Coca-Cola FEMSA SAB de CV Q2 FY2026 earnings call

• Consolidated Results & Overall Strategy

  • Consolidated Q2 2026 volume grew 3.5% to 1.1 billion unit cases; total revenue grew 4.7% to Ps. 76.3 billion (6.6% currency-neutral); gross profit grew 8.8% to Ps. 35.9 billion with margin expanding 180 bps to 47.1%; operating income grew 9.1% to Ps. 10.7 billion with margin expanding 60 bps to 14%; adjusted EBITDA grew 12.1% to Ps. 15 billion with margin expanding 130 bps to 19.7%; majority net income grew 16.9% to Ps. 6.2 billion.
  • The company maintained focus on its long-term sustainable growth model, delivering share gains across most markets and leveraging the FIFA World Cup for brand building and incremental demand, which set new records for Coca-Cola trademark engagement metrics.
  • A disciplined hedging strategy is in place: for 2026, 65% of PET, 96% of sugar, 98% of HFCS, and 73% of aluminum requirements are hedged; for 2027, 80% of sugar, 80% of HFCS, and 54% of aluminum are already hedged to reduce cost volatility.

• Key Market Performance & Initiatives

  • Mexico: Volume grew 1% YoY, facing headwinds from an excise tax increase and soft consumer demand, but still delivered share gains across all categories. The post-tax growth strategy has four pillars: differentiated revenue management with expanded affordable returnable offerings, continued expansion of the zero sugar segment (grew 24% YoY), strengthening core heritage flavors, and innovation in underpenetrated segments (e.g., Ciel Aguas Frescas). Digital sales via the Juntos+ platform now represent 38% of traditional trade and 19% of total revenues.
  • Guatemala: Volume grew 3.4% YoY supported by improving economic conditions and resilient remittances. Gained 90 bps of CSD market share, grew total customer base 5.2% to 156,000, and increased cooler coverage 40 bps to 78.8%, with significant long-term headroom for per capita consumption growth.
  • Brazil: Volume grew 5.2% YoY, outperforming the overall non-alcoholic ready-to-drink (NARTD) industry and delivering strong share gains. Strong growth was seen across core focus areas: zero sugar offerings (Coca-Cola Zero +15%, Sprite Zero triple-digit growth), flavors (double-digit growth), and still beverages (+23% led by Monster, teas, and Powerade). Single-serve mix improved 2.6 ppts to 28% boosted by FIFA World Cup promotions. The Juntos+ Advisor digital platform improved execution and customer insights.
  • Colombia: Volume grew 17.7% YoY amid an improving macroeconomic environment (unemployment fell to 8% in May, the lowest level since 2001). Delivered share gains in the one-way portfolio, with flavors growing 27.2% and still beverages (Powerade, Monster) delivering strong profitable growth. Digital capabilities via Juntos+ improved ordering frequency and customer relationships.
  • Argentina: Volume declined 2.8% YoY due to industry-wide truck driver strikes and soft consumer demand, but still gained 100 bps of CSD market share with an affordability-focused strategy; profitable non-sparkling categories delivered YoY volume growth.

• Capital Allocation & ESG

  • 2026 CapEx is still expected to be 7% to 7.5% of revenues, with selective capacity investments (e.g., new PET line in Costa Rica, new aluminum can line in Uruguay).
  • The company remains focused on disciplined strategic M&A that meets its financial criteria, and is conducting a comprehensive review of capital return alternatives for shareholders, with updates to come as the process progresses.
  • Coca-Cola FEMSA received the highest total score in the 2025 Mexican Stock Exchange CSA Award, leading in environmental, governance, and economic categories.

Coca-Cola FEMSA operates two geographic segments: Mexico and Central America, and South America.

• Mexico and Central America: Volumes grew 1.4% year-over-year; Revenues were flat at Ps. 45.4 billion, with a 2% currency-neutral revenue increase; Gross profit grew 3.9% to Ps. 22.2 billion, with gross margin expanding 170 bps to 48.9%; Operating income declined 7% to Ps. 6.4 billion, with operating margin contracting 110 bps to 14%; Adjusted EBITDA was flat at Ps. 9 billion, with an adjusted EBITDA margin of 19.7%. This segment contributes 59.5% of total consolidated revenue.
• South America: Volumes grew 6.9% year-over-year to 426 million unit cases; Revenues grew 11.8% to Ps. 30 billion, with a 14.1% currency-neutral revenue increase; Gross profit grew 17.7% to Ps. 13.7 billion, with gross margin expanding 220 bps to 44.4%; Operating income grew 46.5% to Ps. 4.3 billion, with operating margin expanding 330 bps to 13.9% (includes a Ps. 265 million insurance recovery in Brazil); Adjusted EBITDA grew 35.6% to Ps. 6.1 billion, with adjusted EBITDA margin expanding 430 bps to 19%. This segment contributes 39.3% of total consolidated revenue.

• Full-year 2026 Mexico volume guidance: Revised from the prior range of -2% to -4% to flattish (plus/minus a small range), as sequential volume trends have improved driven by easier year-over-year comparables and built share gains that create a cushion for upcoming pricing adjustments.
• 2026 CapEx guidance: Maintained at 7% to 7.5% of total revenues.
• Mexico outlook: The consumer environment is expected to remain subdued, but the company expects to close the remaining inflation pricing gap by August 2026, ending the year with an improved competitive position; the mix shift to affordable multi-serve one-way presentations is expected to continue for the full year.
• Brazil second half 2026 outlook: Expected to continue its strong performance in line with first half run rates; election-related spending is expected to support growth, though potential 2027 regulatory changes are being monitored.
• Colombia second half 2026 outlook: Average daily sales are expected to continue growing at the same pace as the first half, though tougher year-over-year comparables will reduce reported headline growth.
• South America margin outlook: Structural margin expansion driven by operating leverage and efficiency is expected to continue, with Colombia having significant remaining headroom for profitability improvement.

• Mexico faces continued headwinds from the 2026 excise tax increase, a sluggish consumer demand environment, and persistently high competitive intensity that could pressure volume and margins if consumer response to upcoming pricing adjustments is worse than expected.
• Brazil faces potential regulatory and policy changes in 2027, including proposed federal tax consolidation that could result in a net tax increase if set at a high threshold, and a proposed 5-day workweek reform that could increase costs and be disruptive amid already tight labor markets; these changes create uncertainty for 2027 performance.
• Spot prices for raw materials (especially energy-related inputs like PET) remain volatile amid geopolitical uncertainty in the Middle East, creating cost pressure for unhedged portions of the company's input requirements.
• Argentina continues to face soft consumer demand and intense competition from value-oriented B-brand offerings, which could pressure volume and share even with the company's current affordability strategy.
• Unusual weather patterns from a strong El Niño could negatively impact consumption in Southern Brazil, Argentina, and Uruguay, though the net impact across the entire territory is expected to be neutral to positive overall.

Q: BTG asks for a breakdown of Monster growth in Brazil between household penetration and geographic expansion, and asks how Monster complements the existing portfolio. / A: Management confirms the overall energy drink category in Brazil has a 25% 4-quarter CAGR, and Coca-Cola FEMSA is gaining category share driven by new flavor innovation. There is no large new geographic expansion, but rather ongoing improvements to in-market coverage and household penetration. Half of the category's volume is now zero-sugar, and Monster adds a high-growth, margin-accretive offering that complements the existing sparkling and sports drink portfolio across all geographies.

Q: Barclays asks for quarterly volume dynamics in Mexico and full-year second half expectations given the soft consumer environment and ongoing excise tax headwinds. / A: Management explains sequential improvement over the quarter: the first two months saw slight mid-single-digit negative volume, while June grew over 12% largely due to easier year-over-year comparables. Trends are gradually improving, and the built share cushion creates room to close the remaining inflation gap in pricing. However, the consumer and competitive environment remains challenging, so the company does not expect rapid growth.

Q: Bank of America asks if the full-year Mexico volume guidance of -2% to -4% still holds, what competitive intensity looks like, and what drove the operating margin contraction in Mexico despite expanding gross margins. / A: Management revised full-year Mexico volume guidance to flattish from the prior negative range, thanks to improving trends, but will wait to see consumer response to the August pricing adjustment before revising further. Competitive intensity remains very high, but the company is gaining share across every category in Mexico. Operating margin contraction was driven by three main factors: 20% higher YoY freight costs, a smaller operating foreign exchange gain compared to last year, and 9% higher marketing spend mostly frontloaded to support FIFA World Cup activations in the first half; marketing expenses are expected to normalize in the second half.

Q: JPMorgan asks what lessons from Brazil's zero sugar growth can be applied to Mexico, and how much zero growth is incremental versus cannibalization of full-sugar offerings. / A: Management explains the zero sugar growth playbook is consistent across markets: at low current mix levels (Mexico is at 4% zero sugar mix vs. 30% in Brazil), almost all growth is incremental and comes from competitors and adjacent categories, with minimal cannibalization of full-sugar Coca-Cola. Only after mix reaches ~20% does meaningful cannibalization start to occur, so there is substantial room for incremental growth in Mexico. The company is also preparing to apply the same playbook to Sprite Zero to target Gen Z consumers.

Q: Itaú asks how the Juntos+ Advisor digital platform drives execution and growth in Brazil, and how the company would respond to a potential future tax increase in Brazil, similar to the Mexico excise tax change. / A: Management states 100% of pre-sellers in Brazil use Advisor, which improves geographic and customer visitation efficiency, boosts combined product coverage for both sparkling and still beverages, and delivers personalized execution tactics per store that improve value for both customers and the company. For potential future Brazilian tax changes, it is too early to commit to a strategy: the impact depends entirely on the magnitude of any net tax increase. If the increase is large, the company would likely follow the Mexico model of partial staggered pass-through to protect share and penetration; if the change is revenue-neutral or small, the company would pass through the full adjustment immediately. The proposed labor reform is also too early to assess, and may not pass given its potential disruptive inflationary impact.