管理層發言
Hello, and welcome to the Coca-Cola FEMSA Second 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. I would like to hand the call over to Pamela Ortiz, Investor Relations Director at Coca-Cola FEMSA. Pamela, please go ahead.
Good morning, everyone, and welcome to Coca-Cola FEMSA's Second Quarter 2026 Results Conference Call. Today, we are joined by Ian Craig, our CEO; Gerardo Celaya, 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 right hand feature in your Zoom toolbox. With that, let me turn the call over to Ian, our CEO, to begin our presentation about the second quarter results. Ian, please go ahead.
Thank you, Pamela. Good morning, everyone. Before reviewing our second quarter results, I would like to take a moment to address the earthquakes that struck Venezuela on June 24. This unfortunate tragedy resulted in loss of life, thousands of injuries and significant displacement across affected communities. It has impacted many people throughout the region, including employees of Coca-Cola FEMSA Venezuela and their families. We extend our deepest condolences to those who have lost loved ones and express our solidarity with everyone affected by this tragedy. Our immediate priority has been to support our employees and their families as well as the impacted communities with broader support from FEMSA and the Coca-Cola Company. We are contributing to the humanitarian response, including the donation of more than 100,000 liters of water and other essential emergency supplies to communities in need. We remain closely engaged with the team on the ground and will continue supporting our people and the broader community as recovery and rebuilding efforts progress. Now let me walk you through our consolidated results. Our second quarter showed sequential improvement at the consolidated level, driven mainly by record second quarter volumes in Brazil, Colombia and Guatemala, where we continue to drive growth in the industry. At the same time, Mexico continued to face headwinds from the excise tax increase and the softer consumer environment. Against this background, we remain focused on implementing our sustainable long-term growth strategy, continuing to gain share across markets and categories and capitalizing on the FIFA World Cup opportunity. The FIFA World Cup represented a brand-building platform across our territories this quarter. We executed a comprehensive 360-degree plan combining exclusive customer promotions such as Panini stickers, special edition cans, people merchandise and our red tide execution around stadiums, particularly in Mexico City. This integrated approach strengthened consumer engagement, translated into incremental demand and reinforced the positive momentum of our brands throughout the world. The final tally of the FIFA World Cup resulted in new highs in key Coca-Cola trademark brand engagement metrics such as reputation and positive brand purchase consideration, among others. Across our operations, this reinforced the platform's role as a long-term brand-building investment. Moving on to our quarterly results. Consolidated volume for the second quarter grew 3.5% to reach 1.1 billion unit cases. This growth was driven mainly by volume increases across most of our operations, partially offset by a volume contraction in Argentina. Total revenues for the quarter grew 4.7% to MXN 76.3 billion. This increase is explained mainly by our volume growth and revenue growth management initiatives, which were partially offset by unfavorable mix and currency translation effects. On a currency neutral basis, total revenues increased 6.6%. Gross profit increased 8.8% to MXN 35.9 billion, leading to a margin expansion of 180 basis points to reach 47.1%. This positive performance was driven mainly by favorable sweetener and PET costs as compared with the previous year, reflecting the benefits of our disciplined hedging strategy, together with the appreciation of most of our operating currencies as applied to dollar-denominated raw material costs. These effects were partially offset by higher aluminum costs. On a currency-neutral basis, gross profit rose 10.7%. Operating income rose 9.1% to MXN 10.7 billion, while operating margin expanded 60 basis points to 14%. This positive performance benefited from the recognition of MXN 265 million in recovered insurance claims in Brazil. Excluding this insurance recovery, operating income would have increased 6.4% with operating margin expanding 20 basis points to 13.6%. Our operating leverage and expense efficiencies, particularly in labor and rent, drove this normalized margin expansion. These benefits were partially offset by higher freight and marketing expenses, as well as a lower operating foreign exchange gain compared with the prior year. Adjusted EBITDA for the quarter grew 12.1% to MXN 15 billion, and EBITDA margin expanded 130 basis points to reach 19.7%. Excluding the effects of the insurance claim, adjusted EBITDA grew 10.1% and EBITDA margin expanded 90 basis points to 19.3%. Finally, our majority net income grew 16.9% to MXN 6.2 billion, mainly reflecting higher operating income and a lower effective tax rate. This growth was partially offset by an increase in our comprehensive financial result, which Gerardo will discuss in more detail later. Turning now to our key markets. Let me highlight the main operational and strategic developments during the quarter. In Mexico, volumes increased 1% year-over-year. As I mentioned earlier, our quarterly results continue to reflect headwinds from the excise tax increase and softer consumer dynamics. However, our sustainable growth strategy, supported by strong commercial execution and the FIFA World Cup, continued to deliver share gains, which will enable us to emerge stronger and return to growing the industry. Being a host country for the FIFA World Cup represented an important brand engagement opportunity for Mexico specifically. Incremental demand was primarily generated in colder cities through Fan Fest activations and other consumer touch points, while non-host cities experienced a more limited impact. For its part, Powerade delivered an uplift of 150 basis points of market share while generating strong positive brand buzz, supported by its prominent role within the World Cup activations and a dedicated 360-degree commercial plan that included the launch of Powerade Edge and limited edition flavors. Perhaps more importantly, the quarter demonstrated the effectiveness of the strategy we implemented following the excise tax increase designed to deliver sustainable growth, strengthen our competitive position and ultimately to return to growing the industry. This strategy was built on four complementary pillars. First, we adopted a differentiated revenue management approach, improving our relative price positioning in regions with high competitive intensity. As part of this pillar, we continued reinforcing affordability through returnable and multi-serve presentations. Returnable offerings, including our 2-liter PET returnable presentation, have successfully expanded household penetration without cannibalizing our one-way portfolio. Second, building on the momentum of the Coca-Cola Zero playbook, we continued expanding this segment, which grew 24% year-on-year, while leveraging the FIFA World Cup. Third, we strengthened our core flavors portfolio and heritage brands, ensuring consumers can access their favorite beverages across multiple price points and consumption locations. Fourth, we innovated and launched offerings in underrepresented segments such as our recent launch of Cielas Frescas, which has been positively received by consumers. Supported by our state-of-the-art digital initiatives, these four pillars have translated into a stronger competitive position across channels. For instance, our Juntos+ platform maintained strong momentum with digital sales now representing 38% of traditional trade and 19% of total revenues. We strengthened execution at the point of sale by increasing purchase frequency, improving average ticket and expanding cooler coverage. Looking ahead, we expect the consumer environment in Mexico to remain subdued; we will continue strengthening our competitive position through affordability, accessible price points, innovation and digital execution, positioning us well to deliver profitable long-term growth. In Guatemala, volumes grew 3.4% year-over-year, supported by a stronger consumer environment and disciplined execution across our portfolio. Economic activity continued to improve during the quarter, supported by stronger household consumption and resilient remittances, which grew 7.5% year-over-year. Looking ahead, GDP growth should remain supported by consumption, remittances and favorable demographics with the population increasing approximately 1.3% annually which is above the broader Latin America average. In this context, our strategy remains focused on unlocking volume opportunities through market development and consistent execution. We continue to drive per capita consumption by expanding affordable price points and strengthening our one-way and multi-serve portfolio. This approach supported strong momentum in sparkling beverages, where our share increased by 90 basis points year-over-year. We also expanded our still beverage portfolio with a more competitive and differentiated offering, enabling us to reach more consumers and consumption occasions beyond the strength of our core brands. We continued accelerating our customer expansion by capturing white space opportunities and investing in coolers. Our customer base grew 5.2% to approximately 156,000 customers, while cooler coverage increased 40 basis points to 78.8%. Overall, Guatemala offers a compelling combination of healthy consumer fundamentals, favorable demographics, expanding customer coverage and significant room to increase per capita consumption. We remain confident in our ability to convert these opportunities into sustainable volume growth and profitability over time. Turning to Brazil, our volumes increased a solid 5.2%. Despite high interest rates, low unemployment and real income growth continued providing support for consumption. In this environment, our Brazil operation continued to outperform the industry through disciplined commercial execution and digital capabilities as well as by capitalizing on the FIFA World Cup opportunity. As a result, we continued gaining share across key categories within the nonalcoholic ready-to-drink industry. Our core portfolio delivered growth across our three main buckets: first, within our Zero Sugar portfolio, Coca-Cola Zero grew 15% and spread triple digits; second, flavors reached double-digit growth supported by Sprite and Fanta; and third, stills delivered 23% growth driven mainly by Monster, teas and sports drinks with Powerade. In sparkling beverages, our single-serve mix was another highlight of the quarter, improving 2.6 percentage points compared to March 2026, reaching 28%. We drove this result by capitalizing on the FIFA World Cup and Panini exclusive stickers in our 600 ml Coca-Cola presentations. This not only increased transactions but also provided a positive tailwind to our profitability. We also continued to strengthen our commercial capabilities through digital transformation. We're leveraging Juntos Adviser, our next-generation platform, to provide supervisors and frontline teams with better insights, suggested ordering capabilities and enhanced commercial execution. These investments are helping to improve assortment quality, increase average ticket and further strengthen customer relationships. Looking ahead, we expect election-related spending and strong execution to support the second half of the year, while we continue to closely monitor regulatory developments that could result in a more challenging backdrop in 2027. However, we remain confident in the long-term growth opportunity of the Brazilian market and in our ability to continue delivering long-term growth. Turning to Colombia. Volumes increased 17.7% year-over-year, supported by minimum wage increases, an improving consumer environment and strong execution across our portfolio. Macroeconomic indicators continued to improve during the quarter. Unemployment declined to 8% in May, its lowest level for that month since 2001, while consumer confidence reached the strongest sustained recovery since 2015. Although job creation remains supported in part by the public sector and formal employment remains structurally high, the overall macroeconomic backdrop points to a gradual improvement in the consumer environment. Our affordability strategy in colas continued to deliver results supporting further market share gains in the one-way portfolio. At the same time, we continued strengthening our position in flavors delivering 27.2% quarterly volume growth supported mostly by Cuatro, our grapefruit flavor, and Sprite. We also continued advancing our strategy in still beverages by prioritizing profitable growth in margin-accretive categories. Powerade and Monster were among the strongest performing brands in the quarter, allowing us to capture attractive growth opportunities while improving the quality of our portfolio. Our digital capabilities remained another important driver of execution. Through our Juntos+ platform, we continued increasing customer engagement, helping us to improve ordering frequency, strengthen assortment and deepen our relationships with our customers. Overall, Colombia delivered a strong combination of volume growth, share gains and operating leverage underscoring Colombia as one of our key growth markets. In Argentina, volume decreased 2.8% year-over-year, mainly reflecting a truck driver strike that affected the beverage industry within our region, together with continued softness in consumer demand. Although macroeconomic conditions have continued to stabilize, the recovery in consumption has been slower than anticipated, with consumers increasingly prioritizing value and affordability in their purchasing decisions. Against this backdrop, our strategy remains focused on strengthening affordability while continuing to refine our revenue growth management capabilities to ensure consumers have access to the right price-pack architecture options across channels and occasions. This approach has enabled us to preserve the affordability of our core sparkling portfolio while strengthening our competitive position, contributing to a 100 basis point increase in our CSD market share. We also continued reinforcing our leadership in flavors, mostly capitalizing on the strong momentum there. Beyond sparkling beverages, we remain focused on growing profitable NCB categories, which posted year-over-year volume growth. While the competitive environment remains intense, particularly with increased pressure from value-oriented and B-brand offerings, we remain confident that our affordability strategy, disciplined commercial execution and balanced portfolio position us well to continue strengthening our competitive position as consumer demand gradually recovers. This quarter once again demonstrated the value of our long-term sustainable growth model. While Mexico navigated a more challenging consumer environment, we are laying the foundations to emerge stronger and grow our industry. In our South American operations, particularly Brazil and Colombia, we continue to deliver industry growth, strong volumes and profitability. This geographic diversification, together with our ability to capitalize on markets with stronger momentum while maintaining disciplined execution across the region, continue to support our consolidated results. With that, I will hand over the call to Gerardo to expand on our division's results.
Thank you, Ian, and good morning, everyone. Expanding on our division's results for the quarter. In Mexico and Central America, our volumes increased 1.4% supported by volume growth across all territories in the division. Revenues were flat at MXN 45.4 billion as our volume growth was offset by unfavorable mix and currency translation effects into Mexican pesos. On a currency-neutral basis, revenues increased 2%. For its part, gross profit increased 3.9% to reach MXN 22.2 billion, resulting in a gross margin expansion of 170 basis points to 48.9%. This margin expansion was driven mainly by lower raw material costs, particularly for sweeteners and PET, reflecting the benefits of our hedging strategy together with the appreciation of the operating currencies in the division as applied to our U.S. dollar-denominated raw material costs. Operating income in the division declined 7% to MXN 6.4 billion and the operating margin contracted 110 basis points. This decline is mainly explained by higher expenses such as marketing and freight, coupled with a lower operating foreign exchange gain as compared with the prior year. These factors were partially offset by operating expense efficiencies such as labor. Finally, our adjusted EBITDA in the division remained flat at MXN 9 billion with an EBITDA margin of 19.7%. Moving on to South America. Volumes increased by a solid 6.9% to 426 million unit cases. This increase was driven mainly by volume growth in Brazil and Colombia that was partially offset by volume contraction in Argentina. Revenues in South America increased 11.8% to MXN 30.9 billion, driven mainly by volume growth and revenue management initiatives which more than offset unfavorable currency translation effects into Mexican pesos from most operating currencies in the division. On a currency-neutral basis, total revenues in South America increased 14.1%. Gross profit in the division increased 17.7% to reach MXN 13.7 billion, and gross margin expanded by 220 basis points to 44.4% driven mainly by favorable mix, coupled with lower raw material costs and the appreciation of most of our operating currencies as applied to our U.S. dollar-denominated raw material costs. These effects were partially offset by higher aluminum and secondary packaging costs. On a currency-neutral basis, gross profit increased 20.1% year-on-year. Operating income in South America rose 46.5% to MXN 4.3 billion, while operating margin expanded 330 basis points to 13.9%. As Ian previously mentioned, this quarter we recognized insurance claims in Brazil for MXN 265 million. The improvement in operating income was driven mainly by operating leverage, coupled with expense efficiencies such as rentals and labor. These efficiencies were partially offset by higher marketing and freight expenses. Finally, adjusted EBITDA in the division increased 35.6% to MXN 6.1 billion, for a margin expansion of 340 basis points to 19.6%. Now let me expand on our comprehensive financing results, which recorded an expense of MXN 1.3 billion as compared to an expense of MXN 1.2 billion during the same period of the previous year. For the quarter, the increase was driven mainly by the following factors: First, we recognized higher net interest expense, mostly as a result of the issuance of new debt during the first quarter of 2026. Second, we recognized a lower gain in financial instruments of MXN 88 million compared to a gain of MXN 154 million in the prior year, primarily reflecting the valuation of matured financial instruments and lower rates in Brazil. Finally, these effects were partially offset by a higher foreign exchange gain of MXN 96 million during the quarter as compared to a gain of MXN 55 million in the same period of the previous year. This was driven mainly by the appreciation of the Mexican peso as applied to our U.S. dollar-denominated net debt. As I mentioned during our previous earnings call, the global commodity environment remains volatile. As such, we continue to lean on well-established protocols and governance structures that enable us to plan, respond and adapt effectively our hedging strategy. Providing an update for this year, we have hedged 65% of our PET requirements, 96% of sugar, 98% of HFCS and 73% of aluminum. In addition, following our policy, we are already taking hedges for 2027, resulting in approximately 80% hedging for sugar, 80% for HFCS and 54% for aluminum. This allows us to reduce short-term volatility and provide visibility for the upcoming year. This disciplined hedging strategy, together with our continued focus on cost and expense optimization, provides greater visibility over our input costs, allowing us to plan ahead with greater confidence while protecting margin over time. Let me briefly address our capital allocation priorities. First, we will continue investing behind the business to support long-term profitable growth. While our capital intensity is naturally moderating after several years of expanding our capacity, for 2026 we continue to expect CapEx to be between 7% to 7.5% of revenues. At the same time, we continue to invest selectively where additional capacity is needed. Recent examples include the inauguration of our new PET production line in Costa Rica and our new aluminum can line in Uruguay, both of which enhance our manufacturing capabilities and position us to support future growth across those markets. Second, we remain attentive to M&A opportunities that meet our strategic and financial criteria. We have a strong track record of disciplined capital deployment, and that approach remains unchanged. Third, returning capital to shareholders continues to be an important component of our capital allocation framework. We have been conducting a comprehensive review to evaluate the alternatives available, and we will share updates as this process evolves. Turning to sustainability. The Mexican Stock Exchange recognized Coca-Cola FEMSA with the best total score in the Mexico CSA 2025 award, positioning us as the leading sustainability performer among the listed companies evaluated. We also received the highest distinctions in the environmental, governance and economic categories. These recognitions reflect the consistent execution of our sustainability strategy and its integration across our operations. Before turning over the call for questions, I would like to share an update regarding our Investor Relations team. As you may have seen in this morning's earnings release, Pamela Ortiz will become Director of Investor Relations. Pamela brings extensive experience in capital markets and investor relations, including her previous role as Investor Relations Manager of FEMSA. Jorge Collazo, who has been part of the Coca-Cola FEMSA Investor Relations team since 2016, will take on a new responsibility as Strategic Planning Director for Coca-Cola FEMSA Brazil. In addition, Lorena Martin, currently Investor Relations Manager, will assume a new role as an FP&A Manager at our LatAm division, while Natalia Sariniana will become Investor Relations Manager. They've been working closely together to ensure a smooth transition and continued support for our investors and analysts. With that, operator, we're ready to open the floor for questions.
分析師問答
Our first questions come from Alvaro Garcia from BTG. Sir, your microphone is open.
Ian, Gerry, Pam. Thanks for the space for questions. I will let other analysts ask about Mexico. I wanted to ask about Monster in Brazil. I was wondering if you could maybe unpack how much of that growth is coming from household penetration versus geographic expansion within your territory? And maybe if you could just comment from a broader perspective, how much it complements your portfolio in Brazil. Thank you.
Alvaro, this is Pamela. So basically, the energy drinks category in Brazil has been performing quite strongly. The CAGR of the last four quarters has been around 25% growth. Overall, we believe that we are capturing share versus other competitors. It's been boosted mainly by portfolio innovation, where we have launched a couple of new flavors, and also complementing our strategy together with sports, energy and CSD execution overall.
Alvaro, in terms of household penetration versus geographic expansion, coverage does continue to increase. We track coverage to continue to increase. So there is not really geographic expansion but improvement in coverage per se, and improvement in household penetration. It's worthwhile to consider that these categories have a bunch of tailwinds, including the overall shift to zero- or no-calorie offerings; it's amazing what's happening in energy. Roughly half of volumes are now in zero-sugar or no-calorie offerings. So we only expect positive things from Monster. And it's really performing well across all geographies, not only in Brazil but everywhere.
Our next question comes from Ben Theurer for Barclays.
Yes. Good morning. Thanks for that, Ian, Gerry, Pam and Alvaro for letting me ask that Mexico question. So on that, it would be great if you could help us unpack a little bit the performance throughout the quarter, especially considering we had a couple of easier comps last year from very bad weather, if I remember right. So I want to understand a little bit the dynamics throughout the quarter. And in line with that, what your expectations are for the back half, just considering that relatively soft consumer and probably continued headwinds from those tax increases that we got with the beginning of the year. Thank you very much.
So Ben, you're right. The volumes improved sequentially. If we look within the quarter, the first two months were slightly negative, around the mid-single-digit negative range, and then June picked up to growth of over 12%. That was mostly due to trends continuing to improve and the World Cup effect. This is good for Mexico, and I think we have quite a bit of share cushion in Mexico. Going forward, I think this leaves us room to consider starting to catch up the pass-through related to pricing and inflation. Things are looking slightly improved in Mexico, but I would say the competitive and consumption environment is still challenging. So while comps get easier, and we have built a share cushion, I wouldn't say we're off to the races in Mexico because there's still a sluggish consumer environment overall.
Our next question comes from Henrique Brustolin from Bradesco.
I would like to follow up precisely on the point of pricing in Mexico. We saw another quarter of realized prices slightly down year-on-year. So if you could help qualify the impact that mix had here versus the impact that actual price increases or not have taken. And if you could just expand on the comment of catching up pricing with inflation going forward — how you are thinking about that? That would also be really helpful for thinking about the second half of the year.
So Henrique, I'll give a broader context on the strategy and then I'll let Gerardo go through the impacts, which were mostly mix. What we did this year going through the tax increase — and knowing that we had a really challenging consumption environment as well — is we ended up passing about 85% of the total impact that we had between the tax and inflation. We didn't pass through everything. The rationale, based on our models and what we have learned from prior experiences, was that a less aggressive pass-through would achieve a better long-term outcome. To give context, the last time we had such a large price increase was 2013-2014. In that period, transferring most of the cost plus tax resulted in significant share loss that took many years to recover. This time, we were more conservative. I think it played out well because it was a big increase for consumers and very tough, but we did not want to lose household penetration and consumer preference. I think we've managed to maintain share and build a cushion. Now, we have enough of a share cushion that we can continue to pass through price and catch up with inflation, which we haven't fully done yet. We should be able to finalize that in August, with caution about consumer reaction. Our model suggests we should be able to do it and end the year improving our relative competitive position. Gerardo, maybe you can expand on the price-mix effects, which were the main culprit.
Thank you, Ian. Henrique, regarding mix — as Ian mentioned, when we see a tough disposable income situation like the one we're facing this year in Mexico, and given the increase in the excise tax, we usually see mix shifting significantly towards more affordable packaging alternatives. This year, that shift has been especially strong toward one-way multi-serve presentations. It's both a positive and negative situation: positive because consumers are still choosing within our portfolio of alternatives and we're maintaining our household penetration; negative in that it weighs on realized price and P&L in the short term. As Ian mentioned, given the share that we've built — the share cushion built during these past few months — we expect to close the inflation gap that we still have for the remainder of the year, which should give us some tailwind for our P&L as the year progresses.
Our next question comes from Fernando Olvera with Bank of America.
Thanks for the space for questions. I have two follow-ups regarding Mexico and just one more question. The first one is related to volumes. Do you still see the -2% to -4% for the year, based on year-to-date volume and consumer behavior? And the other one is, I remember that in the first quarter competition was aggressive. So if you can comment on how competition behaved during this quarter that would be great. And the last question is regarding your margins in Mexico. We saw gross margin expanding 170 basis points and then operating margin contracting 110 basis points. So can you give us more color about that contraction — how much came from freight expenses and how much from marketing? And in the case of marketing, I also want to check if the increase was mostly related to the FIFA World Cup.
Fernando — on volumes and competitive intensity, I'll start and then hand it to Gerardo for the margin detail. Regarding volume, as I mentioned earlier in response to Ben, trends have improved partly due to the base effect, but with this improvement we should be able to move guidance from slightly negative to flattish. For us, it should now be flattish volumes for the full year, plus or minus. I'd like to see how volumes respond once we finish the August adjustment to recover inflation — that's why I'm keeping it flattish for now. In terms of competitive intensity, it remains very high in Mexico. But as I mentioned, we were quite conservative with our pricing pass-through. We leveraged our models and that worked well. We are gaining about 50 basis points of NARTD share in Mexico and roughly 70 basis points in CSDs. Everything in Mexico is green in share across segments — still beverages, teas, water, energy, sports drinks — so we built a cushion. It is too early to say if we can adjust guidance above flattish because we need to see how consumers digest the completion of the inflation pass-through in August. Gerry, please add the margin breakdown.
Fernando, regarding the operating margin contraction in the division — the main impacts came from three factors. First, freight: we saw a 20% increase in freight expense versus the previous year, which was a significant hit. Second, we had a smaller operating FX gain compared to the same period last year, which also weighed on margins. Third, marketing expense was 9% higher year-over-year; this was the biggest factor impacting operating margin and, as you pointed out, a material portion of that increase was front-loaded to support World Cup initiatives that were concentrated in the first half of the year.
Okay. So in that case, is it fair to assume that marketing and some of these impacts will normalize in the second half?
We expect for the second half of the year better comps in terms of marketing expense. That should help normalize the year-over-year comparison. However, the FX impact is less predictable and could still affect comparisons; we can't fully foresee foreign exchange volatility in the same way as marketing spend.
Our next question comes from Froylan Mendes with JPMorgan.
So I just wanted to understand your thoughts and maybe the lessons learned from the growth in Brazil regarding the zero-sugar portfolio translated into Mexico. We are seeing obviously very strong growth. But how are you able to distinguish between how much of the growth of zero is incremental to the category versus customers switching from full sugar to zero? And at what point do you think zero becomes the true growth driver for Mexico to grow beyond, say, the run rate that we have seen in the past couple of years?
This is a very important question. What we've seen across markets when we implement the Brazil playbook for Coca-Cola Zero is consistent high single-digit to double-digit growth year-over-year. It's important that we follow all elements in that playbook. In the early stages of the playbook, Coke Zero often sources growth from competitors, juices and even water; it doesn't cannibalize full-sugar in a major way at first. For example, in Mexico we are around 4% mix for Coke Zero — a very small mix compared to Brazil where we're around 30% mix. We typically start to see more cannibalization when mix reaches around 20%. Every market is different, but that's broadly been our experience. We do have markets above 20% mix, such as Argentina and Uruguay, where there is incremental growth but also larger cannibalization. Other markets like Guatemala are still very small. Colombia is around 9% mix and still has plenty of incremental volume to capture. We're also experimenting and learning with Sprite 0, which connects well with younger consumers and could follow a similar trend. We're betting a lot on leveraging Sprite Zero, and we expect to bring good news there as that work progresses.
That is very helpful. If I could have a second question just on Brazil and Colombia: very strong results in the first half and second quarter — what could be different in the second half? Or should we assume this run rate continues into the second half given what you're seeing on the ground?
I can start with that. We expect Brazil to continue performing well in line with what we've seen. For Colombia, you'll see some base effects even though we do expect average daily sales to continue growing at a healthy pace. Last year, Colombia already started recovering performance trends in the second half, so comps get a bit tougher in Q3 and Q4. But we continue to expect a healthy pace of growth coming from Colombia.
Our next question comes from Renata Cabral with Citi.
Thanks so much for the space for questions. My first one, a follow-up on Mexico: in the first quarter, you mentioned that consumers traded more aggressively into larger multi-serve packs. Has that behavior stabilized during the second quarter? Are you seeing consumers gradually returning to singles or is mix still under pressure? My second question is a follow-up regarding Brazil: you said to expect continued performance in the second half, but was the 5.2% volume growth more related to market share gains? How is the industry doing in terms of growth? And can you give an idea of how much the World Cup contributed to that growth?
Thanks, Renata. On Mexico, the first quarter did see a significant mix impact that carried into the second quarter, even a bit more than we had budgeted. We do expect that trend to continue for the remainder of the year with higher mix of multi-serve presentations, especially one-way. That said, we are taking measures to support single-serve performance: we have seen some improvement as weather improved, which usually helps single-serve presentations, and we're investing in single-serve dedicated coolers in Mexico to support performance going forward. Regarding Brazil and the industry, the NARTD industry in Brazil has been growing over the last three months. It started the year with some growth, then declined in February and March, and renewed growth in April-May-June. The industry growth drivers are mostly NCVs — energy, teas, juices, sports drinks, water. So when you see our volumes growing 5.2% while gaining share, a large portion is coming from share gains, although the industry itself is positive and contributing as well. The World Cup provided an uplift, but a significant part of our growth is execution and share gains beyond the World Cup effect.
Our next question comes from Henrique Morello with Morgan Stanley.
Hi, everyone. My question is on the margin dynamics in South America. Really strong performance there, even excluding the insurance gain. Could you explore more details on the main underlying drivers behind the margin expansion and how you are seeing those drivers progressing through the year and into 2027? For instance, was Colombia with the big volume increase an important driver or was it more related to hedges of raw material effects that you're cycling? Also, looking at your current hedge positions for the second half and next year, how should we think about sustainability of these margin expansion rates into the remainder of the year and 2027?
Thank you, Henrique. We're very happy with the margin performance in South America. Our strategic playbook aims specifically at Brazil and Colombia, the two main sources of improvement in margins in South America. What we're most pleased about is that we're seeing structural improvement in both operations in line with that playbook. The main source of improvement is operating leverage as we continue to grow and create efficiencies in both operations; that's translating into margin improvement. In Brazil, we're approaching a competitive margin level versus our other operations; in Colombia we believe there remains more headroom for profitability improvement as we continue executing our playbook. Hedging and favorable raw material movements have helped this year, but the more structural driver is operating leverage and commercial execution that improve the quality of the portfolio and scale benefits over time. We expect these trends to continue, but hedges and commodity cycles will influence the margin trajectory year-over-year.
Our next question comes from Thiago Bortoluci with Goldman Sachs.
I have a follow-up on Jerry's comments regarding capital allocation and potential uses for the balance sheet. I understand this is work in progress and not a guidance, but any color on how to think about dividends — ordinary or extraordinary — buybacks, the potential comfortable leverage you'd be willing to get into to start deploying this potential balance sheet releveraging would be greatly appreciated.
Thank you, Thiago. As we said in the prepared remarks, returning capital to shareholders is an important component of our capital allocation framework. We're evaluating alternatives and taking into account timing and the decision process with the Board. We have a clear picture of the options, but we need to finalize the timing and approvals. We're in that process and will share updates as it evolves during the year. No further details to provide today.
Our next question comes from Rodrigo Alcantara with UBS.
Hello. Ian, Gerry, congrats Pam and Jorge on your appointments. My question for Brazil: you said growth was mainly driven by share momentum and it's been a while since we've seen this strong performance relative to your largest competitor. How far is Coca-Cola FEMSA from being the market leader in Brazil to understand the room for momentum to continue? More importantly, what's driving these share gains — price competitiveness, go-to-market execution, consumers preferring your products? And on innovation: we saw a competitor launch new products like a protein drink. Aside from the Coca-Cola Zero success, we haven't seen many large innovations from the Coca-Cola system in LatAm. So what's next for innovation in LatAm this year — any big launches or new categories to explore?
Rodrigo, on headroom in Brazil, there is still plenty. Per-capita consumption in the industry still has room to grow, and within segments there's headroom too. In flavors, we've gained significant share driven by strong performance in Sprite and Coca-Cola Zero in Brazil. We're seeing very large share gains in flavors — we've gained around 400 basis points in flavors, which is extraordinary. In NCVs, energy is an area with a lot of headroom; we're around 50% share in energy and still have room to grow. Regarding what's driving share gains: it's a combination — the quality of our portfolio, affordability, presence in consumption occasions, and especially our execution capabilities. Our digital capabilities and execution at the point of sale have been critical. As for innovation, I agree we've been a bit behind the pace we'd like, but there's a plan. We've mapped the top three value buckets in every country and are working with the Coca-Cola Company to address them. They've reorganized marketing and product development in LatAm into more decentralized units (Mexico, Brazil and the rest), which should increase speed and relevance. We expect more pace in product delivery, with several initiatives coming late this year and into the first half of next year. For Mexico, for example, we recently launched Cielas Frescas and will have two more buckets of innovation coming in Q4 and early next year. For other countries, the focus is on profitable NCVs, energy and water capacity. So the pipeline is robust and should accelerate now that the team structure has been adapted.
I'd add on the drivers of share performance in Brazil that our digital execution capabilities — the omnichannel ecosystem and tools like Juntos Adviser — have materially improved our execution. That allows us to understand point-of-sale dynamics better and execute with guided missions and loyalty incentives that improve store coverage and assortment quality. These execution improvements have been a big factor in the share gains we're seeing in Brazil and are translating into benefits in Mexico as we roll out the platform there as well.
Our next question comes from Alejandro Fuchs with Itau.
Thank you. First, congrats to Pamela, Jorge and Lorena on the new responsibilities. Two quick questions on Brazil. First, after the strong quarters of volumes recently, could you elaborate a little more how Juntos Adviser is helping the team on execution and driving part of this growth? Second, you mentioned potential regulatory changes in Brazil next year. If that ends up happening, would the strategy be similar to the implementation in Mexico this year in terms of price decisions?
I'll start with the regulatory question. It's too early to know specifics of any potential selective tax increase in Brazil. The impact will depend on the magnitude: if it is set at a level that washes out with reductions in other federal taxes, then it may be close to a wash; if it's a higher threshold then it could be a material increase and we'd need to analyze the proper approach. In Mexico, the magnitude was very large so we opted for a conservative pass-through. If Brazil's change is similarly large, we might take a similar cautious approach; if it's small, a full pass-through could be more appropriate. There's also potential labor reforms being discussed that could impact costs and employment, which adds another variable to forecast. So it's too early to define a strategy without knowing the specifics. Gerardo will walk through Juntos Adviser performance.
Regarding Adviser, we rolled it out first in Brazil and then in Mexico. We see consistent performance improvements in both operations tied to Adviser. Key data points: improvement in geo-efficiency and customer visit effectiveness, improvements in combined coverage for both CSDs and stills (larger gains in Brazil due to more headroom), and quality improvements in execution at the point of sale from guided missions. 100% of our pre-sellers in those operations are now using Adviser as their sales tool in-store. The platform personalizes tactics by customer to maximize value for both the customer and the company. We expect to launch Adviser across the rest of our operations this year and will share performance improvements as rollouts complete.
Our next question comes from Carlos Laboy with HSBC.
In addition to Zero, have you reformulated Coca-Cola this year for lower caloric content in Mexico? If so, can you share some benefit in terms of lower sugar costs for your gross margins? Second, to what do you attribute the growth in one-way mix while consumers remain pressured in Mexico? Is the refillable proposition price gap working well enough or is there something else at play that is not giving refillable lift at a time like this?
Carlos, we have not reformulated the original Coca-Cola formulations in Mexico to reduce caloric content or alter the full-sugar recipes for the flagship brands. So there is no margin uplift from reformulation. Regarding why one-way multi-serve is performing better than refillables, it's largely about price points. Refillable is not performing poorly, but the price proposition for one-way multi-serve currently sits at a level that is more attractive for consumers given the competitive dynamics. To reach parity with competitors on a refillable basis in Mexico, we would need to introduce a 2-liter refillable option at a different price point. That would require investment and we are conducting pilots to evaluate whether it is accretive before a wider rollout. So the current performance is more a function of price positioning and consumer choice rather than an inherent failure of the refillable format.
The next question comes from Emiliano Hernandez with GBM.
Congrats on the results and thanks for taking the question. Quick follow-up in Mexico: could you comment on regional performance? How did the Southeast perform relative to the Central region? Are you seeing meaningful differences in consumer behavior across these geographies, putting aside the World Cup boost which likely benefited Central regions more?
Thank you, Emiliano. We saw uniform performance across all our regions in Mexico. The Southeast had underperformed in the first quarter but improved significantly in the second quarter, so overall the performance was fairly consistent across regions. The World Cup did provide stronger benefits in certain activations, but on the whole the regional performance was uniformly positive.
The next question comes from Antonio Hernandez with Actinver.
Congrats on the results. Regarding raw materials, you mentioned your hedging strategy and how far you are in terms of hedges for this year and next year. I wanted to get a sense if raw material prices are moving higher for next year despite hedges, and how you see the overall raw material outlook for next year.
Antonio, for this year we've benefited from our hedging positions and lower raw material costs relative to the prior year in some inputs. Spot prices remain volatile and depend on geopolitical developments, including energy-related inputs. Our hedging process reduces volatility and provides more certainty for our planning and pricing decisions. For 2027, we have already started positioning hedges with attractive coverage, especially on sweeteners — both HFCS and sugar — and we have a high position on aluminum as well. We are a bit more behind on PET hedges for next year and are monitoring market developments to time those hedges given current volatility. Overall, hedging gives us visibility and reduces the risk of sudden cost shocks, but commodity volatility remains a factor.
And how do these hedges for next year compare versus this year's hedges?
For next year, we already have attractive hedging levels for sweeteners and aluminum. For PET, we are still building out our hedges and are waiting for better market visibility given current volatility. So compared with this year, we're well positioned on sweeteners and aluminum for 2027, but PET is a bit more exposed until we complete our hedges.
Next question comes from Felipe Ucros with Scotiabank.
Thanks, team. Quick question on the possibility of a stronger-than-usual El Niño. You're pretty covered on the hedging of raw materials that could move because of La Niña/El Niño, so I think the risks are probably down to the top line if weather becomes strong. How do you see that mix across your regions? Is a hotter, drier El Niño positive for volumes in your markets overall?
Felipe, it's risky to forecast weather events. Historically, El Niño has been positive for many of our markets (northern Brazil, Colombia, Central America, Mexico) because it tends to produce hotter and drier conditions that can be supportive for beverage consumption, with the exception of southern Brazil and parts of Argentina and Uruguay where El Niño can bring different precipitation patterns that could be negative. Up to now we haven't seen significant disruptions in weather patterns across our footprint, but we'll monitor closely. In general, many of our territories would benefit from warmer, drier conditions from a top-line perspective, while southern South America could be the exception.
The next question comes from Ricardo Alves with Morgan Stanley.
Ian, Gerry, congratulations — this quarter looked remarkable. You've had multiple strategic successes over the past few years. But as you assess the strategy you've implemented, what areas still concern you? What's top of mind for the next couple of years? I know there are many positives, but where are you most focused?
Thanks, Ricardo. On risks and top priorities: the main concern is continued below-potential growth in Mexico, although we are outperforming peers there; finding ways to unlock the industry's potential in Mexico remains important. The other major potential risks are related to Brazil: a possible tax increase and potential labor reform changes, which could be inflationary and disruptive. Those two are the main external risks I'd highlight. Otherwise, we're in a strong position: favorable demographics in our markets, positive long-term dynamics, strong brands, improved execution, digital capabilities, and a robust product pipeline. Innovation speed is an area we can continue to accelerate, but the organization is addressing it. Overall, nothing is keeping me up at night beyond the Mexico growth trajectory and the potential Brazil policy shifts.
Thank you all for your interest in Coca-Cola FEMSA and for joining us on today's call. As always, the Investor Relations team are available to answer any of your remaining questions. Thank you. Have a great week.
Thank you. This concludes today's presentation. You may disconnect now and have a nice day.