Sigma Foods SAB

Good morning. Welcome to the Sigma Foods fourth quarter 2025 earnings conference call. All participants are currently in listen only mode. For the company's prepared remarks, we will open the call for a question and answer session. As a reminder, today's call is being recorded. A replay will be available on Sigma Foods investor relations website following the conclusion of today's event. I will now turn the call over to Hernan Lozano, Sigma's IRO.

Thank you operator. And good morning to everyone joining us today. Before we begin, please note that today's discussion will include forward-looking statements. These statements are based on currently available information, expectations, and assumptions, which are subject to risks and uncertainties. Actual results may differ materially. Sigma Foods undertakes no obligation to update forward-looking statements. It is my pleasure to participate in today's call together with Rodrigo Fernandez, Sigma's CEO, and Roberto Olivares, Sigma's CFO. Our agenda today is straightforward. Rodrigo will provide a strategic and operational overview. Roberto will then take you through the financial results and 2026 guidance. We will conclude with a Q&A session. With that, I will turn the call over to Rodrigo.

Thank you, Irman, and good morning to everyone. I'm pleased to join you today for my first earnings call. I also look forward to connecting with many of you in person through a range of forums as we step up the investor engagement agenda initiated last year. I want to begin by acknowledging the exceptional work of more than 47,000 members worldwide. Their execution, resilience, and commitment enable a strong finish to 2025 across regions and categories. Let me highlight a few consolidated performance points. First, our revenues surpassed $9 billion for the first time, reaching $9.3 billion in 2025. Second, we delivered on our EBITDA guidance of $1 billion, making 2025 the second consecutive billion-dollar year. And third, our balance sheet remains strong, supported by robust investment grade credit ratings. A key advantage continues to be Sigma's diversified business model across regions, channels, brands and categories, which helped us navigate dynamic market conditions. Looking at performance by region, Mexico delivered outstanding results driven by commercial effectiveness and robust execution. Retail channels remain the primary growth engine, consistent with trends throughout the year. Dairy-led category performance and value brands gain momentum across income segments. In Europe, our team executed exceptionally well as we navigated temporary capacity constraints stemming from the torrente flooding, particularly early in the year. We protected market presence and customer service levels by relocating production across our network and trusted partners. Importantly, underlying profitability in Europe continues a clear upward trajectory. Comparable EBITDA surpassed 100 million for the first time since 2021. We also advanced our strategic European agenda by restructuring the fresh meat business in Spain. We signed an agreement that further sharpens our focus on branded products and improves fork supply traceability. In the US, the year was marked by continued penetration of Hispanic brands in mainstream channels, driven primarily by rising performance in key national accounts. Market dynamics remained fluid as consumers adjusted shopping patterns across channels. In Latin America, profitability continues to recover gradually with sequential EBITDA improvements driven by operational normalization effects. While cost pressures persisted in some countries, we are encouraged by continued operational discipline. Shifting gears towards strategic priorities or purpose, Delicious Food for a Better Life sets that direction and our strategy turns into action. grounded in four core priorities. First, grow and defend the core. We will continue doing what Sigma does exceptionally well on a large scale, serving consumers with trusted brands, strong execution, and a multi-channel commerce presence. Second, developing new sources of revenue. This includes core adjacent innovations and disruptive opportunities to the growth business unit. which is already demonstrating strong scaling potential in initiatives such as high-profile snacking and direct-to-consumer concepts. Third, strengthening the organization. This pillar is about building the culture and capabilities that help each team member perform at their best. It also includes investing in systems, modernization, marketing, and consumer-centric innovation platforms like the studio. And fourth, exploring the future. We're looking ahead to longer-term opportunities in food science, responsible protein, and consumer well-being priorities that will shape SGMA's next era of growth. Looking ahead into 2026, we expect to grow crop-added volume supported by an improving raw material environment and solid execution. We also strive to expand margin dreamed primarily by stabilization in protein markets and continued profitability improvement in Europe. And we will deploy CAPEX high-return projects, capacity expansion in the Americas, and capacity recovery in Spain. In sum, we anticipate another year of solid performance. In this context, I am pleased to inform you that the Board of Directors approved our plan to propose, at our annual shareholders' meeting, 2026 cash dividends totaling $150 million, payable in twist elements. Dividends will continue to be a key component of our capital allocation strategy. With that, I will turn the call over to Roberto.

Thank you, Rodrigo, and good morning, everyone. I will walk through Sigma's financial performance and 2026 guidance. In the fourth quarter of 2025, Sigma's revenues were $2.5 billion, up 12% year-on-year and 2% sequentially. This was driven by favorable FX translation, selective price actions, and stable volume. In Mexico, revenues increased 21% in U.S. dollars and 10% in Mexican pesos, supported by selective pricing and a solid performance led by our dairy category. European revenues were up 11% in U.S. dollars and 2% in euros. A healthy top-line figure reflected branded volume growth and successful allocation of production from the plant that was floated in 4Q24. Revenues in the United States and Latin America increased 1% and 2% year-on-year, respectively. For the full year, revenues reached $9.3 billion, up 4% year-on-year. Importantly, 2025 volume held steady at a record high level despite pricing actions taken to mitigate higher raw material costs. For the fourth quarter, EBITDA was $278 million, and comparable EBITDA was $284 million, of 34% year-on-year, driven primarily by Mexico and Europe. For the full year, comparable EBITDA was 1 billion, in line with guidance, and the second highest in SIGMA's history. Moving on to key cash flow items for the year. Networking Capital posted 64 million recovery in 4Q25, driven by seasonality. For the full year, we invested 208 million, primarily due to higher raw material prices. CAPTEX was 159 million in 4Q25 and 362 million for the full year, up 47% from 2024. This reflects capacity expansions in Mexico and the United States, replacement capacity in Europe, and modernization of systems and infrastructure. Sigma Foods paid $35 million in dividends during 4Q25, for a full year total of $119 million, aligned with Sigma's strong cash-generating capacity. Sigma Foods ended the year with a solid financial position. Net debt was $2.7 billion, up 9% year-on-year, reflecting investments in networking capital and capits. Net debt to EBITDA was 2.5 times in line with our long-term target. We closed the quarter with $643 million in cash. Total liquidity, including committed credit lines, was approximately 1.5 billion. We are currently exploring opportunities in the Mexican bond market to refinance 2027 maturities and further strengthen our debt profile. This financial strength allows us to continue investing with confidence. Let me now walk you through our 2026 guidance. FX conditions have been favorable in recent months. For planning purposes, we consider two FX scenarios. A currency neutral base case using the 2025 average exchange rate of 19.2 Mexican pesos per US dollar, and an alternative currency-specific scenario using 18 pesos per dollar. These assumptions are intended to illustrate a reasonable range. We expect protein markets, particularly turkey, to gradually trend downward from current elevated levels. As reference, year-to-date prices of turkey breast have decreased 12% and turkey thigh is flat. Volume is estimated to grow approximately 2%, with improving trends across regions. Revenues are expected to rise by 4%, supported by mixed improvements and balanced pricing actions designed to grow volume as raw material pressures ease. We expect EBITDA to increase 5% year-on-year, driven by all regions. in particular Europe, is expected to deliver double-digit growth in 2026. CAPEX is estimated to increase approximately 27%, totaling $460 million. The year-on-year increase is mainly explained by the planned investment for Torrente capacity replacement in Spain, covered primarily by insurance reimbursements received in 2025. With that, I will now turn the call back to Hernan for Q&A. Hernan. Thank you, Roberto.

We will open the line for questions. Please limit yourself to one question and one follow-up so we can address as many participants as possible. Operator, please.

Dear participant, if you'd like to ask a question, please use the raise your hand button of your Zoom tool.

Our first question comes from Rodolfo Ramos of Bradesco. Please, go ahead.

Good morning. Thank you, Rodrigo Roberto Hernan, for taking my question, and congratulations on the very strong results. My question is related to your 2026 guidance, and hoping you can help me here square the circle on your guidance, which seems maybe a bit conservative. I understand the sensitivity to the effects, and it's great that you included these scenarios for different currency levels. But just given how well volumes at top line behave, particularly in Mexico, and how some raw materials seem to be improving, I'm trying to gauge, you know, how conservative you are. You know, is it something to do with, you know, how you see volumes performing or the raw materials in 26th? I don't know if you're also expecting anything incremental associated with the quarrel cut. So just trying to get a better sense of what we've seen maybe this year and trying to get a little granularity on your guidance. Thank you.

Thank you, Roberto. This is Roberto. Thank you for your question. Yeah, so maybe I think it would be good to talk a little bit about the assumptions, the main assumptions in the different regions. In general, we see volume growing in all regions. In the case of Mexico, the retail is expected to grow low single digits. And we see better dynamics as we saw in the last quarter of the year in the dairy segment, particularly in the yogurt and cheese. We see a recovery in the food service channel in Mexico coming from more clients but also penetrating those actual clients and some additional growth coming from the World Cup, particularly in the cities where there were going to be some matches. Our main focus in the case of Mexico, particularly in food service coming from a year 2025 where we have a large inflation coming from raw materials, is to focus on volume. So, in the case and to your point that there's going to be less pressure coming from raw materials, maybe is to focus and to balance the volume in the long run. In the case of Europe, we are seeing volume growth coming mainly from branded core segments and better mix, particularly in Spain, as we focus on initiatives to foster higher margin portfolio. We also see better raw materials, particularly right now in Spain, due to, at least in the short term, there's some export restrictions in Spain due to the ASF, the African Swine Fever, that is happening right now in Spain. In the case of the U.S., we expect volume growth coming mainly from Hispanic brands as we continue penetrating the mainstream channels and we look for We do expect a slight margin increase as well in the U.S., coming also from better mix, particularly getting into the under-penetrated categories. As you know, we are the number one hot dog in the U.S., but there's still some room to go in terms of ham and poultry and other categories. And lastly, Latin America in terms of volume is where we see more growth for next year. We're seeing mid-single-deal volume growth in Latin America, particularly coming from a soft year in 2025 where we have some supply chain disruptions. And we do expect to capitalize on those corrections in 2026.

And also to complement, When you think about raw materials, you might see, for example, Turkey getting a little better in the short term, but at the same time, you see things like the winter storm that happened in the U.S. recently, and the production of Turkey for the last week was even smaller. So with raw materials, you always have to be thinking what can happen and be prepared for that. And I would say that even if the raw materials go down, we have to see, or the way we see things, it's from two perspectives. One, it's in the short term and in the long term, and we think and we need to deliver on both. So when there is a big cost increase, we definitely think about marginal contribution per unit, and we want to maintain that, and we usually increase prices to make sure that happens. But, for example, last year we increased prices to offset a cost of more than $400 million. And we also have to think of the consumer in the long term. And with that in mind, like Roberto said, we also want to think about volume to make sure that we deliver in the short, in the medium, and in the long term.

Thank you, Rodrigo and Roberto. Our next question comes from Renata Cabral of Citi. Please, go ahead.

Hi, can you hear me?

Yes, Renata, good morning. Go ahead, please.

Thank you. My question is regarding the U.S. We are receiving several questions related to potential impact on GLP-1, on the portfolio of the company. Actually, as the company is exposed to protein, my expectation is actually that it could help in the U.S. So my question is, if the company is already seeing that, or it's a trend that should increase in the future in terms of innovation, the company is focusing on that because of the trends. Naturally, much more broadly in the U.S., I imagine, than in the other countries. Thank you.

Thank you, Leonardo, for the question. Let me answer it from two timelines, in the short term and in the long term. In the short term, definitely, GLP users come from fat and muscle, and at the end, the protein intake is going to play an important part of muscle preservation efforts. So we're well positioned to benefit of such strengths of high protein portfolio that we have within the company. But in the long term, I talked at the beginning about four pillars for strategy. And the last pillar, it's about exploring the future. And one of the things that we're looking in the future, too, it's responsible protein. And there are three things that we're looking for for the long term. We want to make sure that we have platforms that taste amazingly, because that's very important. Delicious food for a better life has to be delicious. Two is we want them to be a high-quality protein, so at the end there are nine amino acids that only come from food, and we want to make sure that our proteins have those nine amino acids that the body needs that come from food. And third, we want to make sure that those products can be better for the environment. And I'm talking about CO2 emissions. I'm talking about water consumption. So at the end, we do see a trend in the short term, but we're also preparing the company for the long term, thinking that this is going to be important going forward.

Thanks so much. Super clear. Thanks for the call. Follow me. The second question, it's about Europe. If you can help us elaborate a little bit about the trends this year, especially because we will have a different basis because of the transaction that the company announced it. in the end of last year. So what are the expectations in terms of especially EBITDA improvement, but an additional color on that would be helpful. Thank you.

This is Roberto. Thank you. So, in general, in Europe, let me talk briefly about trends that we're seeing. Last year, we saw branded volume growing across the different segments. We also saw better dynamics in the pork market. During the year, but mainly at the end of the year, as I explained, to excess supply of pork in Spain, given the sport restrictions that Spain is passing right now to the ASF. We announced the divestment of our slaughterhouse business by the end of last year, and we're in the process of getting all the authorization from the authority. We are planning to get those during the first year of 2026. If that happens or when that happens, we're going to have a better alignment in terms of the focus on the core segments, on branded products particularly, and also having more traceability or securing the traceability of our pork in Europe.

And if I can just compliment very briefly on that, This year we had growth, as Roberto mentioned, on branded products. And we have very nice also control of SG&A. So at the end, we're in a position that now we can think about growth. We can think about how can we do better, grow more. We have been thinking about some innovations in different geographies. Very focused. And what we like a lot about Europe, about trends in Europe, is that it's a way to see into the future in some of the other geographies. What happens in Europe later on ends up happening in the U.S. and later in Mexico and Latin America. So we're very happy and eager to find those innovations and make sure that they start in Europe and then they can continue in the rest of the country.

Very clear. Thank you so much, Rodrigo, Roberto, and Irna.

Thank you, Renata.

Our next question comes from Enrique Morello of Morgan Stanley. Please go ahead.

Hi, everyone. Thank you so much for taking my question. I would just like to do a quick follow-up in the U.S. If you could just explore a bit how the channel outside the big retailers is performing and how you're seeing the market share trends in the whole portfolio or in the whole channel mix that you have would be very helpful. I ask that because we see a little bit of mismatch in the consumer scanner data that we have on bigger retailers. So just to see a broader picture of what you're seeing in the U.S. and how you see your strategy on that market going forward as well. Thank you very much.

Thank you. Thank you, Enrique. This is Roberto. Let me first put some context. 2025 for the U.S. was the second highest S&P in U.S. history. And also the fourth quarter was a record fourth quarter for the U.S. In the U.S., we have, as you mentioned, to different businesses, we have what we call the national brand business, which is mainly our brand and the Hispanic brands business. In the case of the Hispanic brands, we have been, we used to sell mostly to independent or specialty retailers focused on Hispanic population. And we used to grow a lot in that segment last year as the, let me say, migration policy changed in the U.S. Those segments started to have softer numbers. But we increased a lot last year our presence in the mainstream channel with the Hispanic branch portfolio. And we reach the big retailers with our Hispanic portfolio, and that helps us a lot of setting the lower consumption numbers in the independent retailers. In the case of our national brand business, our various brands, I mean, last year we had tough competitions coming mainly from private label, but we're focusing right now on revitalizing the category through innovation.

Let me, Enrique, just go a little further on the last comment from Roberto. largest in hot dog in the U.S. And we plan to maintain that. And what we want to make sure is that we have the best product cost in the market, the best quality product versus cost in the market. We want to be the ones that consumers think about and not necessarily on product level. And we're doing things to get that. So, for example, in sausages, we're just launching a new package And usually you have six links in one package. But when you eat them, you don't eat six of them. You might eat one or two. So we have the IP for this package where you can have three separate pieces tied together in the same package. So you can open a third package. and just uh hit those two links and then open another third and so on so then with that we want to make sure that cost benefit were the best one and with that we hope to be uh growing and taking some share from private level uh in the coming time oh that's super clear thank you so much for for the details

Our next question comes from Andres Ortiz of BTG Pactual. Please, go ahead.

Hello, Rodrigo, Roberto, Hernan. Thank you for taking my question. I would like to ask you about the tax rate we saw this quarter. I believe it was close to 45%, and we are

already passed the alpac spin-off so i just want to understand what happened here and what will be the correct assumption for 2026 for tax rate thank you hi andres this is roberto so so the the main difference in in the tax rate in the in the in the quarter has to do with the fx gains or losses due to the fluctuation of the msn in regards to 2026, particularly in terms of cash flow tax, we do expect to have a similar amount of tax payment during 2026 that we have on 2025.

Understood. So if we continue to see this level of opposition, we will continue to see that, or...?

If we continue to see what, I'm sorry?

This level of appreciation of the MXN, we'll continue to see this, like, large.

Yeah, so if the Mexican peso maintains in this level, there should not be many difference. If it continues to appreciate, there could potentially be an effect on that.

Thank you. And if I could do a second question. Could you remind us, like, the fact that an appreciation of the Mexican peso has on the margins in Mexico and how it benefits or affects consolidated EBITDA?

Sure. So in terms of – so we have two effects. The first one is the conversion effect. In terms of conversion, one peso change – versus the US dollar impacts around 30 to 35 million dollars in conversion.

Thank you very much.

Thank you Andres.

Our next question comes from Juan Jose Guzman of Scotiabank. Please go ahead.

Hi, good morning, everyone. Rodrigo, Roberto, Hernan, thanks for the space and congrats on the results. A quick one on Latin America. It was probably the only division that didn't perform as well as the others this quarter. So can you tell us a little more about what's going on there, both from the production standpoint and price pass through angles? Thank you very much.

Hi, this is Roberto. How are you? Yes, in terms of Latin America, last year we had some impacts, particularly in some countries of Latin America regarding supply chain disruptions. a coming from uh problems in in raw materials and demand planning we as we as as we move through the year we solve those problems and we actually saw a sequential improvement in every that through coming from the second quarter we do expect those problems to be to to i mean those programs ended last year we expect a significant better result in 2026 coming from Latin America. If you see, as I explained in my initial remarks, in guidance, we do expect a higher volume in Latin America, mid-single digits, coming from solving those problems.

Got it. That's pretty clear. And if I can ask a follow-up question regarding your guidance, can you tell us what kind of specific assumptions or expectations you're dealing with when it comes to input costs, specifically in your guidance? At first glance, it seems to us that you're not incorporating much in input cost reductions. For example, Turkey coming down, or you're kind of expecting... a lower, you know, contraction in the cost of Turkey. What are you dealing with specifically for your guidance? Thank you very much.

Thank you, Gonzalo. Yeah, so we do are expecting or we consider in our guidance that prices of raw materials, particularly Turkey, gradually trend down in 2026. However, we have seen that those prices started to decrease, particularly turkey breast, a little bit sooner than we expected. But we are, as Rodrigo mentioned, we right now are focused on volume this year. So we will take into consideration what is happening with the effects and what is happening in raw materials in that formula in order to improve the growth volume this year.

And then we have people doing revenue management. And as I mentioned at the beginning, we want to do both. We want to make sure that we can deliver in the short term and we can deliver in the long term. And the cost increase that we were able to pass last year was significant. And we will look at every single product in detail per month just to make sure that We can both maintain our growth margins a little, but at the same time, we can get some volume increases. With that, we can do a more sustainable growth for the company for the medium and long term.

Great. Makes sense. Thank you very much.

Our next question comes from Fernando Olvera of Bank of America. Please go ahead.

Hello, guys. Can you hear me?

Yes, Fernando. Good morning.

Good morning. Thanks for the space for questions. I have two questions. The first one is related to Europe. I believe, Roberto, you mentioned before that you are expecting volume growth in Europe. Does that – I just want to be sure if that includes the agreement with Grupo Val –

Hi, Fernando. So in case of volume growth, it's coming mainly from our core segments in our branded categories. The agreement with Grupo Val will make that, we will divest or not consolidate our fresh meat business. If that happens, we're going to bypass a portfolio that will improve margin in terms of that margin. Well, that means that the volume, I mean, we're going to reduce that amount of volume, but we should reduce that amount of the base as well.

Exactly. So, Fernando, the restructure is not included in our guidance.

Ah, okay, okay, okay. Oh, that's great. Good clarification. Thank you. And my other question is regarding your gross margin. I mean, considering that you're still facing cost pressure, what was the driver behind the gross margin expansion this quarter?

Sure. So, I mean, it comes mainly from pricing actions that we have done through the year. As Rodrigo mentioned in one of the answers, this year we confront close to $400 million of additional costs in deprivation. So we have to increase prices in some regions significantly to offset that effect. As we look through the quarters, we have the reflection of those price increases and so that that's the main focus are are a increase in gross market okay perfect thank you thank you fernando there being no further questions i would like to return the call to management

Thank you, Operator. And it seems that we have a couple questions from our chat. So this question is coming from Froilan Mendez at JP Morgan. Thank you for your question, Froi. And the question is, how should we think about capital return to shareholders under the simplified structure? Can we expect a higher payout in the short term? What needs to happen?

Sure. Thank you, Fraulein. This is Roberto. In terms of dividends, Sigma Foods will continue to our long track record of cash distribution to shareholders supported by our strong underlying cash flow generation. As you know, we announced yesterday in the report that we're proposing to the shareholders meeting to distribute a total of $150 million of dividends this year to be paid into installments. So as we mentioned, this is important for us. Our dividends are aligned to maintain our long-term target of 2.5 times net debt to EBITDA ratio.

So that was the first question from Freuland. And the second question is cost at the holding level. How should we think about this cost component going forward?

So thanks for the question. So then Sigma Foods, it's a company that – But it's about food. So what we have today, it's more than 99% of what we have today is food. We think about food, we talk about food, and that's all we do. The structure that we have today is to manage the food business. So you shouldn't see a difference between Sigma Foods and Sigma that you used to see. If you think about years in the past, that was a difference, and it was about transformation. But the structure that we have today, we're just conversed totally there. And you can think today at Sigma Foods as a food company overall.

Thank you. So that concludes our Q&A section. I would pass the microphone back to you, Rodrigo, for closing remarks.

Thank you. I want to close by reinforcing a few key points. First, Sigma Business is strong and resilient, powered by a diversified platform and team that consistently delivers under dynamic conditions. Second, our long-term strategy is clear. We're focused on defending the core, developing new sources of revenue, strengthening our organization, and exploring the future of food. And third, we remain committed to profitable growth, operational excellence, and continuous innovation. Finally, I want to thank our investors and partners for their continued support. We look forward to updating you on our progress next quarter, and thank you for your interest in Sigma Foods.

This concludes today's conference call. You may disconnect.