Gruma SAB de CV

BMV:GRUMAB

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to Gruma's Fourth Quarter 2024 Earnings Conference Call. [Operator Instructions]

I would now like to turn the conference over to Mr. Adolfo Fritz, Gruma's Investor Relations Officer, who will present earnings results. And then we will open the Q&A session where Mr. Raul Cavazos, Gruma's Chief Financial Officer, and team will be available to answer additional questions.

I would now like to turn the conference over to Mr. Fritz, IRO. Please go ahead, sir.

Thank you. Good morning, and welcome to our fourth quarter 2024 conference call. We're pleased to have you on the line, and thank you for the opportunity to share results with you.

With me today, as always, are Mr. Raul Cavazos Morales, Gruma's CFO; and Rogelio Sanchez Martinez, Gruma's Corporate Finance VP.

To start, we'll take a few minutes to discuss the fundamentals and results from the quarter, and then we'll open it up to any questions you may have.

We're pleased to report that we closed the year with solid results above our expectations for the year, with fourth quarter results as yet another driver of the year's performance. The trends we saw during the past 6 months continued in this final quarter of the year, and Gruma's operational experience and resilience allowed it to adapt to circumstances and reach a positive outcome.

In the tortilla category, the product overall continues to be in high demand, especially in the Better For You category in the U.S. and other successful product lines in the rest of the world, backed by added distribution in Europe and higher activity in Asia. Global tortilla volumes, however, were flat relative to a year ago as foodservice business in the U.S. continues to be under inflationary pressure and price sensitivity, while the high single-digit growth achieved in Europe and Asia offset these effects. In terms of corn flour, after the successful streak that we experienced both in Mexico and Central America on the back of higher demand, during the fourth quarter, volume in Mexico continued to expand in low single digits and Central America remained stable, while operations in Europe remain under pressure from geopolitical effects. The balance of these fundamentals yielded flat consolidated volume in corn flour for the quarter. Overall, taking our 2 lines of businesses into consideration, consolidated volumes remained flat during the quarter when compared to 4Q '23.

EBITDA expanded by 7%. And just as in the case of sales, both were hindered by the weakening of the Mexican peso as a result of the translating into dollars of our Mexican operations for reporting purposes. Without this currency effect, EBITDA would have expanded by 9%, while sales would have contracted by 2% compared to the reported 5% contraction.

Our free cash flow generation remains robust, allowing us to have a healthy balance sheet with ample levels of liquidity. A 9x oversubscribed offering, we issued a 10-year and a 30-year bond in December with the purpose of refinancing our former 10-year $400 million international bond in addition to paying down other outstanding debt and some of the short-term revolver instruments we use. This transaction was neutral to our overall debt profile, and we closed the quarter with a 1.2x EBITDA over net debt multiple.

Our balance sheet remains healthy. There is a contraction in cash in connection to debt payments, while the changes in working capital have yielded net working capital needs of approximately $33 million in the quarter. Meanwhile, inventory levels remained stable.

CapEx for the quarter totaled $69 million and $233 million for the full year of 2024. Investments were aimed at maintenance work, operational infrastructure improvements overall, water treatment plants for our mills, capacity expansion and our new plant in Foshan, China, which is now fully operational.

During 2024, given the valuation of our stock, we repurchased close to 8.6 million shares, representing $153 million. This represents 2.4% of outstanding shares, out of which 4.7 million shares have already been canceled at the last shareholders' meeting and the rest will be canceled this year at the same venue as part of a common practice of the company. Additionally, we paid dividends of approximately $100 million during the same time period.

Moving on to our subsidiaries results. In the U.S., the present activity we have seen from clients in the foodservice space continues to be a challenge in the overall market. We're slowly rebuilding our client portfolio to raise volume levels back up in this business unit. But given the current circumstances, it will be gradual and possibly take 2 additional quarters for us to start seeing a meaningful change.

On the retail side of the business, we continue to experience solid demand, particularly from our Better For You product line, which keeps growing in line with historical levels of growth, and we're not seeing any signs at this point of growth slowing down. We did, however, see a ramp-up in competition between other players in the market and private label products as they aim to regain the market share loss to private label over the last 12 months.

During the fourth quarter of the year, we still experienced single-digit growth in the retail channel, although the challenges encountered in the foodservice channel weighed on the subsidiary's overall performance. Volumes, therefore, contracted by 2% with a similar 3% decline in revenues, while EBITDA contracted 5% for the quarter.

EBITDA margin finished the quarter at 21.1% for the subsidiary. On an annual basis, EBITDA margin improved 120 basis points to reach 20.6% for the full year, surpassing the guidance we provided in June.

In Mexico, demand has been very stable overall, with strong and stable demand from tortilla makers being an important driver of growth and offsetting the potential volatility we have seen from some industrial clients, which has been going on for quite a few quarters now. As I mentioned, however, demand from tortilla producers continues to be buoyant as reflected in the constant single volume growth we experienced not only in the fourth quarter but throughout the entire year. We're still experiencing challenges, however, in terms of freight costs in some routes, but it hasn't been a factor that has deterred the business from having a positive performance.

In Europe, the expansion in tortilla market has been outstanding, growing by 10% during this past quarter alone. We have been successful at changing composition of the tortilla business to gradually favor retail tortilla or foodservice tortilla, and we have been creating solid distribution networks across Europe, especially in the U.K. and now in Spain.

In the corn milling business, there are some challenges that need to be overcome, such as the logistics hurdles resulting from ongoing geopolitical events and following the same trends we have seen in the past quarters. As a result of these fundamentals, volumes in Europe expanded 3%, driving a 9% jump in sales. Costs were temporarily impacted by both logistics and labor costs as a result of the incremental demand we saw during the quarter, which required higher production yields in some parts of Europe. EBITDA, therefore, expanded by 10%, reaching 10% EBITDA margin for the quarter.

Our subsidiary in Central America continued its excellent performance during the last quarter of the year. We continue to expand our distribution throughout countries where we have a presence and adding sophistication to the product lines we offer in each one of them. Volumes remained flat relative to a year ago, while sales grew by 3%. Having said that, the subsidiary was able to expand EBITDA by 9% and to reach EBITDA margin of 17.2%.

In Asia, in the fourth quarter of the year, we saw a lot of activity coming in from China, outpacing Australia even, which has been very stable throughout the year, but Malaysia also did great performance in those 2 markets, as commercial activity slowed down temporarily. We still need to evaluate whether China will continue performing at the same pace going forward. But if it does, our operation is ready to absorb any growth that might occur during 2025.

In all, volumes grew by 4%, while sales grew by 2%, although higher-than-expected operational costs led to an EBITDA contraction of 3% in the quarter, which still allowed us to achieve 12.1% EBITDA margin. For the full year, we saw 22% growth in EBITDA and EBITDA margin reaching 13.5%.

Let's move on now and provide you with our guidance and expectations for 2025. In the U.S., as I mentioned a few minutes ago, we're still a bystander in the competitive pricing dynamics between private label and other players in the market, which are striving to regain market share. As such, we need to be prepared to be flexible and proactive as soon as we see opportunities to either gain or protect our market share during the year. The course of action required in the foodservice space is already in motion, and we are executing at the best of our ability to recover volumes by late second half of the year. For U.S. guidance, therefore, we're assuming a defensive stance and projecting flat to low single-digit growth in volumes as a result of both of these market dynamics.

Another point of consideration, which is directly linked to volume performance is the economy in the U.S., which will be reliant on the effects of tariffs implemented across product categories and, in turn, potential inflationary pressures on the consumer. It is still uncertain what effects this will have on the overall economy, but it is another variable in place that should be considered. As such, we're projecting sales from flat to low single digits by the end of 2025. This, in turn, will yield margins to grow in the range of 10 to 50 basis points.

In Mexico, we expect demand from tortilla makers to remain strong for growth, coupled with the normalization of a few clients' operations, which will show some volatility and experience changes throughout the year. Volume growth-wise, we expect Mexico to maintain its stability, expanding by low single digits. We're assuming sales to grow in line with volume, while EBITDA margin should grow between 20 to 30 basis points.

Our operation in Central America should continue with its strong momentum as it happened in the fourth quarter, which leads us to expect single-digit volume growth and sales growth to be anywhere between flat to experience low single-digit growth for the year. In this context, we are experiencing a gradual improvement in sales and volume as we add additional capacity to our operation, which is currently at its limits. With these fundamentals, we foresee EBITDA margin growing by 150 basis points.

Following its solid performance during 2024, we're also expecting our European division to keep growing in line with the greater distribution achieved, and therefore, we're assuming mid-single-digit growth in terms of volumes, while sales should grow by high single digits. We're expecting cost inflation in the forms of logistics and raw materials, which makes us assume EBITDA margins growing between 30 to 40 basis points.

Mirroring the growth prospects and cost dynamics in Europe, in our Asia and Oceania division, given the continuing uncertainties around China's performance, we're currently assuming mid-single-digit volume growth for the year and similarly, mid-single-digit sales growth. Based on our expectations of cost inflation during the year, we're expecting margins to grow in the range of 30 to 40 basis points.

With all these dynamics and fundamentals in mind, we're expecting consolidated volume growth to be in low single-digit range, while sales should be flat to experiencing low single-digit growth in line with potential promotions during the year. This would bring margins to expand by 20 to 40 basis points by the end of the year. Keep in mind that just as it happened in 2024, the FX rate between the Mexican peso and the U.S. dollar will be a factor influencing our reported results in U.S. dollars for our Mexican subsidiary proportionately.

I would also like to take a moment and communicate, given our liquidity position and the current valuation of our stock, we're increasing our activity in our repurchase program going forward in the interest of our shareholders while keeping dividends at their current level. Our CapEx for the year will be similar to 2024 with investments mainly aimed at maintenance work, water treatment plants, additional corn flour capacity in the U.S., in addition to tortilla capacity expansions in Dallas and Spain. For these purposes, we're expecting an investment of approximately $320 million for the year.

In all, although similarly to every year, we have mapped out potential challenges in the horizon for 2025. We're fully prepared to take on them head on and, through our experience, resilience and expertise, be in a solid position to have another great year for our company this year.

With that, I'd like to open the call for questions from our listeners today. Operator, could you help us with that, please?

[Operator Instructions] Our first question comes from the line of Antonio Hernandez with Actinver.

Congrats on your results. Just a quick one regarding competitive pressures. I mean, you mentioned a couple of highlights, but anything else that you could provide beyond the U.S.? In other operating geographies, where are you seeing these competitive pressures? And also, if you see any type of slowdown maybe in terms of the Better For You category in any specific type of consumer or any specific type of geography.

Sure. Thank you for your question. So competition is really fierce. That's just as a way of business in our sector and our industry. I would say that the U.S. is right now a little bit more relevant just because of the pricing dynamics between our competitors in private label, which, as you know, increased substantially last year because of the price sensitivity of some consumers that purchase these type of products. So in an effort to gain that market share back, our competitors are really fighting in terms of pricing with private label. And as such it's creating a dynamic where we might enter throughout the year in promotions or in any other defensive strategy that could enable us to preserve our market share or even expand our market share accordingly.

So I would tell you that in terms of the competition landscape, that's the one that is in our focus the most just because of what happened last year with private label and its growth and how it affected our competitors. And we're still with the same strategy that we've always had, protecting profitability, obviously. And we'll be in a better position to see how this unfolds and how this evolves in the coming months. Right now, that's what we've seen so far, and we're prepared to pull the levers that we need to pull in order for us to remain competitive and to be gaining and preserving our market share accordingly. In the rest of the world, there is still obviously competition, as you might imagine. But I would say that the major changes in terms of competitions are in the U.S. more so than anywhere else in the world.

In terms of Better For You, as we communicated in the past, the Better For You category -- in fact, all of our products, serve different markets, and Better For You is no different in the sense that it serves and provides products for a market that is not as price sensitive as other markets because of the products that are involved in that and the wellness industry overall or in the wellness market overall. So you're not bound to see as much price sensitivity there. And therefore, we have not seen a slowdown in Better For You products. The products where this pricing dynamic is taking place are the products that are more standard in nature within our portfolio, which are those that are more replicable by private label or by a competitor overall.

Our next question comes from the line of Fernando Olvera with Bank of America.

I have two. The first one is related to the U.S. How are you thinking about logistic costs for this year given that they were a headwind across 2024? And what measures are you implementing to mitigate such pressure?

And my second question very quickly is, given your solid financial position, cash generation and ahead of shareholders' meeting, how are you thinking about dividends and share buybacks for this year? If there is any different approach that you are evaluating, maybe being more aggressive on buybacks or paying extraordinary dividends, any color on that would be great.

Thank you, Fernando. We appreciate your question. So in terms of the logistics situation, that is really a global phenomenon, if you will. It's more marked in the U.S. because of the labor situation that spurred after COVID, which, as you know, increased labor costs dramatically in the U.S. And in parallel to that, or as a result of that, all of the labor involved in transporting products in the U.S. has gone up, and it's been up ever since.

Right now, what we're trying to do is just look at different routes that might be more efficient for us to take to distribute our products and to be more efficient that way. But in reality, that's something that the whole market is experiencing. And it is something that, depending on inflation and where that leads us, will be either higher this year or lower depending on whether this alleviates or not. And this is partially also because of all the stimuli that was injected into the U.S. economy during COVID that prompted a lot of the workforce to not go back to work really and spiking up the price of those freights for all the manufacturers in the U.S. So we're trying to do what we can to mitigate that, but that is something that probably we have to live with for the rest of this year as well.

In terms of the repurchase program and dividends, yes, valuation of the stock, we feel it's still very much at a discount and undervalued. So we are promoting a much more aggressive stance in terms of the repurchase program going forward. We're keeping the dividends at their current level. Normally, at each shareholders' meeting, we establish a ceiling for the repurchase program that is around $300 million. We've never reached that number in repurchases. We've normally purchased around $120 million out of those $300 million. So we'll be increasing those purchases accordingly, not very close to that ceiling, but certainly higher than the numbers that we've had before in terms of repurchases. So that's something that we will be establishing at the shareholders' meeting in April.

Our next question comes from the line of Alejandro Fuchs with Itau.

Just one very quick, and it would be on a comment you mentioned on the release of an increase of corporate revenue of around $26 million. I wanted to see if you could give us a little more color on what drove this higher corporate revenue and if you see this as sustainable going forward.

Thank you, Alejandro, for your question. Yes, sure, and thank you for bringing it up. We noticed it might have created a little bit of confusion. But overall, subsidiaries that are underneath the holding company have expenses and some of these expenses are in the form of payments to the holding company. The holding company, as a result thereof, records these payments as revenue, and therefore, that revenue increases its EBIT or EBITDA accordingly. So these expenses vary from quarter-to-quarter, from year-to-year. They're in the form of royalties paid for the use of brand. They're also in the form of provisioning of some potential expenses that the subsidiaries are forecasting throughout the year. And they are all recorded as revenues.

It is a very big difference between this quarter and last year's quarter, fourth quarter, there is a substantial difference, and there is a substantial increase. But if you compare the numbers on an annual basis, they're around the same absolute amount. And I'm not saying that, that is the amount you should expect every year. I'm just trying to convey that these are recurrent expenses that are recorded as revenues at the holdco. So it is not that it is an extraordinary gain by any means. It's just that the expenses that are being done at the subsidiary level offset those revenues being recorded at the holding company level. So on a consolidated level, you don't have any impact from these dynamics. So you should really not view that as a gain of any kind in terms of our operating income at all. It's just that they just represents the expenses that are being recorded at the subsidiary level over at the holding company. Does that make sense?

That was super clear.

Our next question comes from the line of Lucas Mussi with Morgan Stanley.

I have one on the U.S. As far as I understand, you already have hedged most of your grain/corn needs for this year, 2025. But I wanted to hear more about what you are seeing from the industry as it pertains to their commercial strategy in the context that corn prices at the margin are actually increasing significantly compared to, I don't know, the average of 2024. You guys have made hedges, arguably very good hedges, for 2025. But I just wanted to hear more from competition. Maybe they didn't. Maybe they all have to increase prices. And in 2025, that could be a benefit to you. So I just wanted to hear more about your expectations from the commercial side in 2025, putting into context the fact that costs may not be as good as it will be for you guys for your competitors. So I just wanted to hear more from that on your side.

Thanks, Lucas, for your question. Yes, right now, we're just following the same strategy we followed in the past, where we're seeing the corn price increasing as a result of the potential lower yields that was reported back in January. However, we're still waiting for the report coming out in March to see how this unfolds. Right now, the price of corn, I think, is at an attractive level for farmers to keep increasing their farming going forward. So we'll have to wait on what happens in March, in the report that comes out in March, to see what will be the price of corn potentially going forward, what direction it will take.

But in terms of our competition and the commercial purpose of this, I mean, we really don't have any information of the competition on how they do their prospectus on corn prices. We can just speak for ourselves. And again, I think that we'll have more information about where things are headed in March, we'll have that report in our hands, and we can see how the fundamentals are until that point.

Our next question comes from the line of Felipe Ucros with Scotiabank.

So two questions on my side, first one on Mexico and then one on the U.S. So on Mexico, just wondering how you're seeing the pricing in the traditional method versus your own pricing. The last few years, the traditional method has been competing harder because corn prices have declined. But now there's a devaluation of the Mexican peso kind of hitting them and making it a little bit harder for the traditional method. So do you still think you need to be more competitive in Mexico versus the traditional method? Or do you think the price reductions you've done in recent quarters are mostly done at this point?

And then in the U.S., a few quarters ago, in relation to your comments about private label, you had announced that you might be increasing your exposure to that segment of the market in the U.S., but that you needed to sort of test the waters first before you made a full decision. So just wondering if you can give us an update on where that project for private label stands.

Thanks for your question. Yes, with regards to Mexico, we're always in line with the traditional method. They're the overwhelmingly majority in the market. They're really the market makers in the market. So we're always in line with them, and the adjustments they do to pricing is the ones that we follow. It is uncertain to an extent to know what they'll do in the face of both the corn dynamics here in Mexico, the price of international corn overall. But we'll follow whatever adjustments they'll do to the price. And we always have to be in line to avoid any volume exiting our space, into the traditional method space or vice versa. They do the same thing to stop any potential volume to come into our space, which is the industrial space. So as they're the majority, we'd have to follow them and see what they do. And we'll have to wait again on dynamics that the year brings. But so far, we're in line, and we'll see what adjustments they'll do down the line.

In regards to private label, what I can tell you is that when we announced this, this was actually last year, in our call for the fourth quarter. And we expressed our strategy in terms of potentially increasing our production of private label if private label still grew beyond what we've seen before in terms of its market share. So if it went up dramatically until it reached 13% or over 13% market share, then we would start jumping on the growth wave of private label, and we would start increasing our production of private label. However, this never occurred. Private label started the year pretty strong last year, and then it slowed down, and we never got to the point where we had to increase our sales of private label because of that reason.

That growth, however, did affect our competitors very harshly, and that's what spurred the dynamic that's happening today, which is the pricing competition that I was just referring to a minute ago, where they're trying to regain that market share back. I mean they lost approximately 300 basis points in terms of market share to private label. So they're doing whatever they can to regain that, and we'll have to deal with what's happening in that space and react accordingly. Right now, we're bystanders for now, but we're not discarding any strategy available to us in order for us to fight this off. So that's what's happening with private label and what we were referring to in the past in terms of growing our presence in private label.

That's a great clarification. If I can do a follow-up, what are the chances that you can take Better For You and kind of do what you have done in the U.S. in other markets, like in Europe, where the tortilla mix is increasing and now you're a much bigger player in tortilla than you were a few years ago? At what point do you think about kind of doing a project similar to what you did in the U.S. with going a lot deeper into wellness and driving the consumer in that direction?

Well, the product is being sold everywhere. It's a matter of cultural preference and the dynamics in that specific culture and the trends. In the U.S., as you very well know, the wellness industry and the fitness industry overall has very much developed to a point where there is a lot of sophistication. So the wellness industry in the U.S. is outpacing any other market around the world focused on wellness. And because of its sophistication, it's allowed us to grow and to offer a wide array of products.

If you go to other locations around the globe, you will see a smaller market for Better For You for now. And it's still in development relative to the U.S. I would argue, and this is an example we sometimes comment with investors, is that in China, for example, they're very extremely well developed in terms of wellness and the fitness industry overall. And that is a market that I could tell you that could potentially adopt Better For You at a much higher pace than any other location after the U.S.

Right now, we really have our hands full with the U.S. So we're really not pushing too much into that. As you know, we cannot push the product into consumers. It has to be a result of a preference and a trend that is being created by the consumer themselves. So in locations such as Asia, we're trying to, in some ways, flatten the learning curve in terms of the use of wraps in everyday meals, just like we did in the U.S. years ago and just like we've done in Europe or like we're doing in Europe.

But I would tell you that there is still a learning curve to be flattened. There is still opportunity there. So in the meantime, we're just getting the best we can in foodservice in Asia and in Europe. As you saw in the results, we're slowly getting there by increasing our retail presence and offering not only Better For You products, but also other products that are more aligned with the culture of each country. One example of this that we always tell investors is all these products that relate to the Indian community, for example, in the U.K. and other products around Europe that are specifically tailored for communities that live outside of their own countries and find a product, something that relates to the traditional cuisine. But Better For You specifically, it's growing, but it doesn't compare to the growth potential and the growth that we're having in the U.S. currently.

Our next question comes from the line of Tiago Harduim with Citi.

I want to shift a bit the conversation to the other regions of Gruma. So we saw here, for the fourth quarter, very interesting strong results for Europe and Central America. So just wanted to pick your brain here and learn a bit more on the playbook that Gruma has been implementing for these regions. We understand that there are specific dynamics going on. So you might have some corn milling issues in Europe, but that's like completely offset by the actual tortilla business. So whatever extra comments you can give us on competition, channel dynamics, just to understand what's behind this awesome work you have been delivering here.

Sure. The strategy overall is to push retail tortilla and to have a greater composition of retail tortilla in Europe. And that's something that we've been able to accomplish and something that's been benefiting us from a profitability perspective, as you can see. And that is something that we'll continue to do by increasing our distribution channels across Europe. And hopefully, our aim is to have a composition similar to the one that we have in the U.S., which right now is 80% of it -- or 82% is retail. We're striving to reach that goal and to reach that level of composition.

So I would tell you that in the short to medium term, the plan is to increase the composition of retail tortilla in Europe to that point, hopefully making our operation there more profitable than it is today and just deal with the inflation that we see along the way in terms of costs. Right now, we had to deal with higher labor just because of the circumstances, we had to increase our production because we perceived a higher demand than we originally planned. So we feel that our plan is really working, and we feel there is additional demand to what we saw in the past. So I would tell you that, in the grand scheme of things, that is the goal that we have in Europe.

In Central America, the goal there right now, we are at capacity. So if you see volumes being flat this quarter relative to last year's quarter, it is mainly because of that. It's a question of capacity that we're planning to expand during the year, so we can hopefully still distribute the sophisticated line of products we have been distributing and have yielded great results to the point where we are today that we've increased profitability in Central America, going from 10% -- or 9% over to 17%. So I think that, that plan is also working very well, and we just need additional capacity there. So you'll see that happening this year as well.

In terms of Asia and Oceania, right there, foodservice has really taken off. It's helping us grow in the region that the subsidiary serves. Our bet there is -- as I was commenting a minute ago, our objective there is to hopefully flatten the learning curve in Asia for the use of wraps or flatbreads in the regular meals, not substituting traditional cuisine by any means, but just have them wrapped, put things in a wrap for lunch or whatever everyday life meals they enjoy, and hopefully adopt the retail tortilla going forward so that we may shift our composition from being a foodservice-centric operation in Asia and Oceania to being more of a retail-centric operation. So when that happens -- that's what we're betting on so when that happens, we feel that we have added room for growth there. And we're definitely excited about not those opportunities, but all opportunities, especially in the U.S. where, as I said before, we have our hands full there. So we feel that really, we're just getting started, and there is ample room for improvement still.

Our next question comes from the line of Álvaro García with BTG.

One on the U.S., just to double-check what you mentioned. Obviously, we have cost tailwinds in the form of lower corn and wheat prices, but you also mentioned the promotional activity. And I think you said 10 to 20 basis points. But I was wondering if you could maybe give a little bit more color on whether we will indeed see cost tailwinds on the corn front, on the gross margin front, into 2025 in the U.S. And I have one more after.

Sure. No, I would say it's just a mix between the efficiencies that we can find and in addition to the mix. As I said, Better For You is still growing at a very healthy pace, and we're hoping that will propel us to the guidance that we provided of the 10 to 50 basis point growth in addition to whatever efficiency we can find along the way. But right now, our mind is more in line with the growth as a result of mix more so than any efficiencies.

Great. And it was 10 to 20, was it, in the U.S.?

No, in the U.S., it's 10 to 50.

10 to 50. Okay. Perfect. Great. And then just one more on the promotional environment in the U.S. I'm curious if maybe you could pick out whether it's a Mission brand or Guerrero brand. You did mention that it's more concentrated, obviously, in your mainstream brands. Any sort of comment on a brand-by-brand basis would be helpful.

Sure. Well, most of the growth is coming in from Better For You and the Hispanic-based brands, I would say. There is some portion of overlap within the Hispanic-based brands that are bound to get traded down to this pricing competition between private label and the competition that we see so far. There's a few items there. But the main items that I would tell you that are right now part of this whole pricing competition between private label and the main players in our space are the standard core products, what we call them. They're a mix of both wheat and corn. But I would say mainly it's wheat rather than the ones that are more targeted to the Hispanic population. I would tell you that those, in terms of Guerrero, for example, as you mentioned, they're still growing very healthy. But the ones that are more standard in nature that are part of Mission, that are part of the core Mission products, are those that are probably going to be competing with the private labels and the competitive landscape that we see today.

Yes, the bystander doesn't work. Great. That was very helpful color.

Thank you.

Our next question comes from the line of Ryan Lavin with Barclays.

This is Ryan filling in for Ben today. Just a quick one about Mexico. You saw a relatively large increase in SG&A from extraordinary marketing expenses. Can you just touch on that a little bit more? And do you expect those to carry through into 2025? Or was that just a onetime cost?

No, those were extraordinary in nature. We felt that we needed -- we normally don't push too much into marketing, or we haven't pushed too much into marketing. And we felt that it was needed to increase in the quarter, the marketing expenses, for that reason. That is not something that should be occurring in the future, unless it's something extraordinary like it was this quarter. But for all of your modeling purposes, I would not count it as recurrent, by any means.

Our next question comes from the line of Lucas Ferreira with JPMorgan.

My first question is on channel mix in the U.S. So how to think about the performance of foodservice, which has been, I think, losing some ground, right, in your sales mix in the last few quarters, how to think about that going forward. You discussed a little bit the product mix. So how to think about the performance of our channel mix and in the margin composition in the U.S.

And the second question, about the working capital for the company, which it's fair to assume that 2025, especially grains could have a tailwind effect in your working capital. What to expect for this line in 2025?

Thanks, Lucas. Well, in terms of channel mix, yes, foodservice is indeed going through some challenges that we're addressing. It's already in motion. We've started recovering some of the volumes that we've lost due to price sensitivity. However, as I mentioned, it's going to take a little bit more time. So we might get a complete recovery maybe by the end of the second half of the year.

In terms of composition right now, foodservice should be around 17% of our sales -- tortilla sales, I should say. And hopefully, as we start incorporating back some of the volume that was lost, we'll be able to even that out to the levels it was before. Before, this was closer to the 20% composition. So we do have a plan in place. It's already in motion. So we're hoping to see the results of this on a sequential basis further throughout the year.

In terms of working capital needs, I feel that this year, we don't see any incremental working capital relative to a year ago. The level should be around the same. And that's not something -- I wouldn't put that as a potential challenge or a red flag for your model at all. I would just account for the same level that we had last year.

Our next question comes from the line of Ulises Argote with Santander.

So just doing a double-check on the CapEx guidance here. Was it $220 million or $330 million? My line was a bit unclear there, sorry. And just along those same lines, you mentioned some capacity constraints in Central America. Can you comment on the main projects that you guys are including on this CapEx guidance and if there's any other kind of capacity constraints on any of the other regions that maybe we should be aware of?

Sure. So the guidance was $320 million. And yes, part of that is going into the additional capacity that we need for Central America. I mean it's best and in our interest to expand capabilities there just because of how good of a response we've had with the product that we're selling there. So it is something that we feel is required for us to continue our work there. Water treatment plants also in mills is something that we're focusing on as well. Additional corn flour capacity also in the U.S., capacity expansions in Dallas and in Spain. So those, I would say, would be overall -- in addition to obviously, maintenance around the global operations of the company, I would say those are the main points that cover the $320 million.

Okay. Perfect. And another one, if I may, just on the current leverage level. So you're trending closer to that 1.2x on net debt to EBITDA. What kind of levels are you guys comfortable for kind of in the longer run? And how should we think about the current levels of leverage?

Yes. Currently, we are at optimal levels or, I would tell you, we're trying to -- or below optimal levels. Our optimal level is around or closer to 1.5x. So that's where we want to get to. But with the current levels of leverage that we have today, it really doesn't hurt our profile, our financial profile, to have to be that low in leverage. So to the operation itself, and what we foresee going forward, we feel that we could get it closer to the 1.5x. But right now, we're comfortable in the level they are.

[Operator Instructions] Our next question comes from the line of Federico Galassi, a private investor.

Federico Galassi from Rohatyn Group. Two questions, if I may. The first one related to your explanation of subsidiaries. This is more related to subsidiaries from Mexico that you changed in their accountability 2 years ago?

The payments -- or these expenses are in line with what Mexico -- for what happened in Mexico a few years ago. So those are the royalties being paid. Remember how they changed their paying structure from being a lump sum and being amortized to being expensed every month. I don't know if you recall that. That was a change they did. But all subsidiaries have to have that payment of royalties within their SG&A. In Mexico, it was just more in the headlines, I would say, just because of the change in the structure of their payments. But all subsidiaries pay royalties to the holdco on a regular basis, monthly basis, to use the brand. And that's the way they're structured around the world.

Okay. It's not only from one region in particular, just to be clear in that. And the second one, if my numbers are not wrong, your average price in Mexico has lowered in Mexican peso for this year. But even seeing that, when you see gross margins, it looks like your margins today are close to the levels before the pandemic. Is it fair to say that you are close to the normalization or you are more efficient in terms, I don't know, logistics and sales or another one?

Yes. I would tell you that we're closer to normalization in Mexico. I think that that's what you can assume going forward.

Our next question comes from the line of Emiliano Rangel with Compass.

I wanted to understand what are you seeing overall for 2025 in terms of volumes, margins and pricing, if you can help me with the guidance, please.

Sure. So the guidance, on a consolidated basis, we're looking at low single-digit growth in terms of volumes. In sales, we're expecting them to be from flat to have low single-digit growth. And in margins, we should be growing between 20 to 40 basis points. That's the consolidated guidance.

Mr. Fritz, we have no more questions at this time. I would like to turn the floor back to you for closing comments.

Great. Well, thank you so much, everyone, for being with us today and being on the call. We appreciate your time, and we look forward to seeing you at future market events. Take care, everyone.

Ladies and gentlemen, this concludes Gruma's Fourth Quarter 2024 Earnings Conference Call. Thank you for your participation. You may now disconnect.