Gruma Sab De Cv Unsp/Adr

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Guma's fourth quarter 2025 earnings conference call. During today's call, all parties will be in a listen only mode. Following the speaker's remarks, the conference will be open for questions. If you have a question, please press the star key followed by the number one on your touchstone phone. Please press star zero for operator assistance at any time. For participants using speaker equipment, it may be necessary to pick up your handset before making your selection. I would now like to turn the conference over to Mr. Adolfo Fritz, GRUMA's Investor Relations Officer, who will present earnings results. And then we will open up the Q&A session where Mr. Raul Cavazos, GRUMA's Chief Financial Officer and team, will be available to answer additional questions. I would now like to turn the conference over to Mr. Fritz, Investor Relations Officer. Please go ahead, sir.

Thank you.

Good morning and welcome to our fourth quarter 2025 conference call. We're pleased to have you on the line and thankful for the opportunity to share results with you. With me today, as always, I'm Mr. Raul Cavazos-Morales. I'm a CFO at Rogelio Sanchez Martinez. I'm a corporate finance VP. To start, we'll take a few minutes to discuss the highlights and results for the quarter, and then we'll open it up to any questions you may have. To start, we want to highlight the demand for tortilla worldwide remains strong due to its nutritious and healthy qualities. People continue to switch to lower-carb and lower-caloric diets to lead healthier lifestyles or to improve their medical condition. A testament to this is the success and resilience of Better For You products it's had in the U.S., which continue to perform very well during the fourth quarter of the year and the innovation that was introduced in the latter half of 2025 in Europe. In Asia and Oceania, operational leverage is improving as our plant enforcement increases production capabilities and the amount for our products keeps growing. Nonetheless, there are ongoing challenges in the environment that continue to impact our performance, namely the current immigration policy, consumer sentiment in the U.S., and its effects in the food service industry in particular, and the consumer industry overall. This continues to affect our food service channel as well. We're now seeing some positive signs of future recovery during 2026. With these fundamentals as background, we reported a 4% decline in tortilla volumes as a result of the performance of the food service channel in the U.S. In the cornflower business, Mexico continued to see solid demand in the fourth quarter, although it was a tough comparative base, which meant that absolute volume performance didn't reflect the demand we're seeing. Central America continued to deliver solid performance, introducing more innovation to the markets and meeting scoring demands. Corn flour volumes grew by 1% in the fourth quarter in line with the fundamentals I just mentioned. Overall, consolidated volumes remained flat in the fourth quarter while sales grew by 2%. This, however, was not enough to offset the rise in raw material costs, mainly at HINSA, our Mexican subsidiary, which led to a decrease of 5% in consolidated EBITDA and with an EBITDA margin compression of 130 basis points. Our balance sheet remains robust with working capital needs in line with expectations and a leverage ratio of 1.3 times of net debt to EBITDA. Our healthy cash flow generation has enabled us to issue a $100 million dividend and run a very attractive stock or purchase program given our current valuation levels. These two components were effectively giving approximately 5% of market cap in the form of total shareholder returns, and it is a practice we'll continue going forward. In terms of CapEx, we invested $74 million over the quarter, primarily allocated to equipment replacement in the U.S., maintenance and operational upgrades, particularly the HMSA, capacity expenses in Europe, and new production lines in China. Furthermore, we closed the year with $225 million in invested capital, which we will primarily use in the U.S., Europe, both for equipment replacements and upgrades in addition to maintenance work at HMSA and the construction of a new mill from work in Milo. In the U.S., as I alluded to a minute ago, consumer sentiment and the economy has not allowed for a clear recovery in the food service channel, which saw continued declines. Going forward, however, we do expect a gradual recovery by mid-year, which would help volumes in 2026. In the retail channel, we closed the year with a slightly more positive environment, with new strategies being implemented to better cope with the consumer selectivity, leading to a gradual recovery in market share. The exception, of course, is the Better For You category, which continues with its historic growth trends and has not been meaningfully impacted by the current environment, showcasing its sustainability during challenging times. A way we will adapt to this environment is by focusing on a strategy of selling more product label and discounted products, while at the same time increasing our value at SKUs, which, just like the Better For You product line, have proven to be resilient and have a healthy demand momentum. As leaders in the private label market in the U.S. with more than 60% market share, coupled with a positive evolution of our overall value-add SKUs, but better for you product in particular, we're confident that our strategy, once implemented, will deliver positive results. For the quarter, volumes decreased by 4% as a result of the food server dynamics I just mentioned, which in turn impacted sales by 5%. This led to a 7% contraction in EBITDA and a 40 basis point decline in EBITDA margin to 20.7%. In Mexico, overall top line generating fundamentals remain in place and with a positive outlook. Preference and demand for our products continues to show remarkable stability and a positive outlook for the year ahead. Raw materials continue to be under pressure from ongoing farmer demands in Mexico. However, this should be transitory nature of negotiations take place between this group and the government. As I mentioned a minute ago, we did have a tough comparison relative to 2024, but despite this, we were still able to finish the year at a similar level. Volumes grew flat and sales finished the year a slight 1% below the year prior, and EBITDA was impacted by 6% on the back of the corn cost dynamics I just mentioned. One thing to add, however, is that for the whole year, we did experience volume growth, which speaks about the positive demand I was referring to a minute ago. In Europe, our relentless focus on retail expansion has paid off. As of today, we have only expanded our retail presence across the continent, but we have also started to introduce value-added SKUs, which help optimize sales composition. As a combination of innovation, distribution, and expansion, and diversification, this subsidiary has been very successful in its endeavor to reach new levels of profitability with a balanced growth of revenues and volumes. As of today, we continue to see promising outlook for Europe as we keep our effective strategy in place and with more innovation coming in the pipeline. This division reached volume growth of 1% during the quarter and 14% growth in sales. Higher costs on raw material in addition to elevated logistic costs partially diluted this benefit as EBITDA grew by 3%, but nonetheless resulted in a 90 basis point margin contraction. Further, Talking about innovation, Central America also experiences similar effects and results after introducing new innovative corn flour products and distributing them across target markets. As strong demand continues to rise, as you are aware, we started construction of a new mill in 2025, which has been operating since the start of February and will provide approximately 10% additional capacity in the subsidiary. Just as is the case in Europe, we see the positive evolution of this division to be ongoing. as demand keeps growing and we could diversify our product offerings in different markets. During the quarter, this led to a positive performance both in volumes and sales, growing by 5% and 2% prospectively. On the cost side, although there was an inflationary effect on cost of goods sold, our rise in distribution costs partially impacted the positive revenue generation. EBITDA grew by 26%, and EBITDA margin expanded by 400 basis points to 21.2%. Asian Oceania closed the year on a very solid note as well. The last two months of the year were particularly beneficial for the operation overall and gave footing for a strong start of the year. Here, too, we built new production capacity in China, which just started production in 3Q25. This will help EBITDA generation by having more efficient operational leverage and allowing the subsidiary to operate almost at normalized levels. Still, this dragging effect volume grew by 3%, while sales grew by 8%. Despite a rise in raw material costs, just as in other subsidiaries, EBITDA grew by 28%, reaching an EBITDA margin of 14.3%, representing a 220 basis point expansion. As well as, without a doubt, a year with a set of challenges, some of which were expected and some others presented a much higher intensity than previously thought. We ended the year, however, on a much more positive note than how we ended 2024 going into 2025. On the one hand, we expect a much lower impact on food service during the year, and on the other, our now proactive focus on market share recovery and protection should add to our brand recognition in the market to create positive momentum towards a gradual recovery of our regular standards of performance. Not only for us, but also for the category as a whole. Moving on to the guidance we want to provide for the market, we've prepared according to the carryover challenges and countermeasures we're taking in addition to opportunities we see in the upcoming year. In the U.S., we're expecting flat to fractional growth in volumes as we ward off the lackluster consumer sentiment with promotions and discounts on those items that are feeling the most pressure. These same discounts make us believe we can also see flat to a fractional decline in revenues in the subsidiary for 2026. The effects of discounts at this point are conceptually known. What is unknown, however, is the magnitude of these effects or those of the discounts that foster volume growth. As such, we're assuming a low single-digit contraction in EBITDA, which could lead to a 50 to 70 basis point contraction in EBITDA margins. In Mexico, we're expecting single-digit growth in volumes, pretty much in line with our historical performance, while sales should mirror the single-digit growth. As I mentioned a minute ago, there are challenges around the sale of corn locally, which we're mitigating, but should the price of corn still be at current levels, that could impact our EBITDA generation, just as it did during the third or fourth quarter of the year. This is why we're guiding on a 10 to 50 basis point contraction in margins for this subsidiary. In Europe, we're expecting to continue to deliver results with a low single-digit growth in volumes and a high single-digit growth in sales as we intensify our efforts to have a much better sales mix across the continent. With these numbers, we're assuming healthy EBITDA growth with 70 to 100 basis point expansion in EBITDA margins. Central America is also bound to continue its excellent performance with volumes expected to grow in high single digits while sales in low single digits, which should also create a positive expansion in EBITDA. EBITDA margins, therefore, should increase from 20 to 50 basis points. Finally, in Asia and Oceania, we're still counting on China's commercial activity to be volatile throughout the year, despite the signs of recovery we saw in the latter half of 2025. We're also still assuming higher costs given the gradually increasing production from the new client, Foshan, which will partially undermine EBITDA growth. For this subsidiary, we're assuming mid-single-digit growth in volumes accompanied by high single-digit growth in sales. Given the temporary pressure on the cost structure, however, EBITDA growth will be lower than sales growth yielding potentially a flat margin to a 50 basis point contraction. On a consolidated level, these dynamics will promote flat to fractional volume growth Sales should grow in low single digits, while the cost dynamics in Mexico, coupled with the consumer sentiment challenges in the U.S., make us assume that margins could contract around 40 to 60 basis points. For CapEx, this year we're estimated approximately $220 million. As I mentioned throughout this call, we're cautious given the circumstances around the main market, but at the same time optimistic about the trends we saw during the last few months of the year. We're entering the 2026 with a positive note and excited about the implementation of our adaptive strategy, which should help us structure the way we grow differently, but in a more balanced manner and make us even more resilient in the years to come. With that, I'd like to open up the call for questions, please. Could you help us with that, operator?