Coca-Cola FEMSA (KOF) Q3 2026 Earnings Call Transcript

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DATE

Monday, Oct. 26, 2026

CALL PARTICIPANTS

• Chief Executive Officer - Ian Marcel Craig Garca
• Executive Vice President and Chief Financial Officer - Gerardo Cruz Celaya
• Investor Relations Director - Camila Ortiz
• Investor Relations - Jorge Alejandro Collazo Pereda

TAKEAWAYS

• Total Revenue -- MXN 79.7 billion, representing a 10.9% increase driven by record volumes and revenue growth management initiatives.
• Consolidated Volume -- 1.1 billion unit cases, a 5.3% increase marking a record third quarter for the company.
• Gross Profit -- MXN 37 billion, yielding a gross margin of 46.5% which expanded 140 basis points due to lower sweetener and PET costs.
• Operating Income -- MXN 11.9 billion, including a MXN 1.1 billion nonrecurring benefit from recovered insurance claims in Brazil.
• Adjusted EBITDA -- MXN 16.8 billion, a 16.2% increase with a margin of 21.1%.
• Mexico Volume -- 4.2% growth, supported by a 70-basis-point value share gain in sparkling beverages as of Sept. 2026.
• South America Revenue -- MXN 33 billion, a 14.7% increase driven by volume growth and a favorable currency translation effect from Colombia.
• Colombia Volume -- 15.9% growth, reflecting higher household purchasing power and regional GDP growth of approximately 3.5%.
• Brazil Volume -- 3.9% growth, with Coca-Cola Zero volumes rising 15% versus the prior year.
• Digital Revenue -- 42% of traditional trade revenues in Brazil, with an 18% increase in average ticket size.
• Mexico Operating Margin -- 14.3%, a contraction of 170 basis points due to higher labor, marketing, and freight expenses.
• Guatemala Volume -- 8% growth, outperforming the nonalcoholic ready-to-drink industry which grew approximately 5.5%.
• 2026 Raw Material Hedges -- 65% for PET requirements, 88% for sugar, 98% for high-fructose corn syrup, and 74% for aluminum.
• 2027 Raw Material Hedges -- 16% for PET requirements, 85% for sugar, 94% for high-fructose corn syrup, and 54% for aluminum.
• Majority Net Income -- MXN 6.2 billion, a 5.5% increase reflecting higher operating income partially offset by higher financing expenses.
• Argentina Performance -- flat volumes year over year, with inflation moderating to 33.4% and a 3.9% increase in sparkling beverage volumes.
• Non-GAAP EBITDA -- 10.6% growth excluding the insurance recovery in Brazil, with a 19.7% margin.
• Mexico Digital Engagement -- 81% customer coverage, resulting in a 19% increase in the time and quality of client interactions.
• Brazil Market Share -- 4 percentage point gain in flavors and nearly 6 percentage points in energy drinks.
• Net Financing Expense -- MXN 2 billion, compared with MXN 1.3 billion last year, primarily reflecting higher interest rates in Brazil.

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RISKS

• Craig stated, "We are quite strained in Colombia and Venezuela. We are quite strained in those two territories... we do not have enough, you know, let's say, breathing room in those in those two countries," regarding capacity constraints due to high volume demand.
• Cruz Celaya noted that "the volatility in currency... resulted in our accounts payable denominated in dollars having a significant impact in our P and L for the quarter," referring to Mexican peso depreciation in late Sept. 2026.
• Craig warned that "the working week is due to change from a 6-by-1... to 5-by-2. That will have an impact across the industry and that is another impact that we need to pass through via RGM," regarding Brazil labor reform.

SUMMARY

Coca-Cola FEMSA, S.A.B. de C.V. (NYSE:KOF) reported record third-quarter consolidated volumes of 1.1 billion unit cases, reflecting growth across all operating regions. Management reported that gross margin expansion was supported by lower sweetener and PET costs and favorable currency translation effects in South America. Operating results in Mexico were impacted by double-digit minimum wage increases and higher freight expenses resulting from volume outperformance in the Southeast region. The company is prioritizing its multiyear digital transformation and an innovation pipeline focused on zero-sugar products and flavored waters to drive further market share gains. Management stated they are maintaining a disciplined hedging strategy for 2027 to mitigate commodity volatility and provide cost visibility.

• CEO Craig stated, "The acceptance by the Mexican consumer of Topo Chico sparkling orange juice and sparkling lemonade has been 180% above what we expected, to the point where we are again with supply shortages."
• The company is rolling out Advisor and Supervisor digital tools for its sales force to provide real-time coaching and order entry capabilities.
• Management reported a 70-basis-point value share gain in Mexico's sparkling beverage category, supported by a focus on affordability and the three-liter Coca-Cola presentation.
• CFO Cruz Celaya indicated that the company expects to announce a new mechanism for capital return to shareholders in early 2027.
• The company is planning a new production plant in Southeast Mexico to optimize its supply chain and reduce long-distance freight costs from its Toluca facility.
• In Brazil, management reported that Coca-Cola Zero volumes rose 15%, while flavors and still beverages grew 8% and 20%, respectively.

INDUSTRY GLOSSARY

• PET: Polyethylene terephthalate, a type of plastic commonly used for beverage bottles.
• HFCS: High-fructose corn syrup, a caloric sweetener used in beverage production.
• RGM: Revenue Growth Management, the practice of using analytics and pricing architecture to drive top-line growth.
• NARTD: Non-alcoholic ready-to-drink beverages.
• Juntos+: The company's proprietary digital platform for business-to-business commerce.
• ATL and BTL: Above-the-line (mass media) and below-the-line (targeted or direct) marketing and promotional investments.
• Excise Tax: A specific tax levied on goods like sugar-sweetened beverages.

Full Conference Call Transcript

Operator: Hello and welcome to the Coca Cola FEMSA Third Quarter 2026 Conference Call. My name is Vinicius, and I will be your moderator for today's event. Please note that this conference is being recorded. For the duration of the call, all participants will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation. To do so, please use the raise hand feature in Zoom we will open your line. If you experience any technical issues during the call, please use the chat function to request assistance. I would now like to hand the call over to Camila Ortiz, Investor Relations Director at Coca-Cola FEMSA. Camila, please go ahead.

Jorge Alejandro Collazo Pereda: 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 early 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.

Ian Marcel Craig García: 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 thousand liters of water 30 thousand meals, and essential supplies to affected communities. We also committed to supporting more than 1 thousand 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 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 lash. 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 profit 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 Orange which have already achieved 70% traditional trade coverage and a 40% repurchase rate. Meanwhile, sell Aguas Fresca's 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 19% versus the prior year and increase 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 1 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 Sugar 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 steel beverages grew 8%, 20%, respectively, versus prior year.

Within our flavors portfolio, we have 1 close to 4 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 nonalcoholic 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. 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 our potential slowdown, 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 nonalcoholic 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 body 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, 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%, 55.9%, respectively. Additionally, our recent launch of Fury, achieved 30% of 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 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 5 key strengths: the power of our brands, our unparalleled distribution reach, consistent investment in 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. For the remainder of the year and into 2027, we are well positioned to capture the significant growth opportunities and untapped potential across our markets. At the same time, we remain vigilant.

And well prepared to navigate financial market volatility and any potential resulting cost pressures. Our revenue growth management initiatives operating efficiencies scale and digital capabilities will remain key levers to support our performance. Looking ahead, I am particularly excited about the pace and quality of innovation we expect to bring to consumers across the region together with our partners at The Coca Cola Company. Their focus on innovation, supported by the Latin America Innovation Hubs, is starting to deliver encouraging results. Recent launches including Coca-Cola Triple Zero, Topo Chico sparkling lemonades and orange dates, Ciel Aguas Frescas and the revamp of Sprite Zero, reflect this moment.

With an exciting pipeline of innovations ahead for 2027, I am confident that the best is yet to come. With that, I will turn the call over to Gerardo to review our third quarter financial results.

Gerardo Cruz Celaya: Thank you, Ian. Good morning. I will begin with an overview of our consolidated third quarter results. Followed by our divisional performance. I will then provide an update on our financing results commodity hedging strategy, and sustainability achievements. Consolidated volumes increased 5.3% year-over-year to 1.1 billion unit cases. Marking a record third quarter volume for Coca-Cola FEMSA. This milestone was achieved by volume growth across all regions reinforcing the strength of our diversified geographic footprint and our ability to adapt our commercial strategies to the distinct consumer dynamics and operating environments of each market. Total revenues increased 10.9% to MXN 79.7 billion driven primarily by volume growth and our revenue growth management initiatives.

These positive effects were partially offset by unfavorable mix and currency translation effects. On a currency neutral basis, revenues increased 11.3%. Gross profit increased 14.5% to MXN 37 billion, resulting in a gross margin expansion of 140 basis points to 46.5%. This improvement was supported primarily by lower sweetener and PET costs compared with the previous year. Reflecting the benefits of our hedging strategy together with the appreciation of most of our operating currencies against the US dollar, which reduced the cost of dollar denominated raw materials. These benefits were partially offset by higher aluminum costs and unfavorable mix effects. On a currency neutral basis, gross profit increased 14.8%.

Operating income increased 15.4% to MXN 11.9 billion, while operating margin expanded 60 basis points to 14.9%, reflecting MXN 1.1 billion related to recovered insurance claims in Brazil. Excluding this nonrecurring benefit, operating income would have increased 7.4% with an operating margin of 13.6%, representing a contraction of 40 basis points. These positive effects were partially offset by higher marketing freight maintenance and labor expenses, as well as a recognition of an operating foreign exchange loss as compared with the gain in the previous year. Adjusted EBITDA increased 16.2% to MXN 16.8 billion, with a margin of 21.1%, representing an expansion of 100 basis points. Excluding the insurance recovery in Brazil, adjusted EBITDA increased 10.6% with a margin of 19.7%.

Overall, these results reflect a strength of our operating performance and our continued focus on balancing sustainable growth with cost management. Finally, majority net income increased by 5.5% to MXN 6.2 billion primarily reflecting the higher operating income This benefit was partially offset by higher income tax and higher net financing expenses, which I will address in more detail shortly. Turning now to our business unit performance. Let me begin with Mexico and Central America. Volumes increased 4.8% year-over-year supported by positive performance across all territories in the business unit. Total revenues grew 8.3% to MXN 46 billion, as volume growth was offset by unfavorable portfolio mix and currency translation effects. On a currency neutral basis, revenues increased 9.3%.

Gross profit increased 11% to MXN 23 billion, resulting in a gross margin expansion of 150 basis points to 49%. This improvement was driven primarily by lower raw material costs, sweeteners and PET. Supported by our hedging strategy and the appreciation of our operating currencies against the US dollar. Operating income declined 3.1% to MXN 6 billion, while operating margin contracted 170 basis points to 14.3%. Despite the year over year contraction, profitability improved sequentially compared with the first 2 quarters of the year, reflecting progress in our efforts to gradually recover margins. However, marketing, labor and freight expenses together with an operating foreign exchange loss as compared with the gain in the previous year impacted profitability.

These pressures were partially mitigated by our hedging strategy. As Ian discussed, our commercial strategy in Mexico continues to focus on affordability. Market share gains, and innovation to better serve new consumption occasions. While this approach has supported our competitive momentum, the increase in the mix of multiserve presentations has resulted in an unfavorable impact on the price mix, putting additional pressure on margins. Looking ahead, we remain focused on progressively strengthening performance through revenue growth management initiatives to improve package mix and profitability, supported by the continued pursuit of procurement, supply chain, and operating efficiencies. Finally, adjusted EBITDA increased 3.1% to MXN 9.6 billion with a margin of 20.8%. Moving on to South America.

Volumes increased 6% to 448 million unit cases supported by volume growth across all countries. Total revenues increased 14.7% to MXN 33 billion driven by higher volumes, revenue growth management initiatives, and a favorable currency translation effect from Colombia. On a currency neutral basis, revenues increased 14.1%. Gross profit grew 19.2% to MXN 14.6 billion, with gross margin expanding 160 basis points to 43.2%. This strong performance was supported by top line growth lower raw material costs, hedging strategy and the appreciation of most operating currencies against the US dollar. These benefits were partially offset by higher aluminum prices. On a currency neutral basis, gross profit increased 18.4%.

Operating income increased 51.2% to MXN 5.3 billion, while operating margin expanded 380 basis points to 15.7%. As I previously mentioned, our reported results included MXN 1.1 billion related to insurance recoveries in Brazil. Excluding this nonrecurring benefit, South America delivered strong underlying profitability, supported by operating leverage, favorable mix, and continued operating expense efficiencies. These improvements were partially offset by higher marketing freight depreciation and labor expenses. Finally, adjusted EBITDA increased 39.7% to MXN 7.2 billion with a margin expansion of 380 basis points to 21.4%. This performance highlights our ability to translate volume growth and improve commercial execution into stronger profitability as our South American operations continues to scale. Moving on to our comprehensive financing result.

We recorded a net expense of MXN 2 billion compared with an expense of MXN 1.3 billion in the same period of last year. This increase was primarily driven by 2 factors. First, higher net interest expenses mainly reflecting the additional debt issued during the first quarter of 26. Second, a loss on financial instruments of MXN 377 million compared with MXN 39 million in the previous year. Primarily reflecting higher interest rates in Brazil. Additionally, we recognized a lower gain in monetary positions in inflationary subsidiaries for MXN 64 million compared to a gain of MXN 136 million recorded in the same period of the previous year. Turning to our commodity outlook. The global raw material environment remains volatile.

Reinforcing the importance of our disciplined hedging strategy and the established risk management framework. Throughout 2026, our hedging positions have helped mitigate fluctuations in key commodity prices providing cost visibility and supporting our profitability. For the year, we have hedged approximately 65 of our PET requirements 88% of sugar, 98% of HFCS, and 74% of aluminum. Importantly, we also continued building our hedging positions for 2027, in line with our established policies To date, we have secured approximately 16% of our PET requirements, 85% of sugar, 94% of HFCS, and 54% of alumina.

Despite the challenging commodity environment, we have been able to capitalize on selective market opportunities to secure part of our 2027 requirements at prices broadly in line with those of 2026. These positions are particularly relevant as we plan for next year providing greater visibility into our expected cost structure and allowing us to mitigate potential pressures our revenue growth management strategy. Before concluding, I would like to highlight an important milestone in our sustainability journey. Coca Cola FEMSA achieved a new record score of 82 in S and P Global's corporate sustainability assessment reflecting our continued progress integrating sustainability into our business strategy and operating model.

This achievement reinforces our commitment to strong governance the continuous improvement of our environmental and social performance. Diversified operations with record third quarter consolidated volumes, and continued progress in profitability. While we faced different challenges and operating conditions across our markets, our priorities are consistent. Driving our commercial momentum improving operating efficiency and maintaining a disciplined approach to capital allocation aiming to achieve sustainable long term growth. With that, we can open the call for questions. Operator, please go ahead.

Operator: Okay. At this time we are going to open it up for questions and answers. A reminder to please limit yourself to 1 question at a time. If you have a question, please click on raise hand. Please remember that your company's name should be visible for your questions to be taken. We do ask that when you pose your questions that you pick up, your headset to provide optimum sounds quality. Please hold while we poll for questions. Our first question comes from Lucas Ferreira with JPMorgan. Sir, you can open your microphone.

Lucas Ferreira: Hi, guys. Thanks for the space for a question. I will keep myself to 1 question then. And my question is on the Mexico business environment. You guys had a very good volume performance in the third quarter. Volumes are back to the levels we were seeing in 2023, 2024 for our third quarter. And also circling that, you know, weak comp of the previous year of 2025. So my question is what to expect from here. So how do you see the consumer and how you guys adjusted your strategy from the second quarter to the third quarter because second quarter, we still saw sort of a turbulent market. How you guys adjusted this strategy?

To keep expanding the market share and how you see, like I mentioned, the consumer as we go into next year. Thank you very much.

Ian Marcel Craig García: Hi, Lucas. How are you? So, this is Ian. So a couple of points. Just if we take a step back the first half of the year, like, you know, was pretty challenging because of the price pass-through of the excise tax, which was very large. So that, really impacted us. And then in July things started gradually looking up. But it is fair to say that we still all the way up to the end of the third quarter had a low base to compare because we still had the consumer backlash last year. So you have to keep that in mind. So, for the fourth quarter, the differences are we started taking, RGM initiatives in August.

And we are probably going to do further RGM initiatives in mid November to make sure we are covering any impacts that we have from both the FX or any raw materials and be able to continue to improve on our profitability. So that is the difference there. And what I would what I would address is within still a tight consumption environment in Mexico, our daily sales are either flattish or in the trend versus prior months or continuing to improve gradually. So you see that small, small improvement And what we think is very exciting is we were not participating in several white spaces, Lucas.

So for example, just mother-in-law research, I mean, the 3 recent launches in Mexico are way above what we expected to the point where we are having supply shortages. To delivering. So Coke triple zero, it is never too late is the idea behind the campaign. And it is amazing because there were a lot of people that are Coke lovers that could not you know, or did not want the caffeine after certain hours in the afternoon, And we are we are untapping that potential with the brand that they love, and it is an incredible formula and brand ID, and it is just getting started. Then we have Ciel Aguas Frescas flavored water.

With tremendous share gains We have not even finished rolling out a new flavor. Or getting enough, share of visual inventory And it is just, the traction that this innovation is having is very, very encouraging. And finally, the largest white space that I think we had was sparkling lemonades and oranges where we were not participating. And that is a segment that has been growing very healthily. And the acceptance by the Mexican consumer of Topo Chico sparkling orange juice and sparkling lemonade has been 180% above what we expected, to the point where we are again with supply shortages. So I would say, wrapping it up because it is a very pertinent question.

That daily trend continues to improve very gradually or be flat versus prior months, but now we do not have the benefit of the base with a lower consumer backlash. That being said, we have stronger RGM initiatives since August and now in November. We are getting ready for that. And we have very good innovations passing through the pipeline. So that is what our growth algorithm for Mexico, Lucas. that is very clear. Thank you, Ian.

Operator: The next question comes from Henrique Brustolin, Bradesco. You can open your microphone, sir.

Henrique Brustolin: Hello, and thank you for taking my question. Mine will also be about Mexico and Central America. But regarding margins. The question is especially how we should think about the SG&A that we see pressuring margins going forward. Right? Because we see these very strong gross margin performance in the region. But throughout the year, SG and A has been a source of pressure. So if you could help us understand how much of that is a deliberate in marketing and commercial activities that you are doing? Versus cost inflation that we may think as being more recurring to just think about the pace of margins and that line going forward? I think that would be very helpful.

Thank you very much.

Gerardo Cruz Celaya: Thank you, Enrique. I will kick it off, starting with, the pressure that we are seeing, which is, I think, a good problem to have, the pace of volume performance has been significantly better than what we had planned for Mexico specifically. This has been driven by a significant increase in volumes in multi serve presentations specifically our 3-liter Coke presentation. This we did not have in consideration in our budget. That has helped in terms of the scale of our business, but also has put a lot of pressure in terms of profitability and in margins.

That, on the revenues, side of it, has been something that we have been dealing with and trying to see how we can mitigate it. Going further down the P and L, the other, I think relevant factor that specifically affected the third quarter is, operative, SIF. The volatility in currency The peso had a significant impact, the depreciation impact in the last part of September. Which resulted in our accounts payable denominated in dollars having a significant impact in our P and L for the quarter.

This is something that we expect, given that we have seen weakness in the peso expect weakness in the peso to continue for the remainder of the year, This is something that we are expecting to continue and are looking to take action to mitigate as we move forward. Those, I think, are the 2 main components.

Ian Marcel Craig García: Jerry, I think we need to add labor. We are going to. what is been happening in Mexico is with the increase in the minimum wage going on a compounded rate that is double digits, The first years of these policies were very, very accretive because even though they pressured labor, our labor expense, the consumption that it brought had a much higher multiplier effect, so it was a net positive. Now more and more, the current level of the minimum wage when there is a large impact it translates into impact into other categories or levels of collaborators that are not at the minimum wage.

We do not have anyone really at the minimum wage, but that go further up the chain so it has a larger compounding impact on labor cost. So that is that is why I was telling, Lucas, Henrique on the prior question that we are, we need to be on our very fine-tuned, and that is where Jerry and his team come in. To any potential impacts from FX, from labor, and have ready the RGM initiatives that we need to cover the quarter whenever we have any of those impacts.

So I think we are very fine tuned Any of those impacts come across to all of the industry, so we are very comfortable with RGM initiatives that are done to undertake offsets to those types of impacts because they might have a 1-quarter lag, but that is about it. Because when they are industry wide like this, we feel pretty confident that we can navigate them but we need to be very, very fine-tuned to adjust the timing, and that is where Jerry and purchasing team and the hedging team come in.

Gerardo Cruz Celaya: 1 last factor, Enrique, that is also related to the volume outperformance that we have had and especially the mix. Is our freight expenses have increased significantly versus last year. We have had to ship mainly to the Southeast Of Mexico A lot of product from our Toluca plant, that has resulted in an increase in freight expenses. This is something that, obviously, we are looking to address taking care of efficiencies in our existing plants in the Southeast and a longer term project of a new plant in that region. I will just add that despite these pressures, we have seen sequential improvement in profitability compared to the first 2 quarters given the strong volumes.

And the gradual recovery of operating leverage as well as. that is very clear.

Analyst: Thank you very much. Thank you, Henrique.

Operator: Our next question comes from Benjamin Theurer from Barclays. You can open a microphone, sir.

Rahi Parikh: Hi. This is Rahi on for Benjamin. Just looking at Brazil, what should we expect to your strategy given potential fiscal changes, specifically if you see some excise taxes or taxes on CSDs? Just looking for more color on how you might mitigate the impact of volume that the price increase would have. Thank you.

Ian Marcel Craig García: Hi, Rahi. So in the case of Brazil, I think you know, we. There is a selective tax that is due to come in with the tax reform We are in close conversations with the government relating to that tax, looking for it to not have an impact, I. E. Meaning that the new tax be the same as what we have, But we cannot really comment on what the government is finally going to put through. So, I prefer to defer yet on this answer because until we. The government actually comes out and sends the measure, we do not know exactly the amount that it will be.

What we can tell you is, again, anything that comes through, if it is not a neutral, movement. We would need to be very, agile and move swiftly with our RGM initiatives. To cover 100% of that impact. So in the bill, I mean, we have built a formidable share cushion. So the level of share that would. That we have been able to capture in the last 3 years has just been very large. So I do not foresee any scenario where if for whatever reason it is not neutral, we would not do a full RGM pass through of this. Okay? Then there is also the impact You did not ask about it, but it is in Brazil.

Of the reduction in the work schedule. That will also have an industry wide impact, so the working week is due to change from a 6-by-1, 6 working days to 1 rest day to 5-by-2. That will have an impact across the industry and that is another impact that we need to pass through via RGM. Okay? So For both, I cannot tell you the amount of the tax, because we are hoping it is neutral, but we do not know. But when we know, we will. If it is not neutral, we will need to adjust it. And in the case of the work week, we are not going to.

Besides the productivity initiatives, there is a gap that we cannot, cover on that, and we would be adjusting that via RGM. Okay?

Analyst: Yeah. Makes sense. Thank you so much. Thank you.

Operator: Our next question comes from Alvaro Garcia with BTG Pactual. You can open a microphone.

Alvaro Garcia: Hey, Ian Jerry. Hope you are doing well. My question is on Juntos+ and Premia and Premia Points incentive structures. You know, it is been a couple years now. Of really leaning into what I think has been very productive incentive structures for you. And I was wondering when you think of guided missions, you think of what you have got in your key clients to do, Like, what. what is next on that front? where do you think you can take that going forward? Thank you.

Ian Marcel Craig García: Hi, Alvaro. So, I mean, the I think with Juntos+, it is pretty much where we need it to be. Right now, the team is working on basically fine tuning the algorithms to help increase the ticket. I think on the app, you know, it. it is pretty much just smooth sailing. And the new features that are coming on are all looking to improve the customer experience and increase the average ticket. We are not going to get very large gains from widening the base because it is already pretty much available everywhere, and it is just a natural trend of digitalization, which has different bases in the different countries.

But we do see that when we keep refining our tools, the average ticket continues to provide a premium and the indicators, regarding, you know, improved coverages help us improve that ticket and improve share. What is going to be making a lot of difference to us is the adviser tool. So our Juntos+ Advisor Salesforce tool. There we only have it in Brazil with order entry. Have it in Mexico without order entry. So we will be rolling out in Mexico the order entry this year. And we will be rolling it out in the rest of LatAm without order entry. And there are a lot of benefits from the adviser tool for the sales force.

So there, like I said, there is improved visitation. Improved combined coverages. That time and quality of the visits improve and we see that translating direct into improved execution and market share. So for this year, we are seeing a lot of improvement coming up from the adviser sales force tool rollout, which that is finalizing. Sorry, going along for this year. And then we are going to be, coming out Brazil with a sales supervisor tool, which is fantastic. So think of it this way. The first thing that we did was hand the app to our clients so they have the best technology.

Then we handed it to our sales force in Brazil with order entry, in Mexico without order entry, and it is going to. we are going to be rolling out the order entry and the different modules for the sale. And now we are--we are rolling out the Salesforce supervisor tool. So it is incredible. So, what we are piloting now it is amazing. So the supervisor sees you know, where are the gaps, what exactly he needs to coach which sales, personnel on, where he needs to reinforce the positives of the of the sales team. And all of this is done in real time. So it is not waiting till the end of the month.

To see or the end of the week how things are going. So I think that is going to be the second part of the uplift. We are pretty excited. I think that the digital piece like I mentioned, is 1 of our 5 key strengths, and it is only going to keep growing. But it is going to be coming now from the sales adviser tool and from the supervisor tool more than from the app in our opinion, Alvaro. That was very--guys, do you want to complement them. No.

Alvaro Garcia: That was great. Thank you. That was very comprehensive. It will be interesting to see, you know, how it works and tougher macro environment. Thank you. Thank you, guys.

Operator: Our next question comes from Emiliano Hernandez from GBM. You can open your microphone.

Analyst: Hi, Emiliano. Thanks for the space, and congrats on the results. Going back to Mexico, following the recent pricing, how has the initial consumer response been? And also, looking ahead to 2027, do you see room to implement inflation link price increases at the beginning of the year, or would you prefer to maintain a more conservative pricing strategy to support, you know, volume growth and further market share gains? Thank you very much.

Ian Marcel Craig García: Hi, Emiliano. So the August adjustment where we finalized closing the gap between the tax and inflation, was well digested. We have to be cognizant that the consumption environment remains tough. But anything that we see now is going to be pretty much across the industry. So different to that tax where we were very conservative and moved gradually on the tax and inflation impact because it was so large and we are very confident we did the right NPV strategy, like we mentioned, we have seen other territories of, for example, other bottlers within our territory. Performing much different. So we are confident that was the right strategy.

We are also pretty clear that going forward, from what is coming which is, you know, relating to labor, or FX and the trickle down to raw materials, we need to be very vigilant and pass through immediately via the best RGM, strategy that we can do. Any type of impact. So it is not going to. We have enough of a shared cushion We are also, you know, with positive momentum, the innovations give us a lot of support for this. I mean, they are amazing. I cannot I cannot overstate enough how well they are being they are being received by the market. And the pipeline that is coming is very strong.

So I think we are in a good position to be able to be vigilant with RGM so that we do not see any impact or we make sure to adjust for any impact, and we will still be able to deliver share gain I am pretty confident of that.

Gerardo Cruz Celaya: Right now, Emiliano thinking of 2027, I think, this would be the first of the last 3 years where we have I would say, a fairly normal operating year, at least this is our And as Ian mentioned, with the innovation pipeline that we have, that is supporting, growth and on the back of share performance that we have had given the strategy that we pursued of maintaining our presence with the consumer this year. Think we are moderately optimistic, moderately optimistic on the outlook for next year that we can start taking the just the benefits of, this MPV multiyear strategy that we that we started out this year. So, that is a little bit of where we are.

Analyst: that is great. Very clear. Thank you, and congrats again.

Operator: Our next question comes from Henrique Morello with Morgan Stanley. You can open a microphone, sir.

Henrique Morello: Hi, Ian, Gerardo, Camila, so much for taking my question. Congratulation on the results. I have just a quick 1 question on capital allocation. So in the past few quarters and conference calls, you have been talking about possibilities on addressing the balance sheet, the low leverage, possibilities around that. And so my question is if anything changed your mind right now in terms of priorities, capital allocation given the. This quarter's results? And how is your mind on the possibilities around, potential extraordinary dividends or buybacks in the next 12 months or so as well. Thank you very much.

Gerardo Cruz Celaya: Thank you, Enrique. So as we had discussed earlier in the year, given that the excise tax that came, in Mexico as a very quick surprise by the end of last year. We wanted to wait a little bit and let this year work out to see how things would move. We are finalized with the analysis that we were looking into, we expect to have news for you on what the mechanism of capital return for shareholders will be that we will put in place earlier in next year.

Henrique Morello: that is clear, Jerry. Thank you. Thanks, Enrique.

Operator: Our next question comes from Thiago Bortoluci with Goldman Sachs. You can open a microphone, sir.

Thiago Bortoluci: Yes, hey guys. Good morning. Thank you very much for the space for questions. On the forward, right, we are just entering the El Nino season, and we are seeing different impacts across the region. Obviously, a lot of weather this disruptions. And although we recognize it is too early and no 1 really knows how the final impact will be, what can you share, with us about what you are seeing in this first months and how are you preparing for this season? Thank you very much, particularly on the side of demand. Thank you very much.

Ian Marcel Craig García: Hi, Thiago. So I hope you are not going to hold me to a weather forecast because it is not my expertise, but what we have been seeing, you know, it is sort of neutral in Mexico. Between temperature and rainfall overall in our territories. Like I say, sort of neutral versus other years. So we have some colder weeks, but we have also had some warmer weeks. it is it is a little bit drier now. So it is pretty neutral. It tends to be positive so far in Central America Colombia, Venezuela. And in the case of Brazil and Argentina, it is been wetter. So it is been more negative, there.

So that is more or less what we are seeing, but it is anyone's guess how that behaves. In terms of how we get ready for, you know, high season in South America and the holiday season in Mexico. I think, we are well positioned, in pretty much every market in terms of either our inventory strategy except for Colombia. We are quite strained in Colombia and Venezuela. We are quite strained in those 2 territories, quite strained So the volume growth has you know, surpassed any expectations. You know, it is it is high double digits in both countries. So in those 2 countries, we are strained for capacity. Our inventories are very, very low.

So we do not have enough, you know, let's say, breathing room in those in those 2 countries. We are investing behind them. But it is really a tough, supply scenario. For the rest, I think we are very. Quite well positioned.

Thiago Bortoluci: This is helpful. Thank you very much, Ian. Thank you.

Operator: Our next question comes from Felipe Ucros from Scotiabank. You can open your microphone.

Felipe Ucros Nunez: Yeah. And Jerry, Camila, I think most of my questions were asked, but I have a small 1 on SG&A in LatAm. When I back out insurance claims from Brazil, it looks like there was a bit of SG&A pressure in LatAm, a little more than work for the coming quarters. Thank you.

Gerardo Cruz Celaya: SG and A pressure in LatAm was a question. So stripping out the insurance. Excluding, yes, excluding the insurance effect, I believe the question, if I heard correctly, is pressure on SG and A in LatAm, right? So that is correct.

Ian Marcel Craig García: 1 of the components, Ian was addressing in the previous question, and it relates to demand outpacing forecasts, especially in Colombia. So this operation, striving to get, capacity to where demand is, and this has, resulted in an increased significant increase in freight expenses, which is pressuring SG and A for that operation. And also labor expenses overall have been pressuring the results in all of our operations.

Gerardo Cruz Celaya: I will just add, Felipe, that, remember that also the base has 180 million pesos of insurance recoveries that you should also adjust for.

Ian Marcel Craig García: With that, excluding the in both periods, the benefit of the insurance, Latin America. Sorry. South America grew 29% EBIT. So it is an underlying really strong performance from, as Jerry was mentioning, mostly Brazil and Colombia, but all of our operations are growing well in the double digits operating income.

Felipe Ucros Nunez: Very clear. Thanks a lot for that, guys. Thank you.

Operator: Our next question comes from Alejandro Fuchs from Itau BBA. You can open a microphone, sir. Thank you, operator. Thank you for the space for questions.

Alejandro Fuchs: Congrats on the results. I just had a very quick 1. Regarding 1 of Gerardo's comment about how being 2027 a much more normalized year. When we look at, you know, the largest 2 countries of your operation, it seems that next year, SG and A pressure will continue. Right? You have labor reforms on the working week on both countries. Minimum wage, as Ian was explaining, maybe in. Increasing a little bit as well and pressuring. An already high SG and A pressure this year. So I wanted to understand a little bit the more normalized year for the operation. Is it because you expect maybe top line and volumes, you know, to be even better than this year.

Wanted to understand a little bit your expectations maybe on the consumer front demand for Mexico and Brazil for next year? Thank you.

Gerardo Cruz Celaya: Specifically, Alejandro, for Mexico, my comment was related to having had the consumer backlash in 2025. And the excise tax increase in 2026, Right now, we are not foreseeing, any of those sorts of impacts. For 2027, and we are planning obviously a more normalized year in terms of, exogenous factors. Affecting our performance. I think the pressures that we have seen in terms of, labor, increases, the minimum wage increase, and Ian was, explaining it, with a lot more detail, the impact that has in terms of the spiral effect in labor expenses and increases given that the minimum wage gets closer to our base entry level wages that pressures the next level and so on.

That puts a bit of pressure We think of that as a regular course of business for our operations, not as a extraordinary impact. This specifically for the case of Mexico. For the case of Brazil, we do have the labor reform, as an extraordinary impact for 2027 expected. Which as Ian mentioned, we plan to address through productivity initiatives as well as our GM. We understand, obviously, this is an impact that will affect the industry as a whole. So the space that we have built in share allows us to pass through any of these impacts to the consumer with reasonable impact and demand.

Alejandro Fuchs: Super clear. Thank you, Gerardo.

Operator: Our next question comes from Ulises Argote with Santander. You can open a microphone, sir.

Ulises Argote Bolio: Hi. Thanks for this phase 4 questions. 1 more on Mexico from my side. I was wondering if you could provide any details there on the performance on the different channels and maybe some insights as to how you are seeing competitive environment developing, I think, particularly in the center of the country would be interesting to hear. Thank you.

Gerardo Cruz Celaya: On channel performance, what we have seen, Ulises, this year and this is by design. As you remember, at the beginning of the year with the excise tax coming on, we decided to maintain, our competitive and our scale, especially in the traditional trade favoring affordability. This has been the goal throughout the year, understanding the impact that the excise tax has on disposable income. This had resulted in an unusual behavior in terms of channel. This year with the traditional trade reclaiming a bit of a space versus modern trade and others.

Even though, this quarter, we are seeing, all channels growing, Traditional trade has been outperforming. which is good for our business in terms of maintaining contact with the market, with the point of sale, and positioning our portfolio well with that focus in affordability. As Ian mentioned, this has, given us cushion in terms of share, to address how we start 2027, and we close out this year.

Jorge Alejandro Collazo Pereda: Just to complement, Jerry, on that, Ulises, the consumer environment remains challenging and also the performance of the channels talks to that. Year to date, the traditional trade is gaining a couple of points to the modern trade. So also talking about, you know, the consumers looking for that affordability on the on the market So we will continue to, work on our price pack architecture and, you know, serve the different channels, but, still the traditional trade right now, it is gaining a couple of points year to date.

Ulises Argote Bolio: that is very clear. Muchas gracias. Our next question comes from Fernando Ferreira from Bank of America.

Fernando Ferreira: Hi. Hello, thanks for taking my question. Just a follow-up regarding South America. As you mentioned, excluding the insurance gain margins keep improving. So can you give us some color on how margins behave by country in South America? And in which country did you see further room for improvements going forward? Thank you.

Gerardo Cruz Celaya: Thank you, Fernando. I will kick it off. And this has been a multiyear initiative that we have, and have stated publicly. Both Brazil and Colombia had been coming off as our operations with the biggest head space in terms of profitability improvement. I think Brazil is a little bit ahead, as compared to Colombia. Having had, significant gains for the past few years. So even though we still have, some headspace and considering, Brazil this year had the extraordinary insurance recovery, we still have a few points of profitability to gain to get, Brazil to where we want it to be.

In the case of Colombia, this is the first year of the past 4 where we have had a significant gain in profitability. As you remember, Colombia had, the excise tax implemented. That was a 3-year, 3-step, tax. Which basically what ended up happening is any price increase that we were taking was just going to compensate for the excise tax there. This is the year where we finally cycled the effect of the excise tax and we were able to have all of the productivity gains efficiencies put in, and RGM initiatives flow through our p and l.

Having a year of significant gain in and Colombia still has a lot of room, to improve, and this is the focus, that our team has in Colombia for our long term, plan to continue improving both profitability and return on invested capital. So those 2 operations I would highlight. And the third operation that I think is worth mentioning, a smaller operation, but Panama where we went through a reset of our port to address a competitive as a competitive situation that we were facing there. We had a significant drop in profitability in our Panama operation and the last 2 years, we have been working on regaining that.

That will be a long term project as well, but moving in the right direction and, certainly excited of the results that we are seeing of the plan that we put there in place.

Jorge Alejandro Collazo Pereda: I will just add that also this is the result of the, you know, the 3 year period of highly investing in the different regions. On distribution and production capabilities, which are right now reflecting on profitability and reducing our cost to serve So also, there is still room to continue to capture those efficiencies on the investments we have done in the past.

Fernando Ferreira: Oh, this is great. Is this possible to have what is the, the level of EBITDA margin in Brazil and Colombia?

Gerardo Cruz Celaya: I mean, any idea that you can share We do not give out the specific details, by country, Fernando. We would be glad to address generals with you on a separate call.

Fernando Ferreira: Okay. Oh, perfect. Thank you so much. Thank you.

Operator: Thank you. This concludes the question and answer section. At this time, I would like to turn the floor back to Mrs. Camila for any closing remarks.

Jorge Alejandro Collazo Pereda: Thank you, everyone, for your continued interest in Coca-Cola FEMSA and for joining us on the call today. As always, the IR team is available to answer any follow-up questions. Thank you. Have a great day.

Operator: Thank you. This concludes today's presentation. You may disconnect now. And have a nice day.

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