Coca-Cola FEMSA, S.A.B. de C.V. Q2 FY2025 earnings call

• Consolidated volume declined 5.5% to 1.035 million unit cases, but revenues grew 5% to MXN 72.9 billion due to revenue management and currency effects. Gross profit increased 3.4% to MXN 33 billion, but margin contracted. Operating income was flat, and adjusted EBITDA decreased 3.8%.
• In Mexico: Volume declined 10%, implemented initiatives like adjusted promotional grid, affordability plan, improved execution, and capacity expansions. Completed warehouse expansions, PET line operations, and plant expansions.
• In Guatemala: Volumes increased 1.6% to 51.3 million unit cases, added customers, strengthened sales force, and progressed with supply chain projects.
• In Brazil: Volume declined 1.5%, achieved record share in nonalcoholic ready-to-drink, saw growth in Coke Zero, increased single-serve mix, and improved order fulfillment.
• In Colombia: Volume declined 2.8% but gained share, increased customer base and digital capabilities.
• In Argentina: Volume increased 11.9%, recovered macro indicators, increased single-serve mix, and strengthened flavors portfolio.
• Supply chain initiatives: Progressing towards $90 million savings target, increasing line efficiency, and installing new bottling lines.

In Mexico and Central America, volumes declined 8.4% to 636.9 million unit cases. Revenues increased 0.5% to MXN 45.3 billion. Gross profit decreased 2.5% to MXN 21.4 billion, resulting in a gross margin of 47.2% (a 150 basis point contraction year-on-year). Operating income decreased 6.3% to MXN 6.8 billion, with an operating margin contracting 110 basis points to 15.1%. Adjusted EBITDA in the division declined 9.7% with a 220 basis point margin contraction to 19.7%. In South America, volumes decreased 0.5% to 398.4 million unit cases. Revenues increased 13.2% to MXN 27.6 billion. Gross profit in South America rose 16.2%, expanding margins by 110 basis points to 42.2%. Operating income in South America rose 19.6% to MXN 2.9 billion, with an operating margin up 50 basis points to 10.6%. Adjusted EBITDA in the division increased 10.4% to MXN 4.5 billion for a margin contraction of 40 basis points to 16.2%.

• Cautious outlook for Mexico's second half due to tougher macroeconomic and weather conditions. Plans to leverage winning top line initiatives and savings in supply chain, procurement, and IT.
• Expect to continue leveraging strategies in other markets like Guatemala, Brazil, etc., to recover momentum in the second half.

• Challenging macroeconomic backdrop in Mexico and adverse weather in Mexico and Brazil.
• Tough comparison base from strong results in the prior year.
• Currency depreciation affecting operating margins, with most operating currencies depreciating against the U.S. dollar.

Q: Lucas Ferreira wanted to explore expectations for the second half of the year, market share in Mexico, and performance in Brazil.

A: Ian and Gerardo discussed Mexico's challenging environment, market share in traditional and modern channels, affordability initiatives, and Brazil's weather impact and use of Juntos+ Advisor tool.

Q: Rodrigo Alcantara asked about price mix in Mexico and Brazil.

A: Ian and Gerardo explained Mexico's cautious pricing stance and Brazil's mix effect driven by single-serve and Coke Zero growth.

Q: Renata Cabral inquired about CapEx investments and Porto Alegre plant status.

A: Ian and Gerardo discussed structural vs. volume-linked CapEx, phasing of projects, and Porto Alegre plant recovery.

Q: Rahi Parikh asked about beverage category volume changes in Mexico and focus categories.

A: Jorge and Ian talked about sparkling category impact in Mexico and focus on CSDs and teas in Brazil.

Q: Henrique Morello explored margins in South America and Porto Alegre plant impact.

A: Gerardo explained EBITDA margin differences due to prior year write-offs and expected improvement from Porto Alegre reopening.

Q: Thiago Bortoluci asked about balance sheet, re-franchising, and FX hedges.

A: Ian and Gerardo discussed re-franchising outside Americas, balance sheet plans, and FX hedge details.

Q: Álvaro García asked about Coke Zero taste profile in Mexico and interest expense.

A: Ian discussed Coke Zero's success factors and Gerardo explained interest expense drivers.

Q: Antonio Hernandez asked about competition trends and plan adjustments.

A: Ian and Gerardo discussed competition in MXN 20 price range and adjustments in returnable offerings.

Q: Fernando Olvera asked about savings targets.

A: Gerardo and Ian discussed progress towards $90 million savings target and future savings opportunities.