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Negative Points

• Coca-Cola Femsa SAB de CV (NYSE:KOF) faced challenges from external factors such as extreme weather events, including the temporary closure of the Porto Alegre plant due to flooding.

• Higher fixed costs, such as maintenance and depreciation, partially offset the benefits of top-line growth and cost efficiencies.

• The company experienced a net unfavorable expense of MXN730 million at the operating income level due to asset write-offs and expenses related to natural disasters.

• Capacity constraints in Mexico and Brazil led to unavailability issues, impacting the ability to meet demand and resulting in lost sales opportunities.

• Despite improvements, the company still faces challenges in fully capturing growth opportunities due to ongoing capacity limitations and macroeconomic uncertainties.

Q & A Highlights

Q: What are Coca-Cola Femsa's expectations for volumes in Mexico for 2025, considering the slower macro dynamics? A: Ian Marcel Craig Garcia, CEO, stated that they expect mid-single-digit volume growth for Mexico in 2025. Although there will be differences between quarters, the overall expectation is for mid-single-digit growth. Jorge Collazo, Investor Relations Officer, added that while the first half of the year will face tougher comparisons, the second half should see more favorable conditions. They are focusing on recovering market share and leveraging opportunities in Coke Zero and flavors.

Q: Can you provide insights into the impact of digital initiatives like Juntos+ and Juntos+ Premia on operations? A: Ian Marcel Craig Garcia, CEO, explained that Juntos+ has increased monthly active purchasers by 20%, contributing to a 2% incremental revenue from these clients. The Juntos+ Advisor tool has improved geo-efficiency and combined coverages, directly translating to increased market share. Gerardo Cruz Gelaya, CFO, highlighted the success of the Premia Juntos+ loyalty program, which has a high redemption rate and plans to increase enrolled customers and redemption rates further in 2025.

Q: How is the recovery of the Porto Alegre plant progressing, and what were the additional logistics costs incurred due to its closure? A: Ian Marcel Craig Garcia, CEO, reported that the Porto Alegre plant is currently operating at 30% capacity, with expectations to reach 70% by the end of March and full capacity by April. Gerardo Cruz Gelaya, CFO, detailed that the net impact of logistics costs, asset write-offs, and cleaning expenses related to the plant's closure was MXN331 million for the quarter and MXN889 million for the full year.

Q: What is Coca-Cola Femsa's approach to managing capacity constraints and FX hedging for 2025? A: Ian Marcel Craig Garcia, CEO, mentioned that while capacity constraints have been a challenge, they are working to recapture market share lost due to these constraints. Gerardo Cruz Gelaya, CFO, stated that they have hedged 35% of their total FX exposure for 2025, with higher hedging in Colombia at 70%. They have also hedged significant portions of their commodity requirements, such as PET, aluminum, and sugar, across various regions.

Q: How does Coca-Cola Femsa view the competitive landscape in Brazil's beer market, and what are their plans for beer operations? A: Ian Marcel Craig Garcia, CEO, noted that while the SERPA partnership adds a premium brand to their portfolio, it is not a mainstream beer. The competitive intensity in Brazil's beer market is high, and Coca-Cola Femsa aims to complement its portfolio to remain competitive. Jorge Collazo, Investor Relations Officer, emphasized that Coca-Cola Femsa is focused on distribution rather than production in the beer segment, working with partners like Heineken and Galicia.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.