Coca-Cola FEMSA S.A.B. de C.V. Q1 2023 Earnings Call

In most countries in South America, and we expect that raw material environment to continue to be favorable for the remainder of the year probably.

Potentially impacting sweeteners that have been.

Maggie impact in our in our P&L, but the rest of the raw material environment.

It seems to be pretty pretty positive stable to positive for the remainder of the year.

Okay.

So perfect. Thank you very much.

Thank you Lynn.

We will take our next question from Alvaro Garcia from BTG. Your line is open. Please go ahead.

Okay.

Hi, gentlemen, thanks for the space for your questions.

<unk>.

First I was with two questions first I was wondering if you could just remind me of.

For sweetener dynamics in each of your main markets.

So raw sugar in Brazil versus fructose in Mexico.

How you can hedge each in each of these respective markets and my second question.

As in Argentina.

Jerry I was wondering if you could sort of walk us through.

Whether you are taking dividends out of Argentina at the moment.

Sort of.

What the outlook is given the FX environment there. Thank you.

Thank you Alberto for your question I'll start with the sweetener situation and.

I'll give you a few details as I was mentioning in my previous answer to Ben's question.

Sweetener sweeteners is that the raw material that we are a little bit more concerned with particularly in sugar for Brazilian or why we have a pretty healthy hedge position, Brazil, very close to 40% of our requirements for it for the whole year and a significant.

Premium two or below the current market price.

Secondly, as well living in northern White.

That position is close to 60% of our of our requirements in the case of fructose.

For Mexico, which is the main operation, where we use fructose we have more than 90% of our requirements for the year already hedged at a very competitive price.

Which is also reducing any worry for us for the remainder of the year on that front are we have.

The expectation that sugar prices it will continue to be tight.

For the remainder of the year, mainly due to the sugar world environment being pretty tight and countries that are a swing failures.

In the sugar market like India, not exporting that much sugar to the market. So that's that's where we are in terms of sweeteners.

And then your question regarding Argentina.

Dividends as you know it's a.

Very complex environment to be able to extract a dividends.

Dividends from Argentina, we have been following the market and obviously taking advantage of any opportunities that present.

And in the local market to be able to use our excess cash to invest in our organic growth requirements and given the performance in Argentina has been a very good for the last at least two years.

We have the good problem of having to create capacity to serve a very positive market and protect our exit cash from any adverse impact that it can have by foreign currency depreciation.

Great. Thank you.

We will take our next question from Thiago <unk> from Goldman Sachs. Your line is open. Please go ahead.

Yes, hi, good morning, everyone and thanks also for taking the question I would just like to go back confidential, but especially on margins right specifically in Mexico fully appreciate that the commodity prices are still a headwind and this should normalize going forward, but if I try to break down the bulk of that margin compression there is essentially <unk>.

Right.

Thank you Gary pointed out some of the trials that are impacting the quarter I'd just like to understand when you'll share in rates re visitation of margins potentially improving by year end up being flattish and again, David what you're assuming foreign David's right. If that's.

Rone, showing improved SG&A and <unk> expenses are awarded require further pricing for you to reach.

This more normalized margin level and if this is the case how confident you are on.

The Mexican consumption backdrop like volumes I guess, probably most of the Mexican boxers I in the first quarter rates have been surprising on the upside. So it seems there is a stickiness is still there, but just wanted to hear a little bit I mean, how confident you are that you know.

Specifically, bringing relatively below going forward. Thank you very much.

Thank you Thiago.

We certainly expect.

Cost of DNA to normalize for the remainder of the year as we mentioned during the script of the call.

First quarter was the toughest problems in terms of margin compared to last year. So we expect better cost absorbed a portion but the costs that we experienced during the first quarter were a bit unusual and that impact we do not expect to make.

Maintained for the remainder of the year.

And as mentioned as well as by the fourth quarter, having any expansion in margins and ending the year at very similar levels of margin, where we ended the prior year.

We'll take our next question from Emiliano Fernandez from GBM. Your line is open. Please go ahead.

[noise] flash out of a hole here. Thanks for taking my question just a second here regarding Mexico very impressive margins. There could you give any discretion or breakdown on the evolution by months and also have you seen have you seen the performance in April .

Another one regarding profitability in Mexico, just a follow up here.

You said, you're expecting to improve their quarter by quarter going forward are you expecting any price increases there to drive a better operating leverage or are you still comfortable with that carryover that you already have.

Thank you for your question <unk>.

For the first part in terms of volume.

We stated in our in our fourth quarter call.

For this year, we are very focused on growth, we're trying to and considering that the slowdown in economic activity.

Globally end throughout our region, we're very focused in maintaining the competitive.

Position of our portfolio promoting our volume growth in that sense going into the second part of your question. We are very we're going to be very selective in any pricing action that we take focusing a lot more on driving favorable mix improving prices through mix rather than.

Being very.

<unk> aggressive in pricing.

Obviously, we'll take we'll take care of internal inflation impacts.

They're being very careful in trying to promote growth and maintaining a competitive part.

Is it a position.

Most of our general website.

Just wanted to.

You mentioned that performance during the quarter in Mexico was with.

As Darren mentioned was solid and was consistent pretty much across the quarter.

And so far during April and things that we can say is that we have seen a continuation of that of that performance.

Resilience and solid performance in Mexico.

Yeah.

That's great color. Thank you.

We'll take our next question from Rodrigo Alcantara from UBS. Your line is open. Please go ahead.

Hi.

Hi, good morning, Thanks for taking my question.

Yen.

So first of all I would say on on.

On the Samsung acquisition be it in Mexico.

Just curious.

Absent some large quarter already more than an hour.

Territories would be.

Kind of like synergistic for you guys just curious if you've.

At some point in what's on the table F <unk>.

The fences bottling operations instead of just the.

One of our operations.

That would be my first question.

The second one just to confirm.

Tim mentioned despite increased.

Manufacturing capacity.

2%.

30%.

Is that the case, which regions are you going to be that it would be.

<unk>, Brazil, Mexico.

Consolidated basis.

This will be my two.

Questions. Thank you.

Hi, Rodrigo <unk>, sorry, sorry.

Torture, but the first question we did catch your second question, but I think the first question. The first question was not that clear. So if you could first.

And your first question and then.

We'll answer that and then go onto your second one can you repeat your first.

Yes sure.

Yes, sure sorry, I said that right now.

My question question on that Samsung Red.

My question is at some point.

What's the possibility for you too to acquire their full bottling operations from the band's not just at the water segment with a full operations the moderate patients.

Was that in consideration.

We're not looking for that.

Got it.

Possibility that was my question and then must clear.

Perfect to add Rodrigo.

The first question. These transaction that we closed last year was a very specific transaction that we were that made a lot of sense because it was in our territories.

First create a capability that we didn't have in that region to.

To take advantage of the very good competitive position of that back jug water business in that region to strengthen our capability of serving the direct to consumer market that is a market that we're focusing now on throughout Mexico. So that's the extent of that.

Operations and what we are looking at FERC for any foreseeable future.

Regarding your second question our arm.

Creation of manufacturing and warehouse capacity.

I think.

The good thing about this is that it's.

A good problem that we have throughout our operations.

With a lot of focus I would say in our fourth foreign largest volume markets, which are Mexico, Brazil, Colombia and Guatemala.

All of those four markets are very close to operating at full capacity both in manufacturing and warehouse, but this is a problem that we see throughout our operations and given that were.

Promoting growth and you've seen it with our numbers we are.

Expecting to have to continue investing to create that capacity to serve this growth environment that we're facing and obviously coupled with our multi category commercial platform initiative.

Which also needs to be.

Obviously <unk>.

Supported with the correct capacity to serve this market.

Yeah.

Okay, that's great and just a farewell and very quickly on that was very nice to see that the goal.

To put it there on the beer segment you can comment.

Perhaps rank them by my pricing volumes.

Since your comments about the performance of bags of mom brands.

As you can comment about that point about the beer in Brazil would be also very helpful. Thank you very much.

Sure sure Yeah.

On beer.

And definitely during our previous call in expanded nor a little bit on what the trends have been.

Different segments from from premium.

Mainstream and economy.

During the first quarter, we have seen a continuation of that economy.

We are doing well, but it's a segment that has been becoming a smaller and also where we're gaining share there and also.

Pretty much in line in the other segments mainstream line.

And premium we'd also what's Heineken recently dish coach close for trends for the first quarter. So.

All in all we're focusing on the portfolio.

About 20 deals that we have ice and Brad.

As you know is a is a brand that we are betting a lot on it.

In the market with a brand that has a lot of potential.

Great recipe as well.

We're expanding its coverage.

So please as well and sub brand.

As Ian mentioned trade.

February it's a it's a.

Branded was.

Very good question across the territories, obviously, a small brand, but we are expanding coverage as well and leveraging those those brands.

And also what we're doing with Australia evolution, so all in all.

In general our first quarter that is in line with our expectations.

And in line with the trends.

<unk> also described for for beer in Brazil last quarter.

Okay. That's helpful. Thank you very much.

Yes.

We will take our next question from Ricardo Alves from Morgan Stanley . Your line is open. Please go ahead.

Yes, thanks for the follow up a quick one it's actually just to double check I think you mentioned in the preliminary remarks.

Your capex expectation for the year.

But just wanted to make sure that I got that number right around 8% of revenues. So just wanted to double check that I asked is because.

We noticed a FEMSA 20-F earlier this week I think that it had a higher budget for cost Capex and what we expected.

So just wanted to double check with you what is the most likely scenario for our Capex This year and perhaps next thank you.

Yes of course, we are accountable.

We have a range of 8% to 9% of revenues FEMSA.

<unk> mentioned that the higher end of the range of.

<unk> percent to 9%, but that's where we are and I think we spoke about this a little bit.

On our last call.

This expectation for this year, we expect to continue.

For the following at least two years.

Where we're trying to build this capacity to serve our growth requirements of the business.

Very helpful. Thank you.

Dan I'll further question on the line Sir Please proceed.

Thank you.

Thank you very much for your confidence and interest in Coca Cola FEMSA and for joining us on today's earnings call.

As always our Investor relations team is available to answer any of your remaining questions and we look forward to speaking again soon.

Thank you for joining today's call you may now disconnect.

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