Arca Continental SAB de CV
BMV:AC
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Arca Continental SAB de CV
Earnings Call Analysis
Q3-2023 Analysis
Arca Continental SAB de CV
The company has been focusing on strategic pricing, operational productivity, and cost optimization initiatives, such as streamlining its supply chain and reducing product waste. These efforts have resulted in a solid top-line performance with increased volume and favorable pricing momentum across all territories, culminating in a 2.1% revenue growth in the third quarter and a 5.5% increase year-to-date. On a currency-neutral basis, these numbers are even more impressive with a 13.6% and 14.9% growth for the quarter and the nine-month period, respectively. EBITDA growth mirrored this positive trend with 7.8% and 9.2% increases for the same periods.
Financial discipline and hedging strategies have allowed the company to enjoy gross and net profit growth. Operating income and margins have expanded, with EBITDA margins reaching 20.2% for the quarter. Moreover, the company's strong cash flow facilitated an extraordinary dividend payout ratio of 63% of retained earnings, posing a promising yield for investors. These financial metrics reflect a healthy balance sheet with significant cash reserves and manageable leverage, indicating a robust financial footing for the company.
The company's commitment to sustainability is unwavering, with ambitious targets to cut greenhouse gas emissions by over 30% and decrease indirect emissions from its value chain by 15% by 2030. These targets, validated by the Science-Based Targets initiative, are part of a broader context of environmental responsibility that includes waste reduction and a low-carbon economy. By aligning its business model with digital transformation and sustainability, the company positions itself as a forward-thinking player in the market.
Looking ahead, the company plans to stick to its strategic priorities, leveraging its digital platform and innovative in-store execution to meet positive consumption trends. By harnessing analytics and data-driven insights, the company aims to continue improvising its decision-making processes and maintaining a positive business momentum. Confidence in the sustainability of performance, due to the deployment of commercial and productivity strategies, supports the company's outlook for stable growth, underpinned by its commitment to digital transformation and environmental stewardship.
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Good day, everyone, and welcome to today's Arca Continental Conference Call. [Operator Instructions] Please note, this call may be recorded, and I will be standing by if you should 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, and thanks for joining the Senior Management team of Arca Continental to review the results for the Third Quarter of 2023. The earnings release went out this morning, and it's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; the Chief Commercial and Digital Officer, Mr. Jose Pepe Borda, as well as the Investor Relations team. 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, and many thanks to everyone for being with us today to discuss our results for the third quarter. Let me begin by saying that we are very pleased with our performance. Our existing record of steady revenue and earnings growth extended into the third quarter. Our total consolidated volume grew an exceptional 7.4% this quarter, reaching 665 million unit cases with our 3 operating regions delivering sequential and healthy volume expansion.Net revenues also increased 2.1% to MXN 56.9 billion, cycling 16.2% growth in the same quarter of last year. Our revenue management capabilities and flexible price pack architecture, coupled with our strong pricing power and brand leadership, continued to be key enablers of our revenue growth. Consolidated EBITDA for the quarter grew 7.8%, reaching MXN 11.5 billion. This represents a margin of 20.2% for an expansion of 100 basis points.I will now go over the results for each of our markets, beginning with Mexico, where we delivered consecutive record-breaking volume with over 100 million unit cases every month in the third quarter. Unit case volume, not including jug water, grew an outstanding 8.7%, cycling 5.4% from the same quarter of last year.Volume growth was broad-based across our portfolio, which was driven by solid performances in sparkling beverages, up 7.3%, water 13.5%, and still beverages 17.1%. The Coca-Cola brand also continued to outperform with an increase of 8.1%, while our water category grew double-digits driven by Topo Chico, which represented 47% of the growth.We saw positive volume performances across all channels. Traditional trade grew 7% and modern trade rose 14.6%, driven by double-digit growth in convenience stores. Notably, the on-premise channel continued its positive trend, growing 5.6%, supported by the sustained recovery of our leisure and at-work segments.Total net sales in Mexico rose 12.2% to reach MXN 28 billion. Remarkably, our beverage business in Mexico achieved its 29th consecutive quarter of net revenue growth. Average price per case, not including jug water, rose 3.6%, reaching MXN 79.78. This increase was sustained by our strong execution and revenue management capabilities.EBITDA increased 13.6% to MXN 6.9 billion, representing a margin of 24.8% and marking the 19th consecutive quarter of EBITDA growth. EBITDA margin expansion rose as a result of our effective pricing, combined with our disciplined focus on cost optimization, proactive hedging of raw material costs and favorable negotiation of key inputs.We also continued the expansion of AC Digital. By the end of the quarter, our traditional trade customer base reached 85%, and orders through this platform represented more than 54% of the volume in this channel. In South America, our beverage business posted a solid 8.1% volume growth. Our performance in the third quarter remained strong, even as we lapped tougher comparisons of a year ago.Volume growth was driven by strong performances in Peru and Ecuador, partially offset by a mild decline in Argentina. Total revenues were down 4.7% in the quarter, reaching MXN 9.8 billion. EBITDA declined 11.9% to MXN 1.7 billion, representing a margin of 16.9%. Our beverage business in Peru delivered an impressive 12.6% of volume growth, cycling a 4.1% growth from the same quarter in 2022. The sparkling category grew 9.3%, with Coca-Cola Zero Sugar up 25%, sustaining the positive momentum. Our water category grew sequentially by remarkable 23.7%, as we continued with our dual commercial strategy featuring the San Luis and Benedictino brands.We saw strong growth across channels. The traditional trade was one of the best performers, up 14.2%. This was supported by investments in market initiatives focused on increasing our share of visible inventory and expanding cooler coverage. Year-to-date, our team in Peru has installed more than 10,000 cold drink units and 12,000 racks. Furthermore, this quarter, we reached a significant milestone, 63% of our volume in the traditional channel was placed to our AC Digital B2B platform.Moving over to Ecuador. Volume was up 9.2%. We experienced strong growth in the still beverage category, which was up 12.5% and the sparkling category up 8.8%. Coca-Cola Zero Sugar and Sprite led robust growth, supported by the launch of the 1-liter glass refillable package. From a channel perspective, traditional trade sustained its performance as we continue promoting returnable packages and driving immediate consumption.Revenue management and product reformulation initiatives, coupled with our focus on cost discipline and optimization enabled us to protect profitability amid the challenging consumer environment in Ecuador. Tonicorp, our value-added dairy business posted mid-single digit EBITDA growth this quarter. Growth was driven by the white milk, oatmeal, and ice cream categories, as we sustained market share in our core portfolio.In Argentina, volumes in the quarter were down 1.2% following a strong 9.7% growth in the same quarter of last year. Unfortunately, severe currency devaluation, ramped inflation and high interest rates continued to negatively impact consumer spending. Nonetheless, we have achieved volume growth for 3 years in a row by focusing on those things we can control.We maintain pricing in line with inflation, while actively promoting immediate consumption and driving affordability with returnable bottle initiatives. Notably, single-serve mix increased by 4.7 percentage points. These results are consistent with the recovery of the on-premise channel across the region.Our beverage operation in the United States maintained its steady momentum and delivered another quarter of solid top and bottom line performance with its 19th consecutive quarter of EBITDA growth. Volume for the quarter increased 4% to 121 million unit cases. Last August, we delivered a record-breaking month in terms of volume and transactions, driven by our pricing strategy and strong point-of-sale execution.The water category posted 21.4% growth in the third quarter as we drove consumers towards our premium water brands such as Smartwater, Topo Chico and Vitaminwater. All 3 of our channels grew in the quarter with small stores and FSOP leading with 9.1% and 5.1%, respectively. Large stores grew 1.3%. Notably, the sparkling category in the FSOP channel grew 9.4%, led by immediate consumption packages, up 7.5%, followed by 12-ounce cans at 1.6%.Channel dynamics favored immediate consumption packages, which grew in mix by 0.4%. This effect supported a record-breaking month in transactions, up 8%. Volume performance was led by high revenue per case packages with immediate consumption of 5.1%, Monster 5.8%, and Smartwater 6.4%. Net revenue for the quarter rose 12.7% to $1.1 billion, marking the 10th consecutive quarter of double-digit revenue growth. This was mainly driven by strong pricing, promotions and strong execution of our most valuable packages.Average price per case grew 8.4%, with true rate up 8.3% as we finished cycling last year's price increase. We continue making progress in the RGM space, powered by our advanced analytics road map, specifically our trade promotion optimization tool and sophisticated data models to make the most of our promotional spend. This underscores the pivotal role that data-driven decision-making place in shaping the future of our company.EBITDA increased 27.7% to $164 million, while EBITDA margin for the quarter finished at 15.4%. Importantly, this is the highest EBITDA margin for the third quarter in any year since we acquired this operation. This quarter, we launched BODYARMOR FLASH I.V., our newest brand in rapid hydration segment and Coca-Cola Creations Year 3000. We also started delivering 13 SKUs of the Bang energy drink portfolio.I will now conclude our operations review with our Food and Snacks businesses. Bokados in Mexico posted sequential single-digit sales increases driven by the traditional channel, segmented pricing and enhanced management of discounts. Wise Snacks in the U.S. posted sequential EBITDA growth driven by pricing, ongoing productivity and cost optimization initiatives, including SKU rationalization, streamlining our supply chain to optimize freight costs and reduce product waste.And lastly, Inalecsa posted flat sales and double-digit EBITDA increases this quarter, as we continue to reshape our portfolio to further increase our focus on product innovation and targeting new consumption occasions, supported with an attractive price value proposition.I'd like to close with an overview of our ESG initiatives during the quarter. As part of our ongoing commitment to stop global warming and strengthen our sustainable business model, I'm delighted to announce our set targets aimed at reducing absolute carbon emissions. We have pledged to attain a reduction of over 30% in greenhouse gas emissions, in addition to a 15% decrease in indirect emissions from our value chain by 2030. These targets have undergone comprehensive validation by the science-based targets initiative. A collaborative effort involving the UN Global Compact and various international organizations.When we committed our company to align with the SBT initiative, we did so with a firm belief that our actions can make a positive difference in both people and the environment. Moreover, this announcement complements our engagement in other significant initiatives such as world without waste and the recent expansion of PetStar. We hold a strong belief that these endeavors will propel us towards a low-carbon, climate-resilient economy fostering a future for our business practices and products seamlessly coexist with the environment.And with that, I will turn the call to Emilio to go over our financial results. Please, Emilio.
Thank you, Arturo. Good morning, everyone. It's great to be with you today to review our third quarter performance. I am pleased to report that after a strong first half, we continue to see solid top line performance with strong volume and a positive flat pricing momentum across all our territories.Revenue growth coupled with key input tailwinds and operating efficiencies generated positive EBITDA performance and margin expansions during the quarter and year-to-date. Let me now provide you more details on our financial results. Consolidated revenue increased 2.1% in the third quarter and 5.5% year-to-date, driven by the positive volume performance or a consistent revenue growth management initiatives.On a currency-neutral basis, revenue grew 13.6% in the quarter and 14.9% in the first 9 months. As you're aware, the Mexican peso has been appreciating consistently, making it one of the strongest currencies among emerging markets over the 3 years. Gross profit grew ahead of revenue at 4.4% during the quarter, reaching MXN 26.2 billion, representing a contribution margin expansion of 100 basis points.In the 9 month period, gross profit increased 8.2% to MXN 75 billion, while gross margin expanded by 120 basis points. This improvement was mainly driven by strong volume growth, pricing tailwinds of most raw materials and a disciplined hedging strategy. As a result of our continuous improvement and cost optimization initiatives, we maintain a healthy balance between positive volume performance and the OpEx to sales ratio with a 20 basis point benefit in the quarter.Operating income totaled MXN 9.3 billion, a 10.8% increase and 130 basis point margin expansion. For the 9 months, operating income rose 13.3% to MXN 25.9 billion, while the margin expanded by 110 basis points.For the quarter, consolidated EBITDA increased 7.8% to MXN 11.5 billion with a 100 basis point margin expansion, reaching 20.2%. In the 9 month period, EBITDA grew 9.2%, while the EBITDA margin expanded by 70 basis points to reach 19.8%. On a currency-neutral basis, EBITDA grew 16.9% in the quarter and 17.2% year-to-date.Net income in the third quarter reached MXN 4.5 billion for an increase of 7.3%, mainly driven by the operating income performance. For the 9 months ended in September, net income rose to 12.2%, reaching MXN 12.9 billion, while net profit margin expanded by 50 basis points.Continuing with the balance sheet. As of September, cash and equivalents reached MXN 27.3 billion, while total debt was MXN 46.3 billion leading a leverage ratio of 0.45x. The operating cash flow totaled MXN 23.2 billion. Our Board approved an extraordinary dividend of MXN 2.22 per share to be paid on November 22nd, reaching a total dividend of MXN 5.72 per share for the year with a dividend yield close to 3.7% and a payout ratio of 63% of retained earnings.Looking ahead towards the end of the year, our strategic priorities will not change. We will accelerate our digital agenda and continue innovating in our execution at the point-of-sale to capitalize on the positive consumption trends in our territories. These capabilities, coupled with our revenue growth management initiatives, disciplined OpEx and CapEx execution will help us to maintain a positive momentum.We remain confident in the sustainability of our performance base to the deployment of our commercial strategies, productivity improvements and CapEx deployment, which are aligned with acceleration of our digital transformation and sustainability agenda.And with that, I will turn it back to Arturo. Please, Arturo.
Thank you, Emilio. Throughout 2023, our business continued to perform well, and consistently proved our ability to operate with agility, while maintaining a long-term vision and prioritizing the relationship with customers, consumers and the community. An entire year has passed since we signed the collaboration agreement with the Coca-Cola Company. This partnership model reaffirms our unwavering commitment to leading the beverage industry in Latin America.Under this framework, we will continue innovating and advancing in the market as we accelerate the multi-category pilots in Ecuador, Peru and Mexico with the ultimate goal of achieving sustainable growth in our core business. Furthermore, we are excited about the recent developments in the trend of nearshoring. As you may be aware, businesses are relocating closer to the United States in order to streamline their supply chains. This has led to a remarkable increase of over 40% in foreign direct investment in Mexico in 2023. This is evident in the substantial investment announced totaling $74 billion, which was -- has firmly established Mexico as the premier in best shoring hub in Latin America.Importantly, our franchise territories are precisely located in the regions that will be largely benefited by these investments, and we are well positioned to capture the potential growth in consumption. Going forward, our strategy is geared towards increasing prices in tandem with or exceeding the inflation rate as we carefully balance market share, profitability and volume expansion.We will continue to utilize pricing as key top line driver leveraging RGM capabilities and a segmented brand price pack architecture. We will also leverage analytics and data-driven capabilities to enable faster decision-making, optimize routes and improve execution at the point-of-sale. We firmly believe that our businesses will continue to perform well in the coming years as we have made significant investments in our brands, go-to-market systems, manufacturing capacity, supply chain, digital capabilities and our people.Thank you for your continued support. Operator, we are ready to open the floor for questions, please.
[Operator Instructions] And we'll take our first question from Felipe Ucros with Scotiabank.
Yes. Arturo, Emilio, congrats on another great quarter. Just wondering if you have heard about taking off the accelerated from the price mix side of the formula down. The volume and price mix formula a little more. And I'm just wondering how you think about the price mix [Technical Difficulty] comfortable where the price mix is today and that we can continue to push it forward with inflation or a little bit above as you just said? Or do you think that Arca is kind of reaching the limits of how far you can [Technical Difficulty]
Well, really, our strategy with respect to prices has not changed. There are particular dynamics in each one of our markets. But we continue to focus on increasing prices in line or above inflation, as you said, in every business unit, and focusing basically on value share and prioritizing profitable packages. So that's also aligned with our affordability strategy, which also priority returnable packages and single-serve multi-serve. To maintain this, I would say, healthy complexity of our system where we have a price back architecture that would balance our profitability and our share.We're continuously monitoring pricing dynamics in each of the markets to maintain competitiveness. So the situation in the Mexican market, for example, if we've grown prices 4% in the third quarter and close to 8% year-to-date. We are going to be pricing more conservative in the second half of this year and into 2024, but we still aim to be pricing in line with inflation going forward. We're going to have some carryover for '24 of some price movements of this year in April, October and maybe something still coming by the end of the year.Similar to the U.S., the U.S. also, we are seeing growth in prices of more than 8% in the quarter. And same thing, we are focusing on maybe more conservative pricing in the rest of '23 and '24. But with the same theme of Bang in line with inflation. Other thing to mention is that, we are implementing a new tool for price optimization in Mexico, and that will help us reduce the time to analyze price adjustments, increase the frequency of changes and to capture incremental value. We are enhancing our capabilities for pricing and also for what we've mentioned before, our trade promotion optimization model that has made us reduce non-productive promo spend in all of our markets. In the case of the U.S., for example, that's a 25% efficiency just based on the deployment of that tool.
That's very clear. And maybe if I can do a follow-up on PET. You guys haven't been super active on hedging PET last couple of years. And right now, there's a little bit of a dichotomy in the market with some analysts on the chemical side thinking there's a little bit of an over-supply in the market, which could put some more pressure on PET. But then on the other side, you also have oil at pretty high prices, which tends to correlate historically. So I'm just wondering how you guys are seeing the PET outlook for next year?
Yes. Well, PET in North America, Mexico and the U.S., we think that will be stable the rest of the year. And also in the case of South America, that would be stable pricing. And also into 2024, we expect that to be actually a positive as we compare this year.
And Felipe, this is Emilio. We have no hedges for PET. And as Arturo said, we expect the prices to be well in line or maybe evolving inflation for next year. If there is no issues -- global issues on oil prices.
Okay. So no views on the opinion that there's an oversupply of PET?
No. Well, we expect that to be stable -- the prices to be stable going forward really. They might be increasing a bit below inflation, in some cases, due to that. But we don't expect major movements.
And we'll take our next question from Isabella Simonato with Bank of America.
When we think about the margins right now going forward, right, and especially if you can take into consideration, what you already mentioned in terms of prices and cost outlook. But when we think about South America specifically and the outlook for Argentina, how are you seeing the dynamics in the next 12 months? And how can we think about the region as a whole for the next year?And the second question is in terms of the top line, right, which was quite strong in the quarter. But you mentioned still beverages and bottled water. If you could comment and give a little bit more color on the demand for those categories specifically, and what you're expecting going forward?
Isabella, I'll talk about margins in Argentina. I'll turn it over to Pepe for the second part. Well, yes, in general, we are pleased with our performance in terms of profitability. As you know, we've had margin expansion and our expectation for the rest of this year is to reach -- at least reach our '21 EBITDA margin levels. And we are, I think, in good track to reach that goal at a consolidated level. We've seen some cost increases, but they've been mitigated to pricing and supply chain efficiencies.And we also see, as I said, some commodities cooling down in the second half of the year, particularly PET and some of our regions, aluminum in the U.S. And that -- there might be some pressure still from sugar and fructose cost increases. So in the case of -- specifically of Argentina, that's where we are facing the biggest challenges from the hyperinflation environment, the currency depreciation. And that has also impacted our margins and our trend, the -- also we had the effect of discontinuation of some beer distribution in that market [Indiscernible] so that also had an impact. But certainly, there's going to be a challenge going forward in that market.So we -- what we are focusing on is the opportunities and improving what we can or what we should control in that market. We think we can still improve our fill rate. We're investing in infrastructure in that market. We are working on affordability through returnables. Obviously, price management is going to be a very important capability to develop in that market, cost and OpEx efficiencies. And leveraging the same capabilities that we have in the rest of Latin America, because we're deploying our digital platform, our advanced analytics capabilities.And also, again, taking advantage of our infrastructure to distribute other categories, and we are already in conversation with other potential partners for different categories, also based on the new long-term agreement that we have with the Coca-Cola Company. So certainly, it's going to be a market with a plenty of challenges. We're confident going forward that we're going to be able to sustain margins and especially the price in line with inflation as well.I'll turn it over to Pepe to make some comments on stills and water categories.
Yes. So the quarter has been very strong in all our categories. But as you mentioned, both still beverages and water had a very positive result. In Mexico, for example, we grew 17% in still beverages, and that was led by users growing 19%, isotonics 24%, teas 21%, and also the introduction of Flashlyte the brand has contributed with incremental volume. In Peru, growing 22%, led by juices an upside strategy in the orange and fruit punch categories. In Ecuador also growing the tea category and [ powered. ]And also in the U.S., growth has been mainly driven by Monster, Core Power and Gold Peak. So we expect to continue having solid positive results in still beverages going forward through our innovations and through our -- the investments that we're doing in the marketing and execution, and also in all our capabilities. We've talked about the water category specifically, the water category has also benefited from the higher temperatures. As you know, water is the most elastic category to temperature. But that's also been helped by our dual brand strategy in South America with San Luis and Benedictino and our best execution.And also in the U.S., that's been driven mainly by Dasani brand, along with a strong performance in all premium water brands. Smartwater growing 6%, Vitamin Water growing 11%, and Topo Chico claims that we've had last year. So also, we expect a positive result. We have a very important space to capture with market share in those categories. So we are expecting healthy growth in the near future.
And we'll take our next question from Thiago Bortoluci with Goldman Sachs.
Yes. Arturo, Emilio, obviously, pricing and margins have been a positive highlight, but I'd like to focus on growth because I think this is where then the market have been surprised to the upside, right? Specifically in Mexico, when I look to your core Cola portfolios, volume is 13% ahead of pre-pandemic, right. What are the drivers for secular growth rate? Will you say this is higher per capital consumption, it's innovation? You're taking a higher share count with your existing clients and the new clients? What are the drivers -- and how much more this could be above [ Arca ] going forward? This is the first one.And if I may have a second one, following up on the announcement of our extraordinary dividend. How does it mean around the opportunities for inorganic growth going forward? And maybe more importantly, how should we think about capital allocation and the effective payout you might be willing to give to investors going forward?
Thiago, I'm going to address the first part on growth in Mexico. I'll turn it over to Emilio to talk about dividends and capital allocation. Well, certainly, we're very pleased with the performance in Mexico. We grew more than 5% of volume this year and almost 9% in the quarter. And we were cycling significant increases in '22, as you know, around 5%, both in the quarter and year-to-date last year. And we had more than 100 million unit cases every single month in the quarter, that does include trade volume.So this -- what does that mean? We are capitalizing on growth in the market. I mentioned a nearshoring of investment, a lot of very dynamic market in Mexico here for investment. We're also capitalizing on some supply chain disruptions from last year that are not impacting or not as much in 2023. And we are investing in the market and in our operations. The traditional investments and coolers and racks and going to sell equipment, but also in warehouses, routes, people, et cetera, that has been key to ensure service to the market and to enable growth.But the point is, there's still plenty of headroom to grow in Mexico. And this has been the story this year and many years before. So I would think there's opportunity maybe in 3 basic aspects, we can service demand better. We are, as I said, investing to service our market demand. In the next 12 months, we're going to have 2 new incremental production lines, 2 new warehouses, more than 280 additional routes coming. And we're capturing, as I said, the dynamics in our regions.The second aspect I would mention is, to leverage our evolving capabilities and our strength, we are deploying the digital platform that keeps expanding in its reach. And it has been proven to drive incremental volume in each of the customers that adopted. At the same time, we're also evolving into new go-to-market models that will allow us to invest more time in the value-added processes with our customers and also generate incremental volume. And we've always -- we've only seen a part of that so far.What we've seen already the effects quite significantly is of our analytics capabilities segment -- better segmentation, deployment of our suggested order algorithm, our trade promotion optimization as well. We're also improving service models in stills categories, particularly for the modern trade, that has had an important impact. And affordability strategy, expansion of refillables, universal bottle.And then I would mention a third aspect, which hasn't been really reflected yet, but it's the capturing of new opportunities. As you know, we're expanding our ARTD portfolio, distribution of beer and liquor, and that's only pilot test so far, and also multi-category tested. So very positive results in delivering grocery products through our red truck. And that's also generating incremental volume in our core business, which I think is the most important result of those pilots so far.So we continue to be excited about the Mexican market, and we have expectations to continue to grow revenue and volume for this year and the years to come. So I'll turn it over to Emilio to talk about dividends and capital allocation.
Well, as we have mentioned, our priorities and capital allocations have been the same number on CapEx. As we have mentioned, we've been increasing our CapEx investment this year, and we expect to increase that next year, our ratio to sales are -- have been higher than the past 2 years between 6% to 7%. So that's number one.And the second one is the ordinary dividend. And the third one is M&A, inorganic growth. But without M&A transactions, we have been returning value to our investors in the past years through extraordinary dividend and being more active in our share buyback program. So this year, we just have our Board Meeting this week, and it's been approved to pay an extraordinary dividend next month, the 22nd of November of MXN 2.22 per share. So we've been doing that for the past 3 years -- well, this is the fourth year with extraordinary dividend again without any M&A transaction. But priority is still the same. But again, we've been doing that in the past 3 years.
And we'll take our next question from Luis Willard with GBM.
Congratulations on yet another strong quarter. So I wanted to go back to one of Arturo's last remarks related to the new collaboration framework with Coca-Cola. So as you said, I mean, you're a year into this new agreement. So my question is, first, what has changed in terms of collaboration and the relationship with the Coca-Cola Company versus previous agreements? And perhaps a bit more relevantly, what has surprised you the most for better or worse from this new agreement versus what you expected when you signed it?
Yes, we've made, I think, significant progress in implementing the agreement and improving -- also in strengthening our partnership with the Coca-Cola Company. I'll probably mention 2 aspects. And the first is, our traditional business and the way we manage and the partnership that we had for 97 years now. I think that has been significantly improved in terms of better alignment. It's a more stable and equitable economic model, a better planning process. And I think probably alignment is the best way to define that new relationship that we have with the Coca-Cola Company. So what we always said is, we're spending much more time in expanding the pie versus figuring out how to divide the pie. And I think that's been great progress at every level at senior level and also operationally with our teams.And the second aspect, which is something that I think might be even more relevant considering our previous relationship and the constraints we have to expand our business and leverage our infrastructure is that we're exploring new possibilities for our business. And I would say, first on digital, we have a new partnership, and that's allowed us to integrate our member of start-up Yomp! and the AC Digital platform is one integrated B2B or B2B2C digital ecosystem and platform. And that, I think, brings a lot of value to our system. And also is -- brings the possibility of exploring other options like loyalty programs, financial services, advanced analytics of customer data and that ramifies into other initiatives.And the second aspect is that, it also has permitted us to explore new opportunities in multi-category, the analyzing partners for beer, for liquor and as I said, even for grocery. And that has proven to be profitable, to strengthen the core business, which I think is most important, and also to improve our connection with our customers and our customer intimacy that has been also the essence of what we do.So in all of those aspects, I would say it's all positives as a result of the agreement. It's not something that we are really surprised about, because that was really the expectation when we signed the agreement and to be more integrated and have kind of the best of all worlds in this franchise system. So we're very pleased so far. But we still think in that new things -- those new things that we're doing, both digital and multi-category, we really haven't seen much of the impact yet in our operations, because it's mostly pilots and deployment of capabilities and platforms. So I think there's a lot still to see positive things in the future.
So in a way, I mean, having Coca-Cola being open to test new things, as you said, multi-category distribution. Do you see it as a key change in terms of the way they approach the business and the way they see the business, and that could make them be more open to try new things in the future?
Well yes, that certainly has evolved over time. And I think it's not only the Coca-Cola Company. We all had many different paradigm in the past about alcoholic beverages, for example, and how that -- what complement our core business. So I think the most important lesson, again, in all of these pilots, either groceries, beer, liquor is that it strengthens the core business. So we are selling more Coca-Cola products in those routes where we are now selling these other categories. So that's a very powerful learning.
And we'll take our next question from Alvaro Garcia with BTG.
I hope you're well. Congrats on the results. Two questions on the U.S., specifically sort of a short-term and, I guess, a long-term question. Short-term, how are you thinking about pricing into next year? Do you envision maybe some discounts, given how much pricing was done in the market over the last couple of months? And then the second question -- last couple of years.The second question, a bigger picture question. I'd love to hear your thoughts Arturo on weight loss drugs, GLP-1, I know it's very early on, but any early thoughts on how you think that might impact demand or what strategy the Coke system might take, would be really appreciated?
Yes, sure. Yes, in terms of the pricing in the U.S., as you've seen, price grew 8.8% in the quarter. Year-to-date, it's even up more than that. And that was driven by some carryover from last year and increase at the beginning of this year, some benefit of -- and mix. One important thing of our strategy in the U.S. is that we're focusing on more profitable packaging and moving into more single-serve into capturing the recovery of the on-premise channel towards, again, profitable packages.If you look to the future, we -- we're still going to do that. We're still going to be focusing on transactions and higher profit packages and single-serve mix, which has been growing, by the way, year-to-date, more than 1 percentage point. So for the future, we still expect to be in line with inflation. But certainly, pricing is going to be more conservative than we've seen in the last couple of years that -- as you have mentioned.With respect to GLP drugs, we have not seen any impact in our operation so far. We -- one advantage that we have is that we have a wide range of offerings being a total beverage company, we obviously include options for consumers to choose and with no calories. So that's certainly an advantage. But we will continue to monitor as we move forward. No, but we haven't seen any effect so far.
We'll take our next question from Rodrigo Alcantara with UBS.
My first question would be as for in the U.S., was more on the revenue management side. So we have discussed in the past how you can't increase the number of SKUs in the U.S., right? You get example in Mexico versus U.S. where you can't Mexico, 50 SKUs right of Cola. Of course, in the U.S., you have covered that, right after you have tried to change that. So my question would be, let's say, that in Mexico, from 1 to 10, for 10 on revenue management, where would you do the U.S., for instance? And how would you, I mean, how more could you improve the revenue management in the U.S. in relation to Mexico? That would be my first question.And the second one would be just to clarify on the CapEx, this capacity additions that you mentioned at the beginning of the call, is that only considering in your CapEx plan, if you can remind us as a percentage of sales, what should we expect for next year would be very helpful.
Well, I guess I'll turn it over to Pepe to talk a little bit about revenue management in the U.S. I'll just say in general that the U.S. market has different dynamics and our -- obviously our price pack architecture is different. But the basic strategy remains the same, and we are confident that we're going to be implementing that strategy in years to come. In the U.S. recently, we've seen, as I said, significant price improvements. We maybe not going to see that in the near future double-digit price increases. But still, we have plenty of opportunity to manage better portfolio, improve our promotions also move more into more profitable packages.For example, in the on-premise trade as this has been recovering after the pandemic, our mix of more profitable packages of bottle can in those sales has improved quite a lot. So those are the type of efforts and initiatives that we're going to be continuing to implement. And so we're confident going forward.
Yes. And complementing Arturo to your question. Rodrigo, yes, there's still more space to increase the portfolio options that we manage in the U.S. And that gives us better and more tools to use our revenue managed capabilities, there's also space to continue light weighting our bottles and reaching better price points profitably in those options. Arturo also mentioned that the analytical tools that we're using for pricing, and those keep increasing and getting better over time. Arturo mentioned, that we are much, much better in trade promotion spending, getting more bang for the back of every dollar that we put.Also coordination amongst bottlers in the U.S. is really good in terms of prices and in terms of how we attend the market. So we feel confident that our revenue management capabilities continue increasing. And with that, we can continue with healthy price management.
And with respect to your second point Rodrigo, yes, that is included in our CapEx and our CapEx ratio for the year, which is expected to be around 7%, and that would include infrastructure and our manufacturing supply chain as well as -- also digital investments. And on our year-on-year normal CapEx deployment.
And we'll take our next question from [ Rahi Parikh ] with Barclays.
Just I was wondering if we could have more color on South America's margin went down year-over-year. So just some color on that. Is it just Argentina driven? Is it like the drug water, what could be explained there? And also just starting on how do you see labor in each of the regions going to see too impactful, but what do you think going forward, obviously having an impact in the background?
Rahi, let me turn it over to Emilio. But I would say that, yes, it's Argentina and South America that's impacted margins. But I'll let Emilio elaborate.
Yes. Thank you, Arturo. Yes, to mention, within South America, I'm glad that you asked that because within South America, Ecuador and Peru are doing well, the only one that is reducing the margin is Argentina. As I mentioned in the last quarter, EBITDA margin that you see in the report is mainly impacted by the adverse effect of the inflation and foreign exchange rate and the restatement on translation of the financial statements to Mexican peso. That's the #1 impact.And of course, we have an increase in sugar prices, labor, the mix on model trade has been higher than traditional trade. So that also impacts our margins. And as Arturo mentioned, the discontinuation of beer this quarter is also impacting the margin, the third quarter of this year. And as we mentioned, we are looking for -- we're decisioning to another categories, multi-categories distribution for the next months.But regarding Ecuador. Ecuador, despite the sugar prices, because we have the highest impact on sugar prices on Ecuador. We've been able to protect margins for the quarter and the year, while the year has been 10 basis points higher than last year. So Ecuador is doing well. And the best increases are in Peru. Finally, in Peru, this quarter, EBITDA margin in Peru was 23.1% with an expansion of 260 basis points. And we also have an expansion -- margin expansion on the 9 months of the year.So we're positive on the performance and the trend, and we're confident to protect margins in Peru and Ecuador. And again, the impact is really Argentina. The good thing is that Argentina, the Argentine EBITDA is less than 5% of the EBITDA consolidated for Arca Continental.
And Rahi, with respect to your question on labor, it's -- our U.S. operation, where we've had there some biggest challenge and priority in the past. This year, we have seen a reduced turnover, because we've addressed that. And it's basically in that unit -- business unit. And also very focused in certain roles where we've had some issues in staffing, mostly merchandisers, order builders, truck drivers. But this year, that's much improved. As I said, we've implemented a number of initiatives, and we've reduced turnover. So we're stabilized in that regard.
And we'll take our last question from Leonardo Malhado with Evercore ISI.
So I noticed last quarter, you noted change in consumer dynamics in the U.S. with a little bit of channel shifting. So I was just wondering if you've seen further deterioration of the consumer environment or just any differences there? And a quick follow-up, if I could, would just be a quick update on Jack and Coke in the U.S. I don't think, it got mentioned a lot on this call. Obviously, it was a big point of attention earlier in the year. So just a quick update on that and how it's performing maybe in the U.S. versus Mexico would be great?
Well, the U.S. consumer dynamics have actually improved. If you remember in our previous call, we were saying that although the volume has declined, we're seeing a better trend in the last month of the previous quarter, the month of June, we had seen some growth. So that growth had continued into the third quarter, where we actually had a record month in volume in the month of borrowings. So we're [Indiscernible] the channel evolution, but every major channel is growing on-premise small stores, large stores. So what we...
Yes. Complementing Arturo is, so all our channels having grown -- large stores grew 1.3%, small store 9%, and the food service on-premise channels grew 5%. So we continue to see strong demand fuel by brand loyal customers, and the small stores positive momentum through our immediate consumption presentations. So we are not seeing that contraction, especially in the U.S. And regarding Jack and Coke, in the U.S., we do not sell alcoholic products. Those are sold directly by the Coca-Cola Company through independent alcohol, the RTDs portfolio. It's still small, but it's growing. We're doubling that every year. And it's a great complement to all our mixers nonalcoholic portfolio. And together with spirits and beer that were relevant in that category.So we're having very good results with Jack and Coke, with Topo Chico Hard Seltzer, Topo Chico Mixers, and just launched a few months ago, Lemon Dou, an interesting new proposal from a Japanese beverage, and we have an interesting pipeline in the near future in those categories.
Awesome. And I guess to clarify on the U.S., I was just curious about like kind of how the performance in Mexico for Jack and Coke is compared to the U.S., let's knowing that you guys do distribute, I just didn't -- I don't know if you guys have like better insights or not on it.
Yes. So there's some regulation that actually limits us from distributing swing in the U.S.
Thank you. This concludes today's Q&A. I would now like to turn the call back over to management for closing remarks.
Thank you. And as always, we appreciate your interest in Arca Continental. And please reach out to our Investor Relations team for any further questions you may have, and have a great day. Thank you, ladies and gentlemen. That concludes today's conference. You may now disconnect.