Coca Cola Femsa Q1 2025 Earnings Report

Coca Cola Femsa EPS Results

• Actual EPS: $1.20
• Consensus EPS: $1.01
• Beat/Miss: Beat by +$0.19
• One Year Ago EPS: N/A

Coca Cola Femsa Revenue Results

• Actual Revenue: $3.42 billion
• Expected Revenue: $3.44 billion
• Beat/Miss: Missed by -$28.95 million
• YoY Revenue Growth: N/A

Coca Cola Femsa Announcement Details

• Quarter: Q1 2025
• Date: 4/25/2025
• Time: Before Market Opens
• Conference Call Date: Friday, April 25, 2025
• Conference Call Time: 11:00AM ET

Coca‑Cola FEMSA (NYSE: KOF) is a large multinational beverage bottler and distributor operating primarily in Mexico and across multiple markets in Latin America. As a principal franchise bottler for The Coca‑Cola Company, the firm is responsible for producing, packaging, marketing and distributing Coca‑Cola branded beverages and a wide range of nonalcoholic drinks to retail and foodservice customers throughout its territories.

The company’s product portfolio includes carbonated soft drinks, bottled water, juices, ready‑to‑drink teas and coffees, sports and energy drinks, and other noncarbonated beverages. Beyond beverage production, Coca‑Cola FEMSA provides end‑to‑end supply chain services such as bottling, refrigeration and cold‑chain logistics, sales and merchandising, and route distribution. Its packaging formats span glass, PET bottles and cans across a variety of sizes to serve diverse retail channels from small independent stores to large supermarkets and on‑premise outlets.

Coca‑Cola FEMSA is majority‑linked to FEMSA (Fomento Económico Mexicano) and operates under longstanding commercial arrangements with The Coca‑Cola Company. The business has grown through the consolidation of bottling operations and strategic acquisitions in the region, positioning it as one of the largest Coca‑Cola franchise bottlers by volume in Latin America. As a publicly traded company, it focuses on operational efficiency, brand execution and expanding distribution while responding to consumer trends across its markets.

Coca Cola Femsa Q1 2025 Earnings Call Transcript

Key Takeaways

• Consolidated beverage volumes declined 2.2% year-on-year to 986.5 million unit cases, driven by contractions in Mexico and Colombia.
• Total revenues grew 10% (5.9% currency-neutral) to MXN 70.2 billion, supported by revenue management initiatives and favorable currency translation.
• Gross profit increased 12% to MXN 31.8 billion with margin expansion of 80 bps to 45.4%, reflecting lower sweetener costs, raw material hedging and top-line growth.
• Brazil volumes rose 2.5% with standout category growth—Coca-Cola Zero Sugar +65%, Powerade +36%—plus accelerated Juntos Plus adoption and Porto Alegre plant reaching full capacity next quarter.
• Sustainability milestones achieved: 84% renewable energy use, 99% of operational waste diverted, and water efficiency target of 1.36 L per L of beverage met, enhancing ESG profile.

Presentation

[Operator]

Hello, and welcome to the Coca-Cola FEMSA First Quarter 2025 conference call. My name is George. I'll be your coordinator for today's event. Please note that this conference is being recorded, and for the duration of the call, your lines will be in listen-only mode. However, you have the opportunity to ask questions towards the end of the presentation, and this can be done by pressing star one on your telephone keypad to register your vote. If you require assistance at any point, please press star zero, and you will be connected to an operator. I'd like to hand you over to your host today, Mr. Jorge Collazo, to begin today's conference. Please go ahead, sir.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Thank you, George. Good morning to you all, and welcome to this webcast and conference call to review our First Quarter 2025 results. Joining me this morning are Ian Craig, our Chief Executive Officer, Gerardo Cruz, our Chief Financial Officer, and the rest of the Investor Relations team. As usual, after prepared remarks, we will open the call for Q&A. Before we proceed, please allow me to remind all participants that this conference call may include forward-looking statements and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. The actual results are subject to future events and uncertainties that can materially impact the company's performance. For more details, please refer to the disclaimer in the earnings release that was published earlier today. With that, let me turn the call over to our CEO.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Please go ahead, Ian.

[Ian Craig, CEO at Coca-Cola FEMSA]

Thank you, Jorge. Good morning, everyone. Thank you for joining us today. Let me begin by saying that despite increased uncertainty and a soft macroeconomic backdrop in key markets, I am very pleased with the capacity of our company to adapt to external headwinds and deliver results. Our teams implemented several initiatives, both commercial, financial, and supply chain, to rapidly adjust to the environment, ensuring we maintain on course towards our key objectives for the year. As I have mentioned in previous calls, we are fortunate to be participating in a vibrant beverage industry within a growing region, and Coca-Cola FEMSA's resilient profile becomes even more evident while navigating an environment of increased uncertainty as the one we are seeing today. Our resilience enables us to continue managing the business for the long term with a consistent strategy while adjusting initiatives in the short term.

[Ian Craig, CEO at Coca-Cola FEMSA]

As such, the strategic playbook for 2025 remains focused on three key pillars: growing our core business, second, taking Juntos Plus to the next level, and three, continue fostering a customer-centric and psychologically safe culture for Coca-Cola FEMSA. During our call today, we intend to provide you with an update on the main developments of our business, diving deeper into the initiatives we are implementing to successfully navigate the current operating environment. Gerry will guide you through our division's performance and provide updates on sustainability following the recent publication of our integrated annual report. With that, let me begin by summarizing our consolidated results for the First Quarter. On the back of a more challenging macroeconomic backdrop, our consolidated volume declined 2.2% year-on-year to 986.5 million unit cases. This was driven mainly by declines in Mexico and Colombia, partially offset by growth in Brazil, Argentina, Uruguay, and Guatemala.

[Ian Craig, CEO at Coca-Cola FEMSA]

On the one hand, our sparkling beverage volume declined 3.3%, driven mainly by contractions in Mexico and Colombia. On the other hand, still beverages grew 3.9%, driven by Mexico and Brazil. Bottled water grew 4.6%, driven by the positive performance achieved in most of our South America division. Despite the low single-digit volume contraction, our revenue management initiatives and favorable currency translation effects led our total revenues for the quarter to grow 10%, reaching MXN 70.2 billion. On a currency-neutral basis, our total revenues increased 5.9%. Gross profit increased 12% to MXN 31.8 billion, leading to a margin expansion of 80 basis points to 45.4%. This increase was driven mainly by lower sweetener costs, top-line growth, and raw material hedging initiatives. These factors were partially offset by higher fixed costs such as maintenance and the depreciation of most of our operating currencies as compared with the US dollar.

[Ian Craig, CEO at Coca-Cola FEMSA]

Our operating income increased 7.3% to MXN 9.2 billion, with operating margin contracting 30 basis points to 13.2%. This slight operating margin contraction was driven mainly by lower operating leverage coupled with higher operating expenses such as freight, labor, depreciation, and maintenance. However, we mitigated margin pressures by implementing cost and expense controls across our operations. Adjusted EBITDA for the quarter increased 11% to reach MXN 13.3 billion, and EBITDA margin expanded 20 basis points to 18.9%. Finally, our majority net income increased by 2.7% to MXN 5.1 billion. This increase was driven by operating income growth and a decrease in our comprehensive financial results, which was partially offset by a higher effective tax rate. Now, expanding on our operations highlights for the First Quarter. In Mexico, our volumes declined 5.4%, cycling a high comparison base from the previous year, which grew by 6.9%.

[Ian Craig, CEO at Coca-Cola FEMSA]

This performance was driven mainly by a deceleration in economic activity, geopolitical tensions that affected consumer sentiment, and more challenging weather. In this environment, we swiftly adjusted our tactical calendar and activated targeted promotional activities in single-serve and multi-serve across both modern and traditional trade channels. Additionally, our team implemented an execution plan focused on increasing exhibitions at the point of sale. These initiatives are showing encouraging results. For instance, we improved coverage by close to 8% in brand Coca-Cola and more than 12% in flavors by the end of the quarter. Our coverage of exhibition space increased from 50% to 60%, with modern trade showing faster signs of recovery. Regarding customer service, our capacity investments and supply chain adjustments have contributed to improved order fulfillment by 1.4 percentage points and a 2.1 percentage point increase in geoefficiency, the metric we use to measure the accuracy of our sales visits.

[Ian Craig, CEO at Coca-Cola FEMSA]

Finally, as a result of a softer macro backdrop, our team in Mexico has identified potential savings, mainly from supply chain, procurement, and IT. All these initiatives underscore our capabilities to recover positive momentum and deliver results despite a softer than anticipated start to 2025. Now, moving on to Guatemala. Our volumes increased 1.9%, reaching 46.8 million unit cases. The deceleration in the pace of volume growth is explained by what we believe were temporary macro factors. On the one hand, inflation in the food basket remained high, affecting customer sentiment. On the other hand, despite a 10% increase in remittances year-on-year, the uncertain environment resulted in a higher propensity to save instead of flowing through to consumption, with saving deposits increasing 24% year-on-year in Guatemala. We are maintaining the course of our long-term plan while implementing short-term initiatives focused on recovering our positive momentum.

[Ian Craig, CEO at Coca-Cola FEMSA]

Among our portfolio initiatives, we're leveraging the successful Share a Coke campaign to continue improving our competitive position in brand Coca-Cola. Regarding our sales force and route to market, we are strengthening training while adding more than 80 additional routes. With this route increase, we expect to take our frequency from 1.32 to 1.45 average visits per week by the end of 2025. Regarding commercial enablers, we are leveraging Juntos Plus and Juntos Plus Premium. We have now more than 90,000 monthly active users, a 32% increase versus the previous year, with more than 50% of these users active on the app. Finally, our team in Guatemala has also identified savings initiatives focusing on rigorous cost and expense controls. Now, moving on to discuss our South America division.

[Ian Craig, CEO at Coca-Cola FEMSA]

In Brazil, a resilient consumer environment drove 2.5% volume growth year-on-year, despite facing a challenging comparison base driven by the temporary suspension of our plant in Porto Alegre and the 10.4% volume growth achieved last year. We continue focusing on growing our core business, achieving a healthy performance across categories and channels. For example, Coca-Cola Zero Sugar maintained an impressive pace, growing 65% year-on-year, while Powerade grew 36% and Monster grew 17.6%. Notably, our single-serve mix increased 1.9 percentage points versus the previous year, reaching 26%. On the digital front, Juntos Plus in Brazil added another 10,000 monthly active buyers, with a 17% higher average ticket than the prior year. Furthermore, we completed the rollout of Juntos Plus Advisor, our state-of-the-art sales force enabler. We see this tool as a game changer to the empowerment of our sales force.

[Ian Craig, CEO at Coca-Cola FEMSA]

Finally, regarding our plant in Porto Alegre, we expect to reach full production capacity next quarter, which should help improve our customer service metrics as well as our freight costs. We are also making important progress in the development of an ambitious engineering project designed to protect our plant. This additional project is expected to be completed in March 2026. Moving on to Colombia. In Colombia, we faced a more challenging macro and sociopolitical context to begin the year. Inflation remained stubborn, while consumer confidence deteriorated during the quarter. Against this backdrop, our volumes for the quarter declined 8.1%. However, our commercial initiatives enabled us to improve our competitive positions in key segments such as sparkling beverages, juices, energy, and flavored water.

[Ian Craig, CEO at Coca-Cola FEMSA]

As is the case across Coca-Cola FEMSA, our team in Colombia has identified cost and expense efficiencies that will help us navigate the current operating environment, focusing mainly on procurement and supply chain. Finally, in Argentina and Uruguay, our volumes increased 9.1% and 6% respectively. In Argentina, the sharp adjustment experienced last year led to a deep decline in consumer spending. However, the macroeconomic indicators have improved and remain under control, with monthly inflation below 3% and a disciplined financial surplus policy. Since the second half of 2024, we continue to see gradual sequential recovery across different sectors, including beverages, with durable and tradable goods leading the way. We anticipate that this recovery is paving the way for long-term growth in Argentina. Disposable income in the greater Buenos Aires area has improved by 15% as compared to the previous year.

[Ian Craig, CEO at Coca-Cola FEMSA]

To continue outperforming, we maintain the same strategy that has allowed us to deliver results, providing affordability and fostering single-serve growth, grabbing cost and expense controls. On the digital front, we're excited by the rollout of Juntos+ version 4.2 in Argentina, which we anticipate will be an enabler for continued business growth. In Uruguay, we strengthened our competitive position by leveraging growth enablers. For instance, our focus on single-serve allowed us to increase our single-serve volumes by 13.4% and expand our mix by 1.5% to reach 23.5%. We're also focusing on growing in hydration, strengthening Powerade to continue growing our position in profitable non-carbonated beverage segments. Finally, our team in Uruguay has implemented significant initiatives to strengthen our customer-centric culture, resulting in improved customer service metrics. During the first quarter, our commercial and distribution service metrics improved by 1% and 1.3% respectively, as compared to the previous year.

[Ian Craig, CEO at Coca-Cola FEMSA]

As I previously mentioned, Coca-Cola FEMSA's resilience is even more evident today. We remain focused on our long-term objectives and are optimistic about our capabilities to leverage our long-term strategy while fine-tuning our plans, generating efficiencies to deliver results, and continue making Coca-Cola FEMSA an even more adaptive organization. Together with our partners at the Coca-Cola Company, we're implementing a playbook that has enabled us to successfully navigate uncertainty and emerge a stronger system, prioritizing long-term sustainable growth, collaboration, and relentless execution. With that, I will hand over the call to Gerry.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Thank you, Ian, and good morning to you all. Let me begin by summarizing our division's results for the First Quarter. In Mexico and Central America, volumes declined 4.6% to 553.3 million unit cases, driven by volume declines in Mexico, Panama, and Costa Rica that were partially offset by growth in Guatemala and Nicaragua.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Revenues increased 4.8% to MXN 39.7 billion, driven mainly by our revenue management initiatives and the favorable currency translation that was driven by the depreciation of the Mexican peso. On a currency-neutral basis, revenues increased 0.8%. Gross profit increased 5.6% to reach MXN 18.9 billion, resulting in a gross margin of 47.6% and expansion of 30 basis points year-on-year. This margin expansion was driven mainly by our revenue management initiatives and improving sweetener costs. These effects were partially offset by unfavorable mix effects, higher fixed costs such as maintenance, and the depreciation of most of our operating currencies as applied to our US dollar-denominated raw material costs. Operating income decreased 5% to MXN 5.4 billion, and our operating margin contracted 140 basis points to 13.6%. This contraction was driven mainly by lower operating leverage coupled with higher operating expenses such as maintenance, depreciation, and an operating foreign exchange loss.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

However, these effects were partially offset by expense efficiencies coupled with the recognition of insurance claim payments in Mexico. Finally, our adjusted EBITDA in the division grew 2.1% with a 60 basis point margin contraction to 19.9%. Moving on to South America, volumes increased 1% to 433.2 million unit cases. This increase was driven by the growth achieved in Brazil, Argentina, and Uruguay that was partially offset by a volume decline in Colombia. Our revenues in South America increased 17.4% to MXN 30.5 billion, driven mainly by our revenue management initiatives, favorable mix, and favorable currency translation effects into Mexican pesos. On a currency-neutral basis, total revenues in South America increased 13.2%. Gross profit in South America increased 22.8%, leading to a margin expansion of 190 basis points to 42.5%. This margin expansion was driven mainly by top-line growth, operating leverage, and the decrease in sweetener costs.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

These effects were partially offset by the currency depreciation for most of our operating currencies as compared to the US dollar. Operating income for the division increased 31.1% to MXN 3.8 billion, and operating margin expanded by 130 basis points to 12.6%. This margin expansion was driven mainly by operating leverage coupled with cost and expense controls across our operations. These effects were partially offset by higher fixed costs and expenses such as freight and maintenance. Finally, adjusted EBITDA in South America increased 27.3% to MXN 5.3 billion for a margin expansion of 130 basis points to reach 17.5%. Shifting gears to our comprehensive financial results, which recorded an expense of MXN 1.1 billion as compared to an expense of MXN 1.2 billion during the same period of the previous year.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

This 5.2% reduction was driven mainly by a gain in financial instruments of MXN 135 million as compared to a loss of MXN 46 million in the same period of the previous year, mainly driven by the quarterly reduction in floating interest rates, and we recorded a higher gain in hyperinflationary subsidiaries. However, these effects were partially offset by a foreign exchange loss of MXN 59 million as compared to a gain in the same period of the previous year, driven by the quarterly appreciation of the Brazilian real as applied to our US dollar-denominated cash position. Our interest expense net increased 9.7%, driven by higher interest expense due to new financing in Argentina and higher interest rates in Brazil, coupled with lower interest income mainly related to decreases in interest rates in Argentina. Finally, I'd like to take a moment to comment on sustainability.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

As we've highlighted in previous calls, fostering a sustainable future remains one of our six strategic priorities. Earlier this month, we published our 2024 Integrated Annual Report, showcasing key progress across our sustainability agenda. Over the past year, we strengthened our sustainability framework and completed our first double materiality assessment, resulting in a more closely integrated strategy into our long-term planning and reinforcing our ambitions to amplify our positive impact across the value chain. As part of our sustainability efforts, we made meaningful progress across several key areas. We increased renewable energy use to 84%. Last August, we reached our intermediate water efficiency target of 1.36 liters per liter of beverage produced, positioning us as industry benchmark.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Diverted 99% of operational waste from landfills, we improved workplace safety, we increased the share of women in leadership roles, and we strengthened community support through water access and climate response programs aligned with our social bond. For further details, I invite you to explore our 2024 Integrated Annual Report available on our website. With that, Operator, we're ready to take questions.

[Operator]

Thank you very much, sir. Ladies and gentlemen, as a reminder, if you wish to ask any questions, please press star one on your deckboard keypad and just make sure that your lines are not muted to allow you to reach your equipment. That's star one for questions. We'll begin today's Q&A session with Mr. Rodrigo Alcantara of UBS. Please go ahead.

[Rodrigo Alcantara, Director of Equity Research at UBS]

Hello. Good morning. Ian, Gerry, can you hear me?

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Yes, Rodrigo. Hello.

[Rodrigo Alcantara, Director of Equity Research at UBS]

Yeah. Awesome. Thank you. Yeah. The first one would be on Mexico.

[Rodrigo Alcantara, Director of Equity Research at UBS]

Ian, we'd like to explore a bit better on your commentary on adjusting rapidly to a certain environment, right? You mentioned about promotions, right, about launching promotions for multi-service, if I understood correctly. I wanted to explore more about this and how are you adjusting to this uncertain environment. Also, if you can share a bit about what you expect in terms of price elasticity, right? I mean, perhaps you raise price, you expect to increase volumes, right? Any quant, any number you can share regarding a potential elasticity we may see from these adjustments that you're doing in Mexico? That would be my question to you, Ian. The other one would be to Gerry, right?

[Rodrigo Alcantara, Director of Equity Research at UBS]

All in all, for the year 2025, if you can comment on the quantified savings that you have projected for this year, would they come only from a lower cost to serve, would it be more for OpEx? Any guidance that you can give us on the cost savings for this would be very helpful. Thank you, Ian and Gerry, for the space for questions.

[Ian Craig, CEO at Coca-Cola FEMSA]

Hi, Rodrigo. Yes. Let me give first a little broader context of Mexico for our industry and in general, and then I'll tell you what I refer to as adjusting rapidly and what we've seen in the short term. If you remember, just in general, last year, in the first half of the year, there was a lot of cash on the street from social programs that had been anticipated, let's say the outlays, and probably in connection with the elections.

[Ian Craig, CEO at Coca-Cola FEMSA]

We had a heat wave that, coupled with a dry spell as well, started around April, peaking in May, June. Remember, it was very high heat. The contrary happened in the second half. We had a lot of rain in the third quarter, a lot of floods, hurricane as well by the end, and we had the hangover from the elections with less cash on the street. That was the general background. Going into this year, we knew we were going to have tougher comps for the first half of the year. That was, let's say, sort of factored into our plans. January started off reasonably well within that backdrop. In February, we started seeing a slowdown. Remember, there were more geopolitical tensions around, more uncertainty, and we started seeing an increase, really a spike in promotional activities.

[Ian Craig, CEO at Coca-Cola FEMSA]

This is not limited to the beverage industry at all. When you go out there today and visit the market in Mexico, you see a lot of brands doing two-for-one promotions. You see bread makers seeking magic price points, the donuts that are very popular here for MXN 10, less content for the same packages. You see an intensity in the competitive environment across CPG markets in general, Rodrigo. That is what I mean by when we started seeing that and the volumes getting soft, we very quickly reacted. To this day, in our territories, in this environment, we need to be at a very accessible price point with an intense promotional calendar. Otherwise, you are not in the ballgame. That is what I mean today. In that environment, yes, price elasticity is higher. Okay? I do not know if that context helped in general.

[Rodrigo Alcantara, Director of Equity Research at UBS]

Yeah. No, that was awesome. Thank you, Ian. That would be the other one for Gerry.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Regarding savings, Rodrigo, for this year, building on what we did last year, we have identified about $90 million in savings distributed fairly equally between cost to make, cost to serve, and T one and portfolio savings. Having said that, we are especially making an effort in the two operations where we are seeing a softer consumer or softer consumer sentiment, Mexico and Colombia, looking for other savings initiatives that can help us run through this short-term expectation of softer consumer environment. Understood. And those $90 million would be in Mexico maybe or South Mexico? In all of our operations. In all of our operations, Rodrigo, but certainly Mexico is an important portion of the savings that we are looking to achieve.

[Rodrigo Alcantara, Director of Equity Research at UBS]

Awesome. Thanks, Gerry.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Thank you.

[Operator]

Thank you very much sir.

[Operator]

Our next question will be coming from Felipe Ucros of Scotiabank. Please go ahead.

[Felipe Ucros, Director of Equity Research at Scotiabank]

Thanks, Operator. Good morning, Ian, Gerry, and team. A couple on my side. Perhaps starting with Latin America, pretty good volume performance in the southern cone, and then a nice uplift in EBITDA. Just wondering if you could comment on the profitability by country. I imagine that the volume recovery in Argentina was a key driver for improving the margins, but wanted to make sure if that's where most of the margin improvement came from. On operating leverage, I recognize that volumes have had a lower absorption effect this quarter. Even when we look at the prior two quarters, it looks like consolidated SG&A as a percentage of sales has been coming in a little hotter than in 2022 and 2023.

[Felipe Ucros, Director of Equity Research at Scotiabank]

I'm wondering if you think this is something that you can lower back to those levels, or if we should think of this expense inflation as simply a reset to a new level and think of this new level as the appropriate one for modeling going forward. Thank you.

[Ian Craig, CEO at Coca-Cola FEMSA]

Hello, Felipe. If you want, I'll give you a broader context, and then, Gerry, you can go and enter into the specific margins and SG&A points that Felipe raised. LATAM had a very good response, and the margin expansion was not limited to Argentina. I would say a big, big driver was Brazil as well, which continues to fire on all cylinders, notwithstanding a tough comp for us because we still didn't have the Porto Alegre plant fully operational. We barely closed the quarter around 60%. We are today at around 80.

[Ian Craig, CEO at Coca-Cola FEMSA]

Even with that, we had nice margin expansion in Brazil, very good expansion in Argentina. In general, things are looking good for us in those operations. Gerry, do you want to get into the specifics?

[Gerry Cruz, CFO at Coca-Cola FEMSA]

I'll start with the first part of your question, Felipe, regarding the performance in our South America division. All of our operations actually contributed to margin expansion to highlight, obviously, Argentina that you mentioned, but also we saw an improvement in profitability margins in Colombia. Our largest operation in the South America division, Brazil, also showing an expansion in EBIT margins of 100 basis points for the period as compared to last year. Across the board, margin expansion, as you know, and we've highlighted before, we have opportunities to continue expanding profitability in both our operations in Brazil and Colombia.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

We expect that to continue to be the case as we move forward, but this is the case for this quarter. Regarding SG&A, our expenses for our Mexico and Central America division, we have seen pressure, especially in Mexico, related to labor. Also, maintenance was an important issue, and we expect that this will continue to be an issue as we continue building our capacity. We do have a very important focus, especially this year and the first half of this year, to try to look for efficiencies in expenses, especially in our Mexico operation, to help with the numbers when we're seeing softer market conditions.

[Felipe Ucros, Director of Equity Research at Scotiabank]

Got it. That's very clear. If I can do a very short follow-up, I wanted to see if you could comment on changes in the mix.

[Felipe Ucros, Director of Equity Research at Scotiabank]

Are you seeing consumers kind of veering towards returnables given the deceleration and a little bit more of a conservative stance from the consumer?

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Hi, Felipe. It's Jorge here. Yeah. I would say we see mixed across Coca-Cola FEMSA, mixed performance with regards to presentations in terms of size, I would say, from single serve and multi-serve. For example, in Mexico in particular, we have seen that in terms of mix moving more towards multi-serve. On the other hand, I would say that in South America, as Ian mentioned, Brazil is performing very well, growing on top of very tough comps. It was double-digit growth the first quarter of 2024. On top of that, Brazil is growing. Ian mentioned during his preparing remarks that single serve mix in particular in Brazil is growing.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

I would say it depends on the market and what we're seeing, but I would say that in most parts of South America, in South America division, we're seeing a trend of single serve mix growth, while in Mexico, we have seen a little bit more of performance from multi-serve presentations in particular.

[Felipe Ucros, Director of Equity Research at Scotiabank]

That's very helpful. Thanks a lot, guys.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Thank you, Felipe.

[Operator]

Thank you very much, sir. The next question today will be coming from Mr. Henrique Morello of Morgan Stanley. Please go ahead, sir.

[Henrique Morello, Equity Research Analyst at Morgan Stanley]

Hi everyone. Thank you so much for taking my question. I just wanted to explore a bit your market share trends in Mexico. I wonder if, coupled with the volume decline, you also saw meaningful changes in the market share trends during the quarter.

[Henrique Morello, Equity Research Analyst at Morgan Stanley]

You already mentioned that you adjusted your price in the end of the quarter, but if you could comment if you still perhaps saw customers migrating to brands with lower price points or something like that would be helpful. Still in the market share topic, if you could just also remind us quickly what are our priorities in terms of categories and products you want to recover market share and how that's been evolving when your additional capacity comes online. That would be very helpful as well. Thank you very much.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Hi, Henrique. Yes. Like I said, we were transiting January more or less in line with what we expected, and then we saw an adjustment to our volumes and a softer environment and softer share in February.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

That is when we reacted very, very swiftly and adjusted our plans, increased our tactical calendar, both for single serve and multi-serve, and in both traditional and modern channels. In modern channels, it is much easier to have very good price compliance, have all of the calendar follow-through. I would say from the impact that we saw in February, share trended very well in the right direction throughout the rest of the quarter in the modern channels. We are confident that is going to start to show. In the traditional channels, it took us a little bit more time to get everything in place with our revised calendar because you have to make sure that the resources you put in are going to flow through to the consumer. Otherwise, it is just increased trade margin. That took us more time, a couple of weeks.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Once we were able to adjust that, the share recovery is starting there as well. It is trending in the right direction. It is not at the modern channel levels where we have been able to recuperate the impact that we had in February, but it is trending in the right direction.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Henrique, regarding capacity and the focus that we have across categories, remember that the first strategic priority that we have is growing the core business. The vast majority of the capacity that we are adding across our markets is focused on that core. That means it is going to the sparkling category. We are adding different sizes, different presentations. That, as is obvious, is going to help us not only with brand Coca-Cola, but with flavors as well.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Because when we were facing the capacity constraints at some point, as you know, when there was unavailability, we had to prioritize brand Coca-Cola, and we started having some weakness in flavors. That happened in Mexico. And stills as well. Yeah. I would say, I mean, the large investments that we put in together with the supply chain initiatives, we do not have an unavailability issue in Mexico anymore. That has been solved, not only for CSDs, but for stills as well. It is a large improvement in order fulfillment, almost 1.4-1.5 percentage points there. We are much better prepared to enter into the high season today. That being said, like I mentioned, last year's high season was coupled with a heat wave, so it was very intense. This year's high season, our weather forecast is going to be more normal weather.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

You couple the fact that we have more capacity online, we're better prepared, and it'll be a more normal weather if the models pan out. I mean, we should have a good benchmark in terms of customer service this year vis-à-vis last year.

[Henrique Morello, Equity Research Analyst at Morgan Stanley]

That's clear. Thank you very much.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Thank you, Enrique.

[Operator]

Thank you, Mr. Morelo. Sorry to interrupt you, sir. Our next question will be coming from Alejandro Fuchs of Itaú. Please go ahead, sir.

[Alejandro Fuchs, VP of Equity Research at Itaú]

Thank you, Operator. Hola, Ian, Gerardo, Jorge, and team. Thank you for the space for questions. I have two quick ones from my side if I may. The first one is for Ian. Wanted to see now with the full rollout in Brazil of Juntos+ Advisors. Wanted to ask you, when should we expect this to come to Mexico?

[Alejandro Fuchs, VP of Equity Research at Itaú]

Maybe what week groups could you see coming from Brazil to Mexico that could be comparable? The second one for Gerardo, real quick. We saw a clear worsening of working capital dynamics, especially on base of payables this quarter. Wanted to see if you can give us some color of what is driving this and what do you expect this to continue going forward. Thank you.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Hi, Alex. Yes, in Brazil, you're onto something that works very well for the team when they accelerate the rollout because they're really seeing the benefits of the implementation of the tool. What happened in Brazil is we already finished the full rollout. The team is very happy there. We increased geoefficiency almost four points, combined coverages which go directly to share.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

You see that in the Brazil numbers, almost 3.6 percentage points in CSDs, over a point in stills. I mean, for us, Juntos+ Advisor is a game changer. We are now ready to start the rollout in Mexico. The Mexico team is heading down to Brazil to see all of the processes that are necessary behind the implementation of the tool because it is not only the tool that you put in there, but the processes between the trade marketing teams, the sales service structure in commercial, and then you roll it out. We should be doing that, I think, around June-July of this year. Like I stated in the prior call, we expect to have both Mexico and Brazil fully rolled out this year. That, for us, is a very, very good tool. It is right now without the order entry module.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

It is all of the modules that are out there to help the pre-sellers be more productive and more effective. We are starting in Brazil with the order entry functionalities, and those are also going very well. Once we add the order entry functionalities, it just takes it to an additional level because we will not only be using the advisor tool as, let's say, Salesforce enabler, but also as an order entry tool. It is moving very well, Alex. I do not remember the other part of the question. Working capital. Alejandro, regarding working capital, we have two main factors impacting working capital this year, and this is from our budget. It is not a surprise. It is by design. It is connected to something that Ian has talked about during the call.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

As you remember, last year, we had high unavailability in most of our markets, but especially in our two largest operations, Mexico and Brazil. This resulted in consuming inventories way more than usual, below our regular safety inventories to be able to reduce as much as we could that unavailability. This year, we're replenishing those inventories throughout the year. We expect that this will continue to be an important effect for the remainder of the year. The other impact is in accounts payable. As you know, we're in the process of migrating our ERP to S/4HANA version of SAP. During this process, during this year, we have higher payables. We have lower payables as compared to last year with the regular development of that project. Also, that will continue to be a case for the remainder of the year.

[Alejandro Fuchs, VP of Equity Research at Itaú]

Thank you, Gerardo here.

[Operator]

Thank you, sir. We'll now move to Lucas Ferreira of J.P. Morgan. Please go ahead, sir.

[Lucas Ferreira, Senior Equity Research Analyst at J.P. Morgan]

Hi, guys. I have two questions. The first one is if you already see some positive results of these changes you're conducting in Mexico's, let's say, go-to-market and pricing mix strategies to adjust for the tougher environments, if you already see kind of improving results in the month of April. If you think that sort of as lower start of the year changes the whole year budget, or is something that you think you can catch up later, like you mentioned, second half should be of easier comps. The second question on Brazil, you guys mentioned that you see still opportunities to improve margins. If you can give more details on this, if it's just like fixed cost dilution, increasing volumes, or if there's any other initiative or mix changes.

[Lucas Ferreira, Senior Equity Research Analyst at J.P. Morgan]

If you see in Brazil any deceleration of the consumer, given sort of here the inflation, inflationary environment, full inflation going up, do you think there could be also some maybe deceleration in the consumption in the region? Thank you.

[Ian Craig, CEO at Coca-Cola FEMSA]

Hi, Lucas. I'll give a broad context, and then Jorge, you can enter into the specifics on the views for the year. Like I mentioned to Enrique, the share impact that we saw in February with the adjustments that we did, we have fully recovered that in the modern trade. We are on our way, if things keep trending as they are, to recover that in the traditional channel. That being said, Lucas, this has come about, like I said, under an environment of increased competitive intensity. That has not changed.

[Ian Craig, CEO at Coca-Cola FEMSA]

What I mean is you see a lot of offers and promotions out there in the marketplace, and that was something that we did not have factored in to the year. We had factored in a tougher first half comp, but we did not factor in this level of competitive intensity. We are adjusting for that. I think it is prudent for us with the level of uncertainty that is out there. In general, in the world, I am not saying specific about Mexico, but it certainly spills over to Mexico, especially given where the geopolitical tensions are right now, that we think there will be this type of uncertainty and increased competitive intensity, at least for the full of the first half. That is what we are preparing for. We are not foreseeing a respite in competitive intensity for the whole of the first half.

[Ian Craig, CEO at Coca-Cola FEMSA]

That was not in the initial, let's say, plans. Like I mentioned, our share is recovered in the modern trade and is trending in the right direction in the traditional trade. It is much trickier to have tactical calendars, 360 plans flow through there. It takes more time. In terms of Brazil, the margin expansion and improvements are coming, like you anticipated, a lot from operating leverage, fixed cost absorption, but there are also benefits flowing through from where we are installing our capacity. The lines that are coming online in Brazil are where we need them to be, are in the most profitable segments, which are CSDs. All of that is going to be adding, and we expect that creative and helpful in margins in Brazil.

[Ian Craig, CEO at Coca-Cola FEMSA]

We are not seeing a slowdown in our territories in the consumer, but it's also, I think, prudent to say that weather has been good in Brazil. I don't know, maybe in other regions, we're seeing softer volumes in Brazil, still growth, but softer volumes. In our region, we're not seeing that. I can't account for the fact that how much of that is due to weather or whether our consumer is still very resilient. In the case for us in Brazil, I'm not saying that this is an easier year because I don't want my operators to slack off there, but they have a very good comp starting May, just accounting for what happened, losing one plant, which was 10% of our volume, having to buy cases from other bottlers, having to ship those cases very large distances.

[Ian Craig, CEO at Coca-Cola FEMSA]

It is just an easier comparison for us in Brazil starting May as well. Okay? Do you want to get into?

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Yeah. I think, Lucas, I think the answer from Ian is quite comprehensive. I think he mentioned the view of definitely a softer start of the year, particularly in Mexico, to the expectations. We do see that the tactical calendar and the initiatives that we are implementing are starting to drive some results. Especially when we move towards the second half, we should go back to our positive momentum. On the other hand, offsetting part of the slower start that we saw in Mexico and Central America, we saw very positive performance from South America. That, I would say, gives us a cautiously optimistic view about the budget. I would not say we are materially adjusting anything.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

What I would say is that what we did adjust is finding those initiatives, efficiencies where they are. In case things continue uncertain, we can rapidly activate those efficiency initiatives.

[Lucas Ferreira, Senior Equity Research Analyst at J.P. Morgan]

Perfect. That's great, guys. Thank you very much.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Thank you.

[Operator]

Thank you very much sir. We will now move to Renata Cabral of Citibank. Please go ahead. Your line is open.

[Renata Cabral, VP of Equity Research at Citibank]

Hi. Thank you so much for taking my question. Thanks for the opportunity. My question is regarding the Mexican consumption environment. Was that possible to understand if some of the weaknesses in terms of volumes in Mexico is related to the Coca-Cola brand sentiment against the United States because of the current scenario environment on tariffs? I would like to have your view on that. The second question is still related to Mexico.

[Renata Cabral, VP of Equity Research at Citibank]

Regarding the calendar shift for the Easter holidays, for us, it's more unclear to understand the impact on the retailers. I would like to hear if that's also meaningful for you in terms of impact in volumes. Thank you so much.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Hi, Renata. How are you? Yeah. I would say that what we saw in Mexico during the first quarter, we believe it's a result of several factors. We saw that competitiveness that Ian referred to. When you tour the market in Mexico, you see a lot of competitiveness, a lot of promotional activity from many, many brands. On top of that, geopolitical tensions, softer consumer sentiment, the tougher weather that we also saw. I think that those were that mix of factors.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

The calendar effects that you mentioned, and I will connect that to the second part of your question, also play a role, but I wouldn't say that for us are as relevant as for retail, for example. What we do see, for example, in years like this, when the shift of Easter happens in mid-April, because sometimes Easter moves to the second quarter, but it's at the beginning of the month of April. You still see all of the orders and the loading of inventories during the first quarter, which is not something that we saw in years like this. I wouldn't say, as I mentioned, that it's a very relevant factor. For us, it's less than, I would say, less than 1% of our volume shift.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

It is not that material because usually what happens is that people move from big cities, but you catch that volume from people moving to resort cities and all. As I mentioned, I think what happened in Mexico was more of a combination of factors. It is something that we have been seeing since the second half of 2024, that slower consumption environment, a little bit of a deceleration that continued into the first quarter. If anything, uncertainty increased.

[Renata Cabral, VP of Equity Research at Citibank]

Thank you so much.

[Operator]

Thank you. What is your question then? Next question will be coming from Mr. Antonio Hernández of Actinver. Please go ahead. Your line is open, sir.

[Antonio Hernández, Head of Equity Research at Actinver]

Hey, good morning. Thanks for taking my question. Just a quick one regarding your performance in Mexico on a regional basis. Are you seeing perhaps more pressure on the south because of comps and because of the competitive environment, macro conditions? What are you seeing from a regional perspective in Mexico? Thanks.

[Ian Craig, CEO at Coca-Cola FEMSA]

Hi. Yes, I think that you're right. The performance is not the same across regions. Specifically in the southeast, with some of the projects, the infrastructure projects nearing completion, that in itself has a lower amount of cash and consumer circulating that. You're right that the impact or the softer environment is not even across all of our territories. In general, there is this softer environment and increased competitive intensity. It's a bit tougher in the southeast. I think that's a precise appreciation. Yes. Okay.

[Ian Craig, CEO at Coca-Cola FEMSA]

The same comments that you provided regarding Mexico on a month-to-month basis, does that apply also on a regional perspective or maybe trending a little bit better in some regions or states? Yeah, Antonio, I would say on monthly performance, it's mixed. For example, just to give you a sense, in Mexico and Central America, definitely March was tougher, as Ian referred to. Guatemala as well. If you move to South America, Argentina is trending even better in March than at the beginning of the quarter. What I would highlight perhaps is that the two markets where we saw a tougher quarter, Mexico, Colombia, we did see a March that towards the end of the quarter was tougher.

[Ian Craig, CEO at Coca-Cola FEMSA]

What is encouraging as well in certain markets, Mexico, Colombia, Guatemala, is that after April, May, we're going to start seeing some easier comps, for example, in Colombia and Guatemala. What I mean by this is that I don't want to give necessarily the perspective that if March is worse than February, that things are going to be moving in a straight line. That's not what we expect. It's not going to move in a straight line, and we have to be mindful of that.

[Antonio Hernández, Head of Equity Research at Actinver]

Okay. Thanks for the call. Have a great day.

[Ian Craig, CEO at Coca-Cola FEMSA]

Thank you.

[Ian Craig, CEO at Coca-Cola FEMSA]

Thanks Antonio.

[Operator]

We're going to go to Alvaro Garcia of BTG. Please go ahead.

[Alvaro Garcia, Associate Partner at BTG]

Hi, good morning. Good morning, Ian. Good morning, Jerry and Jorge. I have two questions. One for Ian.

[Alvaro Garcia, Associate Partner at BTG]

I was wondering if there's an update on how FEMSA's SPIN might play a role alongside Juntos in Mexico. My second question is for Jerry on the outlook for COGS. You noted the lower sweetener price in the release. I was wondering if that's the case for the rest of the year, and maybe if you could provide sort of just an update on the outlook for PET and sweeteners across your key markets. Thank you.

[Ian Craig, CEO at Coca-Cola FEMSA]

Hi, Alvaro. Regarding SPIN, I would say that there have been a lot of good learnings collected from the Puebla pilot. I think the SPIN team is processing those learnings together with our team. They're adjusting some of the things that they think could make it even more attractive or of interest, of easier entry to capture new customers. They're going to be testing that as well together with us.

[Ian Craig, CEO at Coca-Cola FEMSA]

At some point, probably this same year, there should be decisions there of how they want to scale it or not and in which format. I do not have those final decisions yet. I think there is a lot of good collaboration and learnings going on. Probably during this year, they should reach the learnings of whether this will be scaled and in which format. Alvaro, regarding cost of goods sold, as you pointed out in the prepared remarks, we made reference to it. Sweeteners are providing a better or significant relief to our cost of goods sold throughout our operations. We do expect that we will see a continued benign sweetener environment for the remainder of the year. For the case of PET, basically sort of the same story.

[Ian Craig, CEO at Coca-Cola FEMSA]

We're seeing both energy prices coming down as well as the refined products like the one that we use, mostly PET. We do see PET prices coming down, and we're also taking advantage to increase hedge positions further out, even beyond 2025, to take advantage of lower PET prices that we're seeing. The only, I think, raw material that we are seeing with a little bit of pressure is aluminum. As you know, it represents a small portion of our mix in all of our operations. It is something that really does not concern us in a significant way.

[Alvaro Garcia, Associate Partner at BTG]

Great. Thank you.

[Operator]

Thank you very much, Mr. García. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one at this time. We'll now go to Ulises Argote of Santander. Please go ahead, sir.

[Ulises Argote, Head of Equity Mexico Equity Research at Santander]

Hey, guys. Thanks for the space for questions.

[Ulises Argote, Head of Equity Mexico Equity Research at Santander]

Just one quick one here from my side to see if you can help us quantify the impact there on the insurance payments in Mexico just to get a bit of a sense of comparability on the numbers. Thank you.

[Ian Craig, CEO at Coca-Cola FEMSA]

Yes, Ulysses. For this quarter, we had a net effect in Mexico of MXN 65 million in favor. This is net from expenses that we saw in the quarter for MXN 75 million and insurance recovery for MXN 140 million. The net effect that we recorded in the P&L was a benefit of MXN 65 million in the quarter.

[Gerry Cruz, CFO at Coca-Cola FEMSA]

Thank you. Thank you very much.

[Operator]

Thank you very much, sir. As we have no further questions at this time, let's call back over to Mr. Collazo for any additional or closing remarks. Thank you.

[Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA]

Thank you very much, everyone, for your interest in our company and for joining us on today's call. We look forward to seeing you again soon. In the meantime, in case you have any remaining questions, myself and the rest of the IR team, we are available for any remaining questions. Thank you very much.

[Ian Craig, CEO at Coca-Cola FEMSA]

Thank you.

[Operator]

Thank you. Ladies and gentlemen, that will conclude today's presentation. We thank you for your attention. We now disconnect. Have a good day and goodbye.

Participants

Analysts

• Renata Cabral, VP of Equity Research at Citibank
• Henrique Morello, Equity Research Analyst at Morgan Stanley
• Alvaro Garcia, Associate Partner at BTG
• Rodrigo Alcantara, Director of Equity Research at UBS
• Antonio Hernández, Head of Equity Research at Actinver
• Ian Craig, CEO at Coca-Cola FEMSA
• Ulises Argote, Head of Equity Mexico Equity Research at Santander
• Felipe Ucros, Director of Equity Research at Scotiabank
• Gerry Cruz, CFO at Coca-Cola FEMSA
• Alejandro Fuchs, VP of Equity Research at Itaú
• Lucas Ferreira, Senior Equity Research Analyst at J.P. Morgan
• Jorge Collazo, Director of Investor Relations at Coca-Cola FEMSA