Alfa SAB de CV

BMV:ALFAA

Earnings Call Transcript 2018-Q2

[Operator]

Good afternoon and welcome to ALFA's Second Quarter 2018 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded.

And now I would like to turn the conference over to Mr. Luis Ochoa, Vice President of Corporate Communications. Mr. Ochoa, you may begin.

[Luis Ochoa, executive]

Thank you. Good afternoon to everyone, and welcome to ALFA Second Quarter 2018 Earnings Conference Call. Additional details about our quarterly results can be found in our press release, which was distributed yesterday afternoon and is available on our website in the Investor Relations section. As a reminder, during this call, we will share forward-looking information and statements, which are based on variables and assumptions that are uncertain at this time. Therefore, actual results could vary from those mentioned in this conference call.

Before we begin, I would like to highlight that we will be hosting our Investor Day in New York on November 15. We will follow up with details closer to the event. Joining us today will be Álvaro Fernández, ALFA's President. Mr. Fernández will provide an overview of ALFA's consolidated results for the quarter, as well as some significant events for each of ALFA's portfolio company. Eduardo Escalante, our new CFO will discuss the financial results for the company and conclude his presentation discussing full year guidance. At the end of the call, we will take your questions. Álvaro, you may begin.

[Álvaro Fernández Garza, executive]

Thank you, Luis. Good afternoon to everyone, and thank you for joining our call today. Before I discuss ALFA's second quarter performance, I want to take a moment to introduce to you our new CFO, Eduardo Escalante. We announced on May 28 that Eduardo has been appointed CFO of ALFA effective June 1. We're extremely fortunate to have him as key member of our leadership team bringing his strategic ambition and deep experience in global business.

Eduardo has been at ALFA for close to 30 years and has made great contributions to many of our companies including Hylsamex, Sigma and Alestra. Many of you know him as CFO of Alpek, a position he held since 2013.

We are pleased to have Eduardo join us at the corporate level as we look to more exciting opportunities ahead.

Now back to ALFA's second quarter performance. We're very pleased with the company's performance this year. After a strong start in the first quarter, ALFA's results improved even further in the second quarter with the company achieving record EBITDA of $676 million.

During the period, ALFA consolidated revenue increased 14% and EBITDA, 30% for the same quarter in 2017. This growth was primarily driven by strong results at Alpek. With all the other company reporting solid results in the quarter as well.

The company’s also made significant progress, executing on long-term strategic initiatives in the quarter.

Here are some key highlights. Starting with Alpek; the stand out during the quarter. Alpek continues its strong growth trajectory maintaining its leadership position, benefiting from higher oil prices and significantly improved polyester markets. EBITDA achieved a record high level. The Polyester business segment was the main driver for the good performance in the quarter supported by higher margins, I just mentioned, as well as contributions from acquisitions.

Plastics & Chemicals also turned in a solid performance supported by better-than-expected polypropylene markets.

During the quarter, as previously announced, Alpek closed on acquisition of Suape and Citepe in Brazil. In other company news, the process to sell Alpek's 2 cogeneration power plants in Mexico remains underway with closing targeted by year-end. CC Polymers, the joint venture between Alpek, Indorama and Far Eastern received court approval to acquire M&Gs Corpus Christi facility and continues to wait for the approval from the corresponding governmental authorities, while M&G and Altamira continues to work on the restructuring plan.

Next, Sigma. Results were in line with expectations and driven by a solid performance in Mexico despite FX pressure. In Europe, La Bureba plant continued improving its productivity as expected. Conversely, resource in LatAm were affected by the political situation in Nicaragua, which presented challenges to [indiscernible] distribution within the region.

However, Sigma continued to benefit from its broad and expanding global footprint.

Recently, the Mexican government announced tariffs on several agricultural products from the U.S. including pork ham. Sigma quickly found alternative suppliers and will be importing pork from Canada and Europe and South America at competitive prices.

As a point of reference, U.S. pork ham represents about 5% of Mexico's cost of goods sold.

For Nemak, on the macro front, trends generally remain favorable in the countries in which the company operates with total volume of 2% in the quarter.

North America and South America saw increased volume, while Europe and Asia volume was lower. North America is benefiting from better performance among the Detroit 3 automakers, while lower diesel sales are impacting Europe.

On the new business side, structural and electric vehicle components is a key growth avenue for Nemak. Even the shifts taking place in the auto industry, these segments reached a new production milestone comprising 3 million parts at the close of second quarter '18.

During the quarter, the company also won new contracts to develop and manufacture complex e-motor housing in Europe. We initiated the launch of a first battery housing program in North America, which is for a premium European OEM.

Moving on to Axtel. During the quarter, results reflect the company's strategy of providing high-quality value-added IP in telecommunication solutions to its core Enterprise and Government clients. Partially offset by the winding down of the legacy Wimax business. Revenue growth continues to be driven by managed networks and IP services in the core Enterprise and Government segment.

Additionally, the company continues to analyze alternatives to maximize the value of the mass market business.

Digitalization is the future and Axtel expects to be a major player. It has recently launched its digital transformation initiative with the goal of increasing its growth rate and the productivity of revenue generated.

Lastly, Newpek. The company continues with its plan of divesting its acreage position in the Eagle Ford. We, along with our partners, have been reviewing proposals [indiscernible]. There is nothing further to report right now.

To summarize, we are very pleased with the results in the past quarter and first half of the year. We are gradually optimistic about current market conditions for our businesses for the remainder of the year. We will maintain flexibility to quickly take advantage of opportunities that may arise from the dynamic [indiscernible] environment in which we are operating.

And more broadly, we will continue to execute on our strategy to support our diverse portfolio of companies as they deepen their competitive advantage in markets around the world.

I will now turn the call to -- over to Eduardo to take you through the second quarter financial results and guidance.

[Eduardo Alberto Castillo, executive]

Thank you, Álvaro. To begin, I'm very excited to take on this new role at ALFA, and I look forward to meeting with many of you over the coming months.

As a reminder, specific details about the quarter for the individual companies were provided during their conference calls earlier today. I will provide some of the key financial highlights for the companies.

On a consolidated basis, total revenue was $4.8 billion, an increase of 14% reflecting higher revenue from our 3 largest companies; driven by the improved volume and better pricing as well as contributions from acquisitions.

Alpek was the largest contributor to the good performance during the quarter. With improved margin in many of the businesses, 2Q '18 consolidated EBITDA was up 30% year-on-year to a record level as all companies reported better results over 2Q '17.

Overall, results for the quarter also benefited from less commodity volatility than in the past. All of the portfolio companies continue to make progress on the investment plans and total CapEx and acquisitions for the quarter was $651 million, and $836 million for the 6-month period.

During the quarter, the largest expenditure, $435 million was for Alpek's acquisition of Suape and Citepe in Brazil.

Moving on to the financial discussion of the individual company. Starting with Alpek, which, as you already heard from Álvaro, was the standout in the first quarter exceeding expectations.

Commodity prices have remained favorable as oil prices posted sequential improvement for the fourth consecutive quarter. Revenue was up, 35%, including Brazilian acquisition and 27% on a comparable basis.

The good results were driven by higher volume as well as higher oil and feedstock prices with [ both business ]segments, Polyester and Plastics & Chemicals contributed to the good performance. The strong top line growth together with expanding global Polyester margins propelled EBITDA of 191% year-over-year to a record $239 million.

There were several extraordinary items in total EBITDA in the quarter, including inventory valuation, one-time gain from land sales and legal and other expenses. Excluding these special items, in both years, EBITDA increased 120% year-on-year. CapEx in the quarter, excluding acquisition, were primarily used for the ongoing construction of the 350 megawatts Altamira cogeneration power plant, which was 95% completed by quarter end.

Next, Sigma. Raw material prices were mixed both by product and by region. In turn, total quarterly volume and revenues increased 4% and 6% respectively.

Volume increase in Mexico, while both Mexican and U.S. operations saw better pricing. European and other Latin operations benefited from acquisitions completed in 2017. EBITDA increased 1% in the quarter, reflecting a solid performance from Mexico, the contribution from acquisition and a stronger euro versus dollar.

This was partially offset by additional marketing investment and distribution expenses in Europe and the U.S. respectively.

Nemak. Overall, Nemak reported solid results with total volume and revenue increasing 2% and 6% respectively. But performance varied by region. Revenue in the quarter benefited from FX and aluminum price trends as well as higher volumes.

On the commodity front, as many of you are aware, metal price lag has been impacting the results for the past year. A portion of this impact has been related to the different aluminum reference indexes used by Nemak and its customers in North America. Nemak worked closely with its customers to upgrade the extraordinary impact of stemming from volatility in aluminum prices; implementing new pricing adjustment that will protect the company against the recent divergence between primary and secondary references in the region.

In terms of profitability, Nemak continues to benefit from operating efficiencies and a large portion of sales coming from higher value-added products. And specific to the second quarter, it also had a positive currency environment and a negative impact from metal price lag.

These, in turn, resulted in EBITDA of 10% over the same period last year, when adjusting for 2017 one-time gain related to a disputed tax on revenue in Brazil.

Next, Axtel. Partially reflecting the winding down of the legacy Wimax business total revenue in dollar terms was down 2% in the quarter. On the positive side, the core Enterprise and Government business continued to grow. In peso terms, total revenues increased 2%. The recently implemented productivity program and ongoing merger synergies coupled with the good performance from the Enterprise and Government business were the drivers of the better EBITDA performance, up 5% year-on-year in US dollars and 10% in pesos on an adjusted basis when excluding gains from the tower sales recorded in both quarters.

During the quarter, Axtel also entered into some financial transactions to mitigate currency risk and support future growth. These transactions included forward transactions, interest rate swaps and a 3-year revolving line of credit.

Newpek. Commodity prices were mixed in the quarter with oil reaching levels not seen since 2014. The natural gas prices were 10% lower than 2Q '17, although, production in the U.S. increased 30% year-over-year. Operations in Mexico saw lower outputs. In turn, Newpek reported revenue of $25 million in the quarter, 13% lower than the same period of the previous year. EBITDA was flat at $1 million.

This ends my discussion about the individual companies.

Before opening the call to questions, let me make a brief comment about guidance. Reflecting the strong performance in the second quarter and our optimism for the remainder of the year, we are increasing the guidance we originally provided in February reflecting changes from Alpek and Newpek.

Earlier today, Alpek announced an increase of its revenue guidance for 2018 to $6,825 million from $5,430 million, an EBITDA of $750 million, up from $569 million, mainly due to a stronger performance from its Polyester business and the consolidation of Suape and Citepe.

Newpek is revising its EBITDA guidance for the year as the company recorded a USD 13 million gain from the partial sale of the Eagle Ford acreage in 1Q '18, thus increasing 2018 guidance to $17 million from $3 million. Accordingly, ALFA is adjusting its guidance as follows. Revenues $18,825 million from $17,413 million, and EBITDA of $2,365 million, up from $2,170 million, we provided in February. Guidance for Sigma, Nemak and Axtel remain unchanged.

This concludes our discussion of second quarter results. Now we will take your questions. Luis?

[Luis Ochoa, executive]

Yes. We would like to begin the Q&A session with questions on ALFA. Mr. Álvaro Fernández, ALFA's President will take questions on ALFA and our corporate matters. Operator, please instruct participants to queue for questions on ALFA.

[Operator]

[Operator Instructions] Our first question comes from Mauricio Serna with UBS.

[Mauricio Serna Vega, analyst]

Couple of things. First, I guess on the new guidance, which you just increased. How should we think about it in terms of cash flow generation and the deleveraging of the company? And second, maybe if you could -- maybe, if you have any updates on -- you mentioned that you have nothing new on the part of the Newpek divestments, but any news maybe on the potential divestment on the mass market division in Axtel?

[Álvaro Fernández Garza, executive]

Thank you, Mauricio, for your question. Yes, as we have discussed before, deleveraging is one of our priorities. However, it is to [indiscernible] increase this quarter mainly due to Alpek's acquisition of Suape and Citepe. But as we have commented previously, there are several potential transactions that could bring a substantial resources when they materialize. One is the cogeneration sale in Alpek, which Alpek reported this morning has been moving along now, that there is a clear picture regarding power tariffs in Mexico, and they expect to close the transaction before year-end. We also have, as you mentioned, the mass market business divestiture in Axtel and also are working on the sale of the remaining portion of the Eagle Ford acreage in Newpek. Regarding these last Eagle Ford sales process, which was your second question, we are -- at the end of last quarter, we opened a data room for potential buyers. We have received various offers, and we are going to be analyzing each one of them. So that's as far as we can report today. We expect to provide details on how this process has move forward as they do.

[Mauricio Serna Vega, analyst]

Okay, got it. But regarding the deleveraging, do you have like -- I know you have like your long-term leverage targets. But for this year, are you aiming for a particular leverage ratio. I mean assuming, I guess from what I hear is probably, we're only going to have the cogeneration asset sales for this year. So what are you thinking in terms of leverage, if that materializes and if your strong performance continues throughout the year?

[Álvaro Fernández Garza, executive]

Sure, sure. Net leverage at the end of 2Q '18 was 3.1x on a consolidated basis. After these divestitures that I’ve just mentioned take place, we expect to be in a more normal range between 2x and 2.5x, which is the objectives and priorities that the board has set on the management of ALFA.

[Operator]

We'll take our next question from Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

Just a follow-up on the previous question on the part of deleveraging. It looks like at a first glance and very quickly, and please correct me if I'm wrong, that net debt at the holding level increased about 25% from a little bit over $800 million last quarter to over $1,000 million. So we're just trying to understand what's the rationale behind that and what's the strategy going forward of course?

[Álvaro Fernández Garza, executive]

Sure, Alejandra, thank you for your question. The main reason in 2Q '18, as I mentioned before, was Alpek's acquisition of the Brazilian asset, that was $435 million, the total cost of the acquisition. Alpek's net debt for the second quarter increased from 1,000 -- $1.27 billion to $1.6 billion in the quarter. That was basically the most important factor why the consolidated debt increased from $6.7 billion to $7.0 billion.

[Operator]

Our next question comes from Vanessa Quiroga with Credit Suisse.

We'll take our next question from Eduardo Altamirano with HSBC.

[Eduardo Altamirano, analyst]

Wanted to just follow up on the, sort of, make sure I understand clearly, your capital allocation strategy going forward, as well as, let's say, any sort of change to your -- well, not [ materially changed ], but maybe increased potential for dividends next year given the fact there's been some pretty strong cash flow in some of your subsidiaries, and whereas last year, some of them did not deliver any sort of dividends at least to the parent?

[Álvaro Fernández Garza, executive]

You mean regarding Alpek?

[Eduardo Altamirano, analyst]

Actually, regarding -- yes, exactly.

[Álvaro Fernández Garza, executive]

All right. Because the dividend from Alpex has been exactly the same for the past 2 years, notwithstanding that ALFA did not -- Alpek did not use any -- has not given us any dividend this year. As I've said in the past 2 calls, our main target is to generate cash flow and reduce debt. That doesn't mean we'll not take on opportunities that appear, like Brazil, which was not only an opportunity, but also a commitment that we had made to buy that. So as Eduardo just explained, was a little bit over $400 million, that we have to pay this quarter, but we do expect from the sale -- well, first of all, from the strong results and the conversion of that -- of EBITDA to cash flow to reduce the debt, but also the 2 major sales coming from Axtel, the mass market and the cogeneration plants in Alpek. With that in mind, we will target or use our resources to pay debt. But as I think I said the last time as well, we will certainly -- if the share price remains the way it is, which we believe it's too low, we will start for sure repurchasing program at the end of the year or whenever we get the resources from those -- sale of those 2 assets. Now going back to Alpek, we have not decided yet if we will ask for a dividend or have a, let's say, shareholders meeting to propose a dividend. It is definitely something that we are keeping in mind. And certainly, it's only couple of years so we could do that towards year's end. But we would like to be cautious and wait for the cogeneration assets sale before we do that.

[Operator]

We'll take our next question from Eric Neguelouart with Merrill Lynch (sic) [ Bradesco ].

[Eric Neguelouart, analyst]

I'd like to know with oil prices recovering now, would you be looking for opportunities again in the energy sector or is this completely out of the question now?

[Álvaro Fernández Garza, executive]

Well, as you know, in Mexico, they just announced, I believe yesterday afternoon, that they will postpone the new auctions for new opportunities in Mexico as well. At the moment, we really don't see any new opportunities that we could participate in, I think we've said that. We will only follow opportunities in Mexico. And as you know we are selling our main asset in the U.S. So I guess the short answer to your question is, no. With the -- even with this sky prices, we will not continue to address this unless we improve our debt profile, but I think, again, the most important part is that there are no opportunities now. I guess until the new administration comes in and decides to follow on the auctions.

[Operator]

And there are no further questions at this time on ALFA. I would like to turn the call back over to Luis Ochoa.

[Luis Ochoa, executive]

Yes. Thank you. Let's move on with questions on Alpek. Alpek held its earnings conference call earlier this morning and Mr. Hernan Lozano, Alpek's Head of IR, is here with us if there are any additional questions? Operator, please instruct participants to queue for questions on Alpek.

[Operator]

[Operator Instructions] We'll take our first question from Alejandra Obregon with Morgan Stanley.

[Alejandra Obregon, analyst]

Just wanted to follow-up on the guidance. I believe it was mentioned in the previous call that it includes a revised volume contribution from Suape and a non-disclosed amount of positive EBITDA. But I was wondering if you could repeat those figures for volumes for PPA and PET. And of course, if you can elaborate what is these non-disclosed positive EBITDA amount about, please?

[Eduardo Alberto Castillo, executive]

Alejandra, absolutely. The volume amount for PQS in our guidance is 444,000 tonnes from before. And that's the mix of both PTA sold to third parties and PET. The sales contribution from PQS to our consolidated guidance is $505 million, 5-0-5.

[Alejandra Obregon, analyst]

This is sales, right?

[Eduardo Alberto Castillo, executive]

That's for 8 months of the year that we will be operating the facility in 2018. That's not a full year contribution. And in terms of EBITDA, we are not disclosing the plant-specific information. It will be presented on a consolidated basis within our Polyester segment as our other facilities.

[Operator]

Our next question comes from Veronica Renero Mignon with BNP.

[Veronica Renero Mignon, analyst]

I have a question on the buyer on the Altamira plant. Was there any environmental impact? Or is there any investigation being conducted in terms of environment for the regulatory authorities?

[Álvaro Fernández Garza, executive]

Yes, Veronica. There was no environmental impact on the fire.

[Operator]

And there are no further question at this time on Alpek. I would like to turn the call back over to Luis Ochoa.

[Luis Ochoa, executive]

Thank you. Let's continue with questions on Nemak. As in Alpek's case, Nemak held its own earnings conference call earlier this morning. Mr. Alberto Sada, Nemak's CFO, is here with us if there are any additional questions. Operator, please instruct participants to queue for questions for Nemak.

[Operator]

[Operator Instructions] And there are no further questions at this time on Nemak. I would like to turn the call back over to Luis Ochoa.

[Luis Ochoa, executive]

We will then take questions from Sigma. Mr. Eugenio Caballero, Sigma's CFO will answer your questions. Operator, please ask people for questions on Sigma.

[Operator]

[Operator Instructions] We'll take our first question from Mauricio Serna with UBS.

[Mauricio Serna Vega, analyst]

I guess, just a little bit concerned on the overall numbers for Sigma this quarter. But you still didn't make any changes to the guidance, maybe you could talk us through on how are things evolving regarding both U.S. and LatAm. On U.S., you mentioned there were some higher transportation cost and some regulation changes. But it seems though that, that was -- that is here to stay. So I don't know that should be a negative effect that we should be seeing on the margins for the rest of the year. And on the other hand, on LatAm, there's been some unrest on the Central America region. Are you seeing any change in that situation? And how will, I guess, the rest of the -- is it something -- is that a case where the rest of the divisions? Or geographies are going to compensate for this shortfall in order to achieve the full year EBITDA guidance?

[Eugenio Sada, executive]

Yes, sure. Thank you for your question, Mauricio. So regarding your first part of the question, talking about guidance for the year. Guidance for this year is $715 million, up 6% versus last year, and year-to-date, we're up 9%. So we still feel very comfortable on hitting that number. And you need to remember also that the second half of the year is seasonally better for a lot of our operations than our first half of the year, so we feel comfortable there. And also, even this quarter, with the issues you mentioned, we're still up 1% over the same quarter last year. So again, we see no reason to change that number we feel comfortable with. And in terms of your question on the U.S., it's hard to predict what might or not happen on the freight or transportation issues on the U.S. This is something that we know the whole industry or many industries are facing. And we've done some actions, and we've gone through some actions for the remainder of the year, so in case this does not change, we're not as affected as we've been in the first 2 quarters of the year. We've started some pricing strategies as well that should help compensate this effect. And on LatAm, you're right. In Nicaragua, the unrest has been pretty tough. More than what we said in Nicaragua is that we ship a lot of products through Nicaragua from Mexico to Costa Rica, and from Costa Rica to El Salvador, Honduras and Guatemala. And in that -- those transports have not been able to make it through the country. And so we're referring to other strategies like shipping through boats and ships and some other strategies like manufacturing in other facilities that we have like in Mexico. However, even with those strategies, we have some extra cost that we've been able to -- we're having to withstand this quarter. We -- it was a pretty hard instance to foresee for us, so we needed to react very quickly and we have some strategies to reduce the impact of those effects. It's hard to know if that's going to stay as it is for long term or for short term. We hope it's for the shorter term. But even if it stays there for a while we -- again, we have some strategies that we're going to be taking that should ease those impacts.

[Mauricio Serna Vega, analyst]

Great. I guess, just very quickly, following up on also on Mexico. You mentioned that you had the import on the pork ham, and you're beginning to use other trade partners to substitute. So I mean, should that be enough to offset the cost? Or would you be planning and maybe just to pass through some of that in terms of prices given that the dynamics so far this year have been actually quite good in Mexico?

[Eugenio Sada, executive]

Yes. So it's a little bit of both. We are already importing a lot of pork from Europe, Canada, particularly. And the other thing that happened after us and the rest of the pork keepers to Mexico, and as you probably know Mexico is a big part of the U.S. pork demand, Mexico is about 10% of the pork production. So what happened to the pork prices in the states is it went down pretty dramatically these last couple of weeks. And it varies by day, but it seems like the U.S. pork price has more or less stabilized to be equivalent to some other parts of the world. So it's still a little bit more expensive than what it was without the tariff when Mexico imported from the states. But again, as Álvaro mentioned at the beginning, it's not a huge part of our cost. It’s close to 5%, too, for Mexico cost, pork ham. What we had more of an impact is related to exchange rate for, particularly, June but also some in May. And so for that effect, we are recurring to some price increases. We've already presented those lifts in June, and we expect to benefit so those price increases on somewhat in June and the rest in August.

[Operator]

Our next question comes from Luis Miranda with Santander.

[Luis Miranda, analyst]

Just trying to understand if you could give us some help in understanding the dynamic in the European market. You have a 2% growth in sales, but that's including the acquisitions. I don't know if you could give us some color on the organic growth rate, and if you're seeing declines in volumes on a normalized basis. And also in the U.S., this ERP charges that we saw the second quarter, how much -- is this an isolated event? Or it could go and partially affect third quarter results?

[Eugenio Sada, executive]

Yes, thank you for your question, Luis. So regarding European results with and without M&A, we are -- our top line growth for Europe, excluding M&A, in dollar terms was up 4%. And for EBITDA, it's similar to last year. And as we mentioned in the report, we are investing and we've even commented on this last quarter, we're investing on the second quarter more than last year on items like marketing and innovation. We spent a lot of time and effort last year on R&D terms to our new facility. And so we stop doing a lot of the innovation that we think is very important for European business. And so this quarter, we are doing a lot of actions related to, for instance, snacking innovation. We launched new vegetarian line in Europe. And so a lot of different things that we help -- that we think will help our results going forward, and that's why you don't see a big jump on EBITDA on Europe yet. We do expect, however, a bigger margin on Europe for the second half of the year compared to the first half of the year, and part of it is just an added -- another part of it is going to be related to the new facility that's already giving us some savings compared to what we had last year. Related to the ERP system, we're installing on the U.S. It's something that we've planned on finishing this year and it's budgeted. It's not a surprise expense. And it's a strategical investment that we decided we need to do since last year. And we, again, we expect to not have any further disruptions and having effect -- a relevant effect in what we're expecting for the year.

[Luis Miranda, analyst]

So the impact will be a spread out throughout the year?

[Eugenio Sada, executive]

Yes, that's right. It might be a little bit higher this quarter than the next couple of quarters, but it's definitely something that we're going to keep on spending in the next 2 quarters.

[Operator]

Our next question comes from Eric Neguelouart with Merrill Lynch (sic) [ Bradesco ].

[Eric Neguelouart, analyst]

I would like to know if you can comment on market trends in Mexico, following the elections. Have you seen a further pickup in volumes? Or has it been -- has it remained the same versus prior months?

[Eugenio Sada, executive]

Sure. Thank you for your question. So it's a little too soon to tell if the consumer trends are going to change with the elections. It's only been a few couple of weeks. I can do tell you that we're growing volumes in Mexico for the quarter and consumer confidence is growing for Mexico. And that report same-store sales for June, which is the closest we have to the elections, but it was before the elections, of 8% in peso terms. It was closer to 4% for the whole quarter. And so, I guess, we'll have to wait and see. And again, we're increasing prices at the same time. So those will also have an effect on how demand shapes for the next quarter. And -- but then the other thing to keep in mind is that in our industry, we usually have a very low beta in terms of macroeconomic movements to what happens in our demand in our industries and that's also something to keep in mind.

[Eric Neguelouart, analyst]

Okay. And regarding the marketing expenses in Europe, will we be seeing this going forward during the year? Or was this was a one-off event?

[Eugenio Sada, executive]

So compared to what you saw last year, probably, this was the biggest difference in terms of quarter-over-quarter than what you would probably see the next couple of quarters.

[Operator]

Our next question comes from Eduardo Altamirano with HSBC.

[Eduardo Altamirano, analyst]

Very quickly, in terms of your portfolio as a whole and thinking a little bit more long term. With everything going on in the world, are you rethinking your strategy of how you'd like your entire portfolio line in terms of maybe get it further -- placing yourselves in the Americas, reaching more Europe? I mean, if could you give us some color there, that would be great.

[Eugenio Sada, executive]

Sure. Thank you for your question, Eduardo. So we're not really thinking about changing our strategy in terms of geography or in terms of vertical integration or anything of that sort. We're very happy with the geography we're participating. We think we have plenty of growth avenues in all of them. In Western Europe, in U.S., in Mexico and Latin America, we think we have a lot of things to do there still, organically. And as you probably know, last year, we did an acquisition in Romania for 51% of the company, which we held 49%, Caroli. We're very happy with that operation. It's turned out pretty good for us for the time being, and we have a lot of high expectations for that operation. And we're also thinking about expanding in Eastern Europe in general. We think that's an additional geography that makes a lot of sense for us in many regards. The product -- the types of products that are sold in those geographies are very similar to what we have in Mexico and Latin America. We think we can do very good in -- with those products. Traditional channel is relevant in those markets. The modern trade is not as consolidated as in other parts of the world. So just in general, good overall feel of those markets and so that's something we will probably be targeting in the midterm to grow a little bit more in, organically.

[Eduardo Altamirano, analyst]

I see. And then I assume those regions are regions that you can see that are a little bit what we would call self-sufficient and they're more kind of into -- they're in terms of -- their trade dynamics are depending on sort of the global trade. The reason I ask is because everything going on, I know it’s a very short-term issue right now, but could become very long term as well.

[Eugenio Sada, executive]

Right, and it varies country by country. As you know, we are fairly independent operations in terms of raw materials in general, except for the -- with the exception of Mexico. But the EU and most of the pork, really the majority of the raw materials that we use for the meat products in Europe is related to pork, is coming from Europe. And so it varies in each country of Eastern Europe, how much they source locally and how much from outside their country. But still mostly inside the EU, so we don't foresee any big changes there. But I guess what will do there is, on a case-by-case basis, when we see an opportunity in these countries if there's something we need to analyze and make sure we feel comfortable with the situation at that time.

[Operator]

Our next question comes from Vanessa Quiroga with Crédit Suisse.

[Vanessa Quiroga, analyst]

Just a very quick one. Do you -- what margin -- what kind of margin do you expect to reach for Sigma by the end of the year?

[Eugenio Sada, executive]

Yes, Vanessa. Thank you. So our guidance in the margin for the year is 11%.

[Vanessa Quiroga, analyst]

Okay. So the R&D expenses that we are seeing, they're going to remain during the rest of the year? Or is it something seasonal or just a onetime?

[Eugenio Sada, executive]

So as I was saying, this is not something that we did not plan for. It was something less expected and it's included in the guidance. And we are going to be focusing more on innovation and R&D in general in Europe, but not in the way that we can expect to change our results for the year.

[Operator]

And there are no further questions at this time on Sigma. I would like to turn the call over to Luis Ochoa.

[Luis Ochoa, executive]

We will now take questions on Axtel. For that purpose, Mr. Adrian de los Santos, Axtel's CFO, will answer on behalf of Axtel.

[Operator]

[Operator Instructions] And we have a question from Jose Vazquez with GBM.

[Jose Vazquez, analyst]

How much would you -- or estimate to get from the sale of the mass market division?

[Adrian de los Santos Escobedo, executive]

Jose, we think the comps or similar assets are trading at 8.5 to 9x EBITDA. And as we have said before, this segment roughly generate MXN 700 million of EBITDA. So that's -- those are numbers that can give you a reference. We're not disclosing a particular number, but those are comps that might help you to get a sense of the value.

[Operator]

And there are no further questions at this time on Axtel. I'd like to turn the call over to Luis Ochoa.

[Luis Ochoa, executive]

We will move forward and take questions on Newpek now. Mr. Rodolfo Gamboa, Newpek's VP of Operations and Development, will take care of them.

[Operator]

[Operator Instructions] And so there are no further questions at this time for Newpek. I would like to turn the call back over to Luis Ochoa.

[Luis Ochoa, executive]

Well, I want to thank you all for your interest in ALFA. We look forward to seeing you at the ALFA Day in New York City on November 15. If you have any additional questions or want to register for the ALFA Day, please feel free to reach out to us by phone or e-mail. We will be pleased to assist you. Thank you very much.

[Operator]

Thank you, and that does conclude today's presentation. Thank you for your participation, and you may now disconnect.