Coca-Cola FEMSA, S.A.B DE C.V 2026 Q3 Earnings Call

Pamela, please go ahead. Good morning, everyone, and welcome to Coca-Cola FEMSA's third quarter 2026 results conference call.

Today, we are joined by Ian Craig, our CEO, Gerardo Cruz, our CFO, and the rest of the Investor Relations team. Before we begin, let me remind all participants that today's conference call may include forward-looking statements that should be considered as good faith estimates made by the company. These forward-looking statements reflect management expectations and are based upon currently available data. The actual results are subject to future events and uncertainties that can materially impact the company's performance. For additional details, please refer to the full disclaimer in the earnings release that was published earlier today. After the prepared remarks, we will open the call for questions. To ask a question, please use the raise hand feature in your Zoom toolbar.

With that, let me turn the call over to Ian to begin our presentation about the third quarter results. Ian, please go ahead. Thank you, Pam.

Good morning, everyone. Before discussing our third quarter performance, I would like to take a moment to address the earthquake that struck Colombia in August, and which impacted the communities of Pereira and Cali. Together with FEMSA and The Coca-Cola Company, we provided more than 180,000 liters of water, 30,000 meals, and essential supplies to affected communities. We also committed to supporting more than 1,000 traditional trade stores and helping rebuild approximately 150 stores. We remain in close coordination with our local teams and are committed to supporting our employees, their families, and the communities affected. Now, let me walk you through our consolidated results. Our third quarter performance demonstrated how our focus on sustainable growth, leveraging our portfolio and capabilities, translates into results across markets with distinct consumer dynamics and macroeconomic conditions.

Our long-term growth algorithm is based on developing the beverage industry by expanding consumption across categories and serving new consumption opportunities. Indeed, our record third quarter consolidated volumes demonstrated the effectiveness of our commercial strategies across our regions. Our competitive advantage combines the strength of our brands, unparalleled distribution reach, consistent above-the-line and below-the-line investments throughout the years, consumer-centric execution, culture, and leading-edge digital enablers. Importantly, we continuously tailor our commercial strategies to the specific consumption trends and economic realities of each market, allowing us to capture growth opportunities while strengthening our competitive position. Let me highlight how our strategy is translating into results across our operations. Starting with Mexico, volumes increased 4.2% year-over-year off of a low base last year, which was still impacted by the consumer backlash.

Our focus on affordability, differentiated price pack architecture, and commercial execution supported further share gains, including a 70 basis point increase in sparkling beverage value share as of September versus the prior year. Our approach is anchored in protecting affordability, strengthening commercial execution, accelerating portfolio innovation, and leveraging our digital capabilities. Together, these pillars have enabled us to navigate a challenging consumption environment while positioning our business for sustainable long-term growth. Portfolio innovation continues to unlock incremental growth opportunities by expanding our presence in emerging beverage categories and capturing new consumption occasions. During the quarter, we launched Coca-Cola Triple Zero, further strengthening our zero sugar portfolio, as well as Topo Chico Sparkling Lemonade and Orangeade, which have already achieved 70% traditional trade coverage and a 40% repurchase rate.

Meanwhile, Ciel Aguas Frescas flavored water, launched last quarter, continues to gain traction, reaching 65% coverage in the traditional trade with a market share gain of 7.6 percentage points since its launch in May. These portfolio innovations in key white spaces bode well in our efforts to continue to drive industry growth, capturing new consumption opportunities. Lastly, digitalization continues to strengthen our customer relationships and enhance our commercial effectiveness. Through Juntos+, we are driving a higher average ticket by 19% versus the prior year and increasing the time and quality of our interactions with clients. Overall, Mexico's performance reinforced our confidence in the direction of our strategy. Our commercial capabilities have enabled us to sustain volume growth, gain market share, and develop new beverage categories. Looking ahead, our priority remains to build on our competitive momentum while gradually improving profitability through disciplined revenue growth management and operating efficiencies.

Turning to Brazil. Volumes increased 3.9% year-over-year, reflecting the sustained positive momentum of our business and share gains. Brazil remains one of Coca-Cola FEMSA's most compelling structural growth opportunities, supported by significant headroom to lead industry growth and expand our participation across beverage categories. During the quarter, we continued leveraging our differentiated commercial capabilities to capture these opportunities, focusing on expanding our Zero's portfolio availability, strengthening execution at the point of sale, and deploying proven route to market and digital capabilities. As a result, Coca-Cola Zero continued delivering strong growth with volumes up 15% versus prior year, while flavors and still beverages grew 8% and 20% respectively, versus prior year. Within our flavors portfolio, we have won close to four percentage points of market share, driven by brand Sprite's outstanding performance.

Importantly, we continued gaining share across nearly all beverage categories, with gains of approximately 1.2 percentage points in total, non-alcoholic ready-to-drink beverages, and nearly 6 percentage points in energy drinks. These results reinforce our competitive momentum and demonstrate how our portfolio is well-positioned to address evolving consumer preferences. We also continued advancing our commercial strategy with a focus on improving profitability by strengthening our single-serve portfolio, increasing its share of our sparkling beverage volume mix by 80 basis points to reach 27.7%. Digitalization remains an important enabler of this strategy. Through Juntos+ and Juntos+ Advisor, we continued enhancing customer engagement, improving order recommendations, and optimizing our commercial teams' productivity. These tools are helping us strengthen customer coverage and increase the effectiveness of commercial visits. As of September, digital revenues represented close to 42% of traditional trade revenues, with an 18% increase in average ticket size.

Turning to profitability, we remain focused on translating volume growth and stronger commercial execution into improved operating leverage through disciplined revenue growth management, portfolio optimization, and continued cost efficiencies. At the same time, we are maintaining a disciplined investment approach to support sustainable long-term growth. Looking ahead, while we are mindful of a potential post-election slowdown, we remain confident in the Brazilian market's long-term potential. Our scale, commercial capabilities, and quality portfolio position us to continue to capture growth opportunities while sustainably improving profitability. Turning now to Guatemala. Volumes grew 8% year-over-year, outperforming the non-alcoholic ready-to-drink industry, which expanded approximately 5.5%. The Guatemala operation continues to benefit from favorable consumption dynamics supported by remittances, attractive demographics, and urbanization trends.

Our strategy remains focused on developing the beverage industry by offering affordable price points, strengthening our core colas category, expanding our single-serve portfolio, and enhancing execution in the traditional trade. During the quarter, energy drinks grew 98%, supported by improved product availability. Meanwhile, our 360-degree POWERADE strategy delivered a turnaround in sports drinks, resulting in a market share gain of approximately 1 percentage point, supported by increased cold drink availability through cooler investments and enhanced execution capabilities with Juntos+. At the same time, productivity initiatives, including bottle light weighting and cost to serve optimization, helped mitigate PET and diesel cost pressures while improving operating efficiency. Moving on to Colombia. Volumes increased 15.9% year-over-year, supported by strong consumer demand, higher household purchasing power, and disciplined commercial execution. The consumer environment remained favorable, supported by higher wages, favorable weather conditions, and GDP growth of approximately 3.5%.

Our portfolio and package strategy continued delivering strong results, with sparkling beverage volumes increasing 15.4% during the quarter, including 13.5% growth in colas, 19.2% in Coca-Cola Zero, and 23.9% in flavors supported by Quatro and Sprite. Non-carbonated beverages grew 12.9% year to date, driven by POWERADE and Monster, up 48.4% and 55.9% respectively. Additionally, our recent launch of Fury achieved 30% customer coverage in its first month, reinforcing our ability to develop emerging beverage categories. We also continued strengthening our digital capabilities through Juntos+ by enhancing platform functionalities to drive customer engagement and leveraging loyalty plan initiatives, with nearly 90% of our traditional trade customers now using Premia points. Importantly, we continue to translate volume growth into improved profitability through increased scale and cost absorption. Finally, turning to Argentina, volumes remained flat year-over-year amid continued pressure on household purchasing power, despite inflation moderating to 33.4%.

Against this backdrop, our disciplined RGM and differentiated price pack architecture continued balancing affordability with profitability. Our sparkling beverage portfolio grew 3.9%, supported by Coca-Cola Zero and Sprite, while digital orders through Juntos+ increased 21% year-over-year, enhancing customer engagement and commercial productivity. Looking ahead, we remain focused on strengthening our competitive position and maintaining operating discipline as we navigate the challenging consumption environment. Our third quarter performance reinforced Coca-Cola FEMSA's multiple avenues for long-term growth. We are focused on developing the beverage industry by expanding consumption across categories, occasions, and markets. Our sustainable competitive advantage is built on five key strengths: the power of our brands, our unparalleled distribution reach, consistent investment, ATL and BTL throughout the years, our customer-centric execution culture, and our leading-edge digital capabilities. Together, these strengths provide a differentiated platform to unlock new consumption opportunities, deepen customer relationships, and drive sustainable, profitable growth.