Grupo Bimbo S.A.B. de C.V.

The negative outlook still reflects our view that Bimbo's deleveraging remains slow, particularly due to its most recent debt-financed acquisitions, high pension obligations, sluggish economic conditions in certain markets, and raw material price and exchange rate volatility. We could lower the ratings if Bimbo's adjusted debt-to-EBITDA ratio isn't near 3.0x and DCF to debt doesn't approach 5% in the next 12 months. This could occur if EBITDA margins worsen due to challenging economic conditions across Bimbo's core regions, or if the company undertakes an unexpected aggressive financial policy, including dividend payments, share buybacks, and an investment plan that requires additional debt. We could revise the rating outlook to stable in the next 12 months if Bimbo continues improving its operating

...Deleveraging remains a key rating driver for Bimbo over the next few quarters. Grupo Bimbo S.A.B. de C.V.'s adjusted leverage of 3.4x at the end of September 2019 remains high for the current rating level. Despite a robust operating performance in the 12-month period ended September 2019, with a 3.8% sales growth and a rise in adjusted EBITDA margin to 12.7%, the company's debt position and pension obligation remain high. Nonetheless, we still expect Bimbo to reduce its leverage, with adjusted debt to EBITDA to near 3.0x by the end of 2019 and below 3.0x by the end of 2020. Solid operating cash flows (OCF), but capex, dividends, and share buybacks reduce Bimbo discretionary cash flows (DCF) and debt repayment capacity. We expect Bimbo to continue generating OCF in the range of MXN20.0 billion - MXN23.5 billion in 2019 and 2020. During 2020, we also expect the company to keep reinvesting in the business with an estimated capex of MXN14.5 billion, to maintain its dividend distribution policy...

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