Coca-Cola FEMSA SAB de CV Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Core Business Growth: Focus on building on core business growth momentum.
• Juntos+ Version 4.0: Rollout in Mexico exceeded expectations with over 214,000 active buyers in 2nd month, 36% of traditional trade orders digital. In Brazil, learnedings from rollout helped smooth Mexico's launch.
• Capacity Expansions: Adding capacity in Mexico, Guatemala, Brazil, etc. New bottling lines started in various markets.
• Strong Volume Growth: Volumes accelerated 7.3% y-o-y, surpassing 1-billion-unit cases. Sparkling, still, and bottled water volumes all grew.
• Share Gains: Gains in Cola in Mexico and Brazil, strong performance in energy, juice, and certain emerging categories.
• Sustainability: Allocated green bond proceeds to climate action, water stewardship, circular economy; progress on recycled resin usage and water use ratio, and diversity inclusion goals.

Segment Performance

• Mexico: Volumes increased 6.9% to 490.4-billion-unit cases. Revenues grew due to volume growth offsetting currency effects. Gross profit increased, margin had some changes.
• Guatemala: Volume increased 17%, B2B growing with Juntos+ rollout, adding capacity.
• Brazil: Volume grew 10.4% driven by resilient macro, favorable weather, and share gains in sparkling beverages.
• Colombia: Volume increased 9.7% despite challenging environment.
• Argentina: Volume declined 28% due to economic challenges.
• Division-wise: Mexico and Central America volumes up 7.9% to 579.8-million-unit cases, revenues up 12.6%. South America volumes up 6.6% to 428.8-million-unit cases, revenues up 9.3% with currency effects. Revenue contribution % varied by region, with Mexico and Central America contributing significantly to revenues.

Guidance

• Continue leveraging core business growth momentum.
• Deploy advanced AI capabilities in Juntos+ 4.0 further.
• Maintain capacity expansions to support growth.
• Brazil outlook remains mid-single-digit volume growth for the full year.

Risks

• Currency fluctuations, especially peso appreciation/depreciation affecting revenues and margins.
• Raw material cost increases, particularly sweeteners.
• Supply chain stress due to strong demand leading to unserved demand in some categories.
• Economic challenges in certain markets like Argentina impacting volumes and margins.

Question and Answer

Q: Thoughts on volume momentum in Mexico and other markets, differentiating between strategic initiatives and share gain from capacity investment?

A: Strong volume growth due to favorable structural headwinds (employment, disposable income), strategic OBPPC strategy in Cola, favorable weather. Share gains in Cola and expanding categories.

Q: 2024 priorities, multi-category efforts in Mexico and Brazil, and potential for dividend increase?

A: Priority is core business growth, deploying AI in Juntos+ 4.0 in Mexico and Brazil. Reinvesting in business for capacity, M&A opportunities considered, but capital allocation priorities focus on reinvestment first.

Q: Guatemala volume growth, competitive environment, and distribution agreements?

A: Guatemala growing due to stable economy, young population, increasing incomes; competitive with cbc and others, market expanding. Distribution agreements evolving, multi-category growing but still small.

Q: Brazil volume performance, share dynamics, and Juntos+ 4.0 learnings?

A: Gaining share in CSDs (Cola) and NCBs; Juntos+ 4.0 in Brazil provided learnings for Mexico's smooth rollout, with loyalty program and AI testing showing uplift.

Q: April volumes performance and margins by country in South America?

A: April performance continuation of quarter, positive. Margins in Mexico pressured by labor, maintenance, freight; rest of South America (excluding Argentina) showed good margin performance.