Arca Continental SAB de CV (EMBVF) Q2 2025 Earnings Call Highlights: Strong Revenue Growth ...

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Consolidated Revenue: Increased 8% in the quarter and 10.1% year-to-date.
Consolidated EBITDA: Rose 8.1% in the quarter and 9% year-to-date, with margins of 20.7% and 19.8% respectively.
Net Income: Increased 1.2% in the quarter to MXN5.5 billion; year-to-date net income rose 4.9% to MXN9.6 billion.
Mexico Unit Case Volume: Declined 4.8% in the quarter and year-to-date.
Mexico EBITDA Margin: 24.6% in the quarter and 22.9% year-to-date.
South America Revenue: Grew 11.8% in the quarter and 18.8% year-to-date.
South America EBITDA: Increased 29.2% in the quarter and 33% year-to-date, with margins of 17.3% and 18.7% respectively.
US Operations Revenue: Rose 3.9% in the quarter and 2.2% year-to-date.
US Operations EBITDA: Increased 9.1% in the quarter and 6.7% year-to-date, with margins of 17.8% and 17% respectively.
Cash and Equivalents: MXN26.6 billion as of June.
Total Debt: MXN57.4 billion, resulting in a net debt-to-EBITDA ratio of 0.6 times.
CapEx: Totaled MXN8.3 billion, representing 6.9% of sales.
Dividend Distribution: Total of MXN7.62 per share, reflecting a payout ratio of 66% and a dividend yield of 3.8%.
Warning! GuruFocus has detected 7 Warning Signs with CFG.
Release Date: July 17, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Arca Continental SAB de CV (EMBVF) reported an 8% increase in consolidated revenue for the second quarter, driven by effective pricing strategies and favorable FX effects.
The company's EBITDA rose by 8.1% in the quarter, with a margin of 20.7%, marking the 29th consecutive quarter of EBITDA growth.
Strong performance in the US operations contributed significantly to the company's financial results, with Coca-Cola Southwest Beverages achieving a 9.1% increase in EBITDA.
The company announced the opening of its largest distribution center in Mexico, enhancing its operational footprint and service capabilities.
Arca Continental SAB de CV (EMBVF) achieved important milestones in its sustainability agenda, including partnerships for plastics recycling and improvements in sustainability risk management ratings.
Negative Points
Total consolidated volume declined by 2.7% in the quarter, impacted by adverse weather conditions and softer consumer demand in some markets.
In Mexico, unit case volume declined by 4.8%, affected by challenging comparisons and adverse weather conditions.
The company's net income for the quarter increased only by 1.2%, with a 60 basis points contraction in the net profit margin.
Ecuador faced rising security concerns that disrupted consumer mobility and shopping behavior, leading to a 3.1% decline in total volume.
Despite revenue growth, the company experienced a contraction in volume performance in key markets, particularly in Mexico, due to macroeconomic headwinds and adverse weather.
Q & A Highlights
Q: Arturo, you reiterated the guidance for the year. Given the current operating dynamics and the sequentially lower pressure on margins from Mexico, do you still expect to close the year with flattish margins for 2025, specifically in Mexico? A: The situation for margins in Mexico was mostly impacted by volume performance. We are confident in recovering profitability throughout the year as volumes improve, which we expect to happen in the third quarter. We continue our cost control initiatives and leverage our hedging strategies for main raw materials. Our goal is to protect the margin for the full year, and we are optimistic about achieving this.
Q: Can we expect any additional dividend if no M&A materializes throughout the next few months? A: We have already distributed two dividends, resulting in a 67% payout ratio. Any additional dividends will depend on the Board's decision. In the absence of M&A, they may approve an additional dividend later in the year.
Q: Regarding Mexico, how much of the pressure seen year-to-date is structural versus related to temporary factors like weather or government incentives? A: Several factors impacted Mexico's performance, including tough comparisons to last year, adverse weather, and slower economic conditions. The traditional channel declined significantly, while the modern channel was almost flat. We don't see price as a factor affecting elasticity, and we aim to align pricing with inflation.
Q: Could you provide more color on the distribution center in Jalisco and any labor issues in the US? A: The distribution center in Tonala, Jalisco, opened recently and will enhance our operational footprint. In the US, labor has stabilized, and our biggest project will open next year. We are not facing significant labor shortages currently.
Q: What was the difference in strategy that led to improved profitability in the US this quarter? A: Our strategy in the US focuses on solid execution, prioritizing profitable packages, and disciplined expense management. We have seen growth in single-serve packages and have optimized promotions and pricing strategies. This approach, combined with lower OpEx due to reduced direct marketing expenses, has improved margins.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
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