KOF

Business Context and Reporting Period

Company: Coca-Cola FEMSA, S.A.B. de C.V. (NYSE: KOF)

Reporting Period: Third Quarter (3Q) and First Nine Months (YTD) ended September 30, 2025.

Context: The world's largest Coca-Cola franchise bottler by sales volume reported results amid a challenging macroeconomic environment, particularly in Mexico. The company navigated softer consumption trends, currency fluctuations, and recent natural disasters (floods in Mexico and Brazil) while maintaining profitability through cost controls and revenue management.

Key Financial Metrics

Balance Sheet and Liquidity (as of Sep 30, 2025)

• Cash & Equivalents: Ps. 34,893 million (Current Liabilities section lists Short-term bank loans separately; Cash is listed under Current Assets).
• Net Debt: Ps. 43,947 million (including effect of hedges).
• Net Debt / Adj. EBITDA: 0.77x.
• Capitalization Ratio: 34.8%.
• Dividend: Paid Ps. 0.23 per share (3rd installment) totaling Ps. 3,865.5 million on October 15, 2025.

Material Changes vs. Prior Period

• Volume Decline: Consolidated volume fell 0.6% in 3Q and 2.8% YTD, driven primarily by declines in Mexico (-3.7% in 3Q) and Panama. This was partially offset by growth in Brazil, Colombia, and Argentina.
• Regional Divergence:
  • Mexico & Central America: Revenues flat (-0.2%) and Gross Profit down 2.6% due to volume declines, unfavorable mix, and higher fixed costs. Operating income grew slightly (+1.1%) due to expense efficiencies.
  • South America: Strong performance with Revenue up 8.7% and Operating Income up 19.7%. Growth was driven by Brazil and Colombia, aided by revenue management and a one-time insurance gain of Ps. 218 million related to 2024 Brazil floods.
• Margin Pressure: Consolidated Gross Margin contracted 100 basis points to 45.1% in 3Q due to unfavorable mix, promotions, and fixed costs. Operating Margin expanded 50 basis points to 14.3% due to expense control and FX gains.
• Financing Costs: Comprehensive financing expense increased 56.6% to Ps. 1,290 million, driven by higher interest rates (especially in Brazil) and a new USD-denominated bond issued in Q2 2025.

Guidance, Outlook, and Risks

• Management Commentary: CEO Ian Craig noted gradual sequential improvements but acknowledged a "more difficult than expected 2025." The company is focusing on a sustainable growth model, affordability initiatives, and revised CAPEX levels.
• Regulatory Risk (Mexico): The Mexican House of Representatives approved a Federal Revenue Law increasing the excise tax on sugar-sweetened beverages from Ps. 1.64 to Ps. 3.08 per liter and introducing a new tax of Ps. 1.5 per liter on non-caloric sweeteners. This is pending Senate approval. The company is engaging with authorities to discuss impacts.
• Operational Risks: Recent floods in central and Northeast Mexico (October 2025) impacted operations; the company mobilized humanitarian relief. Floods in Brazil (May 2024) resulted in insurance claims recognized in 3Q 2025.
• Outlook: Management expects to leverage adaptability to navigate challenging conditions, including the potential beverage tax increase in Mexico.

Investor Verification Checklist

• Tax Legislation Status: Verify the final status of the Mexican Senate's approval of the new excise tax on sugar-sweetened and non-caloric beverages.
• Volume Recovery in Mexico: Monitor subsequent quarters for signs of volume stabilization in Mexico, the company's largest market, given the -3.7% decline in 3Q.
• Interest Rate Exposure: Assess the impact of rising interest rates in Brazil and Argentina on future financing costs and net income.
• One-Time Items: Note the Ps. 218 million insurance gain in South America; verify if this is a recurring benefit or a one-time adjustment to operating income.
• CAPEX Revision: Confirm the specific details of the "revised CAPEX investment level" mentioned by management to understand future cash flow implications.