Coca-Cola Femsa SAB de CV

NYSE:KOF

Earnings Call Analysis

Coca-Cola FEMSA Q2 2024 Performance and Outlook

Coca-Cola FEMSA achieved strong volume growth of 7.5% year-on-year in Q2 2024, driven by Mexico, Brazil, Guatemala, and Central America. Total revenues rose 13.1% to MXN 69.5 billion, while gross profit increased 17.2%, expanding the margin to 46%. Operating income was up 13.8% to MXN 9.7 billion, despite extraordinary expenses from Brazil floods. Adjusted EBITDA grew 21.7% to MXN 13.9 billion. The company rolled out digital initiatives with over half of its customers now digital buyers and faced some capacity constraints which are being addressed. Coca-Cola FEMSA maintains its guidance for mid-single-digit volume growth and flat margins for the full year.

Solid Performance in Core Markets

Coca-Cola FEMSA reported a strong performance in the second quarter of 2024, with consolidated volumes increasing by 7.5% year-on-year. The company saw notable growth in key markets, such as Mexico, Brazil, and Guatemala, which offset declines in Argentina and Uruguay. This volume growth contributed to a 13.1% rise in total revenues, reaching MXN 69.5 billion【7:1†source】【7:4†source】.

Improved Profitability

Coca-Cola FEMSA's profitability improved, with gross profit rising by 17.2% to MXN 32 billion, resulting in a gross margin expansion of 160 basis points to 46%. Operating income also increased by 13.8% to MXN 9.7 billion, yielding an operating margin of 14%. Adjusted EBITDA for the quarter grew by 21.7% to MXN 13.9 billion, expanding the EBITDA margin by 148 basis points to 20%. The company credited this growth to operating leverage, favorable packaging costs, and hedging strategies, which were partially offset by higher sweetener costs and foreign exchange losses【7:2†source】【7:5†source】.

Challenges and Resilience in South America

In South America, Coca-Cola FEMSA faced significant challenges, including unprecedented flooding in Southern Brazil and economic pressures in Argentina. Despite these obstacles, volumes in the region increased by 6.5%, driven primarily by strong performance in Brazil. On a currency-neutral basis, revenues in South America grew by 22.3%. The company's resilience and rapid response to crises helped maintain operations and support affected communities【7:3†source】【7:8†source】.

Digital Transformation and Strategic Initiatives

Coca-Cola FEMSA continued to advance its digital transformation initiatives, notably the rollout of the Juntos+ app, which has now reached more than half of its customer base across its largest markets. This digital shift has contributed to higher average tickets and increased SKUs per customer transaction. The company also focused on expanding its manufacturing and distribution capacity by adding new bottling lines and distribution centers, which is expected to unlock further growth【7:4†source】.

Outlook and Guidance

Looking ahead, Coca-Cola FEMSA reaffirmed its guidance for mid-single-digit volume growth for the full year. The company remains optimistic about its ability to navigate challenges and capitalize on growth opportunities, particularly in its core markets. However, it acknowledged potential volatility due to external factors such as weather events. The outlook for margins is stable, with a focus on sustainable growth and maintaining a balanced strategy between volume growth and profitability【7:5†source】【7:7†source】.

Market Share and Capacity Expansion

The company highlighted its efforts to address supply chain shortages, particularly in Mexico, where capacity constraints have impacted market share. In response, Coca-Cola FEMSA is adding new production lines and expanding its distribution capacity. This includes investing in new plants and optimizing existing facilities to meet the growing demand and improve service in key regions【7:6†source】【7:10†source】.

Regional Highlights

In Mexico, favorable weather and a resilient consumer environment supported a 7.9% volume growth, reaching 600 million unit cases for the first time in the company's history. Central America also performed well, with notable volume increases in Costa Rica, Panama, and Nicaragua. In South America, despite challenges, Brazil showed strong volume growth of 12.1%, supported by favorable weather and strategic initiatives【7:11†source】【7:13†source】.

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and welcome to today's Coca-Cola FEMSA Second Quarter 2024 Conference Call. [Operator Instructions] And now I'd like to hand the call over to your host, Jorge Collazo. Please go ahead, sir.

[Jorge Alejandro Pereda, executive]

Thank you. Good morning, everyone. Welcome to this webcast and conference call to review our second quarter 2024 results. Joining me this morning are Ian Craig, our Chief Executive Officer; and Gerardo Cruz, our Chief Financial Officer. As usual, after prepared remarks, we will open the call for a question-and-answer session.

Before we proceed, please allow me to remind all participants that this conference call may include forward-looking statements and should be considered good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties that can materially impact the company's performance. For more details, please refer to the disclaimer in the earnings release that went out this morning.

With that, let me turn the call over to our CEO. Please go ahead, Ian.

[Ian Marcel Craig García, executive]

Thank you, Jorge. Good morning, everyone. Thank you for joining us today to discuss our second quarter results. Let me begin by saying that I am encouraged by the progress we are making across the priorities we set for the year. For the second quarter, we continued building on the growth momentum of our core business, increasing our consolidated volumes by 7.5% year-on-year, while driving double-digit top and bottom line growth. We're also progressing on becoming our customers' preferred commercial platform with Juntos+.

During the quarter, we finished rolling out the new Version 4.0 of our app in our 2 largest markets, Mexico and Brazil, while beginning its rollout in Guatemala, Panama and Colombia. Now more than half of our total customer base are digital buyers. Importantly, we are taking significant steps in deploying Coca-Cola FEMSA's principles, the foundation of the culture that we envision for our long-term growth and success.

Although a positive quarter, our resilience and ability to respond to challenges was put to the test as we faced unprecedented flooding in the state of Rio Grande do Sul in Southern Brazil. I want to take a moment to express our heartfelt support to all of the people affected by these events, and to recognize the leadership and swift actions taken by our team to ensure the well-being of our Brazilian collaborators as well as their families and to provide effective community support. Our team mobilized quickly to ensure business continuity and minimize disruption. I will expand on these actions later today when I touch on Brazil.

During our call today, I will summarize our quarterly results and provide an update of key developments across our territories. Then Jerry will walk you through our division's performance, closing with an update on the progress we are making to add capacity across our operations, aligned with our strategic pillar to remove infrastructure bottlenecks and digitize the enterprise.

Moving on to review our consolidated results for the second quarter. Our volumes continued their positive momentum, increasing 7.5% year-on-year. This increase was driven mainly by the strong performance achieved in Mexico, Brazil, Guatemala and our Central America South territories, which offset volume declines in Argentina and Uruguay.

Our strategy is to grow our core business and to continue driving results. Sparkling beverage volumes grew 6.8%, driven mainly by Brand Coca-Cola's 7.8% growth. Still beverages grew 13.2% and bottled water grew 13.4%. Total revenues for the quarter grew 13.1%, reaching MXN 69.5 billion, driven mainly by volume growth, offsetting unfavorably comparable currency translation, mainly related to the depreciation of the Brazilian real and the Argentine peso as compared to the Mexican peso. On a currency-neutral basis, our total revenues increased 17.9%.

Gross profit increased 17.2% to MXN 32 billion, leading to a margin expansion of 160 basis points to 46%. This increase was driven mainly by the operating leverage resulting from our solid top line performance, coupled with favorable packaging costs and hedging strategies. These effects were partially offset by higher [indiscernible] costs and the significant depreciation of the Argentine peso as compared with the previous year.

Our operating income increased 13.8% to MXN 9.7 billion, with operating margin reaching 14%. As was the case during the first quarter, our operating leverage and cost and expense efficiencies enabled us to protect margins, offsetting extraordinary expenses related to the flooding in the south of Brazil as well as increases in freight, labor and maintenance. Notably, this quarter also includes approximately MXN 400 million related to a noncash operating foreign exchange loss driven by the quarterly depreciation of the Mexican pesos. By normalizing the extraordinary effects related to the flooding in Brazil, our operating margin would have expanded 30 basis points to 14.2%.

Adjusted EBITDA for the quarter increased 21.7% to reach MXN 13.9 billion, and EBITDA margin expanded 148 basis points to 20%. The difference between adjusted EBITDA and operating income is mainly explained by the increase in noncash expenses related to the MXN 400 million operating foreign exchange loss that I previously described. Finally, our majority net income increased 13.8% to reach MXN 5.6 billion. This increase was driven mainly by operating income growth, coupled with a decrease in our comprehensive financing results. This decrease in comprehensive financial result was driven mainly by a foreign exchange gain that resulted from the depreciation of the Mexican peso during the quarter as applied to our dollar cash position.

Now let me expand on our operations highlights for the second quarter. In Mexico, the implementation of our long-term sustainable growth model, coupled with favorable weather and a resilient consumer environment supported our 7.9% volume growth for the quarter, reaching 600 million unit cases for the first time in our franchise's history. Additionally, thanks to the efforts of our supply chain team to add capacity and generate productivity, in May, we broke the record of historic monthly production that we had previously established in March, producing 198 million unit cases.

Efforts to satisfy unserved demand in the Southeast region of the country, prompted us to relocate a production [indiscernible], which began production last June, bolstering our capacity in this important and growing region of the country. However, as was the case during the first quarter, that demand we saw continued to exceed our installed capacity, generating stock-out and limiting our share recovery efforts.

Finally, an update on Juntos+ in Mexico. As I previously mentioned, we finished the rollout of Version 4.0 with more than 335,000 active buyers in the new version of the app, effectively digitizing more than 50% of our customer base in the country. We remain confident in Mexico's momentum and in our team's ability to resolve capacity constraints and continue delivering solid results as we enter the second half of the year.

Moving on to Central America. Volumes in our Central America South territories, which include Costa Rica and Nicaragua and Panama, increased 6.2%. In Costa Rica, our commercial initiatives continue driving volume growth. For instance, to complement our single-serve offerings, we introduced a 250 ml presentation of Sprite, Fresh and Fuze Tea. In addition, our multi-serve packs grew 8% year-on-year as we focused on the execution of repeatable and one-way presentations to capture the important [indiscernible]. Moreover, in Costa Rica and Panama, we launched alcoholic ready-to-drink cocktails in 2 flavors: [indiscernible] to capture growth in this emerging beverage category.

Finally, in Nicaragua, we delivered a solid second quarter. Brand Coca-Cola continues outperforming with double-digit growth, supported by strong performance in both single-serve and multi-serve presentations. Notably, with brands, Monster and Fury, our energy portfolio volumes grew more than 50% year-over-year, capturing value share. We are convinced that there are many growth opportunities in Central America to continue capturing growth, profitability and accelerate our digital transformation.

Moving on to South America. As I mentioned during my introductory comments, the south of Brazil experienced the worst flooding in the region's history, affecting approximately 2.4 million people. In this challenging environment, our team rapidly activated crisis protocols, focused on ensuring our collaborators and their family safety as the utmost priority. Among other actions to support our team in the region, we donated food and water, advanced salary payments and made vaccines available. In the [indiscernible], one of FEMSA's most prominent leaders in the 20th century, what the person is and may possess is an opportunity to help others, an opportunity to serve.

And with this in mind, FEMSA and Coca-Cola FEMSA's relief fund donated approximately $1 million to help cover all our affected collaborators, resources that are being used to support home rebuilding, replace furniture and basic house appliances that were lost to the torrential rains. In addition, community relief efforts were coordinated with support from our partners at the Coca-Cola Company and the rest of the Coca-Cola system in Brazil, whom also donated resources and water to the most affected communities in the region.

Regarding business continuity, as we announced in early May, we suspended operations in our plants in Porto Alegre. We have now completed site cleaning and removed more than 5,000 tonnes of debris and [indiscernible] and are working hand-in-hand with our equipment manufacturing partners towards a gradual reopening as of the fourth quarter of the year. In the meantime, our supply chain team rapidly adapted our sales and distribution network to serve our customers in the region, setting up 2 distribution centers around Porto Alegre, that allowed us to reach more than 90% of our customer base.

To source finished product, we are currently shipping from other Coca-Cola FEMSA territories in Brazil, Uruguay and Argentina as well as from other bottlers from the Coca-Cola system, allowing us to mitigate the temporary capacity gap while we reopened our Porto Alegre facility. Despite the challenges faced in Rio Grande do Sul, volume in Brazil increased a solid 12.1%. Favorable weather in most of our territory, coupled with our initiatives to grow the core business enabled us to achieve record volumes. We are also encouraged by the results of Coca-Cola [indiscernible], which continues to grow 50% year-on-year. In addition, Powerade and Monster grew 64% and 32%, respectively. As we mentioned, during the first quarter, we are strengthening our competitive position, gaining share not only with brand Coca-Cola, but also in flavors, energy, teas, sports drinks and juices.

In Colombia, consumer confidence has continued to deteriorate. This macroeconomic backdrop, coupled with unfavorable weather during the quarter, resulted in sequential deceleration in volume growth. In this complex environment, our team remains focused on our growth, the core initiatives, adjusting our product offerings to capture key price points. These initiatives, coupled with service and availability improvements continued enabling us to outperform the industry, resulting in share gains. Aligned with our initiatives to increase capacity in late June, we opened a new distribution center in [indiscernible] in the outskirts of Bogota, increasing capacity by 90,000 pallet position, bolstering our service to more than 30,000 clients in the region.

Moving further south to Argentina. As was the case during the first quarter, we continue seeing the effects of a 31% contraction in disposable [indiscernible], leading our volumes to decline 9.9%. However, prospects of a more controlled inflation and a gradual recovery of disposable [indiscernible] are being reflected in consumer sentiment. Our team continues executing the playbook needed to emerge stronger from these macro adjustments, strengthen our affordable platform to maintain household penetration and consumer preference while driving cost and expense efficiencies as well as implementing productivity initiatives.

Finally, volumes in Uruguay declined 12.1% year-on-year. This decline is explained mainly by a tough comparison base as severe drought in 2023, drove extraordinary growth for personal water coupled with unfavorable conditions during most of the quarter this year. As we enter the second half of the year, we remain confident in our strategy as well as the investments being deployed to improve service levels. We expect the consumer environment to remain resilient in the majority of our markets. We continue to see a long runway for Coca-Cola FEMSA's value creation as we progress in the implementation of our sustainable long-term growth model.

With that, I will hand the call over to Jerry.

[Gerardo Celaya, executive]

Thank you, Ian. Good morning, everyone. Summarizing our division's results for the second quarter. In Mexico and Central America, volumes increased 8.1% to reach 695.6 million unit cases, with volume growing across all of the divisions' territories. Revenues increased 15.3% to MXN 45.1 billion. This growth was driven mainly by volume performance and favorable mix effects. Our gross profit increased 17.8% to reach MXN 21.9 billion, resulting in a gross margin of 48.7%, expanding 100 basis points year-on-year.

Our operating leverage resulting from top line growth, improving packaging costs and favorable hedging initiatives were partially offset by higher sweetener costs and the depreciation of the Mexican peso. Operating income increased 12% to MXN 7.3 billion, driven mainly by the gross profit performance I previously described. However, our operating margin contracted 50 basis points to 16.2%. This contraction was driven mainly by a noncash operating foreign exchange loss, generated by the depreciation of the Mexican peso, coupled with an increase in operating expenses, such as labor, marketing and freight. Finally, our adjusted EBITDA in Mexico and Central America grew 20.1% with a 90 basis point margin expansion to 21.9%.

Moving on to the South America division. Volumes increased 6.5% to 400 million unit cases. This performance was driven mainly by double-digit growth in Brazil and partially offset by a volume contraction in Argentina and Uruguay. Supported by this volume performance and revenue management initiatives, our revenues in the division increased 9.2% to MXN 24.4 billion. These effects were partially offset by unfavorable currency translation effects into Mexican pesos, especially driven by the depreciation of the Argentine peso and the Brazilian real.

When excluding currency translation, our total revenues in South America increased 22.3%. Gross profit in South America increased 16%, leading to a margin expansion of 240 basis points to reach 41.1%. As was the case during the first quarter, this increase was driven mainly by operating leverage, declining packaging costs and favorable hedging strategies. However, these effects were partially offset by increases in sweetener costs and the depreciation of most of our operating currencies in the division as applied to our U.S. dollar-denominated raw material costs.

Operating income for the division increased 19.6% to MXN 2.5 billion, and operating margin expanded 90 basis points to 10.1%. This margin expansion was driven mainly by our gross profit growth, coupled with cost and expense efficiencies across our operations. However, these effects were partially offset by margin pressures in Argentina coupled with an increase in operating expenses mainly related to the flooding in the south of Brazil. On a currency-neutral basis, operating income increased a solid 36.3%.

Finally, adjusted EBITDA in South America increased 25.9% to MXN 4 billion or 46.5% on a currency-neutral basis. As usual, I will provide you with a quick summary of our comprehensive financial results, which recorded an expense of MXN 885 million as compared to an expense of MXN 1.4 billion during the same period of the previous year. For the second quarter, the main driver of this decline was a foreign exchange gain of MXN 177 million as compared to a loss of MXN 437 million in the second quarter of 2023. As a reminder, we maintained a U.S. dollar net cash position that was positively impacted by the quarterly depreciation of the Mexican peso and the Brazilian real.

Finally, before opening up the call to your questions, I will provide you with an update on the progress we are making regarding our strategic priority to debottleneck our infrastructure and digitize the enterprise. In order to unlock growth, we are increasing our manufacturing and distribution capacity. To do this, we are implementing new modeling capabilities that optimize our footprint and capacity allocation. In 2024, we are adding 7 new bottling lines, 2 in Mexico, 2 in Guatemala, 2 in Brazil and 1 in Colombia. From these lines, 1 in Mexico and 1 in Brazil will begin operations during the second half of the year. The rest are already online.

Regarding warehousing, we are not only adding capacity but opening new distribution centers, but also via layout redesign. We estimate that year-to-date, we have avoided an approximate $25 million of CapEx through these initiatives.

Once again, Coca-Cola FEMSA delivered a solid quarter, driven mainly by volume growth, thanks to the focus and commitment of our whole team, and certainly, the aligned vision of our leadership and the support of our partners at the Coca-Cola Company. We feel encouraged by the consistent performance of the business through multiple quarters and across operations and are positive on the short and long term.

Thank you all for joining us on today's call. Operator, we are ready to open the call for questions.

[Operator]

[Operator Instructions] Now the first question comes from Fernando Olvera from Bank of America.

[Fernando Olvera Espinosa de los Monteros, analyst]

I have to relate it to volumes. First, I would like to hear how are you thinking about your volume guidance after the strong demand seen in the first half of the year. And what is your view for the remaining of the year? And my second question, if you can comment about your -- how is your market share behaving in mainly your main key markets, Mexico and Brazil. Thank you.

[Jorge Alejandro Pereda, executive]

It's Jorge here. Thank you for the question. I will take the first part of the question regarding volume outlook there. Because as you mentioned, I think we can -- Ian and Jerry mentioned during the call, we are very encouraged by the performance that we've had year-to-date, but we are at the half-mark of the year. There is still a lot that we need to do across our operations to continue delivering, and we have the plans to do that. But really no change on the volume outlook.

I think we can maintain that outlook that we have mentioned of around mid-single-digit volume growth for the full year, okay? So at this time, we think it will be too early maybe to change that. But as we say, then I think the call really reflects this. We are optimistic about the outlook for the second half.

[Ian Marcel Craig García, executive]

Regarding share, Fernando. Mexico, we have been impacted by share this year with continued supply chain shortages. So our [indiscernible] and availability continue to remain high. We have irregular performance given the strong volumes, and that has been what has impacted our share, especially in flavors and certain NCBs because when you have limited production, you start prioritizing Coca-Cola brands and most profitable SKUs. So you see that hit in other less profitable or less key SKUs [indiscernible].

In Brazil, our share has been very, very positive. Now we are starting to see this last month the impact of share losses in Rio Grande do Sul. So if you look at Brazil, overall, it continues with very positive trends year-to-date. But if you drill down to the last month, we saw share losses in Rio Grande do Sul because unlike our competitors, our plan for the region went down. So if you look at the Brazil numbers from here forward, including last month, I think you continue to see strong gains in all of our territories and pressure in Rio Grande do Sul. Okay?

[Jorge Alejandro Pereda, executive]

If I can add one point there, regarding also share and capacity constraints, just to emphasize something that Ian mentioned during the prepared remarks. Because as he says, he says, okay, we have capacity constraints, but it's important to say that this is a situation that is identified and that we are working on it. We added a new line in Mexico during March. There was another one that was relocated and started operations in June and then there is another line that's coming in the second half of the year. So there are actions that are being implemented by the supply chain team in order to resolve this situation.

[Ian Marcel Craig García, executive]

Yes, as well as obviously quite substantial investments in distribution capacity for Mexico as well.

[Operator]

We will now take our next question from [indiscernible] from Citigroup.

[Unknown Analyst]

I wanted to discuss 2 points here. The first one, I wanted to hear a bit from you guys about costs. So what you're expecting maybe on a curative basis or -- but for 2024, maybe 2025, just to see what you guys have for the outlook for the main commodities and share a bit more about the hedges you have in place? And the second point would be a bit on the Brazil beer side, right? So just hear what you have to say about like overall industry dynamics in the short term, the overall consumer environments, brand performance, whatever you think is interesting to share with us. So yes, that's it.

[Gerardo Celaya, executive]

Thank you. I'll start with the first one regarding cost in our hedging position, and maybe Jorge and Ian can complement on the second one regarding beer in Brazil. But as you know, and we've discussed before, for hedges, we have this process in which we usually maintain both hedge position in a rolling 12-month period for both our FX component on dollar-wise raw materials as well as the price of the raw materials itself. And this allows us to provide better certainty to our operators so they can focus on bringing in the unit cases.

Having said that, we have currently positioned regarding FX for 2024 or the rest of 2024. In Mexico, Argentina, about 60% of our exposure of dollarized raw materials is covered. For Brazil, Colombia and Uruguay, a little above 40% of our requirements are hedged for the year. And we already started in this process 12-month rolling period hedging the first half of 2025 exposures where we're starting to build positions.

Regarding raw materials, the prices of raw materials itself, we have a very good position in hedging sweeteners. Sugar, both in Brazil and Uruguay, where we have active hedging positions are close to 100% of our requirement for 2024 hedged with a good position as well for 2025 above 50% of our requirements. HFCS in Mexico, a similar situation, where we're close to 90% of our requirements hedged and we have a good position for aluminum in Mexico and Brazil, above 60% of our requirements as well as plastic PET in Mexico, above 50% of our requirements for the year.

[Ian Marcel Craig García, executive]

Correct. In terms of beer in Brazil, I think what we're seeing there is with a flat market in terms of volume, there's a lot of pressure going around to the beer players and intensified competition. So we see really, really intense competition with some key brands holding prices since last year. In that picture, our volumes have been very challenging, and we have held our share, I think it's declined 0.2 basis points in terms of -- 20 basis points in terms of share of value.

So what I would say is as long as that market continues to be flat, I think there's going to be a very intense competitive scenario as the 2 large beer players compete to hit growth again.

[Operator]

We will now take our next question from [indiscernible].

[Unknown Analyst]

Coming in for Ben. Can you give more color on the impact from a slightly weaker consumer? I think you said more sensitive consumer, I assume from lower spending, lower government money in Mexico, maybe some stats on the slowdown in purchases in June and into July, if possible? Or any other comments on consumer elasticity by region?

[Ian Marcel Craig García, executive]

I would say, across our region where we see pressure on the consumer would be Colombia and Argentina. So those are the 2 markets where we see pressure. We are seeing a softer environment this month in Mexico, but so far from what we see, I think it relates directly to weather because as you know, our business is impacted by precipitation. And usually the first thing that see softness or water and then a little bit in single serve. And that's exactly what we're seeing in this month. So I would not think that, that has to do with consumer strength in Mexico because there's still practically no unemployment. All projects keep chopping along. So our reach so far is consistent with more of a weather-related softness. Does that make sense?

[Unknown Analyst]

Yes, for sure.

[Operator]

We will now take our next question from Lucas [indiscernible] from Morgan Stanley.

[Unknown Analyst]

I have one on South America margins. You guys delivered an EBITDA margin, which was quite strong on the quarter, up more than 20 -- more than 200 bps year-over-year. So I just wanted to better understand what were the drivers behind the strong margin performance? We understand that sweeteners were still a headwind. Packaging costs were more favorable, but just wanted to hear more thoughts on the color of magnitude around the cost components.

Also, is it safe to say that at this point with today's print that it's reasonable to expect that perhaps we're going to be closing the year with more healthier margins than we previously expected at the beginning of the year. Or I don't know, perhaps we could see a cost curve that's a little bit tougher for the next couple of quarters. If you could share any comment on that, that would be very helpful.

[Ian Marcel Craig García, executive]

Thank you, Lucas. I'll start with the margins in South America. Certainly, we saw better performance, and this is a result of a model of our strategic priorities as we established them when we started this journey of leveraging on our operating capabilities. So growing our business and the sustainable growth model that we are all focused on and working on, allows us to capture the benefits of margin by growing our scale. We expect this to continue to be the case in the long term, which is our bet and where we're working towards.

Certainly, we've seen a better outlook in cost structure that we had previously expected in our business plan. And we expect specifically from sugar in Mexico to see a better outlook in sugar prices towards the end of the year, slightly better. I wouldn't think that it would be a significant change, but certainly less worrying than what we had expected initially. Regarding our expectations for the full year, I think we're still a little bit waiting to see how things continue to develop. I don't think we're ready to send out different expectations in terms of maintaining flattish sort of margins for the year as compared to last year's.

[Operator]

We will now move to our next question from Felipe Ucros from Scotiabank.

[Felipe Ucros Nunez, analyst]

Couple of questions on Juntos+, if I may. The first one on loyalty. As you've been developing Juntos, you've also been delving deeper into the loyalty programs for your consumers. Just wondering if you can give us a first look on how this is going, perhaps you can comment on adoption speeds from your clients? And what differences you're noticing between the clients that are using the loyalty platform versus those that are not using it?

And perhaps if you can give us an update also on the fintech side of things. I know you've been working on partnerships across the region. So just wondering if you have any updates on that.

[Ian Marcel Craig García, executive]

I think relating to our loyalty program, we have some numbers on the uplift in volumes between clients that have participated in the loyalty program of clients. I don't have them on top of my head, so I don't want to mention those, Felipe, but we do see a significant uplift. So the more that we can be rolling out the adoption, the better that this is for us and when we walk the market and you talk to clients, you hear all sorts of positive comments regarding the loyalty program, like from anecdotal things like, oh, finally, you guys remembered us. So it's -- you can tell that it has an effect on when they decide to purchase from another site or from a wholesaler versus continuing to add points in our program.

And you have to remember that this program's cash conversion cycle is very, very short because immediately as they put in the order, they can see that the points that they have, they quickly redeem and you're talking about 2 or 3 days where they end up selling these products, let's say, they redeem it for a case of Coke or any other products. And it immediately translates into cash, Felipe, is what I'm trying to say. So it's a very positive tool for us. It has surprised us and it's going very, very well.

Jerry, do you want to comment.

[Gerardo Celaya, executive]

Just very quickly, I have the numbers for Mexico, where we have deployed our loyalty program that Ian has mentioned, and we have had a great performance with 750,0000 customers already online with our loyalty program across our operations.

[Operator]

We will now move to our next question from Alejandro Fuchs from Itau.

[Alejandro Fuchs, analyst]

I have 2 very quick ones from my side. Maybe a follow-up on the volumes. We have seen very strong volumes in Mexico and Brazil for quite some time now. So I want to maybe see if you could help us understand how much of this is being influenced by Juntos+, how much is multi-category? How do you see this new [indiscernible] initiatives adding to the core platform in terms of growth? And the second one, maybe for Gerardo. Just wanted to see if I understood correctly, in terms of the one-off that you had in the quarter, you said that in Mexico, in terms of the noncash impact was MXN 400 million. And then in Rio Grande do Sul, the impact, maybe we can think about around MXN 200 million. I don't know if that sounds correct. Maybe you could clarify, that would be very helpful.

[Jorge Alejandro Pereda, executive]

Yes, Alejandro, thank you for the question. It's Jorge, and I'm going to start with the first part. I think something that we are seeing and we have been discussing with the team, for example, in Brazil and in Mexico about the upside of Juntos+. Of course, these are analyses that are being done when we, for example, separate a cluster that is being served by Juntos+ and another that is not. It's very hard now because it's basically all over now to make those control tests.

[Gerardo Celaya, executive]

But during control test and bigger, we have seen an upset of around 6% is more or less what we're starting to see with Juntos+. And of course, it's a combination of factors that we have seen to drive these very positive volumes, for example, in Mexico. I think something that we continue to see that has been a driver of volumes, as Ian mentioned, when we think about the macro [indiscernible] something that we continue to see across our territories, and we continue to see this strong demand and beyond this low unemployment, we're also seeing remittances. We're also seeing, of course, increases in real wage. So that is also bringing this positive environment. And on top of that environment, we are executing on the plans. So Juntos+ has been one.

I would say multi-categories still small in relative terms. We continue to be more or less what we have been updating in the previous calls, which is more or less around 1% of our revenues. It's about 1.3% of our revenues today on a consolidated basis. That is more the category. But it's certainly helping us.

[Ian Marcel Craig García, executive]

I think in multi category, we have the proof points of countries where it has been there for a while, such as Brazil and countries -- small countries like Central America, where you get the complete distribution of all channels with most of the partners where you have countries already at 3% to 3.5% of revenues. So I think that the road map is there. Our target, our ambition is to get to 5% of revenues, but it is a moving target in the sense that our base business continues to grow very, very fast. So it's a good problem to have for that percentage to grow to be relevant because our base core business continues to deliver solid top line growth.

[Gerardo Celaya, executive]

Regarding Juntos+, just to expand a little bit on your question, Alejandro, the 2 encouraging findings that we're getting from what we're doing, especially in Mexico and Brazil is getting enough lift in the number of SKUs that customers are buying, and that makes sense because they have more time to place their order on their own time. And the second is the average ticket per transaction, which is also -- we're also seeing an uplift there. So that's encouraging, and we're excited about that.

Regarding your other question on the noncash operating expenses exactly in Mexico, that was the amount of impact of the FX depreciation in the end of June, MXN 400 million that we saw going through our P&L this quarter, affecting operating income but not EBITDA. In the case of Brazil, the number, the net impact that we absorbed in the quarter was MXN 130 million, a little bit below the MXN 200 million number that you had in mind.

[Operator]

We will now take our next question from Lucas Ferreira from JPMorgan.

[Lucas Ferreira, analyst]

One again, a follow-up on volumes. It's been very surprising how fast volumes they're expanding. And then especially in an environment where, for instance, in Brazil, market share is growing and your capacity is somewhat limited. How to think about pricing? I have a sense that this category had much less pricing over the last 2 years than others. If you look at food inflation, if you look at, I don't know, beer, for instance, had much bigger hikes.

So wondering if in a year of probably lower cost or [indiscernible] that was something a strategy of keeping prices somewhat in line with inflation. So my question is basically, how to think about pricing from here, if you see room for an improving mix or even adjusting overall pricing, if that's something that you have in mind?

And another question on Argentina. I think you also had a good volume performance relative to many other companies that operate in the region. So wondering how you see the environment in the country, if there's anything different you're doing or how to think about the quarters to come, if you see already a rebound or what to expect basically for the next, I don't know, 6, 12 months?

[Gerardo Celaya, executive]

Thank you, Lucas. I'll jump on the first one regarding pricing. The name of the game for us is sustainable growth and in that sense, we -- our focus is to maintain a balanced strategy and look towards revenue per unit case to grow that in line with inflation across our markets. We have a new capability with the digitization of the business and Juntos+ to be able to personalize portfolio and execution, and that allows us to maximize value, both for us as well as our customers. We will continue to prioritize certainly the competitiveness of our portfolio. We're focusing on being able to grow our volumes sustainably in the long term. We will continue to drive affordability and foster single-serve growth to be able to get the benefit of the mix in pricing on our P&L.

And the last one, we are expecting a more benign raw material environment as we move toward the second half, especially in sugar that had been a source of pressure for us. So that will also provide a relief in terms of allowing us to be more active in our revenue management.

[Ian Marcel Craig García, executive]

I think just complementing, Jerry, in line with your -- probably what you're thinking is, yes, when we do have, for example, on availability issues, we practically see our promotions in those SKUs because there's not enough there to supply. So you see some effects of adjusting that tactical calendar to basically canceling out any sort of promotion or tactical activity other than what we have by contracting in the modern trade. So you see some effects of that also filtering through.

In Argentina, I believe we took a slightly different strategy to other players in the sense that -- we believe this crisis is temporary. We've seen it happen recurrently in Argentina, where even under scenarios with not necessarily the best government measures, the country recovers. And we think right now the government is taking very good and appropriate measures. So we're very confident in the recovery. We're actually quite optimistic in Argentina.

So the strategy that we implemented was we didn't want to lose household penetration or consumer preference. So we made sure we focused on having affordability initiatives there, maintaining our household penetration. We're ready to face what we thought were going to be 9 to 12 months of an impact. I think we've seen the initial share impact that we had in the first couple of months quickly be reversed and the volume structure or decline is smaller and smaller and smaller each month. So I think good days are ahead for Argentina, but still we expect a tough year this year and a return to growth next year.

I think we -- it's safe to say that we see it improving month-over-month. But from 3 phases, a large challenge. You can see the FX rate gap. It's not going to be a straight line of improvement. So there are challenges there, but our operation continues to improve month-over-month and I think we hit on the right strategy.

[Operator]

And we will now take our next question from [indiscernible].

[Unknown Analyst]

Two questions. One on Guatemala. I was wondering if you could zoom out a bit and just maybe discuss per capitas and sort of what's driven that seems to be just sort of perpetual double-digit growth you've seen there for quite some time now, consumer strength, et cetera. And then on Argentina, just zooming in on what you were just talking about, Ian, where are we in the battle against multi-serve or how can you take a price like this to sort of maybe try to shift consumer behavior away from multi-serve [indiscernible] strategy at all.

[Ian Marcel Craig García, executive]

I'll start with Argentina and then go over Guatemala. So with Argentina, just to keep with the flow of the prior question. It's one of the few markets where you see the impact of increasing returnable mix. So once you see consumers are feeling the pinch, usually the mix of returnables increases. So we're seeing that in Argentina. You're also seeing the relationship with multi-serves as well. But it's very minor in margin, maybe 60 basis points of an increase in multi-serves. It's not that big. Where I do see [indiscernible] to multi-serve presentation where you do see a big moving in Argentina towards returnables, it's the one market where you see that increasing.

Moving on to Guatemala. Yes, the question on per caps.

[Jorge Alejandro Pereda, executive]

I think maybe just to clarify, can you repeat the first question. I think it was related to per capita, right? But we just wanted to make sure if you can repeat the first question to make sure we get it right.

[Unknown Analyst]

Just trying to sort of wrap my head around the very strong volume growth you've seen out of Guatemala [indiscernible] and I'm assuming per capitas have bumped significantly higher, so maybe reviewing that would help, but maybe a discussion on disposable income and sort of occasions and how maybe that's changed over the last 5 years. But just reviewing the strength at Guatemala would be very helpful.

[Ian Marcel Craig García, executive]

I mean I think we've talked about this in the past. We're still -- we used to be -- I think last year, it was around 180 or 190, right now we're at 220. So I mean per capita are still low enough. We still have a lot of legroom in per capita. And I think one of the beautiful things in Guatemala is very large and very young population. With stable linked income growth and a lot of remittances, something that's been surprising to me is the strength of remittance is there, the importance of remittance.

So it's just a country that's getting wealthier and wealthier and wealthier, very stable, very pro-business, employment is up. They're even getting some near-shoring in textiles. So to us, I mean there's no reason that Guatemala shouldn't double in size. That's our view. So it's a very good business, and we're working to make that happen. And we've been -- one of the best projects was the new plant and capacity expansions and those were filled almost immediately. There's a lot of upside to remain in Guatemala, of course, the percentage trend as is natural, will start to decrease over time, but there's still plenty of upside to that territory. And just one last one, and it's just a jewel of a territory as well in the mix of single-serve being very, very high. So it's really a good place to be in.

[Gerardo Celaya, executive]

Another important component just to complement is that in Guatemala, in the past few years, we've gained an important amount of share. In Guatemala, we had headroom in shares specifically in [indiscernible] as you know, that's our biggest right to win with brand Coca-Cola. So we've gained a significant amount of share this past, I guess [indiscernible].

[Ian Marcel Craig García, executive]

[indiscernible] points. There is a lot of share.

[Operator]

We will now move to our next question from Ulises Argote from Santander.

[Ulises Argote Bolio, analyst]

So just to understand a bit better, do you have something to share around what is kind of the ballpark in terms of [indiscernible] unit cases that you're adding to the pipeline with these 7 lines that you were mentioning that you're rolling out this year? And those kind of 7 lines leave you in a comfortable level for production? Or should we expect more additions of lines or maybe even plants in some regions in the coming years, all of this, obviously, with the very strong demand that you guys are at.

[Gerardo Celaya, executive]

Thank you, Ulises. The number that we have in expansion in capacity, specifically manufacturing is creating 15% additional capacity in 3-year period that started in 2023. So '23, '24 and by the end of '25, we expect to have a 15% more capacity. As you know and you've seen in our reports, we've been outpacing our initial projection. So we'll probably be adjusting that capacity creation as we move forward, marginally probably a little above that 15% new capacity.

In terms of distribution capacity, There, we have the ability when we're surpassing capacity to be able to rent third-party assets, trucks, warehouses. So we're a little bit more behind in distribution capacity. There, we're expecting to increase distribution by 30% in that same period of time.

[Ian Marcel Craig García, executive]

And just in terms of new plants releases, what we're trying to do is separate our current facilities, but eventually, we will need a new plant to serve the Southeast territory of Mexico. So as long as we can keep adding lines to our facilities, that's the way to go, but we will be triggering at some point, a full new greenfield for Mexico and at some point for Brazil as well.

[Operator]

And we will now take our final question of queue today from [indiscernible].

[Unknown Analyst]

If I were to put everything that's said and having things together, what we're seeing is mid-single-digit volume growth for the year, better cost like probably because of your FX hedges, demand apparently continues to be super solid and we're facing some capacity constraints, right? So if I were to imagine the second half the best time of the year, and you have been indicating mid-single-digit volume growth and aim to get stable profitability, where the upside risk is this combination, right?

I think we've been [indiscernible] above expectations? And the question is more to get a clear view, with this capacity constraints, should we eventually expect that Coca-Cola FEMSA will take this opportunity eventually to push margins a little bit [indiscernible].

[Jorge Alejandro Pereda, executive]

Yes. Thank you, and thanks for the question. I think around -- yes, getting around the capacity constraints is something that definitely the team is working on. As Jerry mentioned during his prepared remarks, he highlighted that just this year, we are installing 7 new lines. Most of them have been installed already. And this is only for 2024, right? But there is more on the plan for 2025 and so on. As you know, there is some investments that we are doing in the CapEx in this period of time, we have guided that it's going to be between 8% to 9% of our revenues. So there is significant projects there that are coming. Also, Ian referred to that.

And I think the summary you made for the expectation of the second half of the year are correct. I think we have guided for a full year that we expect volumes to be in the mid-single digits. We are seeing, as you mentioned, a more benign environment on the cost front. We have implemented our hedging strategies and the team is executing on both the commercial and the supply chain. So things are going well, but at the same time, we maintain the outlook of margins. It's -- we are more focused on the growth side of the equation than on protecting the profitability. That's one way, I would say, to put it.

So yes, definitely, I think that after the first 6 months of the year, we are more optimistic about potentially having some upside potential, probably in profitability. But as Jerry mentioned, we're at the half-mark of the year. So the summary, I think, is correct. Mid-single digits volume growth and margin should be on the flattish side.

And of course, we cannot forget that in the second half of the year, we could have some volatility effects or other things. I think this year, the first half has also been a reminder of that, that volatility can come, weather has happened in the south of Brazil and those kind of things, we cannot forget that those things can happen. So that's why we are optimistic on the outlook, but at the same time, we maintain the outlook that we have set for the full year.

[Operator]

With this, I'd like to hand the call back over to Jorge Collazo for closing remarks. Over to you, sir.

[Jorge Alejandro Pereda, executive]

Well, thank you very much, everyone, for joining us on today's call. As always, myself, [indiscernible] are available for any of your remaining questions. And also maybe a very quick announcement regarding the IR team. [indiscernible] has been part of the team, she's moving to a new role in strategic planning within the company. So [indiscernible], thank you very much for your support since 2020. You have been a very valuable member of the team. I know you know the analysts very well. So thank you, [indiscernible], and good luck on your next role. Thank you, everyone.

[Gerardo Celaya, executive]

Thank you.

[Ian Marcel Craig García, executive]

Thank you.

[Operator]

This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.