Coca-Cola FEMSA SAB de CV Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Consolidated Results: Volumes increased 0.8% to 1.04 billion unit cases. Revenues grew 10.7% to MXN69.6 billion. Gross profit rose 11.3% to MXN32.1 billion, with a margin of 46.1% (expanded 20 basis points). Operating income jumped 13.9% to MXN9.6 billion, and operating margin expanded to 13.8%. Adjusted EBITDA increased 18.4% to MXN14 billion, with a margin of 20.1% (expanded 130 basis points). Majority net income grew 8.9% to MXN5.9 billion.
• Mexico: Volumes declined 1.5%. Implemented initiatives to grow core business; brand Coca-Cola volumes were stable. Stills growth from Powerade, Fuze, Monster, etc. Added 70,000 new customers. Digital adoption via Juntos+ (405,000 monthly active buyers, digital orders >40% of total).
• Central America: Volumes increased 7.5% in Guatemala.
• Brazil: Volumes rose 6.3%. Coca-Cola Zero Sugar grew 59% YOY. Sports and energy drinks (Powerade, Monster) saw double-digit growth. Multi-category revenues (excluding beer) up 24%, mix 2% (aiming for 5% in future). Digital adoption (half clients order weekly via Juntos+). Pilot of Juntos+ Advisor.
• Colombia: Volumes declined 4%. Focus on refillable bottles and customer base expansion.
• Argentina: Volumes stable. Digital client base doubled, digital orders 30% of traditional trade.

Segment Performance

• Mexico and Central America: Volumes declined 0.7% to 629 million unit cases. Revenues increased 9.6% to MXN42.5 billion. Gross profit rose 10.7% to MXN20.7 billion, with a gross margin of 48.6% (expanded 70 basis points). Operating income climbed 11.3% to MXN6.7 billion, and operating margin expanded to 15.8%. Adjusted EBITDA grew 15%, with a margin of 22.1% (expanded 110 basis points).
• South America: Volumes increased 3.1% to 412.1 million unit cases. Revenues rose 13.6% to MXN27.1 billion. Gross profit advanced 12.2%, but margin contracted 60 basis points to 42.1%. Operating income grew 20.6% to MXN2.9 billion, with an operating margin of 10.8% (expanded 60 basis points). Adjusted EBITDA increased 25.8% to MXN4.6 billion, with a margin of 17% (expanded 170 basis points).

Guidance

• Mexico: Confident in growth prospects. Committed to expanding manufacturing capacity by 4% in 2024, including third bottling line production next month. Expanding warehouse capacity by >25%, primary and secondary distribution fleets by 13% and 6% respectively.
• Brazil: Expect to gather learnings from Juntos+ Advisor pilot and expand rollout to rest of Brazil and other markets in 2025.
• Overall: Remain committed to strategy and sustainable long-term growth model.

Risks

• Weather Events: Unfavorable weather in Mexico (more rainfall, lower temps) and Hurricane John in Guerrero impacted operations.
• Currency Fluctuations: Depreciation of Brazilian real and Argentine peso affected financial results.
• Supply Chain Challenges: Sourcing products from third-parties in Brazil impacted profitability.

Question and Answer

• Q: Felipe Ucros on Brazil plant ramping up and multi-category pilots A: Ian Craig on Brazil plant capacity impact (sourcing from third-parties affected profitability) and multi-category progress (multi-category mix at 2%, aiming for 5% in future).
• Q: Alejandro Fuchs on South America gross margin and Juntos+ Advisor A: Gerardo Cruz on South America gross margin pressure (sweetener costs, promotional activity) and Ian Craig on Juntos+ Advisor benefits (AI-driven client-level promotions for sales force).
• Q: Lucas Ferreira on Brazil plant closure impact and Colombia outlook A: Gerardo Cruz on Brazil plant impact (MXN200 million quarter impact, insurance claims covering expenses) and Ian Craig on Colombia outlook (sequential improvement expected in fourth quarter).
• Q: Ben Theurer on digital platform pricing and Juntos+ version 4.0 rollout A: Ian Craig on pricing tools (AI-driven RGM tools) and Juntos+ version 4.0 progress (rollout to all markets by first quarter 2025).
• Q: Fernando Olvera on Mexico volume decline and Argentina recovery A: Ian Craig on Mexico weather (rainfall impact) and consumption, and Argentina recovery outlook (gradual recovery with positive playbook).
• Q: Lucas Mussi on Mexico sugar margins and Argentina margins A: Gerardo Cruz on Mexico sugar margin sustainability (expected stability) and Ian Craig on Argentina margin recovery (gradual improvement).
• Q: Antonio Hernandez on EBIT vs EBITDA margins and Mexico stockouts A: Gerardo Cruz on EBIT margin effects (currency and reclassification impacts) and Jorge Collazo on Mexico stockouts (initial impact, improving with capacity expansions).
• Q: Unidentified Analyst on Brazil profitability and Coke Zero growth A: Gerardo Cruz on Brazil profitability (challenges in high season) and Ian Craig on Coke Zero growth in Mexico (accelerating with emulated Brazilian playbook).
• Q: Ulises Argote on Mexico market share and pricing A: Ian Craig on Mexico market share dynamics (mixed performance, focus on protecting brand Coca-Cola share) and pricing strategy heading into next year.