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Good morning, everyone, and welcome to Grupo Herdez's First quarter and -- excuse me, First Quarter 2023 Earnings Conference Call. Before we begin, I would like to remind you that this call is being recorded and that the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note in the company's press release regarding forward-looking statements. At this time, I would like to turn the call over to Mr. Guillermo Perez, Investor Relations Manager. Mr. Perez, Please go ahead.
Thank you, Gary. Good morning, everyone. Thank you for joining us on today's call. We appreciate your interest in Grupo Herdez. We started the year with a great momentum, posting strong results. Despite persistent inflationary pressures and constant setbacks around the globe, we do think inflation has peaked and consumption although soft should remain stable. Net sales rose 21.4% in the quarter. While price increases were still the main driver for the quarter, total volume remained flattish. Net sales in Preserves grew 23.6%. By category, tuna, mayo, pasta and tomato puree increased more than the average, while food service and price club channels also outperformed. The addition of Mediterranean acquisition in the fourth quarter of 2022 contributed with 2.2 percentage points to the growth of this segment. Impulse was also an outlier with sales growing 22.6% in the quarter. Recovery of foot traffic in stores was the main driver for higher average ticket. Similarly, the performance of the traditional channel, Helados Nestle, continued with a good trend. In Exports, net sales decreased 2.4% in the quarter, mainly driven by a stronger Mexican peso. While on a dollar basis, sales increased 7.3% despite softer volume than expected. Consolidated gross margin in the quarter was 36.4%, 20 basis points higher than in the first quarter of 2022 as a result of the pricing catch-up versus high input prices. Consolidated SG&A was 24.2% of net sales in the quarter, which was 60 basis points lower versus the first quarter of 2022 due to expense absorption resulting from top line growth. Thank you for your attention. Let me now turn the call over to Andrea.
Thank you, Guillermo. Consolidated EBIT and EBITDA increased 25.2% and 22.3%, while margins expanded 40 and 10 basis points, respectively. This is the result of the expansion in Preserves and the recovery of the Impulse segment. In the quarter, income from unconsolidated companies was MXN 295 million, 185% higher than in 2022 due to a threefold recovery at MegaMex, as was expected, mainly driven by price increases and lower avocado. Consolidated net income for the quarter was MXN 797 million, 72% higher than last year with a margin expansion of almost 300 basis points to 9.2%. Consolidated net income benefited from the recovery of MegaMex as well as a stabilized income tax rate. Our financial position remained strong. Cash in hand stood at MXN 3 billion, which is 70 -- sorry, 27% higher than at the year end of last year. Interest-bearing liabilities were MXN 10.5 billion, flat against December. Free cash flow for the quarter was MXN 950 million or 11% of sales, which is a record, driven by strong net income as well as working capital improvements across all components. For the second year in a row, Grupo Herdez received the distinction of being ranked in the top 10 of Merco's 100 companies with the most ESG responsibility. This year, Grupo Herdez placed 8 overall and third among food companies. With that, I will now turn the call over to Gerardo for our final prepared remarks.
Thank you, Andrea. As we foresaw, the dynamics in consumption moderated towards the end of the quarter. However, we expect the outlook to remain stable as inflation is beginning to show signs of slowing down and GDP is solid across the board. The results in Preserves were mainly driven by pricing. Despite the flattish volume, our share of market in general remains stable. Foot traffic had a positive effect on the Impulse segment as different strategies were implemented, and we incorporated additional stores of Chilim Balam during the quarter. Sales rebounded and grew 22.6% during the quarter. We expect to maintain this momentum for the rest of the year. MegaMex on an easy comp rebounded as pricing action took place and avocado prices decreased. Nevertheless, while, on pesos figure, growth was flat compared to 2022. On U.S. dollar terms, sales grew on the high single-digit frontier. Guidance discussed in the last conference call has shifted a bit as foreign exchange had an impact. So let me provide you with an update. We expect net sales to grow in the mid-double digits, where Preserves would show mid-teens, Exports will be flattish and Impulse will grow in the low 20s. In terms of gross margin, we expect Preserves to grow versus last year between 120 and 130 basis points, Impulse between 50 and 60 basis points and Exports with a flat gross margin. And in terms of EBIT and EBITDA, we expect 100% basis points higher than last year, where Preserves would have the same, Impulse will have 200 basis points higher and Exports will be flattish. Net income and majority net income are expected to grow 30% and 50%, respectively, for the full year. Yesterday, we held our Annual Shareholders Meeting, in which MXN 1.20 dividend per share was approved and the cancellation of 19.6 million shares. As well, the share buyback program has been approved at MXN 2 billion. Thank you for your attention. We will now take your questions. Gary, Please go ahead.
We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Felipe Ucros with Scotiabank.
Just a couple on my side. The first one, just impressive recovery on MegaMex. Just wondering if you can give us a little more color on what you expect for the rest of the year after such a good rebound. And then the second one has to do with the cancellation of shares. And you did very good purchases at very attractive valuations, which are obviously very accretive to investors. But at the same time, the shares have gone down in liquidity quite significantly. And just wondering if you considered at some point maybe selling back the shares to the market to kind of put some of the liquidity back? And maybe I'm missing something. Maybe there are some reasons for which you decide not to put them back into the market. So just wondering how you think about that.
For the rest of the year in terms of MegaMex, I think we are expecting quite an improvement in terms of profitability, as we have mentioned before, between pricing and avocado cost. Even though avocado, we have mentioned, is very volatile, I think we have put in place some strategies in order to lower that volatility. In terms of pricing, the market is still soft. I think that -- we have mentioned that sensibility or elasticity in the United States is quite high and we haven't seen the market turn around yet. So our market shares are stable. I think that consumers are adjusting their spending preferences. So we still need to see volume stabilize quite a bit. In the meantime, we expect that income from MegaMex should grow around 50% for the full year. So there are some strategies that we're implementing in terms of profitability. So we feel very comfortable on the performance on MegaMex across the board. There has been a lot of innovation. We just launched some new salsas. So the dynamics of the category is looking very good. In terms of refrigerated guacamole, we're also gaining some share with our Herdez brand. So we feel very good about MegaMex. And in terms of shares, well, because -- we didn't put the shares back in the market. We had to cancel them because of fiscal purposes. To answer your question, I think that's very early to have that discussion. We have been very quiet in terms of buyback in this quarter because we have the goal to lower our debt. I think we've mentioned in February that interest rates are now in a sour spot. So all the benefits that we are receiving from working capital that the people at Herdez have come with extraordinary negotiations and record cash flow, free cash flow is going to dividend and it's going to reduce our debt. So we expect to pay part of the certificados that expire in November. That is the priority right now. But I don't have an answer for your question today.
[Operator Instructions] The next question is from Alvaro Garcia with BTG.
A couple of questions. One on -- you mentioned that the sort of consumer environment or demand moderated a bit at the end of the first quarter. I was wondering if you could maybe give a little bit more detail or color on whether that was just some elasticities on what's been pretty extraordinary price increase over the last couple of years. Or if you feel maybe the consumer environment is just maybe entering a little bit of a tougher phase from a volume standpoint. That's my first question.
I think this -- we were expecting this dynamics for quite a while. I think that we still see the consumption environment very strong as there are a lot of initiatives that have been taking place in the last 4 years in order to increase disposable income, as we have mentioned. You have salaries, you have profit sharing, now vacations, et cetera. So these favor consumption. So we feel that this softness that we have seen in the last part of the first quarter was temporary. We do not expect a big rebound, but we expect a stable consumption environment across...
Have dynamics been the same sort of in April? Would you say that -- like quarter-to-date, have you seen any notable shift downward or still pretty...
No, I think that -- in April, I think we are ahead of our sectionality -- of our seasonality, excuse me. So I think April is going to be very stable.
Great. And then my second question. You mentioned this partly in response to Felipe's question, but you have MXN 2 billion worth of debt. Do you -- in November -- just for modeling purposes, I was wondering if you had maybe a rough estimate of what chunk of that you'd want to maybe take out. And I'm assuming you'll be saving cash for that moment of the year.
We're aiming to -- I'm going to be conservative because Guillermo and Andrea are making signs, but I think we are aiming to 1/3 to 1/2.
Of the MXN 2 billion.
Yes. Yes, yes of the MXN 2 billion. That's clear. Great. Congrats on the quarter.
[Operator Instructions] The next question is from Juan Ponce with Bradesco BBI.
Consumption has been pretty strong throughout Mexico. You guys just talked about the different drivers. But I was curious to know what regions you're seeing -- what areas, what regions in Mexico, what states maybe you're seeing the most demand? Are you seeing it more in the northern region with nearshoring or maybe in the Southeast with tourism? What are your thoughts on the performance by region?
It's across the board.
[Operator Instructions] The next question is from Emiliano Hernandez with GBM.
Just a quick one here, amigos. Would you say traffic in stores has fully recovered? And then second one, if you could give us some color on the hedges for the year end and how comfortable do you feel with those?.
Can you repeat your question, Emiliano, please?
Sure, Gerardo. Yes, the first one is on Impulse. Would you say the store traffic is fully recovered now? And then the second one is regarding [Technical Difficulty] follow on the level [Technical Difficulty].
No, Emiliano. No, no. We didn't say that. We said the trend is recovering. We are far behind from 2019. We have implemented some strategy that slowly are improving traffic, okay? So we do not expect to hit our 2019 numbers in the short term. And in terms of hedges, I think this year is -- it's on the books, and that's why we updated our gross margin guidance for the full year.
Congrats.
This concludes the question-and-answer session. I would like to turn the conference back over to Gerardo for any closing remarks.
Thank you for your participation on the call today. We look forward to speaking with you again next quarter. Please do not hesitate to contact us in the interim. Thank you, guys. Have a nice day.
Thank you. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.