Arca Continental, S.A.B. de C.V.

Good morning, everyone, and welcome to the ARCA Continental Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. Also, today's call is being recorded, and if anyone should need assistance during the call today, please press star 0. And now at this time, I'd like to turn things over to Ms. Melanie Carpenter of Ideal Advisors. Melanie, please go ahead.

Thank you, Operator. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review the results for the second quarter of 2024. Their earnings release went out this morning, and it's available on the company website at arcacontinental.com in the investor release section. It's now my pleasure to introduce our speakers. Joining us from Monterey is the CEO, Mr. Arturo Gutierrez, the CFO, Mr. Emilio Marcos, and the Executive Director of Planning, Jesus Garcia. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo.

Thank you, Melanie, and good morning, everyone. I want to thank all of you for joining us today to go over our second quarter and first half performance. Let me start by saying that we are pleased with our second quarter and year to date results. At the halfway mark of 2024, we are delivering consistent top line performance and seeing positive momentum in our underlying business. With this as the backdrop, Let's now discuss our consolidated results. Total volume was flat in the quarter resulting from growth in Mexico, which was partially offset by volume declines in South America and the U.S. Our year-to-date total volume grew 0.1%. Total consolidated revenues rose 4.7% in the second quarter and 2.5% year-to-date. to 58.7 billion pesos and 109.4 billion pesos respectively. On a currency neutral basis, revenue in the quarter rose 8.7% and 8.6% in the first half of the year. Consolidated EBITDA grew 7.5% in the quarter and 4.6% year-to-date, reaching 12.2 billion pesos and 21.8 billion pesos respectively. Consolidated EBITDA margin for the quarter reached 20.7% and 19.9% year-to-date. Remarkably, this is the highest consolidated EBITDA margin for a second quarter over the past seven years. On a currency-neutral basis, EBITDA grew 9.4% in the quarter and 9.1% in the first half. This is the highest EBITDA for a quarter in our history as a publicly listed company, and for the first time, we surpassed the 12 billion peso mark for a quarter. Let me now dive a bit deeper into the key drivers across our geographies, beginning with Mexico, where our flagship Verix business maintained its steady upward trajectory. Unit case volume, not including jug water, grew a strong 5%, cycling 1.9% in 2023 and 5.2% in 2022. This is the highest volume performance for a second quarter in Mexico since the merger of Arca and Grupo Continental in 2011. Volume performance was led by growth across all categories, with sparkling up 3.6%, water 7%, and still beverages 17.3%. Sparkling beverages represented over 60% of the total volume growth, as brand Coca-Cola sustained its growth momentum up 5% and Coca-Cola no sugar at 16.4%. Outstanding growth in the water category was supported by strong execution, capturing on-the-go consumption while fulfilling the high consumer demand in our territories. Growth was driven by the modern trade up 10.4%, with solid growth in convenience stores at 10.8%. Traditional trade also posted steady growth at 3.3%. The on-premise channel continued its positive trend, growing by 0.8%. We strengthened our market leadership position as we gained value share in NARTD beverages this quarter, driven by strong performances in all our channels. Total net sales in Mexico rose 10.8% in the quarter, reaching 29.5 billion pesos. This marks the 32nd consecutive quarter of net revenue growth. The sustained revenue increase over eight years showcases the vast opportunity for growth in our territories. Average price per case in Mexico in the quarter, not including jug water, rose 5.8%, reaching 86.04 pesos. EBITDA increased 13.8% to 7.5 billion pesos in the quarter, representing a margin of 25.3%. and marking the 22nd consecutive quarter of EBITDA growth. We keep improving profitability driven by selective price increases and key investments in marketplace initiatives. During the initial six months of the year, we deployed more than 36,000 cooler doors, including 11,000 that are specifically tailored for flavors, refillable presentations, and new categories. Certainly, our Mexico Verix operation is proof positive of our growth mindset, and we remain encouraged by the long runway for Upside. Moving now to our beverage business in South America, total volume was down 9.9% in the second quarter, reaching 137 million unit cases. Our volume performance lap tougher comparisons, cycling a strong 12% volume growth in 2023, 15.7% in 2022, and 30.6% in 2021. Total revenue was down 7.2% in the quarter to 9 billion pesos, while EBITDA decreased 13.4% to 1.3 billion pesos, representing a margin of 14.9%. We have further strengthened our revenue management strategies, adapting our portfolio to address these challenging market dynamics, doubling down on execution, and remaining focused on cost discipline and efficiency. In Ecuador, a new state of emergency was recently declared in seven provinces, aiming to tackle an upswing in drug-related violence with swift measures to restore order and keep the economy on track. Against this challenging backdrop, our beverage business boasted flat volumes, cycling solid volume growth in the second quarter from the three prior years. Despite the prevailing economic turmoil, we gained value in NARTD beverages, driven by growth in the cola segment up 0.6% and supported by our affordability initiatives, particularly with returnable packages. The mix of these packages increased 1.5 percentage points in the quarter. Furthermore, we are swiftly advancing our plans to roll out our multi-category platform in Ecuador. We are expanding distribution of beer to 35% of our territories, with 4 brands and 14 SKUs. Moving over to Peru, volume for the quarter was down 10% from its 17.4% growth in the same quarter last year and following 12 consecutive quarters of volume growth. Despite the sharp slowdown in the economy, weakening consumer demand and unseasonably cold temperatures, our beverage business sustained a solid market share. We remained focused on affordability as we continued investing in returnable bottles. To this end, we accelerated coverage of the universal bottle format. I will conclude my commentary on South America with a very expensive in Argentina, where consumer spending has been adversely affected. In the second quarter, volume was down 21%. However, it is worth noting that this decline was milder compared to the first quarter of this year. Notably, we achieved value share gains in NARTD beverages driven by our still VEVIX portfolio and efforts to promote affordability to returnable borrow initiatives. Importantly, our mix of returnables increased 8.7 percentage points. Nonetheless, while uncertainty remains high, we are optimistic that the economy is beginning to cement a recovery path in the second half of this year. Our beverage operation in the United States closed out the second quarter with an outstanding financial performance, delivering solid profitability improvements and its 25th consecutive quarter of EBITDA growth. Net revenues for the quarter rose 6.7% to $1.1 billion. Net price grew 7% with a true rate increase of 5.4% and 1.7% in mix to reach $9.64 per case, driven by our price strategy and optimizing promotional activities in all portfolios. During the quarter, volume decreased slightly by 0.3%, mainly because of a change in the distribution model of the Dasani 16-ounce 32-pack for one of our largest customers. Excluding this effect, volume in the quarter grew 1%. Coca-Cola Zero was up 5.2%, while the Stills portfolio delivered 6.5% growth, driven by Powerade, Monster, Smartwater, and Fairlife. It's worth mentioning that, following an exceptional start to the year with Monster, this past May we attained the highest monthly volume in our company's record, outperforming Tier 1 Monster bottlers in the U.S. in terms of volume. During the quarter, our mix shifted towards single-serve packages, increasing 0.7 percentage points supported by the small store channel. Importantly, our market leadership position remained strong as we gained value share in non-alcoholic ready-to-drink beverages this quarter. EBITDA for the quarter grew 9.3% to $188 million, representing a margin of 16.9%. Furthermore, our online ordering system, mycoke.com, sustained a monthly customer adoption rate of 95% within the food service on-premise channel, serving more than 21,000 active customers. The recent launch of the upgraded platform MyCocaCola.com introduces new functionalities aimed at streamlining the ordering process to a revamped payment system and enhanced customer support. As of June, the new ordering system has been successfully implemented for 1,200 customers. Moreover, as we announced at the beginning of this year, we are making significant strides in our effort to upgrade our bottling and distribution capabilities in the U.S. Our investment program emphasizes the use of the latest technologies in both production and warehouse operations. The new lines will center around the sparkling business and provide a more robust product portfolio to customers and consumers. Our food and snacks businesses posted a low single-digit sales decline in the quarter and a mid-single-digit decline for the full year. Vocados in Mexico posted sequential low single-digit sales increase and its 27th consecutive quarter of revenue growth. The bar trade and the wholesale segment were the top performers. driven by effective pricing initiatives coupled with enhanced management of discounts. Wise Next doubled down on its cost efficiency program and streamlining supply chain operations. Furthermore, Wise is making targeted investments in marketing and brand building activities to bolster its core portfolio and reach a wider consumer base, especially at sports venues in the New York City metro area. is also taking advantage of key tying opportunities with Coca-Cola bottlers in the Northeast region to offer attractive cross-promotions in key channels. Inalexa in Ecuador posted a low single-digit sales decline in the quarter. Despite the slowdown in the economy, Inalexa has consolidated its presence as a market leader in salty snacks categories through a compelling price-value offering and consumer-driven innovation. I'd like to conclude by sharing some important news in our sustainability agenda. Arca Continental was recognized by the Mexican Stock Exchange for obtaining the highest overall score in Mexico for the Standard & Poor's Global Corporate Sustainability Assessment. This honor highlights our commitment to operational excellence and transparency, as well as our dedication to creating sustainable value for our shareholders, and the communities where we operate. This award also honors our associates who bring our sustainable business model to life, thriving our profitable growth while possibly impacting the environment and the communities we serve. I will now turn the call over to Emilio. Please, Emilio.