Earnings call transcript: Coca-Cola FEMSA Q2 2025 misses EPS forecast

Coca-Cola FEMSA (KOF) reported Q2 2025 results that largely missed expectations, with EPS of $25.29 falling 13.6% short of forecasts and revenue of $72.92 billion also slightly below estimates, prompting a 1.79% stock decline. The company cited challenging macroeconomic conditions and adverse weather, which contributed to a 5.5% consolidated volume decline and a 3.8% decrease in adjusted EBITDA. Despite these headwinds, KOF achieved 5% revenue growth and saw strong performance in Coke Zero, while management remains cautiously optimistic for H2 2025, focusing on affordability, capacity expansion, and supply chain efficiencies to drive long-term sustainable growth.

Analysis

Coca-Cola FEMSA (KOF) reported a challenging second quarter for 2025, with earnings per share of $25.29 missing analyst forecasts by 13.6% and revenue of $72.92 billion falling slightly short of expectations. This performance triggered a 1.79% decline in the stock price. The core issue was a 5.5% drop in consolidated volume, driven by significant headwinds in key markets. In Mexico, volume fell 10% due to a tough prior-year comparison, adverse weather, and a deteriorating macroeconomic backdrop evidenced by declining personal consumption. Similarly, Brazil's volume decreased 1.5%, also impacted by weather. Despite these volume pressures, total revenue grew 5%, though adjusted EBITDA contracted 3.8% to MXN13.4 billion, reflecting lower operating leverage and margin pressure. Management is actively countering these challenges with affordability initiatives aimed at specific competitive price points, particularly in Mexico's traditional trade channel. Bright spots include a robust 11.9% volume recovery in Argentina and the strong performance of Coke Zero, which grew 27% in Mexico and 56% in Brazil, indicating successful execution of brand strategy. Operationally, the company is progressing with its long-term capacity expansions and has achieved $60 million of its $90 million supply chain savings target for the year. The company's acknowledgment of its 'inefficient capital structure' and a signal towards addressing it by early 2026 suggests potential for future capital returns.

Key Decisions for Investors

• Investors should closely monitor volume trends and market share in Mexico during the second half of 2025, as the effectiveness of the company's affordability and promotional strategies will be critical for a turnaround amidst consumer softness.
• For value-oriented investors, the post-earnings dip could represent an entry point, given the stock trades at a P/E of 13.97, offers a 4.16% dividend yield, and is supported by long-term capacity expansion plans.
• A potential catalyst to watch is the forthcoming update on KOF's capital allocation strategy, as management's indication of an 'inefficient capital structure' could lead to enhanced shareholder returns through higher dividends or buybacks.
• The sustained, high-growth trajectory of Coke Zero across key markets should be tracked as a primary driver for improving sales mix and profitability, potentially offsetting weakness in other portfolio segments.