Earnings Call Transcript - CCU Q3 2025

Operator, Operator

Good day, everyone, and welcome to CCU's Third Quarter 2025 Earnings Conference Call on the 6th of November 2025. Please note that today's call is being recorded. At this time, I'd like to turn the conference call over to Claudio Las Heras, the Head of Investor Relations. Please go ahead, sir.

Claudio Las Heras, Head of Investor Relations

Welcome, and thank you for attending CCU's Third Quarter 2025 Conference Call. Today with me are Mr. Felipe Dubernet, Chief Financial Officer; Mr. Joaquín Trejo, Financial Planning and Investor Relations Manager; and Carolina Burgos, Senior Investor Relations. You have received a copy of the company's consolidated third quarter 2025 earnings release. The call will start by reviewing our overall results, and then we will move into a Q&A session. As every quarter, before we begin, please take note of the following statement. The statements made in this conference call that relate to CCU's future financial results are forward-looking statements, which, of course, involve known and unknown risks and uncertainties that could cause actual performance or results to materially differ. These statements should be taken in conjunction with the additional information about risks and uncertainties set forth in CCU's annual report in Form 20-F filed with the U.S. Securities and Exchange Commission and in the annual report submitted to the CMF and available on our website. It is now my pleasure to introduce our CFO, Mr. Felipe Dubernet.

Felipe Dubernet, Chief Financial Officer

Thank you, Claudio, and thank you all for joining the call today. In the third quarter 2025, CCU posted higher operating results and increased profitability versus last year in a volatile and an uncertain business scenario. Consolidated EBITDA grew 4.6% versus last year, mainly driven by our main operating segment, Chile, which in the context of soft industries expanded EBITDA margin through gross margin improvement and efficiencies, maintaining the positive trend in financial results throughout the year. The International Business Operating segment also expanded EBITDA versus last year. Within the segment, we are facing a very challenging scenario in Argentina, where the beer industry contracted mid-single digits during the quarter. On the other hand, the Wine Operating segment posted a lower EBITDA driven by weaker domestic markets in Chile and Argentina together with a higher cost of wine. Our year-to-date results show that our path to recover profitability remains on track, supported by our 2025-2027 strategic plan, which prioritizes profitability through revenue management efforts and efficiencies. Regarding our main consolidated figures in the third quarter 2025, net sales were down 1.1%, explained by 2.2% lower average prices in Chilean pesos, partially compensated by 1.2% volume growth. Gross profit decreased 2.9% and gross margin was down 79 basis points. In addition, consolidated MSD&A expenses in Chilean pesos dropped 4.7% due to efficiencies and a favorable translation currency effect from Argentina. In all, EBITDA expanded 4.6% and EBITDA margin expanded 60 basis points. For the first 9 months of the year, and excluding the nonrecurring gain from the sale of a portion of line in Chile in the second quarter 2024, consolidated EBITDA expanded 9.9%. In terms of our segments, in the Chile Operating segment, the top line expanded 1.8% as a result of a 2.4% increase in average prices, partially offset by 0.6% lower volumes. Higher average prices were explained by revenue management efforts in all categories. This was offset by mix effects between alcoholic and nonalcoholic categories. Volumes were below last year due to soft industries, mainly in alcoholic categories. Gross profit and gross margin expanded 3.6% and 75 basis points, respectively, due to lower cost pressures related to favorable prices in some raw materials, which compensated higher costs from our PET recycling plant, CirCCUlar. MSD&A expenses grew 3.2% below inflation in spite of higher marketing expenses and as a percentage of net sales increased by 46 basis points. Altogether, EBITDA increased 4.8% and EBITDA margin expanded 41 basis points. Isolating costs and expenses associated with CirCCUlar, EBITDA would have expanded 10.2% and EBITDA margin by 117 basis points. In the International Business Operating segment, volumes posted a 5.3% expansion, although net sales contracted 8.9%, driven by 13.5% lower average prices in Chilean pesos. The decline in average prices in Chilean pesos was mainly due to the 42.2% devaluation of the Argentine peso against the U.S. dollar and a very challenging pricing scenario in Argentina, where prices grew below inflation and negative mix effects within the beer category. The volume expansion, excluding AV, the recent acquisition in Paraguay was mainly explained by Argentina, fully driven by the water category, while beer volumes contracted in line with the industry. Regarding our other operations, Bolivia and Paraguay posted higher volumes and Uruguay contracted low single digits. Gross profit decreased 16.6% and gross margin contracted 382 basis points. MSD&A expenses were down 19.2% and as a percentage of net sales decreased 552 basis points. In all, EBITDA grew 73.1%, driven by all geographies in the International segment. The Wine Operating segment posted a top line expansion of 1.6%, mainly driven by a 4.8% rise in average prices, while volumes were 3% lower. The higher average prices were mostly explained by a weaker Chilean peso and its favorable impact on export revenues and revenue management initiatives in the domestic markets. Volumes contracted due to a 6.3% decrease in the Chile domestic market, in line with the industry, partially offset by 4.5% growth in exports. Gross profit decreased 1.6% and gross margin deteriorated by 128 basis points due to cost pressures from a higher cost of wine and higher U.S. dollar-linked packaging costs. MSD&A expenses rose 4.5% and as a percentage of net sales increased 78 basis points due to higher marketing expenses. Altogether, EBITDA decreased 12% and EBITDA margin was down 224 basis points. Finally, regarding our main joint venture and associated business in Colombia, we delivered low double-digit volume growth, outperforming the industry. We continue to build a robust brand portfolio and sales execution, which is the path to long-term volume and financial growth. Now I will be glad to answer any questions you may have.

Operator, Operator

Our first question is from Constanza Gonzalez from Quest Capital.

Constanza González Muñoz, Analyst

I have a question regarding the international segment, specifically in Argentina. Are you expecting a recovery in prices for the fourth quarter of this year? And also, what are you expecting for 2026? Are you expecting a recovery in prices and volumes? And secondly, could you tell us more about the environment that you are seeing in conception in that country?

Felipe Dubernet, Chief Financial Officer

Thank you for your question about Argentina. In the second half of the year, we are experiencing a more difficult situation there, particularly a decline in volumes in the third quarter, especially for beer, while our water business is growing in the mid-teens. The challenge arises from prices that are lower than inflation; we are essentially 9% below inflation year-to-date. While we have increased our prices, the market remains competitive, and our market shares are relatively stable. However, we anticipate that everyone will need to improve profitability soon, making price increases essential for the industry's recovery. As for volumes, we foresee a more stable situation in Argentina post-elections, with the government likely to ease uncertainty and address its financial issues related to the U.S. dollar. There are also expected reforms in the upcoming Congress. Looking ahead, we expect private consumption to rise, projected at 3% next year, albeit varying across different consumption categories. Some Argentinians bought cars at the start of the year, leading to high car sales. For most people, including myself, regular car changes are not practical. This may lead to consumers reallocating their resources to our products, particularly those related to enjoyment, like responsibly consumed beer. We aim to regain momentum in the industry as the overall economy is expected to recover. Although we faced a challenging third quarter, we anticipate improvement next year, including further price adjustments to align with expected increases.

Operator, Operator

Our next question is from Thiago Bortoluci from Goldman Sachs.

Thiago Bortoluci, Analyst

I'd like to turn the conversation back to Chile. There are different dynamics playing out there. From the consolidated numbers, I see that your pricing growth is moderating, even falling slightly below inflation. While I wouldn’t characterize it as a significant decline in volumes, there is a slight decrease, suggesting that the efforts to be less aggressive on pricing are not necessarily leading to stronger demand. Could you elaborate on how you view pricing compared to volume growth and competition across the various categories, such as soft drinks and beer? More importantly, how much potential do you see for implementing more pricing in each of these categories going forward?

Felipe Dubernet, Chief Financial Officer

Thank you, Thiago. Good to hear from you. Thank you for your question regarding Chile. Let me make it very clear on price because I saw your report and then commentary now. Prices in general per category are in line with inflation or above inflation. The thing that you are seeing is the entire segment, Chile that is showing a price of 2.7%, 2.4% quarter-on-quarter, but because there is a big mix effect between alcoholic categories and nonalcoholic categories. As the industry in alcoholic categories is declining, I have a negative mix effect on price. Excluding that mix effect, prices are increasing 4%, which is above inflation. So I need to make this precision because I read your report. The competitive dynamic, I would say, is very competitive in Chile. In terms of market share in the overall beverage industry, I would say we gained slightly share compared to the previous quarter and quarter-on-quarter compared to the same quarter last year, we also gained some share in both alcoholic and nonalcoholic categories because now we see the market as alcoholic and nonalcoholic, especially when you have industries that are declining and they shift between industries. So I would say it's very competitive, but thanks to our brand equity, our revenue management strategies, and our execution while we have increased prices in alcoholic and nonalcoholic categories, we have been able even to slightly gain share. The point regarding going forward in price, always, we have an aim of optimizing our revenue management in all the categories, of course, to regain profitability. Of course, there is competition. Alcoholic categories, especially wine, but also beer, the industries are very soft and declining. The one that is declining the most is wine. But beer is also seeing a decline in the third quarter, the industry. The only one that is growing low single digit in alcohol is spirits, thanks to ready-to-drink where we lead innovation. We will lead the market in this fast-growing category, which are the spirits ready-to-drink. Also, we have low alcohol or nonalcohol beer and all the shandies and flavored beer such as, as an example, the Lemon Stones brand in Chile, where we led the market and it's also growing. Innovation is key in this scenario.

Thiago Bortoluci, Analyst

That's helpful, Felipe. And if I may, a follow-up in Chile, right? Obviously, I know this is a harder answer, but I guess, across the world, we are seeing, in general, declining volumes in beer, right? 2025 has been an atypical year in some regions, you have adverse weather, you have obviously volatile macro, particularly across South America. What's your assessment of this weakness in beer, particularly for Chile? Would you say something more temporary? Would you say there is a structural component related to the consumption occasions, new generations, preferences? And what is CCU doing itself to try to revert this trend?

Felipe Dubernet, Chief Financial Officer

It's not helpful to focus on specific alcoholic beverages; I prefer to discuss the broader categories because we see different trends in various segments. As I mentioned earlier, the biggest decline in the industry is in wine. This is a global trend that has persisted for years and is also evident in Chile over the last decade. For example, per capita wine consumption dropped from 13.5 liters in 2014 to 10.5 liters in 2024. In contrast, beer consumption increased from 44 liters per capita in 2014 to 54 liters per capita last year. There isn't just one reason for these changes; we've conducted extensive scientific studies that analyze both data and qualitative insights regarding the reasons for the anticipated decline this year and into 2025, following trends from previous years. Several factors contribute to this situation, including consumer spending capabilities. The Chilean economy has struggled recently, averaging less than 2% growth and experiencing significant interest rate changes. While interest rates are beginning to fall, there is a more optimistic outlook for the Chilean economy in the next couple of years, driven by strong copper prices and other projects that may boost GDP. We hope that this economic improvement will positively affect both alcoholic and non-alcoholic categories. Additionally, there are factors related to alcohol consumption, such as increasing feelings of insecurity. Many people in Chile feel less secure than they did a decade ago, which affects their willingness to go out for drinks. For instance, on-premise sales have decreased from about 10% to 5% or 6%. In the lead-up to the presidential elections in 10 days, the top priority for candidates is security. When consumers are asked why they are drinking less alcohol or going out less, they often cite feelings of insecurity as a reason, preferring to stay home instead of venturing out at night. While there are many reasons for these trends, we remain hopeful. Looking at the U.S. market, where beer consumption has also seen a decline, history shows us that there can be rebounds in specific categories. The ready-to-drink spirits category is doing very well, as are certain beer variants with flavors or lower alcohol content, which tend to be more seasonal. Innovation is crucial, especially in Chile, where we lead the alcohol category. This remains a key component of our strategic plan to address the current challenges.

Operator, Operator

Our next question is from Fernando Olvera from Bank of America.

Fernando Olvera Espinosa de los Monteros, Analyst

Can you hear me?

Operator, Operator

Yes, we can hear you.

Fernando Olvera Espinosa de los Monteros, Analyst

Great. Perfect. The first one is related to costs. If you can comment, Felipe, regarding the outlook on costs for the fourth quarter and 2026 would be great. And my second question is related to CapEx also for next year. I mean, considering the soft demand that we are seeing overall in alcoholic beverages, what are your initial thoughts on CapEx for 2026?

Felipe Dubernet, Chief Financial Officer

Fernando, good question about the cost and commodities. I will give you a medium-term outlook for 2026 as a cautionary statement; I don't make forecasts. But what we are seeing, we are doing the budget right now. We are seeing favorable news in practically all the commodities, except aluminum compared to 2025 and also compared to 2024, not yet at the level of prices of commodities that we had pre-pandemic in 2019. However, we are seeing better news in barley, sugar, virgin, PET, resins, and pulps that was significantly impacted, especially in juice in the next 2 years. We are seeing a material, let's say, better commodity prices with the exception of aluminum. We are projecting at least $10 million of better commodity prices in U.S. As I said, my #1 commodity is the U.S. dollar, and it seems stable in Chile, which accounts for 70% of the EBITDA; the exchange rate seems stable going forward. Along with various initiatives in terms of efficiencies in Chile linked to procurement, let's say strategic sourcing, also focusing on value design to reduce costs. We constantly examine our packaging and formulations in ways that do not affect quality but deliver the same benefits to the consumer in a more cost-effective way. The consumer is first. However, we always look at new materials, new specifications to reduce costs. And third is what we call nearshoring, which refers to having closer production of our raw materials and packaging materials to our breweries or factories to decrease logistic costs. On that side, we saw a better scenario with the exception of aluminum for next year that is projected to increase practically 5%. On the other hand, we have highlighted this year higher costs and expenses linked to CirCCUlar. CirCCUlar is about introducing recycled packaging in our PET bottles up to 15%. So far, this has had a significant impact on our EBITDA, about CLP 10 million, roughly $12 million of extra cost and expenses year-to-date. On a yearly basis, this year would cost us something like CLP 15 billion. But overall, aluminum is increasing, but all the rest is in better shape. We have efficiencies, so we expect a better scenario for raw materials and packaging materials going forward.

Fernando Olvera Espinosa de los Monteros, Analyst

No, that's great insight. And what about CapEx, Felipe?

Felipe Dubernet, Chief Financial Officer

CapEx, I will hand over this question to my colleague, Mr. Joaquín Trejo, Financial Planning Manager.

Joaquín Trejo Darraidou, Financial Planning Manager

Thanks, Felipe, and thank you, Fernando, for your question. Regarding CapEx, we actually estimate to close the year slightly below what we published in our annual report, between 10% and 15% below the published figure for 2025. Looking ahead, we don't actually see major CapEx needs for capacity as the volume trend is what Felipe mentioned earlier, but rather focusing on technology. We are changing our IT system for sales and distribution and also innovation to address this new consumer trend that Felipe also mentioned in previous questions, as well as regulatory requirements. The ratio we like to look at is the CapEx over sales, and we forecast it to be below 6% going forward. Also, this is why the CapEx over depreciation ratio should be at some point below 1% going forward, where the new projects are actually a smaller amount compared to previous years where we had, for example, the CapEx for the CirCCUlar plant. But this is also offset by some CapEx carryover from 2025 that will be transferred to 2026. But in general terms, Fernando, that's the trend we foresee.

Operator, Operator

Our next question is from Claudia Raggio from Provida AFP. Could you provide insights on the sales volumes of beer in Argentina for October?

Felipe Dubernet, Chief Financial Officer

Yes, I would anticipate that we have had in both alcoholic and nonalcoholic, we saw a decline also in October. So we have maintained in alcoholic the same trend we had in quarter 3. And in water, practically flat, small decline in the water business.

Operator, Operator

Thank you. We'll give it a few more moments for any further questions to come in. It looks like we have no further questions. I'll now hand it back to the CCU team for the closing remarks.

Felipe Dubernet, Chief Financial Officer

Thank you all for attending today. In summary, in the third quarter 2025, our main operating segment in Chile continued in a trend of financial results and profitability in the context of soft industries and higher costs from CirCCUlar. The latter was boosted by gross margin improvements, efficiencies, and lower prices in raw materials. The International Business Operating segment posted higher EBITDA, although results were negatively affected by a challenging scenario in Argentina due to a tough deceleration in consumption. The Wine Operating segment contracted EBITDA due to a higher cost of wine and weak domestic market conditions, while export grew mid-single digits. We will keep executing our 2025-2027 strategic plan and its 3 pillars: profitability growth, enhancing innovation, and sustainability. With a special focus on profitability, supported by both revenue management efforts backed by our strong and diversified portfolio of brands and efficiencies across all operating segments and functions. Thank you very much for attending today, and I wish you a wonderful end of day.

Operator, Operator

That concludes the call for today. Thank you, and have a nice day.