Title

Presentation

Coca-Cola FEMSA, S.A.B. de C.V. beats earnings expectations. Reported EPS is $1.28, expectations were $1.01.

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. [Operator Instructions] I now hand you over to your host today, Mr. Jorge Collazo, to begin this conference. Please go ahead, sir.

Jorge Collazo: 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. And with that, let me turn the call over to our CEO. Please go ahead, Ian.

Ian Craig: 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 delivery 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. As such, the strategic playbook for 2025 remains focused on three key pillars, growing our core business. Second, taking Juntos+ 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 initiatives we’re implementing to successfully navigate the current operating environment. Then Jerry 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 decline 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. On the one hand, our sparkling beverage volume declined 3.3%, driven mainly by contractions in Mexico and Colombia. On the other hand, steel beverages grew 3.9%, driven by Mexico and Brazil, and 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 MXN70.2 billion.

On a currency neutral basis, our total revenues increased 5.9%. Gross profit increased 12% to MXN31.8 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 U.S. dollar. Our operating income increased 7.3% to MXN9.2 billion with operating margin contracting 30 basis points to 13.2%. This slide, 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 operation.

Adjusted EBITDA for the quarter increased 11% to reach MXN13.3 billion, and EBITDA margin expanded 20 basis points to 18.9%. Finally, our majority net income increased by 2.7% to MXN5.1 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%. 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 improve order fulfillment by 1.4 percentage points and a 2.1 percentage point increase in geo efficiency, the metric we use to measure the accuracy of our sales. 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 record positive momentum and deliver results, fight 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 consumer 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.

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’re leveraging Juntos+ and Juntos+ Premia. 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 costs and expense controls. Now moving on to discuss our South America division.

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+ 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 + advisor, our state of the art sales force enabler.

We see this tool as a game changer to the empowerment of our sales force. 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 remains stubborn, while consumer confidence deteriorated during the quarter. Against this factor, 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.

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 integration below 3%, and a disciplined financial surplus post policy. Since the second half of 2024. We continue to see gradual sequential recovery across different sectors, including beverages with durable and payable goods leading the way. We anticipate that this recovery is paving the way for long-term growth in Argentina.

Disposable income in the [Indiscernible] area has improved by 15% as compared to a previous year. To continue out performing, we maintain the same strategy that has allowed us to deliver results, providing affordability and fostering single serve growth, grabbing cost and express controls and on the digital front, we’re excited by the rollout of Juntos+ version 4.0 in Argentina, which we anticipate will be an enabler for continued business growth. In Uruguay, we strengthen 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. As I previously mentioned, Coca-Cola FEMSA resilient 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.

Gerardo Cruz : 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. Revenues increased 4.8% to MXN39.7 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 MXN18.9 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 U.S. dollar denominated raw material costs. Operating income decreased 5% to MXN5.4 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. 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 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 MXN30.5 million, 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. These effects were partially offset by the currency depreciation from most of our operating currencies as compared to the U.S. Dollar.

Operating income for the division increased 31.1% to MXN3.8 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 MXN5.3 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 MXN1.1 billion as compared to an expense of MXN1.2 billion during the same period of the previous year. This 5.2% reduction was driven mainly by a gain in financial instruments of MXN135 million as compared to a loss of MXN46 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 MXN59 million as compared to a gain in the same period of the previous year, driven by the quarterly appreciation of the Brazilian real is applied to our U.S. 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. 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. 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: [Operator Instructions] We’ll begin today’s Q&A session with Mr. Rodrigo Alcantara of UBS.

Rodrigo Alcantara : Hello. Yes, awesome. Thank you. Yes, the first one would be on Mexico. Ian, would you like to explore a bit better on your commentary on adjusting rapidly to the uncertain environment, right? You mentioned about promotions, right, about launching promotions for multi-serve I understood correctly. So I wanted to explore more about this? I mean how are you adjust into this uncertain environment? And also, if you can share a bit about what you expect in terms of price elasticity revenue perhaps to reduce price you expect to increase volumes, right? Any quant, any number you can share regarding a potential elasticity we may see from this adjustments that you’re doing in Mexico? That would be my question to you, Ian.

And just — would be to Gerry, right, all in all, full year 2025, if you can’t comment on the ’25 savings that you have projected for this year would they come on from a lower cost to serve would be more through OpEx? Any guidance that you can give us on the cost savings for this thing would be very helpful.

Ian Craig: Let me give first a little broader context of Mexico for our industry and in general, and then I’ll tell you what I referred to us adjusting rapidly and what we saw — seeing in the short term. So 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 have been anticipated, let’s say, the outlays and probably in connection with the elections. And then we had a heat wave that coupled with a dry spell as well that it started around April peaking in May, June. Remember, it was very high heat. And then the contrary happening 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 have the hangover from the elections with less cash on the street.

So that was the general background. So going into this year, we knew we were going to have tougher comps for the first half of the year. So that was, let’s say, sort of factored into our plans. January started off reasonably well within that backdrop. And then 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. And this is not limited to the beverage industry at all. So when you go out there today and visit the market in Mexico, you see a lot of brands doing 2 for 1 promotions you see bread makers doing seeking magic price points, the owner that are very profit for 10 less content for the same packages. So you see an intensity in the competitive environment across CPG markets in general role.

So that’s what I mean by when we started seeing that and the volumes getting soft, we very quickly reacted. And 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’re not in the ball game. So that’s what I mean today. So in that environment, yes, price elasticity is higher, okay? So I don’t know if that context helped in general.

Rodrigo Alcantara: That was awesome, Ian. And would be the other one for Gerry.

Gerardo Cruz: 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 T1 and portfolio savings. Having said that, we’re especially making an effort in the 2 operations where we are seeing a softer consumer 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.

Rodrigo Alcantara: Understood. And those $90 million would be Mexico or —

Gerardo Cruz: In all of our operations, Rodrigo, but certainly, Mexico is an important portion of the savings that we’re looking to achieve.

Operator: Our next question will be coming Felipe Ucros of Scotiabank.

Felipe Ucros: A couple on my side. Perhaps starting with Latin America, pretty good volume performance in the Southern quant 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 those to the margin improvement came from. And then on operating leverage, I recognize that volumes have had a lower absorption effect this quarter. But even when we look at the prior two quarters, it looks like consolidated SG&A as a percentage of sales have been coming in a little harder than in 2022 and 2023. So 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 is the appropriate one for modeling going forward?

Ian Craig: Felipe, if you want to give you a broader context and then Gerry, you can go and enter into the specific margins and SG&A points that raised. So 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 Portola plant fully operational. We barely closed the quarter around 60%. We are today at around 80%. But even with that, we had nice margin expansion in Brazil, very good expansion in Argentina. So in general, things are looking good for us in those operations. Gerry, do you want to get into the specific?

Gerardo Cruz: 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. And 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. So 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. So 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 South America — 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. But 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 a softer market conditions.

Felipe Ucros: Got it. That’s very clear. And if I can do a very short follow-up. I wanted to see if you could comment on changes in the mix. 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: Felipe, it’s Jorge here. Yes, I would say we see mixed across Coca-Cola FEMSA mix performance with regards to presentations in terms of size, I would say, from single-serve and multi-serve. So 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. And on top of that, Brazil is growing. Ian mentioned during his prepared remarks that single-serve mix, in particular in Brazil is growing. So 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.

Operator: The next question will be coming from Mr. Henrique Morello of Morgan Stanley.

Henrique Morello : I just wanted to explore a bit your market share trends in Mexico. So I wonder if coupled with the volume decline you also saw meaningful changes in the market share trends during the quarter. You already mentioned that you adjust 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. And 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 you — your additional capacity comes online, that would be very helpful as well.

Ian Craig: 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. And 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 channel. In modern channel, it’s much easier to have very good price compliance, have all of the calendar follow through. So 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 channel. So we’re confident that, that’s going to start to show. And then in the traditional channel, 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’s just increased trade margin. So that took us more time a couple of weeks. And once we were able to adjust that, then the share recovery starting there as well. It’s trending in the right direction. It’s not at the modern channel levels where we’ve seen been able to recuperate the impact that we had in February, but we’re trending in the right direction.

Jorge Collazo: And 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. So the vast majority of the capacity that we are adding across our markets is focused on that core. So that means that it’s going to the sparkling category. We’re adding different sizes, different presentations. And that, as is obvious, it’s going to help us not only with brand Coca-Cola, but with flavors as well because when we were facing the capacity constraints at some point, as you know, when there was an availability we had to prioritize brand Coca-Cola, and we started having some weakness in flavors that happened in — I would say, I mean, the large investments that we put in together with the supply chain initiatives, we don’t have an availability issue in Mexico anymore.

That has been sold, not only for CSDs, but for steels as well. So it’s a large improvement in order fulfillment almost 1.4, 1.5 points there. We’re 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 there going to be more normal weather. So you couple the fact that we have no capacity online, we’re better prepared and it will be a more normal weather if the models pan out, we should have a good benchmark in terms of custom service this year vis-a-vis last year.

Operator: Our next question will be coming from Alejandro Fuchs of Itau.

Alejandro Fuchs: I have 2 quick ones from my side, if I may. The first one is for Ian. Wanted to see now with the full rollout in Brazil or [indiscernible]. I wanted to as to when should we expect this to come to Mexico and what we could you see coming from Brazil to Mexico that could be comparable? And the second one for Gerardo, real quick. We saw a few working of working capital dynamics payables this quarter. I wanted to see if you can give us some color on what is driving this? And what do you expect this to continue going forward.

Ian Craig: So yes, in Brazil, you know you’re on to something that works very well for that team. When they accelerate the rollout because they’re really seeing the benefits of the implementation of the tool. So what happened in Brazil is we already finished the full rollout and that team is very happy there. We increased geo efficiency almost 4 points combined coverages, which goes directly to share, and you see that in the Brazil number, almost 3.6 points in CSD, it’s over a point in steels. So I mean, for us, [indiscernible] is a game changer. We’re 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 2 because it’s 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. So like I stated in the prior call, we expect to have both Mexico and Brazil fully rolled out this year. So that for us, it’s a very, very good tool. It’s right now without the order entry module. So it’s all of the modules that are out there to help the pre-sellers be more productive and more effective. And we’re starting in Brazil with the order entry functionalities. And those are also going very well. So once we add the order into functionalities, it just takes it to an additional level because we won’t only be using the adviser tool as let’s say, sales force enabler but also as an order in Q2. So it’s moving very well, Alec. I don’t remember the other part of the question.

Gerardo Cruz: Working capital. Alejandro, regarding working capital, we have 2 main factors impacting working capital this year, and this is from our budget. It’s not a surprise. It’s by design, and it’s connected to something that Ian has talked about during the call. And this is — 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.

And the other impact is in accounts payable. As you know, we’re in the process of migrating our ERP to S/4 HANA version of SAP. And 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. And also, that will continue to be a case for the remainder of the year.

Operator: We’ll now move to Lucas Ferreira of JPMorgan.

Lucas Ferreira: I have 2 questions. The first one is if you already see some positive results of these changes you’re conducting Mexico 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. And if you if you think that sort of a 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? And the second question on Brazil. You guys mentioned that you see still opportunities to improve margins. So if you can give more details on this, if it’s just like fixed cost dilution, increasing volumes or if there is any other initiative or mix changes?

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

Ian Craig: I’ll give a broad context and then Jorge, you enter into the specifics on the views for the year. So like I mentioned to Henrique the share impact that we saw in February with the adjustments that we did, we have fully recovered that in the modern trade and we are on our way if things keep trending as they are to recover that in the traditional can. That being said, Lucas, this has come about, like I said, under an environment of increased competitive intensity. So that has not changed. So 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 into the year. So we had factored in a tougher first half comp but we did not factor in this level of competitive intensity.

So we’re adjusting for that. And I think it’s prudent for us with the level of uncertainty that’s out there. In general, in the world, I’m 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. So that’s what we’re preparing for. We’re not foreseeing a respite in competitive intensity for the whole of the first half. And that was not in the initial, let’s say, plans. In terms of — but like I mentioned, our share is trending — is recovered in the monetary and it’s trending in the right direction in the traditional thing. It’s much trickier to have a tactical calendar 360 plans flow through there.

So 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’s also benefits flowing through from where we’re installing our capacity. So the lines that are coming online in Brazil are where we need them to be are in the most profitable segments, which are CSD. So all of that is going to be adding and we expect accretive and helpful in margins in Brazil. 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. So I don’t know, maybe in other regions, we are seeing softer volumes in Brazil still growth, but softer volumes. But in our region, we are not seeing that.

I can’t account for the fact that how much of that is due to weather or whether our consumer is to very resilient. And 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 off there. But they have a very good comp starting May just accounting for what happened, losing 1 plant, which was 10% of our volume, having to buy cases from other bottlers having to ship those cases very large distances. So it’s just an easier comparison for us in Brazil in starting May as well, okay? Do you want to –?

Jorge Collazo: Yes. 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, in particular in Mexico to the expectations. And we do see that the tactical calendar and the initiatives that we are implementing are starting to drive some results. And 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 a very positive performance from South America. So that, I would say, give us a cautiously optimistic about the budget. I wouldn’t say we are materially adjusting anything. What I would say is that we — what we did at just is finding those initiatives, efficiencies where they are. And in case things continue uncertain, we can rapidly activate those efficiency initiatives.

Operator: We will now move to Renata Cabral of Citibank.

Renata Cabral: So my question is regarding the mix on consumption environment. Was that possible to understand if some of the weakness 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. So I’d like to have your view on that. And the second question is still related to Mexico. Regarding the calendar shift for the Easter holidays, for us, it’s more clear to understand the impact on the retailers. But I would like to hear if that is also meaningful for you in terms of impact in volumes.

Ian Craig: Yes. 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 tension, softer consumer sentiment, the tougher weather that we also saw, I think that those were that mix of factors. 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. But what we do see, for example, in years like this, when the shift of Easter happens like in mid-April because sometimes Easter moves to the second quarter that is at the beginning of the month of April.

So 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. But I wouldn’t say, as I mentioned, that is a very relevant factor. It’s for us, it’s less than I would say, less than 1% of our volume shift. So it’s not that material because usually, what happens is that people move from big cities, but you catch that volumes from people moving to resort cities and all. But as I mentioned, I think what happened in Mexico was more of a combination of factors and — it’s 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. And if anything, uncertainty increased.

Operator: Next question will be coming from Mr. Antonio Hernandez of Actinver.

Antonio Hernandez: A quick one regarding your performance in Mexico on a marginal basis. Are you seeing perhaps more pressure on the South because of the quants? I don’t know because of the competitive environment, macro conditions, what are you seeing from a regional perspective in mix?

Ian Craig: 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 — so you’re right that the impact or the softer environment is not even across all of our territories. But in general, there is this softer environment and increased competitive intensity. So it’s a bit tougher in the Southeast. I think that’s a precise appreciation, yes.

Antonio Hernandez: Okay. And 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 states?

Gerardo Cruz: Yes. 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. But then if you move to South America, Argentina is trending even better in March than at the beginning of the quarter. But what I would highlight perhaps is that the 2 markets where we saw a tougher quarter, Mexico, Colombia, we did see a march that towards the end of the quarter was tougher. But 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, Colombia and Guatemala. So 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 remain 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.

Operator: We will now go to Álvaro García of BTG

Álvaro García: I have 2 questions. One for Ian. I was wondering if there’s an update on how FEMSA spin like a role alongside Juntos in Mexico. And 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.

Ian Craig: 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 and to capture new customers, and they’re going to be testing that as well together with us. And at some point, probably the same year, there should be decisions there of how they want to scale it or not and in which format. So I don’t have those final decisions yet. I think there’s a lot of good collaboration and earnings going on. And probably during this year, they should reach the learnings of whether this will be scaled and in which formats.

Gerardo Cruz: Alvaro, regarding cost of goods sold, as you pointed out and in the prepared remarks, we made reference to it, sweeteners are providing a better or a significant relief to our cost of goods sold throughout our operations. And 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. We’re seeing both energy prices coming down as well as the refined products like the one that we use, mostly PET. So 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. But as you know, it represents a small portion of our mix in all of our operations. So it’s something that really does not concern us in a significant way.

Operator: [Operator Instructions] We’ll now go to Ulises Argote of Santander.

Ulises Argote: Just one quick one here from my side. So 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.

Gerardo Cruz: Yes, Ulises. For this quarter, we had a net effect in Mexico of MXN65 million in favor. This is net from expenses that we saw for — in the quarter for MXN75 million and insurance recovery for MXN140 million. So the net effect that we recorded in the P&L was a benefit of MXN65 million in the quarter.

Operator: As we have no further questions at this time. I’d like turn the call back over to Mr. Collazo for any additional or closing remarks. Thank you.

Jorge Collazo: Thank you very much, everyone, for your interest in our company and for joining us on today call. We look forward to seeing you again soon. And 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.

Operator: Thank you. Ladies and gentlemen, that will conclude today’s presentation. We [indiscernible]. You may now disconnect. Have a good day, and goodbye.