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Excuse me, everyone, we now have all of our speakers in conference. [Operator Instructions] It is now my pleasure to turn the conference over to Pablo González, CEO. You may begin.
Good morning, everyone. Thanks for participating in the call. Let me start by making a few comments. Our first quarter results compare positively on a sequential basis [ for our mix ] year-on-year as we continue to grow our top line, while our margins are still below last year's. Our pricing and cost savings initiatives are helping us deliver better results in a still very challenging cost environment. We are encouraged with our first quarter results and we need to stay the course to achieve further improvements. On the revenue side, private consumption in Mexico is decelerating and we're experiencing sluggish growth in our categories. In addition, destocking is also occurring, and our efforts to increase price have placed our volumes under incremental pressure. However, such efforts have resulted in a positive price and mix comparison, allowing us to grow for the 18th consecutive quarter, post record sales for a quarter and help mitigate the input cost pressures, which has resulted in sequentially improved margins. On the cost side, we continue experiencing significant raw material pressure, particularly when compared to last year. It's important to note that even though the raw material cost headwinds have eased in recent months, the comparisons are still difficult as we had several quarters of continuous cost increases. The exchange rate was also negative during the quarter. On the positive side, our cost reduction program yielded again very good results. In summary, we still face a challenging consumer and cost environment, but our actions both on pricing as well as on costs allow us to sequentially improve margins and deliver better results. Xavier will provide additional details on the results.
Hello, everyone. During the quarter, our sales amounted to MXN 11 billion, a new record and an 8% increase versus the first quarter of 2018. Volume was in line with last year, while price and mix were 8% higher. Consumer product sales were 8% higher as a result of better price/mix and flat volume. Away from Home products grew 7% and export sales were down, and we sold more tissue rolls domestically. Cost of goods sold increased 10% against last year. And against last year, virgin and recycled fiber prices compared negatively, while superabsorbent materials and resins compared favorably. Energy prices also compared very negatively. And FX increased more than 6% over the last 12 months, adding to the pressure. On the positive side, the cost reduction program, which yielded approximately MXN 300 million of savings in the quarter, helped to partially offset the negative cost impact. Gross profit increased 4%. And margin was 35.2% for the quarter, 130 basis points lowered year-over-year and 190 basis points better sequentially. SG&A growth of 6% reflects our efforts to maintain a lean operation while efficiently investing in advertising and point of sales to strengthen our brands and support our recent innovations. Operating profit increased 2%. And the operating margin was 18.7%, again a year-over-year decrease but a sequential improvement of 170 basis points. During the quarter, we generated MXN 2.6 billion of EBITDA, a 5% increase. And EBITDA margin was 23.2%, a sequential improvement of 250 basis points. As mentioned in our press release, the effect of the accounting standard IFRS 16 on the quarter's EBITDA was MXN 70 million or approximately 60 basis points from incremental depreciation and reduced rate and expenses. The standard became effective on January 1, 2019, and requires recognition of right-of-use assets and the related liabilities for each contracts with significant value and with a term greater than 12 months. Depreciation of the asset, interests and exchange rate fluctuations on the lease liability are also recognized. Impacts on Kimberly-Clark de México's balance sheet as of March 31, 2019, are the recognition of MXN 1.3 billion of right-of-use assets and the related MXN 1.3 billion in liabilities. The effects on the quarter's operating profit and net income are not material. Cost of financing was MXN 368 million in the quarter compared to MXN 299 million in the same period of last year. Interest expense was higher from increased debt, higher interest rates and the interest from the IFRS liabilities. The foreign exchange gain in the period was MXN 25 million compared to MXN 43 million in the previous year. As a consequence, net income for the quarter was MXN 1.2 billion, a 4% decrease. Finally, earnings per share were MXN 0.38. Pablo will now talk about the rest of 2019 before we'll take your questions.
Thanks, Xavier. Let me start by saying that there is a lot of uncertainty regarding the Mexican economy in general and private consumption in particular. The consensus is that growth could be lower than recent years as both public and private investments have slowed down significantly, same as public spending, which is usually the case when a new administration takes the reins. On the positive side, however, the government's social programs, together with inflation being under control and wages growing at a higher rate than inflation, could support private consumption in the coming quarters. This, of course, is necessary for consumer product categories to grow and will be a determining factor influencing top line. In addition, as you are all aware, we're in the process of increasing prices given the significant cost build-up we have faced over the past years. This will add pressure to our volume in the short term. We will closely monitor how this evolves and we will react as needed. At the same time, we will continue to support our brands with a strong innovation plan for the remainder of the year and we will continue to work to improve our product mix. On the cost front, even though some raw material prices have decreased in recent months, the comparisons are still challenging on -- both on fibers for recycling as well as on energy. Near-term projections for prices of raw materials suggest they will remain around current levels, but the environment is still volatile and uncertain. Exchange rate at the current levels would be a headwind in the second quarter and be favorable in the second half of the year. Operating and executing efficiently while again achieving a very positive result in our cost reduction program will be key. We have now identified MXN 1 billion for the year; and continue to look for and analyze additional opportunities in material savings, product specifications, productivity and distribution. Also, we will work to improve our working capital, particularly inventories which are higher given raw material prices and the fact that we experienced some destocking from clients at the end of the quarter. On the CapEx front, we will invest approximately $100 million, mostly focused on innovations, capacity expansions and cost reduction. And finally, our shareholders meeting in February approved the payment of MXN 1.55 per share cash reimbursement. This amount reflects our commitment to distributing cash to our shareholders while maintaining a healthy capital structure. In summary, we had a challenging but better first quarter. And we're engaged on executing the important actions at the product, pricing, cost and expense fronts to continue improving our results. With that, let me open it up for questions. And thank you all again for participating on the call.
[Operator Instructions] Our first question comes from Robert Ford, Bank of America.
Congratulations on the quarter [indiscernible]. Pablo, I was wondering if you could comment a little bit on the competitive dynamics that you're seeing. We think we're seeing some reasonable industry follow-through on your price leadership and we think we're also seeing flat and to improving shares in your core categories. We just wanted to get your view.
Thanks, Robert. Absolutely. Look, first, on the competitive environment. The prices we implemented last year were followed by our competitors. Too early to tell about this last one because we are just -- we've just implemented it. And we heard announcements by them but still no reflection of increased prices at the point of -- shelves. Now if last year is any indication, then we would expect them to follow through, but again, so far it has not reflected at the shelf. When it comes to shares, a mixed picture but, yes, overall, shares either flat. Or in some categories we've seen some important improvements. We'll see what happens here in this month as our prices are higher than competitors. And we'll wait and see how fast they move if they move, and we'll react accordingly.
Our next question comes from Sergio Matsumo (sic) [ Matsumoto ] with Citigroup.
It's Sergio Matsumoto from Citigroup. And my question is on the raw materials. Can you give us the trend on the recycled fiber and the virgin fiber? Where are they now? And how do you see it in the next couple of months?
Sure, Sergio. As we mentioned, the prices during the quarter saw a -- were higher -- quite a bit higher than last year, but sequentially, we did see some improvement. At this point, what we hear from the experts in the field is that prices should remain at least where they are for the coming quarter, but again it's still very volatile. If that is the case that prices stay where they are in the coming quarter, our comparative base will still be higher than last year, but the comparisons will narrow, and that might allow us to continue to catch up. At least we're not seeing prices come up. We again sequentially saw them come down, and hopefully, that's a trend that can continue, but we will wait and see what happens and how it plays out.
Our next question comes from Rodrigo Alcantara with UBS Group.
So on the cost savings that you reported. I believe you raised your guidance, something around MXN 200 million, right? So my question would be, in this quarter, what specifically drove these incremental savings versus your previous plans?
Thanks for that question, Rodrigo. And let me use the opportunity to clarify something, which is what we announce is always what we have identified and are confident that we'll be able to execute. We don't announce a target, if you will. And that's why you see our plan quarter-over-quarter sometimes increasing, because we only announce what we have identified. So this quarter, we saw around MXN 300 million in savings, and we expect the second quarter to be around the same amount. And we will continue to look for opportunities. Last year, we reached MXN 1.4 billion, above the MXN 1 billion mark. And we will continue to look for opportunity to see if we can reach last year's objective.
[Operator Instructions] Our next question comes from Antonio Hernández with Barclays.
My question is regarding the destocking. Could you provide us a little bit of an update there and your expectations?
Sure, Antonio. What we saw late in the quarter was some clients in the modern trade trying to bring down their inventories, and that has continued here early in the second quarter. We believe we're pretty much at the level that requires them to start replenishing in a more orderly fashion, but we will wait and see if that happens.
Okay. So let's say, second half of the year, no impact whatsoever, right?
I -- [ moving parts ], but again, I would expect that most of the destocking has happened between March and April and that, the coming months and certainly the second half of the year, should not be an issue.
Our next question comes from Miguel Ulloa with BBVA.
And that would be if you could provide some additional color regarding volumes and particularly in the reconciling the flat volumes compared with the decline in export sales.
Sure. Look, in consumer products, as we mentioned, the volume growth in the categories is -- has decelerated somewhat and the growth is really sluggish. What we're seeing is flat or just slight growth in most of the categories. And that's exactly what happened in our case, where volumes are pretty much flat and the increase is coming from price and mix. When we mentioned that we sold less in exports because we sold more tissue rolls in Mexico, we're referring to the parent rolls of paper that we export -- either export or sell in Mexico. And we saw the opportunity to place more of those here internally and that's really the difference, but it has to do again with parent tissue rolls, not with finished products.
I'm showing no further questions in the queue at this time.
Okay. Thank you all for participating in the call. And we look forward to talking to you after we get the second quarter done. I hope you have a terrific weekend. Thanks.
Thank you, everyone. This concludes today's teleconference. You may now disconnect.