Coca-Cola Femsa Q1 Call: Growth, Margins, Mexico Drag

Coca Cola Femsa S.a.b. De C.v. ((KOF)) has held its Q1 earnings call. Read on for the main highlights of the call.

Coca-Cola Femsa’s latest earnings call painted a picture of solid underlying momentum partially clouded by Mexico-related setbacks and higher financial costs. Management stressed strong South American performance, margin expansion and digital execution, while framing tax-driven weakness, one-off ERP and severance charges, and FX impacts as temporary rather than structural.

Consolidated Volume Growth

Total company volume increased 1.2% year-on-year to 998 million unit cases, showing that demand is holding up despite softer conditions in some markets. Growth was supported by record first-quarter volumes in Guatemala, Colombia and Brazil, underscoring the importance of diversification across territories.

Revenue and Currency-Neutral Growth

Reported revenue in the quarter rose 1.1% to MXN 70.9 billion, but currency-neutral revenues grew a much stronger 6.0%, highlighting healthy underlying pricing and mix. FX translation headwinds masked this top-line strength, a theme investors will need to keep in mind when comparing reported and comparable trends.

Gross Profit and Margin Expansion

Gross profit climbed 4.5% to MXN 33.3 billion and gross margin expanded by 150 basis points to 46.9%, a key positive in the quarter. The improvement was driven by lower PET and sweetener costs and favorable currency movements, with currency-neutral gross profit up 9.5% and pointing to better structural profitability.

Adjusted EBITDA Resilience

Adjusted EBITDA edged up 0.9% to MXN 13.4 billion, with the margin stable at 18.9% despite Mexico headwinds and higher operating expenses. On a comparable, ex-FX basis, adjusted EBITDA grew 6.1%, reinforcing the message that core earnings power remains intact beneath reported volatility.

South America Strong Operational Performance

South America stood out with volumes up 4.8% to 453.9 million unit cases and revenues growing 4.3% to MXN 31.8 billion, or 12.3% currency-neutral. Gross profit rose 10% and operating income surged 18.8% to MXN 4.6 billion, while adjusted EBITDA jumped 16.8% to MXN 6.2 billion with a 210 basis-point margin expansion to 19.6%.

Market Share Gains and Brand Momentum

The company reported share gains and strong brand momentum across key markets, even where volumes softened. In Mexico, value share grew 0.6 percentage points in CSDs and 0.4 in NARTDs, while Coke Zero volumes rose 10% and Brazil posted Coke Zero growth of 11.4% and Sprite growth above 30% alongside solid volume gains in Colombia and Argentina.

Commercial Execution and Digital Adoption

Digital and route-to-market execution continued to improve, supporting both coverage and productivity. Juntos+ Advisor visitation in Mexico reached 93.6% with coverage at 81.3%, Brazil’s coverage jumped to 58.6% with visitation at 94.1%, over 47,000 new doors were installed in the quarter, order fulfillment surpassed 97% and productivity improved 6.5% year-on-year.

Strong Category and Channel Wins

Profitable categories beyond core colas delivered notable gains, particularly in noncarbonated and energy drinks. Monster posted growth above 30% in Colombia, Powerade rose 10% there, and multi-serve and one-way presentations showed strong momentum where promoted, while Guatemala achieved a record March and Q1 volumes up 2.7%.

Sustainability and Reporting Leadership

Coca-Cola Femsa emphasized its sustainability credentials, maintaining ISS ESG prime status and improving its Morningstar Sustainalytics score. The company also released a 2025 integrated report aligned with IFRS S1 and S2 with independent assurance and became the first nonalcoholic beverage company in the Americas to formally adopt TNFD reporting.

Hedging and Input Coverage

Management highlighted robust hedging on key commodities as a buffer against volatility, giving investors better visibility into cost trends for the year. The company has hedged about 60% of PET, 93% of sugar, 98% of HFCS and 72% of aluminum, though it remains exposed to some logistics and secondary packaging inputs.

Mexico Volume Contraction and Excise Tax Headwind

Mexico was the main weak spot, with volumes down 2.6% year-on-year following an excise tax increase and a softer consumption backdrop. Nielsen data showed the FMCG basket in Femsa’s Mexican territories down roughly 3% by volume, putting pressure on demand and mix as consumers adjust to higher prices.

Mexico & Central America Profitability Pressure

Mexico and Central America division volumes fell 1.6% and reported revenues slipped 1.4% to MXN 39.1 billion, although currency-neutral sales still grew 1.4%. Operating income declined 17.4% to MXN 4.5 billion with margin contracting 120 basis points to 11.4%, while adjusted EBITDA dropped 9.9% and margin narrowed 170 basis points to 18.2%.

Majority Net Income Decline

Despite solid operating trends in several regions, bottom-line results were weaker, with majority net income down 15.5% to MXN 4.3 billion. The decline reflected a higher comprehensive financial result and increased financing costs, weighing on returns to shareholders in the short term.

Higher Financing and FX Costs

Comprehensive financing expense deteriorated to MXN 1.8 billion from MXN 1.1 billion a year ago, driven by multiple factors. These included higher net interest expense tied to new debt, lower interest income as cash balances fell in key markets, losses on financial instruments versus a prior-year gain and higher FX losses.

One-Time and Timing-Related Costs

Operating income was also burdened by several items management labeled as one-time or timing-related, especially in Mexico and Central America. These included roughly MXN 200 million of severance for rightsizing, about MXN 200 million in elevated IT spending related to SAP S/4HANA implementation and additional marketing spend frontloaded ahead of the FIFA World Cup.

Unfavorable Mix and Category-Specific Issues

Mix effects weighed on performance, partly offsetting revenue and gross profit gains, as consumer behavior shifted. In Mexico, stills underperformed after a major chain adjusted Powerade parameters, bulk water faced pricing pressure and a faster-than-expected consumer move to multi-serve formats created incremental mix headwinds.

Commodity and Macro Volatility Risk

Management reiterated that commodity and macro volatility remains a key external risk despite strong hedging on main inputs. Less-hedged areas such as logistics and secondary packaging, including items like shrink wrap, were flagged as potential sources of cost pressure that could test margins if volatility persists.

Guidance and Outlook

The company kept full-year guidance unchanged, saying it was too early to adjust after what it views as the toughest comparison quarter. Management pointed to Q1’s 1.2% volume growth, 1.1% revenue increase and 4.5% gross profit gain alongside a 15.5% drop in majority net income, while quantifying a roughly MXN 600 million near-term operating income headwind in Mexico and Central America and emphasizing continued hedging discipline and front-loaded marketing that should taper.

Coca-Cola Femsa’s earnings call underscored a resilient operating story anchored by South America, improving margins and strong commercial execution, even as Mexico taxes and higher financing costs drag on reported profits. For investors, the key watchpoints will be how quickly Mexico normalizes, whether commodity and FX volatility remain manageable and if one-off costs indeed fade as management expects.