Genomma Lab Intl Sab Ord

Good day, ladies and gentlemen. Thank you for joining Genoma Lab's second quarter 2026 earnings conference call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. As a reminder, this meeting is being recorded and will be available for replay from the investor relations section of Genoma's website following the call. I'll now turn the call over to Christianne Ibáñez, Genoma's Head of Investor Relations. Please go ahead.

Thank you and welcome everyone. On today's call are Marco Sparvieri, Chief Executive Officer, and Antonio Zamora, Chief Financial Officer. Before we get started, I'd like to remind you that the remarks today will include forward-looking statements such as the company's financial guidance and expectations, including long-term objectives and forecasts, as well as expectations regarding Genoma's business, products, strategies, demand, and markets. These statements are subject to risks and uncertainties that could cause actual results to differ materially. They are also based on assumptions as of today, and the company undertakes no obligation to update them as a result of new information or future events. Now, let me turn the call over to Mr. Marco Sparvieri. Please go ahead.

Thank you, Chris, and thank you everyone for joining our second quarter 2026 earning call. Let me open with the quarter highlights. First, the quarter came in line with our expectations and our growth initiatives are gaining traction. Mexico delivered a sequential sales improvement as we maintained or grew market share across all our businesses units, despite full market category contraction. The consumption environment remains challenging. Full market category contractions in Mexico continue to wait on the company's sellout, and the United States remains pressured by Hispanic retail disruption and a weak cough and cold category. We are executing targeted actions on each front and we expect a continued gradual recovery during the second half of 2026. Second, productivity remains a significant buffer against operational leverage and increased operational expenses. Our gross margin increased during the quarter while SG&A expenses remained flat. All in all, EBITDA Thank you for your continued trust. Turning to Mexico, sell-in declined minus 4.4%, a sequential improvement from minus 8.6% in the first quarter of 2026 and minus 22% in the fourth quarter of 2025. Sell-out declined minus 4%, also a sequential improvement, while the sell-in to sell-out gap narrowed to 43 basis points assigned That channel health is improving. Last quarter, we told you momentum would be rebuilt. This slide shows it's happening. With both curves converging, our reported sales now reflect real consumer demand, not inventory movements, though additional adjustments may be required if market weakness persists. This view shows the sell-out recovery path across Mexican monitored retailers, reflecting the most demanding channel behavior for the company, from minus 15.7% in April to minus 10% in May and minus 6.8% in June. We delivered a nine-point improvement within the quarter. In the first two weeks of July, monitored sell-out turned positive at plus 2.4%, back to growth and 21 points above the low point of Q2 2025. This is not one good data point. It is a consistent month-by-month recovery showing through our most demanding channels. At the leading retailer, our largest client in Mexico, the recovery is ahead of the curve. Sellout growth went from minus 7% in April to plus 4% in May and plus 5.2% in May and accelerated to plus 15.3% in the first two weeks of July. That is a 34 points recovery from the low point of Q2 2025. This matters because it is a leading indicator. Not only does it show the recovery in our largest client in Mexico, it also shows we can replicate this performance across our other clients as we execute the same strategy with each of them. A key driver behind the acceleration is Suerox. This graph shows Suerox growing in a sustained double digit at the leading retailer in the last month, supported by our growth strategies and specific to this client. We will continue to support Momentum through the second half of 2026. The share data confirms it. Suarez's share at the leading retailer climbed to 12.2% in the second week of July, an historic high level, up 3.6 percentage points versus the first quarter of 2026. These are early weeks at a single retailer, so we remain measured, but the trajectory tells us that our strategy is pulling the brand up. Let me go deeper on Suero's economics in Mexico because they show our model is working. We move pricing from 25 to 22 Mexican pesos to stay competitive. We fully absorbed Mexico's new one peso per bottle tax on non-caloric sweetened beverages, and we held market share at 6.9% at the full Mexican market level. And yet, Suerox Mexico gross margin grew 11.7 percentage age points year over year during Q2 2026. and is 2.8 points above pre-discount levels, a testament to the impact of our productivity initiatives and manufacturing capabilities. Suerox is one example of many productivity initiatives across the company that are funding our competitiveness without sacrificing profitability. Against that backdrop, it is important to size the market we are operating in. At the full market level, Pernobloch and Nielsen Data through May, every category where we compete in Mexico is contracting. Isotonic beverage is down minus 6.6%, OTC minus 6.3%, and personal care minus 1.4%. and Infant Nutrition minus 1.1% year to date. This is a full market headwind and it continues to wait directly on our sellout. Within that contracting market, we maintained or increased year-to-date market share across all businesses units versus 2025 year-end levels. Isotonic beverages, OTC, and personal care remained stable while infant nutrition stepped up from 4.2% to 5.2% at a full percentage point. These moves are modest, but they confirm our initiatives are working where it counts, and defending market share today is what protects the company's value tomorrow. Turning to our consolidated results, like-for-like sales declined minus 3.6%, and net sales declined minus 6%, reflecting the ongoing recovery in Mexico, continued softness in the U.S. Hispanic market, and a 10.8% appreciation of the Mexican peso during the quarter. Gross margin expanded 106 basis points to 64.6%, driven by productivity gains, partially offset by higher promotional investment. EBDA margin declined minus 200 basis points to 21.8% on operational deleverage, with SG&A flat as productivity offset higher OPEX and inflation. And net margin expanded 93 basis points to 8.5% driven by lower financial expenses and reduced foreign exchange losses. Let me be direct about the margin implication. Last quarter, we guided to EVDA pressure over three to six months. As we prioritize market share, this quarter landed within that window. The choice to invest remains deliberate. and we expect operational leverage to improve as sales recover gradually in the second half of 2026. This view shows the geographic picture in gross sellout and local currency. Latam, ex-Argentina, 30% of the mix grew plus 5.6%, driven by Central America, and the Andean region with OTC and beverage market shares gains in key markets and traditional channel expansion. Argentina, 15% of the mix grew 37.7%, outpacing inflation by 4.5 percentage points. The United States, 8% of the mix, declined minus 7.9% in local currency, pressured by Hispanic retail disruption and a COFA and gold category weakness by two consecutive milder seasons. We are realigning our commercial footprint and distribution model to stabilize performance. With Suerox allowed, growing double-digit and e-commerce expanding. All in all, LATAM is compensating, but the recovery works sit squarely on Mexico and the United States. Before I close, let me leave you with four messages that summarize how we see the path forward. First, Mexico performed in line with our expectations with a sequential sales improvement and monitored sellout back to growth in early July. Second, we defended market share across our business units despite full market category contraction, which is the foundation every recovery is built on. 3. Margins behaved as we guided. Productivity expanded, gross margin and held SG&A flat, while EBDA contracted on operational deleverage within the window we communicated. 4. We expect a continued gradual recovery towards the second half of 2026, supported by four commercial levers. Stronger in-store execution, competitive pricing, expanded digital and TV communication, and e-commerce growth, reinforced by our innovation pipelines of OTC Lounges and Xerox Ramp-Up. To close, the quarter confirmed we are on the right path towards sales recovery. Momentum is rebuilding. Our initiatives are gaining traction and our fundamentals position us to emerge stronger as the consumption cycle recovers. I want to thank our team for their disciplined execution and our investors for your continued trust. Tonio, go ahead.

Thank you, Marco. and good morning everyone. The second quarter show the underlying dynamics we have been pointing to all year. Mexico is turning the corner as our growth initiatives gain traction. Latin America continues to compound solid growth and the organization is converting discipline into margin, even as the operating environment in Mexico and the US remain difficult. Productivity once again drove gross margin expansion, absorbing both higher promotional investment and the full quarter impact of Mexico's new YEP stacks on non-caloric sweetened beverages. Lower financial expenses and reduced FX losses supported net income growth, and we closed the quarter with a solid balance sheet and ample liquidity. Let me take you through the numbers. Net sales were 4,397,000,000 pesos down 6% year on year. The headline decline is largely a currency story. The 10.8% appreciation of the Mexican peso against the US dollar created a significant translation headwind in our international operations. Stripping that out, like-for-like sales declined 3.6% as the ongoing recovery in Mexico and 3.9% like-for-like growth in Latin America, led by the Andean region and Central America, were not enough to fully offset continued disruption in the U.S. Hispanic retail channels. Gross margin expanded 106 basis points to reach 64.6%. Productivity gains, once again, more than offset both higher promotional spend and the fully absorbed impacts of the IEPS tax. A clear signal that our productivity program is structural rather than a one-quarter effect. EVDA Total 959 million pesos with a margin of 21.8%. Now 200 basis payments year over year. The decline was driven primarily by operating the leverage on lower volumes, not by a loss of cost control. SGM&A was essentially flat As productivity savings offset both higher operating expenses and inflation. Net income increased 5.5% to 375 million pesos with a net margin expanding to 8.5%. Lower financial expenses and reduced FX losses more than offset a lower EBITDA margin and a higher inflationary loss on our monetary position in our hyperinflationary subsidiary. Going to Mexico, net sales declined 4.5%, continued to improve sequentially as growth in beverages and infant nutrition partially upset continuous softness in OTC and personal care. We maintain or grew year-to-date market share across every business unit despite broad category contraction in the market. Gaining share in a shrinking market is the clearest evidence our initiatives are working. Sell-out also improved sequentially and the selling-sell-out gap narrowed to only 43 basis points. Reflecting healthier trade inventories. We were encouraged to see monitor retailer sellout increase 2.4% during the first two weeks of July, an early signal that the recovery is carrying into the third quarter. The 10.8% appreciation of the Mexican peso creating a headwind when we consolidated US results into Mexican pesos. Local currency sales in the United States declined 21.3% reflecting ongoing disruption in the Hispanic retail landscape and continued pressure in cough and cold following a milder season compounded at the reported level by the 10.8% peso appreciation on consolidation as we described earlier. Even so, Soerox continued to grow at a double-digit rate, and our e-commerce channel kept expanding as we advanced our commercial realignment strategy in that country. Going into LATAM, generalized FX depreciation against the Mexican peso also created a severe translation headwind for the region, as you can see in this chart. Like for like sales grew 3.9% in Latin America, led by strong performance in the Andean region and Central America. Continuous share gains in OTC and beverages and expansion in the traditional channel despite the generalized forex depreciation against the Mexican peso as described earlier. Regional EBDA margin improved 41 basis points to reach 25.1% a direct result of our productivity initiatives in that region as well. Our cash conversion cycle reached 129 days, 10 days increase versus the first quarter, reflecting a four day increase in receivables, three day increase in inventories, and a three day decrease in payables. This was a deliberate build as we invested in inventory to support new product rollouts and innovation initiatives in Mexico during the launch phase. Trailing 12-month free cash flow total 1,259,000,000 pesos, down 53% versus the prior year, reflecting lower operating income and higher working capital requirements. We expect working capital to normalize as the innovation and product launches mature. We paid our 16th consecutive quarterly dividend of 20 Mexican cents per common share, totaling 200 million pesos, a reflection of our consistent cash generation and our continued commitment to returning capital to shareholders. We remain committed to maintaining quarterly dividend payments in the future. CAPEX totaled 120 million pesos, including 102 million pesos in a manufacturing plant and distribution center. Again, GAPEX is required to drive the productivity programs that are driving these savings. Our balance sheet remains solid with net debt to EBITDA of just 1.38 times and a debt service coverage ratio of 5.2 times. Yesterday, after the quarter end, we further strengthened our capital structure by securing 1.5 billion peso amortizing term loan with a 10-year maturity, allowing us to refinance existing debt on more favorable terms and reinforcing our financial flexibility going forward. In summary, while market conditions remain challenging, We are encouraged by the sequential improvement in Mexico that Marco described earlier and by the continued strength of our productivity agenda in offsetting a difficult top line. We remain focused on executing our growth strategy, investing behind innovation and commercial execution, improving working capital, As recent launches mature, and preserving the financial discipline that underpins a strong balance sheet and long-term value creation. With that, I will hand the call back to the operator for questions.

Thank you, Antonio. We will now begin the question and answer session. To ask a question, you may raise your hand using the icon, Raise Your Hand, located at the bottom of your screen. To withdraw your question, press the same icon at any time. This will be required in order to allow you to turn on your microphone and ask your questions. One moment please while we hold for questions. Thank you. Our first question comes from Alvaro Garcia from BTG Paxful. Please turn on your microphone to proceed with your question.

Hi, Marco, Antonio, can you hear me?

Yes.

Alejandro Bastón Patiño, Christianne Ibáñez Garcia, Juan Marco Sparvieri Feels a little bit more aggressive than usual, I'd suppose, but yeah, any color on accounts receivable would be helpful. And my second one on Latam X Argentina, seems you're seeing sort of a pocket of your portfolio still seeing decent growth, especially in the sellout chart you showed there. Sort of what products are you seeing the best results in or what categories that'd be helpful to get some color on? Thank you.

Thank you, Alvaro. I mean, in general, regarding to accounts receivables, the way I would put it is, as we said in the last two calls, we are moving into a phase of actually being more aggressive with our customers. Daniel Suarez Neria, Juan Marco Sparvieri Daniel Suarez Neria, Antonio Zamora But in general, I mean, we are putting more product out there because we want to have larger displays at the stores. We want to have more presence than our competitors. We are playing harder in the seasons. We are being extremely aggressive commercially with the launch of Xerox Mineral, which launched at the end of the pandemic. The results are very, very strong, very strong

I appreciate that. That's a candid answer there.

And then on LATAM ex-Argentina, there's several brands and actually segments that are driving the growth. I would say, you know, we have two brands in Andean and Central America, which are X-Ray and Nixon that are performing extraordinarily well. The whole expansion of our footprint in the traditional channel in the Daniel Suarez Neria, Juan Marco Sparvieri Chile, we are seeing a very strong performance of OTC in general, while we are also starting to see an improvement in personal care, which was a problem in the past. So let me think. and then Suarez continues to perform extraordinarily well across the board. We have markets like Chile, for example, we are almost reaching a 20% market share in that market. Argentina, we launched two years ago and we are approaching almost 10 points of market share. We are nine plus right now. In Brazil, Suarez continues to perform well. I think that's kind of like the 80% of it.

That's helpful. That's helpful. Circle back. I'll let other people ask questions now. Thank you.

Thank you, Albert.

Thank you. Our next question comes from Alejandro Fuch with Itao. Please turn on your microphone to proceed with your question.

Thank you, operator. Hola, Marcos, Antonio, Christiane. Thank you for the space for questions. I have two quick ones, if I may. The first one in Mexico. Marco, I want to see if maybe you can elaborate a little bit how have you seen competition on the OTC Marco, where are you more excited about for the second half of the year in terms of innovation What's driving this sell-out improvement at these retailers? What part of the portfolio do you think has more runway to recover faster? If you can elaborate a little bit more on your expectations. Thank you. Yeah, absolutely. Well, I mean...

This is not the first time we are going through a period of category contractions. In my case, not only my 12 years in this company, but also my almost 20 years at P&G. And when these things happen, so when you're competing In categories that are declining, it's a really tough environment. So in terms of behaviors, what you normally see and what we are seeing today across the board, not just in OTC, but in every single category, is that competitors are trying to protect or gain market share. And the way they do that is with very heavy promotional activities. And so we are seeing... Thank you for joining us. We have not seen a lot of you know Daniel Suarez Neria So that's the kind of behaviors that we are seeing. In our case, we are, as we said, we are defending and fighting back really hard, which is working, but also we are betting very strongly on innovation. We have Daniel Suarez Neria, Juan Marco Sparvieri The initiative will continue to see very strong results in the retailers. And we have five new launches that we are planning for the second half of 2026, in which we are betting everything as well. So to your second question on what am I excited about for the second half, I am right now cautiously optimistic, but in reality very optimistic. I think the full expansion of the launch of Suerox Mineral is going to be a hit big time. And then we are also starting to expand or planning the expansion of Suerox Mineral to other markets. I think that's going to be huge. I think that the preparation and the plans that we have for the winter season in our cough and cold categories here in Mexico and honestly across the board, but mostly in Mexico, I am very, very confident because we have already discussed our plans with the retailers, with customers. We have already sold many of these plans and You know, everything looks extremely encouraging. And then the innovation. So if I have to put it in three bullet points, I would say Suarez Mineral, number one, the execution of the winter season across the board. And then third, the execution and the five initiatives that we have for the second half. And And I think, and that's it. Yeah. So, so those are the three, I would say.

Thank you. Our next question comes from from JP Morgan. Please turn on your microphone to proceed with your question.

Hello Marco, Antonio, Christiane. Thank you for the space for questions. Marco, would you describe the third quarter to be a turning point for sales and margins in Mexico and what would need to happen for the third quarter to be the turning point? And the second question would be, how do you see inventory levels for the isotonic segment for you and for competition into the second half? And I'm asking this question because I guess there was a lot of excitement around the World Cup and probably Many people flooded the channels with extra inventory and I don't see that the expected demand was actually there. Is there a risk that we see another episode of high inventory in the channels given the more depressed demand and decisionality not coming as strong as expected? Thank you.

Thank you for the questions, good to hear from you. For the third quarter, I will divide the discussion into three or four points. Number one is sellout. In terms of sellout, I have a very high level of confidence that our sellout in Mexico, I'm talking Alejandro Bastón Patiño, Christianne Ibáñez Garcia, Juan Marco Sparvieri In terms of sell out and execution will pay out. So I do believe that we will see positive numbers in terms of sell out. And we are already seeing, as I shared in the slides, we come from a situation where we are declining. Daniel Suarez Neria, Antonio Zamora I would like to be a little bit more cautious there because, as you mentioned, we loaded the channels, especially in isotonic beverages, to play really hard during the World Cup and the summer season. And as I shared, the categories as a whole didn't react very strongly or as strong as we expected. Inventories are high or decently high in the trade. And by the way, it was a choice. I mean, as I said a few quarters ago, we are playing tougher at the stores and so on. So it's a choice that we made. But there might be an inventory adjustment. Daniel Suarez Neria Daniel Suarez Neria, Juan Marco Sparvieri Daniel Suarez Neria, Juan Marco Sparvieri and the inventories you... Perfect.

Yeah. Thank you. If I can just follow up. Sure. On the list of strategic projects that you were pushing, obviously, Suerox Mineral is one of them. It was a big list of projects with different percentage of probability and different, let's say, sales uplift, etc., Given the way the consumer has behaved and your expectations of overall demand this year and probably next, have you shortened out at least? Are you focusing on something much more specific? Are some of those projects out already or let's say do not make sense to pursue at this point given the consumer backdrop?

Yeah. The areas where we are focusing right now, and I think maybe a few of them dropped off the list, but the most important ones are innovation, number one. As I said, we have five very strong innovations coming in the second half. We have Suerox Mineral that we just launched, and I think the potential is immense. So innovation is one. E-commerce is the second and we are executing that exactly in line with the plan and it's paying out really nicely. Number three, it's the in-store execution. We revamped several of our execution platforms to make sure that everything that we design here in the office is executed with excellence at the stores and that's working nicely. We continue to focus on the expansion of our distribution routes in the traditional market and we will continue to do so. We will continue to focus on productivity because we are going to need more space or more room in the P&L to continue to invest in the business. We are continuing to focus on increasing and improving our communication model with digital. I would say that, you know, we said that we're going to be 50% digital, 50% TV. You know, if you look at the past quarter, I would say that we are more kind of like in 65% or 70% digital and the rest out of home and TV. So we will continue to push that. and then the other piece is we talk about hard discounters in that list and we are making very nice progress with several key hard discounters throughout Mexico and Latin America and that's it

Perfect. Thank you so much, Marco. Yeah.

Thank you. Our next question comes from Antonio Hernandez with Actimber. Please turn your microphone on to proceed with your question.

Hi, good morning. Thanks for taking my question. Just a quick one regarding internal inflation. I mean, you already mentioned productivity initiatives and that of course is reflected in the gross margin. But overall, how do you see internal inflation or overall raw materials inflation going forward? Any expectations? Thanks.

Raw materials and inflation is a reality, especially after all the mess with Iran. So I had high hopes of seeing the U.S. reaching a peace agreement with Iran and then The oil price is coming down. I think that there's a lot of uncertainty there. So as long as the oil prices remain high, we will continue to see pressure on raw materials because of transportation costs, because of everything you know. and if that is corrected in the short term, I think that pressure is going to ease. Nevertheless, we have both scenarios model going forward and we are aggressively working on productivity to offset most of the impact as we have been doing over the past few years successfully.

Thank you. Our next question comes from Regina Carrillo with GBM. Please turn on your microphone to proceed with your question.

Hi, good morning. Thank you for taking my questions. I have two on leverage. One is, you know, following the long term liability refinancing that you did, what are the expected annual interest expense savings and what impact could that have, you know, over the next 12 months for interest? And also, what are your expectations on free cash regeneration for the second half of the year? and what leverage could we expect for year end?

Thank you. Thank you, Regina. This is Antonio. Regarding the refinancing that we did, you know, it's a 10 year term bilateral loan. So that obviously expands the maturity profile of our debt and that's something that we are working on. There's going to be more transactions like this that we are working on. And basically what we're doing is we're optimizing the maturity profile. Okay. In terms of interest savings. Yeah, I think that Genoma has very competitive interest spreads in the different instruments that we use. As you know, we finance with commercial paper, with segures, certificados usatiles de largo plazo, also with multilateral loans. Daniel Suarez Neria Thank you very much. Actually, all of our debt is in variable interest rate. So the answer lies with what's your expectation for TA? And that's a very hard answer. So that would be one. And the second question that you have the expectation regarding the cash conversion cycle and free cash flow generation. As Marco mentioned in this call and in the previous call, we decided this year that we need to invest in the market to launch innovation. Daniel Suarez Neria, Antonio Bastón Patiño, Christianne Ibáñez Garcia, Juan Marco Sparvieri Obviously, the working capital requirements are going to be lower, so you will see a better cash flow generation in the future. But at this moment, I think that the right thing that we need to do is invest in the market. And as Marco described, holding market share or even expanding market share, it's the most important thing. Daniel Suarez Neria, We're working on. Furthermore, I think that the productivity initiatives that Marco has described, they are really working. And, you know, we've had a lot of questions about inflation regarding raw materials. And as Marco described earlier, we have been able to offset most of those impacts. So that's also going to help in terms of cash flow generation for the future. I don't know if we answered your question, Regina.

Yes, Antonio, thank you and also thank you Marco for the call.

Sure. Thank you. Our next question comes from Antonio Cardoso with Jefferies. Please turn your microphone on to proceed with your question.

Hi, Marco, Antonio, thanks for the call. Thanks for the opportunity to ask a question. Two questions on my side. The first one, I would like you to explore a bit more the data point that you gave on the sellout of July. Is this renome specific or overall the sellout improved throughout the market within other brands as well, all the categories, across categories? Just more color on that. The second one, regarding margins, a colleague asked a bit about it, but I would like a bit more color on EBITDA margins. In a possible scenario that we don't see any recuperation this second semester, how much more operational deleverage can we see? And then in 2027, how much time would take, how much growth would be necessary to come back to these 23, 24% EBITDA margins that we showed in the last two years? Thanks so much.

Antonio Zamora Galland, Rodrigo Alonso Herrera Aspra, Alejandro Bastón Patiño, Christianne Ibáñez Garcia, Juan Marco Sparvieri It's genomas, it's not the category. I think the categories, as far as I know, from the last data we have, they continue to be in a negative territory. But we are starting to grow our business, which means growing shares. You also saw that in the chart that I shared on Suerox, that we almost doubled the share on that retailer. Yeah, so that's the sellout on margins. I don't know how to answer the question because there's a lot of uncertainty out there. But the way I would put it is the priority is to protect our market shares. I think that the plans we have and what we are investing right now in the market in Mexico specifically will achieve that. And I think that as the business starts to recuperate, which I expect that to happen in the following quarters, at least from a consumption point of view, which is the most important thing. I think that we will be able to ease a little bit on the amount of money that we're pouring into the business and that will help the margins to come back to the 23 to 24% range that we were before this whole situation. Now, I cannot assure if the scenario that I'm seeing today is actually going to happen. What I can assure you and everybody is that the priority of this company is to protect our brands, our market shares, and a second priority will be to deliver on the margin targets. That's the way I would put it. But for now, I mean, if you ask me right now, I do believe that uh you know after 2026 the third and fourth quarter uh we will to we will begin to see a gradual increase of the of the margins in 2027 to go back to that levels that's our plan today now I don't know okay okay that's clear that's clear okay thank you I was just afraid

on further operational deleverage, given maybe this scenario does not improve in the second semester. But I think it's clear. Thank you.

Yeah. No, thank you, Antonio, and great meeting you.

One moment, please, while we hold for questions. That concludes Genoma's second quarter results conference call. Thank you for your attention.