Earnings Call Transcript - KOF Q2 2024

Operator, Operator

Good day and welcome to today's Coca-Cola FEMSA Second Quarter 2024 Conference Call. Throughout the presentation, all participants will be in a listen-only mode. Later, we will conduct a question-and-answer session. Now I'd like to hand the call over to your host, Jorge Collazo. Please go ahead, sir.

Jorge Collazo, Host

Thank you. Good morning, everyone. Welcome to this webcast and conference call to review our second quarter 2024 results. Joining me this morning are Ian Craig, our Chief Executive Officer; and Gerardo Cruz, our Chief Financial Officer. As usual, after prepared remarks, we will open the call for a question-and-answer session. Before we proceed, please allow me to remind all participants that this conference call may include forward-looking statements and should be considered good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. 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 went out this morning. With that, let me turn the call over to our CEO. Please go ahead, Ian.

Ian Craig Garcia, CEO

Thank you, Jorge. Good morning, everyone. Thank you for joining us today to discuss our second quarter results. Let me begin by saying that I am encouraged by the progress we are making across the priorities we set for the year. For the second quarter, we continued building on the growth momentum of our core business, increasing our consolidated volumes by 7.5% year-on-year while driving double-digit top and bottom line growth. We're also progressing on becoming our customers' preferred commercial platform with Juntos+. During the quarter, we finished rolling out the new version 4.0 of our app in our two largest markets, Mexico and Brazil, while beginning its rollout in Guatemala, Panama and Colombia. Now, more than half of our total customer base are digital buyers. Importantly, we are taking significant steps in deploying Coca-Cola FEMSA's principles, the foundation of the culture that we envisioned for our long-term growth and success. Although it was a positive quarter, our resilience and ability to respond to challenges were put to the test as we faced unprecedented flooding in the State of Rio Grande do Sul in Southern Brazil. I want to take a moment to express our heartfelt support to all of the people affected by these events and to recognize the leadership and swift actions taken by our team to ensure the well-being of our Brazilian collaborators as well as their families and to provide effective community support. Our team mobilized quickly to ensure business continuity and minimize disruption. I will expand on these actions later today when I touch on Brazil. During our call today, I will summarize our quarterly results and provide an update of key developments across our territories. Then Gery will walk you through our division's performance, closing with an update on the progress we are making to add capacity across our operations, aligned with our strategic pillar to remove infrastructure bottlenecks and digitize the enterprise. Moving on to review our consolidated results for the second quarter. Our volumes continued their positive momentum, increasing 7.5% year-on-year. This increase was driven mainly by the strong performance achieved in Mexico, Brazil, Guatemala and our Central America South territories, which offset volume declines in Argentina and Uruguay. Our strategies to grow our core business continue driving results. Sparking beverage volumes grew 6.8%, driven mainly by brand Coca Cola's 7.8% growth. Still beverages grew 13.2% and bottled water grew 13.4%. Total revenues for the quarter grew 13.1%, reaching MXN69.5 billion, driven mainly by volume growth offsetting an unfavorable currency translation mainly related to the depreciation of the Brazilian real and the Argentine peso as compared to the Mexican peso. On a currency neutral basis, our total revenues increased 17.9%. Gross profit increased 17.2% to MXN32 billion, leading to a margin expansion of 160 basis points to 46%. This increase was driven mainly by the operating leverage resulting from our solid top line performance, coupled with favorable packaging costs and hedging strategies. These effects were partially offset by higher sweetener costs and significant depreciation of the Argentine peso as compared with the previous year. Our operating income increased 13.8% to MXN9.7 billion, with operating margin reaching 14%. As was the case during the first quarter, our operating leverage and cost and expense efficiencies enabled us to protect margins, offsetting extraordinary expenses related to the flooding in southern Brazil as well as increases in freight, labor and maintenance. Notably, this quarter also includes approximately MXN400 million related to a non-cash operating foreign exchange loss driven by the quarterly depreciation of the Mexican peso. By normalizing the extraordinary effects related to the flooding in Brazil, our operating margin would have expanded 30 basis points to 14.2%. Adjusted EBITDA for the quarter increased 21.7% to reach MXN13.9 billion and EBITDA margin expanded 148 basis points to 20%. The difference between adjusted EBITDA and operating income is mainly explained by the increase in non-cash expenses related to the MXN400 million operating foreign exchange loss that I previously described. Finally, our majority net income increased 13.8% to reach MXN5.6 billion. This increase was driven mainly by operating income growth coupled with a decrease in our comprehensive financing result. This decrease in comprehensive financial result was driven mainly by a foreign exchange gain that resulted from the depreciation of the Mexican peso during the quarter as applied to our dollar cash position. Now let me expand on our operations highlights for the second quarter. In Mexico, the implementation of our long-term sustainable growth model coupled with favorable weather and a resilient consumer environment supported our 7.9% volume growth for the quarter, reaching 600 million unit cases for the first time in our franchise's history. Additionally, thanks to the efforts of our supply chain team to add capacity and generate productivity. In May, we broke the record of historic monthly production that we had previously established in March, producing 198 million unit cases. Efforts to satisfy unserved demand in the Southeast region of the country prompted us to relocate our production line to the City of Villahermosa, which began production last June, bolstering our capacity in this important and growing region of the country. However, as was the case during the first quarter, that demand we saw continued to exceed our installed capacity, generating stockouts and limiting our share recovery efforts. Finally, an update on Juntos+ in Mexico. As I previously mentioned, we finished the rollout of version 4.0 with more than 335,000 active buyers in the new version of the app, effectively digitizing more than 50% of our customer base in the country. We remain confident in Mexico's momentum and in our team's ability to resolve capacity constraints and continue delivering solid results as we enter the second half of the year. Moving on to Central America. Volumes in our Central America South territories, which include Costa Rica, Nicaragua and Panama, increased 6.2%. In Costa Rica, our commercial initiatives continue driving volume growth. For instance, to complement our single serve offerings, we introduced a 250 ML presentation of Sprite, Fresh, and FUZE Tea. In addition, our multi-serve packs grew 8% year-on-year as we focused on the execution of refillable and one-way presentations to capture the important meals occasion. Moreover, in Costa Rica and Panama, we launched alcoholic ready-to-drink cocktails in two flavors, Schweppes Gin&Tonic and Schweppes Vodka Citrus to capture growth in this emerging beverage category. Finally, in Nicaragua, we delivered a solid second quarter. Brand Coca Cola continues outperforming with double-digit growth supported by strong performance in both single-serve and multi-serve presentations. Notably with brands Monster and Fury, our energy portfolio's volumes grew more than 50% year-over-year capturing value share. We're convinced that there are many growth opportunities in Central America to continue capturing growth, profitability, and accelerate our digital transformation. Moving on to South America. As I mentioned during my introductory comments, the south of Brazil experienced the worst flooding in the region's history, affecting approximately 2.4 million people. In this challenging environment, our team rapidly activated crisis protocols focused on ensuring our collaborators and their families' safety as the utmost priority. Among other actions to support our team in the region, we donated food and water, advanced salary payments and made vaccines available. In the words of Don Eugenio Garza Sada, one of FEMSA's most prominent leaders in the 20th century, what a person is and may possess is an opportunity to help others, an opportunity to serve. And with this in mind, FEMSA and Coca-Cola FEMSA's relief fund donated approximately $1 million to help cover all our affected collaborators, resources that are being used to support home rebuilding, replace furniture and basic house appliances that were lost to the torrential rains. In addition, community relief efforts were coordinated with support from our partners at the Coca-Cola Company and the rest of the Coca-Cola system in Brazil, who also donated resources and water to the most affected communities in the region. Regarding business continuity, as we announced in early May, we suspended operations in our plant in Porto Alegre. We have now completed site cleaning and removed more than 5,000 tons of debris and finished product and are working hand in hand with our equipment manufacturing partners towards a gradual reopening as of the fourth quarter of the year. In the meantime, our supply chain team rapidly adapted our sales and distribution network to serve our customers in the region, setting up two distribution centers around Porto Alegre that allowed us to reach more than 90% of our customer base. To source finished product, we are currently shipping from other Coca-Cola FEMSA territories in Brazil, Uruguay and Argentina as well as from other bottlers from the Coca-Cola system, allowing us to mitigate the temporary capacity gap while we reopen our Porto Alegre facility. Despite the challenges faced in Rio Grande do Sul, volume in Brazil increased a solid 12.1%. Favorable weather in most of our territory coupled with our initiatives to grow the core business enabled us to achieve record volumes. We are also encouraged by the results of Coca-Cola's Zero Sugar, which continues to grow 50% year-on-year. In addition, Powerade and Monster grew 64% and 32%, respectively. As we mentioned, during the first quarter, we are strengthening our competitive position, gaining share not only with brand Coca-Cola, but also in flavors, energy, teas, sports drinks and juices. In Colombia, consumer confidence has continued to deteriorate. This macroeconomic backdrop, coupled with unfavorable weather during the quarter, resulted in sequential deceleration in volume growth. In this complex environment, our team remains focused on our Grow the Core initiatives, adjusting our product offerings to capture key price points. These initiatives coupled with service and availability improvements, continued enabling us to outperform the industry, resulting in share gains. Aligned with our initiatives to increase capacity, in late June, we opened a new distribution center in Funza in the outskirts of Bogota, increasing capacity by 90,000 pilot position, bolstering our service to more than 30,000 clients in the region. Moving further south to Argentina, as was the case during the first quarter, we continue to see the effects of a 31% contraction in disposable income, leading our volumes to decline 9.9%. However, prospects of a more controlled inflation and a gradual recovery of disposable income are being reflected in consumer sentiment. Our team continues executing the playbook needed to emerge stronger from these macro adjustments, strengthen our affordable platform to maintain household penetration and consumer preference while driving cost and expect efficiencies as well as implementing productivity initiatives. Finally, volumes in Uruguay declined 12.1% year-on-year. This decline is explained mainly by a tough comparison base; a severe drought in 2023 drove extraordinary growth for personal water coupled with unfavorable conditions during most of the quarter this year. As we enter the second half of the year, we remain confident in our strategy as well as the investments being deployed to improve service levels. We expect the consumer environment to remain resilient in the majority of our markets. We continue to see a long runway for Coca-Cola FEMSA's value creation as we progress in the implementation of our sustainable long-term growth model. With that, I will hand the call over to Gery.

Gerardo Cruz Celaya, CFO

Thank you, Ian. Good morning, everyone. Summarizing our division's results for the second quarter. In Mexico and Central America, volumes increased 8.1% to reach 695.6 million unit cases, with volume growing across all of the division's territories. Revenues increased 15.3% to MXN45.1 billion. This growth was driven mainly by volume performance and favorable mix effects. Our gross profit increased 17.8% to reach MXN21.9 billion, resulting in a gross margin of 48.7%, expanding 100 basis points year-on-year. Our operating leverage resulting from top line growth, improving packaging costs and favorable hedging initiatives were partially offset by higher sweetener costs and the depreciation of the Mexican peso. Operating income increased 12% to MXN7.3 billion, driven mainly by the gross profit performance I previously described. However, our operating margin contracted 50 basis points to 16.2%. This contraction was driven mainly by a non-cash operating foreign exchange loss generated by the depreciation of the Mexican peso, coupled with an increase in operating expenses such as labor, marketing and freight. Finally, our adjusted EBITDA in Mexico and Central America grew 20.1% with a 90 basis point margin expansion to 21.9%. Moving on to the South America division. Volumes increased 6.5% to 400 million unit cases. This performance was driven mainly by double-digit growth in Brazil and partially offset by a volume contraction in Argentina and Uruguay. Supported by this volume performance and revenue management initiatives, our revenues in the division increased 9.2% to MXN24.4 billion. These effects were partially offset by unfavorable currency translation effects into Mexican pesos, especially driven by the depreciation of the Argentine peso and the Brazilian real. When excluding currency translation, our total revenues in South America increased 22.3%. Gross profit in South America increased 16%, leading to a margin expansion of 240 basis points to reach 41.1%. As was the case during the first quarter, this increase was driven mainly by operating leverage, declining packaging costs and favorable hedging strategies. However, these effects were partially offset by increases in sweetener costs and the depreciation of most of our operating currencies in the division as applied to our US dollar denominated raw material costs. Operating income for the division increased 19.6% to MXN2.5 billion and operating margin expanded 90 basis points to 10.1%. This margin expansion was driven mainly by our gross profit growth coupled with cost and expense efficiencies across our operations. However, these effects were partially offset by margin pressures in Argentina coupled with an increase in operating expenses, mainly related to the flooding in the south of Brazil. On a currency-neutral basis, operating income increased a solid 36.3%. Finally, adjusted EBITDA in South America increased 25.9% to MXN4 billion or 46.5% on a currency-neutral basis. As usual, I will provide you with a quick summary of our comprehensive financial result which recorded an expense of MXN885 million as compared to an expense of MXN1.4 billion during the same period of the previous year. For the second quarter, the main driver of this decline was a foreign exchange gain of MXN177 million as compared to a loss of MXN437 million in the second quarter of 2023. As a reminder, we maintain a US dollar net cash position that was positively impacted by the quarterly depreciation of the Mexican peso and the Brazilian real. Finally, before opening up the call to your questions, I will provide you with an update on the progress we are making regarding our strategic priority to debottleneck our infrastructure and digitize the enterprise. In order to unlock growth, we are increasing our manufacturing and distribution capacity. To do this, we are implementing new modeling capabilities that optimize our footprint and capacity allocation. In 2024, we are adding seven new bottling lines, two in Mexico, two in Guatemala, two in Brazil and one in Colombia. From these lines, one in Mexico and one in Brazil, we will begin operations during the second half of the year. The rest are already online. Regarding warehousing, we are not only adding capacity but opening new distribution centers but also via layout redesign. We estimate that year-to-date we have avoided an approximate $25 million of CapEx through these initiatives. Once again, Coca-Cola FEMSA delivered a solid quarter driven mainly by volume growth, thanks to the focus and commitment of our whole team and certainly the aligned vision of our leadership and the support of our partners at the Coca-Cola company. We feel encouraged by the consistent performance of the business through multiple quarters and across operations and are positive on the short and long-term. Thank you all for joining us today's call. Operator, we are ready to open the call for questions.

Operator, Operator

Thank you, sir. Now the first question comes from Fernando Olvera from Bank of America. Please proceed.

Fernando Olvera, Analyst

Hi, good morning, and thank you for taking my question. I have two questions related to volumes. First, I would like to know how you are approaching your volume guidance following the strong demand observed in the first half of the year and what your outlook is for the rest of the year. My second question is about market share, specifically in your key markets, Mexico and Brazil. Thank you.

Jorge Collazo, Host

Hi Fer, this is Jorge. Thank you for your question. I'll address the first part regarding volume outlook. As mentioned by Ian and Gery during the call, we are quite encouraged by our year-to-date performance, but we are only halfway through the year. There is still much work to be done across our operations to sustain our delivery, and we have plans in place for that. However, there is no change to our volume outlook. We anticipate maintaining our previously stated outlook of approximately mid-single-digit volume growth for the entire year. At this point, it feels a bit early to make any changes to this expectation. As we've expressed, we remain optimistic about the outlook for the second half of the year.

Fernando Olvera, Analyst

Okay.

Gerardo Cruz Celaya, CFO

And regarding share, Fernando. Yes, in Mexico, we have been impacted by share this year with continued supply chain shortages. So our stockouts and availability continue to remain high. We have irregular performance given the strong volume. And that has been what has impacted our share, especially in flavors and certain NCBs because when you have limited production, you start prioritizing Coca-Cola brands and most profitable SKUs. So you see that hit in other less profitable or less key SKUs, Fernando. In Brazil, our share has been very, very positive. Now we are starting to see this last month the impact of share losses in Rio Grande do Sul. So if you look at Brazil overall, it continues with very positive trends year-to-date. But if you drill down to the last month, we saw share losses in Rio Grande do Sul because unlike our competitors, our plan for the region went down. So if you look at the Brazil numbers from here forward, including last month, I think you'll continue to see strong gains in all of our territories and pressure in Rio Grande do Sul. Okay?

Fernando Olvera, Analyst

Okay.

Jorge Collazo, Host

If I can add one point there, Fer, regarding also share and capacity constraints, just to emphasize something that Ian mentioned during the prepared remarks, because as he said, he said, okay, we have capacity constraints, but it's important to say that this is a situation that is identified and that we are working on it. We added a new line in Mexico during March. There was another one that was relocated and started operations in June. And then there is another line that's coming in the second half of the year. So there are actions that are being implemented by the supply chain team in order to resolve this situation.

Ian Craig Garcia, CEO

Yes, as well as obviously quite substantial investments in distribution capacity for Mexico as well.

Fernando Olvera, Analyst

Okay, perfect. Thank you so much.

Ian Craig Garcia, CEO

Thank you, Fernando.

Operator, Operator

We will now take our next question from Diego Aragao from Citigroup. Please go ahead.

Unidentified Analyst, Analyst

Good morning, Ian, Gerardo, Jorge, thank you for taking my question. I wanted to discuss two points here. The first one I wanted to hear a bit from you guys about costs. So what you're expecting maybe on an accretive basis or but for 2024, maybe 2025, just to see what you guys have for the outlook for the main commodities and hear a bit more about the hedges you have in place? And the second point would be a bit on the Brazil beer side, right. So just hear what you have to say about like overall industry dynamics in the short-term, the overall consumer environment, brand performance, whatever you think is interesting to share with us. So, yeah, that's it. Thank you, guys.

Gerardo Cruz Celaya, CFO

Thank you, Diego. I'll start with the first one regarding costs in our hedging position and maybe Jorge and Ian can complement on the second one regarding beer in Brazil. But as you know and we've discussed before, for hedges we have this process in which we usually maintain both hedge position in a rolling 12-month period for both our FX components on dollarized raw materials as well as the price of the raw materials itself. And this allows us to provide better certainty to our operators so they can focus on bringing in the unit cases. Having said that, we have currently a position regarding FX for 2024 or the rest of 2024 in Mexico, Argentina, above 60% of our exposure of dollarized raw materials is covered. For Brazil, Colombia and Uruguay, a little above 40% of our requirements are hedged for the year. And we already started in this process 12-month rolling period hedging the first half of 2025 exposures where we're starting to build positions. Regarding raw materials, the prices of raw materials itself, we have a very good position in hedging sweeteners. Sugar both in Brazil and Uruguay where we have active hedging positions are close to 100% of our requirements for 2024 hedged, with a good position as well for 2025 above 50% of our requirements. HFCS in Mexico, a similar situation where we're close to 90% of our requirements hedged. And we have a good position for aluminum in Mexico and Brazil above 60% of our requirements as well as plastic PET in Mexico above 50% of our requirements for the year.

Ian Craig Garcia, CEO

In Brazil's beer market, we're experiencing a flat volume landscape that's putting pressure on beer companies and increasing competition. We see very intense competition with key brands maintaining their prices since last year. As a result, our volume performance has been quite challenging, although we have managed to maintain our market share. We have seen a slight decline of 20 basis points in terms of value share. If the market remains flat, I anticipate continued fierce competition as the two major beer companies strive for growth again.

Unidentified Analyst, Analyst

Very clear, thank you.

Operator, Operator

We will now take our next question from Rahi Parikh from Barclays. Please go ahead.

Rahi Parikh, Analyst

Thank you. I'm stepping in for Ben. Can you provide more insight on the effects of a slightly weaker consumer? You mentioned a more sensitive consumer, likely due to reduced spending, possibly influenced by lower government spending in Mexico. If you could share any statistics on the decline in purchases from June into July, or any additional comments on consumer behavior by region, that would be great. Thank you.

Ian Craig Garcia, CEO

Hello, Rahi, and send our regards to Ben, please. I would say across our region where we see pressure on the consumer would be Colombia and Argentina. So those are here, the two markets where we see pressure. We are seeing a softer environment this month in Mexico, but so far from what we see, I think it relates directly to weather because, as you know, our business is impacted by precipitation. And usually, the first things that see softness are water and then a little bit in single serve. And that's exactly what we're seeing in this month. So I would not think that that has to do with consumer strength in Mexico because there's still practically no unemployment. All projects keep chugging along. So our rate so far is consistent with more of a weather-related softness. Does that make sense, Rahi?

Rahi Parikh, Analyst

Yes, for sure. Thank you so much.

Operator, Operator

Thank you. We will now take our next question from Lucas Mussi from Morgan Stanley. Please go ahead.

Lucas Mussi, Analyst

Good morning, everyone. Thanks for taking my question. I have one on South America margins. You guys delivered an EBITDA margin which was quite strong on the quarter of more than 200 bps year-over-year. So I just wanted to better understand what was the drivers behind the strong margin performance. We understand that sweeteners were still a headwind, packaging costs were more favorable, but just wanted to hear more thoughts on the color of magnitude around the cost components. Also, is it safe to say that at this point, with today's print, that it's reasonable to expect that perhaps we're going to be closing the year with more healthier margins than we previously expected in the beginning of the year or I don't know, perhaps we could see a cost curve that's a little bit tougher for the next couple of quarters? If you could share any comment on that would be very helpful. Thanks, everyone.

Ian Craig Garcia, CEO

Thank you, Lucas. I'll start with the margins in South America. Certainly, we saw better performance and this is a result of the model that we are strategic priorities as we established them when we started this journey of leveraging on our operating capabilities. So growing our business and the sustainable growth model that we are all focused on and working on allows us to capture the benefits of margin by growing our scale. We expect this to continue to be the case in the long-term, which is our bet and where we're working towards. Certainly, we've seen a better outlook in cost structure that we had previously expected in our business plan. And we expect specifically from sugar in Mexico to see a better outlook in sugar prices towards the end of the year. Slightly better, I wouldn't think that it would be a significant change, but certainly less worrying than what we had expected initially. Regarding our expectations for the full year, I think we're still a little bit waiting to see how things continue to develop. I don't think we're ready to send out different expectations in terms of maintaining flattish sort of margins for the year as compared to last year's.

Lucas Mussi, Analyst

Thanks, everyone.

Operator, Operator

Thank you. We will now move to our next question from Felipe Ucros from Scotiabank. Please go ahead.

Felipe Ucros, Analyst

Thanks, operator, and good morning, Ian, Gery, and team. I appreciate the opportunity to ask a couple of questions about Juntos+. First, regarding loyalty, as you've been developing Juntos 4.0, you've been exploring the loyalty programs for your consumers. Can you provide an initial look at how this is progressing? Also, could you comment on the adoption from your clients and the differences you're observing between those using the loyalty platform and those who are not? Additionally, I'd love an update on the fintech side of things, particularly regarding any partnerships you've been working on across the region. Thank you.

Ian Craig Garcia, CEO

Hello, everyone. I want to share some insights regarding our loyalty program. We have observed a significant increase in volume among clients participating in the program compared to those who are not, although I don’t have specific figures at the moment. The more we can encourage participation, the more beneficial it becomes for us. When we engage with clients, we receive a lot of positive feedback about the loyalty program, with comments like, "Oh, finally you guys remembered us." It's evident that this program influences their purchasing decisions, whether they choose to buy from us or another wholesaler. It's important to note that the cash conversion cycle for this program is very short. As soon as clients place their orders, they can quickly redeem their points, often within two to three days, which then translates into cash when they sell those products—like a case of Coke or others. Overall, it’s a very effective tool for us that has exceeded our expectations. Gery, would you like to add anything?

Gerardo Cruz Celaya, CFO

Yes. Very quickly, I have the numbers for Mexico where we have deployed our loyalty program that Ian was mentioning and we have had a great performance with 750,000 customers already online with our loyalty program across our operations.

Operator, Operator

Thank you. We will now move to our next question from Alejandro Fuchs from Itau. Please go ahead.

Alejandro Fuchs, Analyst

Thank you. Good morning, Ian, Gerardo, Jorge and team congratulations on the results. Thank you for the space for questions. I have two very quick ones from my side, maybe a follow up on the volumes. We have seen very strong volumes in Mexico and Brazil for quite some time now. So I wanted to maybe see if you could help us understand how much of this being influenced by Juntos+, how much is multi-category? How do you see these new digital initiatives adding to the core platform in terms of growth? And the second one, maybe for Gerardo real quick, just want to see if I understood correctly in terms of the one-off that you had on the quarter. You said that in Mexico, in terms of the non-cash impact, was MXN400 million. And then in Rio Grande do Sul, the impact, maybe we can think about around MXN200 million. I don't know if that sounds correct. Maybe you could clarify that would be very helpful. Thank you.

Jorge Collazo, Host

Yes, Alejandro, thank you for the question. It's Jorge and I'm going to start with the first part. I think something that we are seeing and we have been discussing with the team, for example, in Brazil, and in Mexico, about the upside of Juntos+. Of course, these are analyses that are being done when we, for example, separate a cluster that is being served by Juntos+ and another that is not.

Ian Craig Garcia, CEO

It's very hard now because it's basically all over now to make those control tests.

Jorge Collazo, Host

But during control tests and bigger, we have seen an upside of around 6% is more or less what we're starting to see with Juntos+. And, of course, it's a combination of factors, what we have seen to drive these very positive volumes. For example, in Mexico, I think something that we continue to see that has been a driver of volumes has been, as Ian mentioned. When we think about the macro, low unemployment, it's something that we continue to see across our territories and we continue to see this strong demand. And beyond this low unemployment, we're also seeing remittances. We're also seeing, of course, increases in real wage. So that is also bringing this positive environment. And on top of that environment, we are executing on the plans. So Juntos+ has been one. I would say multi-category is still small in relative terms. We continue to be more or less to what we have been updating in the previous calls, which is more or less around 1% of our revenues. It's about 1.3% of our revenues today on a consolidated basis. That is multi-category, but it's certainly helping us.

Ian Craig Garcia, CEO

I believe we have examples from countries where multi-category approaches have been successful for some time, like Brazil with beer. Additionally, in smaller regions such as Central America and Europe, we achieve comprehensive distribution across all channels with most partners, and there are countries already reaching 3% to 3.5% of revenues. I see a clear path forward. Our goal is to reach 5% of revenues, although it's a shifting objective since our core business is growing rapidly. This is a positive challenge as the percentage we aim for becomes increasingly significant due to the solid top line growth of our foundational business.

Gerardo Cruz Celaya, CFO

Regarding Juntos+, to elaborate on your question, Alejandro, we are seeing two positive outcomes from our efforts, particularly in Mexico and Brazil. Firstly, there is an increase in the number of SKUs that customers are purchasing, which is expected as they have more flexibility in placing their orders. Secondly, we are also observing a rise in the average ticket per transaction, which is encouraging and we are excited about it. Concerning your other question about non-cash operating expenses, in Mexico, the impact of FX depreciation at the end of June was MXN400 million, which affected our operating income this quarter, but not EBITDA. In Brazil, the net impact we experienced was MXN130 million, slightly below the MXN200 million figure you mentioned.

Alejandro Fuchs, Analyst

Thank you very much. It was very clear.

Operator, Operator

Thank you. We will now take our next question from Lucas Ferreira from JPMorgan. Please go ahead. Your line is open.

Lucas Ferreira, Analyst

Hi, everyone. Good morning. Thank you for your time and congratulations on the results. I want to follow up on volumes. It's impressive how quickly volumes are expanding, especially in Brazil where market share is increasing and your capacity is somewhat limited. How should we think about pricing in this context? It seems that this category has had less pricing activity over the last two years compared to others. For example, food inflation and beer have seen much larger price hikes. I'm curious if, in a year of potentially lower costs, the strategy has been to keep prices aligned with inflation. So, my question is essentially how you view pricing moving forward. Do you see opportunities for an improved mix or even adjusting overall pricing? Additionally, regarding Argentina, it appears you’ve had a strong volume performance compared to many other companies in the region. How do you assess the environment there? Is there anything different you are doing, and what are your expectations for the upcoming quarters over the next six to twelve months? Thank you very much.

Gerardo Cruz Celaya, CFO

Thank you, Lucas. I'll jump on the first one regarding pricing. The name of the game for us is sustainable growth. And in that sense, our focus is to maintain a balanced strategy and look towards revenue per unit case to grow that in line with inflation across our markets. We have a new capability with the digitization of the business and Juntos+ to be able to personalize portfolio and execution and that allows us to maximize value both for us as well as our customers. We will continue to prioritize certainly the competitiveness of our portfolio. We're focusing on being able to grow our volumes sustainably in the long-term. We will continue to drive affordability and foster single-serve growth to be able to get the benefit of the mix in pricing on our P&L. And the last one, we are expecting a more benign raw material environment as we move towards the second half, especially in sugar. That had been a source of pressure for us. So that will also provide a relief in terms of allowing us to be more active in our revenue management.

Ian Craig Garcia, CEO

I want to acknowledge Gery's insights regarding how we handle unavailability issues. When such issues arise, we significantly reduce promotions for those products because supply is limited. As a result, you’ll see the effects of this adjustment in our tactical calendar, which has led to the cancellation of any promotions or activities, except for what we maintain through modern trade contracting. This has also influenced our outcomes. In Argentina, we adopted a slightly different approach compared to other companies because we view the current crisis as temporary. Historically, Argentina has shown resilience even under challenging government scenarios, and we believe the present government is implementing effective measures. Therefore, we remain confident and optimistic about the recovery in Argentina. Our strategy focused on preserving household penetration and consumer preference through affordability initiatives while also working on cost efficiencies and productivity improvements. In Uruguay, however, we saw a 12.1% year-on-year decline in volumes, primarily due to a challenging comparison base; the severe drought in 2023 resulted in exceptional growth in personal water, contrasted with adverse conditions experienced throughout most of this quarter.

Lucas Ferreira, Analyst

Super clear. Thank you very much.

Operator, Operator

Thank you. And we will now take our next question from Alvaro Garcia from BTG. Please go ahead.

Alvaro Garcia, Analyst

Thank you for the opportunity to ask questions. I have two inquiries. First, regarding Guatemala, could you provide an overview of the factors contributing to the consistent double-digit growth we've observed there, particularly regarding consumer strength? Secondly, about Argentina, following up on what Ian mentioned, where do we stand in addressing the multi-serve issue? How can we leverage the current crisis to potentially influence consumer behavior away from multi-serve, if that is part of the strategy? Thank you.

Ian Craig Garcia, CEO

I'll start with Argentina and then move on to Guatemala. In Argentina, we are noticing the impact of an increasing returnable mix. When consumers feel financial pressure, the preference for returnable products tends to rise. This trend is evident in Argentina. There’s also a slight relationship with multi-servers, but the margin increase is minimal, around 60 basis points. The significant change is the shift from one-way to multi-serve presentations, indicating a strong move towards returnables in Argentina. Now, regarding Guatemala, let's address the question on per capita expenditures.

Gerardo Cruz Celaya, CFO

I think, Alvaro, maybe just to clarify, can you repeat the first question? I think it was related to per capitas, right, but we just wanted to make sure, if you can repeat the first question to make sure we get it right.

Alvaro Garcia, Analyst

Yeah, just trying to sort of wrap my head around the very strong volume growth we've seen out of Guatemala over the last several years now. And I'm assuming per capitas have bumped significantly higher. So maybe reviewing that would help, but maybe a discussion on disposable income and sort of occasions and how maybe that's changed over the last five years. Just reviewing the strength out of Guatemala would be very helpful.

Ian Craig Garcia, CEO

I think we've discussed this before, Alvaro. Last year, our per capita was around 180 or 190, and now it’s at 220. While this shows improvement, per capita remains relatively low, indicating significant potential for growth. One of the positive aspects of Guatemala is its large, young population, which is experiencing stable income growth and substantial remittances. I’ve been surprised by the strength and importance of remittances in the area. Guatemala is improving economically and becoming wealthier, with a business-friendly environment. Employment is rising, and there’s even some near-shoring happening in textiles. We believe there’s no reason Guatemala shouldn't double in size. It’s a promising market, and we are focused on making that happen. Our recent plant and capacity expansions have been successful, with demand being filled almost immediately. Although the percentage growth may naturally start to decline over time, there remains ample opportunity in this market.

Gerardo Cruz Celaya, CFO

Guatemala has the potential to double in size, in our opinion. It's a very promising business, and we are actively working to achieve that. One of our best products came from the new plant and capacity expansions, which were quickly filled. There is still significant potential in Guatemala. Naturally, the growth percentage will begin to decline over time, but there remains a lot of opportunity in that region.

Ian Craig Garcia, CEO

And just one last one. And it's just a jewel of a territory as well in the mix of single serve being very, very high. So it's really a good place to be in. Sorry, Gerry.

Gerardo Cruz Celaya, CFO

Another important component, just to complement Ian, Alvaro, is that in Guatemala in the past few years, we've gained a significant amount of market share. We had room to grow our share, particularly in colas, which is our biggest opportunity with the Coca-Cola brand. So we've achieved a notable increase in share recently.

Ian Craig Garcia, CEO

Four or five endpoints. It's a lot of shares.

Gerardo Cruz Celaya, CFO

Yeah.

Alvaro Garcia, Analyst

Great. Thank you very much.

Gerardo Cruz Celaya, CFO

Thank you.

Operator, Operator

Thank you. We'll now move to our next question from Ulises Argote from Santander. Please go ahead.

Ulises Argote, Analyst

Thanks for the space for questions. So, just to understand a bit better, do you have something to share around what is kind of the ballpark in terms of million unit cases that you're adding to the pipeline with this seven lines that you were mentioning that you're rolling out this year? And do those kind of seven lines leave you in a comfortable level for production? Or should we expect more additions of lines or maybe even plants in some regions in the coming years? All of this, obviously, with the very strong demand that you guys are having. Thank you.

Ian Craig Garcia, CEO

Thank you, Ulises. The number that we have in expansion and capacity, specifically manufacturing, is creating 15% additional capacity in three-year period that started in 2023. So '23, '24, by the end of '25, we expect to have 15% more capacity. As you know and you've seen in our reports, we've been outpacing our initial projections. So we'll probably be adjusting that capacity creation as we move forward marginally probably a little above that 15% new capacity. In terms of distribution capacity, there we have the ability when we're surpassing capacity to be able to rent third-party assets, trucks, warehouses. So we're a little bit more behind in distribution capacity, there we're expecting to increase distribution by 30% in that same period of time. And just in terms of new plant releases, what we're trying to do is saturate our current facilities. But eventually we will need a new plant to serve the Southeast territory of Mexico. So as long as we can keep adding lines to our facilities, that's the way to go. But we will be triggering at some point a full new greenfield for Mexico and at some point for Brazil as well.

Ulises Argote, Analyst

Okay. Super clear. Thanks a lot, guys.

Operator, Operator

Thank you. And we will now take our final question in queue today from Thiago Bortoluci from Goldman Sachs. Please go ahead.

Thiago Bortoluci, Analyst

Yes, good morning, everyone. Thanks for taking the question and congrats on the results. Look if I were to put everything that you said and everything together, right, what we're seeing is mid-single-digit volume growth for the year and better cost, right, probably because of your FX hedges, demand apparently continues to be super solid and we're facing some capacity constraints, right? So if I were to imagine the second half, the back end of the year and you have been indicating mid-single-digit volume growth and aim to get stable profitability, where the upside risk with this combination, right? I think we've been running above expectations. And the question is more to get a clear view, right? With this capacity constraints, should we eventually expect that Coke FEMSA will take this opportunity eventually to push margins a little bit higher? Thanks.

Jorge Collazo, Host

Yes, thank you, Thiago, and thanks for the question. I think around, yeah, getting around the capacity constraint is something that definitely the team is working on. As Gery mentioned during his prepared remarks, he highlighted that just this year we are installing seven new lines. Most of them have been installed already. And this is only for 2024, right. But there is more on the plan for 2025 and so on. As you know, there is some investments that we are doing on the CapEx. In this period of time, we have guided that it's going to be between 8% to 9% of our revenues. So there are significant projects there that are coming. Also, Ian, referred to that. And I think the summary you made for the expectation of the second half of the year are correct. I think we have guided for a full year that we expect volumes to be on the mid-single-digits. We are seeing, as you mentioned, a more benign environment on the cost front. We have implemented our hedging strategies and the team is executing on both the commercial, the supply chain. So things are going well, but at the same time, we maintain the outlook of margins. We are more focused on the growth side of the equation than on protecting the profitability. That's one way, I would say, to put it. So, yes, definitely. I think that after the first six months of the year, we are more optimistic about potentially having some upside potential, probably in profitability. But as Gery mentioned, we're at the half mark of the year. So the summary, I think, is correct. Mid-single-digits, volume growth and margins should be on the flattish side. And, of course, we cannot forget that in the second half of the year, we could have some volatility effects or other things. I think this year, the first half has also been a reminder of that. Volatility can come. Weather has happened in the south of Brazil and those kinds of things, we cannot forget that those things can happen. So that's why we are optimistic on the outlook, but at the same time, we maintain the outlook that we have set for the full year.

Thiago Bortoluci, Analyst

Yes. As always. Thank you, Jorge.

Jorge Collazo, Host

Thank you, Thiago.

Operator, Operator

Thank you. With this, I'd like to hand the call back over to Jorge Collazo for closing remarks. Over to you, sir.

Jorge Collazo, Host

Well, thank you very much, everyone, for joining us on today's call. As always, myself, Lorena and Marene are available for any of your remaining questions. And also maybe a very quick announcement regarding the IR team. Marene who has been part of the team, she's moving to a new role in strategic planning within the company. So, Marene, thank you very much for your support. Since 2020, you have been a very valuable member of the team. I know you know the analysts very well. So thank you, Marene, and good luck on your next role. Thank you, everyone.

Ian Craig Garcia, CEO

Thank you.

Gerardo Cruz Celaya, CFO

Thanks.

Operator, Operator

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.