Q2 2025 Coca-Cola FEMSA SAB de CV Earnings Call
You have joined the meeting as an attendee and will be muted throughout the meeting.
Speaker Change: Hello and welcome to the Coca-Cola. Fenza second quarter 2025 conference call.
Sophia: My name is Sophia and I'll be your moderator for today's event.
Sophia: Please note that this conference is being recorded for the duration of the call. All participants will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation to do. So, please use the raise hand feature in zoom and we will open your line.
Sophia: If you experience any technical issues, during the call, please use the chat function to request assistance.
Speaker Change: I would now like to hand the call over to Mr. Hou, investor relations director at Coca-Cola. Fenza Jorge. Please go ahead.
Hou: Good morning to you all and welcome to this webinar to review our second quarter 2025 results.
Hou: As you have noticed, we migrated our earnings conference call and webcast to a zoom based platform to enhance our quality and ease of connection for all participants.
Hou: As usual, after preparing marks, we will open the call for Q&A.
Hou: to do so, please signal for questions, using the raise hand feature in your Zoom toolbar,
Hou: Joining me this morning are Ian Craig. Our chief executive officer and hero Cruise our Chief Financial Officer.
Before I hand the call over to Ian, let me remind all participants that this conference call may include forward-looking statements and should be considered as good faith estimates made by the company.
Hou: These forward-looking statements reflect Management's, expectations and are based upon currently available data.
Hou: The actual results are subject to future events and uncertainties that can materially impact the company's performance.
Hou: For more details, please refer to the full disclaimer in the earnings release that was published earlier today.
Speaker Change: With that, let me turn the call over to our CEO to begin our presentation.
Speaker Change: please, go ahead and
Speaker Change: Thank you for it. Good morning everyone. Thank you for joining us today.
Speaker Change: During the second quarter, we faced a challenging environment marked by a softer macroeconomic backdrop in Mexico. An adverse weather conditions in Mexico Embassy
Speaker Change: In addition, we faced a tough comparison base driven by the strong results achieved during the same period of the previous year.
Speaker Change: However, despite the tougher than expected first half of the Year, our long-term perspectives remain unchanged. We are convinced that our strategy, the implementation of our long-term sustainable growth model and the Investments behind capacity, expansions are ideally positioned in Coca-Cola femsa to capture the many opportunities ahead of us.
Speaker Change: During our call today, I will be Begin by summarizing our Consolidated results for the second quarter. Then, I will take a moment to dive deeper into key markets to provide you with an update on their main operating developments.
Speaker Change: Finally Jerry will guide you through our divisions performance before closing with an update on supply chain initiatives.
With that, let's move on to the summary of our Consolidated results for the second quarter.
Our Consolidated volume decline, 5 and a half percent.
Speaker Change: To 1.035 million unit cases. This contraction was driven by the clients in Mexico, Brazil, Colombia, and Panama that were partially offset by growth in Argentina, Uruguay, Guatemala and the rest of our territories in Central America,
Speaker Change: Despite the volume contraction, our Revenue management initiatives and favorable currency translation. Effects LED, our total revenues for the quarter to grow 5%, reaching 72.9 billion pesos,
Speaker Change: On our neutral currency basis, our total revenues increased 2.4%.
Speaker Change: Growth profit increased 3.4% to 33 billion pesos leading to a margin contraction of 70 basis points to 45.3%.
Speaker Change: This decrease was driven mainly by lower operating leverage and unfavorable mix effects coupled with higher fixed costs and the year on year, depreciation of most of our operating currencies as compared with the US dollar.
Speaker Change: These factors were partially offset, by better. Sweetener costs and favorable raw material hedging initiatives.
Speaker Change: Our operating income remains flat at 9.7 billion pesos with oi margin Contracting 60 basis points at 13.4%.
Speaker Change: case during the first quarter, this operating margin contraction was driven mainly by lower operating leverage coupled with higher operating expenses, such as labor maintenance marketing, and depreciation that were partially offset by cost and expense efficiencies and an operating foreign exchange gain,
Speaker Change: Adjusted evda, for the quarter, decreased 3.8%, to 13.4 billion pesos, and ebta margin contracted 160 basis points to 18.4%.
Speaker Change: Finally, our majority net income decreased 5.3% to 5.3 billion pesos. This decline was driven mainly by an increase in our comprehensive Financial results. That was mainly caused by higher interest, expenses and a lower foreign exchange gain coupled with a higher effective tax rate.
Speaker Change: Now.
Speaker Change: Let's switch gears and to expand on our operations performance for the second quarter in Mexico, our volume decline. 10% cycling, our historic second quarter from the previous year which grew 7.9%
Speaker Change: Although we saw a month after month, recovering, share Trends, the main headwinds for volume performance came in the form of a softer, macro backdrop and unfavorable weather.
Speaker Change: For instance, we Face consistently lower average temperatures throughout the quarter, with June being on average, 3° C below the previous year.
Speaker Change: Perhaps more challenging was the fact that we faced 5 times more rain than the previous year to give you a sense. Mexico City saw the rainiest June in over 50 years significantly, impacting consumer Behavior,
Speaker Change: in this context, we implemented the following key initiatives, focusing on the levers under our control
Speaker Change: First, we remain focused on the plan that is delivering positive, share results. As I mentioned, during our previous call, we adjusted, our promotional grid, and implemented tactical activities in single, serve and multi-serve. This has allowed us to not only recover, our sharing the modern Channel, but to surprise previous year's levels.
Speaker Change: In the traditional Trend trade that trend is also positive and we have closed most of the Gap with work to do to fully recover during the second half of the Year importantly with a focused or promotional activities on actions that not only address the short term but also provide sustainable share of value.
Speaker Change: second, we have developed an affordability plan together with the Coca-Cola company that leverages marketing campaigns attractive price points and Relentless execution, especially in the traditional trade
Speaker Change: Considering the macroeconomic backdrop and consumer sentiment in Mexico, where personal consumption expense and remittances have entered negative territory. There is a significant opportunity to leverage our affordability platform, with initiatives, such as subsidizing, the adjustment of key returnable packages at attractive price, ranges. And executing more than 33,000. Dedicated, cooler, doors to affordability.
Speaker Change: Third, we continue to significantly improve execution, and our customer service metrics.
Speaker Change: Our commercial and supply chain initiatives continue to drive improvements in order, fulfillment and net promoter score also achieving historic levels in portfolio coverage and forth. We are focusing on productivity initiatives aimed at enhancing processes and resource allocation given the evolving macro landscape.
Speaker Change: Regarding long-term Investments behind capacity expansion during the first half of the year we completed key projects and began additional capacity initiatives are progressing. According to plan, for example, in Toca, we completed the expansion of our warehouse adding more than 19,000 square meters, and we began operations of a new PT line with monthly capacity of more than 5 million unit cases.
Speaker Change: To increase capacity in the bio region, in San Juan Del Rio, we completed Phase 1 of our expansion plan.
Speaker Change: Adding a new truckyard and blow molding room. This represents more than 8,000 additional square meters to these plants. Finally, in the Southeast region, we completed the separation of our rear mosa distribution center from the plant. Adding more than 5,000 pallet positions in incremental capacity.
Speaker Change: In summary for Mexico as a result of a tougher than anticipated first half of the year and a cautious outlook for the second half. Our team in Mexico is leveraging winning Topline initiatives together with Savings in supply chain, procurement and it
Implementation of key initiatives is delivering positive results.
Speaker Change: for instance, we increased our customer base by 10,000 new customers, 28% ahead of Target,
Speaker Change: Allowing us to gain sharing key categories, such as sparkling beverages, juices water, and energy drinks.
Speaker Change: At the same time, we continue focusing on the fundamentals of the business.
Speaker Change: Strengthening Salesforce training while adding new routes and coolers. As an example, we exceed our Target of installed coolers reaching 9.700 new coolers installed year to date at 10c increase versus the prior year.
Speaker Change: Regarding commercial laborers, we're leveraging Hunters plus and Hunters plus. Premier this quarter, we added 7,000 monthly, active users. A 10% increase versus a previous score with more than 60% of these users active on the app, which is 10% percentage points ahead of last March.
Speaker Change: On the supply chain front, we continue progressing. According to plan, we started production of a new kind line last taper and a new PT line is currently being assembled.
As we enter the second half of the year, we expect to continue improving our profitability in Guatemala, by optimizing our portfolio and productivity all while focusing on rigorous cost and expense control.
Now, moving on to South America.
Speaker Change: In Brazil, our volumes declined, 1 and a half percent year on year cycling, strong 12.1% growth achieved. Last year.
In Brazil, whilst the positive macro environment. Continued, our quarterly volumes were impacted by colder temperatures specially in June. We saw Paulo being on average 3 degrees below the previous year.
Aligned with our long-term strategy. We continue focusing on shared growth and profitability. For example, during the quarter, we achieved record share in the non-alcoholic ready to drink segment. Mainly driven by gains in the sparkling, beverage juices, sports drinks and water categories.
Speaker Change: Improvements in the sparkling. Beverage category are driven mainly by the recovery of flavors, as additional capacity, has allowed us to reduce unavailability.
Speaker Change: Notably in the low and no sugar category. Coca-Cola zero maintains. Its impressive growth Pace increasing volumes by 56% year on year regarding our single serve mix. We further increase 1.6 percentage points versus the previous year. Reaching 27.1%
Our Digital customer base grew 12.1% with 28,000, additional active monthly users and a 12.7% year-on-year increase in average ticket size.
The junto Plus premium loyalty program reached over 59,000. Customers redeeming points this quarter up from 18,000 during the same period of last year.
Enhanced Salesforce performance, boosting your efficiency by over 11% points from 85% to 96% and expanding coverage by more than 5 Points for sparking Beverages and over 8 points for non-carbonated beverages.
Speaker Change: Additionally, in Brazil, we're looking to continue leveraging, our technological advances in order to deliver increased productivity.
Speaker Change: In order fulfillment a transformation in culture training and Improvement in operational, processes led to a 3.9 percentage Point Improvement to reach 93.5%.
Speaker Change: Our Porto Alegre reopening plan has also been concluded, both in the production and distribution functions which positions us well to grow during the second half of the year.
Speaker Change: Moving on to Colombia in Colombia or volume performance, improved sequentially despite facing a still complex consumer sentiment scenario.
Speaker Change: For the quarter of volumes declined, 2.8% year on year as we continue to gain. Share supported by affordability and execution initiatives. In sparkling beverages these sports drinks are flavored War
Speaker Change: Regarding carob. We continue to increase our customer base while expanding our digital capabilities with Hunters plus and Premier loyalty plan, as we double down on cost and expense efficiencies that are allowing us to improve profitability.
Speaker Change: Finally in Argentina our volumes continue recovering at a solid base. Increasing 11.9% macro indicators. Continue improving and monthly inflation is now below 2% as a country continues to foster a disciplined Financial Surplus policy.
Speaker Change: Leveraging, our strategy to pay the way for long-term growth.
We continue offering affordability and promotions.
Speaker Change: While boosting single serve growth with a share code campaign and promotions.
Speaker Change: As a result, our single serve mix increase 1.6 percentage points to reach 18.2%.
Speaker Change: At the same time, we're strengthening our flavors portfolio with campaigns, around Sprite and Fanta leading to 6.2% growth in flavors.
Speaker Change: Notably, we're also adding important capabilities to our Argentine operation, to enable continuous growth. For instance, we're accelerating digitalization via the rollout of the latest version of puntos, plus, and Premier loyalty plan. As we increase our Digital customer base by 13, percentage points to surpassing 30% of our total customer base.
Speaker Change: Regarding execution.
Speaker Change: Our customers centricity indicators are all showing improvement with order fulfillment. Increasing 1.5 percentage points versus a pre prior year to reach 98%.
Speaker Change: We are confident that despite a tougher than expected. First, half of 2025, we are well equipped to navigate the current landscape and emerge a stronger more adaptable organization.
Speaker Change: We're leveraging the local nature of our business. On the right side of initiatives, across our markets to recover momentum, during the second half of 2025,
Speaker Change: Our strategy and Ambitions remain focused on the long term, while we have fine-tuned our plans together with our partners at the Coca-Cola Company to achieve our common short and long-term objectives.
Jerry: With that, I will hand the call over to Jerry.
Jerry: Thank you, Ian.
Jerry: And good morning, everyone.
Speaker Change: I will now proceed to summarize our divisions results for the quarter.
Speaker Change: In Mexico and Central. America volumes declined 8.4% to 636.9 million unit cases, driven by volume, declines in Mexico and Panama that were partially offset by growth in Guatemala, Nicaragua and Costa Rica.
Revenues increased 0.5% to 45.3 billion pesos driven, mainly by our Revenue management initiatives and favorable currency translation into Mexican pesos.
Speaker Change: On a currency neutral basis. Revenues decreased 1.9%
Gross profit decreased 2.5% to reach 21.4 billion pesos resulting in a gross margin of 47.2%.
Speaker Change: A 150 basis, point contraction year on year.
Speaker Change: This margin contraction was driven mainly by unfavorable Topline and mix effects coupled with higher fixed costs, such as maintenance and the depreciation of the Mexican. Peso has applied to our US dollar denominated raw material costs.
Speaker Change: These effects were partially offset by Revenue management initiatives and lower sweetener costs.
Speaker Change: Operating income decreased 6.3% to 6.8 billion pesos and their operating margin contracted 110 basis points to 15.1%.
Speaker Change: This contraction was driven mainly by lower operating leverage, to to volume contraction coupled with higher operating expenses such as labor, maintenance, and depreciation.
Speaker Change: These effects were partially offset by lower Freight expenses and an operating foreign exchange gain.
Finally, our adjusted Ava in the division declined 9.7% with a 220 basis. Point margin contraction to 19.7%
Speaker Change: Moving on to South America.
Speaker Change: Volumes decreased 0.5% to 398.4 million unit cases.
This decrease was driven mainly by volume declines in Brazil and Colombia that were partially offset by the growth achieved in Argentina and duro y.
Speaker Change: Our revenues, in South America, increased 13.2% to 27.6 billion pesos driven, mainly by our Revenue management, initiatives, favorable mix and favorable currency translation, effects into Mexican pests.
Speaker Change: On our currency neutral basis, total revenues in South America, increased 10.3%.
Speaker Change: Gross profit in South America, Rose 16.2%.
Speaker Change: Expanding margins by 110 basis points.
Speaker Change: 2.2% mainly due to higher sales.
Speaker Change: Operating leverage and lower sweetener costs.
Speaker Change: Currency depreciation, partially offset these gains.
Speaker Change: Operating income in South America, Rose 19.6% to 2.9 billion. Pesos with operating margin up 50 basis points to 10.6%.
Speaker Change: The Improvement was mainly due to operating leverage and cost controls partly offset by higher expenses, such as labor and marketing.
Speaker Change: Finally adjusted evda in the division, increased 10.4% to 4.5 billion pesos for a margin contraction of 40 basis points to 16.2%.
Speaker Change: Now let me expand on our comprehensive Financial results which recorded an expense of 1.2 billion pesos as compared to an expense of 8885 million pesos during the same period of the period year.
This 344.4% increase was driven mainly by 2X.
Speaker Change: first, an increase in interest expense driven, mainly by the new issuance of senior notes due 2035,
Speaker Change: New financing in Colombia and higher interest rates in Brazil.
Speaker Change: And second, we recorded a lower foreign exchange gain as compared to the previous year.
Speaker Change: these effects were partially offset by a larger gain on financial instruments and in hyperinflationary subsidiaries
Speaker Change: We are improving our supply chain by eliminating infrastructure, bottlenecks and digitizing operations to make our company, more resilient and adaptable.
Speaker Change: First regarding the committed savings, I mentioned last February. We continue making progress toward our 90 million dollar Target.
Reaching 60 million dollars, a year to date approximately 30 million come from primary distribution. 20 million come from cost to serve and 10 million from cost to make.
Speaker Change: Second.
Speaker Change: Our line efficiency continues increasing by focusing on continuous Improvement mindset.
Speaker Change: Leveraging. Our manufacturing operational model. Focusing on asset management. And optimizing processes such as changeovers between different Beverages and presentations.
And third, we continue making progress on the installation of the 9 new bottling lines planned for 2025.
Speaker Change: We started a new line in Mexico, 1 in Guatemala and 1 in Columbia.
Speaker Change: For the second half of the year. We will start production in 4 lines in Brazil 1 more in Guatemala and 1 in Costa Rica.
Speaker Change: These initiatives are proof that despite a more challenging than expected first. Half of the year, we remain committed to the long term.
Speaker Change: Strengthening our supply chain, not only by generating savings, but by streamlining our operation, while developing state-of-the-art capabilities to improve our customer service.
Speaker Change: With that operator, we're ready to take questions.
Speaker Change: Okay, at this.
Speaker Change: If you have a question please, click on raise hand for audio questions or write it down in the Q&A section for a written questions.
Speaker Change: Please remember that your company's name should be visible for a question to be taken.
Speaker Change: We do ask that when you pose your question that you pick up your headset to provide Optimum sound quality
Speaker Change: Please hold while we pull for questions.
Speaker Change: Our first question comes from Lucas Veda with JP Morgan, you can open your microphone.
Speaker Change: Hi, guys, I hope you. You, you listen to me. Well, I I wanted to explore a little bit more your expectations for for the second half of the year, uh, and initiatives. You're, you're, you're taking to, uh, to to navigate this, this challenge, environmentally in Mexico. Um, can you discuss a little bit where your market share stands? Uh, in uh, both the traditional and modern channels.
Speaker Change: In the country. Uh you know, and then the initiatives you you you're talking about regarding affordability, mix.
Speaker Change: Uh, how to think about, uh, let's say your average sales price, or in other words, uh, your expectations. If you have expectations that you can share about a revenue growth. Uh, for Mexico in the second half of the year would be great. And then the second question about, uh, Brazil,
Speaker Change: Was a was a key driver.
Speaker Change: But uh, anything else you can share about the performance of uh, of a specifically channels that uh would help us understand if we should, we should see a rebound in volumes, uh, through through the second half of the Year, given your execution, given the the performance of the whole industry in your market share, so that would be be great. Thank you very much.
Speaker Change: Bye. Lucas. How are you? It's that it's a 2-part question on on Mexico and Brazil.
Really asking us to expand more. So if you want Del heading to Mexico first and then you can compliment me and then we'll go into Brazil in the in the same format. So the, the story of of Mexico, this year what we saw in the market was
Speaker Change: First for our company, a backlash that ended in April. Like we said that after April that was no longer the conversation.
Speaker Change: But then we started seeing the economy impacts on volume. And finally, in June, impacts of the economy together with weather,
Speaker Change: So, what what?
Speaker Change: the challenging piece of navigating, the quarter is when we were looking at volumes for example, in, in April and May
Speaker Change: Those were around 7% below last year.
But when you looked at it versus 2023, they were record volume still. So they were 5% above 2023 so it was it was a tricky decision for us.
Speaker Change: And what to expect for June.
Speaker Change: Because if we kept the same pattern Visa V, 2023 was going to be a very good June. Uh, and if we were going to keep the same pattern versus below 2025 4, it was going to be a complex June and it was the latter that happened. So June was a decline of 15%. So it was 7715 and that ends up with a 10%.
Speaker Change: And what we saw in June, like I mentioned, was economy, plus weather. So what we're looking at for the second half of the year is we're planning a more conservative scenario where the economy plays, uh, uh, a role.
Speaker Change: When we are looking at declining personal consumption expenditures and remittances 2 months in a row in the negative, it's proven for us to plan that it will be a more complex scenario to to navigate. Now, now, the coral area of that you asked about market. Share is how we're doing in market share,
Speaker Change: So, after the backlash, if we separate this by channels, we are completely be above last year, in the monetary Channel, and remember, modern trade. Uh, price compliance is much higher than in traditional, so we're above that, uh, versus last year. And when you're looking at the traditional channels where below, but we're below around 1 and a half points. So we're getting there. It's just, it's just a longer Journey.
Speaker Change: and when you break that down,
Speaker Change: That Gap that we have cuz you mentioned pricing specifically the SharePoint in that 20 pesos area where we're competing against Pepsi which has the leader 75 at 20 pesos and red Cola, which has, you know, it's, it's it's 2 liter of 20 pesos. So that's the price point where we still have a gap and we have a very clear initiative to address that and in the markets, where we've rolled out those initiatives, we work. We don't want to give everything away to our competitors on the call, but the response has been very, very favorable. So I think, uh, we have, uh, the strategies in place where we can turn around that remaining price point and get to the shares where we want them to get on the traditional Channel.
Speaker Change: Yeah. Would you like to give a little more more color on that? Just, uh, I think 1 1, uh, last thing to compliment Ian. Lucas, uh, also, uh, all these initiatives coupled with, uh, the comp based, uh, that we have for the second half of 24 as you remember the second half 24. We started seeing, uh, in the last week of June heavy rains in Mexico, that impacted volumes, uh, importantly to what we were seeing during the first half of of, uh, 24. So, in the base, uh, and uh, just all all of the initiatives that were, uh, implementing trying to address, uh, the, the consumer, uh, weakness that we're currently seeing, uh, right now. Uh, I think we're cautiously optimistic, uh, to what we're expecting for Mexico on the second half of, of this year.
Speaker Change: Question was regarding Brazil.
Speaker Change: Brazil's very different, uh, that Mexico because it's really very clearly pointing to the weather as that being what impacted in the in the, in June, basically. So it's really a weather phenomenon. It also heard a bit in Argentina and once that transition out in Argentine, everything responded, and we feel the same will happen in, in Brazil, in Brazil. We are also leveraging the junos plus advisor to, which we should be starting to roll out in August September in Mexico and the results are just, you know, phenomenal, we're seeing like 1 to 2%.
Speaker Change: Volume up, please there on the, on the back of advisor. And when you look at at Brazil,
Speaker Change: And you break down the share outside of Porto Alegre where we where we had lost the plant. And we we lost over 8 points of share and are gaining those back, very quickly. And you look at the other territories, their share gains above 1%, which are huge and part of that, a big part of that with well, at least a third part of that is the advisor to. So we're very excited of bringing that to to Mexico. Uh, it was a long question and and hence, the the long answer Lucas, I hope that addressed your question.
Speaker Change: Nothing nothing additional in brazili, okay?
Speaker Change: Thank you very much, guys. Thanks for the details.
Our next question comes from Rodrigo alcantra with UBS.
Rodrigo alcantra: Hey, uh hello. Uh Ian. Jerry can you hear me?
Speaker Change: Yes, we hear you now Rodeo.
Speaker Change: Okay, thank you very much for. Hello. Thank you very much. Hope you're are, are doing well again, and and Gary, I guess my question, um, some somehow related on on your previous remarks both. Now let's focusing on.
Speaker Change: On your price mix right on on the reported price mix that we saw in in the quarter, right in, Mexico, it surprised me that the the the price mix actually helped quite well, right? So you know what was very curious to me given the, the the, the the backdrop, right of the, you know, promotional spending Etc. So just curious, if you can explain to us. What's the underlying, uh, Trends going in, you know, yielding those results on The Price mix in Mexico, which held quite well. Also, you know what, what to expect, uh, for the second half. If it's still a, a slight premium to inflation could be
Speaker Change: Will be achievable given, you know, the strategies that, that you just mentioned. So that would be in Mexico, the pricing and also, you know, a different story. I, I totally agree with you, uh, Brazil.
Speaker Change: Whether yeah but also you know the the pricing also surprise to me that also quite quite strong. So they're the question would be in Brazil on the how how sustainable you you think that price makes is?
Speaker Change: For the second half of the year. Maybe mix was a a good component of that price mixing Brazil. So those would be essentially it's 1 question. You know price mix in Mexico and Brazil. Thank you very much and
Speaker Change: Rodrigo.
Speaker Change: Just a quick overview and Jerry if you can complement this. So in in the case of Mexico that team I think wanted to enter the know. I think the team wanted to enter the high the high season with a better availability metrics and better serving our markets. And and like I said, it was a mixed picture. We were looking at the declining volumes were versus what was a record 2024?
But they were substantially above 23. So while that while that picture was in hand, I think we wanted to have the resources there both in terms of headcount but also in terms of the adequate price to ensure that once demand uh pulled in May as it usually does.
Speaker Change: We were able to serve it and, and that's not the picture of what happened in, in, in in May June. So,
In terms of price, I think. Now, uh, we're working to adjust. What I told you is offerings around the 20 pesos price points, and in multi-serve returnables, making sure we have some Marquee up sizes that we're doing to make sure we catch the consumer. If it continues facing a more challenging scenario.
Speaker Change: Be clear that we are just that section of our obpc architecture, to make sure we have offerings that catch the consumers that are looking for those price points. So what that reflects in Mexico is a more cautious pricing stance to the end of the year.
In the case of Brazil, I would say it's a different scenario, but I don't expect, you know. Additionally, additional, uh,
Prices outside, you know, an inflation line pricing. So for Brazil I think we we have been
Speaker Change: Reflecting more of an increase in single serve and an increase in Coke. No sugar rather than, uh, pricing above our, you know, inflation targets. That's not the case. It's more of a mix effect.
Speaker Change: Jerry, I don't know if you'd like to compliment her very quickly on that last Point. Uh, Rodrigo. Uh, we did see, uh, a sharp pickup in in single serve, uh, non-returnable mix. Uh, during the quarter for Brazil and as Ian mentioned and prepared remarks, uh,
Speaker Change: Uh, a significant growth, uh, in Code Zero, uh, reaching 27% of all this mix, uh, now, uh, which has been the case, uh, throughout the past few quarters with call zero being the, the top performer 1 thing. We didn't mention in Mexico, but another bright spot in Mexico was cogn no sugar. So Coke Zero grew around 20.
Speaker Change: 27% if I recall. So it's it's I think we finally cracked the code on Coke Zero in Mexico and it continues to to Green fraction. Even in a tough quarter where we face, you know, where on the economy that still continue to outperform significantly. So it should be a, a source of good news for us going forward. Cogno sugar in Mexico.
Speaker Change: Awesome. Thank you very much for the detailed answers and Jerry.
Speaker Change: Thank, thank you.
Hinata: Our next question comes from Hinata, cobra with City, you can open your microphone.
Hinata: Hi. Hi everyone, thank you so much for for taking my my question. So my question is related to capex Investments and uh, I'll break it down into geography. So, first thing in Mexico, uh, a couple of quarters ago, we were discussing a lot about the capex plan of the company and I would like to understand if there were any change in terms of plans, especially considering that the first half of the year, uh, was full of global events. Let's say tariffs. So just to see if the company. Uh, see the same needs of, uh, extension and and capex that were discussed before forcing maxi.
Hinata: And, uh, regarding Brazil, uh, similar. But uh, I would like first to understand. Uh, how is the plant in you can do so operating right now and uh also an update uh about the capex plan here in Brazil. Thank you so much.
Thank you Renata. So, let me give you an overview of of, of the strategy and the adjustments, and I'll let Jerry dive into the the details. So, when you look at our capex plan, you can see it in the following with their structural capacity. Long-term capacity Investments. That solve either long-term capacity needs of having the production and distribution assets where we need them.
Speaker Change: I do not be afraid in product for long distances or to deliver savings because of in structural imbalances. For example, leasing warehouses and trucks versus owning them. And then there are other capacities. Other capex, which is directly linked to volume that the easiest example of that 1 is bottles and cases.
Speaker Change: A couple of years, uh, to reach about between 8 to 9% of our net sales. We we continue to be there. Uh, what we certainly do and we manage this as a dynamic process. Uh is uh we look at any opportunities that we have for facing the execution of of uh, said capex. So even though structurally, we uh, remain committed to our long-range plan, uh, that is based on sustainable growth.
Speaker Change: Uh, we certainly will uh, look for any opportunities in in phasing of the projects uh, large capacity projects that we have so that we can manage uh the the expenditure of the cash flows uh, of of the capex required for each, uh, operation.
Jorge: And Donata. Um, this is Jorge also to to address your question regarding the status of of, um, of our Porto Alegre plant.
Speaker Change: So basically we're back at 100% uh capacity there. Both in the production and in the distribution. Um, capabilities there's 1 additional project that that Ian mentioned during during the the previous call which is we will build a contention wall, uh, around the plant. But this will be a project that will be concluded. Next year, this will be for 2026 but to give you an idea just just to just for that.
Speaker Change: That project doesn't add anything in terms of capacity. It's just a containment structure to avoid an impact during floods. We did that. We finished that in a capulot, by The Way, We Were
Speaker Change: Were quote unquote, unable to test it because this hurricane Eric that we had didn't hit a capulot this year in a strong manner but that, that capex that is spending will not add capacity increases just to to protect the plant during sorry for no thanks for for the context. And just the, the only additional thing that I will ask regarding Porto, Alegre is to give you an idea on the number of skus. So, before the flood, for example, May 2024
Speaker Change: We had a portfolio of around 225 different skus that we were selling their know in regard to the sun import.
At first, when we were out of the plant, we were working in a portfolio. That was 30 skus in May last year. No. So, as you might, imagine that a big impact, and that affected our share. Now, when you look at the current status by June 25, we were already working with 180 skus, which is around, 95% of the volume that we have in Porto and by July, now, we're back with the full portfolio. So we're glad that we were able to in in this year's time
Get back.
Speaker Change: With, with the portal recovery, the team, they're definitely did a a tremendous job in putting the plant and everything back on, on on their field. And we're glad that also the community, and the state is is back.
Speaker Change: Thanks so much for for the caller Jerry. Yeah.
Thank you, Reatta.
Ben: Our next question comes from Ben third with Barclays, you can open your microphone.
Rahi: Hi. This is Rahi on for been, um, maybe more on more on some of the topics that we've talked about, can we look more into the beverage category? Volume changes in Mexico. Your competitor noted decent growth in Stills against other segments. Declines cops off, Lotus growth in 2 Cube but some growth in 1 Q is this just because you're focusing more on sparkling and I guess what categories, uh, are you maybe focusing on in Brazil and Mexico, given the capacity additions and fixes that. We've just been talking about on the call. Thank you so much.
Rahi: Yes, thank you Rahi. Yeah, I I would say that this
Rahi: This is very characteristic of the kind of environment that we faced in Mexico.
Rahi: So, usually when we have these more range, 1 of the categories that is more impacted when you know there's called, the weather is the sparkling category, you know. So we did see a little bit of a decline as well on, on, on Steeles as, as you saw. But definitely the sparkling category, considering that, you know, put it. Let me put it this way, it's a category that is a lot for, you know, on the go consumption out meals people moved and traffic. So that was more impacted. And as you know, most of our volume performance or of our volume, mix is regarding the the sparkling category. So that is very telling of, you know, the kind of environment that we face in Mexico during during the quarter,
And if you could repeat the second part of your question right here, please.
Speaker Change: Yeah sure of course just for um all the capacity ads and the fixes, you're saying getting the skues back up in Brazil. Um is there any categories? I I guess focusing on the sparkling but do you intend to put more effort? Sorry, more investment in other categories. Is there any shifts? Um, in in mixed sides? Like as you said the single serve um, that you guys are implementing through the year
Speaker Change: You know, the the capacity is 62 address where those gaps were, but I would say, right now in in Brazil I think the latest lastest can use that. We have pending to get up to full capacity was basically this so when we're where we're
Speaker Change: You know, stressing in capacity, we prioritize csds and within csds Coca-cola brand. So when capacity starts flowing in uh, the first thing that recovers is flavors CSD flavors and then we start recovering ncvs. So in the case of Brazil, we pretty much are where we need to be in terms of unavailability and I I think the the the the the main constraint is this and of course, as you know we don't have a water source in the South and we just you know are adding capacity with a new water source in the South. So those would be I would say the only 2 skus where we still uh,
Speaker Change: our end where we need to be in Brazil but that's not, you know, the Lion Share of the volume is it's these in general and water in the in the south
Speaker Change: Thank you.
iniki morelo: Our next question, comes from iniki morelo with Morgan Stanley.
Hi everyone. Uh, thank you so much for for taking my question. So I'll let you explore a bit deeper the, the margins in South America, as the a margin decline on a year in your basis was something that caught our eyes here. So, if you could explore a bit deeper, uh, the components, the influence, the the margin Behavior, and the choir. And if you saw perhaps some, uh, pressure from any specific raw material front, or any other specific specific front on that matter. Uh, you'd be very helpful.
iniki morelo: And maybe more specific on the, the impact of the reopening of the portal leg plant in Brazil. So if you could explore, if you already saw some positive, impacts flowing into the sgna savings, uh, in the choir from that front, or how should that help margins, uh, in the region going forward. Uh, it would be very helpful as well, thank you very much.
Uh, hi. Enrique. And thank you very much for your question. So I I'll start with the first, uh, part um margin, uh, evit and Evie de margin in in South America. So, the, the explanation, uh, for having, uh, the, the impact and evda margin is that last year in, this quarter, is where we took. Uh, basically all of the write offs, uh, of fixed assets and inventories related to the, uh, Porto Alegre, uh, plant flooding. So that's a virtual charge, uh, that happened last year that we didn't have this year so that helped, uh, ebit margins and not even PA given that it. It's, it's a long cash, uh, effect. So, that's the explanation of the difference. Uh, moving forward. Still second quarter. We, we had, uh, a few expenses in in boa related, uh, to Freight mainly, uh, for
iniki morelo: for the few weeks that we had in the quarter, still with boa catching up.
iniki morelo: uh,
iniki morelo: But we do expect that to be a Tailwind, uh, for the rest of the year, uh in in improving margins, in that region.
iniki morelo: I, I think I think the, the only thing that I would ask regarding raw materials in particular. I think we're seeing
iniki morelo: A a stable raw material environment overall know, we're seeing better prices of, of sweeteners. Uh, of course, we have to account on the other hand that there was the the depreciation against the dollar in terms of dollar rise raw material. So that pretty much evens out and and we're seeing a a stable, uh, raw material environment, and that's what we expect.
Uh going forward. So as we continue to to see the outlook for the second half of the year in South America, or we believe that there will be
iniki morelo: So we should be able to to continue to improve uh our performance then regarding Topline and we anticipate more stable performance also sequentially improving in terms of margin.
That's very clear. Thank you. Thank you.
iniki morelo: Our next question.
Speaker Change: You can open your microphone.
Jorge: Yes, hi, good morning everyone. Ian Jerry uh Jorge. Thank you very much uh for the presentation, as always uh, great to talk to you guys. Uh
Speaker Change: I would like to move back the discussion. And I know we always talk about this, but to the balance sheet um, and particularly your leverage position, right? You have been consistently printing on net, leverage below 1 time, right? Uh, we just heard from Coca-Cola Corporation yesterday on their conference call that the, uh, reference Rising process on their end is not fully completed yet. So, you know, putting both, uh, pieces together and number 1. Is there anything in this final? Push to reference from Coca-Cola? That might interest COC samsa. Uh, this number 1 and number 2, if no
Speaker Change: Are we getting close to a moment where you know we might see a higher underlying payout or some extraordinary dividends. Uh how do you think about this? This this is my question. Thank you very much.
Speaker Change: All right, terrible. Yes, I I think there are some very interesting assets from the Coca-Cola Company in the different tracing process. But we're not uh uh, being considered as part of of those solution, uh, for what's out there. So, yes, that does bring us closer, you know to to getting to a point where we need to address, uh, this inefficient capital structure, right? Just to the point. I don't know Jerry. That's, uh, that's our position. Uh, Thiago. We we, we do expect to, to be able to provide some, uh, light for, for the market, in terms of what we're expecting to do, uh, with our, our, uh, balance sheet, uh,
Speaker Change: I I would assume, uh, towards the end of the year, starting at the, the next uh, year.
Speaker Change: No, that's great. Thank you very much. Do you have any? Uh, sorry for provoking? You but just a a a a follow-up on this, right? Your wording here is cooked for franchising. You are not being a part of this solution, right? I I I I think and the question is to understand your mindset if it were just for Coke fanza, right? Would you like to be part of this solution? Do you see value in the options that today?
Speaker Change: There are portable for you guys.
you know, you know, like a like I said, uh,
Speaker Change: Our partnership with Coca-Cola is very, very strong and where they see that we can add value is in in the Americas. And we're perfectly aligned and content with that with that assumption and what's available in the reference choice in now, is outside of the Americas. So there's no complaints from from our side. On the contrary, I mean, they're sitting in the driver's seat in that process and they have a much better sense of who has the most value to those territories. So, it, it would be very, very out of place for us to say that we can add more value than others when we don't even have, you know, the, the feed on the ground on those territories that are being referenced. So I think they're in a better position to say, what what makes sense, uh, and and we are aligned with that position. They have been very supportive towards our plans to grow both organically and inorganically, so nothing to say but positive
Things there on on our partnership. So what what I'm saying is obviously, as as as as someone who's been in the business, for years, we always want to grow and and look at what's out there, but it doesn't always make industrial sense when you're looking at it from the Coca-Cola companies global view. So I I don't see any misalignment there too.
That's great. Yeah. Thank you very much and maybe I promise a final 1 to Jerry, quick, 1 Jerry, could you please remind us where your effects Hedges are for the remaining reminder, part of the year.
81% respectively, then Brazil, Costa Rica Argentina, Uruguay around 50 to 60%, uh, of of our requirements are are hedged and for 2026, looking a little further out. Uh, Mexico has, uh, right now, A 22%, uh, hedge position for for the whole year, the rest of the operations averaging at around, 15% of the requirements for 26.
Speaker Change: On Max cuajar. Any color on the on the price. That's where I had you.
Speaker Change: where, uh, for 2025, uh, we have, uh, an average FX hedge position of 20 pesos per dollar, and for 2026, the same
That's great. I'll pass along. Thank you very much, guys.
Speaker Change: Thank you.
Speaker Change: Our next question comes from Alvaro Garcia with btg. You can open your microphone.
Alvaro Garcia: Hey guys, thanks for the space for questions. Thanks for taking my question. Um,
Speaker Change: 2 questions 1 for Ian, uh,
Speaker Change: on The Taste profile uh sort of a bigger picture, question on The Taste profile of
Speaker Change: Coke Zero. You made these comments of like finally working in Mexico and I was just curious of sort of how you think the taste profiles evolved in Mexico or how the consumer sort of interprets. The Taste profile of Coke Zero versus coke with real sugar versus coke with with fructose, which you you've increasingly been using in Mexico. And then a quick question for Jerry on interest expense.
Speaker Change: Uh, popped a little bit higher. You mentioned higher rates in Brazil and obviously,
Speaker Change: did a little liability Management in May, I was wondering if there was any 1 offs in the number for this quarter and interest expense, or if this is a a fair figure to use going forward. Thank you.
Speaker Change: Good, thank you for the question. So I I would say in terms of of of go zero, you know, the the Geniuses that uh uh the Coca-Cola companies Industrial
Speaker Change: And R&D area are always refining.
Speaker Change: You know, the sweetener Generations getting all all all all the time closer and closer to the taste of cocoa Regional and I'm sure that has played a role. But but I think what what played the biggest role in in coke? Uh, zero success in Mexico is that we finally put all of the pieces in place. So so what we see, we call this.
Speaker Change: Is the the Brazil playbook for Coke Zero and it's in and it's really a A playbook that has been leveraged globally by the Coca-Cola company and it not only consists of of you know, the winning formula. But of having all of the elements of having the right price pack architecture, including entry packs which we have missed,
It it also includes the right properties.
The right influencers.
Speaker Change: And the right uh uh promotional intensity. And and to us finally all of those 5 uh pieces of the puzzles were able to put in place in Mexico. What we've seen in other markets is when you have 3 out of 5 or 2 out of 5 that doesn't cut it, you need to have 5 out of 5 and have it consistently there.
Speaker Change: Uh, we we were seeing what the competition was doing.
Speaker Change: And it was something that we needed to address quickly.
Speaker Change: We reacted and now, you know, it's it's going very well. And then the other thing we have seen is we really need at least 2.
Speaker Change: The ideal is 3 years of very consistent double digit growth for that thing to get a rolling, how we want to in Brazil, where it takes on a life of its own. So we're we're going to make sure we have the adequate spend and investment behind this brand, because we're not going to replicate the Coca-Cola brand. It's Unique. It's the most part.
Speaker Change: Powerful brand that we have it and uh that we have out there and Coke series is critical for the long-term health of of this brand. So we need to take care of it in such an important Market of Mexico. But it's it's more than the flavor profile although you're right that that is 1 very important piece of those fried pillars.
Speaker Change: We uh, added some uh, bank loans in Colombia, uh, for operation purposes. Uh, and we have significantly higher interest rates in in RI in Brazil. So our RI denominated debt, uh, became more expensive, uh, in in the period.
Speaker Change: Uh and on the interesting come side, even though we have um more cash Holdings, we had uh significant decline in the rate at which we're investing uh that those cash Holdings. So that's the explanation and and moving forward I think it's a fair uh, assessment of where we would be expecting that interest expense to be coming at.
Speaker Change: Great, thank you very much.
Our next question.
Speaker Change: You can open your microphone.
Speaker Change: Hi, good morning. Thanks for taking my question. Just a quick 1 and sorry. If you mention mentioned, this earlier during the call, but in terms of competition, how, how are you seeing the different Trends across across Europe? Whole portfolio, any any more color that you could provide there and also you mentioned in the press release that you will make learnings and adjustments to your plans. Just wanted to see if you could provide more light on on that and if that's related as well to to competition and the soft consumer environment. Thanks.
So, I don't know if the question relates to to Mexico, but but just in terms of competition, where we can mention is the, the biggest Gap that we have is in the traditional channel, in the 20 pesos price range, that's the biggest, uh, share Gap and share performance that that we have in in csds and there were addressing it via adjustments in our returnable offerings.
Speaker Change: Then the other gap that we had was in sports rings where there was a big push from ping and a reaction from gate to rate, but I think uh, uh, uh, we're addressing that and share is responding very well in, in, in the latest months on that. So that that gives you the overall picture in in in Mexico.
Speaker Change: anything that you want to add in, in, in terms of, uh,
Speaker Change: the, the adjustments, I think, uh, as Ian mentioned, uh, both in in prepared remarks as well as, in a, in a, on a previous question. Uh, the focus on multi-serve returnable presentations, uh, that are, uh, dedicated specifically towards the traditional trade, uh, with the capabilities that we have, uh, of executing, uh, an affordable portfolio. Uh, very directly aimed at the portion of the market that's underperforming and, and share. I think we'll be able to, to address, uh, the the share Gap that we
We still have to, to close.
Speaker Change: Great. Thanks for the caller. Have a nice day.
Speaker Change: Thank you.
Speaker Change: Next question, from Fernando OA, with Bank of America, you can open your microphone.
Sorry. Uh, can you hear me?
Speaker Change: Yes, Fernando, yes.
Perfect. Uh thank you so much. Uh for taking my question, I also have 1 uh mainly for Jerry. Uh Jerry you comment in the initial remarks that uh, regarding savings that you basically reached at 60 670, I was wondering, I mean if there is room um, to see to achieve more savings or above your target, know, given that we are just, uh,
Admit gear.
Speaker Change: Thank you.
Speaker Change: Fernando, thank you very much for your question. Uh, we we certainly are working on on bringing in more savings. And, uh, what I talked about and prepared remarks or specifically supply chain related, uh, savings. I had uh, talked about early in the year of 90 million dollars that we were, uh, looking for up to now. We've achieved UH, 60, uh, of those. Uh, we
Speaker Change: Certainly are looking for more opportunities. And we, we do believe that we will be able to, to bring some more. Uh, and additionally from supply chain savings. We'll certainly work. Uh, and our working, uh, on all sources of of savings that we can capture, uh, just to help through, uh, what has been and we expect to continue to have uh soft, uh, um, uh market conditions.
Speaker Change: Great perfect. And any idea of how, I mean, how much can you surpass that Target?
Speaker Change: I I think we can, I think we can provide more details to you guys. Uh, as we as we progress, uh, we we have uh, some numbers that we have already identified in terms of of savings some, uh, that we have already captured and some that are that are coming but I think we we need to uh, get into a little bit more detail to be able to provide you with with uh, guidance number.
Yuri: Okay, perfect. Thank you. Yuri.
Yuri: At this time, I would like to turn the floor back to Mr. Jorge, for any closing, remarks
Yuri: Thank you very much. Everyone for your interest in Coca-Cola fansa and for joining us on today's call.
Speaker Change: Me and the rest of the investor relations team. We are available to answer any of your remaining questions.
Yuri: Thank you very much and have a great day.
Speaker Change: Thank you.
Speaker Change: Includes today's presentation, you may now disconnect and have a nice day.