Coca-Cola FEMSA Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
April 24, 2024

There are 8 speakers on the call.

Operator

Hello, and welcome to Coca Cola FEMSA First Quarter 2024 Conference Call. My name is Melissa, and I will be your coordinator for today's event. Please note this conference is being recorded, and for the duration of the call, your lines will be in a listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. I'll now turn the call over to Mr.

Operator

Jorge Collazo, Investor Relations Director. Please go ahead.

Speaker 1

Good morning to you all, and welcome to this cast and conference call to review our Q1 2024 results. Joining me this morning is Ian Craig, our Chief Executive Officer and Gerardo Cruz, our Chief Financial Officer. As usual, after prepared remarks, we will open up the call for a question and answer session. Before we proceed, just a reminder for all participants to take note of our cautionary statement included in the earnings release that went out this morning. This conference call may include forward looking statements and should be considered as good faith estimates made by the company.

Speaker 1

These forward looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties that can materially impact the company's performance. With that, let me turn the call over to our CEO. Please go ahead, Ian.

Speaker 2

Thank you, Jorge. Good morning, everyone. Thank you for joining us this morning. Coca Cola PEMSA showed another strong performance on top of the positive results achieved in 2023. As we mentioned in our previous earnings call, in 2024, we are focusing on 3 key drivers: 1st, build on the growth momentum of our core business 2nd, take Juntos Plus Virtual 4.0 to the next level with the deployment of advanced AA capabilities and third, continue fostering a customer centric and psychologically safe culture for Coca Cola FEMSA.

Speaker 2

During today's call, I will provide you with an update on the main developments of our business, our views on the operating environment and our strategic progress focusing on the 3 key drivers. Then Jerry will walk you through each of our division's performance and provide updates on our progress regarding sustainability. With that, let me begin by summarizing our consolidated results for the Q1. Our volumes accelerated sequentially to increase 7.3% year on year, surpassing 1,000,000,000 unit cases. This increase was driven mainly by the strong performance achieved in Mexico, Brazil, Guatemala, Colombia and most of our Central America South Territories, which offset volume declines in Argentina, Uruguay and Panama.

Speaker 2

We continue to report volume growth across all beverage categories. Sparkling beverage volumes grew 7.5%, driven mainly by brand Coca Cola, which achieved 7.9% growth. Field beverages grew 5.4% and bottled water grew 12.1%. Total revenues for the quarter grew 11.2 percent reaching COP 63,800,000,000, driven mainly by solid volume growth, offsetting an unfavorable currency translation related to the appreciation of the Mexican peso as compared to most of our operating currencies. On a currency neutral basis, our total revenues increased a solid 17.7%.

Speaker 2

Gross profit increased 11.7 percent to ARS 28,400,000,000 leading to a slight margin expansion of 20 basis points to 44.6%. This increase was driven mainly by the operating leverage resulting from our solid top line performance and depreciation of most of our operating currencies as compared with the U. S. Dollar. These effects were partially offset by higher sweetener costs across our operations and a significant depreciation of the Argentine peso as compared with the previous year.

Speaker 2

Our operating income increased 11.6 percent to ARS 8,600,000,000 with operating margin remaining flat at 13.5%. Our operating leverage, top line growth and cost and expense efficiencies enabled us to maintain flat margins despite increases in operating expenses such as labor, freight and maintenance. Notably, our comparison base includes a larger non cash foreign exchange gain due to the significant appreciation of the Mexican peso during the same period of the previous year. Adjusted EBITDA for the quarter increased 13.5% to reach ARS 11,900,000,000 and EBITDA margin expanded 40 basis points to 18.7%. Finally, our majority net income increased 27.8 percent to reach MXN 5,000,000,000.

Speaker 2

This increase was driven mainly by the operating income growth I previously described, coupled with a decrease in our comprehensive financing results. This decrease in comprehensive financing financial results was driven mainly by the significant appreciation of the Mexican peso during the Q1 of 2023, which generated a non cash foreign exchange loss of ARS 640,000,000 in the year earlier period. Now expanding on our operations highlights for the Q1. In Mexico, our volumes increased 6.9%, reaching 490,400,000,000 unit cases. We continue to see a favorable macroeconomic backdrop, driven by structural and demographic tailwinds such as decreasing unemployment and continuously improving payrolls.

Speaker 2

For instance, Mexico's unemployment rate has declined from 5.5% in June 2020 to 2.6% in February 2024, while average wage in real terms has increased by almost 18% in 5 years. This environment, coupled with favorable weather and our initiatives to grow our core business, are driving strong demand across our Mexico territory. Regarding share, we continue with gains in cola, but have seen impact in flavors due to unavailability. Additionally, we saw share gains in water, energy and sports drinks. To give you a sense of the strong demand we are seeing in Mexico, we achieved historic production records of 186,000,000 unit cases in March.

Speaker 2

However, despite our supply chain team's effort to add capacity, productivity and improve our customer service metrics, we still identified unserved demand during the quarter, mainly in the flavors category in the Southeast region of the country. To address this situation and consistent with our priorities, we are on track with our ambitious capacity build up plan. On March 22, a new PET one way line started production and only 3 days later, a new distribution center began operations in the Valley of Mexico. Finally, as we mentioned on our previous earnings call, we began the rollout of our version 4.0 Junotos Plus in Mexico during the first quarter of 2024. Our customers' adoption and feedback has exceeded expectations.

Speaker 2

In just a second month after its launch, we have more than 214,000 active buyers in this new version from a total of 490,000 monthly active purchasers in the country. Importantly, 36% of our traditional trade orders are already done digitally. We are confident that with these capacity expansions coupled with our commercial plans and our customer centric culture, we will continue driving positive results in Mexico. Moving on to Guatemala. Our volume increased 17% as we continue outperforming with brand Coca Cola Energy and Juices.

Speaker 2

During the previous earnings call, we mentioned that on a comparable basis, volume in the country has doubled since 2017 and we continue to see plenty of opportunities for continued strong growth. Regarding B2B, Guatemala is growing its monthly active buyers with the rollout of Junto Plus, strengthening our digital relevance in the traditional trade. For instance, we have reached 68,000 monthly active purchasers, representing 50% penetration of our customer base. To continue supporting growth, we're also adding capacity in Guatemala. During the quarter, a new one way bottling line started production and we are on track to switch on a new returnable bottling line next June.

Speaker 2

Now moving on to our South America division. In Brazil, a resilient macro environment with controlled inflation and declining interest rates coupled with favorable weather drove 10.4% volume growth during the quarter to reach 288,200,000 unit cases. We continue strengthening our competitive positions across key beverage categories. For instance, we reached record levels of share in the sparkling beverage category, driven mainly by gains in brand Coca Cola. Notably, Coca Cola Zero Sugar continued its impressive rate of growth in Brazil, growing 49.2% year over year.

Speaker 2

As we continue to focus on growing the core, our single serve mix increased 0.4 percentage points versus the previous year, reaching 24.2%, while profitable emerging beverage categories accelerated, driven mainly by Powerade, which grew 39.5% year on year. Similar to Mexico, strong demand tailwinds are putting our infrastructure under significant stress, and our supply chain team is taking both short term and long term actions aligned with our strategic priority to debottleneck our infrastructure to support our growth ambitions. Finally, on the digital front, we continued scaling version 4.0 of the Juntos Plus app in Brazil with more than 65% of traditional trade orders now done digitally. In Colombia, despite a challenging environment driven mainly by inflation, our volumes increased 9.7 percent to reach 88,300,000 unit cases. Our team's focus on improving service and availability, coupled with our commercial initiatives, is resulting in share gains across categories and channels.

Speaker 2

Among the initiatives to grow the core, we're expanding our refillable platform, while focusing on single serve mix growth and our 0 sugar portfolio. As in other high potential markets, we are increasing capacity and streamlining our value chain. We expect to install 2 new lines this year. 1 will begin production during the first half of the year and the other before year end. Finally, Argentina.

Speaker 2

As anticipated, the consumer environment during the Q1 worsened significantly leading to a 28% contraction in disposable income. This challenging start to the year coupled with unfavorable weather led our volumes in the country to decline 16.9%. However, despite the many uncertainties ahead, the team remains focused on the objectives set for the year: leverage affordability, drive cost and expense controls and increase productivity. We're focused on protecting the short term to emerge stronger in the long term. And although how to predict, we continue to expect gradual sequential improvements as the year progresses.

Speaker 2

As I previously mentioned, we are encouraged to start the year with positive momentum. We have robust plans for the year and most importantly, we have the right team to execute them across our markets. Together with our partners at The Coca Cola Company, we are prioritizing long term sustainable growth. With that, I will hand the call over to Jerry.

Speaker 3

Thank you, Ian, and good morning to you all. As usual, let me summarize our division's results for the Q1. In Mexico and Central America, volumes increased 7.9% to reach 579,800,000 unit cases, accelerating sequentially driven by positive performance across most of the division's territories. Revenues increased 12.6 percent to MXN 37.8 billion, driven mainly by volume growth and partially offset by unfavorable translation effects into Mexican pesos. Excluding this

Speaker 2

Our gross profit

Speaker 3

increased 12.4 percent to Our gross profit increased 12.4 percent to reach MXN 17,900,000,000 resulting in a gross margin of 47.3%, a 10 basis point contraction year on year. We are offsetting higher sugar prices in the division with top line growth, the appreciation of the Mexican peso and favorable raw material hedging initiatives. Operating income increased 13.4% to ARS5.7 billion, driven mainly by our gross profit performance and variable expense efficiencies. Our operating margin expanded 10 basis points to 15% as our gross profit growth was offset by an increase in operating expenses such as labor, marketing and freight. Importantly, our comparison base includes a larger non cash foreign exchange gain driven by the significant appreciation of the Mexican peso during the Q1 of 2023.

Speaker 3

Finally, our adjusted EBITDA in the division grew 15.5% with a 60 basis point margin expansion to 20.5 percent. Moving on to South America. Volumes increased 6.6% to 428,800,000 unit cases. We continue to see solid volume growth in Brazil and Colombia, increasing 10.4% and 9.7% respectively. As Ian previously mentioned, this volume growth was partially offset by a 16.9% volume contraction in Argentina and a 3.6% decline in Uruguay.

Speaker 3

Our revenues for the division increased 9.3 percent to MXN 25,900,000,000 as our volumes and revenue management initiatives were partially offset by unfavorable currency translation effects into Mexican pesos, especially driven by the depreciation of the Argentine peso. When excluding currency translation, our total revenues in South America increased 23.4%. Gross profit in South America increased 10.5% or 27.4% on a currency neutral basis, leading to a margin expansion of 40 basis points to reach 40.6%. This increase was driven mainly by the operating leverage resulting from top line growth and favorable raw material hedging strategies. However, these effects were partially offset by increases in raw material costs such as sweeteners and the depreciation of the Argentine peso as applied to our U.

Speaker 3

S. Dollar denominated raw material costs. Operating income for the division increased 8.2 percent to COP 2,900,000,000. On a currency neutral basis, operating income increased 27% and operating margin contracted 10 basis points to 11.3%. This margin performance was driven mainly by our gross profit growth coupled with cost and expense efficiencies that were offset by margin pressures in Argentina.

Speaker 3

Finally, adjusted EBITDA in South America increased 10.1% to ARS 4,200,000,000 or 30.7% on a currency neutral basis. Regarding our comprehensive financial results for the quarter, as Ian previously mentioned, we recorded an expense of MXN 1,200,000,000 as compared to an expense of MXN 1,400,000,000 during the same period of the previous year. This decline was driven mainly by a foreign exchange loss of ARS640,000,000 registered during the same period of the previous year as compared to a ARS26,000,000 gain registered this year. In addition, we registered a decrease in interest expense driven mainly by the payment at maturity of MXN 7,500,000,000 peso denominated bond. These effects were partially offset by a decline in interest income, driven mainly by a decline in interest rates, a loss in the market value and financial instruments and a lower gain in monetary position and inflationary subsidiaries.

Speaker 3

Finally, I want to take a moment to comment about sustainability. As we have mentioned in previous calls, one of our 6 strategic priorities is to foster a sustainable future. To this end, we are pleased to report that we have successfully allocated the proceeds from the $705,000,000 green bond issued in September 2020. In accordance with its framework, these proceeds were allocated across eligible categories in climate action, water stewardship and circular economy. Moreover, we continue making efforts to enhance our sustainability reporting with our 2023 integrated annual report.

Speaker 3

We adopted the SASB standards and the new integrated format that includes the Global Reporting Initiative Tables or GRI, disclosures recommended by the Task Force on Climate Related Financial Disclosures and the Performance in Detail section. Among other report highlights regarding world without waste targets, we published a 33% usage of recycled resin on track to achieve our goal of incorporating 50% recycled resin in our PET bottles by 2,030. In terms of water stewardship, we reported an industry leading water use ratio of 1.42 liters per liter of beverage produced demonstrating our commitment to efficient water management. As you all know, social initiatives are also an integral part of our sustainability strategy as we have benefited more than 359,000 people through our community development actions. Finally, regarding diversity and inclusion, we continue progressing towards our 2,030 goal of including 40% of women in leadership positions, advancing to 29% in 2023.

Speaker 3

For more detailed information on our sustainability efforts and achievements, I encourage you to refer to our 2023 integrated annual report, which is available on our website. With that, operator, we are ready to open the call for questions.

Operator

Thank you very much. I'm sorry, just a moment. Our first question is from Ben Dyer of Barclays. Please go ahead.

Speaker 4

Yes, good morning and thank you very much for taking my question. I actually have just one very general question. I wanted to get your thoughts around the performance in Mexico and to a degree as well in the other markets. It has been very strong in terms of volume momentum and growth what you've been delivering over the last couple of quarters. And just wanted to understand if you could share a little more detail how much of that is around specific strategic initiatives as to marketing, etcetera?

Speaker 4

Or what on the other hand is maybe just gaining back share that now you have the capacity you've been investing on and you had a very long list of capital projects. So just to kind of conceptualize where the strong volume growth is coming from, particularly in markets like Mexico, which are to a degree saturated from a per capita consumption, but still grow mid single digits? Thank you.

Speaker 2

Hello, Ben. How are you? Thanks for the question. I think it revolves around 3 axes. First of all, our very favorable structural headwinds in our territories in Mexico.

Speaker 2

We always had a lot of people in our territories, but we didn't necessarily have all of the disposable income. And now we have full employment with people having real gains in disposable income and these people are driving big increases in NARTD per capita consumptions. At the same time, as you correctly recall, we have revamped our OBPPC strategy in the Colas and Family Sizes segments. We adjusted again our pricing and pack strategy in flavors as well. And all of these strategies are starting to show the fruits over the last year and carrying on the momentum to this year.

Speaker 2

And finally, we also had favorable weather. So I would stress the fact that we continue to increase per capita consumption in Mexico. So if you recall, last year, we increased our per capita around 2.6%, 3%, and we continue to increase weekly plus consumption. So I understand the feeling that Mexico has hypercapitas and it's true. But in our regions, there is a lot of increase in disposable income and that is translating into NARTD consumption, coupled with our share gains and that explains the strong volumes right there.

Speaker 2

And of course, there's the weather, right? It was also a quarter with favorable weather. We can't we have to mention that impact as well positive. Okay.

Speaker 4

Well, thank you very much. Yes, it does. Thank you very much and congratulations on those outstanding results.

Speaker 2

Thank you, Ben.

Operator

Thank you very much. Our next question is from Rodrigo Alcantara with UBS. Please go ahead. Mr. Alcentara, your line is open.

Operator

Please go ahead.

Speaker 5

Hi, guys. Sorry, I wasn't yet. Thanks for taking my questions, Ian and Jerry. Well, the first one would be for Ian. No doubt it was a great quarter in terms of volume growth to Mexico and Brazil particularly, right?

Speaker 5

Just curious for 2024, what would be your priorities? Or if you can give us any updates on your plans regarding the category efforts in Mexico and in Brazil? That would be one question. And the other one perhaps would be for Gary, would be on the potential for KUF perhaps in paying extraordinary dividends. I mean, we already know the ordinary, right?

Speaker 5

But in the absence of M and A, the potential for you to increase the payouts, You are generating a lot of cash and that you are very, very cautious on this line, but just curious here regarding your latest thoughts on increasing the payouts to the shareholders. Thank you very much.

Speaker 2

Hello, Rodrigo. Thank you for your questions. I would qualify that our priority number 1, as we stated, is still to continue leveraging on the growth momentum of our core business. Multi category is important and it continues to grow very high double digits year over year, but it's still under 1.5% in Mexico and Brazil excluding beer. So it's still a small segment, although it's growing very well.

Speaker 2

So I would say that the driver continues to be the growth in our core business. And for this year, we are very excited about the deployment of our advanced AI capabilities. We're still in a small scale format in both Brazil and Mexico where we're testing these out, but we're getting very good uplift. We're getting very good uplift in the rollout of Juntos Plus 4.0 in Mexico. So I would say that the main focus for the year is still continuing to grow, leverage the momentum of our core business and taking Juntos Plus 4.0 to the next level in these two territories.

Speaker 2

So it would be more on that side rather than the multi category. Although that's growing very well, it still is a waste until we get to the level where we need to be in multi category. Jerry?

Speaker 3

Regarding capital allocation priorities, Rodrigo, I would just like to highlight our priorities are the same as we've been discussing. We are prioritizing reinvesting in our business. As you have been seeing for the past few quarters, we're growing significantly and we're trying to just solve the issues that we have with being able to supply growing market demand. So we're allocating our excess cash and expect to consume our excess cash position and building this capacity to support our operations. Secondly, also one of our strategic priorities is to continue to look for opportunities for M and A operations to look to consolidate further the region.

Speaker 3

As you know, the market is performing quite well. So this is a challenging situation, but we will obviously keep the market posted and let you know when we have an idea of what we're going to do in terms of dividends and capital allocation.

Speaker 5

That's clear, Jerry. Thanks for the update.

Operator

Thank you. Our next question is from Felipe Upros from Scotiabank. Please go ahead.

Speaker 6

Thanks, operator. And good morning, Ian, Jerry and team. Thanks for the space for questions. I'll let go what my peers said, very impressive on the volume side. You already talked a little bit about Mexico, but I had a kind of deeper question on Guatemala.

Speaker 6

Who's drinking all that product? And you've been growing in the double digits for 6 years in a row. So obviously, you're executing incredibly well. But are there any other factors in play here that are equally important? I mean, are consumer preferences changing?

Speaker 6

Is maybe the competition asleep at the wheel? Like what's going on in Guatemala that allows you to grow volumes at that kind of level for such a long time? And I can do a follow-up on the distribution agreements.

Speaker 2

Hi, Felipe. Thank you. You're right. Guatemala is a jewel of a very story. It has many things that are working in our favor if you remember Guatemala, when we took over that market, it was probably around 2017, we must have been selling around 70,000,000 unique cases and Pepsi was the leader.

Speaker 2

And it has been really several effects going on there. Number 1, a very stable environment of over 3% 3.5% GDP growth year over year with very low inflation, stable currencies, increasing foreign exchange reserve, increasing remittances, urbanization. So all of these trends on a very young population, the youngest one in Latin America, just made the Guatemalan consumer all the time more adept at increasing their NARTD consumption. That plus the fact that we were under indexed in share and now we're getting to where we need to be in share cap driven over the 7 years. You were right to remember double digit growth.

Speaker 2

And it doesn't we don't have a sense of Guatemala slowing down at all. Per capita in Guatemala are still way below Mexico. Even way below Chiapas, they're probably around maybe 2 thirds of the way or a little less of where it could be next to our Chapa territory right across the border. And it's you don't see any differences between those consumers and the Guatemalan consumers at all. So it's a very young country.

Speaker 2

I think it's around $17,000,000 more or less with increasing incomes driving organization and just people there love Coca Cola. So it should continue to give us very positive results in the foreseeable future, which is why we continue to invest heavily in capacity there. And even with these growth rates that we're getting, even with that, we still have an availability issue. So there's a lot of unmet demand. So only good news coming out of Guatemala, and we expect that to continue.

Speaker 1

The other question I She's going to follow-up. You can go ahead. I don't know if that answers.

Speaker 2

One last point there in Guatemala. It's a very high single serve market in Guatemala. So almost nearly 40% of the volumes there are single serve. It's an incredible market.

Speaker 6

Very interesting. And just wondering before I do my other follow-up on Guatemala, anything you can comment on the competitive environment in Guatemala? Because as you mentioned, it's one of the very few markets in Latin America where Coke was not the super dominant force and you've completely flipped that around in such a short amount of time. So what's the competitive environment there like?

Speaker 2

Well, I mean, we have 2 very tough competitors, CBC with the Pepsi portfolio and the brewer del Gallo with a mix of proprietary portfolio and some Cadbury brands. And they're both very good competitors, thankfully the market is expanding. And although we continue gaining shares, the economy and the market as a whole continues to expand for everyone.

Speaker 6

Got it. And then globally speaking, how is the process is moving from pilots into agreements? And then in particular, I was hoping you could hone in a little bit on Panama. A brewing peer has been having a lot of trouble in that country. And I wonder how that may be related to your distribution agreement of beer in Panama and how you're performing there?

Speaker 6

Thank you.

Speaker 2

In Panama, we have beer in with Heineken in certain territories. It's not in all of the territories. With that, it takes our revenues to around 5%. So it's still small for us. And in terms of distribution agreements, trade terms, partnerships, we continue to evolve across all of our territories.

Speaker 2

I mean, multi category revenues overall, I mean, they're growing very, very high. It's just still a small portion. We're growing 46%. So it's still very high growth, but very small Felipe. I would caution that we need that.

Speaker 2

We're working to get that to 5% of revenues. Until it's a relevant piece of the business, it will still be very small, continue to our core Coca Cola Company beverage portfolio.

Speaker 6

Understood. Thanks a lot for the color guys and congrats again.

Operator

Thank you. Our next question is from Ricardo Alves with Morgan Stanley. Please go ahead.

Speaker 7

Hi, everyone. Thanks so much for the call. I also wanted to explore the remarkable volume performance, but now perhaps going a little bit deeper in Brazil. I mean, your volume is up 10% or so. I mean, not only if you can provide what the outlook for the rest of the year when you take into consideration comps going forward, but when we look back in the Q1, January February soft drink production in Brazil was similar to what you had.

Speaker 7

I mean, it's not clear what March was, but so far 10%. So kind of in line with your number, which would imply a similar performance to the industry. But I'm not sure if I listened to the preliminary remarks correctly, but it seems that you made reference to gaining share in Brazil. I think that I heard colas for instance. So it seems to be a case where industry is very strong, but you're also gaining share here and there.

Speaker 7

So if you could expand in Brazil, but in particular competition, the competitive environment, the share dynamics, where exactly your Grammy share for us to have a better idea of how much is the industry, how much is your execution? That's the first question. And then the second question on Huntos Plus, I think that you made reference in the preliminary remark and also in one of the questions. But the 4.0 version of the app, if I'm not mistaken, you already had that rolled out in Brazil, again, if I'm not mistaken, for a couple of months before Mexico. So I'm not sure if you have some learnings already from what you got in Brazil and what you can potentially achieve in Mexico.

Speaker 7

So just going a little bit deeper on why this new version in particular could be game changer in nature? And then on that topic, perhaps if you can talk about integrating the app with other digital platforms. I think that this is an angle that could be very interesting, particularly when we're talking about loyalty program and premium. I think that you already have that in Brazil, but now going to Mexico. So a little bit deeper on Juntos Plus as well would be helpful.

Speaker 7

Thank you so much.

Speaker 2

Hello, Ricardo. Thank you for the question. So I think the first one was regarding how we show up in Brazil in terms of our relative competitive position. I don't know what other companies reported. They probably reported national numbers.

Speaker 2

What we can say in our territories, we are gaining share. We're gaining share in CSDs, mainly driven by share in colas and expansion of the cola category. We're not gaining share in flavors, so we're gaining share in colas and expanding that category. Then in NCBs, we're really gaining share across the board. Every segment of NCBs, we're gaining share.

Speaker 2

And I think where we have pressure is in water and we're slightly down in beer. So it's a very positive picture in share in Brazil with records in colas, records in CSDs. So overall, a very positive share picture in Brazil in our territories. I don't have a sense of the national figures, Ricardo. Regarding Jutos Plus, you're right.

Speaker 2

Mexico and the rest of the KOF countries always benefit from Brazil, lifting the heavy burden of rolling out all of the digital strategies for Coca Cola PENSA. So it's always tough to be the first one to roll out a new version in Brazil. We collected a lot of learnings there, which is why Mexico just went with very smooth sailing. And I think 3 key things explain the big uplift in Mexico. Number 1, version 4.0 closes any gaps we had versus other platforms out there in terms of both user experience and performance.

Speaker 2

So it closes those gaps. And it brought along a loyalty program that did not exist in Mexico. And that loyalty program is generating a lot of buzz and interest and repurchased from our clients. So anytime our clients are very savvy merchants and they digitally compare to what's out there in wholesalers and such, The fact that we now give them a loyalty program always incentivize them to stay within our platform because they generate points. So we've been very pleasantly surprised on the loyalty program.

Speaker 2

And then finally, with regards to the 8 capabilities, I would say that we're just in that test out phase, both in Brazil and Mexico. And that's what makes it very exciting for me because the results we're getting on those tests are very good. So I think once we deploy this out in a more massive way, we will continue to see an uplift from the version 4.0. That does not mean that we are not getting an uplift as it is. We are already getting a uplift.

Speaker 2

And when you see the clients that use our Version 4.0, even versus that chatbot or that sales force, we see an increase in the average ticket and we see an increase in the number of SKUs. So overall, Ricardo, it's very positive for us to continue rolling out this version. And the final piece is we're working for the Q4, end of the 3rd start of the 4th to roll out or to test out really our new sales force automation engine in Brazil. And that's probably the final pillar of our digital strategy that still needed to be upgraded, and that should start to be showing results at the end of the year and probably for 2025, it would be a big difference for our physical sales force. I hope that helps, Ricardo.

Speaker 7

It does help. Thank you so much, Ian.

Speaker 1

This is Jorge. Just to complement one thing, Ricardo, that you asked about the outlook for Brazil, I would just say that definitely the Q1 was, as you pointed out and Ian mentioned, very strong. We had a tailwind from temperatures, especially in January. It was a strong start of the year. But we maintain our outlook for the rest of the year.

Speaker 1

We are optimistic about Brazil, but the outlook remains to be around the mid single digit volumes for the full year in Brazil. So we maintain that outlook, but definitely a positive start for Brazil this year. Yes. I would say it's clear that Brazil is back and moving along positively.

Speaker 7

Thank you so much. Thank you for the follow-up as well, Jorge. Thanks, Jan.

Operator

Thank you. Our next question is from Fernando Olvera with Bank of America. Please go ahead.

Speaker 5

Hi, good morning and thanks for taking my question. The first one is related to volumes. If you can comment what has been the performance so far in April in your different markets? And the second question, can you give us some color of how margins performed by country in South America? Thank you.

Speaker 1

Hi, Fer. How are you? It's Jorge. Regarding your first question, I would say April pretty much a continuation of the performance we have seen, which is encouraging. Obviously, giving inter month performance is challenging.

Speaker 1

We have information for a little over 20 days. But so far, we haven't seen any significant changes to what the quarter was. So we continue to see positive performance. The plans that we are executing across our territories are coming along well. So we see nothing really to flag with regards to April performance at this point in time, Fernando.

Speaker 3

Regarding margins, Fernando, we the pressure since our budget that we see in margins comes from Mexico given increased labor, maintenance and freight expenses that we have been seeing. This is not only in Mexico, but in all of our territories. So we are working, especially in Mexico, to try to close any margin expecting for the year, looking for savings initiatives mainly, but the rest of our operations were being in terms of profit expecting to achieve our budget as we have projected it.

Speaker 5

Okay. Thanks, Yuri. I couldn't hear the last part. For the comment about Mexico. But in South America, how margins performed in Brazil, Colombia after the solid top line growth?

Speaker 3

We had very good performance in South America margins, excluding Argentina, and we made those remarks in the prepared remarks of the call. So Argentina is a dragger for margins as could be expected, but the rest of South America showed great performance in margins during the Q1.

Speaker 5

Okay, great. Thank you, Jerry.

Operator

Thank you very much. As we have no further questions left in the queue, I would like to turn the call back over to Mr. Coriaso for any closing remarks.

Speaker 1

Well, thank you very much everyone for your interest in Coca Cola FEMSA and for joining us on today's call. As always, myself and the rest of the Investor Relations team, we are available to answer any remaining questions. And we look forward to speaking to all of you again very soon. Thank you and have a great day.

Operator

Thank you very much. That concludes today's conference. You may now disconnect.

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Key Takeaways

  • Strong consolidated results: volumes rose 7.3% to over 1 billion unit cases, revenues grew 11.2% (17.7% currency-neutral), adjusted EBITDA +13.5% and majority net income +27.8%.
  • 2024 strategic priorities focus on three drivers: building on core business growth, deploying Juntos Plus Virtual 4.0 with advanced AI and fostering a customer-centric, psychologically safe culture.
  • In Mexico, volumes increased 6.9%, with a historic production record of 186 million unit cases in March addressed by a new PET line and distribution center, and Juntos Plus 4.0 reached 214 000 active buyers generating 36% of traditional trade orders digitally.
  • Key market highlights include Guatemala volume growth of 17% with new bottling lines coming online, and Brazil volumes up 10.4% driven by record sparkling share and 49.2% growth in Coca-Cola Zero, while over 65% of traditional trade orders are now placed via the digital app.
  • Sustainability progress: allocated the $705 million green bond to climate action, water stewardship and circular economy, achieved 33% recycled PET resin usage, a water use ratio of 1.42 L/L and 29% women in leadership roles.
AI Generated. May Contain Errors.
Earnings Conference Call
Coca-Cola FEMSA Q1 2024
00:00 / 00:00