Becle SAB de CV
BMV:CUERVO
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Becle SAB de CV
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Ladies and gentlemen, good morning, and thank you for joining Becle's First Quarter Unaudited Financial Results Call.
During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments and business strategies and may be identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, goals, targets, strategy and similar terms and phrases and may include references and assumptions.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements.
For all the foregoing reasons, you are cautioned against relying on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
That having said, I would now like to welcome you to the call and pass the line to Mr. Fernando Suárez, Chief Financial Officer. Fernando, the line is yours. Please go ahead.
Good morning, everyone. Thank you for joining us to discuss the unaudited financial results for the first quarter ended March 31, 2022, of Becle, commercially known as Jose Cuervo. We are joined today by Juan Domingo Beckmann, Chief Executive Officer and the rest of the senior management team.
Before we begin, we would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards, or IFRS, and published in the Mexican Stock Exchange. The information for the first quarter of 2022 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in the appropriate electronic format. [Operator Instructions]
Now I will pass the call on to Becle's CEO, Mr. Juan Domingo Beckmann.
Good morning. Thank you for joining us today to discuss Becle's first quarter 2022 results. I will make some opening comments, and then I will ask Luis Felix along with the Proximo team to discuss the performance of our U.S. and Canada business. Olga Montano will review our Mexico and Latin America results and Gordon Dron will discuss our results in the EMEA and APAC region. Fernando Suarez will then walk you through our financial results.
I am very pleased with the results we achieved for the first quarter of 2022, mobility restrictions were lifted in most of our geographies, which boosted on-premise sales. But we still face a challenging supply chain environment. Nonetheless, we are learning to adapt to this kind of adversity through demand and material plannings, vendor management and other initiatives.
Moving on to overall results for the quarter, total volume and net sales value grew by 11.4% and 26.5% respectively year-over-year. Gross profit increased by 29.5%, which was posted by year-over-year price increases across regions and a strong performance of premium brands, specifically tequila.
In the U.S. and Canada regions, the markets have opened up from restrictions and are producing normalized on-premise numbers. Product mix in the region favor tequila, specifically the super and ultra-premium brands with net sales value of the tequila portfolio up 30.3% compared to the first quarter of 2021.
Results for Mexico for the quarter were very positive, driven in part by COVID restrictions being largely lifted and premium brands availability despite supply chain shortages. The Rest of the World region has shown strong performance in the quarter. The overall positive results were driven by Europe returning to the bars with on-premise consumption approaching pre-pandemic levels and in particular, surging demand for tequila.
In spite of the challenges we faced this quarter, we were able to get our products into customers' hands and prioritize high-margin units. Looking forward, we see ourselves well positioned to continue benefiting from the growing premium tequila trend.
Now let me turn the call over to Luis Felix to discuss our U.S. and Canada results.
Thank you, Juan. Good morning, everyone. We are pleased with our commercial performance in the United States and Canada during the first quarter of 2022. For this quarter, net sales value was up 11.2% of the prior year, driven by our strategic premiumization efforts and the stellar performance of our premium brands, which accounts for about 81% of the gains and price increases implemented in the second quarter of 2021, which accounted for around 19% of the gains.
Shipments for the first quarter were down 2.6% over prior year, mainly driven by RTD and nonalcoholic beverages, and were also impacted by supply chain disruptions. Proximo's wholesaler depletions were only down 1% for the quarter.
From a category perspective, our depletion contraction was mainly driven by our RTD Margarita category performance, which were down 14% for the quarter, mainly due to an unprecedented first quarter of 2021 growth of 44% leading to tough comparisons.
Our tequila portfolio was up 10% for the quarter as all brands posted growth. Our super premium tequila brands grew an impressive 18% for the quarter. This growth outpaced the category growth of 5.6%, as measured by Nielsen in the off-premise for the 13 weeks ended March 26, 2022.
Our whiskey portfolio contracted 2.7% during the quarter, while lapping strong growth footing in the first quarter of 2021 of 18% and outperformed the whiskey category contraction of 3.6% as measured by Nielsen in the off-premise for the 13 weeks ended March 26, 2022.
We also continue to support our portfolio with strong AMP spend during the quarter. This included investment in the super and ultra-premium tequila brands as well as support for our growing whiskey portfolio. First quarter AMP spend for 2022 was higher as a percentage of NSV versus 2021, as we continue to invest in strategic opportunities in addition to low comparison bases from on-premise shutdowns and limited off-premise promotional opportunities as a result of the pandemic.
From a total industry perspective, U.S. off-premise consumer take away from -- for our brands, as measured by Nielsen, our value shrank over the past 3 months by 2.7%, yet still outpaced the total distilled spirits industry, which shrank 2.9% for the 13 weeks ended March 26, 2022. As the tequila category continues to gain share within the U.S. and Canada spirits industry, our biggest opportunity continues to be the strategic investment to grow our premium tequila portfolio.
I will now turn the call over to Olga Limon to discuss the Mexico and Latin America results.
Thank you, Luis, and good morning, everyone. Mexico had another successful quarter as COVID restrictions were largely lifted and on-premise sales increased. However, the region still faced market challenges and supply chain constraints. Despite this, Mexico produced year-on-year double-digit increases in volume and depletions for the first quarter of 2022, [ due in part ] to strong performance of our brands.
Volume increased 35.6% year-over-year with net sales increasing a very strong 74.2% for the same period. Volume increases were driven in part by our strong brand franchise, marketing campaigns and premium brands availability in the face of industry shortages, mainly led by our tequilas portfolio, which posted a double-digit growth in our [indiscernible] and nonalcoholic categories.
We ended the first quarter reinforcing our leading position in the Mexican tequila market and extending our premiumization strategy success in the region. In March, we increased prices overall by mid-single digits, varying by brand and category. Its effects have not yet been seen reflected in the market, but based on recent supply chain shortages and depletions, we are hopeful that the demand will remain strong.
LATAM also had solid results for the first quarter despite longer-lasting COVID restrictions that continued in some regions until the end of February. In that time, we carried out a similar price increase to Mexico in the mid-single digits, and we expect demand to react favorably based on encouraging momentum in depletions.
In both Mexico and LATAM, our [indiscernible] most of premium tequilas are seeing strong consumer appetite, which has led to increased market share and profitability supporting our premiumization strategy.
I will now turn the call over to Gordon Dron, Managing Director of our EMEA and APAC regions. Thank you.
Many thanks, Olga, and good afternoon from Europe. After a strong finish to Q4 2021, the positive momentum has continued through the first quarter of 2022, particularly in EMEA, where the restrictions surrounding COVID have been lifted, allowing an on-premise recovery and an acceleration through the global travel retail channel.
Recovery in Asia continues to be hampered by strong COVID controls in Japan, Korea and China, in particular. This is affecting on-premise sales and brand development. The impact of the Russia-Ukraine war is still relatively localized, and our exposure at this stage is less than 1% of the group's sales due to the curtailment of business to Russia and Belarus and suspension of activity in Ukraine. We have been taking price increases across the portfolio in most markets during Q1 to offset the increases in the cost of goods.
Looking at the categories, tequila volume growth continues to accelerate strongly. Sales are up north of 50% versus last year with depletions up even more. This strong growth is in part explained by the lockdowns in place during early 2021 and the supply chain shortages key competitors have been facing.
Premium tequila performed even stronger in both sales and depletions, confirming consumers are still searching out quality premium spirits. Despite the challenges in Eastern Europe, our Irish whiskey portfolio also had a solid performance. Depletions were up high double digits versus last year and shipments were even stronger due to restocking after a strong year-end and the resurgence of the global travel retail channel.
Our rum portfolio continues to be robust, growing by almost half again versus last year. One of the positive elements of our business is that our investments en route to market continue to pay dividends. All our end-market companies with the exception of China, which is down due to the current heavy COVID mobility restrictions, are performing very well with high double-digit growth across the portfolio. These markets have helped us to grow our share in tequila.
As mentioned, Asia continues to be hampered by COVID mobility restrictions. But despite that, we are seeing good double-digit depletion growth across the portfolio. Sales are a little behind, but this is primarily a phasing issue. As happened in Europe, we're anticipating a consumer surge as the markets reopen hopefully during May.
That said, our own business is outperforming our peers in key markets, which is very pleasing. And we enter the second quarter knowing we're well equipped to take advantage of opportunities as they arise.
I will now pass over to Fernando Suarez, who will take you through the financial results.
Thank you, Gordon. Let me walk you through the first quarter financial results. The company reported a 26.5% increase in consolidated net sales to MXN 9.1 billion. This increase reflects a product mix skewed towards higher sales per case brands and year-on-year price increases.
During the first quarter, gross profit increased 29.5% to MXN 5 billion, and gross margin increased to 54.9% in Q1 '22 from 53.6% in the first quarter of '21. This was due to a 130 basis point contraction of COGS as a percentage of sales, driven by an improved product mix, stable agave prices and increased prices across the regions we operate.
AMP expenses as a percentage of net sales increased to 18.6% from 14.3% in the first quarter of 2021 as we continue to invest in strategic opportunities in addition to the low comparison base from the on-premise shutdowns and limited off-premise promotional opportunities that were part of the pandemic.
Distribution expenses increased 31.9% to MXN 481 million, mainly driven by an acceleration in sales volumes and higher logistics and carrier costs. As a percentage of net sales, distribution increased to 5.3% from 5.1% in 2021.
SG&A expenses increased 13.5% during the first quarter, representing 9.7% of net sales compared to 10.8% in the first quarter of 2021. This was primarily driven by firm cost control measures.
Operating income increased 17.8% and the operating margin decreased to 21.9% from 23.5% in the first quarter of 2021. EBITDA for the first quarter increased 16.5% quarter-over-quarter to MXN 2.2 billion with EBITDA margin contracting 24.2%.
Net financing results for the quarter were a loss of MXN 74 million, mainly derived from net interest expenses and by the Mexican peso appreciation versus the U.S. dollar when compared to the first quarter of 2021.
First quarter consolidated net income increased 9.8% to MXN 1.4 billion and the net margin was 14.9% compared to 17.2% in the first quarter of 2021. Earnings per share were MXN 0.38 per share for the quarter compared to MXN 0.34 for the first quarter of 2021.
As of March 31, 2022, cash and cash equivalents were MXN 10.3 billion and total debt was MXN 18.2 billion. We maintained a strong balance sheet, extended debt maturity schedule with access to competitive long-term financing, conservative financial leverage and ample liquidity to execute our long-term growth strategy.
On the debt rating front, on March 25, Fitch Ratings affirmed Becle's investment grade long-term foreign and local currency ratings of BBB+ with a stable outlook.
Regarding capital allocation, we will be proposing a cash dividend payment and share repurchase program extension in our next General Shareholders Meeting to be held today.
The proposed cash dividend is 30% of fiscal 2021 consolidated net income or MXN 0.42051 per share. The proposed share repurchase amount is MXN 2 billion. On guidance, we confirm our full year consolidated volume mid-single-digit growth estimate.
Now I will turn back the call to the operator for questions and answers.
[Operator Instructions] Our first question comes from Mr. Antonio Hernandez from Barclays.
Congrats on your results. My question is regarding the supply chain disruption we've already disclosed this throughout the last couple of quarters, but just wanted to get a little bit more of an overview of whether you're seeing any sequential improvement and the overall demand outlook and it looks strong, more normalized on-premise consumption, but if you could give more light on those 2 topics it would be very helpful.
This is Juan Domingo. We still see a disruption in supply of glass labels shippers but it's less worse than last year. So I think we don't know yet when this is going to normalize. So we expect this full year to still have some problems with supply.
Okay, I understand. And in terms of the overall demand, I am looking at different geographies are much healthier, of course, if you have that comp based on that degree and so on. But overall, how are you seeing the consumer demand and especially with inflationary environment for the whole consumer spectrum, what's your overview on that? And I know you've already reiterated your volume growth guidance, but just wanted to give more light on sales, how much of price [indiscernible] can you do and so on?
This is Luis Felix. And look what I would say is that demand in the U.S. for the tequila category still is of highest category growth in the spirits industry in the U.S. So we see that tequila continues to be gaining share to other spirits market. And I think we're very well positioned. And what we're seeing for our super and ultra-premium tequila brands outpaced the growth in depletions for the industry. So we feel very positive in the upcoming months.
As for Mexico, we see a double-digit growth in depletions right now. We announced prices in February, and we saw them effectively in March. And we are seeing a good depletion level. So our outlook for the category looks good as well.
Yes. In EMEA and APAC, we're also seeing a strong depletion growth. We actually believe that the premium segment will be less affected by the rising cost of goods and the rising challenges. And so therefore, our outlook remains positive.
Our next question comes from Mr. Ricardo Alves from Morgan Stanley.
Can you remind us of your price increases this year in the U.S.? I understand you're rolling up -- rolling out, sorry, prices as we speak. So any details you can share in terms of categories implemented already, order of magnitude, that would be helpful. But more importantly, to us, when you think forward, we see all of your competitors are quite vocal about higher prices or more optimistic on the pricing side. Do you share that view? Do you see a new kind of reality for price hikes for the overall spirit industry -- for spirits overall in the U.S.
And in that context, given the comments that you just made, the tequila demand within spirits continues to outpace? How is that new pricing environment benefiting the tequila category specifically versus the other spirits because we just had basically a decade of pretty muted pricing. So just your thoughts on that short-term pricing, but more importantly, long-term pricing.
Thank you, Ricardo. This is Luis. Yes, we already are implementing the new pricing in the U.S. In Canada, we also implemented price increases. So the first part was implemented for the whiskey business that we have, and that happened in April. And as we speak in this month, on the 1st of May, we are taking the new -- rolling out the price for the tequila and the rest of the categories that we have. So that is basically undergoing, and we're confident that the price increases that we take will be rolled out without any issue.
On a long term, we do share the same perspective. We think that there might be some opportunities to capture more pricing. And we're basically -- we're going to be measuring the possible effects of this price that we just take and be preparing for the future, any possible price increase that we can take.
And if I may add a follow-up, still on the issue of unit revenues, but more on the mix side. We saw this major improvement that you had on mix in the -- I assume that most of that in the U.S. last year. Can you share just a little bit more color on the unit revenue front, but focus on this part of the -- sorry, on the evolution of other tequilas of other spirits? Given the big move up that we saw last year on the mix side, how -- is there any sort of long-term expectation on where your mix of other tequilas and other spirits will be? What could be the potential impact in 2023, for example, with the new 1800 facility when that's in place? So just trying to pick your brands on -- on the evolution of the mix, particularly in the U.S.
For the mix that we have, I think we're very strong in our strategy to premiumize our portfolio. So all the investment that we're having is focused in some more premium varieties of the brands that we have and in our premium -- super-premium and ultra-premium segment. So as you saw, the NSV per case, for this quarter, it was $86 per case compared to $75.80. Last year. And that came because -- what I mentioned the lower growth of our RTD and Margarita mix category, and that was totally compensated by the growth that we experienced in the tequila business and particularly in the super-premium and ultra-premium brands that we have. Does that answer your question?
Yes. Much appreciated.
Our next question comes from Andrea Teixeira from JPMorgan.
Drew Levine on for Andrea. Congratulations on the results. I wanted to double click on the U.S. and Canada; volume performance in the quarter, certainly very strong against tough comparisons. So I'm curious relative to your expectations, maybe where you are seeing more of the upside or resilience. And if you feel that distributor inventories are at sort of optimal levels here or returning to optimal levels with potentially some sequential easement in the supply chain?
What I would say is that the inventory levels that we have with distributors are in an optimal level right now. And I would probably ask Victor to complement the question on the mix -- the more details on the mix that you are asking. So Victor?
Yes, sure. So as we said, I would say that our inventory levels are behaving generally in line with what we anticipated that they should be, right? We've been facing some difficulties with our supply chain that I think mitigating efforts have basically yielded some level of mitigation in general, and that's why our depletions and our shipments are relatively aligned. We would have anticipated a slight build in inventory in excess of what was actually posted, but it wasn't an abnormal enough or material enough impact for any abnormalities among the 2 trends.
Your second question on mix, could you repeat it just so I can address that appropriately?
Yes. I was just hoping to get some perspective on the volume resilience given the tough comparisons maybe relative to your expectations, where the most upside came from or resilience came from there?
Yes. So we definitely performed a lot better on tequila than we did on our RTDs and our nonalcoholics. And I would say that the comp base for RTD was astronomical last year and everybody remembers how the COVID and kind of pandemic trends grew that category the most across every spirit Nielsen indicator. And essentially, that to us was a challenge to achieve on a second kind of consecutive year-over-year quarter-over-quarter basis. But in general, our strategic efforts were always aligned to improving our product mix and obviously, maximizing the potential that we have within our portfolio to add profit, put more profitable units. And that's basically what we geared our supply chain efforts to and our sales efforts to.
And then if I could ask a second question. I think Olga talked about strong depletion trends in Mexico despite some price increases and expectations for that to continue. Curious for thoughts on just overall state of the consumer, maybe in the U.S. as well. Most companies have talked about consumers holding up quite nicely despite the price increases with generally just price increases everywhere. But then also some companies are maybe sounding a little bit more cautious looking ahead. And so with additional price increases coming in and in the context of a strong first quarter and reiterated mid-single-digit volume outlook for the year. Just kind of how you're seeing the consumer play out or how you expect that to play out over the course of the year?
We believe that -- because of the category and all the industry is taking prices, we believe that the consumer -- the risk of consumer slowdown is low at this moment because the price increases that we are taking are not as strong as other competitors that we have seen. So we believe that consumer demand for our products and the opportunity that we have to gain share in the ultra and super premium tequila category, it's not going to have an effect and we will see that because we are right now in the process of launching the price increases. But we believe that consumer demand for the products and for the category is still strong.
Thank you very much. I see no further questions at this point. I'll pass the line to the Becle team for the concluding remarks.
I would like to thank you again for your continued interest in Becle. We remain extremely confident in our family of brands and our prospects for long-term growth. Have a great day.
Thank you very much. This concludes today's conference call. We'll now be closing all the lines. Thank you.