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Gruma: The Largest Producer of Tortillas in the World

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Mexico-based Gruma SAB de CV (GPAGF) (MEX:GRUMAB) is the largest manufacturer of tortillas in the world. The company gets over half of its revenues in the U.S. Gruma's products can be found at Walmart (NYSE:WMT), Amazon (NASDAQ:AMZN) and most major grocery store chains in the U.S.

The stock trades for 196 pesos ($10.35), there are 414 million shares and the market cap is 81.1 billion pesos ($4.27 billion). It takes 19 pesos to buy one dollar. Earnings per share are 11.19 pesos and the price-earnings ratio is 17.5. The dividend is 4.65 pesos and the dividend yield is 2.37%.


Sales have grown from 58 billion pesos in 2015 to 77 billion pesos for the trailing 12 months, which is great top-line growth. Shares outstanding have remained about the same, so management has not diluted shareholders to obtain that growth. Earnings grew from 761 million pesos to 4.7 billion pesos over that time frame. Good earnings growth, too. Profit margins are 6.11% and return on equity is 18.65%. Very profitable.

Free cash flow has ranged from about 3 billion pesos to 6 billion pesos over the last several years. Again, very profitable. The balance sheet shows 4.6 billion pesos in cash and 8.2 billion pesos in receivables. The liability side shows 6.7 billion pesos in payables and 17.4 billion pesos in debt. Very solvent.

Gruma produces tortillas, pizzas, cornmeal, grits and other breads that are popular in the Latin culture. Approximately 56% of sales are derived in the U.S., 28% in Mexico, 7% in Europe, 6% in Central America and 3% in other places. The percentage of food sold in the U.S. is incredible. Well over half of sales! Some of its better-known brands include: Mission, MAXECA and Torti-Ricas.

Like many food manufacturers, Gruma has caught onto the health craze. It offers food that is organic, multigrain, fat-free and gluten free.

Here is some interesting information on the Hispanic community in the United States: 18% of the U.S. population is Hispanic and 63% of that is Mexican. Having stated this, non-Hispanics account for more than half of Mexican food purchases.

Gruma's Gimsa produces cornflour in Mexico and is its second-largest division. It has 18 plants and produces $1 billion in sales. The company noted that cornflour only produces 34% of tortillas in Mexico and that there is great room for growth. I suppose that what the company is saying is that wheat tortillas are inferior and that people prefer corn.

Morgan Stanley (NYSE:MS) likes the stock and has a price target of 240 pesos. In the most recent quarter, the investment bank noted that Gruma's sales were up 4.4% in local currencies. Earnings before interest, taxes, depreciation and amortization was 3.3 billion pesos, which beat the bank's estimate of 3.14 billion pesos and the street's 3.25 billion pesos. Revenues were up 6% in the U.S.

I was curious to see where Gruma sells its food in the United States. Sure enough, it's in Walmart. This link takes you to an eight-pack of tortillas for $4.24. You can bet that there's plenty of mark up in that. Webrestaurant sells items in bulk to restaurants. Does Amazon offer Gruma? You bet. Here is a link that takes you to their products.

What put Gruma onto my radar was perusing Southeastern Asset Management's funds. Gruma is a holding of the International Fund. It is also a holding of First Eagle. It looks like the value guys are piling in.

Disclosure: We own shares of First Eagle.

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This article first appeared on GuruFocus.