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Good day, everyone, and welcome to today's Arca Continental conference call. [Operator Instructions]. Please note, this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of Ideal Advisors.
Thank you, operator. Good morning, everyone. Thanks for joining the senior management team of Arca Continental this morning to review the results for the second quarter of 2023. The earnings release went out this morning, and it's available on the company website at arcacontal.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutierrez; the CFO, Mr. Emilio Marcos; the Chief Commercial and Digital Officer, Mr. José Borda, as well as the Investor Relations team. They're going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. And with that, I'm going to go ahead and turn the call over to the CEO, Mr. Arturo Gutierrez, who is going to begin the presentation. So please go ahead, Arturo.
Thanks, Melanie, and good morning, everyone. Thank you for joining our call. Let me start by saying that we are pleased with our second quarter and year-to-date performance. As we reach the midpoint of the year, our business momentum remains strong. We achieved sequentially improving operating performance, positive top line growth and margin expansion, driven by our pricing initiatives effective point-of-sale execution and a strong commitment to financial discipline. Let's now discuss our consolidated results. Total volume grew 3.2% in the quarter reaching 636 million unit cases. Year-to-date total volume grew 3.7%, with all our operations in Latin America, delivering sequential volume expansion. Net revenues in the quarter rose 5% to MXN 56.1 billion. On a currency-neutral basis, net revenues increased 13.6%. In the first half of the year, total revenues reached MXN 106.7 billion, a 7.3% increase and cycling 15.2% growth in 2022. On a currency-neutral basis, revenue year-to-date grew 15.6%. Our revenue management capabilities and advanced digital tools, coupled with our flexible price pack architecture, continue to be key enablers of our sequential revenue growth. Notably, AC Digital, our B2B platform has seen sizable increases in online orders. More than 50% of our volume in the traditional trade across Mexico and South America is now placed through this mobile platform. EBITDA rose 8.4% in the quarter and 10% year-to-date, reaching MXN 11.3 billion and MXN 20.9 billion, respectively. On a currency-neutral basis, EBITDA increased 15.4% in the quarter and 17.3% year-to-date. EBITDA margin for the quarter reached 20.2% and 19.5% in the first half of the year. I'm happy to announce that once more, we have achieved a new milestone in our history by surpassing our previous record for the highest EBITDA in a quarter. Additionally, we have accomplished a remarkable feat by exceeding MXN 11 billion in earnings within a single quarter for the first time. Now let's review our performance and highlights across operations, beginning with Mexico. Unit case volume, not including jug water, grew 1.9%, cycling strong 5.2% growth from the same quarter in the prior year. Last June, our operation in Mexico delivered a record-breaking month in terms of volume with over 100 million unit cases. Volume performance was led by growth in water and still beverage categories, up 13.6% and 8.6%, respectively. Water category grew driven by Topo Chico in both the traditional and modern trade channels. Brand Coca-Cola also maintained its growth momentum supported by new package options. Total net sales in Mexico rose 11.6% in the quarter, reaching MXN 26.6 billion, marking the 28th consecutive quarter of net revenue growth. These 7 consecutive years of net revenue growth undoubtedly demonstrate the resilience of our beverage business in Mexico. The average price per case in the quarter, excluding jug water, rose 9.4%, reaching MXN 81.3. EBITDA increased 13.3% to MXN 6.6 billion in the quarter. representing a margin of 24.7% and marking the 18th consecutive quarter of EBITDA growth. This quarter, we introduced Flashlyte, a new product in advanced hydration with essential electrolytes and nutrients to support a fast recovery. Mexico is the first market to launch this new brand, and it is a great example of our efforts to raise the bar in innovation with a relentless focus on addressing our consumers' needs. Furthermore, the pilot program in the spirits category, which is part of our strategy to explore new avenues of profitable growth is showing encouraging results. We are capturing the anticipated synergies as we observed increased sales on our core portfolio of ARTDs and mixers among customers who also purchased spirits. As a result, we plan to expand the scope of this initiative by introducing additional routes, looking to gain valuable consumer insights and better understand market dynamics. Moving now to our beverage business in South America. Total volume grew 12% in the second quarter, reaching 152 million unit cases, cycling double-digit volume growth from the same quarter in 2022 and driven by stellar performance in Peru and Ecuador. Total revenue was up 2% in the quarter, reaching MXN 9.8 billion, while EBITDA decreased 5.5% to MXN 1.6 billion, representing a margin of 16%. In Peru, our team delivered another quarter of outstanding sequential volume growth, up 17.4%, while cycling 16.6% growth in the second quarter of 2022. Volume growth was driven by sparkling, water and still beverage categories, up 12.1%, 37.9% and 35.2%, respectively. The flavored water category was also one of the best performance in the quarter, supported by new product launches in the San Luis and Frugos brands. Traditional trade, on-premise and supermarket channels delivered strong growth as we continue promoting immediate consumption. Moving over to Ecuador, our beverage business posted a solid 11.4% volume growth, cycling strong 8.7% growth from the previous year. Water and sparkling categories grew 17.9% and 10.2%, respectively. Growth in sparkling was supported by the launch of Coca-Cola Zero Sugar and Sprite in a 1-liter glass refillable format, as we continue refining our price-pack channel strategy and promoting affordability with new package options. We also saw a sequential positive trend in single-serve mix, up 1.3 percentage points in the quarter, supported primarily by the on-premise channel showing sustained recovery. Tonicorp posted high single-digit sales growth driven by flavored milk, yogurt and ice cream categories. We gained share in core value-added categories as we capitalized on our strong brand equity, ongoing innovation and the recovery of the dairy industry, particularly in key channels such as schools and leisure. In Argentina, volume in the quarter grew 1.1%. This quarter marks the third year in a row delivering volume growth. In the face of a challenging macroeconomic backdrop, our team drove solid sequential operational results, supported by our affordable portfolio initiatives and the expansion of returnable presentations. Moving over to our beverage operation in the United States, Coca-Cola Southwest Beverages continued its momentum and delivered strong results. Volume for the quarter declined 2.3% to 115 million unit cases. Although we had one less delivery day in April and cycled aggressive promotions from last year, we reestablished positive momentum and closed the gap substantially in May and June. Volume performance was led by growth in small stores, up 2.5% and FSOP up 0.5%. The FSOP channel continued to expand with all packages showing growth, led by transaction packages, followed by 12-ounce cans. Changes in channel dynamics enabled us to grow volume in high revenue per case packages, such as immediate consumption with Monster and Smartwater, up 2.7%, 2.4% and 9.4%, respectively. Size package mix continue to favor single-serve products growing 0.7%. Net revenue for the quarter rose 11.7% to $1 billion, marking the ninth consecutive quarter of double-digit revenue growth. Average price per case in the quarter grew 14.3%. True rate increased 13% mainly due to the off-cycle price increase carried out in 2022 along with better management of promotions. Our market leadership position remains strong as we gained value share in nonalcoholic ready-to-drink beverages this quarter, up 0.9 percentage points driven by the sparkling category. EBITDA for the quarter grew 15.8% to $172 million, marking the 18th consecutive quarter of EBITDA growth. EBITDA margin for the quarter finished at 16.5%. Moreover, we continue to achieve significant progress in digitalizing customer engagement as we expanded our B2B platform. By the end of June, 90% of eligible FSOP customers had adopted myCoke.com, which is a 9% increase compared to the previous year. To wrap up the review of our operations, our Food and Snacks businesses sustained steady momentum in the second quarter, posting single-digit sales growth. We kept driving profitability across all our snack divisions, as we accelerated productivity and cost efficiency programs. Wise snacks in the U.S. posted single-digit revenue growth in the quarter. Sales growth was driven by strong performance in the corn puffs category. We are transforming our classic Cheez Doodle's brand into the most dynamic and best flavored brand in the market. Bokados in Mexico posted high single-digit sales increase in its 23rd consecutive quarter of revenue growth driven by sustained growth in the traditional and modern trade, coupled with segmented pricing initiatives. Inalecsa in Ecuador delivered excellent organic top and bottom line results. posting high single-digit sales increase in the quarter and consolidating its market leadership in the core salty snacks, while capturing additional share in new high-growth segments such as popcorn and pastries. And now I'd like to go over the great progress we continue to make in our sustainability initiatives. I am pleased to announce that through our investment in PetStar, we have successfully tripled our recycling capacity right here in the state of Nuevo Leon with a $3 million investment. This represents a significant milestone in our joint pursuit of creating a world without waste together with the Coca-Cola Company, underscoring our commitment to sustainability as an integral part of our sustainable packaging strategy. And this is just the beginning of our journey. In collaboration with Coca-Cola Mexico and other bottlers, we're fully dedicated to further enhancing PetStar's recycling and collection capacity throughout the country. With an investment of nearly $175 million, our objective is to establish more than 40 PET collection centers by 2027, a remarkable expansion from the current 8 centers. And prior to handing it over to Emilio for a review of our financial results, I'd like to mention a great initiative that was announced last week, together with the Coca-Cola Company and other bottling partners from around the world. Looking to increase positive impact across our value chain, we announced the creation of a new $137.7 million venture capital fund focusing on sustainability investments. The fund will focus on key investments in packaging, decarbonization and other initiatives with the potential to reduce the Coca-Cola system carbon footprint, allocating resources and promising startups to accelerate and scale up sustainable solutions for environmental challenges through innovations and new technologies. Thank you. And now I will turn it over to Emilio.
Thank you, Arturo. Good morning, everyone, and thank you for joining us today to review our financial performance for the second quarter of 2023. Our consistent focus on revenue growth management initiatives, combined with effective market execution, enabled us to deliver another quarter of solid financial results. Our operational and financial discipline play a crucial role in overcoming the ongoing macroeconomic challenges, sustaining positive momentum in EBITDA growth and EBITDA margin expansion. Moving on to the results in the second quarter. Consolidated revenues rose by 5% and 7.3% year-to-date, driven by the combination of our volume and pricing initiatives, which enable us to drive revenues while protecting product affordability. On a currency-neutral basis, revenue grew 13.6% in the quarter and 15.6% in the first 6 months, as we faced significant FX headwinds due to the strong performance of the Mexican peso. During the second quarter, gross profit increased by 9% to MXN 25.8 billion while for the 6-month period, it rose 10.4% to MXN 48.9 billion. Gross margin expanded by 170 basis points in the second quarter and 130 basis points in the first half of the year. The main factors accounting for this were our effective pricing initiatives, consistent hedging strategy and a more stable environment for most of our key inputs compared to the previous year. Operating income for the quarter came in at MXN 9.2 billion, a 12.6% increase compared to the same quarter of 2022. The operating margin presented a 110 basis point expansion, mostly led by the solid top line performance, operating discipline and raw material price declines. For the first half, operating income totaled MXN 16.5 billion, a 14.7% increase and a 100 basis point expansion in margin compared to the same period of 2022. In the second quarter, consolidated EBITDA grew 8.4% to MXN 11.3 billion with a 60 basis point margin expansion, reaching 20.2%. For the accumulative period, EBITDA grew by 10%, while the EBITDA margin expanded by 40 basis points, reaching 19.5%. On a currency-neutral basis, EBITDA grew 15.4% in the quarter and 17.3% in the first half of the year. Net income increased by 11.1% during the quarter reaching MXN 4.7 billion with a 50 basis point expansion in net profit margin. Year-to-date, net income reached MXN 8.4 billion, a 50.1% increase compared to the previous year while net profit margin expanded by 50 basis points. Operating income performance contributed positively to both quarterly and year-to-date results. Now let's turn to the balance sheet. On April 17, a dividend of MXN 3.50 per share was distributed leading by a payout ratio close to 39% of retained earnings and a dividend yield of 2.2%. As of June, cash and equivalents were MXN 23 billion with a total debt of MXN 46 billion and a net debt-to-EBITDA ratio of 0.6x. The operating cash flow reached MXN 13.3 billion. Our operational discipline, coupled with improved raw material prices, enabled us to achieve solid profitability and margin expansion during the quarter and the year to date. We remain confident that the long-term dynamics of the business will continue to be robust, and we're committed to sustaining consistent organic growth and elevating our focus on productivity measures to protect profitability. Now let me hand it back to Arturo. Please, Arturo.
Thank you, Emilio. As we look ahead to this year, we are convinced that there is potential for greater operating leverage as we capitalize on our strong pricing capabilities and effective cost management to continue driving healthy profitability. We will continue to step up our game in marketplace execution and sharpening our revenue management capabilities. This has never been more important, and our investments in building this capability over the past few years are giving us a clear advantage. We will also remain relentless in our efforts to become more efficient, leaner and swifter as we continue with stringent oversight of our financial resources and seek additional opportunities to optimize costs and expenses. At the same time, we will double down on our digital transformation agenda. We will also continue actively exploring how technology can transform the customer experience, how we can generate new revenue sources and become more efficient in our processes. Moreover, we will keep advancing and implementing the collaboration agreement with the Coca-Cola Company as we work towards creating shared value in the marketplace. In summary, we are very pleased with our overall performance and remain encouraged by the long runway for growth in our markets. Operator, we are ready to open the call for questions, please.
Thank you. At this time, we will open the floor for questions. [Operator Instructions] And we'll take our first question from Thiago Bortoluci with Goldman Sachs.
Yes. Hi. Good morning, everyone, Arca team, congrats on the results and thanks for the presentation and taking questions. If I may, I would like to explore first, how you are seeing underlying demand going forward, right? I see that you mentioned record high volumes in June, but obviously, this follows unprecedented weather conditions, right? Going forward, any views on how you're seeing demand training and more importantly, right, with this backdrop of materially better costs going forward, should we expect that this cost curve will be captured at the EBITDA? Or should we believe that you might be reinvesting part of this margin to foster growth going forward? This is the first one. And if I may, a second one, obviously, again, capital allocation valuation and M&A, right? Your stocks are very nice, highly over the last 12 months, right, obviously sustained by super solid earnings growth. But now that you are a high-teens EPS right trading levels, Would -- is this new valuation level opening up ruling for further M&A optionality. Does it change the views and the likelihood that we might be seeing some accelerated inorganic activity going forward and where is the debate with the company on how to take advantage of this momentum to create in the past for continuous growth, not just on the core business, but outside of it.
Thank you, Thiago. Let me address first your question on demand going forward and volumes. We had very good volumes in the second quarter, as you saw. And more importantly, we were cycling very strong volumes in the second quarter of last year, if you see, in the case of our main markets, Mexico and the U.S., we were cycling growth. And overall, in the company, we were cycling a 6.7% growth in the second quarter of last year. So even with that, we still achieved a growth of 3.2%. And we -- going forward, we continue to see growth and reinforce our guidance for the second half of the year. We have many opportunities still to capitalize in growing our digital platform and expanding our analytics capabilities with our -- especially our suggested order algorithm, and some of the basic things of our playbook, like cooler placements in South America, particularly have been very important for volume growth. And the other thing we have, it's important to mention is the recovery of the on-premise channel that is still underway. In many of our markets, we're still below our 2019 pre-pandemic level. So we're still optimistic about volumes in the second half of the year, particularly in the more competitive market in the U.S., where we have seen a better trend in the last month or weeks of the second quarter. So we expect to continue to grow in the second half of the year. And with respect to cost, I will let Emilio to elaborate, but we're going to see a better raw material environment in the second half of the year, particularly for PET and aluminum, and we have also implemented some hedges that Emilio can talk about. With respect to your question on M&A. Well, the situation has not changed essentially. We continue to be open to evaluate opportunities in Latin America and the U.S. We know we have a strong position both financially in terms of deployment of capabilities to capitalize any prospects. So we don't feel a pressure to rush into any deal at this point. And as you know, many things have to be aligned aside from just the economic value creation. But we continue to believe that there's still a lot of value that can be captured through consolidation in the Coca-Cola system, I would say around the world and this is based on just the history of transactions recently, not only ours, but many others that have created value through consolidation. So I will turn it over to Emilio to elaborate on the cost scenario going forward.
Thank you Arturo. Well, as we see on the second quarter, prices for most raw materials started to decline or stabilize, we expect this favorable trend to continue for the rest of the year, except for sweeteners basically all the countries, but -- as you know, we have some hedges. We have hedging -- in Peru. We hedged 90% of our needs at lower price than 2022. And we have a vertical integration in Mexico and Argentina, as you know. The most impacted operation will be Ecuador regarding sweeteners, sugar, because we don't have any hedges on that country. And regarding hedges for this year, as we have mentioned, we have hedged our needs -- 75% of our needs of aluminum in U.S. and 60% in Mexico at a lower price than last year. And high fructose, 75% in U.S. and 100% in Mexico, lower than current prices, but a little bit higher than last year's prices. Sugar, as I mentioned, 90% in Peru. And we also hedge our needs in Mexico of our U.S. needs. 50% of our U.S. need at a lower cost than last year. And also 100% of our U.S. dollar needs in Peru, lower than 2022. And regarding EBITDA margins, for the second half of the year, we expect to continue with this positive trend. But with harder comps from 2022, and we're keeping the goal to protect these margins and working to reach 2021 margin since we're a little bit higher than the 22% full year margin. So that's what we're looking for, for the second half of the year.
So I would say it's an even more positive outlook than what we had expected last time. We were expecting to sustain margins, as Emilio is saying now we're more optimistic going forward. Thank you, Thiago.
And we'll take our next question from Fernando Olvera with Bank of America.
I would like to start with South America. If you can explain, strong margin pressure seen in Argentina. And regarding the U.S., I mean, can you comment what was the -- I mean, the main reason that caused the margin expansion in this region. And specifically, how do you expect margins to be paid in the remaining of the year based on your recent comments about margin performance on a consolidated basis?
Yes. Thank you, Fernando. I'll talk about the U.S. first and generally about Argentina, and then Emilio will explain in more details some of the accounting effects in Argentina as well. So if you look at the U.S., first of all, we've had a great performance in the U.S. recently, especially the bottom line -- as you saw, we actually have now new objectives in terms of the margins that we can achieve. And that has been based to a great extent of good revenue management and good pricing strategy. And this is part of catching up on opportunities as we go forward, pricing is going to be obviously more moderate. But certainly, we had an opportunity to capture a better price per case. And at the same time, we have a good scenario, as Emilio was explaining on raw materials, particularly in PET and aluminum, for the second half of the year. We also have a growth opportunity in the U.S. going forward, which I mentioned before, and the other factor is that there are some efficiencies to capture particularly in our supply chain, we're going to launch a new project where we are going to be consolidating some of our manufacturing and warehousing operations. And that is going to bring additional efficiencies and effectiveness to the supply chain. So all in all, that results in a very good margin scenario sustaining margins, which, as you've seen, have been expanding recently, we had a more than 60% margin in the second quarter, and that's more than 100 basis points expansion. So again, we're optimistic about our U.S. business for the second half of the year. With respect to Argentina. In Argentina, we had the macroeconomic challenges for our business. We have a very difficult comp cycling a 23% increase in volume in the second quarter of last year, but still, we were able to achieve growth in the second quarter of this year as well. We had a record second quarter in terms of volume with 32 million unit cases in Argentina. I think that is remarkable. And it comes to demonstrate that even in a difficult macro environment, the business is very resilient. We expect to continue to grow in the second half, even with the high base that we have as comp and through the deployment of the same tools basically that same playbook for the rest of Latin America with our digital platform or analytics or portfolio strategy. What differentiates Argentina is that we have to be obviously more effective and constantly revising our pricing and adjusting our price-pack architecture. I think we've been also very successful in that. There is an impact in margins in Argentina as a result of the hyperinflation, accounting and currency depreciation. I'll let Emilio elaborate a little bit on that.
Thank you, Arturo. Before talking about South America, I'd just like to add on U.S. that in the quarter, EBITDA grew in local currency 15.8%, and the first 6 months 18.8%. You don't see that because of the translation in Mexican peso and the appreciation of the Mexican peso, but it's important to mention that EBITDA is growing very well during the quarter and the first half of the year. Regarding South America -- thank you for the question because it's important to explain each of the operations. As you can see in the quarter, EBITDA margin in the region declined 130 basis points and 140 basis points in the first 6 months. And as Arturo mentioned, this negative impact is explained mainly by the operation in Argentina due to the restatement of the financials because of the hyperinflationary environment prevailing in the country. So that's why I would like to mention country by country. In Peru, in the second quarter, EBITDA margin, we have an expansion of 100 basis points to reach 21.4%, mainly supported in operational because of the strong volume performance, effective pricing strategy and more stable raw materials. And we also have a better SG&A to sales ratio. We reduced 60% -- I mean, 60 basis points in Peru on that ratio. So we have a positive performance in Peru on margins. And talking about Ecuador, even with much higher sugar prices, as I mentioned, we were able to expand margins by 100 basis points in the quarter. So for both countries, we continue to have a positive -- we expect to have the positive trend in the second half. So as you can see, the only issue is with Argentina. In the second quarter, in Argentina, we increased our contribution margin in local currency. What I mean is, excluding the restatement effect by inflation show by -- so contribution margin expanded 60 basis points and EBITDA margin was 14.1%. We have some pressure on OpEx due to salary adjustments for labor and freight increases above inflation. But considering this adverse effect in inflation of foreign exchange rate on the restatement and translation of the financial statements to Mexican peso, the EBITDA margin for the quarter was 4.9%, instead of 14.1% without this effect. So we are facing a very high comps also because last year, we increased our margin, 121 basis points. Last year, we reached the highest level in the past 4 years, having a margin of 17.9%. So we're still facing the rest of the year this impact on results because of the inflationary pressure and foreign exchange headwinds. We're still committed to continue working with operational discipline and be proactive in some strategies to face these challenges and protect margins on a local currency basis since the other factors we cannot control inflation and exchange rate as it has been -- have high impact on those restatements on the financials.
And we'll take our next question from Álvaro García with BTG.
Just a quick question, a very simple question, actually, on my side. I was wondering, we've obviously lived through this higher CapEx cycle and a big chunk of that is heading to returnables. So I was just wondering if you could highlight the importance of returnables in Mexico. What that does sort of to the stickiness of your business. And sort of related to that, maybe you can comment in Mexico, how the traditional channel performed relative to the modern channel, that would be helpful as well.
Yes. Thank you, Álvaro. I'll turn it over to Pepe to explain. I would just say that returnable is a very important part of our strategy. The mix has been shifting. The pandemic, obviously, depending on the channels that are more active in a particular situation, then I'd say as some of the channels recover, there's also a change in the mix. But we continue to invest on returnable strategy, particularly through the universal bottle, which is an important initiative. As you know, and also more recently in our glass returnable presentations. So the half liter in Mexico is a very important package and we're investing in the market and strategies and also some tactical initiatives to sustain its recovery. I'll let Pepe elaborate a little bit and also talk about the traditional trade and its performance in Mexico.
Thanks, Álvaro. Thanks, Arturo. So the traditional trade in LatAm and also in Mexico is growing steadily, especially in Mexico, we grew 4% in this quarter, cycling a 3% growth from previous year. And so the traditional trade is healthy and growing, and growing more than 2019. But also the modern trade is growing, is growing in a number of outlets. So you'll see the mix -- the channel mix is shifting to the modern trade, but the traditional trade is very healthy. As you said, talking about refillables, almost 20% of our CapEx is depending refillables. And as you know, we use it as a revenue management tool to be able to offer a package that is affordable to the consumers who are much more elastic while we can make more money in some other packages in which we see a less elastic behavior. We are -- also remember that we are also investing in -- slowly but heavily changing our packaging -- our refillable packaging to the universal bottle, and that helps us in terms of operational efficiencies and being able to launch other products that we normally offer in refillables such as [indiscernible], still beverages. So just summarizing, refillables is a key part of our strategy.
And we'll take our next question from Lucas Ferreira with JPMorgan.
I have 2 questions and maybe for first one to Pepe. Pepe, if you can talk a little bit more about this digital journey. You mentioned the number of 50% of the clients already in the platform. Can you talk a little bit about the experience of these clients, maybe the satisfaction and the NPS. If these clients are engaging more with the company, buying more items of your portfolio? What kind of results on a sort of a far-wallet basis you're having with this client more engaged with the company satisfied with the transaction? And if you can comment a little bit on how that maybe leverage our multi-category efforts as well? And the second question, I mean, overall, but mainly for Mexico U.S., how you guys see the price elasticity of the consumer now coming from a year of a very solid price adjustment, if it's -- the consumer is already kind of giving you some pushback, how we think about sort of the revenue growth in terms of volumes versus prices going forward?
Thank you, Lucas. So let's start with the first question and talk about -- a little bit about AC Digital and digital commercial ecosystem and everything about it. So just -- to begin with, let's remember why are we doing this, and we've been very vocal on this. We're doing this to protect and potentialize the core business to become the most important partner of our customers, increasing our share of value with the customers and then to create new monetization opportunities and optionalities. So first of all, our initial focus has been to digitize the core. Arturo mentioned that already 82% of our traditional trade customers are using the platform and more than 50% of our volume already comes for customers that are digitized and that work in conjunction with our sales force. That means in the second quarter, we had around $900 million of revenues. And you asked about what does that mean? So we see there's a clear positive performance swing on digitized customers that ranges between countries that ranges between 5 and 13 points versus nondigitized customers across LatAm. But these incremental volumes, where are they coming from? They're coming from more order frequency, higher drop size and a growth in portfolio assortment. And the sales lift also comes from refocusing the time spent in the market by our sales reps on higher-value activities. We measure execution at each point of sale, and we've seen 2 percentage points of improvement in execution index versus non-digitized customers. So that's digitizing the core. At the same time, we working on a holistic value proposition for AC's customers and our selected partners with a set of products and services that will be integrated and scale behind one single solution and platform that today is AC Digital. We will revamp and scale our loyalty and customer engagement program. You asked about the NPS. The NPS of our customers using the platform is around 80% in Mexico and is in the 30% to 50% in other countries, in South America and improving. So the next month, we also defined an initial set of financial services that we want to expand from what we had in job premium that we are expanding and integrated in this whole digital commercial ecosystem. So the next 12 months will be all about refining, developing and scaling this set of products and services and integrating them into one holistic value proposition. On the other hand, John Premium continues with healthy growth still independently, but in the way it is going to be integrated with the platform. Customers are performing better with some number of transactions shows health increases also. In the U.S. MyCoke -- today, 90% of the eligible FSOP customers are already using MyCoke. So that's what we're doing. So now I'm talking about just the multi-category projects. In Ecuador, we are already distributing -- being in 30% of the market with plans to expand in the next months. In Peru, we began a pilot in the south with positive momentum and performance in volume and increased distribution and most importantly, it's helping us to strengthen our business. In Mexico, we are just starting the pilot project. In Jalisco on top of what we're already doing with Diageo. But I think the most important thing we can say to that is that we are seeing -- when we talk about beer and spirits, we're seeing the expected synergies as we are selling more of our core portfolio of NARTDs, mixes and ARTDs in the customers where we sell beer and spirits. And just to finish, there's another set of categories where we -- what we aim here is to generate platform stickiness. We already have a multicategory platform operating in Ecuador. As you know, more than 40% of our customer share of wallet is managed by us. And in Mexico, we started commercialization and distribution pilot [indiscernible] to the Coke distribution in Monterrey. It's too early, but the results are encouraging.
So let me address the second part, your question on pricing, particularly in Mexico and the U.S. I think what we would highlight in terms of pricing is that we have been improving our capabilities, and that is very important in the last few years. there's certainly some elasticity. We've learned that many times, elasticity has been lower than was anticipated in most of our markets. But I would say that as we look at growth going forward, there are other factors that for us are more relevant, capturing the opportunity in the U.S. and the growth of other categories would really -- would be the key variable in the U.S. is to address the opportunities in the growing categories versus the ones that are more stable. The other thing to consider is that pricing also involves better management of promotions. Our TPO tool has proven very effective, also shaping the mix in the market towards the more profitable packages, which is what we've been doing in the U.S. And in general, growth in the rest of the market depends on capturing many opportunities that we still have in the marketplace. So to finalize, as we go forward, we're going to be more conservative in the second semester of this year with prices, and we have some carryover, but also raw material price will be reduced. So we think it's a positive scenario for the second half.
We'll take our next question from Sergio Matsumoto with Citigroup.
Arturo, earlier in your prepared remarks, you mentioned the -- in the U.S., there is a consumer dynamics change. And you also commented about Monster. And in the press release also mentioned the supermarket. Could you explain what more -- elaborate on these changes in consumer dynamics in the U.S. and perhaps link it to your comment to just now about the innovations that you're making to capture these growth opportunities in the U.S. These innovations -- are they designed to capture certain consumption occasions. If you could explain those that would be great.
Yes. Sure, Sergio. Well, U.S., well, it's a different market in terms of its dynamics to our Latin American markets. We believe that the building blocks to be successful in every market are the same, but certainly we face a different scenario in terms of categories and channels in the U.S. market. Sparkling is a more stable category in the U.S., and there's a bigger opportunity in the stills categories. We -- in this quarter, we had growth in Monster, Minute Maid, those are the growing categories. And that once we have to continue to reinforce our leadership, we also grew significantly with Topo Chico and Smartwater. As you remember, we had some issues with our supply chain in Topo Chico last year that had been addressed. So now we are performing much better. And in terms of channels, we have an on-premise channel that is growing but it's still below the pre-pandemic levels. And with respect to that channel as with respect to the rest of the market, we're focusing on growing the most profitable packages, which would be sparkling immediate consumption basically. The post mix volume has been impacted throughout the pandemic. And it's not really recovered fully even now. In terms of the rest of the channel, small stores have been growing and that's also a good thing because the immediate consumption packages continue to grow. We have to take into account that we had 1 less delivery day in the quarter and that we are cycling aggressive promotions from last year, if you consider the dynamics for the volume in the U.S. What do we expect looking forward? We expect to continue the trend that we had in the month of May and June where we grew in volume. We also expect to keep increasing our value share. And we're going to be focusing on the one hand on transactions, profitability, a smart price pack architecture and also the opportunity to keep growing in the sales category. As you know, Monster is a very important category in the U.S. market. it's approximately 6% of the volume mix, but it represents more of the revenue mix in that market. And it's one of those categories that are more developed, and we expect to continue growing jointly with some of the others that I mentioned before.
Great. And if I may add one more. You mentioned in your prepared remarks, the alcoholic RTDs in Mexico and there are some initial learnings that you want to expand this scope. Could you elaborate more on that?
Yes. In Mexico -- and this is part of what Pepe was saying, the opportunity now with better technologies and improvements in our go-to-market models, presents this opportunity that we had not captured before, and it's leveraged our system to expand into new categories and also taking advantage of the new relationship we have with the Coca-Cola Company. And this goes both ways in the ARTD products that are part of the Coke system and also in the pilots of spirits currently in Mexico and expanding in the future into beer and other categories, but I'll let Pepe elaborate on ARTD.
Yes. And yes, just to give some flavor Sergio, ARTDs are a longer-term play, while the category is still small, we continue to function in territories and market share. Our sales grew 32%, but over a small volume last year. What we aim is to be #1 or #2 player in these categories and be ready for when these kind of products really explode -- the demand explodes and that's probably not going to happen in the very short term, but it's an important play that we're doing in the future. And as Arturo was mentioning, this -- when we combine the distribution of spirits with distribution of beer, with distribution of ARTDs, with distribution of mixers in our portfolio, we get all the synergies from this. Jack and Coke is, for example -- a good example of this, and we just launched it last quarter and it is bringing interesting volume and is complementing very well our portfolio.
I will take our next question from Antonio Hernandez with Barclays.
Just a quick one. If you could provide more color on the -- relatively on the performance of sparkling in Mexico and overall what do you expect going forward? And also, while I mean, you already provided some light in the U.S., what anything that you can mention regarding Mexico performance, that would be great.
Yes. In Mexico, we had a -- and thank you, Antonio. We had a slight decline in sparkling categories. But we were cycling significant growth in last year's volume. Colas continued to grow. We had some decline in flavored categories. But we have also to take into account that flavored categories are impacted much more by other categories that are in the still segment. So that maybe explains a little bit that performance. all in all. So we had, again, a stable quarter, but with a very tough comp from last year.
Okay. And in terms of expectations going forward for the remainder of the year?
So we're still optimistic about expectations going forward. It's not only that we've seen a better trend really. As we said, the month of June was a record month in Mexico, and we expect that trend to continue. But also that we have many initiatives on the market once that are part of our traditional playbook, like our initiatives for returnables, the glass return of universal bottle of initiative that we mentioned before, but also the expansion of our digital platform, our analytics as it relates to suggested orders, even cooler placements with a better strategy. We have many things in our commercial strategies that sustain our guidance for growth in the second half of the year.
And we'll take our next question from Felipe Ucros with Scotiabank.
I had a couple of questions on digital in Argentina, and you guys did a very good job answering those. But I'll do a follow-up on Argentina. Any plans on repatriations from Argentina ahead of the October elections. Just wondering if you have looked at that and what the plans are around it. And the second one I'd like to ask, it's a little bit more macro, but just wondering with the recent revaluation of the Mexican peso, have you historically seen an impact from the fact that remittances might be lower in case of terms? Has that historically had an impact on consumption. And on the same macro vein, but instead of the negative plant to positive plant and also because of your involvement in nearshoring efforts, Arturo. Just wondering if you can comment on how that has changed the dynamics in the North of Mexico, any comments on migration trends or consumption patterns that you may have seen across results?
Yes. Thank you, Felipe. I'll let Emilio talk about Argentina. I'll just address the second part of your question first. And certainly, with the strong peso remittances decline in peso terms, that might have an effect. We don't have a way of particularly measuring that, but we certainly see an outset with all the activity that is going on and particularly North Mexico and some other regions where we operate. The effects are quite visible in terms of investment and you look at the high demand on industrial parks in this region, and I think it's unprecedented. So direct -- foreign investment -- foreign direct investment keeps growing as part of this nearshoring and this reallocation of investment around world, particularly Nuevo Leon is the state that is better positioned to bring investments. As you see, many of the process have been already announced. There's some estimation by the chambers of industry that around 80% of the new investments related to nearshoring will eventually land in states where we operate, particularly Nuevo Leon, Coahuila and Chihuahua. So that is going to be reflected in consumption in the next few years, because some of those investments have been really announced but not been implemented, but we've already seen some migration of people within Mexico. If you look at some of the construction workers and some of the projects for construction here in Monterrey, even people that do work for us, they told me that they actually have some of their workers being brought from other parts of the country in the South, which is -- I think it's a natural phenomenon as the country develops in a not synchronized manner. So I'll let Emilio talk about Argentina.
Yes. Very good question and thank you for that. Well, we've been able to take some resources out several years ago in Argentina. But since then, we have been looking for options, but currently, the cost of doing that is really material. So we haven't been able to do that in the past years. However, there's -- we've been doing some investments and some options to maintain our purchasing power and also investing in some production lines. So we're taking advantage of that right now. But we keep doing analyzing options to do that in the near future.
And we'll take our next question from Rodrigo Alcantara with UBS.
Very, very simple ones, actually. But come my attention last year on the launch of Flashlyte in Mexico, I mean the luxury categories has been growing amazingly in Mexico. Just curious your thoughts on how has been the reception of that new product. I know it's too early to categorize or just comment about this and why choose Mexico as the first country to launch that? And then just a couple of follow-ups. Interesting comment you said, Arturo. Just said new objectives in terms of margins in the U.S., just curious what would be those objectives in terms of margins? And the other one, just said 40% in a quarter, you represent 40% of your customer shares wallet. Just curious if you can give us the same figure, but for Mexico and how much category has increase that share of wallet that you have in Mexico. Those would be my questions.
Yes. Thank you. Let me talk about first our launch of this new product, which we call Flashlyte in the U.S. and Flashlyte in Mexico. So let me first clarify that. And -- but certainly, it's a tremendous opportunity to develop and grow this subcategory within the hydration segment. And as you know, this category has been growing, and we have the opportunity to actually make it bigger with our reach in the marketplace. This is still too soon to tell. But so far, it has exceeded our expectations in the market. So we're optimistic. The formula is great. It's been tested with consumers, and it's generally a winning formulation. And just to mention that we've also launched that category in the U.S. market with -- under the BodyArmor umbrella. And we believe that this ultra hydration, as it's called, category will continue to grow as -- again, as a subset. With respect to margins in the U.S., Emilio has mentioned about the variables that will impact margins. And we -- now we are optimistic about sustaining our margins as they have been expanding. So our target is to sustain the new margins that we have achieved this year, which are improved versus last year March. So -- and with respect to share of wallet, in Mexico, keto products in Mexico would be around 20% to 25% of share of wallet. But consider that we have also customers that are -- young customers where we sell other products, and that would be an additional 5 to 10 points. So in those customers that are the ones that we have developed the most. And then we have the opportunity to expand into these alcoholic beverage categories, beer, spirits and others. So the share of wallet can be also expanded as we develop those opportunities.
Do you see like in foreseeable future, perhaps you having 40% share of wallet in Mexico as well? Or would that be progressed?
I think it's achievable depend on the type of customers. It's certainly achievable if we're successful in developing these additional categories.
Yes. I think at the end, -- we're going to have -- we're going to get to the share of wallet that we have set into the best position, both in terms of influencing the point of sale, financial results, potential growth. So it's something we're working on.
And we'll take our next question from Sarah [indiscernible] with Santander.
I would like to know about the dynamics in Mexico in the different channels, especially what are you seeing in the traditional versus the modern that had a very great growth?
Sure. Sarah, So I'll turn it over to Pepe to talk about the channel dynamics in Mexico.
Yes. Thank you, Sarah. As I was explaining earlier, all channels are growing in the quarter. We're seeing growth year-to-date in the traditional trade, also in the modern trade.The on-premise channel is on the way -- it's on the way to recovery, as we said, eating and drinking is already recovered, but entertainment is still below that used to be, but modern trade is growing faster than the other channels. Doesn't mean that we're not growing, but it's growing in terms of outlets and in terms of volume. So we have still -- still a very solid growth in the traditional trade, where we have our most extensive portfolio, and we're working with repeat levels and with all our -- increasing our capacities and capabilities.
And a second question, if I may, during the quarter, especially May and June, which are more buyback activity. Could you please remember me the program amount and if you have a policy or what we expect in the rest of the year?
You're talking about share buybacks?
Yes.
Okay. I'll turn it over to Emilio to address that.
We've been acting on our share buyback program. In the absence of M&A transaction and depending on the market conditions, we will continue to seek opportunities to return value to investors through our share buyback program. Always -- we keep always maintaining our good level of free float in the market. Our share buyback program is of MXN 8 billion. That's what we have approved.
And we'll take our next question from Lucas Muse with Morgan Stanley.
So my question -- the first one is related to the U.S. If I'm not mistaken, there is a window normally around August for price increases. I was just wondering how are you guys thinking about that as we are coming closer to that window. If you guys are planning on taking at least a small price increase in 2023 to go through 2024 or if you guys have another plan in mind? And my second question is related to capital allocation. How are you guys thinking about leverage at the moment considering that you're still looking at M&A and possibilities but could we see a scenario where you guys don't find an attractive M&A in the short term and we could see more shareholder remuneration. Maybe you guys working a little bit more on the leverage side. Or are you guys -- or should we assume that you'll probably stay around the current levels, even if it takes longer to maybe find a good target or a good transaction on the M&A level.
Thank you, Lucas. With respect to the first part, the U.S., we're still evaluating, pricing for going forward and for '24. What I can tell you, in general, that increases will be more conservative in the second half of the year. But also at the same time, we see a more positive environment in terms of raw materials. So that will still allow us to sustain our margins. So -- but we have not announced specific price increases for this year or for next year, which is what is difficult. With respect to the second part, capital allocation, I will let Emilio address that question.
Yes. Thank you, Arturo. Thank you, Lucas, for your question. Well, we keep our same priorities. Number one, CapEx, we have mentioned that we will increase our CapEx to sales ratio this year to 6% to 7%. We're on track on that because the past 2 years, we reduced that ratio because of the situation. And we have, in the past 2 years, also paid extraordinary dividends in the lack of M&A we just pay an ordinary dividend of MXN 3.5 per share in April. On our shareholders' general meeting, it was approved, the Board could authorize any extraordinary dividend as we did in the past 2 years if there are no M&A transactions. So we keep the current EBITDA debt ratio to EBITDA of around 0.6%. We think this is a very healthy ratio. So that way, we were able to make any inorganic growth if there is a prospect -- as you know, we're constantly looking for and evaluating any opportunities. So in the lack of M&A, we're going to keep looking for the share buyback program and maybe extraordinary dividend, that's up to the Board, of course.
This concludes today's Q&A. I would now like to turn the call back over to management for closing remarks.
Yes. Thank you. Thank you for your time this morning. And also thanks for your continued interest in Arca Continental. We look forward to speaking with you again soon. Enjoy your weekend. Have a great summer.
Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect.