Coca-Cola FEMSA SAB de CV Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Core Business Growth: Second quarter saw consolidated volumes increase 7.5% year-on-year, driving double-digit top and bottom line growth. Juntos+ is progressing, with version 4.0 of the app rolled out in major markets and over half of customer base as digital buyers.
• Brazil Flood Impact: Southern Brazil faced unprecedented flooding. Team activated crisis protocols for collaborator safety, donated resources, and worked on plant reopening and supply chain adaptation.
• Regional Market Performances:
  • Mexico: 7.9% volume growth, first time reaching 600 million unit cases, with supply chain efforts to add capacity.
  • Central America South: Volumes increased 6.2%, launched new packaging products.
  • Colombia: Volume growth decelerated due to macroeconomic and weather, but initiatives enabled share gains.
  • Argentina: Volumes declined 9.9% due to disposable income contraction.
  • Uruguay: Volumes declined 12.1% due to tough comparison base and weather.

Segment Performance

• Consolidated Results: Consolidated volumes increased 7.5% year-on-year. Total revenues for the quarter grew 13.1%, reaching MXN69.5 billion. Gross profit increased 17.2% to MXN32 billion, leading to a margin expansion of 160 basis points to 46%. Operating income increased 13.8% to MXN9.7 billion. Adjusted EBITDA for the quarter increased 21.7% to reach MXN13.9 billion. Majority net income increased 13.8% to reach MXN5.6 billion.
• Mexico and Central America Division: Volumes increased 8.1% to 695.6 million unit cases. Revenues increased 15.3% to MXN45.1 billion. Operating income increased 12% to MXN7.3 billion, but operating margin contracted 50 basis points to 16.2%. Adjusted EBITDA grew 20.1% with a 90 basis point margin expansion to 21.9%.
• South America Division: Volumes increased 6.5% to 400 million unit cases. Revenues increased 9.2% to MXN24.4 billion. Gross profit increased 16%, leading to a margin expansion of 240 basis points to 41.1%. Operating income increased 19.6% to MXN2.5 billion with operating margin expanding 90 basis points to 10.1%. Adjusted EBITDA increased 25.9% to MXN4 billion.

Guidance

• Maintains mid-single-digit volume growth outlook for the full year. Encouraged by year-to-date performance but remains optimistic about the second half, with no change to the current volume outlook set earlier.

Risks

• Unprecedented flooding in the State of Rio Grande do Sul in Southern Brazil, affecting approximately 2.4 million people and challenging business continuity.

Q: About volume guidance and market share?

A: Maintains mid-single-digit volume growth outlook for the full year. In Mexico, impacted by supply chain shortages on share; in Brazil, overall positive but Rio Grande do Sul saw share losses recently.

Q: About costs and Brazil beer industry dynamics?

A: Hedging in place for FX and raw materials. Brazil beer market is flat with intense competition, volumes challenging but maintaining share.

Q: About consumer impact?

A: Colombia and Argentina have softer consumer environments. Mexico's softness relates to weather, not consumer strength.

Q: About South America margins?

A: Margins performed well due to strategies, expecting cost curve situation in the second half.

Q: About Juntos+ loyalty and fintech?

A: Loyalty program has volume uplift, fintech has partnership progress.

Q: About drivers of volumes growth and non-cash expenses?

A: Juntos+ has volume uplift, Mexico has non-cash FX impact, Brazil has related impact amounts.

Q: About pricing and Argentina outlook?

A: Pricing strategy, Argentina outlook is optimistic with government measures.

Q: About Guatemala growth and Argentina's multi-serve?

A: Guatemala per capitas low with growth space, Argentina has returnables mix increase.

Q: About capacity expansion?

A: Plan to increase 15% capacity in manufacturing by end of 2025, with distribution capacity to increase 30% in the same period.

Q: About second half volume and margin outlook?

A: Maintains mid-single-digit volume growth outlook, margin有望有上行潜力但需关注风险.