Release Date: July 18, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total consolidated revenues rose 4.7% in the second quarter and 2.5% year-to-date.
- Consolidated EBITDA grew 7.5% in the quarter and 4.6% year-to-date, reaching MXN12.2 billion and MXN21.8 billion, respectively.
- Mexico's beverage business saw strong growth, with unit case volume up 5% and total net sales rising 10.8% in the quarter.
- The US operations delivered solid profitability improvements, with EBITDA growing 9.3% to $188 million.
- Arca Continental was recognized by the Mexican Stock Exchange for obtaining the highest overall score in Mexico for the Standard & Poor's Global Corporate Sustainability Assessment.
Negative Points
- Total volume was flat in the quarter, with growth in Mexico offset by declines in South America and the US.
- South America's beverage business saw a 9.9% decline in total volume and a 7.2% drop in total revenue.
- Volume in Peru was down 10% due to a sharp slowdown in the economy and unseasonably cold temperatures.
- Argentina's beverage business experienced a 21% decline in volume, although the decline was milder compared to the first quarter.
- The food and snacks businesses posted a low single-digit sales decline in the quarter and a mid-single-digit decline for the full year.
Q & A Highlights
Q: Can you discuss the results and future plans for the returnable bottles pilot in the US?
A: (Arturo Gutierrez Hernandez, CEO) The pilot in the US, particularly in San Antonio and El Paso, has been successful, focusing on the food service channel. We have approximately 450 customers offering refillable glass bottle options. While returnables won't be as significant in the US as in Latin America, they play a role in our balanced packaging strategy.
Q: What are the ongoing dynamics and market share opportunities for colas in Mexico?
A: (Arturo Gutierrez Hernandez, CEO) We had a strong performance in Mexico, with sparkling beverages growing 3.6% and Coca-Cola no sugar growing double digits. Our growth is driven by improved execution, new capabilities, and investments in supply chain and cold drink equipment. We see opportunities across all categories in Mexico.
Q: Are you seeing different consumer reactions to price actions now versus prior periods, especially in South America?
A: (Arturo Gutierrez Hernandez, CEO) We have refined our revenue management capabilities and increased prices in every market this year. While there is some elasticity, it is often lower than initially estimated. Our strategy includes balancing price architecture with affordable packages, particularly returnables, to maintain competitiveness.
Q: How do you see volumes in the US developing for the rest of the year, and what are the prospects for Peru?
A: (Arturo Gutierrez Hernandez, CEO) In the US, we expect continued growth, focusing on packaging innovation and category development. For Peru, despite recent volume declines due to tough comparisons and economic challenges, we see long-term growth prospects and opportunities in cooler coverage and digital capabilities.
Q: Can you explain the strong volume growth in still beverages in Mexico and the outlook for the snack business?
A: (Arturo Gutierrez Hernandez, CEO) Stills have a long runway for growth in Mexico, particularly in sports drinks, tea, and coffee. We are improving our go-to-market models and investing in supply chain. For snacks, growth is driven by both volume and pricing, with a focus on quality, flavors, and cost reduction initiatives.
Q: What is the outlook for pricing in Mexico given the favorable raw material environment?
A: (Arturo Gutierrez Hernandez, CEO) Our pricing strategy remains to increase prices in line with or above inflation. We are reducing unproductive spend and improving price optimization tools. Despite favorable raw material conditions, our pricing strategy remains unchanged.
Q: What are the key drivers behind the recent profitability improvements in the US, and what is the outlook?
A: (Arturo Gutierrez Hernandez, CEO) Improvements in execution, packaging innovation, demand forecasting, and digital tools have driven profitability. We are also investing in supply chain infrastructure and predictive maintenance. We expect continued positive trends in profitability.
Q: Can you comment on the distribution model change for DASANI in the US and its impact?
A: (Arturo Gutierrez Hernandez, CEO) The DASANI 32-pack distribution model changed from DSD to warehouse delivery for one customer. This makes sense for this specific SKU and account. There are no plans for additional items or accounts to follow this model. The change will not affect profitability as we will receive a delivery fee.
Q: At what level have you hedged the Mexican peso for this year and next year?
A: (Emilio Jesus Marcos Charur, CFO) We have hedged 100% of our needs for this year at lower levels than 2023, and 80% for next year. We also hedged 80% of our needs in Peru. We have started hedging for 2025 at current levels.
Q: Is the high single-digit growth expectation for the full year 2024 still valid, and what is the impact of aluminum price volatility?
A: (Arturo Gutierrez Hernandez, CEO) We maintain our expectation of high single-digit growth in constant currency. We have hedged 80% of our aluminum needs, so we do not expect significant impact from recent price volatility.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
