Arca Continental B de C : First Quarter 2025 Transcription

Arca Continental First Quarter 2025 Earnings Call Transcript

April 24, 2025 @ 9:00am CT

Operator: Good day, everyone, and welcome to the Arca Continental conference. All lines have been placed on mute to prevent any background noise. Please note that this call is being recorded. After the speakers' remarks, there will be a question-and-answer session, and instructions will be given at that time. For opening remarks and introductions, I would now like to turn the conference over to Melanie Carpenter of Ideal Advisors. Ma'am, please go ahead. Melanie Carpenter: Thank you, operator. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review the results for the first quarter of 2025. Their earnings release went out this morning and it's available on the company website at arcacontal.com in the Investor Relations section.

It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; and the Executive Director of Planning, Jesus Garcia. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance.

And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo.

Arturo Gutierrez: Thanks Melanie. Good morning and thank you for being with us today to review our performance for the first quarter.

As we enter 2025, our business is navigating a unique confluence of external challenges that are shaping consumer behavior and overall market dynamics.

Geopolitical tensions and the impact of tariffs, alongside persistent inflationary environment, have added layers of uncertainty to the operating environment.

These macro headwinds, coupled with less favorable weather conditions, have weighed on near-term consumption patterns.

Let's take a closer look at our results.

Total consolidated volume in the quarter decreased by 3.1%, to reach 548 million-unit cases. Still beverages grew 2.4%, primarily driven by volume gains in Mexico.

This volume performance reflects a combination of factors, such as a subdued consumer environment and calendar effects - notably the leap year and the shift of Holy Week and Easter into the second quarter.

Total consolidated revenue increased 12.4% year-over-year to $57 billion pesos, while consolidated EBITDA rose 10.2% to $10.6 billion pesos, representing a margin of 18.7%.

This positive EBITDA performance was underpinned by solid contributions from our U.S. operations and strong momentum in South America, led by a robust recovery in Argentina.

Our results highlight the impact of proactive pricing, disciplined cost control, and prudent hedging, which enabled us to mitigate input cost inflation and currency volatility while protecting profitability.

Let me begin our regional performance review with our beverage operations in Mexico, which experienced a softer start to the year.

Total volume was down 3.6% in the first quarter, cycling three consecutive years of strong growth in the same period.

Volume performance was partially influenced by a high comparison base, given the strong uplift seen in the first quarter of 2024, supported by government incentive programs ahead of last year's elections.

Volume decline was partially offset by an 8.1% increase in still beverages, mainly driven by the Sport drinks, Tea, and Fruit beverage categories, capitalizing key opportunities in the modern trade channel.

Notably, Coca-Cola No Sugar delivered robust growth of 17.8%, supported by its continued expansion across our territories and sustained innovation under the Coca-Cola Creations platform.

Total net sales in Mexico grew 0.1% year over year to reach $23.3 billion pesos. The average price per case- excluding jug water-increased by 5.3%, reaching $89.51 pesos, reflecting our disciplined revenue growth management strategies.

On the profitability front, EBITDA in Mexico declined by 6.2% to $4.9 billion pesos, with a margin of 20.8%.

Operations have since returned to normal, and we remain confident in our ability to recover momentum in the coming quarters.

I also would like to highlight that TUALI, our second generation B2B digital platform, continues to deliver strong results. By the end of the first quarter, our app accounted for over 68% of total orders from the traditional channel's volume in Mexico.

Notably, we observed a meaningful uptick in performance among digitized customers compared to non-digitized ones, contributing to a 1.6 percentage points increase in overall sales volume.

Moving now to our beverage business in South America, total volume declined 0.7% in the quarter, primarily due to softer performances in Peru and Ecuador. This was partially offset by growth in Argentina.

Total revenue rose by 25.4%, reaching $12 billion pesos, supported by effective pricing and favorable mix. EBITDA increased 36% to $2.4 billion pesos, expanding margin to 19.9%.

This strong profitability performance underscores our disciplined execution, affordability strategies and ongoing portfolio optimization.

While challenges persist, we remain cautiously optimistic about South America's outlook in 2025, underpinned by signs of gradual macroeconomic recovery and stabilization across our markets.

In Peru, total volume declined 4.6%, lapping a strong growth of 3.8% in the same quarter of 2024. However, we are seeing a sequential recovery trend.

Despite softer consumer demand and below-average temperatures, our actions to offer an affordable portfolio and the expansion of returnable package formats are supporting an improvement in volumes.

In still beverages, flavored water and energy drink segments grew 33% and 41%, respectively, supported by new product launches.

Furthermore, we signed a five-year distribution agreement with Diageo, introducing their renowned

portfolio of premium spirits to Peru's traditional trade and on-premise channels.

Turning to Ecuador, the country entered 2025 facing a complex landscape marked by economic slowdown, persistent political uncertainty, and severe rainfall in certain regions.

Against this challenging backdrop, volume in our beverage business declined 7.4% in the quarter, impacted

As a result, the mix of returnable presentations grew by 0.5 percentage points this quarter, a positive step in driving value and maintaining consumer relevance.

Our beverage operation in Argentina delivered solid volume increase of 19.8% in the first quarter.

Growth was broad-based, with sparkling beverages increasing 21.8% and Coca-Cola brand delivering a standout performance, up 22.6%.

In still beverages, Cepita led growth in Juices & Nectars, Aquarius drove gains in flavored water, and Monster continued to perform strongly in energy drinks.

Despite the still prevailing economic challenges, we gained value share across NARTD categories by driving affordability and promoting returnable packages.

We saw strong performance across channels. The traditional trade was one of the best performers in the quarter, up 14.9% and supported by our ongoing investments in market-focused initiatives, expanding cooler coverage, and increasing our share of visible inventory.

Argentina's economic trajectory in 2025 has been encouraging, with meaningful progress in reducing

inflation and a significant appreciation of the local currency.

These developments are supporting stronger real wages and improving consumer confidence - a positive backdrop for our business.

Our beverage operation in the United States closed out the first quarter with solid profitability improvements and its twenty-eighth consecutive quarter of EBITDA growth.

This performance highlights the strength of our business model and our ability to successfully replicate the playbook that has delivered sustained results across our Latin American operations.

Net revenues for the quarter increased 0.4% to $994.6 million dollars. The average price per case rose 6.4%, reflecting a true rate increase of 2.8% and 3.6% in mix to reach $10.26 dollars.

These results reflect the successful execution of our strategy to optimize price-pack architecture, drive transaction growth, and effectively manage promotional spending, as we continue refining point-of-sale execution with a sharp focus on the key metrics within our Fundamentals.

Volume for the quarter declined 5.6%, cycling strong 2.3% growth from the same quarter of 2024.

Notably, Fairlife recorded a double-digit volume increase in the quarter, with Core Power significantly outperforming across channels.

We continued to focus on higher profit-per-case packages, such as 10-pack Mini Cans, Smartwater and Vitaminwater, which increased 16.3%, 7.5% and 2.7%, respectively.

The Topo Chico portfolio posted a 16.8% increase, with Topo Chico Sabores leading the volume growth.

This quarter, we continued driving innovation and launched over 50 new SKUs, including Coca-Cola Orange Cream, Barrilitos, BodyArmor Flash IV and Monster Killer Brew.

EBITDA grew 3.7% to $160.7 million dollars, representing a margin of 16.2%. This marks our most profitable first quarter since assuming control of our franchised territories in the U.S. -underscoring the structural improvements we've made to the business over time.

We're also proud to share a series of recognitions that reflect our operational excellence.

Our U.S. team earned the prestigious North America Market Street Challenge award for the third time in seven years - and for the second consecutive year, recognizing best- in-class execution across the Coca-Cola System in the United States.

Additionally, we were honored with Monster's Masters of the Claw designation for consistently leading in

volume growth.

On the innovation front, our U.S.-based advanced analytics team continues to enhance critical commercial processes through scalable, data-driven solutions.

This quarter, we launched an upgraded version of our Suggested Order application, featuring enhanced value-capture modules designed to drive incremental growth.

To close our operations review, our Food and Snacks businesses started the year with solid results. During the quarter, we delivered double-digit sales increase and mid-single digit EBITDA growth.

This sustained earnings momentum was led by Bokados in Mexico, supported by effective pricing strategies, productivity enhancements, efficiency programs and consumer-centric innovation initiatives.

Now, I'd like to briefly walk you through the progress we've made in our sustainability agenda.

We continue to strengthen our energy strategy by increasing the use of renewable sources, which now