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

Good day, everyone, and welcome to today's ARCO Continental fourth quarter 2024 conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the Q&A session. You may register to ask a question at any time by pressing star 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. Please note that this call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of Ideal Advisors. Please go ahead.

Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review the results for the fourth quarter and full year of 2024. The earnings release went out this morning, and it's available on the company website at arcacontinental.com in the investor relations 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 for earning those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentations. So please go ahead, Arturo.

Thank you, Melanie, and good morning, everyone. Thanks for joining us this morning. Let me start by saying that we are very pleased with our performance to close out 2024. We ended the year on a strong positive note. Our track record of steady revenue and earnings growth extended into the fourth quarter and full year, with sequential improvements in operating performance, top line growth acceleration, and margin expansion. By staying market focused and maintaining operational flexibility, we successfully navigated an increasingly competitive landscape, sustained our profitability, and grew our market share. In 2024, we continue to invest in strengthening our capabilities at the point of sale in production, distribution, and throughout the entire value chain. We have significantly reduced shortages by adding new production lines, opening warehouses and distribution centers, and deploying state-of-the-art logistics technology. Moreover, we have made significant strides in our digital initiatives, with 67% of our traditional trade volume in Latin America now being ordered through Tuali, our second-generation B2B application. Our top-tier digital mobile platform for customers and frontline associates provides an intuitive user experience and powerful features, including Gen AI, financial services, multi-category capabilities, and an integrated loyalty program. Now moving to our financial results. Total consolidated volume grew 3.5% in the quarter and remained flat for the full year. This performance follows three consecutive years of record-breaking volume growth, with 4.3% in 2023, 4% in 2022, and 5.8% in 2021. The sparkling category showed great resilience with volume growth in the quarter, driven by the strong performance in COLAS, up 4.5%. Still, averages grew by 8.1%, supported by the ongoing innovation in our portfolio, excellent point-of-sale execution, and targeted market investments. Total consolidated revenues in Q4 rose 29.9% and 10.9% for the full year. Top-line performance was broad-based, with all regional operations delivering positive organic revenue growth, demonstrating our sophisticated revenue management capabilities and advanced digital tools, coupled with a flexible price-back architecture. Consolidated EBITDA for the quarter grew 41.7%, resulting in a margin of 21.8%. For the full year, EBITDA increased by 14.9% for a margin of 20.5%. Remarkably, this is the highest consolidated EBITDA margin in the past eight years. While the year proved to be challenging, we achieved earnings growth that outpaced sales. Our strategic hedging and supplier negotiations helped offset input costs and FX pressures. Now let's review the performance and highlights of our operations. Our beverage business in Mexico continued driving steady positive momentum. achieving strong volume performance and surpassing our all-time volume records for both the quarter and the year. In the fourth quarter, unit case volume, not including jug water, grew an outstanding 7.8%, cycling a strong 3.5% growth from the same quarter last year. This volume performance is the highest for a fourth quarter in Mexico since the merger of ARCA and Grupo Continental 14 years ago. During the quarter, volume growth was widespread across all categories, with sparkling increasing by 5.8% and silver averages growing 16.6%. Total volume for the year grew by 2.1%, reaching 1.41 billion unit cases. Moreover, from 2021 to 2024, Mexico volume grew at a compound annual rate of 3.1%, once again showcasing the strength of our beverage business and the long runway for growth in our primary market. Remarkably, the Coca-Cola brand achieved its seventh consecutive year of growth with a 2.1% compound annual growth rate, bolstered by Coca-Cola No Sugar's impressive double-digit volume growth in 2024. We saw a solid performance across all channels in the quarter, with traditional and modern trade growing at 7.4% and 7.3% respectively. Notably, we gained value share for the full year outpacing the non-alcoholic ready-to-drink beverage industry. Total net sales in Mexico rose 15.4% in the quarter to reach 27.8 billion pesos, marking the 34th consecutive quarter of net revenue growth. For the full year, revenues rose 9.6% to 110 billion pesos. Average price per case in Mexico in the quarter, not including jug water, rose 7.2%, reaching 88.26 pesos. EBITDA in the quarter increased 21.8% to 6.4 billion pesos, representing a margin of 23%. For the full year, EBITDA closed at 26.4 billion pesos, up 12.6% and reaching a 24.1% margin. Turning now to our operations in South America, Total volume was down 0.4% this quarter due to declining volume in Argentina, which was partially offset by growth in Peru and Ecuador. For the year, total volume declined 5.5% to 610 million unit cases, cycling strong growth in the past three years, with 7.2% in 2023, 8.9% in 2022, and 14% in 2021. Total revenue rose 99% for the quarter to 13.2 billion pesos and 15.4% for the full year, reaching 42.5 billion pesos. EBITDA increased 95.1% in the fourth quarter and 14.1% for the full year to 8 billion pesos, with an 18.9% margin. The recovery story continued to unfold across the three countries namely Argentina. In Peru, total volume grew 2% in the quarter, reaching 89.4 million unit cases. Volume performance in the fourth quarter is cycling 4.7% growth in the same quarter in 2023. Volume growth in Peru was mainly driven by our still leveraged portfolio, up 8.2%, and led by the remarkable volume expansion in the flavored water segment. Notably, this is the highest volume recorded in a fourth quarter since we acquired this operation in 2015. The speed with which we recovered after a decline in the third quarter is a testament to the resilience of the market in Peru. Moving over to Ecuador, the country has been dealing with a range of challenges. including a major economic slowdown due to disruptions in oil production and energy crisis and climate-related events. While we have seen a slight recovery, ongoing economic weakness continues to affect overall consumption. Nonetheless, volume in our beverage business increased 1% in the quarter, cycling strong 4.8% growth in 2023 and 5.8% in 2022. Volume growth in the quarter was driven by sparkling beverages with colas and flavors up 0.6% and 1.7% respectively. Growth in the sparkling category this quarter was driven by Coca-Cola Zero Sugar, Franca, and Chiaravanti. We achieved value gains and NARCD beverages, supported by our affordability initiatives, especially with returnable packages. Importantly, our mix of returnables increased 0.8 percentage points. In Argentina, our efforts to offer an affordable portfolio and expand returnable presentations are leading to a consistent and steady volume recovery across channels. Volume in the fourth quarter declined by 6.6%, but showed sequential recovery, ending the year with a 0.7% volume growth in December, supported by a 0.6% increase in brand Coca-Cola. The traditional trade once again proved its resilience with a 13.4% growth. I also would like to highlight that we are pleased with the initial results of our multi-category strategy in Argentina. Our share in the craft beer and value added dairy segments is rapidly increasing. Additionally, this quarter we have expanded our portfolio by incorporating a leading global brand in the premium spirits category. We are optimistic that the government's macroeconomic stabilization program will bring positive changes in the economic landscape and look forward to continued growth and stability for Argentina in upcoming months. Turning now to our various operations in the United States, We concluded the year with impressive financial results. We maintained robust revenue growth, achieved record bottom-line performance, and celebrated our 27th consecutive quarter of EBITDA growth. Net sales for the quarter rose by 8.3%, reaching $1.1 billion. The average price per case grew by 8.8%, with a true rate increase of 5%. For the full year, revenue increased by 6.7%, totaling $4.3 billion. Revenue growth was driven by effective management of pricing, optimization of promotional activities, and execution of higher profit per case packages, all supported by our enhanced digital capabilities. Volume for the quarter and the full year experienced a slight decline of 0.6% and 0.4% respectively. SSD volume increased by 1.1% in the fourth quarter, showcasing the strength of the sparkling category. Colas saw a 0.6% increase. Flavors rose by 1.8% and Coca-Cola Zero kept outperforming with volumes up 7.7% for the quarter and 7.6% for the year, further enhancing its relevance within the category mix. The steel's portfolio grew 6.6% in the quarter, fueled by positive momentum in Monster Energy and PowerAid. Notably, Fairlife Core Power achieved outstanding double-digit growth across all channels. The small store channel had the highest volume growth in the quarter, up 6.6% and 4.1% for the full year. Our market leadership position remains strong as we increase value share in NARTD beverages for the full year, with growth in both SSDs and stills. Our U.S. business achieved one of the fastest and highest share growth rates within the Coca-Cola system in North America. EBITDA for the quarter grew 25.6% to $215 million, with a margin of 19.2%. For the year, EBITDA reached $740 million, a 14% increase with a margin of 17%. These are the highest EBITDA margins for a fourth quarter and full year since we acquired this operation in 2017. We were honored to receive several recognitions from our customers, including the Butler of the Year Award from Bonsker, by achieving the highest volume growth among mega-bottlers. Ike White, she had a fantastic year with Dr. Pepper, heating sales of Dr. Pepper's zero sugar and boosting SSD share performance. And to wrap up the review of our operations, our food and snacks businesses maintained steady positive momentum, posting double-digit sales growth for the quarter and low single-digit growth for the full year. EBITDA margin grew double-digit across all our operations in the quarter as we continue to accelerate efforts in pricing, productivity, and cost efficiency initiatives. I'd like to conclude by sharing some important news. I am proud and honored to communicate that Arca Continental has been included in the prestigious Dow Jones Sustainability World Index for the first time. This recognition places us among the top 300 publicly traded companies globally that stand out in terms of sustainability. Our inclusion in this global index underscores our unwavering commitment to corporate governance, ethics, risk management, environmental and social practices throughout our value chain. Now, I will hand it over to Emilio to discuss our financial results. Please proceed, Emilio.