Q3 2024 Coca-Cola FEMSA SAB de CV Earnings Call
Hello, and welcome to Coca Cola FEMSA third quarter 'twenty 'twenty four conference call. My name is Melissa and I will be air coordinator for today's event. Please note. This conference is being recorded and for the duration of the call your lines will be on listen only.
Speaker Change: If you require assistance at any point you May press star zero to be connected to an operator I'll now turn the call over to Jorge <unk> Investor Relations Director. Please go ahead.
Speaker Change: Okay.
Jorge: Thank you Melissa.
Jorge: Good morning, everyone. Welcome to this webcast and conference call to review, our third quarter 2024 results.
Jorge: Joining me this morning are Ian Greg, Our Chief Executive Officer, Anthony <unk>, our Chief Financial Officer.
Jorge: As usual after prepared remarks, we will open the call for a question and answer session.
Jorge: Before we proceed.
Jorge: Please allow me to remind all participants that this conference call may include forward looking statements and should be considered as good faith estimates made by the company.
Jorge: These forward looking statements reflect management's expectations and are based upon currently available data.
Jorge: Actual results are subject to future events and uncertainties that can materially impact the company's performance.
Jorge: For more details on this please refer to the disclaimer in the earnings release that went out earlier this morning.
Speaker Change: With that let me turn the call over to our Chief Executive officer to begin our presentation.
Speaker Change: Please go ahead.
Speaker Change: Okay.
Speaker Change: Thank you Jorge good morning, everyone. Thank you for joining us today.
Speaker Change: Our third quarter results reflect the resilience of our business and the ability of our team to execute our strategy with local folks.
Speaker Change: Despite facing unfavorable weather in Mexico, and a tough comparison base from the previous year, our revenues and operating income grew double digits year on year.
Speaker Change: Strategically we continue implementing initiatives to grow our core business and improve our service levels.
Speaker Change: In digital we continue progressing with full dose plus reaching one 2 million active users while enhancing our user experience with the development of new features.
Speaker Change: By the end of the quarter, 56% of our customer base, where digital buyers six percentage points ahead of the previous quarter.
Speaker Change: We are also encouraged with the rapid adoption of Premier plus our loyalty program, which reached more than 920000 enrolled clients, a 21% increase versus the prior quarter.
Speaker Change: Aligned with our strategic priorities, we remain committed to removing infrastructure bottlenecks to enable sustainable long term growth to this end, we are not only increasing capex investments, but also improving the efficiency of our bottling lines and optimizing the layout and density of our warehouses across.
Speaker Change: Our territories.
Speaker Change: As with other parts of the world whether events have increased in frequency and strength in less than a year. The state of that rail in southern Mexico is once again facing the consequences of a strong hurricane.
With this in mind, we want to express our sincere support to all the people affected by Hurricane John.
Speaker Change: As part of our protocols, we have taken action to ensure the wellbeing of our collaborators on their families.
Speaker Change: As well as community actions undertaken together with FEMSA and our partners at the Coca Cola Company.
Speaker Change: As we usually do I will begin this call by summarizing our consolidated results for the quarter, then I will take a moment to dive deeper into key developments on highlights from our territories.
Speaker Change: At the close I will hand over the call to Jerry who will walk you through our divisions' performance.
Speaker Change: Now moving on to review our consolidated results for the third quarter.
Speaker Change: Despite double digit volume growth in the previous year, we increased our consolidated volumes by 0.8% to reach 1.04 billion unit cases.
Speaker Change: This growth was driven mainly by Brazil, what the Molla and our Central America territories.
Speaker Change: Setting volume declines in Mexico, Colombia and Uruguay.
Speaker Change: Sparkling beverage volumes outperform driven mainly by brand Coca Cola to 8% growth.
Speaker Change: Still beverages grew four 9% and bottled water remained flat offsetting mid single digit declines in flavors and bulk water.
Speaker Change: Despite the moderation in the pace of volume growth total revenues for the quarter grew 10, 7%, reaching 69 6 billion peso.
Speaker Change: Mainly by our revenue management initiatives and favorable mix effects.
Speaker Change: Unlike previous quarters this quarter saw a more neutral currency translation impact with currency neutral revenues, increasing 11, 3%.
Speaker Change: The positive translation effects for most operating currencies into Mexican pesos were balanced out by the depreciation of the Brazilian real and the Argentine peso.
Speaker Change: Gross profit increased 11, 3% to reach $32 1 billion vessels, leading to a margin expansion of 20 basis points to reach 46, 1%.
This increase was driven mainly by top line growth.
Speaker Change: In raw material costs and favorable hedging strategies.
Speaker Change: However, these effects were partially offset by an increase in purchases of finished product in Brazil.
Speaker Change: Higher fixed costs and the depreciation of the Argentine peso.
Speaker Change: Okay.
Speaker Change: Operating income increased 13, 9% to reach nine 6 billion pesos with operating margin expanding 30 basis points to reach 13.8 person.
Speaker Change: Positive effect from top line growth unfavorable mix, coupled with cost and expense efficiencies continues to mitigate margin pressures from higher operating expenses, such as labor marketing freight and maintenance.
Speaker Change: Importantly, our operating income for the quarter includes a favorable effect of approximately 340 million pesos driven by the recovery of insurance claims in Mexico related to the impact of Hurricane Otis in Laredo.
Speaker Change: Which affected the region in October last year.
Speaker Change: Excluding this effect our operating margin would have contracted 10 basis points to 13, 4%.
Speaker Change: Adjusted EBITDA for the quarter increased 18, 4% to reach 14 billion pesos and adjusted EBITDA margin expanded a 130 basis points to 21 person.
Speaker Change: Finally, our majority net income increased eight 9% to reach $5 9 billion pesos.
Speaker Change: This increase was driven mainly by operating income growth, which was partially offset by an increase in our comprehensive financial result, and in income taxes.
Speaker Change: Now expanding into our operations highlights in Mexico, our volume declined one 5% compared to double digit growth last year.
Speaker Change: This quarters performance was affected by 50% more rainfall and lower temperatures than the previous year.
Speaker Change: Additionally consumption patterns during the quarter moderated driven by a deceleration in private consumption growth and overall economic activity.
Speaker Change: Against this backdrop, we continued implementing initiatives aligned with our priority to grow our core business for instance, the implementation of our revamped portfolio architecture.
Speaker Change: Enabled brand Coca Cola volumes to remain stable year on year.
Speaker Change: Driven by 6% growth in multi serve one way presentations and 7% growth in Coke sugar zero sugar in stills.
Speaker Change: Growth was driven mainly by strong performance in brand power it views on monster as well as our startup Clara dairy portfolio.
Speaker Change: In line with these initiatives and our commercial prowess. Our team has focused on expanding our customer base successfully adding 70000, new customers in Mexico year to date.
Speaker Change: Furthermore, we continued advancing our digital transformation with <unk> plus.
This quarter, we added approximately 70000 monthly active buyers to a rep, reaching 405000.
Speaker Change: Today in Mexico digital orders represent more than 40% of our total supported by the rollout of our loyalty program with more than 260000 customers redeeming points.
Speaker Change: Looking ahead, we are confident in the prospects for growth in our Mexico territory, driven by the continuation of consumption drivers such as increases in disposable income from real wage growth social programs infrastructure projects.
Speaker Change: We're showing trends.
Speaker Change: Consequently, we remain committed to expanding our manufacturing capacity by 4% in 2024, including our third new bottling line that is expected to begin production next month.
In terms of our warehouse capacity, we're expanding pallet positions by more than 25% as compared to 2023, adding four new distribution centers, coupled with layout optimizations and increase productivity.
Speaker Change: Notably we have expanded our primary distribution fleet by 13% and secondary distribution fleet by 6% strengthening our ability to meet growing demand in Mexico.
Speaker Change: Moving on to Central America volumes in Guatemala increased seven 5%.
Our initiatives to grow the core business continue driving outstanding results in the market that enjoys a young and growing population where consumers are moving from rural to urban areas. What the Milan consumers are looking for convenience and affordability, while rapidly increasing digital adoption all of these factors our tailwind for <unk>.
Speaker Change: Long term growth.
Speaker Change: To maintain this rapid volume base, we're focusing on capturing white spaces in the market and improving our service levels for instance.
Speaker Change: In 2024, we have increased our total customer base by 7% year on year.
Speaker Change: Adding 9000 customers, while our digital client base doubled as compared to the previous year.
As we have mentioned in previous calls what the Mueller has doubled its volume since 2017.
Speaker Change: Therefore, we need to increase production warehouses and route to market capacity.
Speaker Change: To enable future growth.
Speaker Change: To this end we have added two production lines in 2024, and we expect to add two more next year alongside these efforts our supply chain team is increasing the number of routes by 17% in 2024 as compared to 2023.
Speaker Change: Now moving onto our markets in South America in Brazil, Despite the suspension of our plant in Porto Alegre, we.
Speaker Change: We continue to deliver consistent volume growth up six 3% year on year on the back of favorable weather and improving macro fundamentals supported by positive consumption patterns. We have continued to improve our service levels versus the prior year.
Speaker Change: Reducing on availability as well as increasing our client count on leases, which have supported our positive results. Additionally, our robust 360 degree plan together with the Coca Cola Company for Coca Cola Zero sugar.
Speaker Change: <unk> continued to accelerate its volume growth to reach 59% year over year.
Speaker Change: Regarding sports and energy drinks brands powered a monster have achieved double digit volume growth of 52% and 15% respectively. Leveraging the Olympics Copa America, and Copel <unk> as well as capitalizing on other market opportunities.
Speaker Change: Year to date.
Speaker Change: The category revenues, excluding beer grew 24% this growth led our multi category revenue mix without beer to reach 2% during the quarter aligned with our ambition to reach 5% of revenues in the coming years.
Speaker Change: In digital half of our clients are placing orders on a weekly basis with home plus plus.
Speaker Change: Externally.
Speaker Change: Our loyalty plan continues to gain traction with more than 100000 clients redeeming points year to date.
Speaker Change: We have also launched a pilot of our new sales force automation tool June plus advisers, which has already delivered promising results.
Speaker Change: Powered by advanced AI model build plus advisers, and Kansas are salesforce capabilities, enabling us to support our clients to reach their full potential.
Speaker Change: Install significantly complements our customers' omnichannel experience offering a more seamless and personalized interaction across all touch points, we expect to the other learnings from this initiative and expand the rollout to the rest of Brazil and other markets in 2025.
Speaker Change: Finally, our recovery plan to reopen our facility in Porto Alegre is moving according to expectations. We have now resumed operations in our distribution center in Italy at partial capacity, while bottling of production is expected to resume gradually in the upcoming months we.
Speaker Change: We expect to operate at full plant capacity during the first half of 2025.
Speaker Change: In Colombia.
Speaker Change: As was the case during the second quarter, we continued to see a decline in consumer confidence household expenditures.
Speaker Change: Sequentially, our volume for the quarter contracted 4% year on year.
Speaker Change: In this environment, our team implemented initiatives to provide affordability to our consumers in both single serve and multi serve refillable bottles.
Speaker Change: As a result, we have increased our refillable coverage driving 6% volume growth in these presentations year over year.
Additionally, our team in Colombia remains focused on expanding our customer base.
Speaker Change: As a result, we have added more than 22000 customers, 6% ahead of year end 2023.
Speaker Change: Despite softer topline growth in Colombia, our team's effort in driving cost and expense efficiencies is driving profitability improvements.
Speaker Change: Finally, our quarterly performance in Argentina.
Speaker Change: Although the impact on consumption during the year was worse than expected macro indicators such as monthly inflation have continued to gradually improve views in the 4% monthly inflation figure.
Speaker Change: To best navigate this environment our strategy is focused on maintaining our customer base and household penetration to be well positioned for the eventual economic recovery.
Speaker Change: This strategy has allowed us to maintain attractive price points as we offer convenience and promotions to our consumers.
Speaker Change: So far this approach is working as we have been gradually recovering volumes throughout the year.
Speaker Change: Consequently, we are reporting stable volumes for the third quarter compared to the previous year.
Speaker Change: At the same time, our team continues leveraging rigorous cost and expense controls, while accelerating digital us any labor year to date, our digital client base has doubled and digital orders represent 30% of our total orders in the traditional trade.
Speaker Change: As we have mentioned in previous calls, we anticipate a gradual recovery in Argentina.
Speaker Change: Team continues executing a playbook that is allowing us to outperform and emerge stronger.
Speaker Change: Reflecting on the first nine months of the years, we have progress along the three key drivers that have been a priority for the year.
Speaker Change: Build on the growth momentum of our core business.
Speaker Change: Eight quarters plus version for those to the next level with the deployment of advanced AI capabilities and three continue fostering a customer centric and psychologically safe culture for Coca Cola FEMSA as we enter the final stretch of the year, we remain committed to our strategy and the implementation of our sustainable.
Speaker Change: A long term growth model with that I will hand, the call over to Jerry.
Yes.
Jerry: Thank you Ian good morning, everyone.
Jerry: Summarizing our divisions results for the third quarter in.
Jerry: In Mexico, and Central America volumes declined 0.7% reached 629 million unit cases.
Jerry: Volume growth in Guatemala, and our Central America territories was offset by volume declines in Mexico.
Jerry: Revenues increased nine 6% to $42 5 billion pesos, driven mainly by our revenue management initiatives and favorable currency translation into Mexican pesos.
Jerry: Gross profit increased 10, 7% to reach 27 billion pesos, resulting in a gross margin of 48, 6% expanding 70 basis points year on year.
Jerry: Our top line growth favorable hedging initiatives and improving sweetener and packaging costs were partially offset by higher fixed costs.
Jerry: Operating income increased 11, 3% to $6 7 billion pesos, driven mainly by gross profit growth.
Jerry: Our operating margin expanded 30 basis points to 15, 8%.
Speaker Change: As Ian mentioned during the quarter, we recognized an insurance claim payments in Mexico of approximately 340 million pesos related to the impact from hurricane notice during the previous year.
These effects offset in operating foreign exchange loss and higher expenses, such as labor marketing and freight.
Speaker Change: Finally, our adjusted EBITDA in Mexico, and Central America grew 15%, leading to a 110 basis point margin expansion to 22, 1%.
Speaker Change: Moving on to the South America Division.
Speaker Change: Volumes increased three 1% to $412 1 million unit cases.
This increase was driven by the six 3% growth achieved in Brazil, and stable performance in Argentina, which offset volume contractions in Colombia and Uruguay.
Speaker Change: Our revenues in South America increased 13, 6% to $27 1 billion vessels.
Speaker Change: Driven mainly by volume growth and favorable mix.
Speaker Change: These effects were partially offset by unfavorable currency translation effects into Mexican pesos, driven by the depreciation of the Argentine peso and the Brazilian reais.
Speaker Change: On a currency neutral basis total revenues in South America increased 19, 5%.
Gross profit in South America increased 12, 2%, leading to a margin contraction of 60 basis points to 42, 1%. This margin contraction was driven mainly by higher sweetener costs purchases of finished product and currency depreciation from most of our operators.
Speaker Change: Currencies as compared to the U S dollar.
Speaker Change: These effects were partially offset by declining packaging costs and favorable hedging initiatives.
Speaker Change: Operating income for the division increased 26% to $2 9 billion pesos and operating margin expanded 60 basis points to 10, 8%.
Speaker Change: This margin expansion was driven mainly by operating leverage coupled with cost and expense controls across our operations.
Speaker Change: These effects were partially offset by margin pressures in Argentina, coupled with higher fixed costs and expenses such as freight and labor.
Speaker Change: On a currency neutral basis operating income increased 25, 7%.
Speaker Change: Finally, adjusted EBITDA in South America increased 25, 8% to $4 6 billion vessels and adjusted EBITDA margin expanded 170 basis points to 17%.
Speaker Change: Okay.
Speaker Change: Moving on to our comprehensive financial result, which recorded an expense of 823 million pesos as compared to an expense of $552 million vessels. During the same period of the previous year.
In the third quarter, we registered an increase in our comprehensive financial results driven mainly by a lower foreign exchange gain as compared to the previous year, coupled with an increase in our interest expense net.
Partially offset by a higher gain in inflationary subsidiaries as compared to the same period of 2023.
Speaker Change: Finally, before opening the call to your questions.
Speaker Change: Want to take a moment to recognize our team's efforts across all of Coca Cola FEMSA achieved the sustainability performance targets related to our sustainability linked bonds in Mexico.
As we announced last September because of our investments in water efficiency programs. We achieved the water use efficiency ratio of 101 36 liters per liter of beverage produced.
Speaker Change: A benchmark for the Coca Cola system.
Speaker Change: This is a 21% improvement in water efficiency as compared to 2016.
Speaker Change: Thank you all for your for joining us todays in today's calls operator, we are ready to open the call for questions.
Speaker Change: Thank you very much as a reminder, if you would like to ask a question on today's call you May Press Star one on your telephone keypad to register your question.
Speaker Change: Remove your question for any reason you May press star two.
Speaker Change: And you will be advised when to ask your question.
Speaker Change: Our first question is from Felipe <unk> with growth with Scotiabank. Please go ahead.
Felipe: Thanks, operator, good morning, Gary and team thanks for the space.
Felipe: So first a question on Brazil call has been posted very solid results there.
Felipe: But in recent conversations you have mentioned that even with the help of the enabling bottlers youre still lumpy enabled to fully meet demand from what I understand.
And of course, it is costly getting products from third parties in the regions in my mind that kind of means that you have easy comps in southern Brazil next year.
Felipe: Ramps up you kind of meet the demand fully in your unit cost starts going down all my thinking of that correctly.
Speaker Change: And then my second question is about pilot multi.
Speaker Change: Multi category just wondering if you can give us an update on how the pilots are going and your expectations for.
For the next few quarters. Thank you.
Speaker Change: Okay.
Speaker Change: Hello, Philip how are you.
Speaker Change: Yes.
Thank you would be correct.
The impact on on on Brazil.
Philip: Plant it was about 10% of our of our capacity there so.
Philip: In this.
Philip: Low season, we have been able to be sourcing probably around 10 million unit cases from other bottlers. So.
Philip: A lot of volume that we have been sourcing from other both theirs and we have been shipping from other regions in Coca Cola FEMSA and.
And this has helped in the volumes but.
Philip: These cases are not really profitable cases at all it with their intended just to maintain our competitive position. So you are right that in <unk> as our capacity comes back online.
Philip: Then there will be more favorable comps just because those cases will have much less freight on cost.
<unk> to them.
Philip: Also in line with that obviously in the fourth quarter, where were in Brazil, It's high season.
Philip: Where it's going to be a lot more difficult to be sourcing those cases from other bottlers in the southern territories, because everyone is usually up to capacity. So that's going to have an impact there in.
Philip: In terms of pilots on multi category I think we're moving along well.
Philip: We were around one point for the total mix is around one six I guess.
Philip: One, 6%, we have markets such as Brazil at 2% we have.
Philip: Smaller markets, such as Uruguay in Panama around 10%.
Costa Rica, almost reaching 3% so I think we're comfortable with our guidance.
Philip: Our ambition is to reach 5% of revenues, excluding beer is going to be a long journey, though as you know these are not it's not easy for our partners to unwind or include US are part of their distribution structure, but everything is progressing according to our ambition okay.
Speaker Change: Very clear thanks, a lot for the color congrats on results.
Speaker Change: Thank you very much.
Speaker Change: Great.
Speaker Change: Thank you. Our next question is from Alejandro.
Alejandro: It's al.
Speaker Change: Please go ahead.
Okay.
Speaker Change: Yes.
Alejandro: Thank you Hello, OEM hydantoin team. Thank you forward in the space for questions. Congratulations on the results have very two quick ones. If I may 1st of all right out of both on gross margins in South America I wanted to see if you could you offer any more color and how to think about it going forward.
Alejandro: I was little bit surprised to see gross margin contraction year over year in South America, Mexico expanded materially.
Alejandro: If you could give us some color there would be helpful. And then the second very quickly.
Alejandro: Advisors I understand maybe a bit soon.
Alejandro: <unk> right now, but wanted to see if you have any initial findings that you think are worth sharing maybe in terms of frequency or average ticket that could help us. Thank you.
Speaker Change: Thank you Alejandro.
Speaker Change: First on the gross margin question in South America, we saw pressure, mainly coming from increasing in sweeteners versus the previous year and gross margin. We also had some promotional activity in Colombia as Ian mentioned ended up prepared remarks, Columbia has been facing.
Speaker Change: A tougher consumer environment, driven by disposable income contraction.
So we have done a lot of work in terms of promotional activity to position ourselves better.
Those are the main explanations that we have affecting <unk>.
Speaker Change: Gross margin also the effect of Argentina, and the depreciation of the Argentine peso versus the dollar has put some pressure in gross margin, we think that the three.
Speaker Change: <unk> that we're seeing in South America this quarter are.
Speaker Change: Short term effects and we expect a more benign.
Speaker Change: Raw material environment and stable their currency in Argentina, as we move forward.
Speaker Change: So we would expect that gross margin would improve as we move forward.
Speaker Change: I'll also Alex just moving onto to the second point I mean.
Speaker Change: <unk> plus advisers, just think of it this way.
We cut advance vary.
Rapidly on the App and Whatsapp got an advanced very rapidly on our AI analytics.
Speaker Change: What happened is both our Boston are up.
Speaker Change: With our AI analytics, we could do you know customized promotions by client.
Speaker Change: And our sales force, we were still on our legacy technology. So all of the activities and initiatives that we were filtering down via our salesperson had to be done by segment not by client.
Speaker Change: So we were not utilizing the full potential of our AI tools. So what we're being able to do now with windows plus advisers as we leverage our analytics to the fullest. So all of the promotions and the guided missions go all the way down to the client level and all of these are done by AI analytics.
Speaker Change: The feedback from our sales force has been just phenomenal they're very excited they are accelerating the rollout.
Speaker Change: We're finding out very good things on the ground. For example, we were curious visiting a client.
Speaker Change: On why even though it was one of our key initiatives, we were not promoting I think it was close to leader promotion on our team went there and visited the client and it's had enough stocks of gold two leader. So the way. These models work and they take into account the particular situation of each client with its history and their surroundings.
Speaker Change: <unk> area is nothing short of amazing.
Speaker Change: They are also helping them you know the sales being fast.
Speaker Change: Gold on combined coverage as many other initiatives and they have total visibility on a client by client level without having to.
Speaker Change: Carrier around three or four sheets of paper to see how things are going so we're very excited we just think about it is putting our sales force on the same footing.
Speaker Change: In terms of AI and the tools that they need as the client does order digitally does.
Speaker Change: That helped teleconference.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: And thank you head out of the hospital.
Speaker Change: Okay.
Speaker Change: Thank you very much our next question Sam.
For area with J P. Morgan. Please go ahead.
Sam: Hi, Hi, guys, sorry, I Hope you can hear me. My first question is on Brazil. The Portola Agave plant closures last quarter, you gave the guidance of 130 million pesos impacts on the results on the reach you have some visibility of how much.
Speaker Change: It was this quarter and if you have any sort of expectations for for the full year to me restart the plant fully right like I mentioned in the first why are we starting now but it will be fully operating that plant next year.
Speaker Change: And how much you expect insurance to covert as losses.
Speaker Change: I believe it won't be fully covering but wanted to have an expectation for how much that could cover and second question when I get it.
Speaker Change: If you want to if you can dive a bit deeper into Colombia whats the outlook. There. After this quarter, which was more terblanche if should we expect.
Speaker Change: A rebound soon in terms of readjusting.
Speaker Change: Go to market and I know pricing eventually and it will get Colombia sort of are back on track I can put it. This way. So also think about the numbers for Colombia in the next few quarters. Thank you.
Speaker Change: Thank you Lucas I'll start with the first one regarding.
Speaker Change: For our plant in Brazil.
Speaker Change: The impact that we recorded this quarter was for 200 million vessels, mainly for incremental freight.
Speaker Change: Spencers maintenance, all the cleaning process and labor expenses.
Speaker Change: We expect that the.
Speaker Change: Toughest impact we will face an additional expenses will be on the fourth quarter, mainly because of the higher volume that we have in high season that that quarter.
Speaker Change: The insurance claims process as you know is a.
Speaker Change: Long one we just talked about just having recorded the insurance claim payments this quarter from the off peak hurricane in Mexico that happened last year.
Speaker Change: Lastly, the process has been working quite well.
Speaker Change: The.
Coverages that we have and the relationship that we have with the insurance company works very very well a very positive dialogue and we expect that we should be covering most of these expenses as we move forward.
Speaker Change: In the case of Colombia Luca.
Luca: The third quarter was our most challenging one.
Luca: <unk> seen a year over year growth in Colombia.
Start a very strong almost 10% than 1% the second quarter then.
Luca: Minus four and I think.
Luca: Given the comps in the fourth quarter, where we have.
Luca: The effects of the docks.
Luca: Comparable from November and December.
Luca: And just.
Luca: Just looking at the two year trend in Colombia, It's a lot more stable. So we will definitely expect a sequential improvement from the third quarter in the fourth quarter in Colombia and in terms of profitability as well. So it will be let's say a stabilization. So it will be and we do expect sorry, you would get some.
Luca: <unk>, we do expect a sequential improvement from the third quarter, which I think was the low point for Colombia for us and we're no longer going to be cycling negative comps from the docs.
Luca: W.
Speaker Change: Perfect. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question is from Ben Theurer with Barclays. Please go ahead.
Ben Theurer: Yeah good morning.
Ben Theurer: Jerry Thanks for taking my question I wanted to follow up a little bit on the on the digital platform and how it helps you maybe on pricing of products versus promotion et cetera, because it feels like you had a very successful pricing kind of success.
Ben Theurer: In the quarter right volumes in Mexico down, but but revenue is actually nicely up so just help us understand how the tools help you on your pricing architecture in your price policies within your different regions.
Ben Theurer: To deliver price, saying that at least on paper it looks like it was once again above like general inflation level. So maybe just around how you used tools that would be my first question as it relates to pricing.
Ben Theurer: Have a quick follow up.
Speaker Change: Alright, sure Hi, Ben so.
Speaker Change: Just taking a step back.
Speaker Change: The general way that we think of pricing is.
Speaker Change: We want to make sure we grow our relative competitive position in the market in terms of share revenues.
Speaker Change: And the pricing that we can get these really are solver to that as long as we continue improving even marginally, but we want to keep improving our relative competitive position and really price is a function of what we can do within that context and also taking into account you know.
Speaker Change: Particularity scenarios that have been impacted by weather events or something like that we want to make sure. We maintain our affordability that's like the general overall strategy. If framework, then and really what we have is is the analytics team.
Speaker Change: Has developed very advanced RG M tools on properties.
Speaker Change: Price optimizer tools.
Speaker Change: That led us do.
Speaker Change: Like I mentioned before.
Speaker Change: Before we would have to review these monthly or quarterly segmented and now it's done by customer just with a lot more.
Speaker Change: Higher uplift in all of these strategies much more target. So I credit this not with the front end digital tools, but really the backend AI.
Speaker Change: Advanced.
Speaker Change: Outbound mail models that we have developed both on the pricing optimizer and <unk>.
Speaker Change: Okay, Perfect and then as you think about rolling out the technology and we've talked a lot in the past about worsening 4.0 and like the different iterations as it go.
Speaker Change: It goes beyond the <unk>.
For current statutes.
Speaker Change: What is like your thinking as well of rolling out these initiatives some of the other markets, particularly Central America.
Speaker Change: As it relates to just the digital platforms.
Speaker Change: Really drive growth there as well.
Well I mean.
We're growing faster than we had planned at the end of the start of the year. So the only two countries that we will have left is Argentina, and Uruguay, which will be rolled out in the first quarter. So version four point, though will be available in all of cable if I mean, the results are very very good and in Central America.
Speaker Change: Well the feedback is very positive it's stable it's growing quickly.
Speaker Change: We have nothing nothing to add on that.
Speaker Change: Faster than scheduled and will be done by the first quarter.
Speaker Change: I come back to Ben what I, what I mentioned to Alejandro for me, though which is the advisor that's something thats, even though.
Speaker Change: Going to give us a big boost June plus advisor just think of it we still have a large proportion of our sales that go through our reseller and even as sales from our pre seller mix.
Go down in mix towards our digital channels, we're still going to keep our feet on the street and this tool allows it to drive all of these guided an initiative that admissions that include execution meet Johns.
Speaker Change: New product introduction mission. So, it's just going to be a big boost to the other you know.
Speaker Change: 70% of our sales that went through other channels. So I think thats going to be a big uplift that we didn't have visibility.
Speaker Change: Visibility on on its surprising to the upside in what we're rolling out in Brazil.
Speaker Change: Perfect. Congrats thank you very much.
Speaker Change: Thank you Bill.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question is from Fernando Olvera with Bank of America. Please go ahead.
Fernando Olvera: Hey, good morning, everyone and thanks for taking my questions and the first one is related to Mexico. If you can comment more about.
Fernando Olvera: The volume decline that you registered during the quarter and mainly in jug water and it would be great to hear your thoughts about consumption.
Fernando Olvera: Consumption environment going forward.
And my second question is related to Argentina, No. If you can expand on the recovery that you are seeing.
Fernando Olvera: Because it seems that it's going faster than expected no and what are your outlook for coming quarters. Thank you.
Speaker Change: Hi, Felipe how are you.
I think in in Mexico, you have to think of it in two.
Speaker Change: Two main drivers that it's very hard for us to do.
Speaker Change: Cool.
Speaker Change: Quantify what what comes from.
Speaker Change: Which of these two variables, but the first one is I think our region in Mexico.
Speaker Change: The huge increases in rainfall and precipitation so it was 50% higher than the same quarter of last year.
Speaker Change: Total precipitation ourself September of 2024 was already 6% higher than precipitation for the full year of 2023. So I think we're very grateful that we received all of these rain because it solved.
Speaker Change: All of the water reservoir levels, which were low and now they're all above 60 plus percent. So we have a very good water levels in the reservoirs in our region, but the downside of it is that.
Speaker Change: It did have an impact on consumption as you know our consumption.
Speaker Change: Relates to precipitation very directly and we've got a lot of rainfall and you'd also complicated Acapulco plant as well and our logistics in general So that was one <unk>.
Speaker Change: Cause there and thats, probably going to be maybe a recurrent weather pattern.
Speaker Change: With these new climate reality these more extreme heat.
Speaker Change: And rainfalls.
And then on the on the other part you have Ah.
Speaker Change: A decrease in economic activity. So I think there were.
Speaker Change: Quite a bit of payments and felt.
Speaker Change: That might have been advanced before elections, and we enjoyed the benefits of that in consumption, but when you look at.
Speaker Change: Gross disposable income.
The monthly economic activity indicator a guy.
Speaker Change: For all of US in September and you see sequential declines versus what we had in since the June levels. So it is true that.
Speaker Change: Mexico has been slower and we see this across categories. I think beverages is probably more impacted in our part of the country because of these hurricanes on.
Speaker Change: You know it dropped because of rates. So those are the two effects that we see like we mentioned in the call I think were very positive in Mexico in general in the medium term Fernando because you know we're going to be having many infrastructure projects in our corner of Mexico now.
Speaker Change: It's going to be the get it that'll Mexico CD trainline.
Speaker Change: Other projects continue on track with expansions.
Speaker Change: As well.
Speaker Change: Sure.
Speaker Change: We have announced.
Speaker Change: <unk> has announced new.
Speaker Change: Also a social programs and all of these translate directly to increasing disposable income and consumption of our categories. So I think our view on Mexico is positive on wages and positive on consumption for us so that should be good in the medium term and then we have.
Speaker Change: Argentina.
Speaker Change: <unk>.
Speaker Change: Pete.
Later, we develop a good playbook there with a local team we went in there knowing that there was going to be a very acute crisis.
We had to maintain where we wanted to maintain household penetration and customer base and we took up for the ability very seriously expanded it.
Speaker Change: We reduced our GAAP.
Speaker Change: A competitive gap versus.
Speaker Change: The other competitors that were out there and I think that playbook played out very nicely, where we cut flat volumes for for this quarter and hopefully.
Speaker Change: We can have positive volumes for the fourth quarter is going to be a very slow and gradual recovery because the crisis.
Speaker Change: Has been sharp, but I think.
Speaker Change: The government is taking many right actions.
And gradually we are recovering.
Speaker Change: Playbook that was laid out is working very very well. So I think we're positive on Argentina, but we want to be cautious that its not I don't think is going to be a V shaped recovery, but a gradual recovery there and that's what we're seeing so far so good.
Great. Thank you so much thank.
Speaker Change: Thank you Sir.
Speaker Change: Thank you. Our next question is from Lucas Murphy with Morgan Stanley. Please go ahead.
Speaker Change: Okay.
Hi, everyone. Thanks for taking my question.
Speaker Change: I have one on Mexico, particularly on our margins.
Speaker Change: When we finally started to see sugar prices behaving a little bit better on the margin.
Speaker Change: <unk>, leading into a better gross margin.
Speaker Change: Environment for Mexico. So why don't you hear our latest thoughts thinking about next year, how comfortable are you that sugar in Mexico could continue to be a tailwind for your margins for our costs.
Speaker Change: We know that in essence, the Mexican prices are not necessarily correlated to international quotes but.
Speaker Change: Relevant recent uptick on international Sugar prices are we also have a weaker Mexican peso. So just wanted to hear your latest thoughts on how sustainable you think this tailwind can be.
Speaker Change: The Mexican division coming into 2025.
Speaker Change: And that's my first question. My second question is it's also in Argentina, but if you could elaborate a little bit better as it pertains to your strategy I think that it is safe to say that today you have a strategy that is looking.
Speaker Change: More tilted towards a volume performance maintaining volumes and I think that the flattish performance is actually quite impressive, especially compared to other players that have operations in the region, but I wanted to know what about your margin perspective.
Speaker Change: How do you guys being able to perhaps offset a more conservative pricing environment with more efficiencies. So just wanted to hear your thoughts on on margins and in Argentina.
Speaker Change: That's it thanks for the time guys.
Speaker Change: Yeah.
Speaker Change: Hi, Lucas.
Speaker Change: Thank you for your question.
Speaker Change: I'll start with Mexico gross margin we saw.
Speaker Change: Margins expanding this quarter, mainly on the back of things that you mentioned are better.
Speaker Change: Outlook, our better situation in the sweeteners cost as well as packaging and also our revenue management initiatives that allowed us to perform better in gross margins this quarter.
Speaker Change: As we move forward and looking at the general.
Speaker Change: The raw material environment, we do expect stability.
Speaker Change: We do expect sugar to continue to be a tailwind locally in the Mexican market.
Speaker Change: But in general we don't expect to see pressure so that should continue to be something that will help the performance as we move on.
Speaker Change: In terms of Argentina.
Speaker Change: The general <unk>.
Speaker Change: Strategy has been as you mentioned to favor volumes to gain relative all scale.
Speaker Change: We have learned in many years that during a tougher situations.
Speaker Change: We usually come out stronger at the other end. So this is what we're favoring trying to position ourselves better in terms of affordability understanding that consumers are at a complicated situation.
Speaker Change: And that has proven to be a good position for us.
Speaker Change: If you think of it in terms of margins. We did have a contraction this year both of the overall EBIT as well as you know in terms of margins. So these double digit contraction in EBIT and I think we contracted.
Speaker Change: 200, plus basis points on margins I think on next year. For example, we should see the reverse of that thing.
Speaker Change: High double digit growth on EBIT, maybe a.
Speaker Change: 100, plus points on margins, so, but it's a gradual recovery that's going to take its time Lucas.
Speaker Change: That is very clear thanks.
Speaker Change: Okay.
Speaker Change: Thank you. Our next question is from Antonio Hernandez with Act invest please go ahead.
Antonio Hernandez: Hi, good morning, Thanks for taking my question.
Antonio Hernandez: Just wanted to understand regarding <unk>.
You expanded those.
Speaker Change: Operating margin gross margin.
Speaker Change: Martin.
Speaker Change: The majority of teachers.
Speaker Change: The margin expansion.
Speaker Change: Spansion.
Speaker Change: Expansion.
Speaker Change: You bet.
Speaker Change: Well gosh charges.
Speaker Change: Well I agree with that.
Speaker Change: Sometimes their.
Speaker Change: Are there metrics year over year, due not worried I need more of them.
Speaker Change: We've tried some of that Oh awesome.
Oh gosh.
Speaker Change: Gosh charges. Thanks.
Speaker Change: Thank you Antonio.
Speaker Change: We would have had a better performance in EBIT margins similar to what we saw on EBITDA margins, but we had to virtual effects two main virtual effects that affected.
EBIT margins are more the first one is the one that we've been talking about for the past few months, which is a depreciation of the Mexican peso and the noncash effects effect that that has on a dollar denominated accounts payable. The second effect was a reclassification of a guarantee.
Speaker Change: <unk> deposits that should have been in the balance sheet as accounts receivable and had been registered in.
Speaker Change: In the P&L, so we corrected that effect, but in terms of the full year.
Speaker Change: This effect is neutralized in full year numbers.
Speaker Change: For an amount of about 220 million pets.
Speaker Change: Okay. Thanks for that.
Speaker Change: Grateful for them.
Speaker Change: Well you mentioned weather headwinds.
Speaker Change: The challenges in terms of.
Speaker Change: Mexico would be variable scavenging that.
Speaker Change: Volume performance so.
Speaker Change: So pumps.
Speaker Change: Thanks.
Speaker Change: Hello Antonio.
Antonio Hernandez: Torture here, yes, actually we did have also an effect of stock outs.
Antonio Hernandez: In Mexico, mainly at the beginning.
Antonio Hernandez: So it's something that as you know we have been seen in Mexico, and that's one thing that we think we're going to take advantage of next year, because as Ian mentioned, we have been expanding capacity in Mexico.
If you look at his prepared remarks, he expanded a lot not only on the bottling.
The facilities that we're expanding on the capacity, but also in warehouse capacity in route to market in drugs and also in the primary distributions secondary distribution. So we don't see that as a big of an impact going forward, but still in the third quarter at the beginning we did see.
Antonio Hernandez: A little bit of an impact there from from stock outs and I think it also explains in connected a little bit of.
Antonio Hernandez: Over the question from unfair because.
If you look at the category performance in Mexico actually brand Coca Cola outperformed.
Antonio Hernandez: But because of stock outs would be have an impact on flavors sparkling. So it explains that the stock out something.
Speaker Change: Perfect. Thanks, very much Jorge.
Speaker Change: Telling me Jay.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Tiago Hardy Har deal with Citi. Please go ahead.
Tiago Hardy: Yes, Hello, Hello, Yes hit harder than the first congrats on the results and thank you for taking my questions.
Tiago Hardy: I'd like to explore two topics here. The first one is focusing a bit more on Brazil.
Tiago Hardy: Just wondering what youre seeing for the region specifically in terms of profitability for next year.
Tiago Hardy: We understand here that there could be positive impacts first from operating leverage right.
Tiago Hardy: First of all I agree that gets back online.
Tiago Hardy: And hopefully we have some product mix from the Coca Cola zero right.
Tiago Hardy: And then my second question would be so continuing issue with the Coca Cola zero.
Tiago Hardy: We understand it has a lot of potential we've seen very good acceptance of the project queue in Brazil.
Tiago Hardy: So just wondering maybe not specifically for Brazil, right before all the regions, what's the potential youre seeing queue for this project.
In terms of market penetration and specifically also profitability so wherever whatever information you can share with us.
Tiago Hardy: Be well appreciated here. Thank you.
Speaker Change: I'll start with the first one tiago good morning regarding profitability in Brazil.
Speaker Change: As I mentioned I think one of the previous questions.
Speaker Change: Fourth quarter in Brazil, we do expect to see higher pressure from the portfolio.
<unk> capacity as you know we will be recovering that capacity mainly during the first quarter of next year. So we do expect the high season.
Speaker Change: In Brazil to have a higher impact in freight and whatever we're being able to buy from other franchises both from Coca Cola FEMSA and other bottlers. Obviously, you know we sell that zero profit to maintain our position in the region. So that will present.
Speaker Change: The challenge in terms of profitability, we do expect demand to continue to perform but in terms of supply we will be limited so that will pose some pressure as we move forward to next year and I think we talked a little bit about this as well.
Next year with the plant coming back online and all of the things that we're doing there as a result of the disaster that we had we do expect that that will be a tailwind for 2025.
Speaker Change: So I think that with terms of Coke no sugar you know.
Speaker Change: Steel has not.
Speaker Change: Inspiration for all of the markets is doing very very well growing very high double digits.
Speaker Change: Good thing that I can say is probably Mexico was.
Speaker Change: The one market, where we have been having a tougher time with Coke zero.
A very small proportion of the mix almost 3% compared to 20% in Brazil in Cola So.
Speaker Change: But what we have been seeing now in Mexico. It's finally, starting to accelerate so in this third quarter, we had high single digit growth in Mexico.
Speaker Change: Ryan to emulate the Brazilian playbook, which is a 360 degree playbook and.
Speaker Change: Entry price points.
Speaker Change: Right packages Influencers 360 degree plan properties such as music.
Speaker Change: First of all.
Speaker Change: Soccer and also in and outs.
Speaker Change: <unk> for the brands like Oreo and other flavor varieties.
Speaker Change: The one bright spot that I would say outside is it starting to accelerate in Mexico. It's too early to say that this is sustainable but if we can keep this up on emulate what we have done in Brazilian in this other very large market could get very very positive results.
Fantastic. Thank you very much.
Speaker Change: Yes.
Speaker Change: Thank you very much as a reminder, if you would like to ask a question on today's call you May Press Star one on your telephone keypad to register your question.
Speaker Change: Our next question is from Ulysses.
Speaker Change: With Santander. Please go ahead.
Speaker Change: Okay.
Okay.
Speaker Change: Okay.
Speaker Change: I apologies it fair, but their line is a little bit.
Speaker Change: Cannot hear you.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Apologies to Iqos.
Speaker Change: Cannot hear Mr. Dave Ryan perhaps.
He consider his question.
Speaker Change: Offline.
Speaker Change: Yes, maybe.
Speaker Change: Releasing.
Speaker Change: Hello Polices.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Mr. Eric if you'd like to try one more time.
Speaker Change: Okay fair enough.
Speaker Change: Yes. It is thank you. Please go ahead.
Speaker Change: Okay. Thank you very much.
Speaker Change: Apologies there.
Speaker Change: So the question was more around market share dynamics in Mexico I was wondering if you could provide any color on how this has been evolving more recently, particularly given that the volumes that we saw in Mexico, what kind of declining four for the third quarter.
Speaker Change: And in this sense, maybe how you are kind of thing based on your pricing versus volume strategy heading into next year. Thank you guys.
Yes, Hello leases and I'm glad you you managed to sort that out there with the <unk>.
Speaker Change: Yeah regarding market share in Mexico, I think what we have seen is a little bit of a mixed performance because what we have been focusing on with the strategy. As you know we have been discussing this.
Speaker Change: Reversing the trend that we had in brand Coca Cola, So with the current environment, where we are in which have been protecting share in brand Coca Cola.
Speaker Change: But in hindsight and connecting that with stock outs as well as we mentioned in a previous question we have.
Speaker Change: Had some share erosion in flavors and as a result, there is a little bit of loss of share in the sparkling.
Speaker Change: The call is being slightly just slightly slightly down.
Speaker Change: I would say.
This has not been a bright spot we reversed the trend last year and this year, we lost share I attribute that mostly leases to do the stock out situations that has pretty much been sorted out.
Speaker Change: So.
We are hoping to now start seeing a stabilization and recover to our.
Speaker Change: A balanced and sustainable growth study, but this year, because Mexico has not been a bright spot in chair.
Speaker Change: And I attribute most of that to our.
Speaker Change: Under performance in supplying our customers.
Speaker Change: Perfect, that's very clear and any comments into how youre thinking on pricing volumes video based on this backdrop into a into next year.
Speaker Change: Okay.
Speaker Change: Yeah.
I think I mentioned beforehand.
Speaker Change: We want to make sure we recover our competitive position, we have plenty of points almost 500 basis points of share that we need to recover in Mexico. So that's a big objective for us.
Speaker Change: And the pricing.
The we will display is really a silver of of what we can do while maintaining the strategy of gradually.
Speaker Change: Recovering the share erosion that we have had over the last 10 years. So it's really a sobering.
Speaker Change: We want to make sure. This is a scale game that we improve our relative scale position. So it has to has to it's dependent on that old leases.
Speaker Change: All right very clear thank you very much.
Speaker Change: Thanks.
Speaker Change: Thank you very much as we have no further questions I would like to turn the call back over to Mr. <unk> for any closing remarks.
Speaker Change: Okay.
Speaker Change: Well thank you.
Everyone for your interest in today's call for joining us today and as always myself. The rest of the Investor Relations team. We are available for any remaining of your questions and we look forward to seeing you very soon thank you.
Speaker Change: Okay.
Speaker Change: Thank you very much that concludes today's conference. We appreciate your participation have a wonderful weekend.
Speaker Change: Okay.
Speaker Change: <unk>.
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