Coca Cola Femsa S.a.b. De C.v. ((KOF)) has held its Q3 earnings call. Read on for the main highlights of the call.
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The recent earnings call for Coca-Cola Femsa S.A.B. de C.V. painted a mixed picture for investors, with a blend of positive developments and notable challenges. While the company reported revenue growth, strong digital engagement, and significant growth in Coca-Cola Zero, these positives were counterbalanced by volume declines in key markets, the impact of a substantial excise tax increase in Mexico, and ongoing currency and cost pressures.
Revenue and Operating Income Growth
Coca-Cola Femsa reported a 3.3% increase in total revenues for the quarter, reaching MXN 71.9 billion, supported by effective revenue management initiatives. Operating income saw a more robust growth of 6.8%, amounting to MXN 10.3 billion, with an operating margin expansion of 50 basis points to 14.3%.
Strong Digital Engagement
The company’s digital initiatives, such as Juntos+ in Guatemala, demonstrated impressive growth. The platform now boasts over 100,000 digital monthly active users, marking a 23 percentage point increase from the first quarter, showcasing Coca-Cola Femsa’s commitment to digital transformation.
Coca-Cola Zero Growth
Coca-Cola Zero experienced significant growth, with sales increasing by 23% in Mexico and 38% in Brazil compared to the previous year. This growth was largely driven by successful promotional campaigns, highlighting the brand’s strong market presence.
South America Volume and Revenue Increase
In South America, volumes increased by 2.6%, with revenues rising by 8.7% to MXN 29.4 billion. This growth was fueled by revenue management initiatives and a favorable product mix, underscoring the region’s positive performance.
Successful Cost Management
Coca-Cola Femsa achieved $90 million in supply chain savings ahead of schedule, with notable contributions from primary distribution and cost-to-serve efforts. This reflects the company’s focus on efficiency and cost control.
Volume Decline in Mexico and Panama
Despite successes in other areas, volumes in Mexico declined by 3.7%, with a broader decline in Mexico and Central America by 2.7%. This was attributed to a soft macroeconomic backdrop, posing challenges in these markets.
Impact of Excise Tax Increase in Mexico
The company is facing a significant 87% increase in the excise tax on soft drinks in Mexico, which is expected to negatively impact volume performance in the coming years, presenting a considerable hurdle.
Currency and Cost Pressures
Unfavorable currency translation effects impacted revenues, with gross margin contracting by 100 basis points to 45.1% due to an unfavorable mix and increased fixed costs, highlighting ongoing financial pressures.
Challenges in Argentina
While Argentina saw volume growth, it remains a complex environment with potential economic slowdown and sluggish growth expected, adding to the challenges faced by Coca-Cola Femsa in the region.
Forward-Looking Guidance
Looking ahead, Coca-Cola Femsa remains focused on sustainable growth, cost control, and productivity measures to navigate challenging conditions, including the recent beverage excise tax increase in Mexico. The company reported a consolidated volume decline of 0.6% to 1.04 billion unit cases, with total revenues increasing by 3.3% to MXN 71.9 billion. Despite a margin contraction, operating income rose by 6.8%, and adjusted EBITDA increased by 3.2%, maintaining an EBITDA margin of 20.1%. The company also highlighted significant volume and share growth in markets like Guatemala and Brazil, driven by digital and affordability initiatives.
In conclusion, the earnings call for Coca-Cola Femsa S.A.B. de C.V. revealed a company navigating a complex landscape of growth opportunities and significant challenges. While revenue growth and digital engagement present promising avenues, the impact of excise tax increases and economic pressures in key markets remain critical concerns. Investors will be keenly watching how the company manages these dynamics moving forward.