Earnings call transcript: ALFA Q1 2025 sees revenue dip, strategic focus

In the first quarter of 2025, ALFA reported a decline in both revenue and EBITDA, down 5% to 17% from the record highs seen in 2024. Despite this, the company has made strides in corporate transformation, focusing on becoming a streamlined food company. With a market capitalization of $4.2 billion and an impressive 42% stock price gain over the past year, ALFA continues to show strong market performance. A credit rating upgrade to BBB and a cash dividend declaration of $83 million were notable highlights. ALFA’s strategic initiatives, including redefining its corporate purpose and diversifying its raw material sourcing, are central to its future plans.

According to InvestingPro analysis, ALFA appears to be trading above its Fair Value, suggesting investors should carefully consider entry points.

Key Takeaways

• ALFA’s Q1 2025 revenue and EBITDA decreased as compared to 2024.
• The company received a credit rating upgrade from BBB- to BBB.
• A cash dividend of $83 million was declared.
• ALFA is focusing on strategic pillars for growth and innovation.

Company Performance

ALFA’s performance in Q1 2025 was marked by a reduction in revenue and EBITDA, attributed to the high benchmark set in 2024. The company’s last twelve months EBITDA stands at $760.95 million, with total revenue reaching $7.83 billion. The company is undergoing a significant transformation, focusing more on its food business. It operates across 17 countries, with notable revenue growth of 12% in Mexico in local currency. Challenges such as the avian flu have affected the poultry segment, but ALFA’s diversification in sourcing and production is expected to mitigate these issues.

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Financial Highlights

• Revenue: Down 5% to 17% compared to Q1 2024.
• EBITDA: Decreased in line with revenue.
• Cash dividend: $83 million declared.
• Credit rating: Upgraded to BBB.

Outlook & Guidance

Looking forward, ALFA plans to rebrand to a Sigma-related name and change trading tickers by the end of the year. The company expects margin expansions in upcoming quarters and is committed to managing raw material costs through strategic price adjustments. Future EPS forecasts for FY2025 and FY2026 are projected at 0.04 USD and 0.05 USD, respectively, with corresponding revenue forecasts of 9.234 billion USD and 9.751 billion USD. InvestingPro’s Financial Health Score for ALFA stands at 2.3, indicating FAIR overall financial condition, with particularly strong scores in price momentum and cash flow metrics.

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Executive Commentary

Eduardo Escalante, CFO, emphasized the company’s evolution: "Alpha has evolved from a diverse portfolio of business units to a focused food company." Roberto Olivarez, Sigma CFO, reiterated the company’s strategic focus: "We are focused on our four strategic pillars."

Risks and Challenges

• Supply Chain Diversification: While beneficial, this strategy requires careful management to avoid disruptions.
• Avian Flu Impact: Continued challenges in the poultry segment could affect future profitability.
• Raw Material Costs: Fluctuations could pressure margins despite price management efforts.

Q&A

During the earnings call, analysts inquired about the impact of US tariffs, which was minimal due to domestic production. Questions also focused on raw material sourcing diversification and the stabilization of the foodservice segment. The company addressed these concerns, highlighting ongoing efforts to manage margin pressures and stabilize the segment post-growth period.

Full transcript - Gpo Alfa A (ALFAA) Q1 2025:

Conference Operator: Afternoon, and welcome to Alpha’s First Quarter twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. There will be a question and answer session at the end of the presentation with instructions given at that time. You may also submit questions at any time during the call using the Q and A button on the webcast, which will be answered during the Q and A session. As a reminder, today’s conference is being recorded.

Now I would like to turn the call over to Mr. Hernan Lozano, Vice President of Investor Relations. Mr. Lozano, you may begin.

Hernan Lozano, Vice President of Investor Relations, Alfa: Good day, everyone, and welcome to Alfa’s first quarter twenty twenty five earnings conference call. Further details about our financial results can be found in our press release, which was distributed yesterday afternoon together with a summarized presentation. Both are available on our website in the Investor Relations section. Let me remind you that during this call, we will share forward looking information and statements, which are based on variables and assumptions that are uncertain at this time. It is my pleasure to participate in today’s call together with Eduardo Escalante, ALFA’s CFO and Roberto Olivarez, Sigma’s CFO.

Before moving on, just a quick reminder that all consolidated figures referenced in this call exclude ALPEG, which meets the definition of a discontinued operation in accordance with IFRS. I will now turn the call over to Eduardo.

Eduardo Escalante, CFO, Alfa: Thank you, Hernan, and thank you all for joining us today. I will focus on updates related to ALPHA’s transformation process, and Roberto will provide an update on Sigma’s results. We received the final requirements to lease Controlla Dora Alpek in late March, ahead of our expectations. As a result, Alfa shareholders received Controlla Dora Alpek shares in anticipation to its first day of trading on April 7. Since then, our corporate transformation is complete.

Alpha has evolved from a different diverse portfolio of business units to a focused food company with leading brands across 17 countries. It has been encouraging to see the transformation being recognized by the investment community as demonstrated by the narrowing of the historic valuation gap versus global food peers. We expect this positive trend to continue as we keep driving Alpha Sigma’s recognition within the consumer sector. Our simplified food focused business model and lower leverage were recently recognized by S and P. We are pleased to see our credit ratings improve one notch within the investment grade spectrum.

Both alpha and sigma are now BBB rated grades, up from BBB minus. Our goal when we started this multiyear process was to unlock the intrinsic value of Alfa’s individual businesses by enabling each of them to be valued on their own merits. Investors having provided the opportunity to participate in each unit separately. Now that the transformation is complete, we look forward to each of the companies reflecting a fair valuation compared with this sector specific peer group. I will now turn the call over to Roberto to discuss Sigma’s results.

Thank you, Eduardo.

Roberto Olivarez, CFO, Sigma: We are certain that our core strengths set us apart to stay ahead of consumer preference in all economic conditions. Our portfolio of top brands, broad distribution reach, supply diversification, multinational production and consumer centered innovation become increasingly valuable as external environment evolve. Our first quarter results are on track with full year guidance, highlighting resilient volume and solid currency neutral performance as select revenue management initiatives drove 5% higher year over year revenue growth in local currencies. Considering the anticipated effect of a weaker foreign exchange rate, first quarter revenues and EBITDA were down 517% respectively when compared to our record high results in 2024. Additionally, EBITDA was temporarily impacted by effects related to the Torrente plant floating in Spain.

It is important to note that this should not affect our EBITDA target as we’re fully covered for property damages and business interruption. In terms of real underlying costs, we are seeing certain pressures in raw materials, primarily poultry and specifically related to the avian flu. These increases are being mitigated through targeted revenue management and efficiency efforts that vary by geography. Looking at our results by region. Mexico continues to be a standout performer with revenue of 12% in local currency, driven by revenue management and volume growth, especially in packaged meats and cheese categories.

Currency neutral EBITDA was flat year on year as price actions have not yet fully offset cost pressure stemming from imported raw materials, particularly turkey and beef. In The United States, we achieved the second highest first quarter volume, revenues and EBITDA. Net volume was 3% lower year over year, mainly due to the temporary softness in mainstream brands volume linked to a seasonal effect in promotional cycles that were deferred several months further into the year. Similar to the Mexican operation, EBITDA was impacted by raw material cost pressures, not yet fully offset by select price actions. European results reflect the temporary impact from the Torrente plant floating mentioned earlier, resulting in total volume down 3% in the quarter.

We responded swiftly, redistributing production across other plants and trusted co packers. These actions have reduced the disruptions, but higher cost and related expenses weighted on margins. On a positive note, we have seen an encouraging pickup in volume growth of our branded products relatively to non branded volume in the beginning of the year. In Latin America, we posted record first quarter volume and revenue growth in Ecuador, Peru and The Dominican Republic offset softer trends in Central America. Jet EBITDA was down 16% in local currency, primarily due to the higher raw material costs.

As we look ahead, a clear sense of purpose is crucial for our long term success. Earlier this year, we redefined ours, delicious food for a better life. This reflects our commitment to always offer flavorful high quality food that creates joyful experiences while also contributing to making life even better for both people and planet. Our strategy was complemented accordingly and the entire organization is aligned to achieve it. We are focused on our four strategic pillars, defending and growing the core business, developing new sources of revenue, becoming a future fit organization by nurturing our culture and individual team member capabilities to better serve our consumers and exploring the future, focused on health through food and responsible protein.

I will now turn the call back to Eduardo for additional comments and closing remarks. Thank you.

Eduardo Escalante, CFO, Alfa: Thank you, Roberto. I will wrap up my presentation with a brief update on recent corporate developments and outline relevant next steps. On March 25, Alpha held its Annual Shareholders Meeting where a cash dividend of $83,000,000 was declared. Additionally, shareholders approved a reconfiguration of the Alpha Sigma Board of Directors. The new board is comprised of 14 members who serve on Alpha’s board and Sigma’s advisory board.

This new structure aligns with our post transformation business needs, strengthening governance with deeper consumer sector expertise. Looking ahead, we are moving forward with a complete rebranding of Alpha Sigma. Soon, we will be calling an extraordinary shareholders meeting to propose adopting a Sigma related name to replace Alpha and reaffirm to the market that we are now solely a food business. This initiative also involves changing the trading tickers of Alpha shares and bonds before the end of the year. We are excited by the prospects of this new era as a dedicated food player.

Alpha Sigma offers a compelling investment thesis combining the stability of the global food sector with the upside of an ongoing revaluation process. I want to thank each of the Alpha team members for their hard work getting us to this point and our shareholders and bondholders for supporting our initiatives. This concludes my remarks. We are now available to take your questions. Please, Herman.

Hernan Lozano, Vice President of Investor Relations, Alfa: Sure. Operator, please instruct participants to queue for questions on ALPHA or SIGMA. Eduardo, Roberto and Al will take your questions on ALPHA SIGMA. Different from previous quarters, the Q and A portion of the call has been consolidated into a single section.

Conference Operator: Dear participant, if you’d like to ask a question about Alpha and Sigma, please use the raise your hand button of your Zoom tool.

Conference Operator: Our first question comes from Pablo Riccardi of Itau. Please, sir, go ahead.

Pablo Riccardi, Analyst, Itau: Congrats on the results. I have two questions. The first one is on the volume performance we saw in Mexico. I don’t know if you can elaborate further if if you have seen maybe a downturn, in terms in in category or that consumer was actually very strong in the quarter because despite that leap year, you managed to grow 1%. And my second question is on your, European operations.

Can you comment on how that euro impacted your results on the quarter? Thanks.

Roberto Olivarez, CFO, Sigma: Thank you, Pablo. This is Roberto. Good morning. Good afternoon. Yeah.

Related to volume in Mexico, as as you mentioned, we grow volume, 1%. If you see by channel, we we start seeing since the since the end of of last year the traditional channel, the the mom and pops has been growing a little bit or or is a little bit better than than the modern trade. In terms of categories, I will say, particular I mean, for us, packaged meat and cheese were the categories where where we see most of of the volume. And that has also to do with some of the limited capacity that we have in yogurt that that we’re working on on on unlocking some more capacity there. And and, yes, in terms of the con the consumer, at least what we have seen is consumer that is moving a little bit more to a traditional channel, but yet we we have seen volume resilient or growing for for us.

In terms of the European operations, as as we expressed in in in the report and in my remarks, most of the impact or all of the impact versus versus last year has to do with the Torrente plant floating. If if you normalize for for that effect that we expect to recover, that we’re gonna recover through the business interruption part of the insurance, insurance, EBITDA in in in in Europe actually will have been increasing 3% in in local currency.

Pablo Riccardi, Analyst, Itau: Perfect. That was great, Roberto. Thanks.

Roberto Olivarez, CFO, Sigma: Thank you, Pablo.

Conference Operator: Our next question comes from Enrique Morello of Morgan Stanley. Please, sir, go ahead.

Enrique Morello, Analyst, Morgan Stanley: Hi, Eduardo, Roberto, and Henan. Thank you so much for taking my question. I have two questions on Europe here. So first, if you could just provide more color on when you should expect to see the Tohinete plant operations going back to normal and when the negative effects on the results should fade out? It would be helpful.

And second, on Europe margins. Even when we adjust for the Torrente plant, we see margins declining from the 6.8 last quarter. It seems to exist a normal weaker seasonality in the first quarter. But if you could explore a bit if there were other factors behind that sequential decline such as raw material pressures, labor, or something like that, that would be helpful as well. I’m just trying to get a better sense on your underlying profitability recovery for the year.

If you can still expect another year of significant margin expansion in the division, perhaps even returning to pre-twenty twenty two levels or something like that. Thank you very much.

Roberto Olivarez, CFO, Sigma: Thank you, Enrique. Sure. Let let let me talk about the Torento plant. Since the the floating happened, we have been working diligently to recover the the the production capacity. We redirected or we have redirected, as of right now, to 755% of the volume that we produce that we used to produce in that in that facility to other facilities in in Europe and trusted co packers in the region.

We we are working analyzing different alternatives to to recover the capacity that we have in that plant as we will continue working in in these months to to to be able to produce everything that or for almost everything that that we used to produce in in in that plant. In regards to to margins, let let me separate the the answer in two. First, yes, there’s a a big seasonal effect in in Europe. Usually, fourth quarter is significantly higher than than the rest of the quarters. But during this quarter, we started CO during first q twenty five, we started seeing some pressures.

Also in Turkey, this is so so we have a a avian flu both in The Americas and Europe that has impacted Turkey production and and those impacting prices. So we have seen some raw material pressures in Europe, particularly in Spain due to Turkey. We have been increased starting to increase prices. We already negotiated some price increases that are going to be fully implemented by the second quarter in Spain. With that, we do expect to have some margin expansions in the next quarters.

Enrique Morello, Analyst, Morgan Stanley: That’s super clear. Thank you very much.

Conference Operator: Our next question comes from Nicolas Treba of Bank of America. Please sir, go ahead.

Nicolas Treba, Analyst, Bank of America: Thanks very much for the chance to ask questions. I have a question regarding The U. S. Business of Sigma. If you can discuss, please, the impact from the tariffs implemented by the new US Administration.

If you can discuss your impact on cost, on raw materials, and also your ability to pass on these cost increases to customers. Thanks.

Roberto Olivarez, CFO, Sigma: Thank thank you, Nicolas. So almost all, I will say, between 9098% of of what we sell in in The US is produced in The US. There’s a limited SKUs that we imported from other regions. Since that happened in terms of finished products, there’s there’s limited impact or very, very small impact on on tariff. There there could be for some raw materials, but, again, most of the raw materials that we use, particularly all all raw meat and dairy raw materials are are procured within within The States.

There might be some packaging or or or CapEx that could could come from other places. We’re we’re working on on seeing the potential impacts, but they will be minimal to to to the results.

Nicolas Treba, Analyst, Bank of America: Thanks very much.

Conference Operator: Our next question comes from Andres Ortiz of BTG. Please, sir, go ahead.

Andres Ortiz, Analyst, BTG: Hello, Eduardo, Roberto, and Man. Thank you for taking my questions. I have two. The first one is in in Mexico. Since 4Q, we saw price increases, you mentioned, Roberto, that we will also see it in the first q to offset the mark the margin pressure.

How is that advancing? Could we expect margins to recover from from where we are now, or what’s your view on that? And the second one, it’s on the expenses at the alpha level. We saw that basically EBITDA, sigma, and alpha became the same. Is that what we should expect now?

That there are no longer corporate expenses at the holding level? Thank you.

Roberto Olivarez, CFO, Sigma: Okay. So thank you, Andres. I take the question on Mexico price increases and margin. This is Roberto. Yes, we have been increasing prices, as you mentioned since the last quarter of of last year.

During first quarter this year, we we continue to increase prices and booked it. And we’re working right now to further extend those those price increases during even second q twenty five. We are still seeing some some pressures in in raw material cost between particularly Turkey and some beef cuts for our food delivery business. We’re working on on those price implementations. But as as you see in particularly in results in local currency, EBITDA versus the record number that we have in last year remain flat due to those timely price increases that we started doing since last year.

Andres Ortiz, Analyst, BTG: Thank you. Very clear.

Eduardo Escalante, CFO, Alfa: Hi, Andres. This is Eduardo, and and I’ll take I’ll take, your second question regarding the expenses. We are we are, of course, is still finishing up the the let me call it the the fine tuning phase of of this of this process. We we consider that we finished the transformation phase, which included all the major changes in conglomerate structure that that that, we have been discussing during during our calls. However, we we still have some some cleaning up still to do in our balance sheet since you have to realize that we are a fifty year conglomerate, and now we are focused on base basically only on food.

So we do have some housekeeping items still going on. Those regarding those items, what what we think is going to happen is the the results of Sigma and and of alpha will converge will continue converging towards towards having the same number. Still, you will see some minor differences going forward between both results. I would say, you can consider the expenses of Alpha to be the difference between the results of of alpha and the results of Sigma going forward, but certainly, that should become small small and small as as we move move forward. That’s that’s what what, I can I can tell you regarding our expenses?

They have been coming down for the last few years, and we expect them to continue doing so.

Andres Ortiz, Analyst, BTG: Perfect. Thank you very much. And another question, if I may add, this one is also Mexico. It’s about the consumer. We have been hearing that that we have seen some sequential improvement in consumption in Mexico, particularly looking at central sales from that.

Are you seeing the same today by month, I mean?

Roberto Olivarez, CFO, Sigma: You’re talking about that through the through the quarter, you have seen better dynamics in consumption?

Andres Ortiz, Analyst, BTG: Exactly. Exactly. Is that what you you experienced?

Roberto Olivarez, CFO, Sigma: I think it has been very similar through through through the quarter. What we have been seeing is is what what I mentioned with with the question that Pablo did that, particularly, we have been seeing the traditional channel trending a little bit faster than than or or higher than than the other channel. But that has been similar in during the months of the quarter.

Andres Ortiz, Analyst, BTG: Thank you very much.

Conference Operator: Our next question comes from Renata Kavrak of Citibank. Please go ahead.

Renata Kavrak, Analyst, Citibank: Hi, everyone. Thank you so much for taking my question. I have a follow-up regarding the sourcing of raw material. We know that currently, the situation in terms of tariffs Mexico is a relative winner. But, anyway, I think, there is still a lot of volatility in the markets because, nobody knows, where the global situation will stay.

So my question is more towards if you see any opportunities to have some more diversification in terms of raw material sources, especially related to poultry, eventually meat that I I imagine it’s mostly sourced from US. So opportunities to to source this in other countries. Thank you.

Roberto Olivarez, CFO, Sigma: Thank you, Renata. This is Roberto. I would say definitely, we have been working since since a couple of years now of to diversify more raw materials sourcing. There’s a let me give you an example. Probably two years two years ago, we used to to buy very, very little from Brazil.

Last the the ’23 and ’24 and through this year, we have been increasingly procuring more raw materials, particularly poultry, but also other raw materials from Brazil. We have been diversifying also from from other regions. We’re looking right now into into other regions of of of Europe and and even Asia. We start bringing some beef from Argentina last year. So so, yes, definitely, I will say we have been increasingly looking for opportunities to diversify our sourcing.

In the past, it it used to be a lot of US focus, but now it’s it’s it’s less. And that is and and that and the capability that we have to build up inventory and and and use frozen meat or or dry raw materials for for for for for some of our products, help us with with with that.

Renata Kavrak, Analyst, Citibank: Very clear. Thank you so much for the color.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you, Renata.

Conference Operator: There being no further questions, I would like to return the call to management.

Hernan Lozano, Vice President of Investor Relations, Alfa: Thank you, operator. We do have one additional question from coming in through the Q and A, and this relates this is for Roberto. Whether, you provide you could provide some additional color on the foodservice segment and how that is performing relative to the other segments, given that it could be a little bit more sensitive to an economic slowdown.

Roberto Olivarez, CFO, Sigma: Thank you. Sure. So in the foodservice business, particularly Mexico where we have that that channel more developed, similar to to the to the other retail business, we have been seeing some pressures in raw materials, particularly beef. And and and this is also related to FX or mainly related to FX since we import most of our of our beef raw materials payable in they are payable in US dollars. So we have been working to increase prices to mitigate that effect.

And with that, we have been seeing that volume that was growing last year is starting to consolidate at at a certain level and stop growing. Yet there there’s there’s still some some more revenue management initiatives that we need to do there. But once we have recover the margin in that particular sector, we will continue exploring the strategies that we have in terms of volume.

Hernan Lozano, Vice President of Investor Relations, Alfa: Great. Thank you. And it seems that this was our last question. And in that case, I would just like to thank everyone for their interest in ALFA. If you have any additional questions, please feel free to reach out to us.

Have a great day, and we will now disconnect.

Conference Operator: This concludes today’s conference call. You may disconnect.

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