GMexico Transportes SAB de CV

BMV:GMXT

Earnings Call Analysis

Steady Growth Amidst FX Challenges for GMXT Q3

In the third quarter of 2023, Grupo México Transportes (GMXT) depicted a mixed financial canvas with an uptick in operational metrics and a mild revenue decrease. Volume grew by 5.2% in net tons kilometer and EBITDA climbed by 5.8% to MXN 19.7 billion, while revenue edged up by 4.5%. A notable foreign exchange loss, owing to peso revaluation against the dollar, shaved off 9.1% from revenues, ultimately leading to a modest 0.9% year-on-year decline to MXN 14 billion for the quarter. Looking ahead, GMXT foresees volume and revenue growth of 5-7% and 8-10% respectively for 2024, underpinned by a robust CapEx plan of $465.2 million.

Growth Amid Challenges

The company exhibited resilience through growth in key areas despite certain headwinds. There was a reported volume increase of 5.2% measured in net tons kilometer, showing underlying demand for the company's services. This was accompanied by an EBITDA jump of 5.8% to MXN 19.7 billion and a revenue bump of 4.5%, which signals robust operational performance. The shareholder return also seems promising, as the Board approved a $0.50 per share dividend with a buyback of 12.7 million shares. For future readiness, investments are earmarked at MXN 10.6 billion for 2024, hinting at strategic growth initiatives.

A Mixed Financial Picture

On one side, the company's revenue for a specific quarter decreased slightly by 0.9% year-over-year to MXN 14 billion, despite an impressive volume, mix, and price increase of 8.2%. This paradox was due primarily to foreign exchange losses attributable to the peso's revaluation against the dollar, impacting a significant portion of revenues. The detailed financials reveal a sophisticated cost management, with a 10% decrease in administrative expenses for the quarter and a cumulative 3% decrease, showcasing effective overhead controls. The total operating cost for the quarter went up by 4.7% to MXN 7.9 billion, but this is matched with strategic initiatives as evident from an overall EBITDA margin enhancement year-over-year.

Forward-Looking Statements

Looking ahead, the management conveys optimism through their guidance, projecting a volume growth of 5-7% and a revenue growth of 8-10% for the upcoming year. They've set a clear CapEx target of $465.2 million to fuel this growth. The inclusion of a MXN 3.2 billion safety program suggests a focus on operational excellence and regulatory compliance, necessary for sustainable expansion.

Operational Efficacy

Churn speed improvement by 3.9% and latency reductions, leading to a 6% bump in car velocity, demonstrate the company’s commitment to efficiency and service quality. This is critical as operational efficiency is a cornerstone for achieving customer satisfaction and thus driving revenue.

Capital Allocation and Strategic Investments

The company's capital deployment is meticulously planned, with a $465 million investment split across various initiatives. This includes $295 million for freight rates, infrastructure, and equipment maintenance, bolstering the backbone of the company’s operations. Additionally, $41 million is allocated to accommodate cargo volume growth, and $88 million towards special projects in the reward network, showcasing an intent to reward customer loyalty and engagement. Lastly, $42 million is allocated to enhance efficiency, a move that will likely contribute to margin improvement and competitive positioning.

Foreign Exchange Considerations

With half of the revenue in U.S. dollars and the other half in Mexican pesos, exchange rates play a pivotal role in financial outcomes for the company. Although an unforeseen foreign exchange impact was faced, management expects to revert to regular financial performance, indicating a view that current currency pressures are extraordinary and not indicative of underlying business health.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and thank you for holding, and welcome to Grupo México Transportes Third Quarter Earnings Conference Call. With all this afternoon is Mr. Isaac Franklin and Mr. Jorge Marquez, who will discuss the financial performance of the company during the third quarter of 2023, giving you a summary of the latest news and address any questions you may have at the end of the call.

Before we begin, I would like to remind you that information disclosed on today's call may include forward-looking statements regarding the company's results and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions not to place undue reliance on these forward-looking statements. Grupo México Transportes undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise.

The presentation may be followed through our webcast. [Operator Instructions]. A copy of the slides that the company will be reviewing today is available on the website at gmxt.mx. [Operator Instructions].

Now it's my pleasure to welcome and pass the call to Mr. Isaac Franklin.

[Isaac Unkind, executive]

Good afternoon, everyone, and thanks for joining us in this GMXT's third quarter results conference call. And I'm going to start with Slide #2, with the highlights cumulative to September 2023. Our volume increased 5.2% in net tons kilometer, EBITDA increased 5.8% to MXN 19.7 billion our revenue increased 4.5%. Our -- the Board approved a $0.50 per share dividend. We have repurchased 12.7 million shares at an average price of MXN [ 4.56 ] per share. And our investments for 2024 are MXN 10.6 billion. For CapEx will be MXN 8.6 billion and the OpEx in maintenance of infrastructures, MXN 1.9 billion.

I will now pass the call to Jorge Marquez for the revenue.

[Jorge Abreu, executive]

Thank you, Isaac. Our volume is up 2% measured in net ton kilometers with mixed results across business units. Our average revenue per net ton kilometer is also up by 6.5% but a dollar devaluation of 18% against the Mexican peso in the quarter affected the total revenue by a negative 9%, resulting in a marginal contraction of minus 1% in revenues.

The next slide, we'll see how every business unit fare. We experienced double-digit growth in Automotive, Metals and Cement business units. In Automotive, we continue to add capacity on our Mexico exports to the U.S. MCA region and to -- and from the world, giving us market share gains. The growth in metals is driven by increased volumes of production of our customers, where we've been able to further penetrate and capture both inbound materials and outbound finished goods, both for domestic consumption and exports.

The Mexico domestic distribution industry is fueling our growth in cement in Mexico, partially offset by exports to the U.S. and the U.S. domestic operations where it's currently softer. Down to the agro industrial business unit, it actually had a good third quarter in imports to fulfill the shortfall of the domestic drop caused by market price adjustments. We rely on our footprint and a robust network coverage catering borders and ports to provide our customers optionality so they can take advantage of opportunistic market conditions. In Industrial, we suffered a plant shutdown of one of our main customers. It's now up and running. In Minerals, we have a temporary slowdown from 2 major customers and a permanent shutdown from another one.

In Model 2 is actually a success story in Mexico, where we capitalized a number of opportunities long term of truck-to-rail conversion, which allowed to partially offset the significant downturn of a model in the U.S. and in general and in our U.S. operations, in particular. In Chemicals and Energy, we had to work with one of our top customers to overcome certain liquidity issues, which included rationalizing the volume of services we provided during the quarter.

I will now pass it on to Isaac Franklin, our CFO, to discuss financial highlights.

[Isaac Unkind, executive]

Thank you, Jorge. Effectively the disciplining for our investment program and the fact that we continue to focus on maintaining and improving our operational and service efficiency, our results and our expectation for the end of the year continued to show growth. Revenue for the quarter was MXN 14 billion, a decrease of 0.9% compared to the third quarter of the previous year despite an 8.2% increase in volume, mix and prices. In the dollar-denominated revenues were reduced by an exchange loss, as shown in Slide #3, for the revaluation of the peso against the dollar, affecting 9.1% of the total revenues of the quarter.

However, accumulated revenue rose 4.5% year-over-year. The operating cost increased 6% in the quarter and 4% accumulated and I will continue additional detail on the next slide. Administrative expenses reported a 10% decrease for the quarter and 3% decrease cumulative. These figures reflect good control of our administrative costs. This quarter, other income is credited our cost by MXN 11 million and MXN 202 million accumulated proceeds from the sale of obsolete materials and scrap.

The total operating cost for the quarter is MXN 7.9 billion, an increase of 4.7% and MXN 22.9 billion cumulative, a 3.3% increase. The quarterly EBITDA is MXN 6.1 billion, accumulating MXN 19.7 billion for the year, 7% lower than the third quarter of 2022 was 6% higher year-over-year with a margin of 43.7% for the quarter and 46.3% accumulated 60 basis points higher than last year. GMXT's net income for the quarter is 19% decrease from last year. The difference was created by a write-off of deferred income tax in 2022 and by a foreign exchange loss due to the revaluation of the peso and the U.S dollar.

But so far this year, this variation is 5%, trending to now normalize. The operating cost of third quarter was mainly affected by increases of MXN 140 million in the cost of labor due to the terms of our collective agreements, followed by a cost increase of MXN 119 million due to a higher volume of credit handling in our chart. Additionally, other minor cost increases affected by inflation volume and prices.

In the operating metrics, so far this year, GMXT has continued improving its service in favor of the local and international customers. Churn speed improved by 3.9% from 37.3 kilometers per hour to 38.8 kilometers per hour, which has a level of greater efficiency in our service as well as a reduction in 12x to 22.6 hours, which contributed to a 6% increase in car velocity. Other operational metrics despite not showing improvements allow us to maintain competitiveness and provide an efficient and timely service for our clients.

For 2022, the Board of Directors authorized an investment plan of $465 million to be distributed in 4 categories, including several projects in Japan, $295 million for maintenance of freight rates, infrastructure and equipment, $41 million for growth in cargo volumes, $88 million to continue on good special projects in the reward network and $42 million for efficiency to optimize performance and productivity indicators. In Slide #9, the outlook for next year 2024, we are expecting a volume growth between 5% and 7% revenue growth between 8% and 10% and as said, CapEx for $465.2 million.

I will now pass for the questions and answers. Thank you for attending the call.

[Operator]

[Operator Instructions] One moment for our first question that comes from Juan Macedo with GBM.

[Juan Pablo Macedo Carrillo, analyst]

I have 2 questions. The first would be regarding your 2024 CapEx guidance. Does this include the investments like Videocon, when you obtain the 8-year concession extension for Ferromex and my second question would be on passenger train proposals. We've heard a lot from media outlets regarding this? Have you been approached regarding any kind of product like this? Or -- and what would your position be on those projects?

[Isaac Unkind, executive]

Thanks for your question, Juan. Regarding the first one is in our CapEx is included MXN 3.2 billion for the safety program that we're developing with the Secretary and Communications and Transportes. And yes, it's included. Regarding the second one, we told you received -- we will know that the -- what's on the news, and we are expecting to receive news from the Secretaria in order to see what really are the projects that we want to develop for the passengers. So for now, we don't have any news to report.

[Operator]

[Operator Instructions] Our next question comes from the line of Matt Kaelberer with Grandeur Peak Advisors.

[Matt Kaelberer, analyst]

My first question, just I'm a little bit surprised to see such a drastic FX hit, especially when the pace is still weaker than it was this time last year. So can you just sort of give us some more color as to what that -- what sort of fed into this and remind us how the exchange rate affects your business? And is your guide for next year, this 8% to 10% revenue growth, does that already make an assumption on FX?

[Isaac Unkind, executive]

Thank you, Matt. Yes, the exchange rates affected our pesos revenue. We have a 9.2% the valuation of the dollar. So the peso trend remained 9.2%. So for all our revenue denominated in U.S. dollar, our peso what some of -- where we said in the presentation about 8-point something in mix and revenue increase due to -- there was some shifts in the agriculture, there were some shifts in the agricultural mix. We used to -- it is harvest season in the Northwest region here in Mexico, and we usually move a lot of that in Northwest harvest. And what happened today because of the international prices of the corn basically, it's that the shift that were not going to be price here in Mexico target. So what they say, the customer sees more imports to ports and border and that are denominated in U.S. dollar and also affected. So the mix also affected our exchange rate in our revenue. And most of our cost base in -- denominated in U.S. pesos, mostly labor, labor and fuel and the biggest costs are going to be related in the few hours.

[Matt Kaelberer, analyst]

Remind us the breakout of revenue between USD and peso?

[Isaac Unkind, executive]

Half of the revenue is in U.S. dollars and half in Mexican pesos.

[Matt Kaelberer, analyst]

And so when we saw just the sharp decline in the value of the peso against the dollar. I mean, did you just have a -- did you have a 7%, 8%, 9% tailwind this last year, the -- yes, we just didn't really know about? Or yes, was it a tailwind this last year? I know it's a strategic headwind.

[Isaac Unkind, executive]

Checked from 20-something to 70 or high 70s. So this is a huge difference in century.

[Operator]

Here it comes from the line of Juan Macedo with GBM.

[Juan Pablo Macedo Carrillo, analyst]

The first one would be regarding the field expansion you mentioned with your CapEx guidance. Do you expect this to -- on top of helping revenue growth? Will it also improve efficiency factors operations and one more question. We saw an uptick in other costs. Are these mainly committed to this patent the want packing for the right of way? Or what does this uptick away?

[Isaac Unkind, executive]

Thank you. Thank you, Juan. Regarding the fleet expansion, basically, is the revenue growth, as I say, we see a lot of opportunities coming for some of our segments basically Automotive and Intermodal and Industrial. So our fleet will help us the conversions and to increase the output of our company efficiency. Basically, it's not touch regarding that. We need more fleet in order to comply with the customers to put the customers need. And the second question, the one in other cost provisional. No. Not related to this, Juan. Not at all.

[Juan Pablo Macedo Carrillo, analyst]

All right. Could you give us some color on other costs or should we expect that to be a normalized figure?

[Isaac Unkind, executive]

Yes. We do not run rate figure. Our biggest cost during this quarter were the increase in labor. We -- because of the volume of some of our segments, we increased our cost of funding and some of the permission and in terminals. So basically, these are the biggest costs.

[Operator]

We have a follow-up from Matt Kaelberer.

[Matt Kaelberer, analyst]

Yes. I just wanted to ask on the migrant situation. How much of an impact did that end up being from the locomotive sort of sidelines? And yes, is there sort of a long-term resolution that possibly this won't happen again? Or is this an issue you'll continue dealing with?

[Isaac Unkind, executive]

Thank you for your next question, Matt. What we're seeing in the migrant situation as it has been shown all over in the media is now still going but not through the railroad. We have been working with the authorities here in Mexico in order to prevent that many -- there -- that many migrants getting into trains. And what we're seeing is the numbers are decreasing with collaboration with the government has been -- have been paying off, and we really expect the situation to be controlled. So we'll keep working with the authorities, and this should be normalized.

Now I can tell you practically normalized with the numbers we're seeing in our trends is coming down and we shouldn't expect this to continue in the future. The whole -- what we're seeing is an increase in some of the recruits, we are having recruits because of our trains waiting for the authorities to do the operations and try to keep the migrants out of the railroads. So we had some recruits. We had some other costs because of weighting and basically the biggest problems. But normalizing with the cooperation with authority.

[Matt Kaelberer, analyst]

Okay. And then, yes, my last question is just I'm wondering if we should expect you to get next year? Or will that depend on the exchange rate?

[Isaac Unkind, executive]

We are expecting to go back to our regular event for the fourth quarter to go back to our regular percentage. And we really think that this was a external situation and extraordinary. So what we are looking is to keep and return to our regular numbers.

[Operator]

And as I'm not showing any further questions in queue. I will turn the call back to Isaac Franklin for final comments.

[Isaac Unkind, executive]

Well, thank you, Carmen. Thank you so much for everybody for attending this conference call and thanks again. Have a good afternoon. Thank you.

[Operator]

And thank you all for your participation, and you may now disconnect.