Coca Cola Femsa Sab De CV Q1 FY2025 Earnings Call

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

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.

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 deliver 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, continuing to foster 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 declined 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 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, despite 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 are 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 for 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 inflation 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 grocery area has improved by 15% compared to the previous year. To continue outperforming, we maintain the same strategy that has allowed us to deliver results, providing affordability and fostering single serve growth, controlling costs and expenses, 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, compared to the previous year. As I previously mentioned, Coca-Cola FEMSA’s resilience 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.

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 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 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 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 compared to a gain in the same period of the previous year, driven by the quarterly appreciation of the Brazilian real 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. We 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.

We'll begin today's Q&A session with Mr. Rodrigo Alcantara of UBS.

Hello. Thank you. My first question is about Mexico. Ian, could you elaborate on your comments regarding the quick adjustments to the uncertain environment? You mentioned promotions related to launching multi-serve products, and I'd like to hear more about that. How are you adapting to this uncertainty? Additionally, could you share your expectations around price elasticity and revenue? You mentioned that lowering prices might lead to increased volumes. Can you provide any specific numbers regarding the potential elasticity we might observe from the adjustments you're making in Mexico? That's my question for you, Ian. Also, Gerry, regarding the projected cost savings for full year 2025, can you comment on whether these are expected to come from lower costs to serve or more through operating expenses? Any insights you could offer about the cost savings would be greatly appreciated.

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 as adjusting rapidly and what we saw 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 started around April peaking in May and June. Remember, it was very high heat. And then the contrary happened 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 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.

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

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 portfolio savings. Having said that, we're especially making an effort in the two operations where we are seeing a 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.

Understood. And that $90 million would be from Mexico.

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

Our next question will be coming from Felipe Ucros of Scotiabank.

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 has 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 as the appropriate one for modeling going forward?

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 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 Porto Alegre 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?

I will begin with your question about the performance in our South America division. All of our operations contributed to an increase in margins. Notably, Argentina played a significant role, but we also observed an improvement in profitability margins in Colombia. Additionally, our largest operation in South America, Brazil, showed an increase in EBIT margins of 100 basis points for the period compared to last year. Overall, there has been margin expansion, and as previously mentioned, we have opportunities to further enhance profitability in both Brazil and Colombia, and we anticipate this trend will continue. This is true for this quarter. Regarding SG&A expenses in our Mexico and Central America division, we have faced pressure, particularly in Mexico due to labor costs. Maintenance has also been a significant concern, and we expect this issue to persist as we expand our capacity. However, we are focusing on finding efficiencies in expenses, especially in our Mexico operation, to improve our numbers during softer market conditions.

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?

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 toward 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 performance from multi-serve presentations in particular.

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

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 your additional capacity comes online, that would be very helpful as well.

Yes, like I said, we were transitioning 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 in both traditional and modern channels. In the 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 being able to recuperate the impact that we had in February, but we're trending in the right direction.

Henrique, regarding our capacity and focus across categories, it's important to note that our primary strategic priority is to grow the core business. Most of the capacity we are adding across our markets is aimed at this core area, specifically in the sparkling category, where we are introducing various sizes and presentations. This will support both the Coca-Cola brand and its flavors. At one point, we faced capacity constraints, and when there was availability, we had to prioritize the Coca-Cola brand, which led to some weakness in flavors. However, the significant investments and supply chain initiatives we've implemented have resolved the availability issue in Mexico, benefiting both carbonated soft drinks and steels. We have seen a substantial improvement in order fulfillment, nearly 1.4 to 1.5 points. We are now better prepared as we enter the high season. Last year, the high season coincided with a heat wave, making it particularly intense. This year, our weather forecast suggests more normal conditions. Combining our improved capacity with normal weather, if the predictions hold true, we should see a strong performance in customer service compared to last year.

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

I have two quick questions. The first is for Ian. With the full rollout in Brazil, when should we expect this to come to Mexico and what aspects from Brazil do you think will be comparable in Mexico? The second question is for Gerardo. We noticed some dynamics in working capital payables this quarter. Can you provide some insights into what is driving this and your expectations for the future?

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, 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.

Regarding working capital, we have two main factors influencing it this year, which is outlined in our budget. This was expected and is intentional, linking back to something Ian mentioned earlier. Last year, we faced significant unavailability in most of our markets, particularly in our largest operations, Mexico and Brazil. This led us to consume our inventories much more than usual, depleting our regular safety stocks to mitigate unavailability. We are in the process of replenishing those inventories throughout the year, and we anticipate that this will continue to have a significant impact for the rest of the year. The other factor affecting working capital is our accounts payable. We're currently migrating our ERP system to the S/4 HANA version of SAP. Throughout this transition, we've seen an increase in payables compared to last year due to the typical progress of the project, and this trend is expected to persist for the remainder of the year.

We'll now move to Lucas Ferreira of JPMorgan.

I have two questions. The first one is if you already see some positive results of these changes you're conducting in 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 think that sort of a lower start of the year changes the whole year budget? Or is this 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 are any other initiatives or mix changes? And if you see in Brazil, any deceleration of the consumer, given sort of the inflationary environment, full inflation going up. So if you think there could be also some maybe deceleration in the consumption in the region.

I'll provide an overview and then Jorge will go into the specifics for the year. As I mentioned to Henrique, the share impact we observed in February with our adjustments has been fully recovered in modern trade, and we are on track to recover it in the traditional channel if the current trends continue. However, this has occurred in a context of increased competitive intensity that remains unchanged. There are many offers and promotions in the marketplace, something we had not anticipated for the year. We did account for a tougher first half comparison, but we did not foresee this level of competitive intensity, so we are making adjustments accordingly. Given the uncertainty in the global environment, not specifically about Mexico but certainly affecting it, we believe there will be ongoing uncertainty and increased competitive intensity at least throughout the first half. Therefore, we are preparing for that and do not expect a reduction in competitive intensity during this period, which was not part of our initial plans. On a positive note, our market share is improving in the monetary sector and is trending positively in the traditional sector, although executing a tactical calendar for 360 plans there is more complicated and requires more time. Regarding Brazil, margin improvements are primarily coming from operating leverage and fixed cost absorption, along with benefits from our capacity installations. The new lines coming online in Brazil are supporting our most profitable segments, including CSD, which will enhance our margins. We are not witnessing a slowdown in consumer activity in our territories, although it is worth noting that the weather has been favorable in Brazil. While we may see softer volumes in other regions, we still experience growth in Brazil, albeit at a slower rate. It is unclear how much of this is attributable to weather conditions versus consumer resilience. Although I wouldn’t claim this is an easy year, it is important to note that we have a favorable comparison starting in May due to losing one plant, which accounted for 10% of our volume, and having to source cases from other bottlers and transport them over long distances. This makes for a more favorable comparison for us in Brazil starting in May.

Yes, I believe Ian's response provides a thorough overview. He highlighted a definitely softer start to the year, particularly in Mexico, compared to our expectations. However, we are observing that the tactical calendar and the initiatives we are implementing are beginning to show results. As we move into the second half of the year, we expect to regain our positive momentum. Additionally, while the slower start in Mexico and Central America has been noted, South America has shown a very positive performance. This gives us a cautiously optimistic outlook regarding the budget. I wouldn't say we are making significant adjustments, but we are refining our initiatives and finding efficiencies where possible. If uncertainties persist, we are prepared to quickly activate those efficiency initiatives.

We will now move to Renata Cabral of Citibank.

So my question is regarding the mix on the 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 on volumes.

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 and 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 volume 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.

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

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?

Yes, you're correct that the performance varies by region, particularly in the Southeast where some infrastructure projects are nearing completion, which has led to lower cash flow and consumer activity. The impact of a softer environment isn't uniform across all our territories. Overall, there is a general softening and heightened competitive intensity, making conditions tougher in the Southeast. I believe that's an accurate observation.

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?

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 two 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.

We will now go to Álvaro García of BTG

I have two 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.

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 on 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.

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.

We'll now go to Ulises Argote of Santander.

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.

Yes, Ulises. For this quarter, we had a net effect in Mexico of MXN65 million in our favor. This accounts for expenses of MXN75 million and an insurance recovery of MXN140 million. Therefore, the net effect recorded in the profit and loss statement was a benefit of MXN65 million for the quarter.

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.

Thank you very much, everyone, for your interest in our company and for joining us on today's 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.

Thank you. Ladies and gentlemen, that will conclude today's presentation. You may now disconnect. Have a good day, and goodbye.