Coca Cola Femsa Q1 Earnings Call Highlights

Coca Cola Femsa NYSE: KOF reported first-quarter 2026 volume growth of 1.2% to 998 million unit cases, as strength across most territories offset a decline in Mexico amid an excise tax increase and softer consumer conditions. Total revenues rose 1.1% to MXN 70.9 billion, while gross profit increased 4.5% to MXN 33.3 billion, expanding gross margin 150 basis points to 46.9%.

CEO Ian Craig said Mexico faced “near-term headwinds” from the tax increase and weaker consumer dynamics, but added the company’s commercial plan—developed with The Coca-Cola Company—helped protect its market position. Craig highlighted a 0.6 percentage point gain in value share for carbonated soft drinks (CSDs) and a 0.4 percentage point gain in non-alcoholic ready-to-drink beverages (NARTDs) in Mexico as evidence the strategy is working.

Consolidated results: margin gains at the gross line, operating pressure from one-time and timing items

Craig said revenue management initiatives supported revenue growth, but results were “partially offset by unfavorable mix effects and headwinds related to the currency translation” of operating currencies into Mexican pesos. Excluding currency headwinds, total revenues increased 6.0% and gross profit rose 9.5%.

Operating income declined 2.3% to MXN 9.0 billion and operating margin contracted 50 basis points to 12.7%. On a comparable basis, Craig said operating income increased 2.6%, with margin pressure attributed mainly to right-sizing severance expenses and increased IT spending tied to the company’s SAP S/4HANA ERP implementation. The company also recorded higher marketing and depreciation, partially offset by expense controls in areas such as maintenance and freight.

Adjusted EBITDA increased 0.9% to MXN 13.4 billion, with adjusted EBITDA margin flat at 18.9%. Excluding currency translation, comparable adjusted EBITDA increased 6.1%. Majority net income fell 15.5% to MXN 4.3 billion, which CFO Gerardo Cruz attributed primarily to a higher comprehensive financial result.

Mexico: volume decline, share gains, and affordability actions

In Mexico, volume declined 2.6% year over year. Craig cited an excise tax increase and “a soft consumer backdrop,” noting Nielsen’s fast-moving consumer goods (FMCG) basket in the company’s territories declined close to 3% in volume and inflation expectations moved higher in recent forecasts.

Craig said the company emphasized affordability and portfolio breadth, including expanding coverage of Coca-Cola’s one-way 3-liter presentation by more than 7 percentage points, which he said drove 32% volume growth in March versus the prior year. He also highlighted continued growth in low- and no-sugar offerings, including Coke Zero, which he said grew 10% in the quarter, supported by accessible single-serve packs such as 200 ml and 355 ml one-way PET bottles.

In flavors, Craig said the company increased coverage by more than 10 percentage points across brands including Fanta, Sprite, and regional brands such as Mundet and Ameyal. He also pointed to share gains in non-carbonated categories, including “more than 3% points of share” in both energy drinks (Monster) and teas (Fuze Tea).

On execution, Craig said Coca-Cola FEMSA installed more than 47,000 cooler doors in the quarter—“equivalent to 50% of the total coolers we installed during 2025”—as it worked to improve performance in traditional trade. He also cited progress with the Juntos+ Advisor tool in Mexico since its September 2025 launch, including visitation improving 3 percentage points to 93.6% and combined coverage improving 2.8 percentage points to 81.3%.

During Q&A, Craig described uneven regional trends within Mexico, calling the Southeast the “most sluggish region,” attributing it to lingering effects from the wind-down of large government infrastructure projects. He also contrasted the company’s response to the current excise tax environment with the 2013 tax episode, saying the company is now using more segmented revenue growth management supported by digital tools to avoid household penetration losses. Craig said the company intends to emerge from the current period with a strengthened competitive position.

Asked about category performance in Mexico, Craig said still beverages underperformed sparkling largely due to a “specific issue with a very large chain in Mexico” that adjusted parameters for Powerade. He said the issue was being addressed and should begin to adjust in May and June. He also said bulk water volumes were pressured after the company adjusted pricing, calling it a large volume driver but not a major profitability driver.

On channels, Cruz said the company prioritized the traditional channel after the excise tax impact, taking differentiated pricing actions by channel. He said traditional trade performed “slightly better than what we had planned,” while modern trade underperformed partly due to the Powerade issue.

Craig also said mix effects were a notable surprise versus plans, with consumers shifting “more towards multi-serve” than expected after the tax-driven price increases. Investor Relations Director Jorge Collazo added that, for one-way versus refillables, “there is more one way than refillables at this point.”

Central America and South America: records in key markets and operating leverage in the south

Craig said Central and South America delivered solid performance, including record first-quarter volumes for Guatemala, Colombia, and Brazil. In Guatemala, volumes grew 2.7% despite disruptions early in the quarter from unfavorable weather and a government-declared curfew; Craig said March became a record month as conditions improved. He also cited growth in hydration and energy brands including Dasani, Shangri-La, and Monster.

In Brazil, volumes increased 3.6%. Craig attributed performance to disciplined execution and digital capabilities amid constructive consumer dynamics, citing low unemployment (5.8%) and real income growth above 5.7%. He highlighted double-digit growth for Coke Zero (11.4%), and said Sprite grew more than 30% year over year as the company applied a Coca-Cola Zero playbook to Sprite Zero, which he said now accounts for more than 27% of total Sprite volume. Craig also said Powerade Zero exceeded expectations and represented 9% of the Powerade mix, while Monster’s zero-sugar variants accounted for 45% of total Monster mix and more than 60% of its growth.

In Colombia, volumes rose 8.9%. Craig cited an improving consumer environment and initiatives to adjust price architecture in Coca-Cola, including affordability actions that supported 30% volume growth in multi-serve one-way Coca-Cola presentations. He said the flavor sparkling portfolio increased 15% driven by Quatro and Sprite initiatives, Powerade grew 10% on FIFA World Cup-related efforts, and Monster grew more than 30%.

In Argentina, volumes increased 5.4%. Craig described a “heterogeneous recovery” and soft employment weighing on consumer confidence, while Nielsen’s FMCG basket remained flat. He said the company maintained an affordability proposal and grew coverage of its “Zona de Ahorro” initiatives by 8 percentage points year over year, while Sprite and Sprite Zero delivered double-digit growth and Coke Zero grew 10% to reach 20.9% of Coca-Cola mix. Craig also said the company gained more than 4 percentage points of share in Powerade and added more than 7,000 digital customers through Juntos+.

Divisional results and financing: South America strength offsets pressure in Mexico and Central America

Cruz reported that Mexico and Central America volumes declined 1.6%, with Mexico’s 2.6% decline partially offset by growth in Guatemala, Nicaragua, Panama, and Costa Rica. Division revenues fell 1.4% to MXN 39.1 billion, though on a currency-neutral basis revenues increased 1.4%. Gross profit increased 0.7% to MXN 19.0 billion, lifting gross margin 100 basis points to 48.6% due to lower sugar and PET costs and the Mexican peso’s appreciation against the U.S. dollar, partially offset by unfavorable mix after the excise tax increase.

Mexico and Central America operating income declined 17.4% to MXN 4.5 billion, with operating margin down 220 basis points to 11.4%. Cruz cited currency effects, severance tied to right-sizing, increased IT spending related to SAP S/4HANA, and higher marketing and depreciation. Adjusted EBITDA in the division decreased 9.9% and margin declined 170 basis points to 18.2%.

In South America, volumes increased 4.8% to 453.9 million unit cases and revenues rose 4.3% to MXN 31.8 billion. On a currency-neutral basis, revenues increased 12.3%. Gross profit grew 10%, expanding gross margin 230 basis points to 48.8%, driven by lower raw material costs, favorable mix, and currency effects against U.S. dollar-denominated inputs. Operating income increased 18.8% to MXN 4.6 billion with operating margin up 180 basis points to 14.4%, while adjusted EBITDA climbed 16.8% to MXN 6.2 billion and margin expanded 210 basis points to 19.6%.

During Q&A, Collazo quantified headwinds in Mexico and Central America at roughly MXN 600 million at the operating income level, comprising about MXN 200 million in severance, MXN 200 million in IT expense, and MXN 200 million related to unfavorable currency translation. Cruz said marketing spending was intentionally brought forward to support the FIFA World Cup, and he expects full-year marketing spend to “taper down and remain in line with our usual marketing spend.” On IT, Cruz said the company maintains a strict investment threshold of 2.5% of sales and expects full-year IT spending to remain under that level, describing the first-quarter increase as a timing issue.

Hedging, sustainability updates, and other topics from Q&A

Cruz said the company expects commodity and input costs to remain volatile but outlined hedging coverage levels, stating Coca-Cola FEMSA has hedged 60% of PET requirements, 93% of sugar, 98% of HFCS, and 72% of aluminum. Responding to questions on 2027 hedging, Cruz said the company follows a disciplined process and is watching market volatility tied to conflict in the Middle East before increasing hedge positions for 2027, while maintaining a base level of hedging in its rolling framework.

On packaging and energy-related exposure, Cruz said around 60% of 2026 PET requirements are hedged at better levels than last year, which he characterized as a tailwind. He added that secondary packaging—such as shrink wrap—was an area of greater exposure but a smaller portion of cost of goods sold. Cruz said the company does not see significant impacts in its most likely scenario given current hedge positions and mitigation initiatives.

On sustainability, Cruz said the company maintained “prime status” in its ISS ESG rating and improved its Morningstar Sustainalytics risk score. He also noted the publication of the 2025 Integrated Report, which for the first time aligned with IFRS S1 and S2 sustainability-related disclosures and included the company’s first TNFD-aligned disclosure. Cruz said Coca-Cola FEMSA became the first non-alcoholic beverage company in the Americas and the fourth globally to register as a TNFD adopter.

Additional Q&A topics included Venezuela and capital allocation. Craig said Venezuela is “doing very well” operationally and accelerating, but said conditions for reconsolidating the operation are “still not there yet,” adding he does not expect reconsolidation “for this year or next year at least.” Cruz said the excise tax development in Mexico introduced uncertainty around cash flow generation, prompting the company to “take a step back” before deciding on capital allocation and capital structure actions.

About Coca Cola Femsa NYSE: KOF

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.

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