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Excuse me, everyone, we now have our speakers in conference [Operator Instructions] I would now like to turn the conference over to our CEO, Pablo González. Please go ahead.
Thank you. Good morning, everyone. Thanks for participating on the call. Let me first start by introducing Salvador Escoto, who joined the team as Treasurer and IR. Some of you have already met him, and I'm sure the rest will have an opportunity to do so soon.
Now let me talk about the results. I'll be very brief. Our third quarter results reflect the top line growth together with continued margin improvements, both sequentially and year-on-year. Our pricing and cost savings initiatives in addition to an improved cost environment allowed us to deliver better results. On the top line, the deceleration of private consumption has impacted our categories, which for the most part are not showing volume growth. However, our efforts to increase prices in the earlier part of the year to mitigate the significant input cost pressures that built up over the recent years resulted in a positive price comparison and allowed us to increase our top line for the 20th consecutive quarter.
On the cost side, raw materials compared favorably versus last year although some are still at high levels. This situation, together with our cost reduction program, which continues to deliver very good results and the previously mentioned pricing allowed us to improve profitability despite the FX comparing slightly negative during the quarter.
In summary, despite a very challenging private consumption environment and with pressures from competitors and retailers, we continue to grow on a better cost scenario together with our actions on pricing and costs allowed us to improve margins and deliver better bottom line results. Xavier will provide additional details on the quarter.
Hello, everyone. During the quarter, our sales were MXN 10.4 billion, a 5% increase versus the third quarter of 2018. Volume was 1% lower, while price and mix were 6% higher.
Consumer product sales were 6% higher as a result of better prices. Away from Home products decreased 3% and export sales were down as we sold more tissue rolls domestically. Cost of goods sold decreased 2%. Against last year, domestic fiber prices as well as fluff compared negatively while virgin pulp, imported fibers, superabsorbent materials and resins compared favorably.
Energy prices were also lower. Finally, the FX was slightly higher, averaging 1% above last year. In addition, our cost reduction program yielded approximately MXN 400 million of savings in the quarter. Gross profit increased 19% and margin was 38.3% for the quarter, 440 basis points higher year-over-year and 110 basis points better sequentially.
SG&A grew 10% and was 17.6% of sales. We continue to focus our investments in advertising and point-of-sales activities to strengthen our brands and support our recent innovations.
Operating profit increased by 27%. And the operating margin was 20.7%, a year-over-year increase of 360 basis points and a sequential improvement of 40 basis points.
During the quarter, we generated MXN 2.6 billion of EBITDA, a 28% increase. The EBITDA margin was 25.4%, showing a sequential improvement of 60 basis points and an annual improvement of 460 basis points, of which approximately 70 derived from the IFRS 16 accounting changes.
Cost of financing was MXN 391 million in the third quarter compared to MXN 400 million in the same period of last year. Interest expense was lower in spite of increased interest from the IFRS 16 lease liabilities as we reduced our debt position. The foreign exchange loss in the period was MXN 6 million, pretty much in line with last year's. Accordingly, net income for the quarter was MXN 1.2 billion, a 37% increase. Finally, earnings per share were $0.40.
Pablo will now talk about the rest of 2019 before we take your questions.
As you are aware, there is a lot of uncertainty regarding the Mexican economy in general and private consumption in particular. Growth in the economy will be much lower than recent years, if we have any at all, as public spending has screeched to a halt and the continued uncertainty created by some of the policies and actions of the new administration had meant that both public and private investment are significantly less. Accordingly, job creation growth has slumped, and business and consumer confidence have deteriorated. On the positive side, the government social programs in addition to inflation being under control and wages growing at a high rate than inflation, together with remittances, have provided and could continue to provide support to consumption currently growing at roughly 1%. How this evolves will be a determining factor influencing our top line.
Also, our price increases to offset the significant cost buildup we have faced over the past years, together with some competitors being fairly aggressive on the promotion front, have put further pressure on our volumes in the short term. We are not only closely monitoring this, but we'll react as needed given that we face a tough sales comparison in the fourth quarter.
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, given the recent pullback in some raw material prices, pulp, fibers for recycling, polymers and energy should compare positively in the coming months. Near-term projections for these prices suggest they will remain around current levels during the quarter and may show increases early next year. Some others like superabsorbent materials and resins should be stable. At current levels, the FX would compare similarly in the fourth quarter. Given the above-mentioned uncertainty, it could face great volatility.
Operating and executing efficiently while again achieving a positive result in our cost reduction program continues to be key. We have identified MXN 1.6 billion for the year. We continue to look for and analyze additional opportunities in material savings, product specifications, productivity and distribution savings for the coming year. Also, we will continue to work to improve our working capital. Our ongoing efforts have yielded very good results and this will continue to be a priority.
In summary, we have had a challenging but better first 9 months of the year, and we're engaged in executing important actions on 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] We'll take our first question, and that is from Bob Ford of Bank of America.
And congratulations on the quarter. Pablo, you mentioned competitor promotional activity. Could you talk a little bit more with respect to your thoughts on pricing going forward from here, and maybe how innovation, relative scale, industry capacity, technology, or other factors might contribute to that expectation?
Sure, Bob, and thanks. Yes, we've recently -- well, not recently, for the year, we've seen some of our competitors be somewhat aggressive promotionally, particularly on the tissue side. Regarding to the summer, we mentioned that, that was usually the case and that we needed to wait for the summer promotional season to be over to determine whether that aggressiveness would continue. Early indications are that -- particularly on the tissue front, some of that aggressiveness continues.
It might have to do with the fact that some of the cost scenarios are a little bit better going forward. We, nonetheless, are a little surprised because some of this -- the competitors have said in their respective calls that they need to improve margins, but their promotions have continued to go on into the market. So as we say, we will be monitoring this and figuring out whether we should react in some instances. But reacting with prices is one of the things that we will consider.
On the other hand, certainly, our innovation pipeline is very strong and we have -- we're working with the retailers to put together programs that will allow us to quickly get that innovation into the market and to be closer to the consumer. And we will figure out what's the best balance of all of those activities to make sure that we react as necessary, but are careful in terms of bringing down prices and taking value away from categories. So it will be a combination, and again we'll be very, very diligent in taking a look at what's happening and determining how we need to react.
It's very helpful. With respect to dynamics across channels, with respect to restocking or destocking trends in the trade, is there anything unusual that occurred in the third quarter?
No. No, I think not in consumer products, but I think we've been seeing our -- the retailers be more careful when it comes to inventory and how they manage it. But that's a trend that has been happening for probably the past 1.5 year, if not 2 years. We expect that to continue, but we didn't see anything different. On the professional side of the business, that was a little bit different since there is a lot of uncertainty as to what might happen with the economy, and particularly investment, and some of the product of that business goes to businesses.
We did see a little bit more -- we did see our distributors be a little bit more careful in terms of managing their inventories, and that in part is the reason why professional was down for the quarter. What happens there might -- will really have to do with what happens with the economy. And we'll see how that evolves going forward. But -- so in summary, consumer, it's a trend that has been happening for a while and we didn't see anything different. On the professional side front or B2B, we did see a little bit more -- our distributors to be a little bit more careful when it comes to inventories and we'll see how that evolves going forward.
We'll take our next question from Nicolas Larrain with JPMorgan.
Congrats on the quarter. I wanted to ask if you could give us any directional views on how market share has been evolving on your main categories, and also if you're seeing in the home -- in the broader market, is it growing in volume terms at this point or is it more flattish?
Yes, Nicolas. When it comes to volume growth in the categories that I mentioned, for the most part they're flat in the year. That -- when I say that, I mean that our most important categories. Some of the smaller ones given that they have a lot less penetration continue to grow in volume, but at lower levels than they were doing some quarters ago.
So overall, certainly, volumes are declining or declining their rate of growth or nongrowth. When it comes to shares in the categories, what we've seen is our shares for the most part be stable except maybe in tissue, where -- that's where we have lost some shares because that's where our competitors have been a little bit more aggressive on the promotional front and on pricing. So in summary, that would be it.
We will take our next question from Rodrigo Alcantara with UBS.
So the decline on exports, I understand, given you look at that -- to the internal market, but on the professional category, I was wondering if you could give us a sense of what's happening to volumes there. You just mentioned that you are seeing like your clients being more careful on inventories, right? But I was wondering if something related with competition as well. That would be my first question.
Yes. Rodrigo, on the professional side, what we can tell at this point from what we sense and see in the market, it's really an issue of distributors again being more careful with inventories. We don't sense that we're losing ground in the market, but again given the uncertainty, both distributors and businesses are being more careful. So they're bringing down inventories.
Okay. Thanks. And the second would be given the EBITDA growth that we are seeing that at least we don't expect at this point major CapEx for the remainder of the year, I was wondering if you have any targets for leverage by the end of this year, perhaps for next year? That would be my last question.
Rodrigo, as you know, our leverage over the past few quarters went a little bit above what we are used to and let's say levels that we have as target. Right now, we are coming down to a level, which is more in line to what we have set as target. We are right now on the 1.5x, and we are probably going to continue improving that as EBITDA continues to improve and we will definitely continue, as Pablo said, working on working capital. And CapEx will continue to be on the low side of the cycle at least for the coming months. So yes, the ratio should improve.
[Operator Instructions] We'll take our next question from Mohammed Ahmad with FGP.
Congratulations on good result. Can you talk a little bit about just -- or actually just give me the consumer volume. Should I take it you mean that given your earlier comments that it was flattish?
Yes. Consumer volume was flat.
Okay. Excellent. And given that your margins now are close to or should certainly be in the very near term be close to what your long-term averages are, so most of the recovery happened, cost inflation appears to remain benign, at least for the next few months, should we expect your volume growth on the consumer side to pick up a little bit more? I know you've talked a little bit about watching your consumers, particularly -- or competitors on the tissue side. But it has been now almost 2, 3 years of difficult volumes in consumer given the macro environment and competitive pressures. But now you do have a little bit more room to react, I guess, from a margin perspective.
It is true, Mohammed, that we have a little bit more room to react. But on the other hand, as I mentioned, it's tough to see right now where volumes for the categories as a whole will be going, given that the economy has slowed down significantly and domestic consumption is just barely above zero, I mean, it's just growing a little bit.
And unfortunately, we continue to see signals that the economy overall decelerating and we continue to see announcements by -- or new policies by the government that might not be what we would like to see in order to get the investment going in the short term. So we expect the macro conditions to remain tough. We expect our competitors to remain fairly aggressive again on the promotion front.
So even though we will be taking very close look at this and seeing how we react, again from both a pricing, innovation, working with retailer standpoint, just a whole combination, we're not sure that volumes will be there in the categories so that they might improve in the coming quarters. Now we certainly will be in a stronger footing coming into 2020, and hopefully the economy will do better next year. And in that case then volumes might start to pick up.
We'll take our next question from Mariano Szachtman with HSBC.
If you could expand a bit, give us some color on the cost reduction program going forward, what we can expect. And also on the cost of raw materials and margins going forward, if you could provide some details, that will be really helpful.
Mariano, look, on the cost reduction programs, again, this will be another very good year in terms of our results, and we are already working on 2020, given some ideas that are materializing for 2021. As I've said a few times, this is not a -- this is an ongoing effort and something that we have been -- that's always been a part of our culture and we've been able to execute effectively, particularly, in the last 4, 5 years, where our plan will be a little bit over 5% of our costs.
And I would expect that it gets harder, but I would expect that we can continue to find savings as we have over this past year and be close to that percentage. And again, I can't give you a number already for 2020. I can't because we're working on it. But it's been 4, 5 years that we've reached that target. And we will work very, very hard to try and do it again in the coming years.
When it comes to the raw materials, well, you guys know that pulp, fibers for recycling, polymers, some of those have receded here in the past quarters. There are still, particularly in pulp, a lot of inventory out there that producers have not been able to bring down because demand has not been that strong, particularly coming from China. So it really will depend on what happens with China's economy, which, as you saw today, grew 6% in the third quarter. It's the lowest growth since, I believe, 1992 or something like that. And if China continues to be around those rates and doesn't pick up significantly, bringing down those inventories will take little bit of time, so prices might stay under pressure for pulp and recycled fibers in the coming -- certainly, from here till the end of the year, but we'll see what happens early next year.
As we say for -- what experts are saying right now is that again they'll stay at this level till the end of the year, and we might see some uptick early next year. But again, it will depend on what happens to inventories going forward. We do expect superabsorbent materials, resins to be better in terms of pricing, particularly, starting next year.
So overall, I think a fairly good cost scenario, together with our cost savings should allow us to have some room to be a little bit more aggressive and try and gain back some of the share we've lost particularly in the tissue category. And again, we're getting into 2020 on a stronger footing, and that should allow us to also have a very good 2020.
With the big caveat of the FX as usual.
Sure. That's a good point.
[Operator Instructions] It appears there are no more questions at this time.
Great. Thank you all for participating in the call, and look forward to talking to you in the first quarter of next year. Have a great end to the year.
Ladies and gentlemen, thank you for joining today's conference call. The call has now concluded. Please disconnect your lines, and have a great day.