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

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Good day everyone and welcome to the ARCA Continental second quarter 2026 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 questions at any time by pressing the star and 1 on your telephone keypad. You may withdraw yourself from the queue by pressing star 2. In the interest of time, we ask you please limit yourself to one question. Please note, this call has been recorded. I will be sending by should you need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of Ideal Advisors.

Thank you, operator. Good morning, everyone. Thank you for joining the senior management team of ARCA Continental. to review the results for the second quarter and first half of 2026. Their earnings release went out this morning and it's available on the company website now at arcacontal.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, the Chief Planning and Strategic Capabilities Officer, Mr. Jesús García, and the Chief Operating Officer, Mr. Jean Claude Tissot. 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 go ahead and 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. Good morning, everyone. We appreciate you joining us today to discuss our performance during the second quarter and first half of the year. Our quarterly results reflect the resilience of Arca Continental's business model and the discipline of our teams across markets. In a complex operating environment, we delivered positive consolidated volume Thank you very much. Rigorous cost control and operating efficiencies, while staying close to our customers to create value across the entire chain. And now, I will begin with our consolidated performance. Total consolidated volume remained positive, up 0.6% in the quarter and 1.7% year-to-date. Notably, our stills categories increased 2.4% on top of a 2.1% improvement in the prior year period. Thank you very much. and many more. Overall, our performance once again demonstrates the strength of our business model and the solid fundamentals Arca Continental has built over time. allowing us to protect profitability, gain value share in key categories and execute with excellence across all markets. Let me now provide more detail on the performance across our geographies starting with Mexico. In Mexico, strong market execution, continued investment at the point of sale, and operating optimization allowed us to deliver net sales and EBITDA growth despite softer volume trends. Our beverage business navigated a more challenging quarter following a strong start to the year as adverse weather conditions A volatile macroeconomic backdrop and the excise tax implemented at the beginning of the year weighed on demand and volume performance. Unit case volume, excluding jug water, declined 3% in the quarter and 1% year-to-date, reflecting the combined effect of these factors on consumer demand during the first half of 2026. Volume trends improved in June. We also leveraged the World Cup to foster consumer connections, drive engagement, and consolidate brand relevance, contributing to value share gains across all categories during the first half of the year. Mixed dynamics were encouraging. Returnable formats improve their share within sparkling beverages, while single-serve packages gain mix within our NARTD portfolio. Coca-Cola Zero supported the resilience in colas. Maintaining double-digit momentum for the second consecutive quarter and growing 23.6% year-over-year, while steadily gaining share within the brand mix. Furthermore, our financial results in Mexico reflected the discipline with which we managed the business. Total net sales increased 1.5% in the quarter and 4.1% year-to-date, with average price per case excluding jug water Up 4.5% over the three-month period and 5% year-to-date. EBITDA grew 0.8% in the quarter with a stable margin at 24.5%, while year-to-date EBITDA improved by 3.3% for a margin of 22.8%. Moving to our beverage operation in the United States, Coca-Cola Southwest Beverages delivered sound financial results in the second quarter, Despite a volatile operating environment, this performance was underpinned by disciplined pricing, effective cost management, and strong point-of-sale execution, allowing us to navigate input cost volatility, inflationary pressures, and evolving regulatory dynamics. Volume declined 2.3% in the quarter, while year-to-date volume remained positive at 0.9%. Transactions were down 1.4% in the period, with a 2% increase year-to-date. Quarterly performance was partially supported by 1.5% growth in still beverages, with fair life, energy, and sports drinks up 12.4%, 1.8%, and 4.2% respectively. Notably, Our zero-calorie portfolio also maintains strong momentum, growing 8.9% versus the prior year, driven by a 10.4% increase in Coca-Cola Zero and a 5.1% growth in Diet Coke. For innovation initiatives, we introduced more than 50 new SKUs, including the launch of Body Armor Fit, strengthening portfolio relevance, and responding to growing consumer demand in functional beverages. We continue to improve our market leadership position, gaining value share across both sparkling and still categories within the NARTD portfolio. Consequently, net revenues grew 2.3% in the quarter and 5% year-to-date, with average price per case up 4.5%. At the profitability level, EBITDA was up 1.8% in the quarter, with a stable margin at 17.8%. Year-to-date EBITDA increased 5.4%, reaching a margin of 17.1%. Data-driven and AI-enabled initiatives are progressing across the entire value chain. Embedded in this effort, our inventory balancing platform is improving forecast accuracy and product availability, while supporting better service levels across the network. Turning to our beverage operation in South America, Total volume increased 11% in the second quarter and 7.1% for the first half of the year, led by robust sequential improvement in Peru and Ecuador, with a softer performance in Argentina. Total revenues for the quarter were up 6.5%, with EBITDA improving 5.7%, with a margin of 17.1%. Year-to-date, revenues declined 0.9% and EBITDA decreased 4.2%, For a margin of 18.1%, mainly due to unfavorable currency translation effects. South America presents an improving operating environment. The region is showing renewed momentum, reflecting the strength of our business model and our ability to capture growth as underlying market conditions become more favorable. Peru delivered a remarkable result, with total volume increasing 17.6%. Our strongest second quarter result since entering this market in 2015. These solid results were broad-based across categories, with sparkling and water up 16.6% and 25.2% respectively, driven by favorable consumer conditions and solid execution. This performance echoes the momentum of our dual Coca-Cola and Inca-Cola strategy, As well as our ability to capitalize on the capabilities we have built through consistent investment in the operation, particularly in cooler coverage while expanding affordability, availability, and consumption locations across the market. Channel trends were also positive. and many more. In Ecuador, Total volume increased 12.1% in the quarter and 8.8% year to date, proving excellence in our execution capabilities and fundamentals, which drove improvements in service levels and product availability. Growth was broad-based across categories. with sparkling and still beverages up 11.4% and 14.9% respectively, reinforced by positive momentum in both modern and traditional trade and a 29.4 quarterly uplift in Coca-Cola Zero. We gained value share in NARTD beverages, while the mix of single-serve packages improved 2%. In Argentina, Total volume declined 8%, cycling growth of 11.6% in the same period last year. The traditional channel showed better dynamics, supported by targeted promotions, as well as activations linked to Coca-Cola sponsorship of the 2026 FIFA World Cup. We also gained value share across our NARTD categories, driven by affordability initiatives and returnable packaging innovation. including the rollout of the 1.5 liter returnable bottle for Fanta and Sprite. At the same time, digital orders accounted for 83.5% of volume in the traditional trade, marking the highest level across our Latin American operations. To wrap up our operations review, our food and snacks division posted a mid-single digit decline in net sales during the quarter, In Mexico, Bocados delivered positive results, with net sales and EBITDA increasing mid-single digits. Supported by growth in key channels, cost efficiencies, and marketing campaigns tied to the 2026 FIFA World Cup, Inalexa posted a robust quarter in Ecuador, with EBITDA improving by double digits, driven by its market leadership position and pricing initiatives. Before moving to the financial review, let me briefly touch on sustainability. During the quarter, Arca Continental was once again included in the FTSE for Good Index Series with an improved score across environmental, social, and governance dimensions, positioning the company among the top 5% of performers in the food and beverage sector. In connection with the 2026 FIFA World Cup, we worked with the Coca-Cola Company to implement a circularity model across matches and engagement events in our territories, recovering and recycling most beverage containers sold. These achievements reflect the progress of our sustainable business model and the role of innovation and strategic partnerships in strengthening the long-term resilience, competitiveness, and investment profile of our business. And with that, I'll turn it over to Emilio. Please, Emilio.

Thank you, Arturo. Good morning, everyone, and thank you for taking the time to review our financial performance for the second quarter of 2026. As Arturo mentioned, we continue to navigate a challenging environment in the second quarter, with microeconomic headwinds, adverse weather conditions, and effects of isolation impacting top-line performance. Despite these pressures, we successfully protected our EBITDA margin through effective revenue growth management initiatives and a disciplined approach to cost and expense management. Let me offer further insight into the financial results. In the second quarter, consolidated revenues remained stable year-over-year at 63.5 billion pesos. First half revenues total 120.6 billion pesos, also in line with the same period of 2025, reflecting volume pressure in certain markets, as well as the translation effects given our U.S. dollar exposure. On a currency-neutral basis, revenue rose 5% in the quarter and 6.8% year-to-date. During the quarter, gross profit increased 2.1% to 30.3 billion pesos, while gross margin expanded 90 basis points to 47.8%. For the six months of the year, gross profit grew 1.7% to 57.1 billion pesos, with gross margin expanding 80 basis points to 47.4%. On a currency-neutral basis, gross profit grew 6.2% in the quarter and 7.5% year-to-date. Consolidated EBITDA slightly decreased 0.2% in the quarter to 13.1 billion pesos. Despite a challenging operating environment, we maintained a solid EBITDA margin of 20.7%. Reflecting our disciplined approach to cost and expense management. For the first half of the year, EBITDA decreased 0.2% to 23.8 billion pesos, with a slight 10 basis point dilution in the EBITDA margin to 19.7%. On a currency level basis, EBITDA grew 3.8% in the quarter and 5.4% in the accumulated period. Net income for the quarter decreased 9.4%, reaching 4.9 billion pesos, resulting in 80 basis points contraction in net profit margin. For the year-to-date period, net income totaled 8.7 billion pesos, marking a 9% decrease compared to the previous year, with an 80 basis points contraction in net profit margin, mainly explained by the dilution in the operating margin. Now, moving on to the balance sheet, as of June, cash and equivalents totaled 28.5 billion pesos, with total debt stood at 61.9 billion pesos, resulting in a net debt to EBITDA ratio of 0.7 times. We declare extraordinary dividend of 2.50 pesos per share to be paid on August 5th. Combined with the ordinary dividend of 4.28 pesos paid in April, we reach a total distribution of 6.78 pesos per share. Looking ahead, while volatility is likely to persist, we remain confident in the resilience of our business and our ability to navigate challenges effectively. Our diversified geographic footprint Strong portfolio of brands and proven operating model continue to position us well to respond effectively to dynamic market conditions. We'll continue to leverage our core capabilities, execute with discipline, and maintain a prudent approach to cost and expense management. That concludes my review and now I'll turn it back to Arturo. Please, Arturo.

Thank you, Emilio. To conclude, let me reiterate our firm commitment to the full-year guidance shared at the beginning of 2026. Arca Continental is built to perform through different market cycles, capturing opportunities when market conditions are favorable and demonstrating resilience in more challenging environments, while building on our fundamentals, investing in the business, and strengthening our leadership over time. As we commemorate 100 years of partnership with the Coca-Cola Company, this relationship remains a key driver of shared value creation. Our alignment supports sustainable and profitable growth while opening new avenues across our markets. We are now ready to take your questions. Operator, please proceed.

Thank you. At this time, if you wish to ask a question, Please press star 1 on your telephone keypad. You may remove yourself from the queue by pressing star 2. In the interest of time, we ask you please limit yourself to one question. We'll take our first question from Lucas Ferreira with JP Morgan. Please go ahead. Your line is open.

Hi, thanks for the question. Hi, everybody. So my question is on the Mexican market. If we can understand the sort of the business evolution from what I thought was the very first quarter now to a bit more challenging 2Q. And looking at the 2Q numbers, it feels like the weakness was a bit more concentrated on water and flavors, which I believe tends to explain a little bit You know, the weather trends. I'm wondering if you guys can comment on the state of the Mexican consumers, so how you saw the evolution, right, from a very good first quarter to a bit more challenging to Q now, if it's really more explained by weather, like I said in the beginning, or if macro, in your view, and, you know, elasticity of the consumer turns to be a bit more challenging. Just wanted to understand what to expect for the rest of the year once we expect obviously some sort of a normalization of the weather as we go forward. Thank you very much.

Thank you, Lucas. Good morning. Yeah, well, we thought Mexico had a very resilient quarter nonetheless. Volume has been above our expectations throughout the year considering that we have headwinds for the year, a combination of We are confident that our fundamentals are very strong. We are gaining market share in Mexico. and our performance is pretty much tracking in line or even slightly better than we initially anticipated considering the circumstances. There are other factors that have impacted volume, some positive. We actually had a good month of June and we will remain prudent in our assessment for the remainder of the year, but it has not changed our outlook for the year in Mexico. And with respect to water and flavors, I'll turn it over to Jean Claude to give you more detail.

Thank you, Arturo. Something that, if you allow me, I would like to reinforce about where are we, not just in Mexico, but in our five operations, is that we are gaining value share in all our operations. And that reinforces what you're saying about strengthening our strategy. strengthening our execution, our digital initiatives, and taking advantage of consumer initiatives such as the World Cup. Regarding flavors, there's a consumer preference that continues to evolve. With growth shifting toward categories such as ready-to-drink, hydration, isotonic. And part of the pressure in flavors and water reflects, honestly, those mixed changes Thank you, Lucas.

Thank you, Lucas.

Thank you. We will move next with Benjamin Sutter with Barclays. Please go ahead.

Sure. This is Rahian for Ben. Our question is, how should we think about price implementation in the different regions for the second half? How much of consumer sensitivity have you seen lately on the excise tax in Mexico? I know you mentioned a little bit of color, but if you have any other add-ins. Thank you.

Thank you, Rehi. Good morning. Well, I'll tell you about pricing in general, and Jean Claude will give you more detail about the impact of the tax that was imposed in Mexican sugar drinks. In general, I've seen our strategies to price at or above inflation and manage competitiveness, affordability, and mostly have a long-term perspective on every market. For that, especially this year, returnable packages have been very important in our Latin American markets and the price pack architecture based on the tools that we have developed has been very important to balance, as I said, affordability and the profitability of the business. The pricing tool that we have is now embedded across all of our operations in Latin America and that's been key to protect our margins in the region. Same thing for the promotion optimization, which is very important as we have a very dynamic and some of the local decisions now are based on these tools that have been rolled out and deployed and have reduced non-productive spend in all of our business units. With respect to the tax in Mexico, I'll have Jean Claude give you more detail on the impact.

Yeah, regarding the excess tax as we shared during the last call, There's a new rate of Mexican pesos in 1.5 per liter for beverage. As you know, we executed a full pass-through of the excise tax, resulting in an average price around 8%. What is important is what we did and the strategy that we implemented. We implemented our digital pricing tools, which granular segmentation on prices list this scenario. Where we knew that affordability was going to be key, the single source packages were going to play a critical role and our master plan of returnable. And that's why we have a plan of results that are above initial expectations. That's what we are planning to do for the next of the year. As you know, one of our competitive advantage that we have is RGM using the tools, the teams, but more important, you have to translate those strategies to the point of sale and our execution.

Thank you, Rahim.

We will move next with Felipe Ugros with Scotiabank. Please go ahead.

Thanks, operator. Good morning, Arturo Gutierrez and team. Quick question on the performance during the World Cup. You talked a little bit about the product mix, but there's a couple of other mixes that I'm interested in. One is I wanted you to talk about the digital tools and how they behaved during a period where consumer traffic and behavior is perhaps not what you would usually have during an average summer. And then the second one, you know, you talked about the product mix. Also wondering if there were any channel mixes that could have changed what would have been usual profitability patterns during the quarter. Thanks a lot.

Thank you, Felice. Well, first, you know, about the workup and dynamics, I think it's... There were very intense weeks for us, not only in terms of how we connected with our customers via the digital platforms, but also it was a test on our supply chain and our SNOP operation. And we had the best indicators probably in any summer in the recent years in terms of service to our market. So we're very pleased with that. But our point about the World Cup, it's beyond... Really the market dynamics of those few weeks, it really serves as a very powerful platform to strengthen customer and consumer connections beyond the weeks of the tournament. And what we did with collector packaging, with the activations, with the album, the Panini albums, the consumer promotions in every country, that really for us is a way to strengthen brand relevance of Marketplace Execution. And those consumer connections and customer partnerships really extend well beyond the weeks of the tournament itself. That was the intent of how we activated the World Cup. And naturally, it creates new consumer and consumption occasions. For example, we had two million visitors in Texas. We had more than 2 million FanFest attendees in our venues in Monterrey and Guadalajara. So, you know, that is not probably the typical consumption locations that we have in these weeks. But in general, I think we're looking beyond the immediate impact of the event and creating those connections for our brands, particularly Code Zero and Powerade.

Thank you.

Thank you.

Thank you, Felipe.

Our next question comes from Ricardo Alvarez with Morgan Stanley. Please go ahead.

Hello, Arturo, Emilio. Thanks for the call. I had a question on maybe more longer term, less related to the quarters specifically. I think that the deceleration that we saw in your volumes in Mexico, sequentially speaking, I think that it's been across the board when we think about the Mexican consumer. With that in mind, with a more elastic consumer, if you will, what's been your main strategy? What's been keeping you awake at night in terms of the main short-term changes that you have to execute? More focused on attacking affordability issues more aggressively with the returnables. I think that I don't remember who exactly was mentioning the pack size on the single side or is it a channel focus shift? I'm just curious with, you know, 2026 has been a tough year, right? You had the excise tax that you had to price through and now you have a consumer that is kind of lackluster. You know, you had a good start in the first quarter. It seems a very dynamic environment, so I'm curious to hear, number one, where is your focus in terms of adapting your strategy, and maybe more important, where you are in this path of executing more on the affordability, maybe pricing or more tactical pricing. Just curious to hear your thoughts on that. Thank you.

Thank you, Ricardo. Really, really important question. As we look into Mexico, I think we see that this is a great example of what we've been saying about being resilient in situations where, you know, we have headwinds in the operations short term and being able to protect our market leadership, as Jean Claude was mentioning, with our share market, protect our profitability also. and because we know that we're going to you know have a better time so we're going to capitalize on the fundamentals of the business and actually this particular quarter we have kind of the two examples what we do we resilient in difficult circumstances like Mexico and then we really thrive when we have some tailwinds like in the case of Peru now so talking about the priorities beyond what is the day-to-day execution attention to detail that obviously what we want to reinforce when we have a You know, challenging times. I would say there are three things that are really, really important for us this year and are, I would say, consistent in our strategy, in our playbook. One is the price pack architecture, pricing tools, combining returnable packages with, you know, the one-way packaging, the single serve, multi-serve. Thank you very much. And number three is that we continue to invest, and that's super important. We continue to invest in things that we know that are going to make us emerge stronger when we face a more positive environment. And this is exactly the story of Peru now. We've invested last year, probably not the best year in that market. but we are capitalizing on the investments now so that's something that we have learned over the years because in Latin America we know that there's volatility in the markets and so we've been consistent in that strategy as well and that's paid off every time so we look forward to a much better future in Mexico as well.

Thank you Ricardo. Thank you.

We will move next with Alvaro García with BTG. Please go ahead.

Hi, Arturo, Emilio, Jean Claude. Thanks for the space for questions. One for Emilio on margin dynamics. Gross margin dynamics seemed pretty healthy. On the flip side, some operating leverage probably across Mexico and the U.S., but additional marketing spend probably from the World Cup. And I thought the overall margin print was quite healthy given where top line was sort of flattish both in Mexico and the U.S. If you could just walk us through sort of those drivers and what you saw in the second quarter, that would be quite helpful.

Yes, thank you, Alberto, for the question. Yes, you can see that we have an increase in OPEX. Our ratio of OPEX to sales is higher. A hundred percent basis points than the first half of first year. We closed the first half of around 32.5%. The increase was mainly driven by higher depreciation. We have 10% higher in the quarter and 8% year-to-date, given the investment that we have made over the past few years to improve our operation capabilities. Additionally, we have in the quarter Thank you. Thank you. Thank you. We want to share with us some of those. So that will allow us to end the year on a ratio of around 32%. And talking about the EBITDA margin consolidated, although the market conditions are expected to remain difficult, we maintain our discipline execution and manage all the expenses that we control. And we're implementing, as I mentioned, Some of efficiencies and saving programs that we may share with you some details. And also our hedging strategy is helping us to reduce the volatility in relative prices. So we maintain the outlook with all these initiatives to support a profitability margin for the full year of around 20%.

Yes, Alvaro, thank you for the question. As far as what we're doing in regards to productivity and efficiencies, we remain committed to continuous improvement and efficiencies across the organization. For 2026, we expect to generate about $630 million in savings. We obviously have many initiatives, and I'll give you some examples of what we're working on. and just clarifying the 63 million pesos. We have a multi-year investment in our U.S. infrastructure that we have talked about in these calls before. Most of the benefits are going to materialize in 2027, but we expect to generate some savings in 2026. We're scaling a B2B-enabled model across Latin America. This is going to allow us to improve outlet Thank you very much. Thank you very much. and also external sampling. We're also working on lightweighting initiatives, routing, redesign, network optimization. As you know, we operate in five countries. We share a lot of best practices. Some of them will be specifically for a country, but most of them will be replicated across the organization.

Thank you very much. Thank you.

Thank you. Our next question comes from Renata Cabral with Citigroup. Please go ahead.

Hi, everyone. Thank you so much for today's space. My question is related to the EWAS business. We saw a decrease in terms of volumes and the company holding price increases. So my question is related to the dynamics in the quarter. If you can give us some color on how the company has had those results, even in a decrease of volumes and what we can expect for the U.S. in the second half of the year.

Thank you, Renata. I will make some general comments and I'll ask Jean Claude to provide more detail. I would say that the U.S. has been facing a challenging consumer environment, affordability concerns of our consumers and weaker store traffic in general. But momentum improved throughout the quarter. We had actually a very good month of June and a record week of transactions, which is what we're focusing on. And very importantly, as Jean Claude mentioned, we are very solid in our leadership in the market. But I'll turn it over to him to expand on the U.S. Yeah, Renata, thank you for the question.

And despite the challenges that Arturo is sharing, It's important to reinforce the strategy that we have in place together with the Coca-Cola Company. We have been consistent through the years to grow transactions above volume, and we are doing the same this year. Actually, we are growing around 2% of our transactions, which is a really good number year-to-date. What we see is also that we are keeping our EBITDA margin at record high. and we are gaining a value and volume share, which is extremely positive. What do we see for the rest of the year? We'll continue to face the same challenges with the consumers. That's a reality and that's why we need to focus on the strategy that we have in place that Arturo was sharing. Our RGM, our digital tools, as Chuy was sharing as well, but the obsessives We have an obsessive mindset that we have in our execution, and we took World Cup as an opportunity to strengthen our execution. If you see the numbers in terms of field rate, because execution, number of displays, we were able to achieve a record high in our execution, and we keep as a voter leading the execution in the U.S. That's why we continue to be Optimistic, maintaining the same guidance that we have for the rest of the year regarding our business in the U.S.

Thank you, Renata.

Thank you, Renata.

Thank you. We will move next with Kevin Zavala with UBS. Please go ahead.

Hello. Good morning, Arturo, Emilio, and Claude. This is Helen from U.S. on behalf of Rodrigo Alcantara. Could you comment on recent market share trends in Mexico and the U.S.? In Mexico specifically, it would be helpful to understand whether the weakness in the flavor beverage category reflects market share dynamics or a broader category trend. And similarly, in the U.S., And how do you assess the underlying half of the category given the soft volume performance? Is this weakness primarily category driven or there are also company specific market share factors at play? Thank you.

Yeah, Kevin, thank you for the question. And that's something that we are going to reinforce today during our talk with the entire company. is how proud we are about our value share results, that we are gaining value share in our five operations. We are facing different realities and challenges, some of them out of our control, and despite those challenges, we have been able to grow market share. Why? The strategy, the RGF strategy, the focus In Mexico, in terms of returnables, execution, sorry to be repetitive about execution, but all our KPIs of execution continue to improve in all our operations, and how we are promoting Code Zero, and zero as we were sharing at the beginning of the conference call, growing double digit. Then the fundamental of the business, growing value share, continue to be a reality in all our operations.

Thank you, Kevin.

We will move next with Alejandro Fuchs with Itaú. Please go ahead.

Thank you, operator. Paul Arturo, Jean Claude, Emilio. Thank you for the space for questions. I have one brief one, if I may, coming back to Mexico again I wanted to see maybe Jean Claude or Arturo, if you could elaborate a little bit on what you're seeing in terms of competition, especially in the north of Mexico. Are you seeing anything different that happened this quarter for maybe the vibrance or other players that was surprising to you? And then maybe if you could elaborate, Arturo, these first weeks of July, just overall, how are you seeing the momentum in the company? Is it being sustained? Thank you, Alejandro.

Really, we have not seen anything different in the competitive environment that we've seen in Mexico in recent times. I mean, we're facing, as I said, a challenging environment in general. I think our affordability strategy has paid off really well in terms of market share. What certainly has been different and it's reflected in the last few weeks and that's why we had a very good trend at the end of the quarter was obviously the activity around the World Cup as I mentioned before and we were well prepared for that but in general the consumer environment is pretty much what we expected considering also the tax that has been imposed and as I said before our performance so far is above our initial expectations Assuming the elasticity that's implicit in the price movements that we have carried out.

Super clear. Thank you, Arturo.

Thank you. We will move next with Fernando Olvera with Bank of America. Please go ahead.

Hi. Good morning and thanks for the space for questions. Maybe if you can give us more, or my question is related to South America, if you can give us more color about the main drivers that explain the strong demands in Peru and Ecuador during the quarter, and if this performance is in line with your initial expectations or above, and what should we expect in coming quarters? Thank you.

Thank you, Fernando. I'm going to take that question. We have been able to demonstrate at Arca Continental that when we face challenges, headwinds, we are resilient. But at the same time, when we have tailwinds, we take advantage of those tailwinds. But why? Because we have been investing in the business, because we have a clear strategy in place, because we focus on the execution. and that's what we are doing in Peru and Ecuador. Focus on RGM initiatives about affordability, reinforcement, returnable, something that is working extremely well in Peru that we shared during the last conference call, the strategy of the dual strategy, supporting in Coca-Cola and Coca-Cola at the same time is driving extremely good results. We expect that for the remainder of the year, we will continue to deliver with a similar trend. Okay. Great. Thank you. Thank you, Fernando.

Thank you. We will move next with Enric Bustolin with Bradesco. Please go ahead.

Enric Bustolin Hello, everyone. Thank you for taking my question. Arturo, I'd like to move back to Mexico only on the discussion of the guidance, right, that if I recall correctly, the guidance for mid-single-digit top-line growth applied for all the markets, right? And in Mexico you are well on track with that for the first half of the year, but Q2 was a deceleration and implicit in the mid-single. We need to see a re-acceleration of top-line growth in the second half of the year relative to where it was in Q2. So just wondering if you could qualify a little more on where you see the main drivers for top-line growth accelerating on the back half of the year. If it's more comfort on, you know, volumes recovering from the performance in Q2, if it's more on the maybe incremental pricing front, I think that would be really helpful. Thank you.

Yes, thank you, Enrique. Well, we have not changed our guidance for 2026. As you well said, it's sales growth in the mid-single digits, and that would be currency neutral for the year. and we are keeping our guidance in CAPEX as well for the year. And so that takes into account the situation in Mexico that, as I mentioned, it's been challenging. We are confident we're going to navigate this environment effectively. It's not going to be our best year in terms of growth and we have certainly some tough comps by the end of the year that also we have to take into account. But we're looking here more at the The long-term perspective in Mexico and investing in the future, reinforcing our fundamentals, reinforcing our supply chain, and we're very satisfied with what we've done, leveraging returnable packaging, et cetera. So it's not that we're expecting spectacular growth, but that's pretty much embedded into our guidance for the year. Thank you.

Thank you, Enrique.

Thank you. We will move next with Vanessa Quiroga with Eternal Capital. Please go ahead.

Hi. Thank you for taking my question. I want to dig deeper into the cost side, especially on bottles, BT, because we saw Alpex results where they are seeing a big increase in their profitability because of the higher prices, higher spreads. So I want to understand better how that flows into your costs across the different countries, if you have any hedges in place. If not, when could we see any of that reflected into your results with what lag of time? Thank you.

Thank you, Vanessa. I'll just say in general that our P&T in 26 is certainly expected to be Thank you Arturo and thank you Vanessa for your question. Evidently there is volatility across

Global Commodity and Energy Markets. For us, the main potential areas of impact remain, as we discussed in the previous quarter, PET, aluminum, and diesel. Having said that, on aluminum, we have fully hedged 2026. On LME for Mexico, 97% for the US. Midwest, 50% in the US. P.E.T. prices continued to trend upward across our operations during the quarter. They did remain broadly similar to those observed in the first quarter, but we will get some pressure on P.E.T. Most of that impact has been contained in the U.S. We expect a bit of pressure in Mexico and South America, but overall our hedging program The agreements we have in place with our suppliers, the sourcing strategy, and ongoing cost control leave us well positioned to mitigate these pressures and support the profitability of the organization.

And in terms of Mexico, PT also has a more favorable environment because of the exchange rate. Thank you, Vanessa.

Okay, thank you.

Thank you. We will move next with Tiago Hardium with Bloomberg Intelligence. Please go ahead.

Good morning, Arturo, Emilio. Thank you for taking my question. I wanted to ask a follow-up on Felipe's and Renata's question here, basically on U.S. and World Cup. In the last quarter, we talked a little bit about the rollout of the suggested order tool in the U.S., so just wondering how that's evolving. specifically in the second quarter that we had World Cup, so I understand that could be a little bit of a boost for engagement. Also, I know we also talked about Peru, but since it had such an amazing performance, just wondering if we could discuss a little bit on how the dual strategy between Coca-Cola and Coca-Cola played the role. I understand that we're entering a phase of capitalizing on investments, so yeah, I'm just trying to give a little bit more of Thank you.

I'll address the question of Peru, Tiago, and then I'll turn it over to Jean Claude. But what I would say is, yeah, this dual strategy in Peru, it's pretty unique. If you look at the Coca-Cola system in the world, there's probably no other market where you have this great advantage. And you've been to Peru, you know how Inca-Cola is... have this very strong connection with consumers with certain consumption occasions with meals. And look at the growth of those two brands at the same time, 18%, 12% respectively. That tells you a lot about how they reinforce each other in the marketplace. And probably we have not capitalized fully that in the recent past, so we're very confident that that's still gonna bring growth. And we're projecting further growth in Peru and the rest of the year. So we're confident this is very sustainable going forward and also in profitable terms. So that would be for Peru.

I'll ask Jean Claude to address your question on the U.S. Maybe something just to reinforce a little bit about Peru is that that alignment with the Coca-Cola company behind the dual strategy and how to strengthen also and to capture the opportunities in rural areas is working. And that's the mindset that we have about being a market developer. That's our role as a border. Regarding the World Cup, we already said that we took advantage of the opportunity and in all aspects. In terms of the digital tools, Digital tools that we put in place were to improve our execution, to improve the relationship with our customers, but also something that we did together with the Coca-Cola company to improve the consumer experience. Then if you see the difference of this workup with any other workup was the digital engagement with consumer and customers. We had a lot of discipline to track our execution and as I already shared, and all our execution because compliance, field rate, SOVI was improved and something that was remarkable as well is how we were able to improve our execution and performance in the off-premise channel in both countries, in the US and in Mexico. Then we worked with Enrique Brown last week during the final, and something that he recognized was that this was one of the best activations for the World Cup that we had as a system.

This is fantastic. Thank you very much.

Thank you, Tiago.

Thank you. We will move next with Carlos Lavoie with HSBC. Please go ahead.

Yes, good morning, everyone. Can you please comment on three elements? The first one is, how are you driving both affordability and premiumization in Peru against the discount competitor? Do you need more refillable capacity there? The second one is, can you give us some context on your cold drink efforts and the amount of white space that you still have to fill there in terms of coolers in these rural markets in Peru? And third, what elements of this effort that are driving this really fast growth in Peru might have been impossible in a pre-digital era?

Thank you Carlos. Let me address your points and Jean Claude feel free to jump in with any additional detail. First about affordability. Certainly investment is also relevant there, as you know, the physical cases of both sparkling coke and flavors that we've introduced are very important to balance that strategy that you mentioned and make sure that we maintain the profitability and premiumization of the category, but at the same time have the price points and the price pack architecture that we know works in the marketplace. And for that, That connects to your third point, because we're getting more information from the market. We have better tools to implement that, and that would not have been possible recently, or at least it would not have been as agile, I would say, because the tools, they don't only provide deeper analytics, but they provide more agility to take those actions, and we feel more confident when we do them. So that's really important. In terms of cold drink equipment, we've invested heavily on cold drink units last year and continued this year. But if you look at the penetration of coolers in Peru, it's still really low as compared to Mexico. I mean, it might be 60% and Mexico, we are above 80%. So it tells you there's an opportunity. Obviously, it requires, again, having the right strategy to do it, especially when you go into the rural areas. That's been also part of the success in Peru, as Jean Claude explained, being successful in the provinces in that country as well. And the digital tools going to the third point are also relevant, as we've explained before, to manage the complexity of the business. Growth will come also from a larger number of SKUs. Peru, it's the best example of multi-category that we have in our system. It continues to gain momentum. We have, as you know, beer in Peru that's been growing in our distribution system. And that is only possible when you expand the bandwidth of our front line with the digital platforms and the digital capabilities. So I think all three aspects that you mentioned are really critical to make this growth sustainable for the future and to make us confident that this is not just navigating this wave of tailwinds but really building a stronger profitable business for years to come in Peru.

Thank you.

Thank you, Carlos.

This concludes today's Q&A portion. I would like to now turn the conference back to Arturo Gutierrez for any additional or closing remarks.

Thank you, operator, and everybody for joining today's call. Thank you for your interest in ARCA Continental. And if you have any follow-up questions, our investor relations team remains available to assist you. We hope you enjoy the rest of the summer. and look forward to speaking again in the fall. Have a great day.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.