The plan to contain inflation, which includes agreeing on prices for 24 products in the basic basket, will put pressure on the margins and profits of companies in the consumer sector and self-service stores. This would also be reflected in a penalty on its shares in the Mexican Stock Exchange (BMV).
So far this year, the shares of food companies on the BMV, such as Grupo Herdez, Gruma, Kimberly-Clark de México and Bimbo, have gone down, by 25.94%, 6.80%, 3.93% and 2.35 %, respectively. The exception is Bachoco, which is in the process of delisting its shares from the Stock Exchange, which earns 4.44 percent.
The self-service store chains present a mixed behavior on the Stock Market. Lacomer and Soriana, for example, lost 6.68 and 14.74%, respectively this year, while Walmart de México y Centroamérica (Walmex) fell 2.63% and only Chedraui advanced 21.78 percent.
The pact, which will be announced next Wednesday, May 4, seeks to maintain “an even price in 24 basic products,” according to President Andrés Manuel López Obrador.
If this agreement is reached, the companies would be limited to raising the price of “certain” products, among which it is speculated that eggs, bread and tortillas would enter.
Carlos González, director of Economic Analysis at Monex Casa de Bolsa, commented that the measure will impact the results of the companies. Earnings will be affected and that could impact the share price on the national stock market.
Analysts consulted were of the opinion that the measure of putting a fixed price on products will distort the market, generate scarcity, black market, informality and reduce competition.
Alain Jaimes, stock market analyst at Signum Research, said that the “anti-inflationary plan” could cause unfair competition in companies that would generate pressure on their main metrics, however, because it is not a sustainable policy, the effect would be transitory but This does not mean that it is no longer serious.
For Janneth Quiroz, deputy director of Economic Analysis at Monex, the impact on the program is being speculated because the products included are not yet known. “Beyond that, this intervention is not exclusive to Mexico, since the prices of raw materials have increased throughout the world and we know that other countries have implemented some type of incentive to support citizens and that purchasing power don’t look so diminished,” he added.
“The only positive thing about price control would be that consumption is maintained, but it would be sustainable in the short term (less than a year) for companies,” said Jacobo Rodríguez, director of Financial Analysis at Black Wallstreet Capital.
“We are seeing pressure for companies in terms of costs and expenses, so if price controls begin to be applied to final products, the only thing that would be causing is that profit margins decrease and, therefore, that profits fall, which would make Mexican stocks like Gruma or Bimbo less attractive. But we still need to know the complete plan”, added the analyst.
During the first half of April, inflation in Mexico reached levels of 7.72%, the highest since 2001, and specialists estimate levels of up to 8.5% by the end of 2022.
Raw materials such as corn have become 37.28% more expensive this year, wheat 41.55% and soybeans 27.50 percent.
Prices go up
Firms listed on the stock market such as Grupo Herdez, Kimberly-Clark de México, Bimbo and Gruma, increased the price of their products and are analyzing further increases in the face of rising raw material prices.
Other strategies that they have undertaken to face inflation have been the reduction of expenses, as well as lowering the content of their products.
Daniel Servitje, president of Grupo Bimbo, said that they have faced pressure on their margins due to the highly inflationary environment worldwide, such as freight and labels, as well as shortages throughout the supply chain.
“We have been leveraging many tools to offset rising inflation, including price increases, category and product mix, also pursuing many productivity initiatives. We will continue this approach throughout the year”, he commented in a conference call with stock analysts.
Pablo González, general director of Kimberly-Clark de México, also commented in a call with analysts that they recently increased prices in their Professional line by 7% and are analyzing another increase of between 5% and 6% during this quarter. While for other products they are analyzing what additional opportunities they have in terms of pricing and promotions.
Sigma Alimentos, a subsidiary of Monterrey-based Alfa, reported that its flow from Europe was affected by the unexpected increase in input prices.
Gruma, which is identified by its corn flour products, mentioned that its cost of sales shot up 20%, which influenced the drop in its net profit.
Soriana, a chain of self-service stores, said that operating expenses for the first quarter, compared to the same period of the previous year, rose 6.4%, mainly due to the increase in the average cost of the energy mix.
Walmart de México y Centroamérica announced to analysts that it is further reinforcing its commercial offer. “The higher inflation affects our customers, so we are working closely with our suppliers to continue strengthening our price position,” explained Guilherme Loureiro, executive president of the issuer.