Coca-Cola FEMSA (KOF) Q2 2025 Earnings Call July 23, 2025 11:00 AM ET Company ParticipantsJorge Collazo Pereda - Director - IRIan Craig García - CEOGerardo Cruz Celaya - CFOLucas Ferreira - Executive DirectorRodrigo Alcantara - Director - Equity ResearchRenata Cabral - VP - Equity Research & Head - ConsumerRahi Parikh - AVPAlvaro Garcia - Associate PartnerAntonio Hernández Vélez - Head - Equity Research & DirectorConference Call ParticipantsHenrique Morello - Equity Research AnalystThiago Bortoluci - Equity ...

Financial Data and Key Metrics Changes - Consolidated volume declined 5.5% to 1,035,000 unit cases, driven by declines in Mexico, Brazil, Colombia, and Panama, partially offset by growth in Argentina, Uruguay, Guatemala, and other Central American territories [6] - Total revenues grew 5% to COP72.9 billion, with a 2.4% increase on a neutral currency basis [7] - Gross profit increased 3.4% to MXN33 billion, with a margin contraction of 70 basis points to 45.3% [7] - Operating income remained flat at COP9.7 billion, with an operating income margin contracting 60 basis points to 13.4% [8] - Adjusted EBITDA decreased 3.8% to MXN13.4 billion, with an EBITDA margin contraction of 160 basis points to 18.4% [9] - Majority net income decreased 5.3% to MXN5.3 billion, primarily due to increased comprehensive financial results from higher interest expenses and a lower foreign exchange gain [10] Business Line Data and Key Metrics Changes - In Mexico, volume declined 10%, cycling a historic second quarter from the previous year, which grew 7.9% [10] - In Guatemala, volumes increased 1.6% to 51.3 million unit cases, with a 10,000 new customer increase [15] - In Brazil, volumes declined 1.5% year on year, cycling strong 12.1% growth from the previous year [17] - In Colombia, volumes declined 2.8% year on year, while in Argentina, volumes increased 11.9% [20][21] Market Data and Key Metrics Changes - Mexico faced a softer macroeconomic backdrop and adverse weather, impacting consumer behavior [5] - Brazil's volume performance was affected by colder temperatures, particularly in June [17] - In Argentina, macro indicators improved, with monthly inflation below 2% [21] Company Strategy and Development Direction - The company remains focused on long-term sustainable growth, with investments in capacity expansions [5] - Key initiatives include improving customer service metrics and enhancing productivity [13][14] - The company is leveraging affordability initiatives to address consumer sentiment in Mexico [12][13] Management's Comments on Operating Environment and Future Outlook - Management acknowledged a challenging first half of the year but remains optimistic about long-term perspectives [5] - The outlook for the second half of the year is cautious, considering declining personal consumption expenditures and remittances [39] - Management is focused on maintaining market share and addressing pricing gaps in the traditional channel [40] Other Important Information - The company completed key projects and began additional capacity initiatives during the first half of the year [14] - The Porto Alegre plant in Brazil is back to 100% capacity, with a full portfolio of SKUs restored [63][66] Q&A Session Summary Question: Expectations for the second half of the year and market share in Mexico - Management discussed a cautious outlook for the second half, planning for a more complex scenario due to economic impacts and weather [39][41] Question: Performance in Brazil and channel specifics - Management indicated that weather was a key driver of performance in Brazil, with expectations for recovery as conditions improve [42] Question: Pricing mix in Mexico and Brazil - Management noted that pricing strategies in Mexico are cautious, while Brazil's pricing reflects a mix effect rather than inflation-driven increases [51][52] Question: CapEx investments and updates on the Porto Alegre plant - Management confirmed commitment to structural capacity investments while adjusting volume-linked CapEx based on market conditions [60][63] Question: Interest expense and leverage position - Management acknowledged higher interest expenses due to increased rates in Brazil but indicated a stable raw material environment overall [84][90]

Financial Data and Key Metrics Changes - The company reported a 5% organic revenue growth and a 4% comparable earnings per share (EPS) growth despite a 1% decline in volume during the quarter [8][25][29] - Comparable gross margin increased by approximately 80 basis points and comparable operating margin increased by approximately 190 basis points, driven by underlying expansion [26][28] - Free cash flow, excluding the Fairlife contingent consideration payment, was $3.9 billion, an increase of approximately $600 million compared to the prior year [28] Business Line Data and Key Metrics Changes - In North America, volume improved sequentially but still declined due to socioeconomic pressures on certain consumer segments [8][10] - Latin America saw a decline in volume but growth in organic revenue and profit, particularly driven by Coca Cola Zero Sugar in Brazil and Mexico [11][12] - EMEA reported volume growth across all operating units, with strong performance from Coca Cola Zero Sugar, Sprite, and Fuze Tea [12][105] Market Data and Key Metrics Changes - The U.S. and Europe showed sequential volume improvement, while emerging markets like Mexico and India faced challenges due to adverse weather and geopolitical issues [7][8][50] - In Asia Pacific, volume declined, but revenue and comparable currency-neutral operating income grew, with China showing volume growth despite a cautious consumer environment [14][15] Company Strategy and Development Direction - The company is focused on maintaining agility and adapting its plans to navigate a dynamic operating environment, leveraging its all-weather strategy [5][24] - Continued investment in brand marketing and innovation is emphasized to drive growth and maintain market share [19][73] - The company is exploring international opportunities for its Fairlife brand while addressing capacity constraints in North America [40][96] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in navigating local market dynamics and achieving updated guidance for 2025, despite external challenges [5][29] - The outlook for the second half of 2025 remains strong, with expectations for organic revenue growth of 5% to 6% and comparable currency-neutral EPS growth of approximately 8% [29][30] - Management acknowledged the need for agility in response to rapid changes in the operating landscape, particularly in emerging markets [36][85] Other Important Information - The company is implementing a marketing transformation to enhance efficiency and effectiveness in advertising [64] - The introduction of Coca Cola sweetened with U.S. cane sugar is planned for the fall, reflecting consumer interest in differentiated experiences [21][90] Q&A Session Summary Question: Clarification on pivoting plans and outlook for the second half - Management clarified that the pivoting refers to adapting strategies to maintain growth amid rapid changes in the market, particularly in response to challenges in Mexico and India [36] Question: Capacity constraints for Fairlife and international expansion plans - Management confirmed that growth moderation for Fairlife is due to capacity constraints, with plans for new capacity coming online in early 2026 [40][96] Question: Outlook for Mexico and India - Management expressed optimism for recovery in both markets, with specific marketing and operational strategies in place to drive growth [50][51] Question: Trends in North America and Hispanic consumer performance - Management noted improvements in the U.S. market and recovery among Hispanic consumers, with targeted marketing efforts yielding positive results [58][60] Question: Drivers of productivity and margin improvements - Management attributed productivity gains to marketing transformation and disciplined operating expense management, with expectations for continued improvements [64][70] Question: Global consumer strength and market dynamics - Management indicated a resilient global consumer environment, with some unexpected weaknesses in specific markets like ASEAN, but overall confidence in driving growth [84][85] Question: Innovation in the coffee category - Management acknowledged the challenges in the coffee segment and emphasized the need for reflection and potential new strategies to enhance participation in this growing category [108][110] Question: Refranchising and demand creation focus - Management highlighted ongoing refranchising efforts and the commitment to driving top-line growth through a strong portfolio of brands [113]