Business Context and Reporting Period
Company: Coca-Cola FEMSA, S.A.B. de C.V. (NYSE: KOF)
Reporting Period: Second Quarter and First Six Months ended June 30, 2024.
Overview: The world's largest Coca-Cola franchise bottler by sales volume reported solid growth driven by volume expansion in Mexico, Brazil, and Central America. The Company completed the rollout of its digital platform, Juntos+ v. 4.0, in Mexico and Brazil, with over 50% of its customer base now digital buyers. Operations in southern Brazil were temporarily suspended due to severe flooding in May 2024 but are in the process of reopening.
Key Financial Metrics
| Metric (2Q 2024) | Value (MXN Millions) | YoY Change (Reported) | YoY Change (Comparable) |
|---|---|---|---|
| Total Revenues | 69,456 | 13.1% | 17.9% |
| Gross Profit | 31,961 | 17.2% | 22.0% |
| Operating Income | 9,746 | 13.8% | 17.5% |
| Adjusted EBITDA | 13,922 | 21.7% | 27.0% |
| Net Income (Majority) | 5,608 | 13.8% | 18.7% |
| Earnings Per Share | Ps. 0.33 | - | - |
Liquidity and Debt (as of June 30, 2024):
- Cash and Equivalents: Ps. 38,271 million.
- Total Debt: Ps. 68,551 million (Short-term: Ps. 622 million; Long-term: Ps. 67,929 million).
- Net Debt: Ps. 31,218 million (down 17.4% vs. FY 2023).
- Net Debt / Adj. EBITDA: 0.62x.
- Dividend: Paid Ps. 0.19 per share on July 16, 2024.
Material Changes vs. Prior Period
- Volume Growth: Consolidated volume increased 7.5% to 1,095.8 million unit cases. Growth was led by Mexico (7.9%), Brazil (12.1%), and Guatemala (12.6%), partially offset by declines in Argentina (-9.9%) and Uruguay (-12.1%).
- Revenue Drivers: Reported revenue growth of 13.1% was driven by volume. On a comparable basis (excluding currency translation), revenue grew 17.9%.
- Margin Expansion: Gross margin expanded 160 basis points to 46.0%, driven by top-line growth, favorable packaging costs, and hedging, offset by higher sweetener costs and Argentine Peso depreciation. Operating margin increased 10 basis points to 14.0%.
- Financing Results: Comprehensive financing expense decreased to Ps. 885 million (from Ps. 1,377 million prior year) due to foreign exchange gains from the depreciation of the Mexican Peso and Brazilian Real against the USD.
- Tax Rate: Effective tax rate increased to 34.9% (from 27.2%) due to inflationary effects and one-time effects related to previous acquisitions in Brazil.
Guidance, Outlook, and Risks
Management Commentary: CEO Ian Craig highlighted progress in the long-term sustainable growth model and the successful implementation of Juntos+ v. 4.0. Priorities for the remainder of the year include building core business momentum, advancing the digital platform, and fostering a customer-centric culture.
Risks and Contingencies:
- Operational Disruption: Severe flooding in Rio Grande do Sul, Brazil, forced the suspension of the Porto Alegre plant in May 2024. The Company incurred non-recurring expenses related to this event. Site cleaning is complete, and gradual reopening is underway.
- Currency Volatility: Significant depreciation of the Argentine Peso and fluctuations in the Mexican Peso and Brazilian Real impact reported results and raw material costs.
- Input Costs: Higher sweetener costs across territories and increases in labor, freight, and maintenance expenses.
Investor Verification Checklist
- Brazil Flood Recovery: Verify the timeline for full operational capacity restoration at the Porto Alegre plant and the extent of any remaining supply chain disruptions.
- Argentina Performance: Monitor volume and revenue trends in Argentina, which saw a 9.9% volume decline, amidst high inflation (274% LTM) and currency volatility.
- Digital Adoption: Assess the impact of the Juntos+ v. 4.0 rollout on customer retention and transaction frequency in Mexico and Brazil.
- Cost Inflation: Track the trajectory of sweetener and packaging costs to ensure gross margin expansion is sustainable.
- Debt Maturity: Review the debt maturity profile, noting that 22.8% of total debt is floating rate, exposing the company to interest rate fluctuations.