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Good morning, everyone, and thank you for joining Becle's first quarter unaudited financial results call.
During this call, you may hear certain forward-looking statements. These statements may relate to our future prospects, developments and business strategies and may be identified by the use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, may, plan, predict, project, will, goals, target, strategy and similar terms and phrases and may include references and assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements. For all the foregoing reasons, you are cautioned against relying on such forward-looking statements. And we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Before we begin, we would like to remind you that the figures discussed on the call were prepared in accordance with the International Financial Reporting Standards, or IFRS, and published in the Mexican Stock Exchange. The information for the first quarter of 2024 is preliminary and is provided with the understanding that once financial statements are available, updated information will be shared in the appropriate electronic formats. [Operator Instructions] Now I would like to pass the call to Becle's CEO, Mr. Juan Domingo Beckmann. Please go ahead, sir.
Good morning, everyone, and thank you for joining us today as we discuss Becle's first quarter 2024 results. Before going into the numbers and key highlights, I'd like to send a warm welcome to Rodrigo de la Maza, our newly appointed CFO. We're excited to have him on board and wish him all the success in his new role.
Starting with the regional performance in the first quarter. The U.S. and Canada experienced encouraging volume trends and an increase in U.S. dollar net sales compared to the first quarter of 2023. This growth was primarily driven by the successful execution of our premiumization and pricing strategies alongside the recovery of our RTD category. On the other hand, the Rest of the World region faced persistent pressures on consumer demand due to ongoing economic headwinds. Despite these challenges, demand for our brands remain strong and resilient. Mexico experienced a challenging first quarter due to market dynamics affecting the spirits industry. Ongoing market contraction led to reduced demand and high inventory levels at retailers. However, we maintain a strong market position supported by our comprehensive product mix and ongoing premiumization efforts. As the year progresses, we expect our performance to improve, particularly once the market absorbs recent prices and we face more favorable second half comparisons. Turning to gross margins. In the first quarter, we posted a margin of 52.1%, marking a 140 basis point increase from the previous year, despite a 220 basis point negative impact of a strong peso. Price increases across the regions are focused on premiumization and our favor of geographic mix, which benefited from withdrawing -- from driving markets like the U.S., help mitigate the exchange currency impact. We are also starting to see initial benefits from the reductions -- productions in input costs. Overall, we recognize the ongoing challenges presented by macroeconomic and geopolitical factors across several key markets. However, we continue to observe growth trends of the premium tequila category and remain confident in our ability to further leverage the strength and expand our market share in our regions. I now turn the call over to Luis Felix to discuss our U.S. and Canada results in further detail.
Thank you, Juan, and good morning, everyone. The United States and Canada reported a resilient first quarter of 2024 despite challenging headwinds in the region. Kindly note that the results and the following remarks were prepared on a constant currency basis.
Net sales value was up 7.1% compared to the first quarter of 2023. This was mainly caused by our premiumization strategy and a 7.7% increase in tequila sales, which benefited from a price increase in the first quarter of 2024 versus the same period of 2023. Shipments for the first quarter rose by 5% year-over-year, driven by a 7.7% growth in our tequila category, a notable 9.6% improvement in our ready-to-drink category, which have steadily overcome recent challenges to achieve last year performance. The business for the quarter fell by low single digits, primarily due to the recent pricing adjustments as well as distributor increasing their purchases in anticipation of the high net season -- seasonal demand typically experienced in the second quarter. Whiskeys and our ready-to-drink depletions declined by 10.5% and 11%, respectively, partially offset by a 3.3% increase in tequila depletions. We expect depletion rates to accelerate in the second quarter once distributors and retailers have fully implemented and absorbed the first quarter price improvements. Based on the 13-week Nielsen value indicators for the period ended March 31, the aggregated spirits industry grew by 3.8%. Within our portfolio, the tequila segment grew by 6.4%, marginally below the category's to 7.5% growth rate. Notably, our super premium category increased above the industry. Additionally, while our whiskey business experienced a decline of 2.3% versus the category's overall increase of 2.7%, we anticipate a potential rebound in the upcoming quarter.
Consumer spending remains affected by inflationary pressures, as highlighted by the Proximo NABCA numbers. In the first quarter of 2024, our NABCA consumer value growth reached 2.2%, overperforming the industry average of 1.7% growth. While recognizing the challenges and economic pressures affecting the industry, it's important to note that our product mix remains favorable, with our premium offerings still gaining traction. We remain committed to navigating through this period effectively, and we'll continue focusing on delivering substantial value for our shareholders. I will now turn the call over to Olga Limon to discuss the Mexico and Latin America results.
Thank you, Luis, and good morning, everyone. Mexico has had a challenging first quarter due to a tough comparison with the previous year as well as facing a difficult market environment. However, thanks to the consistency of our commercial strategy and the strength of our portfolio, we were able to outperform the market and secure total industry share leadership in both volume and value for the first time. In the first quarter of 2024, volume in Mexico decreased by 9.6% year-over-year, primarily driven by a difficult comparison with the previous year, which saw a sustained market expansion and increased demand. We were also impacted by trade destocking, persistent consumer inflation and a lower demand. This construction was partially mitigated by growth in various super premium tequila brands, contributing to a positive shift from volume to value. Despite the 9.6% volume decline, net sales for the quarter only fell by 5.2% due to a favorable product mix and premiumization strategy. Other net sales per case increased by [ 12.8% ] in the quarter versus previous year, reflecting our portfolio strategy. However, consistent with our premiumization strategy, our depletions in premium tequilas and [indiscernible] are also experiencing a positive trend outpacing the industry. Finally, our pricing adjustments in Mexico, although not fully realized in this quarter as they were executed in March, are expected to become more apparent as the year progresses. Going forward, we believe our diversified portfolio and our premiumization strategy will help us manage the market segments and continue to outperform the market. I will now turn the call over to Gordon Dron, Managing Director of EMEA and APAC region. Thank you.
Many thanks, Olga, and good morning. During the first quarter, we observed an ongoing economic slowdown, which subdued consumer spending across EMEA and APAC. This was largely driven by ongoing uncertainty surrounding the conflict in Eastern Europe and the Middle East, consistent consumer price inflation, trade destocking following the year-end and decreased market confidence from the upcoming months. Within the APAC region, depletions grew by 1% compared to the previous year. The main driver was the substantial year-on-year increase in Asia depletions, indicating the open effective price hikes and the shift towards premium products. Shipments decreased by 13% due to the slowdown in trade destocking in EMEA and a difficult base of comparison in Asia. Last year, we recorded a significant number of shipments in the first quarter of 2023 as markets fully reopened post COVID and restocked. This trend is expected to normalize in the forthcoming months. Although Q1 shipments were lower, NSV increased by 3% in the first quarter of 2024 compared to the previous year. This was helped by price increases and ongoing premiumization across the EMEA and APAC region. [indiscernible] specific categories, tequila depletions in the EMEA and APAC region grew by 9% in volume and 11% in value. Our Irish whiskey grew moderately versus last year, reflecting a renewed focus on this important and expanding category in Asia. Overall, we acknowledge the ongoing economic challenges in EMEA and APAC explained by the previously mentioned factors. That said, we believe we are well prepared to adapt this year as it unfolds and make the most of the new opportunities. I will now pass the call over to Rodrigo, who will take you through the financial results.
Thank you, Gordon, and good morning, everyone. It is an honor to address you today as the newly appointed CFO of Becle. As I set into this pivotal role, I want to express my profound commitment to driving positive change within our organization. It is undeniable that we've encountered challenges recently. I firmly believe that by leveraging our strong commercial focus plus prudent financial management, we can overcome these hurdles to reach our full potential. My mandate is clear, and that is to accelerate shareholder value by enhancing organization's capability to drive margin expansion, working capital efficiency, cash flow conversion while improving ROIC. I look forward to working closely with the talented team on this journey. Turning to the financial results for the first quarter. Company reported a 6.5% decrease in consolidated net sales, reaching MXN 9 billion. The decline reflects foreign currency effects caused by the appreciation of the Mexican peso against the U.S. dollar. Thus, on a constant currency basis, our top line increased by 1% for the quarter. The company continues to see the valuable results of its premiumization strategy with a product mix increasing skewed towards trends with higher revenues per case and margin. Gross profit for the quarter decreased by 4% to MXN 4.7 million. Our gross margin reached 52.1%, increasing by 140 basis points compared to the first quarter of '23. The increase in gross margin was driven by price increase across the regions, a favorable shift in the product and regional mix alongside lower input costs. This was partially offset by the negative impact of a stronger peso, which resulted in approximately 220 basis points of margin erosion. On a constant currency basis, the gross margin would have been 54.3% of sales, which would have marked a 360 basis point expansion year-over-year. The initial benefits of lower third-party agave prices have begun to be reflected on our P&L. After a few quarters of working through our inventory, we have been purchasing some agave in the third-party market. We are now beginning to see initial benefits of lower agave costs. We expect this to continue throughout '24 and positively impact results in the coming years. AMP expenses as a percentage of net sales increased to 20.9% from 20.6% in the first quarter of '23, aligning with our full year AMP guidance for 2024. Distribution expenses also decreased by 20% to MXN 365 million compared to the first quarter of last year, mainly driven by lower freight, warehousing and logistics costs arising from reduced supply chain constraints. As a percentage of sales, distribution expenses for the quarter decreased to 4.1% from 4.8% in the first quarter of last year. During the first quarter, SG&A expenses increased by 9%, accounting for 11.5% of net sales compared to 9.7% in the first quarter of last year. This increase was mainly due to an increase in infrastructure and organizational capability. Operating income decreased by 2% for the quarter, while the operating margin increased to 16.8% from 16.1%. EBITDA for the first quarter was down by 1% year-over-year to MXN 1.8 billion with an FX adjusted growth of 16.4%. The EBITDA margin reached 19.8%, 100 basis points expansion. The net financial results for the first quarter of '24 was negative by MXN 103 million compared to a gain of MXN 170 million in the same period of last year. This decline was mainly driven by lower year-over-year noncash foreign exchange gain as well as higher interest expenses resulting from additional debts taken in '23. First quarter consolidated net income decreased by 18% to MXN 1 billion. The net margin was 11.3% compared to 12.8% in the first quarter of 2023. Earnings per share were MXN 0.28 for the quarter. As of March 2024, cash and cash equivalents stood at MXN 7.6 billion, while total debt amounted MXN 23.7 billion. Over the past 2 quarters, we successfully reduced our lease adjusted net debt ratio from 3.2x to a more favorable 2.6x. Going forward, we will continue to focus on driving cash flow generation. Regarding capital allocation, we will be proposing a cash dividend payment and share repurchase program extension at our General Shareholders' Meeting, which will be held later today. Looking into our 2024 guidance, we reaffirm our expectation for full year net sales value growth in the mid-single-digit range in '24, assuming an exchange rate of MXN 17.5 per dollar. Additionally, we estimate our AMP spend to range from 21% to 23% of sales and our 2024 CapEx to progress in the range of USD 160 million to USD 180 million. And with that, I will now turn the call back to the operator for Q&A. Thank you.
Thank you very much for the presentation. We'll now be moving to the Q&A part of the call. [Operator Instructions] Our first question comes from Mr. Ricardo Alves from Morgan Stanley.
I have a couple of questions. Impressive, the 52% gross margin, considering the Mexican peso trend. So I wanted to ask if you could elaborate a little bit more on the many different drivers for the year-over-year improvement. How much of that could be explained by the stronger U.S. and Canada geographic mix given that the U.S. surprised us to the upside? I would imagine that, that's a component. I don't know if you can quantify the benefits there. We're also surprised by the better unit revenue mix. I don't know if that had a positive impact on your gross margin as well. And then there is also the agave component, but perhaps did you see bigger moves as well in other raw materials. I think that you made reference for that. So maybe a quick update on agave and other raw materials would be helpful as well. So just going deeper on the gross margin evolution considering the Mexican pesos' trend. That's the first question. Second question, U.S. volumes. If you could shed some light on the evolution throughout the quarter. Our understanding was that January and February were tougher, but then a big rebound in March. I just wanted to check if that's indeed what happened throughout the quarter. But then more important than that, why -- if that's the case, why was March so strong? I appreciate that the base of March last year was weak. So that's probably one of the reasons. But when you look forward, do you see any anticipation of volume into the second quarter or any kind of unusual distribution behavior as we head into the second quarter? That's the second question.
Thank you. Well, as I mentioned before, yes, gross margin expansion was quite favorable despite the fact that FX played against us quite significantly in the quarter. And given the complexity of our portfolio, what I can say is that we've executed pricing strategies across markets for Q1 and that is an important contributor to gross margin expansion in the quarter. Additionally, as you will say, there is a geographic component of mix, which was favorable due to the fact that the U.S. market resulted in improved growth. But also, there's a product mix improvement, and that's very much related to premiumization strategy, which continues to do well. And lastly, yes, there is some cost of goods, let's say, benefit that we're starting to show on our numbers. I would not say that's the most material change. But yes, we've started to see the benefits of lower cost, not only from agave but also other raw materials, which also have contributed positively too to the results as a result of productivity focus and initiatives in different raw materials. For your second question, I will turn it over to Luis.
Thank you, Ricardo, for your question. I think you were right. In the case of our shipment for the quarter, March was strong and was strong because the base of comparison versus last year. If you remember, March last year was, call it, 20 -- more than 20% down versus 2023. So we have a lower base of comparison in March. Remember that our shipments take a forward-looking view. And basically, we -- our distributors bought enough inventory to meet their forecast. So what we're seeing is that, in some cases, our distributors fall down -- fall short of the forecast as a result of lower-than-expected demand caused by, in some cases, some destocking in grocery and plus. But we expect that depletions will accelerate because we have built, in Q2, a very strong commercial plan to beat the market.
Our next question comes from [ Rafe Preet ] from Barclays.
Great. First, congrats on results. On questions, first, RTD, as you said, is back in growth after declines in 1Q and 4Q 2023. What's driving this? RTD, if I'm not mistaken, has been seeing lower price in the last few quarters along with this one, so I'm just wondering what jump-started this quarter's growth. And the second one, why are we seeing more premiumization within Mexico versus U.S., if that's correct? Is this just a function of the wage increase versus U.S.'s more constricted wallet? Or do you think there's a fundamental difference between these 2 demographics?
Thank you. RTDs, yes, we did see a rebound in shipments basically in 2 of our brands in -- and that was cost because, again, the base of comparison versus the first quarter of last year was weak. So we are seeing -- we probably are seeing the lower base of the decline that we have experienced in the past. So -- and we have plans to rebuild one of our brands in RTD, which is very strong, and we will be launching this in the next quarter. So I think we're prepared for, again, bringing some news in the RTD business.
This is Olga here. For Mexico, we are seeing good results in terms of our premiumization strategy for our company. That doesn't mean that this is the way it's happening for the market. We have been consistently having a commercial strategy that supports this premiumization. And as you can see it for a few years already now, and you can see it reflecting in our current results.
Okay. So there's just no -- there's -- how these different demographics can affect Mexico and U.S. in terms of consumers? Are there any strict differences? Or do you think just in terms of income would be the difference in results and whatever stock is within each country?
No. I mean, I think that -- I don't know, there must be differences. But for us, we have a portfolio that addresses all the consumer needs, and we've been focusing on just adding value to the -- to our portfolio in the higher price segment, and that's what's really been working for us.
Let me add. Remember that the markets have different maturity, specifically in tequila. So tequila is already very large in Mexico, and the way the consumer behavior is different than the of the U.S. So in Mexico, we see a consumer that already understands the flexibility, the heritage of tequila and that's flowing into the U.S. So there's different demographics, different age groups and that's reflected in the result of premiumizing as well.
Our next question comes from Nadine Sarwat from Bernstein.
Yes. Two questions for me, please. First, you started to see some brand cut pricing in tequila in the U.S. in the scanner data. So I'd be curious to hear what you are seeing today in terms of tequila pricing. How do you expect this to evolve due to the falling price of agave? And can you remind us what your approach is to pricing on a medium-term outlook? And then the second question. Can you provide any additional color on the magnitude of gross margin expansion we might expect for the full year? Very happy to see that Q1 expansion. But if we can take that discussion to the full year, provide color on the puts and takes. And if you could incorporate into your answer, your strategy now from purchasing third parties and agave and how that plays in.
Thank you, Nadine. I'll take the first question. Yes, we are seeing some more aggressive pricing actions from some competitors derived from the agave prices. However, we don't anticipate significant impact from low-price competitors. And based on the following: after year profit during headwinds from the high cost of agave, I think the priority from the industry is margin recovery. So this shared objective discourage aggressive movement in pricing among our lower tier competitors. And also, over the past few years, the industry has focused on premiumization strategy. So we don't believe that there's a substantial shift in pricing by heavily discounting and lowering prices could undermine these efforts.
Regarding your second question on gross margin expectations for the full year, of course, we don't disclose guidance for gross profit or gross margin. Nevertheless, yes, the conditions in the market are well set for improved gross margin sustainability, actual improvement going forward. But keep in mind that our decisions in terms of how we play with the third-party agave market are [indiscernible]. So we will continue to focus on sustaining -- benefiting from the agave prices that are coming down [indiscernible] long-term relations.
[Operator Instructions] Our next question comes from Mr. Juan José Guzmán from Scotiabank.
Welcome, Rodrigo. Wish you the best in this new endeavor. I have a quick one on my end. Talking about premiumization and innovation, we are all well aware that nonalcoholic experience is a hot category right now. Also it's not small. So I very much appreciate if you can give us some color on what's your take on it. And if and how you're exploring this consumer trend. And also if you could put some launches from your end in this category.
I'm sorry, could you repeat...
So I'll take it. Thank you, José. I think the nonalcoholic categories, it's starting to show up in many categories in the alcohol business. So we are taking a close look at those initiatives and those brands, and we will -- we're closely following their tracking and the consumer expectations and consumer acceptance of those products. So we're not active in that category right now, but we are taking a close look of the development of this category, which is certainly new.
We have a follow-up question from Mr. Ricardo Alves from Morgan Stanley.
My call dropped, so I'm sorry if this was asked. But going back to Mexico, the unit revenue was quite strong based on our numbers. And I was wondering if you can break it down in more details. How much of that was pricing because we understood that pricing in Mexico took place late in the quarter. So I just wanted to perhaps check that and maybe talk about the magnitude of the move. But then maybe more important, what was the contribution to your unit revenue that was coming from premium tequila? And then positively speaking, if you can elaborate on that premiumization that is happening in Mexico, what are the brands that you're pushing? Any more qualitative comments on that would be helpful, Mexico mix.
As we just selectively executed our price increase across several brands, but we will not be seeing this effect right now. We will see it later in the year. So as far as the premiumization strategy, we are seeing that our depletions in our premium segments are performing well. So it has to do more with the sales mix that have been effectively working for and not so much as for price. But later on during the year, we'll see the price effect. So we are happy that we haven't seen any downtrend in our portfolio, and we are seeing that our premium brands are performing better. So that's the reason why we are performing better.
Next question comes from Mr. Fernando Olvera from Bank of America.
Great. Rodrigo, welcome, and congrats on your new role. I have 2 questions. The first one. In the last couple of quarters, you have mentioned that you have not participated in the third-party agave market. So can you comment if you are already participating or not? And my second question is related to rest of the world given the strong volume decline. If you can comment if the worst is behind, what is your outlook for coming quarters?
Thank you, Fernando, for the question. Yes, as I mentioned previously, we have started participated on the third-party agave market. It's normally a component of our business model. So yes, we've started that. We don't currently see too much benefit of that in our gross margin. It is shown at the benefit, but it's starting to contribute, but it's not a significant portion of it. And we will continue to do that as we've normally done always. And I don't know if you could repeat the second question for me, I would appreciate.
Sure.
[indiscernible] an initial purchasing from the third-party market and it's very little at this point. So it's something important to consider.
Okay. That was great.
Just as far as the rest of the world and the volume decline, I think 2 comments to make. Firstly, as we said, depletions are actually up year-on-year. So it's really more a phasing issue caused by shipments in the back end of last year because we have long lead times for shipments of tequilas in the EMEA and APAC region. So that sort should now therefore be covered and we would expect that, that situation not to be so dramatic in the forthcoming.
Thank you very much. Looks like we have no further questions. We'll now be closing all the lines. Thank you, everyone, for joining. Have a great day.