Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) Q1 2026 Earnings Call Transcript

Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) Q1 2026 Earnings Call Transcript April 29, 2026

Coca-Cola FEMSA, S.A.B. de C.V. misses on earnings expectations. Reported EPS is $1.18 EPS, expectations were $1.41.

Operator: Hello, and welcome to the Coca-Cola FEMSA First Quarter 2026 Conference Call. My name is Felipe and will be your moderator for today’s event. Please note that this conference is being recorded. [Operator Instructions] I would now like to hand the call over to Jorge Collazo , Investor Relations Director at Coca-Cola FEMSA. Jorge, please go ahead.

Jorge Alejandro Pereda: Thank you, Filipe. Good morning, and welcome to this conference call to review our first quarter 2026 results. Before we begin, let me remind all participants that today’s conference call may include forward-looking statements that 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 additional details, please refer to the full disclaimer in the earnings release that was published earlier today. I am joined this morning by Ian Craig, our Chief Executive Officer; and Gerardo Cruz, our Chief Financial Officer.

After prepared remarks, we will open the call for Q&A. To do so, please signal for questions using the raise hand feature in your Zoom toolbar. With that, let me turn the call over to Ian, our CEO, to begin our presentation about our first quarter results. Ian, please go ahead.

Ian Marcel Craig García: Thank you, Jorge. Good morning, everyone. We appreciate you joining us for today’s call. In Mexico, as expected, we faced the excise tax increase compounded by a soft consumer backdrop, which pressured demand. We’re prepared ahead for this environment together with the Coca-Cola Company, with a comprehensive commercial and financial playbook designed to emerge with a strengthened competitive position that will support long-term sustainable growth. While Mexico volumes were soft during the quarter, they came in within our expectations and our strong 0.6 percentage point value share gain in CSDs and a 0.4 percentage point gain in NARTDs confirms to us that our strategy is working. In this context, we are leveraging the breadth of our portfolio, our scale, consistency in investment and execution and our differentiated digital enablers to win in the market and set the foundations for long-term growth.

While Mexico presented near-term headwinds, our operations in Central and South America delivered solid performance during the quarter including record volumes for our first quarter in Guatemala, Colombia and Brazil. This reaffirms the value of our geographic diversification and our ability to continue building relative scale throughout all of our markets. We remain confident in our long-term strategy anchored in Coca-Cola FEMSA’s differentiated strength of an unmatched portfolio of brands, the largest distribution footprint, consistent investment, relentless execution and leading-edge digital enablers. With that context, I will now walk you through our consolidated results after which I will provide more details on developments in each of our key markets before handing the call over to Gerry to expand on our divisional and financial results.

During the first quarter, our volume increased 1.2% to reach 998 million unit cases. This growth was driven by a positive performance across most of our territories, which offset a volume contraction in Mexico explained mainly by the effects of the excess tax increase and softer consumer dynamics. Total revenue for the quarter grew 1.1% to MXN 70.9 billion, our volume growth and revenue management initiatives were partially offset by unfavorable mix effects and headwinds related to the currency translation from all our operating currencies into Mexican pesos. By excluding currency headwinds, our total revenues increased 6.0%. Gross profit increased 4.5% to MXN 33.3 billion leading to a margin expansion of 150 basis points to 46.9%. This margin performance was driven mainly by better PET and sweetener costs and the appreciation of most of our operating currencies as compared with the U.S. dollar.

These effects were partially offset by unfavorable mix effects, coupled with higher fixed costs, such as depreciation. By excluding currency headwinds, gross profit increased 9.5%. Our OI declined 2.3% to MXN 9 billion with our operating margin contracting 50 basis points to 12.7%. On a comparable basis, operating income increased 2.6%. This operating margin contraction is explained mainly by rightsizing severance expenses and increased IT expenses related to the implementation of our new ERP, SAP S/4HANA. In addition, we recorded higher marketing and depreciation that were partially offset by expense control such as maintenance and freight. Adjusted EBITDA for the quarter increased 0.9% to MXN 13.4 billion. And adjusted EBITDA margin remained even at 18.9%.

By excluding currency translation, our comparable adjusted EBITDA increased 6.1%. Finally, majority net income declined 15.5% to MXN 4.3 billion, mainly reflecting a higher comprehensive financial result, which Gerry will address in his comments. Now turning to the main highlights across our major markets. In Mexico, our volume declined 2.6% year-on-year. As anticipated, we navigated a challenging first quarter marked by the effects of the excise tax increase and a softer consumer pattern. For instance, Nielsen’s fast-moving consumer goods basket in our territories declined close to 3% year-over-year in terms of volume while inflation expectations moved up in recent forecasts weighing on consumer sentiment. Our execution in Mexico was strong, delivering both value and volume share gains across all categories, leveraging our fast-start initiatives of cold drink equipment expansion, increases in point of sale share of visible inventory and key SKU combined coverage improvements.

These share gains indicate that our top line initiatives are working within the challenging environment that we are facing. Regarding our portfolio, we accelerated initiatives focused on providing attractive price points in both one-way and refillable formats. For example, in brand Coca-Cola, we increased coverage of our one-way [indiscernible] presentation by more than 7 percentage points year-on-year, resulting in 32% volume growth in March versus the previous year. We also continued expanding Coke Zero with accessible single-serve packs, such as the 200 and 355 ml one-way [indiscernible] bottle. As a result, Coke Zero achieved 10% volume growth during the quarter. Moreover, in flavors, we continue combining global strategies in core brands such as Fanta, Sprite, with local heritage regional brands such as [indiscernible], where we increased coverage by more than 10 percentage points as compared with the previous year.

We also continue focusing on developing profitable noncarbonated beverages. For instance, we gained more than 3 percentage points of share in both the Energy segment with Monster and in the [indiscernible] categories with Fuze Tea. In parallel, regarding channels, our progress in execution and digital capabilities are reverting the negative trend in the traditional trade by enhancing our value proposition with higher digital penetration, improved service indicators and expanded cooler coverage. Notably, during the first quarter, we installed more than 47,000 doors, equivalent to 50% of the total coolers we installed during 2025. These actions enhance our ability to deliver a tailored called portfolio to feed diverse consumption occasions. With respect to Juntos+ Advisor, the continued increase in adoption is reinforcing our market presence.

Since its launch in Mexico in September 2025, adoption metrics have continued to grow and usability metrics indicate strong engagement among our commercial teams with visitation improving 3 percentage points to 93.6% and combined coverages improving 2.8 percentage points to 81.3%. Finally, our supply chain team implemented a series of initiatives that are delivering improvements in productivity and service levels. Specifically, we strengthened order fulfillment to more than 97% and achieved a 6.5% productivity improvement versus the prior year. Accordingly, we are staying focused on our playbook, strengthening affordability, expanding refillables to defense household penetration and continuing to deploy state-of-the-art digital tools and revenue growth management initiatives.

Additionally, in partnership with the Coca-Cola Company, we will continue investing for long-term growth, while in the short term, we capitalize on an ambitious plan to capture the FIFA World Cup opportunity. Now moving on to Guatemala. Our performance reflects a challenging start and a strong recovery towards the end of the quarter. Performance in January and February was impacted by unfavorable weather and reduced mobility due to a 30-day government-declared curfew measure in mid-January to combat violence and organized crime. Conditions improved in March, allowing us to recapture momentum. As a result, March became a record month for our Guatemala operation, supported by improved mobility, better execution and stronger consumer activity.

This recovery enabled us to close the quarter with volumes growing 2.7% year-over-year, while continuing to strengthen our competitive position. From a category standpoint, Brand Coca-Cola remained the primary growth engine, supported by a recovery in multi-serve one-way presentations, which grew 4.6% year-over-year. Additionally, we’re capitalizing on the FIFA World Cup, where promotions such as the Trophy Tour resulted in 6.7% growth versus the previous year in participating products. In addition, we continued advancing our position in flavors, where disciplined execution and availability improvements in Sprite drove share gains year-over-year. Stills also delivered a strong performance, led by hydration and energy with brands such as Dasani, Shangrilla and Monster, posting double-digit growth, benefiting from better availability and premium segment expansion.

On the commercial front, we continue reinforcing the virtuous cycle of expanding cooler coverage, adding new customers and leveraging our digital tools to enhance execution. For instance, we have expanded our customer base by 10,000 accounts last year and added a further 5,700 during the first quarter. As we look ahead, Guatemala’s future is focused on continued development of our core CSD brands and profitable stills categories, all while we capitalize on an ambitious plan for brand Coke and Powerade during and after the FIFA World Cup. Turning now to Brazil, where our first quarter volumes increased 3.6% year-on-year. Consumer dynamics remain constructive supported by low unemployment, which sits at 5.8% and real income growth in excess of 5.7% and despite more moderate temperatures and higher rainfall versus the prior year.

Our Brazil operation delivered solid results, supported by disciplined marketplace execution and our commercial and digital capabilities, while volumes faced [indiscernible] comparables from continuous growth achieved in previous years, our team remains focused on gaining share and strengthening profitability through a balanced approach to RGM, availability and cost discipline. Importantly, we continue to gain share across key categories within the nonalcoholic ready-to-drink industry, reinforcing our competitive position in the market. Regarding non-caloric Coke Zero maintained its double-digit growth, growing 11.4% and reaching 28.6 percentage points in our colas mix. Importantly, Sprite accelerated, growing more than 30% versus the previous year.

driven by applying Coca-Cola Zero playbook to Sprite Zero. As a result, Sprite Zero now represents more than 27% of our total Sprite volume. Regarding stills, we’re utilizing Powerade to leverage both the FIFA World Cup and [ Cornwall ] tournaments, coupled with innovation to continue strengthening our value proposition. For instance, the recent launch of Powerade zero exceeded expectations with Zero already representing 9% of our power at mix. Similarly, energy drinks continue seeing double-digit growth from Monster and aligned with our strategic intent to offer zero sugar alternatives, formulas of Monster Zero and Ultra already represent 45% of our total Monster mix and more than 60% of its growth. Our digital agenda remains a meaningful differentiator in Brazil, Juntos+ supported by its AI capabilities continues enabling significant combined coverage increases from 49.6% to 58.6% while generating suggested orders that are personalized for each customer.

In parallel, Juntos+ Advisor continues to drive higher visitation, improving 1.3 percentage points to reach 94.1% and enabling superior in-market execution with personalized guided missions that support our sales force activities, ultimately resulting in share gains and increased customer engagement. These capabilities are increasingly embedded across our operation and remain central to how we compete and grow in the market. As we look ahead to the rest of the year, we remain encouraged by Brazil’s opportunities and our position within the market. Brazil’s positive volume momentum is allowing for fixed cost and expense absorption that is resulting in profitability improvements that position us well for sustainable long-term value creation. As we previously mentioned, we anticipate that election-related spending, social programs and the FIFA World Cup will represent important tailwinds for our operations to capture these opportunities, our priorities are clear, continue accelerating growth in non-caloric offerings, capitalize on the strength of our core brands, sustain our disciplined execution across channels and leverage our digital platforms to consistently outperform the industry.

With capacity investments that have resulted in an 8% year-on-year increase in manufacturing capacity and 6% year-on-year increase in warehousing capacity, we are well positioned to continue delivering value in Brazil throughout the year. Now moving on to Colombia. Our volumes increased 8.9% versus the previous year. Our positive volume momentum reflects both an improving consumer environment and the continued benefits of disciplined execution across our commercial and operating platforms. While the country navigates a complex backdrop, including higher interest rates, the labor market has remained resilient with real disposable income growing year-on-year supported by the minimum wage increase and the upcoming election cycle. As a result of these factors at the beginning of the year, Nielsen’s FMCG basket and the beverage industry resumed growth year-on-year.

Amid this improving backdrop, we continued strengthening our competitive positions with initiatives to adjust our price pack architecture in brand Coca-Cola. For instance, Coke Zero remains a growth engine with ample headroom, contributing 13% of brand Coca-Cola’s total growth, while our affordability initiatives supported 30% volume growth in multi-serve one-way presentations of brand Coca-Cola. Aligned with our strategy, we aim to continue expanding our competitive position in flavors with increased innovation and availability. As a result of initiatives within Quatro and Sprite, our flavor sparkling portfolio increased 15% versus the prior year. Regarding stills, we are leveraging the FIFA World Cup to boost Powerade, resulting in 10% growth year-on-year.

Additionally, within Energy, Monster grew more than 30% year-on-year, reflecting the attractive growth potential within profitable high-growth steel categories. Colombia continues to lead the way leverage in Juntos+ Premier loyalty program creatively to drive share and volume gains in the traditional channel. For example, during the quarter, we improved the percentage of customers reaching their volume targets by 12 percentage points. At the same time, we are encouraged by the profitability improvements of Colombia which are a result of volume growth, coupled with positive operating leverage and cost and expense controls. Now moving on to Argentina, our volumes increased 5.4% and while key economic metrics such as exchange rate and net reserves continue improving, a heterogeneous recovery across different sectors and soft employment continues weighing on consumer confidence.

For instance, while the oil and gas, mining and agricultural sectors are growing double digits, Nielsen’s FMCG basket remained flat year-on-year. In this environment, we continue responding with agility and consistency sustaining an affordability proposal that has enabled us to continue gaining share. Moreover, our savings [indiscernible] initiatives offering attractive promotions and price points for our consumers in the traditional trade increased its coverage by 8 percentage points versus the prior this year. In flavors, we delivered double-digit growth, led by Sprite and Sprite Zero while Coke Zero increased volumes 10% to reach 20.9% mix of brand Coca-Cola. Importantly, we are leveraging our Argentina consumers’ passion for the FIFA World Cup with segmented promotions and value proposition initiatives that improved our single-serve mix by more than 3 percentage points to reach 28.4% and more than 4 percentage points of share gains in power.

Regarding our digital initiatives, we continue driving digital client adoption with Juntos+ adding more than 7,000 customers as compared with the previous year. Finally, I want to recognize our team in Argentina who were once again awarded the Coca-Cola Company’s prestigious Latin America Excellence scope, recognizing the region’s best bottler for its excellence in execution, talent and culture. Let me close my remarks by saying that we see the majority of our key markets growing at a healthy clip. In the case of Mexico, we have plans in place to capitalize on the current low growth and excise tax increase environment to emerge with a strengthened relative competitive position, which should allow us to return Mexico to sustainable growth. For the remaining of the year, we expect to continue executing against our strategic imperatives.

Number one, continue growing our core business by leveraging our big bets, accelerating Coke Zero, improving our competitive position in flavors with Sprite as a flagship and developing profitable noncarbonated beverages. Second, capitalize on Juntos+ AA capabilities and continuing to roll out and leveraging Juntos+ Adviser across our 4 largest markets. And third, continue fostering our customer-centric and psychologically safe culture for Coca-Cola FEMSA. With that, I will hand the call over to Gerry.

Gerardo Celaya: Thank you, Ian, and good morning, everyone. I appreciate you joining us today. I will begin by summarizing our division’s results for the quarter. In Mexico and Central America, our volumes declined 1.6% because of a 2.6% volume decline in Mexico that was offset by growth in Guatemala, Nicaragua, Panama and Costa Rica. Revenues decreased 1.4% to MXN 39.1 billion, driven mainly by an unfavorable mix and currency translation effects into Mexican pesos partially offset by revenue growth management initiatives. On a currency-neutral basis, revenues increased 1.4%. Gross profit increased 0.7% to reach MXN 19 billion, resulting in a gross margin expansion of 100 basis points to 48.6%. This margin expansion reflects unfavorable mix effects post excise tax increase in Mexico, more than compensated by lower raw material costs, such as sugar and PET coupled with the appreciation of the Mexican peso as applied to our U.S. dollar-denominated raw material costs.

Operating income in the division declined 17.4% to MXN 4.5 billion, and our operating margin contracted 120 basis points to 11.4%. This decline is mainly explained by the Mexican peso appreciation versus the rest of the currencies in the division rightsizing severance expenses and increased IT expenses related to the implementation of our new ERP, S/4HANA . In addition, we recorded higher expenses in marketing and depreciation that were partially offset by operating expense efficiencies and maintenance and freight. Finally, our adjusted EBITDA in the division decreased 9.9% with a 170 basis point margin decline compared to the previous year to reach 18.2%. Moving on to South America. Volumes increased 4.8% to 453.9 million unit cases. This increase was driven by volume growth across all our territories in the division.

Revenues in South America increased 4.3% to MXN 31.8 billion, driven mainly by volume growth and revenue management initiatives offsetting unfavorable currency translation effects into Mexican pesos from most operating currencies in the division. On a currency-neutral basis, total revenues in South America increased 12.3%. Gross profit in the division increased 10% and gross margin expanded by 230 basis points to 4.8% , driven mainly by lower raw material costs, a favorable mix and the appreciation of most of our operating currencies as applied to our U.S. dollar-denominated raw material costs. On a currency-neutral basis, gross profit increased 18.3%. Operating income in South America rose 18.8% to MXN 4.6 billion with operating margin up 180 basis points to 14.4%.

This improvement was driven by operating leverage, coupled with expense efficiencies such as labor, partially offset by marketing. Finally, adjusted EBITDA in the division increased 16.8% to MXN 6.2 billion for a margin expansion of 210 basis points to 19.6%. Now let me expand on our comprehensive financing results, which recorded an expense of MXN 1.8 billion as compared to an expense of MXN 1.1 billion during the same period of the previous year. This increase was driven mainly by first, we recorded a higher net interest expense driven by the issuance of new debt during the second quarter of 2025 and later during the first quarter of 2026. In addition, we recognized lower interest income, reflecting a reduced cash position in key markets, partially offset by a higher cash balance in Mexico.

Second, the recognition of a loss in financial instruments of MXN 167 million compared to a gain of MXN 135 million in the prior year. primarily reflecting higher interest rates in Brazil at the end of the quarter. Third, we recognized a foreign exchange loss of MXN 117 million during the quarter, compared to a loss of MXN 59 million in the same period of the previous year. This was driven mainly by the appreciation of our operating currencies as applied to our U.S. dollar cash holdings in Brazil and Costa Rica. Finally, these effects were partially offset by a higher gain in monetary positions and inflationary subsidiaries related to Argentina. As we look ahead, we anticipate commodity prices and input costs to remain volatile. That said, these conditions are not new to us.

Over time, our well-established protocols and governance structures have enabled us to plan, respond and adapt effectively to these environments while protecting long-term profitability. Throughout the year, we leveraged 3 key initiatives: First, a disciplined hedging strategy designed to reduce short-term volatility and provide visibility as we move through the year. We operate under hedging frameworks that allow us to mitigate volatility and provide certainty to our operations in terms of supply and raw material prices. We currently have hedged 60% of our PET requirements. 93% of our sugar requirements, 98% of our HFCS requirements, and 72% of aluminum. Second, we benefit from a diversified and resilient supplier base across our key inputs, leveraging a strong network of local suppliers.

This reduces concentration risk and improves continuity of supply. Finally, we operate within the Coca-Cola system, which is an advantage that allows us to lean on a global footprint that operates on a local scale. This enhances our market intelligence and strengthens our ability to protect our cost structure across key commodities and inputs. Finally, before opening the call for questions, I’d like to briefly comment on sustainability. During the quarter, we continued strengthening both our performance and transparency across our sustainability agenda. We maintained prime status in ISS ESG rating, positioning Coca-Cola FEMSA among the leading companies in the beverage sector, and we achieved an improvement in our Morningstar Sustainalytics risk score reflecting stronger management of ESG-related risks.

We also published our 2025 integrated report, which for the first time aligned our report with IFRS S1 and S2 sustainability-related financial disclosures. These disclosures were published alongside our financial statements and with independent assurance, 1 year ahead of local regulatory requirements without relying on transitional reliefs beyond comparability as a first year report strengthening decision usefulness for investors. This report also includes our first TNFD align disclosure. In this context, Coca-Cola FEMSA became the first nonalcoholic beverage company in the Americas and the fourth globally to formally register as a TNFD adopter. Expanding our assessment of nature-related dependencies, risks and opportunities across the value chain.

The report highlights continued progress across key areas, including water efficiency, waste diversion, renewable energy use, safety performance and gender diversity and leadership. For further details, I invite you to visit our 2025 integrated report available on our website. With that, operator, we’re ready to open the floor for questions.

Q&A Session

Operator: [Operator Instructions] Our first question comes from Ben Theurer with Barclays.

Benjamin Theurer: I wanted to dig deeper a little bit and dig into some of the things that you’ve highlighted in terms of costs and expenses in Mexico driving that margin contraction. So maybe help us understand a little bit of what you’ve been doing, particularly on the marketing side, but also those restructuring and IT expenses that you’ve highlighted. How should we think about this for the rest of the year? And just to put it into perspective a little bit as what you expecting as it relates to profitability in Mexico, Central America, in particular, because of these investments seem to be focused for that region?

Gerardo Celaya: I’ll start it off, and then Jorge and Ian can complement. But first, on the marketing side, and this is by design, given that we have the World Cup going on this year, a lot of our marketing spending is being brought forward to the first part of the year to highlight and support this big event that obviously is a very valuable asset for the brand. For the remainder of the year, we expect that, that number for — in full year figures will taper down and remain in line with our usual marketing spend. . A little bit of the same goals in relation to IT expenses that I mentioned in — as well as Ian in our prepared remarks, this is a timing issue. We have a very strict level of 2.5% to sales of investment in IT that for the full year, we expect that it will remain — or will remain in — under that level which is the explanation regarding the IT.

And then we had severance-related expenses during this quarter. We needed to rightsize facing the excise tax impact that we were facing for the start of the year. So we had to rightsize the business, and that resulted in extraordinary expenses in the first quarter for MXN 200 million. So that’s a little bit of in a nutshell, the main components behind our numbers in our Mexico Central America division.

Jorge Alejandro Pereda: Perhaps, Ben, to complement, Gerry, what I would mention is to give you a sense on magnitude. We have — you can think about — around MXN 600 million headwind on the operating income level in Mexico and Central America. There are 3 elements there, each pretty much similar size, around 1/3, around $200 million — MXN 1 million, excuse me. So MXN 200 million of severance that Gerry mentioned around MXN 200 million related to the IT expense. And the other MXN 200 million are related to unfavorable currency translation that we have from the other markets in Mexico and Central America when we compare to Mexican pesos. So of course, some of those, as Gerry mentioned, severance is more of an extraordinary element. And the IT spend when we think about the full year should be pretty much in line. So there is a timing issue there. Does that answer your question, Ben?

Benjamin Theurer: Perfectly does.

Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs.

Thiago Bortoluci: I would just like to for a little bit more your performance — volume performance in Mexico by each one of the subsegments, right? My first question is by category we were surprised to see stills underperforming sparkling in the quarter, particularly facing of the innovation and efforts being holding on the marketplace. So if you could give us some color on what happened there? And then somehow tied to this question also in Mexico volumes. If you could comment a little bit more on how your volumes printed by channel? And how your affordability efforts and gain traction and participation on your mix? That’s the question.

Ian Marcel Craig García: It’s Ian. So there are a couple of elements there. I’ll give the — I’ll try to go in order of your question. So in terms of the difference between stills and sparkling, it has more to do with a specific issue with a very large chain in Mexico, which adjusted their parameters for Powerade. And that is being addressed and should start to see an adjustment in those parameters in May, June. So that’s a very specific issue. The other segment of stills is really bulk water. And in there, we have adjusted our price. It’s not a big profitability driver at all, but it is a big volume driver. And that’s the other stills segment where we had an issue and where we were dispositioned in price. So it has to do with a large chain for Powerade and with our relative pricing both water versus the market, and that’s not real big profitability driver to put it that way.

In terms of the performance of volumes per se, it is really a different picture of what you can say we saw during the first bimester where we were not cycling the effects of the consumer backlog. So we had a difficult comp base, together with the tax increase and the economy for January, February. And then you see a big relative improvement in the trend for March, April, but it has more to do with the base effect than with actual average daily sales improving, okay? So we’re still — that’s why we’re still monitoring the evolution of the situation. It’s just a more — a much easier comparison base because we had the consumer back last year. [indiscernible] you can take it [indiscernible]

Gerardo Celaya: Regarding volume per channel, Thiago, we are seeing better performance in traditional channel. We obviously prioritized, given the excise tax impact, we prioritize the traditional channel taking differentiated pricing action in each of the channels. So traditional channel is performing slightly better than what we had planned for. and the modern channel and a lot due to the explanation that Ian mentioned regarding stills specifically Powerade in the modern channel is underperforming slightly. We expect the modern channel to improve as we move through the year, and we are continuing to see the traditional trade slightly outperform.

Thiago Bortoluci: This is helpful comment, if I may just follow up on affordability, returnables any comments on how volumes performed and participation in the mix printed out in the quarter?

Ian Marcel Craig García: Yes. I would say the mix effect was probably the only thing that surprised us in the quarter versus what we had planned, meaning the consumers, given the pinch of the price increase with the [indiscernible] move more towards multi-serve in a larger magnitude than what we had expected. So you are seeing better performance out of multi-serve than single-serve. It is, let’s say, in line with what we would have imagined with a large price increase, but it was more than we had planned for.

Jorge Alejandro Pereda: Similar situation, Thiago, with regards to one-way and refillables. So there’s more one-way than refillables at this point.

Operator: Our next question comes from Henrique Brustolin, with Bradesco.

Henrique Brustolin: I wanted to hear a little more about Brazil, right? You delivered another strong quarter of volume growth. And this has been a very consistent trend. We start to see some softness in some category — some consumer categories in the country. So would be very interesting to hear how you are seeing volumes evolving for specifically soft drinks in your categories in general. And how have market share contributed to the volume performance you have been achieving? and your expectations for the remainder of the year in the country?

Ian Marcel Craig García: Henrique. we haven’t been seeing that softness. So within our territories, we continue to perform. I mean Brazil is — like I mentioned in my remarks, really all territories are growing at a healthy clip with basically Mexico where we’re having to digest the tax. So Brazil is included in that comment. That being said, you’re right, relevant proportion of the gains come from share gains. So we are gaining share across categories, and that’s a big — or that’s a relevant portion of the volume piece that we need to account for. .

Gerardo Celaya: Here to complement Ian, Henrique, I would also highlight, and Ian mentioned it briefly in his prepared remarks. But in Brazil, where we had since the full of 2025, the benefit of having our Juntos+ Advisor platform deployed. We have continued to see very good performance out of combined coverages, both in CSDs as well as in stills that we think this is helping on the side of share gains, helping performance overall in Brazil. we continue to be excited, and we see good numbers coming out of what we’re seeing in execution in the market related to Juntos+ Advisor. And in that sense, the rest of Coca-Cola FEMSA, including Mexico, will be benefiting from this as we move forward.

Ian Marcel Craig García: I guess the only category where you could say that we are seeing softness in beer. We are seeing softness in beer, but it has more to do, I think, with our segment of economy where we are very big in economy because if we exclude the economy, we have a limited premium offering, but we’re growing their volumes. But economy is such a large portion of our portfolio that, that does drive our beer volumes down even though we’re growing within premium.

Operator: Our next question comes from Ulises Argote with Santander.

Ulises Argote Bolio: I wanted to ask on details into the regional performance in Mexico, particularly what you’re seeing in the center versus more on the South region. If you’re actually seeing any difference in trends there? And also, you’re seeing competition and market share evolving on the back of the special taxes, how are other companies are reacting? How you’re seeing that step up there?

Ian Marcel Craig García: Well, there are 2 parts to that question. Are we seeing difference in regional performance within our regions? Yes. I would say the most sluggish region for us is the Southeast. So the Southeast digested last year, the comps of the large infrastructure projects being wound down by the government. And we still have some tail effects there. So the Southeast, I would say, would be the region that has the lowest or the biggest impact and it has — it’s more structural, and we’re still seeing the tailwinds of the wind down of those large infrastructure projects that the government had but it’s really related to that. I mean, weather-wise, we don’t have really an impact versus last year, it’s more or less a wash.

What was the other point? In terms of competition, I think this is a great question. What happened — if you allow me to take a step back and share what happened in the prior excise tax. So in the prior excise tax in 2013, we passed — of course, we didn’t have the digital enablers at the level that we have them today to run the algorithms to determine the best competitive pricing response per region, channel and geography. So that even within that context, with the amount of price we put through there in 2014, 2015, we lost about 120 basis points of share in 2 years. So it’s a very large share gain that we lost, and it put us in a trend of losing 500 basis points of share from 2013 to 2023 until we finally arrested that share if you remember in 2023, we revamped our price pack architecture and addressed that.

So it was the first year where we arrested what had been 500 basis points of continuous share loss. But the big impact was precisely when the [indiscernible] tax was passed and the pricing pass-through that we did, it turned into 120 basis points of loss in just 2 years. So I would say it’s a very big difference in how we are entering this Ex price adjustment. So leveraging on our digital enablers with a more segmented RGM strategy we’re starting off the year growing 0.6 percentage points in share of value in CSDs, growing 0.4 percentage points in share of value and ARTDs, growing both volume and value share. So it’s a very different picture to what happened in the Ex tax. And we’re basically following the same playbook that we did in Argentina and also in Panama now that we’re addressing a competitive situation.

And it’s — we don’t — our strategy is not to have an impact in our household penetration. We want our consumers that are feeling the brunt of this tax to still be able to access Coca-Cola. So we’re being very prudent and very tactical in what we’re doing in price because this is a scale industry, as we’ve talked in the past, and we have all of the intentions of coming out with a strengthened competitive position. And so far, it’s going on as planned except for the mix effect that I highlighted in Henrique’s question. But everything is firing there according to plan. Does that help, Ulises? I give you a little further context but anyways.

Operator: Our next question comes from Alejandro Fuchs with Itau.

Alejandro Fuchs: I have 2 very brief ones. First, maybe for Ian, in Mexico. I wanted to see if we could categorize this quarter, Ian, for volumes, maybe the toughest quarter in the year, right? So going forward, you were mentioning we could see a little bit of better momentum in volumes. Does that mean that maybe the prior guidance of let’s say, 4% to 5% decrease in volumes in Mexico for the year. Could that be a little bit better? Do you feel more comfortable with volumes for the full year in Mexico? That will be the first one. And maybe the second one for Gerardo in terms of hedges, I appreciate it that a lot of the detail that you gave on the call. When you guys are thinking about 2027, are you taking any positions right now? Or do you want to wait a little bit to have less volatility in some of the raw materials, PET, aluminum and so on sugar before taking those hedges thinking about 2027?

Ian Marcel Craig García: So like I mentioned, the first quarter was not only going to be our toughest quarter in terms of the volume comparison but also in terms of the profitability comparison. So it was, let’s say, the — we’re over that hump, which was going to be the toughest comparison. And like also like I mentioned, it’s a different thing when we’re comparing our base without the back last then now that we are comparing with the backlash. So it’s a completely different trend but it has more to do with the base effect. So I would say it’s still be too premature to adjust our guidance. So we’re over the tough comps both in terms of volume and profitability, that’s out of the way. But it’s too early for us to adjust our full year guidance.

Gerardo Celaya: Regarding Alejandro, hedges, as we’ve previously disclosed, we a have pretty sound hedging process, and we try to stick to it all the time. This doesn’t mean that we don’t have a flexibility. We do have a range of space where we move but we tend to be — try to be taking the less speculative positions regarding how behavior in markets is going to be. Having said that, certainly, we think that volatility that we’re facing right now related to conflict in the Middle East allows us to be — to wait a little bit more to see how that evolves and look for better timing to increase our position for hedging for 2027. We do have a base in our process that we will always have hedged, and this is the case for 2027 in that 12-month rolling period that we always look at. But we always try to follow it a little bit and see how market evolves before we take on larger positions for next year.

Operator: Our next question comes from Enrique Morillo with Morgan Stanley.

Enrique Morillo: I have just a follow-up on the hedging side as well. So if you could just comment and dive a little bit deeper. At what levels on a year-on-year basis, you were hedged or you have inventories on the energy and packaging inputs mainly for this year? And if you can also comment how are you seeing like diesel input costs, logistics expenses in the past months? And also going forward, so basically trying to grasp your perspective on the timing and the magnitude of the cost pressure we might face from higher oil flowing through your costs in the coming quarters. So that’s my question.

Gerardo Celaya: Thank you, Enrique. So I’ll start by saying we have our main packaging exposure is the PET for our bottles that is related to energy, the energy market. In this regard, we have around 60% of our requirements for 2026 hedged at better levels that we had for the last year. So this is a bit of a tailwind for us for this year as it has been for the first quarter. We — on other packaging materials, secondary packaging materials, even though it’s a much smaller portion of our cost of goods sold as a proportion of our total cost of goods sold, mainly shrink wrap for our pallets and the material that we use to back our unit cases, our physical cases that we have more exposed. And that is, I think, the main concern for us for the remainder of the year, although it’s a much smaller portion of our total expense. Regarding sweeteners and aluminum.

Ian Marcel Craig García: We give around 4%, it’s a very small proportion of our variable COGS where we don’t have that hedge.

Gerardo Celaya: Yes. That’s small. So we obviously look for alternatives, but it’s not a significant impact for our P&L. Regarding sweeteners, both sugar and HFCS, we have a high percentage of hedges above 90% for each of them and aluminum that we had already expected pressure unrelated to the volatility that we’ve seen recently, Certainly, it has increased, but we also have a high portion above 70% of our requirements hedged for the year. So in a nutshell, we don’t see significant impacts in our most likely scenario that we’re expecting for the year. We don’t see significant impacts coming from these sources given the positions that we already have and certainly, the initiatives that we’re taking on to mitigate any pressure that comes on.

Operator: Our next question comes from Carlos Laboy with HSBC.

Carlos Alberto Laboy: Sorry about that. Ian, you mentioned that Juntos+ is gaining share in clients with these platforms, perhaps better than other markets. Can you expand on this, please? And to what might you attribute this standout performance for Juntos+ in Colombia? Can you comment on whether the competition for digital capabilities in Colombia is perhaps less intense for you? Or where do you have the greatest intensity of competition? And maybe where might you have more opportunities to make bigger headway?

Ian Marcel Craig García: So I don’t know your question is broader for Coca-Cola FEMSA or only for Colombia, but I’ll start with Colombia. So Colombia does not have Juntos+ Advisers yet, which is the sales force tool. So what we are leveraging in Colombia is the app and the analytics for the pricing. So really, the Colombian team has been outstanding in their leverage of the loyalty program. That has probably been their edge. They have been very creative in driving clients to tender points to reach volume goals. They have been also very successful in increasing the amount of clients that are using not only increasing the total client base but increasing the use of our digital platform. So it’s those two things. And as you know, the digital platform has the suggested order driven by AI.

The algorithm only gets better. The initiatives are driven down by clients. So that increased use — increased client count, increased use of the app and the creative use of the loyalty program for which I would say Colombia is a best practice is driving our outperformance there. In terms of our app versus what’s in the market for other competitors, we have no gaps. Our app is — it’s either the best out there by feature or comparable to the other ones that are out there. And as you know, Carlos, we have a much, much larger footprint than any other company out there in all of our territories, right? I don’t know if you also needed a view of the total regarding the app but that’s what pertains to [indiscernible]

Carlos Alberto Laboy: My focus is mostly on Colombia. And by the way, thank you for the answer.

Operator: Our next question comes from Renata Cabral with Citi.

Renata Fonseca Cabral Sturani: My question is a follow-up on the performance in Brazil. How — as you are gaining market share and having great execution here. How do you see the current price gap versus competitors? And how are you thinking about the balance in this year going forward? And if you could give some color also on the highlights of the portfolio, if that continues to be higher penetration on Coke Zero, on flavor, especially Sprite, if you can give some color on what happened this quarter would be really helpful as well.

Ian Marcel Craig García: By category continues the same. So we’re seeing Coke Zero growing double digits, Sprite growing high double digits on the back of Sprite Zero. So that’s really a new phenomenon that we’re seeing there since the end of the last year and that we’re starting to exploit not only in Brazil, but outside Brazil as well, pretty much in every market, say, Mexico, we’re doing a big push in Sprite. But we’re also seeing brands — other brands response such as Fanta, which hadn’t been in the past. . Energy, these are doing very well. I wouldn’t say we have been timid with prices in Brazil, just to be clear. We are gaining share, but we have increased our prices in Brazil. So it’s not on the back of aggressive or below inflation pricing, that’s not been the case.

So we’ve been able to digest our price increases in Brazil and continue gaining share and it’s a multiyear phenomenon. If you look at shares in Brazil for CSDs since 2000, those are 300-plus basis points in share of value. If you look in sports drinks, it’s 15 percentage points of share. This is 10 percentage points water 200 juices 500 basis points, energy 10 percentage points. So it’s — in Brazil, same is in Colombia. Also, we have gotten into this positive flywheel where we reset our price pack architecture. And then every year, we’re gaining relative scale, which allows us to be very smart and tactical in the pricing. The industry tends to follow, and it’s just a virtual circle, which is exactly what we intend to capitalize in this juncture for Mexico as well.

Jorge Alejandro Pereda: Renata just to clarify one thing Ian mentioned on the share gains you mentioned since 2000, just to clarify, this is for 2020. It’s a 5-year period.

Gerardo Celaya: And to complement Ian, Renata, I would say for us, and this is not only pertaining to Brazil, but our overall strategic approach to pricing is that we’re always looking to gain relative scale, maintain our position with our customers being able to serve all of our customers’ consumption occasions and this is what we take into account to determine pricing. We obviously have to compensate for pressuring costs, but we look at that angle in different time frames. We’re looking at our relative scale in a longer-term basis, and we obviously try to address short-term pressures the best we can without sacrificing that overall intention of maintaining and growing in relative scale with our customers.

Operator: Our next question comes from Antonio Hernandez with Actinver.

Antonio Hernandez: Just a quick one regarding pricing. I mean, given the overall performance in Mexico in terms of volumes, maybe a little bit better than expected. Do you think — or are you considering your pricing plans for Mexico to be maybe different to what you already mentioned in the last conference call?

Ian Marcel Craig García: Antonio. I think we’re — given that overall volumes came in soft during the quarter, even considering the improvement in the last bimester I think for us, it’s still prudent to maintain this pricing strategy. That being said, if a scenario materializes where the conflict in the Middle East, extends for a long period or there are certain disruptions that reflect in raw material price increases in the second half or whatever there, we could probably revise this upward. Additionally, if volumes start to respond in a different way, that’s another instance where we could rethink the strategy. But where we are today, I think it’s prudent to maintain both our volume and pricing guidelines.

Operator: Our next question comes from Rodrigo Alcantara with UBS.

Rodrigo Alcantara: I guess reassuring additional comments on Mexico’s OpEx, MXN 600 million like it gives more reasonable contraction, right, in EBITDA margin. Now taking the discussion to South America, what was just the opposite picture, right? Just also curious if you can share with us to what extent you upfront marketing expenses in the region, right? Also, if you can comment on the EBITDA margin performance by country, right? And I’m asking this as maybe you correct me I am wrong, it’s kind of like the South America, not necessarily Mexico, it’s kind of like the region where you can expand margins the most, right? I mean, in Colombia, you redesigned your distribution — your supply chain network right? which presumably generated some efficiencies, right?

So Brazil, there are also some opportunities there to expand margins Argentina as well. So that’s why I’m interested in knowing how the margins are performed by country in South America. And last but not least, I mean, it was what — I mean, I’m asking this. We heard a news from — in Colombia about water licenses and regulator well, first issuing some comments regarding your license there in Colombia and the usage of water there. So I mean, any comments about that if that, to some extent, implies some disruption there? Or we can just ignore that? Any comments on that would be very helpful.

Gerardo Celaya: I’ll kick it off regarding South America margins. I think you’re spot on in terms of the potential for margin improvement in South America is significantly higher just on the base of having a lot of head space in margin performance, both in Brazil and Colombia. We have a long-term plan that we’re shipping to every year, improving margins, improving profitability mainly on the back of gaining scale, improving execution, leveraging our digital capabilities that Ian highlighted, especially for Colombia, and I mentioned regarding Brazil. And we have this kind of junction in the case of Argentina, where we had a significant margin adjustment contraction in 2024 when we reset the market to address consumer situation there that year.

And we’ve been recovering that margin improvement as well. So those 3 operations, I think, will continue to provide a tailwind for profitability performance in — specifically in South America. In the case of Colombia, the news that you saw is regarding the renewal of the concession for water — for premium water brand Manantial in Colombia. I would start off by saying that this is a small portion of our business at less than 2% of the volumes in the country. But I think that the development is a very positive development in the sense that the conclusion of the process that we were in was that our business does not present any risk to the water supply in the region and that we can continue using our concession. It was renewed. The process will be reviewed closely as we move forward, but we — I think we’re very optimistic in the sense of the openness that we saw in the process.

It was a very open, transparent process where a lot of people participated in the discussion, government authorities as well as a community that’s close to our Manantial plant. I think everybody expressed their opinion and I think the development ended up being a very positive one in the sense that the conclusion was that we were able to renew the concession and continue operating that business in the following years.

Jorge Alejandro Pereda: If I may, Rodrigo, perhaps the only thing that I would add, going back to the first part of your questions on margins on South America. If we were to look at proof points of whether this sustainable growth model is working. As you know, we have been discussing about this on this flywheel of getting more relative scale. And when you see the markets in South America, you see Brazil gaining share, Colombia gain in Argentina as well and profitability improvements that come from relative scale gains and the pricing is not really the lever that brings these profitability improvements. It’s fixed cost dilution, and we can take this to sustainable value creation. So that’s the only point that I would add to to that. But as Gerry mentioned, we see profitability improvements across the board in South America.

Operator: Our next question comes from Lucas Ferreira with JPMorgan.

Lucas Ferreira: The first question is — actually 2 questions on Mexico. The first one is if this initiatives to sort of rightsize company for this tough year, also envisions sort of eventually an acceleration of growth we may have in the coming quarters and eventually years. So how flexible you are if things are coming better than expected to sort of make sure you have the right size to keep coping with the growth of the market and market share? And then number 2 is a bit more of a conceptual question on Mexico growth. For instance, if I look at Brazil’s volume growth, let’s say, all CAGR over the last, I don’t know, 5 years, has surprised a lot to the upside, right, very good and high — mid- to high single digits volume growth.

And I attribute part of this to the Zero — Coke Zero growth. So my question on Mexico is the following. I mean, would you see sort of a similar playbook here where your average growth rate in Mexico on a consolidated basis could be surprising the market to the upside and accelerating, let’s say, from the average growth rates you had in the previous years? Or you think eventually in Mexico, there’s something cultural that will prevent this — the growth of Zero to be accelerating similar pace we saw in Brazil and some other countries as well in LatAm in the world. So that’s my question. If you see like Coke Zero being in the spotlight globally like we saw in the case of Brazil.

Ian Marcel Craig García: Lucas, I would say it’s a 2-part question. So in terms of the rightsizing. We’ve done what we needed to do. We don’t need to do any further. And we have flexibility in our manufacturing, distribution and headcount structure to whether, let’s say, a 5% volume surprise upside. So where we need to be in terms of productivity and we have enough of the assets and both manufacturing and distribution assets that we could address a 5% volume upside surprise. So where will we need to be in terms of a structure now. And going forward, we have time to respond if a trend would improve with necessary investments and especially with increases in our headcount, which was probably what we would need faster, more headcount especially in the distribution.

So I think we’re well positioned for that, and it wouldn’t be an issue. In terms of whether we can see Coke Zero respond as it did in Brazil, we’re very glad that, say, 2 years ago, we cracked the code on Coke Zero in Brazil. So Zeros are doing very well in Mexico. From a much smaller base, but that’s where we were in Brazil in a few years ago. So it’s a phenomenon that takes time. It’s not immediate. So — we don’t see anything different in Mexico with regards to Brazil. We took a little longer to crack it, but now it’s responding, it’s growing positively. We’re also going to be doing a push on other light flavors. So that platform should perform in line or, let’s say, outperforming the market. And we have a much better position in Zeros than most of our competitors.

So we’re confident of that. The one caveat that I would have that’s different to a market such as Brazil, for example, is that per capitas in Mexico are much higher. So there’s an underlying effect in Brazil of the overall category gaining per capitas, but that’s the only thing that I would say would be different. That being said, in Mexico, in ’23 and ’24, we did gain per capitas. So it’s not that it’s impossible, it is possible, but it’s at a much higher pace per se already the category.

Operator: Our next question comes from Alvaro Garcia with BTG.

Alvaro Garcia: Two questions. One on Venezuela. I was wondering how should we think about this business? What can you share about maybe recent volume dynamics and sort of cash flow from that business. Do you see grounds maybe to consolidate it at some point in the future again? And my second question for Gerry, if you can maybe provide an update on capital allocation. At the end of last year, you kind of mentioned you are in a position to give us an update. When might we expect an update on that front?

Ian Marcel Craig García: So just operationally, Venezuela continues doing very well, accelerating. But the items that we need to reconsolidate that operation are still not there yet. So — and we don’t have visibility on that yet. So I wouldn’t think we could be reconsolidating Venezuela for this year or next year at least. So — but it’s doing very well. Obviously, it was already doing well. Now it’s doing even better. There’s a big change going on down there, but it’s too early to think of putting that back on the books.

Gerardo Celaya: Regarding capital allocation, Alvaro, the excise tax that came up was something that certainly we didn’t have in our plans. It was something that came up late last year. It got passed very quickly. So we’re — given the uncertainty that this scenario presents for us in terms of cash flow generation and how the Mexico business will continue to evolve in the next few months. we’re taking a step back to review and have more information before we decide what we’re going to do to address the issue of capital allocation and our capital structure that we recognize that we have opportunities there.

Operator: This concludes the questions-and-answer section. At this time, I would like to turn the floor back to Mr. Jorge for any closing remarks.

Jorge Alejandro Pereda: Well, just to thank everyone for your interest in Coca-Cola FEMSA and for joining us on today’s call. As always, we are available to answer any remaining questions, and we look forward to seeing you again soon. Thank you.

Ian Marcel Craig García: Thank you.

Operator: Thank you. This does concludes today’s presentation. You may disconnect now, and have a nice day.