Speaker #1: Good day, ladies and gentlemen. Thank you for joining Genoma Lab's third quarter 2026 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions.
Speaker #1: As a reminder, this meeting is being recorded and will be available for replay from the Investor Relations section of Genoma's website, following the call.
Speaker #1: I'll now turn the call over to Christiane Ibanez, Genoma's Head of Investor Relations. Please. Go ahead.
Speaker #2: Thank you, Daniel, and welcome everyone. On today's call are Marcos Parrieri, Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Before we get started, I'd like to remind you that the remarks today will include what we're looking statements, such as the company's financial guidance and expectations, including long-term objectives and forecasts, as well as expectations regarding Genoma's business, products, strategies, demands, and markets.
Speaker #2: These statements are subject to risk and uncertainties that could cause actual results to differ materially. They are also based on assumptions as of today and the company undertakes no obligation to update them as a result of new information or future events.
Speaker #2: Let me now turn the call over to Mr. Marcos Parrieri.
Speaker #3: Thank you, Chris, and thank you everyone for joining our third quarter 2026 earnings call. Let me open with a quarter highlights. First, our recovery plan is reversing the trend as we anticipated.
Speaker #3: Mexico improved for a third quarter consecutive, sell-out returns to growth, and market share is recovering, with Xerox reaching a historic high at the leading retailer.
Speaker #3: Second, EBITDA margin reached 21%, in line with our expectations, this reflects our deliberate decision to invest more in the business in promotional activity and commercial spending to accelerate growth.
Speaker #3: And third, net margin expanded 168 basis points to 11.4%, and net profit grew 18.6%, driven by lower financial expenses and unfavorable foreign exchange results.
Speaker #3: Last quarter, we told you we expected a continued gradual recovery during the second half of 2026, the third quarter confirms that the recovery is underway.
Speaker #3: Turning to Mexico, net sales declined minus 2.4%, a third consecutive sequential improvement, from minus 4.4% in the second quarter to minus 8.6% in the first quarter, and minus 22.1% in the fourth quarter of 2025.
Speaker #3: That is nearly 20 percentage points of recovery in three quarters, supported by strong growth in beverage and infant nutrition. More importantly, sell-out returns to growth, a sign that consumer demand for our brands is improving.
Speaker #3: We held or grew market share across all business units in late June is already accelerating growth. This view shows the sell-out across our monitored retailers in Mexico, our asset test, last quarter we shared that monitored sell-out turned positive in the first 2 weeks of July, the full quarter confirmed it, plus 2.7% in July, plus 7.4% in August, and plus 8.6% in September.
Speaker #3: For plus 5.8% in the third quarter. That is a 24-point improvement since April, and 27 points above the low point of Q2 2025, month after month the recovery is holding.
Speaker #3: At the leading retailer, our largest client, the recovery remains ahead of the curve. Sell-out grew plus 20% in July, plus 30% in August, and plus 22% in September.
Speaker #3: Plus 24% for the quarter and 41 points above the low point of the second quarter of 2025. Last quarter we said this climb is a leading indicator of what our strategy can deliver.
Speaker #3: We continue to execute the same strategy, with each of our clients. A key driver of that acceleration is innovation. Since the launch of Xerox, sell-out at the leading retailer moved from minus 25% in late May to plus 81% in August.
Speaker #3: Over the same period, Xerox value share climbed from 6.6% to 12.6%, a new historic high, up 6 percentage points in the 3 months. This results are at a single retailer so we remain measured but they show that innovation is pulling the brand up and it is why we are accelerating our launches.
Speaker #3: Now, let me put our sell-out in the context of the market. In OTC, personal care and infant nutrition we grew ahead of our categories.
Speaker #3: OTC sell-out grew 5.2% in a category that declined minus 3%. Personal care grew 5.8% against a category down minus 9.3%. And infant nutrition grew 7.4% in a flat category.
Speaker #3: In isotonic beverages, our total sell-out still declined minus 9.7%, while the category grew 2.9%, but where our innovation is on the shelf, sell-out grew 39% on average between June and August.
Speaker #3: That is the gap our innovation is designed to close. Turning to our consolidated results, net sales grew 1.3%, reflecting the ongoing recovery in Mexico and 12.2% growth in Latin America partially offset by continued weakness in the U.S.
Speaker #3: Hispanic retail market. Gross margin was 61.4%, a 244 basis point contraction mainly reflecting the destruction of returned products in the United States and higher promotional investment, including the fully absorbed impact of Mexico's new tax on non-caloric sweetened beverages, EBITDA margin reached 21%, down 271 basis points, while our productivity savings reduced SG&A by 1.1% despite higher opex and inflation.
Speaker #3: Net margin expanded 168 basis points to 11.4%, driven by lower financial expenses and non-recurring favorable foreign exchange results. Let me be direct about margins.
Speaker #3: Last quarter we said EBITDA pressure was a deliberate choice to prioritize market share. This quarter we choose to set up that investment. In promotion, commercial spending, and launches.
Speaker #3: Because the returns are now visible in sell-out and market share, EBITDA came in line with our expectations. In Latin America, net sales grew 12.2% and EBITDA margin expanded 190 basis points to 23.7%.
Speaker #3: Central America and the Andean region continued to grow on market share gains and traditional channel expansion, more than offsetting lower selling in Brazil where customers are reducing inventories ahead of the country's tax reform.
Speaker #3: We expect Brazil selling to normalize in the first quarter of 2027. Once the new tax rules take effect, Argentina grew 39%, driven by unit share gains in OTC and beverages, and a favorable hyperinflation effect.
Speaker #3: In the United States, net sales declined 30%, reflecting distribution gaps amid continued weakness in Hispanic retail market, while sell-out declined minus 8.8% in local currency.
Speaker #3: Xerox sell-out maintained double-digit growth and e-commerce continued to expand. We are realigning our commercial footprint and distribution model to stabilize performance and support a gradual recovery.
Speaker #3: We added one slide because there is a significant increase in our cash conversion cycle that I wanted to explain, and I will let then Tonio get into further explanations and details.
Speaker #3: But what I wanted to highlight is that mostly the increase in the cash conversion cycle is driven by two effects. One is the Argentine non-cash effect, that is driven by inflation and currency devaluation.
Speaker #3: We have in the base a massive devaluation of the Argentine peso that is causing this effect. Number one, and number two is a deliberate increase in the inventory build-up in Mexico this has been a very complicated year throughout the quarter since January, and because of everything that is going on in the world, with the wars and shortages that we were potentially facing, and we made a conscious decision of purchasing in advance more than what we normally do of the APIs that we require to produce the winter season brands that we expect to be a very strong season in Mexico.
Speaker #3: We have early signs in this quarter that that's going to happen. And we purchased in advance of very massive price increases because of the oil price, so that led to an increase of inventories in Mexico.
Speaker #3: That coupled with five new launches that we have in OTC, and the launch of Xerox Mineral, that we needed the inventory to make sure that we can respond to the demand that is coming forward, okay?
Speaker #3: So I wanted to provide that perspective. That is what took our conversion cycle from 129 days to 165. One commitment that we are making is that by the end of the fourth quarter, we are going to at least take that number down to 140 days.
Speaker #3: Obviously, the non-cash or inflationary or currency depreciation in Argentina is not going to impact us in the fourth quarter, though that's going to be gone.
Speaker #3: And the inventory we should expect to sell most of it in the fourth quarter, and the first quarter of 2027, okay? One note that I added in this slide because I know this is a recurrent concern from investors shareholders is.
Speaker #3: Accounts receivables, okay? I wanted to explain how accounts receivables is being impacted by the Argentine non-cash effect. If you exclude that, our accounts receivables remain very much in line with the last quarter, and we expect to maintain that level going forward.
Speaker #3: So there's nothing affecting the receivables right now. This is mostly driven by the Mexico build-up of inventory and the non-cash effect in Argentina. And we'll answer any questions you guys have after the presentation.
Speaker #3: Before I close, let me leave you with four messages first. Mexico delivered what we anticipated, a third consecutive quarter of sales improvement, and sell-out back to growth.
Speaker #3: Second, we are growing ahead of our categories in OTC, personal care, and infant nutrition with market share stable or growing across all business units.
Speaker #3: Third, innovation is working. Our late June launch took Xerox to a historic high share at the leading retailer, and we are accelerating launches and stepping up investment to expand market share.
Speaker #3: Fourth, we entered the fourth quarter with momentum. A stronger innovation pipeline and a solid balance sheet. With working capital expected to improve as the quarters temporary effect unwind.
Speaker #3: To close this quarter, to close this quarter confirms that our recovery plan is working. On December 3rd, in New York at our investor's day, we will present the new operating model the company's future strategy and the new artificial intelligence platform in action.
Speaker #3: I look forward to seeing many of you there. Before I hand over to Tonio, allow me a personal note. As we announced in September, this is my last earning call as CEO of Genomalab.
Speaker #3: I will support the transition through the end of the year, and on January 1st, Rodrigo Herrera, our founder and chairman, will become the interim CEO.
Speaker #3: I am proud of what we have built together. We kept our financial discipline. Through a difficult consumption cycle, we defended our market share and today we are seeing the recovery we worked for.
Speaker #3: I live confident in what comes next. Genoma's greatest strength powered by artificial intelligence. I want to thank our team for their disciplined execution, their commitment.
Speaker #3: Rodrigo and the board for their trust. And you, our investors and analysts, for your support and your candid questions during my time as CEO.
Speaker #3: Genoma is in very good hands, and I will follow its next chapter very closely. Thank you so much. Tonio, please go ahead.
Speaker #1: Thank you, Marco. Thank you for all these years. And good morning, everyone. Our third quarter results reflect two realities. Mexico is recovering, and we're choosing to invest behind that recovery.
Speaker #1: At the same time, the United States remains a difficult market, and part of this quarter's net income growth came from a positive Forex result.
Speaker #1: I will address both of these topics. Three points frame this quarter. First, sales. Mexico is improving. Net sales trend improved for the third consecutive quarter and sell-out returned to growth.
Speaker #1: Latin America grew 12.2% in Mexican peso terms, and the US declined 30% and remains a principal challenge. Second, margins. Margins declined partly by design.
Speaker #1: We increased promotional and commercial investment and fully absorbed Mexico's new tax or non-caloric sweetened beverages the effect of return products in the US from the past winter season and also waited on our margins.
Speaker #1: Operating savings significantly offset inflation and SG&A declined 1.1%. Third, cash. Cash generation and liquidity are sound. Operating cash flow rose 12.5%, free cash flow rose 52%, and 85% of our debt is now long-term.
Speaker #1: Working capital increased and I will explain why in a moment. Net income grew 18.6% with a significant contribution for a Forex exchange gain and we will go into the details a little bit later.
Speaker #1: Let me now turn to the results revenues. Net sales were 4 billion 497 million pesos up 1.3%. Latin America grew 12.2%, which more than offset declines of 30% in the US and 2.4% in Mexico.
Speaker #1: The 7.3% appreciation of the Mexican peso against the US dollar created a translation headwind on our international results. Gross margin was 61.4%, down 244 basis points.
Speaker #1: Two factors drove the decline. The effect of return products in the US and higher promotional investment, including the full absorption of Mexico's new tax or non-caloric sweetened beverages.
Speaker #1: The second was a conscious decision to support growth. The first was not. It was the result of a past milder than expected winter season in the US.
Speaker #1: ABDA was 945 million pesos at 20% 21% margin in line with our expectations and 271 basis points below last year. We are accepting lower margins in the near term to invest in growth.
Speaker #1: The trade-off is justified only if it produces sustained improvement in sell-out and market share. And that is a standard against which we will evaluate these investments.
Speaker #1: Cost discipline was maintained. Operating savings significantly offset inflation and SG&A declined 1.1%. Net income rose 18.6% to reach 550 million pesos and net margin expanded 168 basis points to 11.4%.
Speaker #1: Lower financial expenses and a Forex and a foreign exchange gain more than offset a lower ABDA margin and a higher inflationary loss on our monetary position in Argentina.
Speaker #1: The FX gain is non-recurring and without it, we have to acknowledge this. Net income growth would have been lower. Over time, earnings growth has to come from operations.
Speaker #1: Let's move now into Mexico. In Mexico, net sales declined 2.4%. It is still a decline but it is the third consecutive quarter of improvement.
Speaker #1: And nearly 20 percentage points better than the low minus 22% in the fourth quarter of 2025. Beverages and infant nutrition grew strongly. In Mexico, a market that, as we all know, remains soft, we outperform our categories in OTC, personal care, and infant nutrition.
Speaker #1: And market share was stable or growing in every business unit. Sell-out returned to positive territory and. Which is an encouraging signal of consumer demand.
Speaker #1: The product we launched in late June broke 39% sell-out growth among customers carrying it and Xerox achieved a record high value market share at our leading retailer.
Speaker #1: These are early indicators. And we will need to see them sustained. We are accelerating launches and increasing investment to expand market share. As a result, Mexico's ABDA margin was 20%, down versus last year, and this reflects investments ahead of the sales ramp-up we anticipate partly funded by administrative savings.
Speaker #1: A war on currency before turning to the US, the Mexican peso averaged 17.27 pesos per dollar. Now it's changing but that was doing the quarter.
Speaker #1: This represented a 7.3% stronger peso than a year ago, which reduced our US results when translated into Mexican pesos. The US, as we said before, remains our most challenging market.
Speaker #1: In the US, net sales declined 30%, reflecting distribution gaps amid continued weakness in the Hispanic retail market. Sell-out declined less but still it was a decline of 8.8% in local currency.
Speaker #1: On the other hand, there are positives. Xerox sell-out maintained double-digit growth and e-commerce continued to expand in that country. We are realigning our commercial footprint and distribution model to stabilize performance and we expect the recovery to be gradual.
Speaker #1: ABDA margin was 8.6%, down 492 basis points primarily reflecting operating deliverage and the impact of return products from the past winter season, which, as we mentioned, it was very mild.
Speaker #1: In Latin America, most countries depreciated against the Mexican peso, creating as well a translation headwind for the region. Latin America net sales grew 12.2%, Argentina grew 39.2%, driven by unit share gains in OTC and beverages, and a favorable and hyperinflationary effect.
Speaker #1: Excluding Argentina, Latin America grew 1.6%. Central America and the Andean region performed well with market share gains in OTC and beverages in key markets and expansion in the traditional channel.
Speaker #1: Brazil, on the other hand, declined as customers reduced inventory ahead of the country's tax reform. We expect Brazil to Brazil selling to normalize in the first quarter of 2027 once the new tax rules take effect.
Speaker #1: Regional ABDA margin, including Argentina expanded 190 basis points to 23.7%, reflecting operating leverage from higher sales. The foreign exchange result that we mentioned was a gain of 41 million pesos compared with a loss of 122 million pesos in the third quarter of 2025.
Speaker #1: During the quarter, we paid down intercompany balances reduced the amount of exposed exposure to different currency movements and also the Mexican peso is now getting to more normal levels.
Speaker #1: So this was one of the drivers for the net income growth during this quarter. Turning to the balance sheet, as of June 30th, 1 billion 880 million pesos of our debt was due in 2026.
Speaker #1: During the quarter, we replaced most of that short-term debt with long-term with a long-term bank credit. We drew on a 10-year amortizing term loan with Bancomex and we announced last quarter that we also closed a 1 billion peso unsecured loan with Banamex maturing in 2029.
Speaker #1: As you can see, this is a maturity profile today. As of September 30th, short-term debt decreased 63% to 1 billion 185 million pesos. Over 2.3 times my cash and equivalents of 2.76 billion pesos 85% of our gross debt is now long-term and the net debt closed at 5 billion 242 million pesos.
Speaker #1: 94 million pesos lower than in the second quarter. As you can see in this graph, 2027 remains our largest maturity year. We are we continue with our plans to extend maturities and lower our our cost of funding as we will present, you know, in the coming quarters.
Speaker #1: Working capital is the area that requires the most attention this quarter. As Marco mentioned earlier, our cash conversion cycle reached 165 days of 36 days from the second quarter receivables increased 12 days inventories increased 21 days and payables decreased 3 days.
Speaker #1: There are two temporary effects that explain 28 of the 36 days which are a non-cash inflationary accounting effect in Argentina of 13 days that Marco explained earlier.
Speaker #1: And a planned inventory build in Mexico of 15 days ahead of the winter season. There's a lot of innovation coming including Coff and Co launches in the fourth quarter of 2026 and the first quarter of 2027.
Speaker #1: Excluding if we exclude Argentina from these figures receivable days rose only 3 days with no material increase in overdue balances. We expect the cycle to decline to approximately 140 days in the fourth quarter as the winter inventory in Mexico sells through and the Argentine effect normalizes.
Speaker #1: Even at that level of 140 days, it would remain above where it was a year ago and improving cash conversion cycle is a priority.
Speaker #1: Operating cash operating cash flow grew 12.5% to 496 million pesos after a planned 476 million pesos investment in working capital and we also cover capex interest payments debt repayment and dividends.
Speaker #1: Free cash flow increased 52% to reach 470 million pesos during the quarter from 309 million pesos a year ago. And total 1 billion 420 million pesos over the last 12 months.
Speaker #1: Our capital allocation as we all know 62 balance three objectives first investing in the business maintaining a sound balance sheet and also returning cash to shareholders on September 30th we paid our 17th consecutive quarterly dividend of 20 cents per common share totaling almost 195 million pesos.
Speaker #1: Capex total close to 25 million pesos including 21.2 million pesos invested in our manufacturing plant and distribution center. Net debt to ABDA is 1.4 times and our debt service coverage is 5.5 times.
Speaker #1: This gives a genoma the flexibility to keep investing in the business while meeting our commitments to shareholders. To conclude, this was a quarter of mixed results.
Speaker #1: And we want to clear we want to be clear about both both sides. On one side, Mexico continues to improve. Sellout has returned to growth.
Speaker #1: Cost discipline held. Operating cash flow increased. And our debt maturity profile is longer. On the other side, the US remains difficult. Margins declined. Working capital increased.
Speaker #1: And part of our net income growth may not repeat. Our tax now is to convert the improvement in sellout into sustained sales growth. Bring the cash conversion cycle down to approximately 140 days in the fourth quarter and maintain the financial discipline that underpins long-term value creation.
Speaker #1: Finally, just a reminder that on December 3rd we will host an investor day in New York where the company will present the new strategy and a demonstration of the artificial intelligence agents that will help the company accelerate results.
Speaker #1: Please register to attend. Here you have a QR to do so if you haven't done it yet. It will be worth it. It's very important that everybody knows that being there it's not the same as you know attending remotely.
Speaker #1: It's worth attending in person we encourage again to register. And with that I will hand the call back to the operator for your questions.
Speaker #2: Thank you Antonio. We will now begin the question and answer session. So to ask a question you may raise your hand using the raise your hand icon located at the bottom of your screen.
Speaker #2: To withdraw your question press the same icon at any time. This will be required in order to allow you to then turn on your microphone and ask your questions.
Speaker #2: One moment please while we hold for questions. Thank you. Our first question will come from Álvaro García from BTG Pactual. Álvaro, please turn on your microphone and proceed with your question.
Speaker #1: Hey Marco, I hope you're doing great. obviously a lot to get into on the working capital front. but I wanted to start off with a with a question for Michael.
Speaker #1: just sort of as you hand over the keys I was curious if you could maybe talk about what you know what you're proudest of you know in your tenure as CEO and maybe what you'd see as unfinished business again as you as you hand over the keys.
Speaker #1: Thank you.
Speaker #3: Thank you Álvaro. no I think I think that over the past years you know I think that the company has made a a huge amount of progress in in several fronts which I am very proud of to see and and and will continue to be proud as we you know embark on the new phase of the company.
Speaker #3: I would say number one obviously is the commercial expansion of this company. If you look back you know 10 12 years ago this was a company that was mainly focused on the pharmacy channel okay and now the pharmacy channel today is a one of several channels and and and it doesn't represent the majority of the business on the contrary okay that that has been a massive achievement for this company.
Speaker #3: We have opened we went from having two customers two retailers in the US to now be serving more than 80 customers in the US in Latin America we went from having you know a bunch of customers no more than 10 15 customers in total in the sum of all the markets today we serve more than 180 customers in total in in Latin America in Mexico we were very dependent on the pharmacy channel and Walmart and today we have a traditional channel that represents almost 28% of the business that was built from scratch.
Speaker #3: This was a very hard work that was done by the entire team throughout the years. So that's one thing. Second I would say the the startup and the build of all the manufacturing facilities that the company has if you if you go back seven eight years ago we we everything we did you know was manufactured by third parties today more than 68% of our business is manufactured in our own facilities and you know the the greenfield startup of of of all these plants was very exciting and I think it brought a massive amount of savings in COGS and improvements in quality for the company.
Speaker #3: I think the team that the company was able to build over the years today wherever you look in the different functions markets areas whatever you see you know top level people leading the functions you know people with extraordinary careers from other companies that you know came to the company trusting they could continue to to grow and and to add value with us as a company and finally I would say that you know the very strong relationship that we have with suppliers and and customers I think that's something that you know we have built.
Speaker #3: I and I expect Álvaro that you know all these things you know it's like a I don't know if you guys know the the read the book that is called Standing in the Shoulders of Giants which is basically this Chinese story in which like everything in life has a cycle and every cycle that comes after the the one that is finishing needs to build on top of what is being left okay I am 100% confident that under the leadership of Rodrigo and the current leadership team the company will continue to build on on everything that that we have done as a company in the past several years.
Speaker #1: Yeah no doubt no doubt. thanks for that and yeah all the best going forward. It's been a pleasure and thanks for all your help over the years.
Speaker #1: All the best.
Speaker #3: Thank you Álvaro.
Speaker #2: Thank you. Our next question comes from Antonio Hernandez from Actinver. Antonio please go ahead turn on your microphone and proceed with your question.
Speaker #4: Hi good morning Marco. That that was a a great a great round of of highlights and and congrats and and thanks for all your your support throughout these years.
Speaker #4: Well my my question is regarding Swedoc's profitability. How how do you profitability turn turn around like throughout these last couple of quarters with the yeps effect and and of course you well take advantage of that in terms of of from a competitive standpoint having better prices versus competitors now what about margins our how was profitability throughout these quarters thanks.
Speaker #3: Yeah I I don't want to brag too much about this but I think that this is a world-class way of managing this situation by the company and the team first when we started working on how to improve Swedoc's COGS that that that was back in 20 by the end of 2023 you know we were purchasing the the preforms and the labels and the caps from third parties and on a brand that is that is so so large you know the cost of doing that is very high okay so so you know it was a by chance that we started working on a very large project to acquire the manufacturing machinery that we needed to manufacture our own preforms that got us to a massive improvement in COGS because we were purchasing just to give you the numbers we were purchasing the preforms at 1.1.19 from from our suppliers and today we are manufacturing the preforms at 0.83 cents of a peso okay so that's a huge amount of COGS saving same thing with the labels we purchased the the line to do our own labels and we managed to get to a you know great negotiation with the caps manufacturer so when you look at the Swedoc's I'm going to quote some COGS numbers here but you need to double check this with Cristian later on but when you look at our COGS of Swedoc's basically the the impact of the COGS was in the range of 1.
Speaker #3: okay when you when you after absorbing all the yeps and getting more aggressive in in in pricing most of that investment was absorbed by the savings that we got in the in the in the in the products on the as I said the preforms the labels and and the caps so it ended up very well for us.
Speaker #2: Perfect. Thanks a lot.
Speaker #1: Thank you.
Speaker #2: Antonio this is this is Antonio Zamora just expanding on on Marco's comment. And to give you a sense of the huge impact of this productivity in our Swedoc's business if I compare the cost of goods sold of manufacturing one Swedoc's bottle today versus the cost that we used to pay back in 2021 okay today our COGS is 21% lower than what we used to pay back in 2021 and obviously from that point in time you would need to add a lot of inflation that we were able to offset and create significant productivity.
Speaker #2: So all of these initiatives that Marco described about the preform internalizing into our plant launching the second line the labels etc that created massive productivity that obviously helps the Swedoc's business.
Speaker #2: Do we like the yep stacks? Of course not. Of course that's adding cost that we didn't have it. Fortunately we had all these initiatives and we were able to offset them.
Speaker #2: And we know it's a very competitive market and we will continue expanding on productivity initiatives to become even more competitive. But but a lot has been done in that business and I think it's remarkable.
Speaker #2: Thank you Marco for all the work that has been done as well as you know the team that made all these productivity gains a reality.
Speaker #1: Perfect. That's great achievement. Thanks.
Speaker #2: Thank you so much. Our next question will be from Freeland Mendes with JP Morgan. Freeland go ahead turn your microphone on.
Speaker #5: Hello guys can you hear me?
Speaker #3: Yes.
Speaker #5: Perfect. Marco muchas gracias por todos todos estos años thank you so much for for for your help and support the best on on your next next journey.
Speaker #5: And going into my question and sorry if you touched upon this I arrived a little bit late to to the call but could you just help us understand the 3Q non-recurring impacts on top line and costs from the two coal inventory returns if you already answered I can then check with Cristian and don't lose your time on answering that if if you already did.
Speaker #5: The second and probably the most important one on Mexico margin recovery so EBITDA contracted almost 7% points you did have some sequential improvement in sales so how much of that compression was delivered investment versus operating the leverage and going forward what needs to happen for Mexico margins to recover from current levels.
Speaker #5: Thank you so much.
Speaker #3: So the second question I think you Freeland for for your words the second question is on Mexico's margin or.
Speaker #5: Yes in Mexico.
Speaker #3: Okay the to call is very simple I mean in the US I mean we had a a very very soft season this past year and normally this is the time when when you start getting the the returns from customers.
Speaker #3: It was a very large amount of product that we put out there in the stores as you know you know to be very competitive you have to have the product at the stores not only to have the product so if someone ask they can they can take it but also to have displays you need volume and you know the presence of the brand at the stores is very important and for that you need the you need the volume put out there okay so that's what we did and that's what we will continue to do and as I said in the in the in the discussion we are preparing here in Mexico and in the US for a very aggressive commercial competitiveness at the stores at the point of sales with product we are shipping a lot of products to the stores expecting to have a very strong season and expecting to grow market share and win against our competitors.
Speaker #3: That's what we are going to do and we'll did in the past. This is a time when normally we start getting returns from customers that didn't sell the product because of the tame season okay so that's basically what's happening in the US is a one-off and it won't it won't repeat in the next quarters.
Speaker #3: That's that's to call I don't know if that clarifies?
Speaker #5: Yes if if you have like the exact number on impacting revenues and impact in COGS it would be very useful to normalize going forward if that's not going to happen but again I can check with Cristian later on.
Speaker #3: Yeah I don't have the numbers by heart but you can follow up with with Chris.
Speaker #5: Perfect. And in Mexico is the one that.
Speaker #3: No Mexico I mean let let me give you the full picture of Mexico because it's important. Mexico went from a very low margin I'm talking like four five maybe a little bit more six years ago we were running a business in Mexico with you know basically sometimes no margin or very low margins in the high single digits or low double digits in the last I would say four to six years you know working on on the COGS working on the spending working on the SG&A everything we managed to take the Mexican margin to the range of 26 27% which was extremely healthy and we were able to sustain that for many years but I mean obviously because of you know how soft our business got last year especially in Mexico we lost market share in some categories our consumption got really soft in some channels and customers we I made the conscious decision of investing back in the business strongly okay and and what you guys are seeing today in terms of the sellout recovery is actually the result of that where that was you know 100% perfect you know the deployment execution and the ROIs of all those investments I don't know I don't think so but we I in particular kind of like decided to error more on the risky side of investing more but secure the market share recovery and the sellout now going forward I think that the company has the fundamentals to you know once we see that you know our brands are getting more traction like what is happening right now with Xerox and what is going to happen in other brands after we we we see the results of the new innovation launches and and you know communication models and so on I think that the company has everything to you know gravitate back I don't know if you know all the way back to 2027% but it will get closer to that number throughout throughout next year for sure all I know what I can say right now is that the way the financials are structured in the company as a whole not just Mexico but as a whole is.
Speaker #3: Our EBITDA margin will gravitate back to where we were before the decision to invest back in the business which was the levels of 23 to 24%.
Speaker #3: Overall as a corporation Mexico I'm not sure we'll get back to 27 but you know it will for sure be higher than 20.
Speaker #5: And Marco if if I may may from the innovation initiatives which you are pushing into the market and and probably reflective of this let's say investment in margins to to pull to to put out a strong campaign around the new innovations which is the one that excites you the most the the one that you're betting the most I know you have Xerox Mineral you have some on the on the on the Tionacho side can you tell us a little bit which one is the one most exciting the one that has to go right to go back to the 27 margin.
Speaker #3: No no for sure the I because of the size of the brand not because of the quality of the initiative but because of the size of the brand and how good the product is if you guys tried it I think Xerox Mineral has a massive potential of adding a huge amount of top line to the company I mean I I can give you some some numbers that are you know off the record but you know in in in in the customers where the product has been launched more than 80% of the sales of Xerox Mineral is incremental to the brand and when you look at the total brand sales the growth levels are extremely high in Walmart we hit more than 80% growth on the brand at some point in the past in the past few months in OXXO we are seeing very high levels of growth already more than 30% but also when you look at the traditional channel which is the channel that you know is the biggest channel for beverages when you talk to the mom and pop owners and when you talk to consumers and so on I mean in the stores where you have Xerox Mineral the Xerox Mineral is selling free eggs or four eggs than what the old Xerox was selling before especially when it is located in the fridge so every sign everywhere you talk to consumers people love it you talk to customers they like it so that that I think is you know from a top line point of view the biggest one now we have very strong initiatives coming already deployed and being executed in many OTC categories that I am very excited that you know they have differentiation they have the power of the brand and I'm very confident that you know they will work really well as well as Tionacho and so on.
Speaker #5: Excellent thank you so much Marco my best to you thank you so much.
Speaker #3: Thank you Freulan we'll see you soon.
Speaker #2: Bro just just expanding on Marco's answer I think it would be let me emphasize this again it would be very interesting for everybody to attend the investor day on December 3rd because what Marco described at the initiatives that we are currently having place on December 3rd you will see new tools that you haven't seen yet and you will see how the future will look like in terms of innovation new product launches new formulations etc.
Speaker #2: So let me again we expect to see you at Freulan Joe and obviously everybody here but it's very important for everybody if you want to understand what what comes for Genoma in 2027 and beyond it's very important to to attend the investor day in person in person.
Speaker #5: Perfect.
Speaker #2: Thanks thank you bro.
Speaker #5: No gracias a ti. Abrazo.
Speaker #1: Thank you. One moment please while we hold for more questions. All right thank you. With this we conclude Genoma's third quarter results conference call.
