Coca-Cola FEMSA, S.A.B. de C.V. (KOF) Q1 2023 Earnings Call Transcript

Prepared Remarks

Questions and Answers

Call Participants

Prepared Remarks:

Operator

[Call Starts Abruptly] 100 basis points year-on-year. This compression was driven mainly by increases in raw material costs, such as sweeteners and concentrate in Mexico. These effects were partially mitigated by our top line growth, raw material hedging initiatives, and the appreciation of the Mexican Peso as applied our dollar-denominated raw material costs.

Our operating income for the division increased 1.2%, resulting in a margin contraction of 220 basis points. This was driven mainly by increases in costs and operating expenses such as labor, marketing and maintenance that were partially offset by an operating foreign exchange gain in Mexico.

Finally, our EBITDA margin for the division declined 330 basis points.

Moving on our South America division, volumes increased 3.8%. This increase was driven by 4.3% growth in Brazil, 4.5% growth in Argentina and 14.8% growth in Uruguay. This growth was partially offset by a stable volume performance in Colombia.

On a comparable basis, excluding volumes of CVI in Brazil, the division's volume would have increased to 0.8%.

Our revenues for the South America division grew 6.6%, driven by our volume growth and revenue management initiatives. These factors were partially offset by the unfavorable currency translation effects of most of our operating currencies in the division into Mexican pesos. When excluding currency translation and M&A effects are comparable total revenues would have increased to solid 27.5% during the quarter.

Gross profit in South America increased 11%, resulting in a 160 basis point margin expansion. This was driven mainly by the positive operating leverage, resulting from volume growth and favorable mix effects. These effects were partially offset by an increase in raw material costs such as PET and sweeteners. Operating income for the division increased 43.3%, and margin expanded 290 basis points as compared to the previous year. This increase was driven mainly by the combination of our positive top line operating leverage and tight expense control across our operations that offset higher fixed cost and expenses.

Finally, EBITDA in South America increased 22.9% resulting in an EBITDA margin expansion of 220 basis points.

Moving on to our financial results, the quarterly comprehensive financing results recorded an improvement of 36% as compared with the previous year. This reduction can be explained mainly by a favorable comparison base that included a one-off market value loss and financial instruments of Ps. 936 million recorded during the first quarter of last year. This loss was recognized as a result of interest rate increases and its effects on floating rates denominated debt during that period. By normalizing this effect, our comprehensive financial results would have improved 9.2% this quarter, driven mainly by an increase in interest income. These effects were partially offset by a higher foreign exchange loss driven by the appreciation of the Mexican peso as applied to our U.S. dollar cash position and a lower gain in hyperinflationary subsidiaries.