out the Chalco plant). Prices continued their downward spiral, and
were 8.4% below last year’s revenue per ton, discounting product mix changes. With a solid supply of corn in the world, we would
be surprised if the pricing situation got immediately better. In the conference call, Maseca did say that it was concerned about
domestic corn prices in Mexico, and how world harvests, particularly those in the US were causing downward pressure on these
prices. In falling corn price environments, corn inventory prices are not fully reflected in product sales prices, constraining margins.
Additionally, with stable or rising tortilla prices, there is little incentive for tortilleros to convert to the Maseca method. The reverse
would be true in rising corn price environments. COGS as a percentage of sales dropped significantly compared to 2Q99, due
primarily to the aforementioned lower corn prices. Gross profit per ton rose 13.3% compared to last year, although it was up just
1.0% compared to 1Q00. The company is no longer assuring us that volumes will recover and that margin improvement will
continue. We think this is a fairly significant statement, given that in the past, Maseca has constantly championed growth, and now
stands more conservatively on the issue. Given the pricing environment currently existent, we see the comparative base margin,
beginning in 4Q99, as presenting somewhat of an obstacle to profit growth should volumes not begin to grow more robustly. In our
preliminary projections, we have our gross margin at 28.3% for full year 2000, and operating margin at 10.5%, compared to 24.4%
and 7.5% respectively last year.
Operating expenses fell 3.2% due to the closing of the Chalco plant. As a percentage of sales (18.5%), this is the highest level
recorded in our 6 years of tracking the company. It digs into operating margins significantly, and is the result of lower sales due to
lower volumes and prices.
Financing Activities
Maseca continues to enjoy balance sheet strength, although cash levels were well below those posted last year. This and an increase
in accounts receivable are both the result of a US$ 60 million loan by Maseca to its parent Gruma. Gruma paid debt, and Maseca
says it makes more money under these terms than at prevailing market rates (about 200 bp according to management). Gruma now
owns 83% of Maseca, so float has been reduced to 17%, further reducing liquidity. The company has no long-term debt, and we
don’t see any problems with liquidity. Total leverage was reasonably stable as a percentage of equity. Maseca registered net interest
income rather than expense, further evidence of balance sheet health. Overall, financing benefits came in at Ps 3.5 million in 2Q00,
significantly worse than the Ps 26.2 million benefit last year. This is mainly due to FX and monetary variations. The closure of 4
plants has lowered active capacity to 2.15 million tons, down from 2.4 million tons at the end of last year. The company reported Ps
7.9 million of investment during the second quarter, mainly in efforts aimed at increasing productivity at corn flour plants and the
acquiring of computer and transportation equipment.
Outlook
On the operating line, it appears that Maseca had a strong quarter in 2Q00. But upon closer investigation most of it was due to the
comparison base being so low, rather than to a return to robust growth and healthy pricing. Lower corn prices helped margins return
to reasonable levels (higher than 2Q99), but they were lower than the last two quarters. Maseca is less confident it will continue this
trend of operating growth, and so are we. We would like to see healthier volume performance than that which we have seen thus far
(down 1.1% on an accumulated basis). We think we are getting a clearer big picture now, and it is not particularly optimistic. On an
EV/EBITDA basis, Maseca has gotten cheaper, and the multiple stands at 5.8x. Our preliminary EV/EBITDA multiple for the
company is 5.2x for 2000 (adjusted upwards from our previous estimate given our interpretation of events in the industry and in corn
markets). Although this may appear inexpensive, we feel the company is fairly valued. We feel compelled to drop Maseca to a
HOLD.
Scott Kolb: [email protected]
Scott Kolb [email protected]
The information contained herein has been obtained from sources that we believe to be reliable, but we make no representation as to its accuracy or completeness. Neither CASA DE BOLSA
BANORTE, S.A. DE C.V. nor AFIN SECURITIES INTERNATIONAL accepts any liability for any losses arising from any use of this report or its contents.
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