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Arca Continental, one of the largest Coca-Cola bottlers globally with a market capitalization of $3.88 billion, reported a modest revenue increase for the third quarter of 2025. Consolidated revenues rose by 0.5% to 62.9 billion pesos, while net income saw a 3.5% increase to 5.3 billion pesos. Despite challenging market conditions, the company maintained its market leadership and continued to expand its product offerings. The stock price showed a slight increase of 0.45%, reflecting a cautious yet positive market response. According to InvestingPro analysis, the company currently trades at an attractive P/E ratio of 4.47x, suggesting potential value opportunity.
Key Takeaways
- Consolidated revenues increased by 0.5% in Q3.
- Net income grew by 3.5% to 5.3 billion pesos.
- EBITDA margin expanded to 20.4%.
- Continued focus on product innovation and market expansion.
- Stock price rose by 0.45% following the earnings report.
Company Performance
Arca Continental demonstrated resilience amidst a challenging macroeconomic environment, with consolidated revenues rising slightly by 0.5% in the third quarter. The company, which maintains a GOOD Financial Health score according to InvestingPro metrics, has been focusing on expanding its low-calorie product portfolio and enhancing its beverage offerings. Nine-month revenues showed a more robust growth of 6.6%, suggesting a strong underlying performance over the year. The company’s total revenue for the last twelve months reached $16.4 billion, with an EBITDA of $1.72 billion, demonstrating its significant market presence.
Financial Highlights
- Revenue: 62.9 billion pesos, up 0.5% year-over-year.
- Net income: 5.3 billion pesos, an increase of 3.5%.
- EBITDA: 12.8 billion pesos, up 1.2%.
- Net profit margin improved to 8.4%.
Outlook & Guidance
Looking ahead, Arca Continental anticipates continued market volatility and potential tax increases in Mexico. The company remains committed to maintaining its EBITDA margins while preparing for volume challenges in 2026. Analysts maintain a positive outlook, with a consensus recommendation of 1.8 (Buy). For detailed analysis and additional insights, investors can access the comprehensive Pro Research Report available on InvestingPro, which provides in-depth coverage of Arca Continental among 1,400+ top stocks. Strategic initiatives include focusing on affordability and premiumization to navigate the anticipated economic headwinds.
Executive Commentary
CEO Arturo Gutiérrez stated, "We are focused, ready, and energized to capture the opportunities ahead." He emphasized the company’s agility and discipline in navigating market challenges. Gutiérrez also highlighted the company’s commitment to being part of the solution in reducing obesity rates.
Risks and Challenges
- Macroeconomic pressures and inflation may impact consumer spending.
- Potential tax increases in Mexico could affect profitability.
- Unusual weather conditions in Mexico have impacted sales volumes.
- Rising input costs continue to pose challenges.
- Economic slowdowns across markets could hinder growth.
Q&A
During the earnings call, analysts inquired about the potential changes in SNAP benefits in the U.S. and their impact on the company’s performance. Discussions also covered margin performance in Mexico and the implications of tax changes. Additionally, the company addressed its strategic approach to the South American market and evaluated potential mergers and acquisitions opportunities. Based on InvestingPro’s Fair Value analysis, Arca Continental currently appears undervalued, presenting a potential opportunity for investors seeking value in the beverage sector.
Full transcript - Arca Continental SAB De CV (AC) Q3 2025:
Melanie, Conference Moderator: Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review their results for the third quarter and the first nine months of 2025. Their earnings release went out this morning, and it’s available on the company website at arcacontinental.com in the investor relations section. It’s now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutiérrez, the CFO, Mr. Emilio Marcos, and the Executive Director of Planning, Mr. Jesús García. They’re going to be making some forward-looking statements, and we just ask that you refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance. With that, I’m going to go ahead and turn the call over to the CEO, Mr. Arturo Gutiérrez, who is going to begin the presentation. Please go ahead, Arturo.
Arturo Gutiérrez, CEO, Arca Continental: Thanks, Melanie. Good morning, everyone, and thank you for joining us today to review our results for the third quarter and to share some important recent developments. Let’s begin with our consolidated results. I’m pleased to report another quarter of solid execution and sequential progress across our territories, even as the broader economic environment remains challenging. Our teams continue to navigate market headwinds with agility and discipline, driving robust profitability. Total consolidated volume declined 1.8% in the quarter, while consolidated revenues grew 0.5%, supported by effective portfolio mix and revenue management, partially offset by unfavorable FX impacts. Consolidated EBITDA grew 1.2% in the quarter, reaching a margin of 20.4%. This achievement marks a significant milestone, with third-quarter EBITDA margin at its strongest point since the acquisition of our U.S. operation in 2017.
These results underscore our relentless execution, the strength of our portfolio, and our continued focus on driving profitable growth. Let me expand on the results across our geographies. In Mexico, unit case volume, excluding jug water, declined 2.9%, largely reflecting the impact of heavy rains and below-average temperatures across much of our territory. Despite these temporary weather-related pressures, still beverages grew 2.2%, led by tea, juices, nectars, and energy drinks, capitalizing on the positive momentum in the supermarket channel. Coca-Cola Zero continued to outperform, delivering sequential double-digit growth, supported by the introduction of the new 450-milliliter format, which continues to resonate with consumers seeking convenient and affordable options. Santa Clara brand continues to deliver strong performance in Mexico, achieving double-digit volume growth rates, supported by robust momentum in flavored and specialized milk.
We continue to gain value share in the value-added dairy category, reflecting the strength of our innovation and disciplined execution. Net sales grew 2.8%, with average price per case, excluding jug water, up 6.4%, underscoring our strong revenue management capabilities. EBITDA decreased 3% in the quarter, resulting in a 23.9% margin, reflecting our disciplined commercial execution and solid revenue management capabilities in a softer demand environment. In South America, total volume declined 0.6% in the quarter, primarily due to softer performances in Ecuador and Argentina. This was partially offset by growth in Peru. Total revenue declined 13.6%, and EBITDA was down 1%, with a margin of 18%. This quarter reflects a steady, though cautious progression of the recovery that began in the first half of the year, with meaningful variation across countries.
Collectively, our South American operations are advancing through a period of disciplined stabilization, setting the stage for more balanced and sustainable growth ahead. In Peru, total volume increased 2% in the quarter, supported by a stable economic environment and resilient consumer demand. Growth was broad-based across categories, led by sparkling up 1.7%, stills up 1.9%, and water at 4.8%. Our core brands Coca-Cola, Inca-Cola, and Sprite delivered strong growth, up 1.2%, 1.6%, and 8% respectively. Volume recovery remained consistent across channels, with convenience stores leading the way, up 22%. Supermarkets showed a sustained rebound, while traditional trade maintained solid momentum, supported by our effective price pack and cross-category strategies, further enhanced by our digital capabilities. Turning to Ecuador, volume declined 1.2%, reflecting softer market conditions and a fragile yet gradually improving macro environment.
Even so, our team remained focused on executing our fundamentals and driving performance in the areas within our control. We sustained our value share in NARTD beverages, driven by continued growth momentum in still beverages, up 3.6%. In the sparkling category, Coca-Cola Zero once again delivered solid growth of 2.2%, while Fanta and Fioravanti grew 6.2% and 3.6% respectively. The water segment rose 3%, showcasing the strength of our diversified portfolio. We also continue to refine our price pack and channel strategies, drive the adoption of returnable packages, and invest in targeted market initiatives to strengthen our long-term position. Year to date, we have installed more than 17,000 cold drink units, further enhancing our market coverage and reinforcing execution at the point of sale. In Argentina, volume declined 5.6% in the quarter, reflecting the near-term effects of the country’s economic adjustment.
Nevertheless, we gained value share across NARTD categories, supported by our sparkling portfolio and our continued focus on affordability and returnable packaging initiatives. While volatility remains, our disciplined execution and agile commercial approach position us well to capture growth as conditions normalize. Our beverage business in the United States delivered another strong quarter, sustaining solid momentum and achieving robust operating results. This marks our 30th consecutive quarter of EBITDA growth. Adding to this momentum, our U.S. team was recognized as the best Coca-Cola bottler in the world, receiving the prestigious Candler Cup. We are proud to be the only bottler to have earned this award twice, underscoring our operational excellence and market leadership. These impressive milestones reflect our team’s consistent execution and the strength of our business model.
Solid performance this quarter was driven by effective management of our price pack architecture, disciplined cost controls, and continued focus on maximizing the value of our most profitable packages. Net revenues rose 3.5% this quarter, with the average price per case up 4.8%, supported by our strategic focus on boosting promotional efficiency through our digital trade promotion optimization platform. Volume for the quarter declined 1.3%, and transactions grew 0.1%. Key performance highlights included a 5.9% increase in our low-calorie portfolio, led by Coca-Cola Zero, Diet Coke, and both Diet Dr Pepper and Dr Pepper Zero. In the stills portfolio, Monster Energy, Fairlife, Fairlife Core Power, and Smart Water continued to post sequential growth, supported by robust brand execution. Notably, EBITDA increased an outstanding 9.7%, representing a margin of 17.2%.
In an important update on our digital agenda, our e-commerce business continued to deliver strong results, driven by enhancements in our eB2B capabilities and outstanding execution in the e-retailer space. I’d like to close our U.S. update by sharing our excitement for the 2026 FIFA World Cup and our role as host city supporters for the Dallas and Houston venues. Through this partnership with the World Cup Organizing Committee, we will actively support the city’s legacy programs and showcase our brand through targeted initiatives that engage fans and local communities. Our food and snacks business delivered a resilient performance, posting a low single-digit sales decline for the quarter. While facing top-line challenges, our team remained focused on profitability through effective price management, portfolio optimization, and operational efficiencies. In line with our broader sustainability objectives, we continue to advance the clean label program across our U.S. snacks portfolio.
This includes the removal of artificial colors, flavors, and preservatives, as well as the simplification of ingredient lists. These efforts exemplify our commitment to transparency, product integrity, and long-term consumer trust. I will now turn the call over to Emilio. Please, Emilio.
Emilio Marcos, CFO, Arca Continental: Thank you, Arturo. Good morning, everyone, and thank you for joining our call. As Arturo highlighted, the same factors that influenced our performance in the first half of the year continue to play a significant role in the third quarter. The macroeconomic environment remained challenging, and weather conditions were still unfavorable. Even so, we have a sequential improvement in volume for most of our operations, demonstrating strong team performance despite challenges. The improvement in volume, together with our solid revenue growth management capabilities and disciplined approach to expense control, resulted in an expansion of our consolidated EBITDA margin. Let me offer further insight into our financial results. In the third quarter, consolidated revenues increased 0.5%, reaching $62.9 billion pesos. Revenues for the nine months of the year rose 6.6% to $183.4 billion pesos, mainly driven by an effective pricing strategy.
On a currency-neutral basis, revenue rose 3.8% in the quarter and 3% year to date. During the quarter, LG&A expenses rose 1%, reaching $19.4 billion pesos. Despite the contraction in volume, LG&A to sales ratio was fairly in line with Q3 2024 at 30.8%, reflecting our continued commitment to operational discipline. In the quarter, gross profit increased 1.2% to $29.5 billion pesos, while gross margin expanded by 30 basis points due to our solid price pack architecture and solid hedging strategy. For the quarter, consolidated EBITDA increased 1.2% to $12.8 billion pesos, with a 10 basis point margin expansion reaching 20.4%. In the nine-month period, EBITDA grew 6.1%, reaching $36.6 billion pesos, while EBITDA margin decreased by 10 basis points to 20%. On a currency-neutral basis, EBITDA rose 2.6% in the quarter and 2.2% as of September.
Net income in the third quarter reached $5.3 billion pesos for an increase of 3.5%. Net profit margin increased 20 basis points to 8.4%. Now moving on to the balance sheet. As of September, cash and equivalents totaled $32.3 billion pesos, while total debt stood at $63.9 billion pesos, resulting in a net debt-to-EBITDA ratio of 0.62 times. In our most recent board meeting, it was approved to distribute an additional dividend of $1 peso per share to be paid on November 5th. Combined with the ordinary dividend of $4.12 pesos distributed in April and the extraordinary dividend of $3.50 pesos paid in June, we will reach a total dividend of $8.62 pesos per share. This reflects a payout ratio of 75% of retained earnings and a dividend yield of 4.3%. Total CapEx reached $11.8 billion pesos, representing 6.4% of sales.
Investments were primarily directed towards expanding our production capacity, ensuring that we are well positioned and sustain future growth. We also continue to enhance our distribution and commercial capabilities, which are key enablers for our long-term strategic plan. Looking ahead, we expect market volatility to continue throughout the rest of the year. We remain confident in our business strength and ability to create value despite challenging conditions. We will continue managing expenses carefully to drive profit and sustainable growth. That concludes my remarks. I will turn it back to Arturo. Please, Arturo.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Emilio. As we reflect on this quarter, our disciplined execution enabled us to protect volumes, sustain market share, and maintain profitability even in challenging conditions. Furthermore, as we mark the third year of our collaboration agreement with the Coca-Cola Company, this partnership continues to deliver on its core objectives while unlocking new opportunities through a broader portfolio. At the same time, we’re staying proactive on regulatory developments and pursuing strategic initiatives, ensuring our readiness to capture growth when market conditions improve. By balancing resilience with agility, we’re positioned to deliver a strong and sustainable performance across cycles and continue creating long-term value for our shareholders. We’re focused, ready, and energized to capture the opportunities ahead. Thank you for your continued trust and support. Operator, please open the line for questions.
Operator: Thank you. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star two. In the interest of time, we ask you to limit yourself to one question. Once again, that is star and one to ask a question. We’ll pause a moment to allow questions to queue. We’ll take our first question from Ulises Argote with Santander. Please go ahead. Your line is open.
Thank you. Hi, everyone. Thanks for the space for questions. My question is related to the margins in the U.S., right? Another quarter with positive surprises there. I was just wondering if you could give us some color on what continue to be the main drivers there and the main levers despite that slowdown in top line that we’re seeing. Maybe just to pick your brain on how sustainable you think the trends are going forward. Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Hi, good morning. Thank you, Ulises. First of all, we have to say that we’re very satisfied with the profitability in our U.S. business, considering also that we faced many challenges in that market. As you know, third quarter, we grew EBITDA in dollar terms close to 10%, and our margin is above 17%, which we, again, we’re very pleased with that. The drivers behind it, as we’ve said before, are our pricing capabilities and also the management of promotions. We’re looking forward to combine this premiumization of our portfolio with also a price architecture that would cover all segments, considering, again, the economic dynamics. We’ve also worked on efficiency projects, and I would say that our OpEx ratio has shown this operational discipline. We expect that also to be sustained. There are some efficiency projects underway.
In fact, one of the most important ones will not be fully captured in 2026, the Wild West project that we call, which is the restructuring of our supply chain and some of our plants and warehouses in the U.S. We also are looking at input costs in 2026. They’re expected to rise due to inflation, but we do have also a strong hedging strategy. I will ask Emilio to expand on that part. In general, I would say that we are very confident for 2026 to sustain our current margins. Emilio, why don’t you expand on our raw materials and hedging situation?
Emilio Marcos, CFO, Arca Continental: Yes, thank you for your question, Ulises. Yes, for this year, as we have mentioned, we have over 97% of our LME needs in the U.S. and 48% of Midwest Premium portion for this year and 79% of high fructose needs. We started to hedge for next year. For 2026, we have 95% of our LME needs for next year and 20% of Midwest Premium. That will allow us to, together with what Arturo already mentioned, consolidate the margin levels that we have this year, and we expect to reach those levels, at least those levels for next year.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Ulises.
Thank you very much. Super clear.
Operator: Thank you. Our next question comes from Thiago A. Bortoluci with Goldman Sachs. Please go ahead.
Thanks, operator. Good morning, everyone. Thanks for taking our questions. Arturo, question on you for Mexico, right? How should we read the combination of negative sparkling volumes with returnables losing participation in our mix? If I may expand, the reason I’m asking this is because the big debate today in the space is clearly how much of the drag is structural versus temporary issues, namely comps, weather, and another few. It would be very helpful to hear your perceptions on how you’re seeing underlying elasticity, affordability, price pack performance, and overall performance by channel. If we can read anything between your volume print and your packaging performance in the quarter, especially in a context where weather conditions didn’t help. Thank you very much.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Tiago. Let me start by giving the context of the consumer environment in the third quarter in Mexico. As you said, this is a combination of not very favorable weather, increased rainfall, cooler temperatures. It was very, very unusual. Rainfall was probably 40% higher than usual in the north of Mexico, even more than that, maybe in some cases just doubled and tripled in the west regions for us. Temperatures also affected volumes and consumption and traffic throughout the quarter. There was also the economic dynamics where activity slowed down, and any activity really was driven by exports rather than domestic demand. Internal consumption has been reduced, and especially retail activity and traffic weakened. I would like to think that that is also temporary, not only weather, which would naturally be different as we think about next year.
In terms of the economic weakness, we believe that as we gain greater clarity around trade rules and tariffs and the relationship with Mexico and bilateral trade with the U.S., that will enhance Mexico’s competitiveness and will revive investment, formal job creation, and with that, domestic consumption. If you look at returnable packages, the main reason is that supermarkets were basically the only channel that grew volume in the third quarter, and that was driven mostly by intensified promotions, considering the current situation. We are going to be pursuing our strategy of affordability going forward in Mexico, which means entry-level packages, both returnable and non-returnable packages, and the 235, 12-ounce, 250 ml, one-way packages, the 450 that probably you’ve seen in the market, one-way, very important for us.
The multi-server fillable format, what we call the universal bottle, all those strategies will continue to move forward as we face these challenges. It’s hard to isolate the effect of weather and the economic situation, but we are convinced that those are the main factors. Our execution in the market continues to improve, and our leadership in the market as well, which we believe that’s the most important part.
That’s helpful, Arturo. Thank you very much.
Thank you, Thiago.
Operator: Thank you. Our next question comes from Ben Theurer with Barclays. Please go ahead. Your line is open.
Yeah, good morning, Arturo, Emilio. Thank you very much for taking my question. I wanted to get a little bit of how you think about pricing going forward. I mean, obviously, we know about what’s in the proposal in terms of taxes for the different categories. As we think about the raw material inflation you face and what you usually pass on, what is your strategy going to be towards the end of the year and then into next year? How should we think about pricing? How much is needed for the taxes? How much would you do on top of it? What are kind of the sensitivities you’re looking at as it relates to your volume if you were to raise those prices? Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Yes, thank you, Ben. First, let me talk in general about our pricing strategy, which really has not changed. I think under these market conditions, it’s demonstrated that these capabilities do work very effectively if increasing prices in line or above inflation in every business unit. This requires not only these very advanced pricing tools that we have designed jointly with the Coca-Cola Company, but also leveraging the trade promotion models which operate at a local level. I think for years, we have demonstrated these capabilities, which, as I’ve said, if there is one fundamental capability that consumer goods companies need to get right now or for the future, it’s precisely revenue management. For us, it’s combining affordability and also a premiumization strategy, as I said before. We will continue to monitor those pricing dynamics and make sure that we are competitive in the marketplace.
Going specifically to your point about taxes in Mexico, this tax that we’re expecting to be implemented for 2026 would require us to pass through the impact via prices. As you know, we’ve done that before, actually 12 years ago. We have estimated that that increase would be in the range of 8% to 10%, probably. We would have to add inflation after that, considering that we want to remain competitive in terms of margins in 2026. We don’t know exactly what the elasticity would be, but there’s certainly going to be an impact in volume for next year. We have some of the learnings of past elasticity patterns following similar adjustments in 2014. At the same time, we have so many things that work in our favor in the Mexico market going forward.
There are reasons to believe that we’re going to be able to mitigate part of that impact. There are many factors. I mentioned before the impact of unfavorable weather this year. We also face this difficult economic situation. We expect normalization next year, considering the challenges we faced with brand retaliation that you know about, some product constraint in our supply chain, particularly Topo Chico in 2025, and the opportunities to keep deploying our digital capabilities that are still going to be rolled out, some of the new features, and very particularly the incremental demand that would be driven by the major events in Mexico and the U.S., the FIFA World Cup. In Mexico, we’re also going to have the 100th anniversary of Coca-Cola in Mexico.
There are so many things that will work in our favor, considering that certainly it’s going to be a challenging volume situation as we pass along the tax that has been imposed or that’s going to be imposed.
Thank you. Thank you very much for that explanation. Very clear.
Thank you, Ben.
Operator: Thank you. Our next question comes from Felipe Ucros Nunez with Scotiabank. Please go ahead. Your line is open.
Thanks, operator. Good morning, Arturo, Emilio, and team. Thanks for the space. Quick question on the taxes in Mexico. Of course, not great news getting this tax increase, but wondering if you can comment on a couple of things. The first one is that the differences between this tax and the one that we saw 12 years ago, no tax for beer were changed. The gap between soft drinks and beer, I guess, is changing. I’m wondering if you can comment on what type of impact you would expect from that differential and whether it’s material for us to monitor it or you think the occasions are so different that it’s really not a concern. The second question related to this is, it looks like there’s more serious incentives in place to move the consumer towards no-low options.
I’m wondering if you can talk about how this may change profitability and returns for the business in the long run, if at all. I’m talking about, you know, there’s differences on the price per unit of sweetening from sucralose and sugar. Perhaps there’s a margin differential between the different presentations, and concentrated pricing might also be different. Just wondering if there’s going to be like a change on the profitability of the business in the future from the change to no-low categories. Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Felipe. For the first part, we really don’t anticipate an impact from any difference in the tax treatment of other categories, really. We’re looking at the dynamics within our own industry, for sure. In this case, as you saw, we really have a commitment to reduce the calories in our portfolio going forward. This is not something that is new or that is improvised by the system. We’ve been, for years, developing and promoting options with less sugar and with no sugar in Mexico and in other markets. Now what we intend to do is to offer more proactively our broader portfolio, a more balanced and lower-calorie portfolio. Those are part of the commitments we’ve made with the government as we discussed the implementation of the tax. As part of that, we also want to promote competitive prices and affordable Coca-Cola Zero packages, particularly.
This, as you know, has been a great innovation in our portfolio. Coke Zero continues to grow, and we will connect that also even to the FIFA World Cup next year. Coke Zero will take center stage in many of the campaigns connected to the World Cup. In terms of profitability, we don’t think that that will really affect overall profitability going forward.
Great. That’s very clear. If I can do a second one on stills in Mexico, they did very well. It’s another quarter with the same categories. See Energy and Juice doing very well. I was wondering if you could talk a little bit about what you’re doing there and why the category is behaving differently from others during adverse weather. Is it that the elasticity for this category is a little different, or it’s more a case of things that you’re doing at the micro level?
I think it shows the opportunity that we have to grow these categories. As I’ve said before, energy and juices and sports drinks and tea, they’re underdeveloped, really, in the Mexican market. We have proved that we can be successful in those categories as well. I think that’s very important as you look at the story of Powerade the last 15 years. Now you see Santa Clara, which I mentioned, also it’s a great success story. Tea grew 22%. Juices grew 6%. Monster continues to grow. I think it’s interesting to see them grow even under very challenging conditions, which means the great opportunity that we have to increase the per capitas of these categories that they don’t compare very favorably to more developed markets like our own U.S. market. It’s very promising to see them grow even under more challenging conditions.
We’re excited about those possibilities and especially that we can be leaders in those categories as well, as we’ve also demonstrated.
Great. Thanks for the color there.
Thank you, Felipe.
Operator: Thank you. Our next question comes from Rodrigo Alcantara with UBS. Please go ahead.
Hi. Hello. Good morning, Arturo, Emilio. Nice to hear from you. I want to go deeper into some of the comments about the commitments regarding with the government, right, ahead of the tax discussion, right? In this conference, the government and the POC system hosted a couple of days ago. As you mentioned, there were some commitments in relation to this trend of increasing low-carb categories, etc., etc., right? Like namely, the reduction of commitment to reduce by 30% the caloric needs of your products in a period of, if I’m not mistaken, one year or something like that, right, in addition to other commitments, right? The question here would be, how much of a challenge or bill in your view is implementing this, right? How are you implementing this?
Possibly link it to the previous question if, as a result of implementing this, we may see some impact, you know, on margins or profitability, which I think you already said no, right? I mean, just to confirm that, that would be the main question. The other one, just because it’s the one that we’re receiving from investors as we speak, you know, we have seen macro numbers in Mexico at the margin not looking as good as we may desire, right? Retail sales in September quite weak. I mean, how would you think a fortune would be shaping up in terms of volumes, talking from a consumer demand perspective in Mexico? That would be my question. Thank you very much, Arturo.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Rodrigo. Talking about the taxes and also the commitments, as I said, this is really not new for us. In terms of the commitments that we made with the government, with Congress, this is part of this plan to strengthen our caloric reduction innovation. This has been around for years. The plan builds on the calorie content that we’ve actually been testing in the market for a long time in the Coke portfolio. Here, what we’re going to do is just to continue the migration. Those commitments are actually part of our own strategy in the last few years and also part of the promotion of Coke Zero that has been our strategy as well.
I think the most important takeaway of those commitments is how we remain committed to be part of the solution and how we’ve been able to have a dialogue with the government and stakeholders and how this collaboration really highlights our ability to engage constructively with the government and adapt to the frameworks and advance our journey towards a more sustainable and health-focused portfolio because we really share with the government the need to advance in reducing obesity rates in the country. We want to be, again, part of that solution. I think that’s the main takeaway that all this story about tax implementation concluded with a very constructive dialogue and conversation with government. Talking about volumes and profitability, our concern is not really that this transition to a low-calorie or no-calorie version is going to impact our profitability.
Obviously, the impact will come from the volume decline that will be the result of the elasticity in these categories. Again, as I mentioned, looking forward in 2026, we have many things to be positive about as we compare with 2025, where we’ve had so many negative factors combined for the performance that we are seeing so far and that we expect to continue to see throughout the end of the year. That is why, aside from our ability to pass through the tax and pricing in a smarter way, promoting the packages that we believe are important to protect, I think also we have all those mitigating effects that I mentioned before, including our promotional activities, the FIFA World Cup, and also the uplift we’ve seen from the deployment of our capabilities that we’ve been talking about before.
All in all, I think we’re in a good position to mitigate that impact.
Operator: Thank you.
Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Rodrigo.
Operator: Thank you. We will move next with Lucas Ferreira with JP Morgan. Please go ahead.
Thank you, Arturo, Emilio, and everybody. I’m sorry to insist on the YAPS topic. Comparing and contrasting 2014 with the situation you guys will face in 2026, what are the tools you think the company has now in hand to mitigate the impacts? Mainly talking about the price pack architecture, but also the sort of a more developed relationship with Coca-Cola Company, better partnership, I would put it this way. If you can speak generally about your, let’s say, market share expectations for next year. If you think this is a situation, obviously a challenging situation, but at the end of the day, could, you know, help you even, you know, expand your share. How to think about that. Also, if I may quickly follow up, on the very short term, obviously, the third quarter for Mexico was already better than the second.
If you expect to end the year at a better note, how sort of the latest news are coming regarding consumer demand and traffic on the stores, etc. Thank you very much.
Arturo Gutiérrez, CEO, Arca Continental: Yes. Thank you, Lucas. First of all, talking about the tax and the learnings from 2014, we increased prices double-digit at the time plus inflation. I guess it was around 12%. We had a 3% volume decline, approximately a little less than 3% in 2014. The volume decline was sequentially better throughout the year. I mean, we started with a strong decline in volume first quarter. By the end of the year, volumes were pretty flat that year, which means there’s kind of a psychological impact as well in that elasticity. Now, I think to your point about how are we better prepared, I think we’ve developed our RGM capabilities in these last 12 years quite a lot. We have a stronger leadership in the marketplace.
As you mentioned, we have a stronger partnership with the Coca-Cola Company to jointly navigate through this situation, which is not only about passing along the prices, but also what are we going to do in the market to sustain leadership and increase our presence. One of the things that works in our favor is that the tax is designed as a peso per liter. That means for more premium-priced products, it’s going to be a less percentage increase as compared to, let’s say, value products out there and brands in the market. Thinking about the fourth quarter, the environment will remain very challenging. Again, we’re continuing to focus on things that we can control, which are basically three pillars: discipline execution with very targeted campaigns. We have very well-designed campaigns to be implemented in this final part of the year.
We’re launching especially higher-impact marketing campaigns for the Gen Z consumers and also Cherry Coke and Christmas. That kind of deepens the connection of our brands with consumers as well. We continue to double down on affordability initiatives, as I mentioned before, with entry packages and with single-serve packages that also provide affordability. We’ll start also deploying all of our efficiency initiatives and playbook in this next quarter and throughout 2026, which means reducing costs to serve as we have redesigned new service models and a number of other projects like lightweighting, improvement in distribution logistics as well. We have an organizational restructuring that mostly addresses agility and clarifying roles, but also is going to bring more efficiency. There are a number of things that will help us mitigate this adverse environment.
Thank you very much.
Thank you, Lucas.
Operator: Thank you. Our next question comes from Álvaro García with BTG Pactual. Please go ahead. Your line is open.
Hey, Arturo, Emilio, Julie. I hope you’re doing well. I have a question on taxes. I was wondering if you can comment on potential changes to SNAP benefits in Texas and how that might impact demand for your products and just general commentary on sort of Hispanic consumer and just the consumer environment in general into next year. Expo Cup would be very helpful. Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Álvaro. We are currently assessing the potential implications of those SNAP benefit changes in our portfolio. We don’t anticipate a significant impact, but it’s something that certainly we’re monitoring and looking at consumer trends and consumer demands, especially paying attention to the segment that this is going to impact the most, which is mostly the take-home segment. At this point on the impact, we don’t have a specific number to provide, but we continue to believe that it’s important to give consumers the freedom to choose what groceries they want to purchase for the family with the SNAP benefits. We’re still assessing the implications. What I can tell you about the U.S. market dynamics is that we have seen a sentiment among low, mid-income, and Hispanic consumers that has declined this year. Rising cost of living or interest rates probably, that’s been softening spending.
If you look at, for example, our value channel in the U.S., that grew almost 4% year over year. It’s gained some mix. Also, that’s related to some of the border tensions we’ve seen this year, fewer people crossing. Hispanic traffic has declined more sharply in retailers, even in Walmart Hispanic outlets as compared to the non-Hispanic stores. Total retail traffic did fall in this third quarter. Convenience stores only, again, Club and Value saw traffic growth. That tells you about how the dynamics are playing out. What we have adopted is, as I said before, this premium strategy, this dual strategy of premiumization with brands like Topo Chico or Smartwater for some consumers, for the higher-income consumers, and the introduction of a packaging architecture that addresses the pressure in that middle and lower-income segments in the U.S. market.
For sure, we’re going to capitalize on the FIFA World Cup events that are going to start actually this year. These major events include the tournament itself next year. We’re going to be hosting 24 of the 104 matches in our four cities, in Mexico and the U.S. We’re the co-bottler with the highest number of matches in the tournament, and 16 of those are going to be in our U.S. market. We’ll capitalize on all the activities surrounding the World Cup and also the celebration of the 250th anniversary of the independence of the U.S. We’re going to be part of that as well next year.
Great. Thank you very much, Arturo.
Thanks, Álvaro.
Operator: Thank you. We will move next with Alejandro Fuchs with Itaú. Please go ahead.
Thank you, operator. Hola, Arturo, Emilio, Jesús. Thank you for the time for questions. I wanted to shift gears and ask you one about South America, especially Argentina and Ecuador. I know it’s a very uncertain scenario, right? I wanted to see what their expectations going forward, maybe in the next 12 months. We’re seeing volumes coming down, but margins going up. I want to see how you see the business on the ground, talking to the teams and what would be kind of the expectations if we should continue to see volumes being pressured, but maybe profitability normalizing a little bit. Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Yes. Thank you, Alejandro. Let me start with Argentina. As you’ve seen, we’ve been facing a very challenging macro environment in the third quarter, rising uncertainty and some of the indicators deteriorating. That has impacted the lower-income segments of consumers and those provinces with high public employment. Unfortunately, we’re in a market with high public employment. We saw the steepest impact of this situation with consumption falling between 6% and 7% in general as compared to the central regions, which had a less significant impact. Our year-to-date performance was still ahead of last year, but certainly, the trend is not very favorable. What we’re doing is we’re balancing our pricing discipline and affordability and our operational efficiency to stay competitive in this highly dynamic market.
What’s been important for that are, again, our pricing tools, our promotional tools to align prices with inflation, our affordability, and our playbook for things like Tapipesos promotions, tactical pricing on non-returnable formats as well. Returnable is very important in Argentina. As you know, it’s the highest mix of returnable in all of our markets. To protect margins, we’ve been implementing very strict cost control measures. We are also launching new products and continue to innovate in some of the stills categories. We expect Q4 to outperform the third quarter as we expect some gradual improvement. We are going to continue to focus on efficiency initiatives to protect margins. If we look at the context for margins in Argentina, we’re going to see some upward pressure in some of the expenses related to payroll particularly. We are going to have efficiency in other concepts that will offset these pressures.
Raw materials, we expected them to rise driven by inflation, but we had the acquisition of a second sugar mill in Tucumán that is going to mitigate the impact of input costs for us. I think that’s also going to be very important going forward. If we look at Ecuador and the dynamics in that market, also a difficult environment, mostly challenged by rising insecurity, the economy actually grew in the third quarter in Ecuador. Declining oil production and increased costs have resulted in some new policies like the elimination of the subsidy on diesel fuel and things like that. Retail remains active despite this complex environment in Ecuador.
I think it’s important to see how our business, and this is the same case for, I would say, all of our markets in this very difficult third quarter, have demonstrated very strong resilience, improving, in the case of Ecuador, profitability in the third quarter and outperforming the industry’s volume decline in the year. Here, affordability also is going to be important. The execution of our point of sale with new cold drink equipment, that’s also very important in Ecuador, and how we leverage our new service models to enhance customer experience and also to bring efficiency to our go-to-market strategy. Stills categories is an opportunity and deployment of digital as well in Ecuador. Under this challenging environment, again, we’re able to effectively protect profitability. For 2026 in Ecuador, we are expecting OpEx to grow above inflation.
This is mainly due to the increased depreciation and diesel costs that I mentioned. Some of the pressures will be partially offset by the optimizations that we have planned for our service models, our go-to-market models, and some other adjustments. PT are expected to rise in 2026 with ocean freight costs. Sugar is expected to be in line with 2025. There’s going to be some margin pressure considering all these factors, basically the removal of the subsidy. Our focus will be to protect our 2025 margin in 2026.
Thank you, Alejandro.
Operator: Thank you. Our next question comes from Renata Fonseca Cabral Sturani with Citi. Please go ahead.
Hi, everyone. Thank you so much for taking my question. It’s a follow-up about Mexico. I would like to ask you if you can give some color in terms of competitiveness and how the big brands have been reacting to the current environment for volumes, and the company has been sustaining shares. If you can provide some color on the performances in the channel strategy, the traditional channel versus the modern trade, if they are different in terms of one is better than the other in the current environment. Thank you so much.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Renata. In terms of channels, the traditional channel received an important part of the impact in the decline in consumption in this quarter. Also, convenience store reduced traffic. The only channel that actually increased volume in the quarter was supermarkets, and as I mentioned, was mostly driven by intensified promotions and more competitive pricing. I think that’s a natural consequence of the economic dynamics. Most importantly, we are strengthening our leadership in the marketplace, even considering that we have a price gap versus our main competitor and versus rebrands as well. We did have an impact on our share of market in the first half of the year as a result of the retaliation on our brand that you know about. That really has been solved, and now we’re back to the position of leadership that we’ve had before.
Very clear. Thank you so much.
Thank you, Renata.
Operator: Thank you. We will move next with Henrique Morello with Morgan Stanley. Please go ahead.
Hi, Arturo, Emilio. Hi, everyone. Thank you so much for taking my question. I would just like to explore the margin performance in Mexico. As you saw, another quarter of compression on a year-on-year basis, and at higher levels compared to the last quarter, right? If you could dive deeper on the dynamics behind the margin decline this quarter, perhaps beyond the volume decline, and if anything changed from last quarter, and how do you expect the margin to behave in Mexico going forward when you look at your hedge positions right now? Thank you very much.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Enrique. I will turn that over to Emilio to respond to the question. Go ahead, Emilio, please.
Emilio Marcos, CFO, Arca Continental: Yes. Thank you, Enrique, for your question. Yes. In Mexico, basically, there are several factors that affected the margin, EBITDA margin, being the one, the decline in volume, as we have explained already. There are also some changes that Arturo already mentioned. One is the mix of channels. The traditional trade was more affected by the rainfalls during the quarter compared to supermarkets. Channel mix changed. Also, presentations, the mix of single serve also declined in the quarter. That was basically the main impacts for the margin, EBITDA margin in Mexico. For the rest of the year, we’ve been working on expense control. You also can see that throughout the year, we’ve been improving our sales OPEX to sales ratio every quarter. Internally, everything that we control, we’re looking at every efficiency that we can implement in all the operations.
In Mexico, we’ve been able to mitigate part of the volume decline impact, talking about the margins. For the full year, we’re expecting to at least maintain the current levels of EBITDA margins for the region.
That’s very helpful. Thank you.
Operator: Thank you. We will move next with Axel Olguiski with Actinver. Please go ahead. Your line is open.
Hello. Thank you very much for taking my question. Just a quick one. Given your healthy balance sheet position, are you considering further M&A opportunities? If so, which regions are you looking forward into? Thank you very much.
Arturo Gutiérrez, CEO, Arca Continental: Thank you for the question. As you know, talking about capital allocation, that’s one of our main priorities. As we have mentioned, number one is investing in our operations, and then we just announced an additional dividend. M&A, as you know, we continue to evaluate basically opportunities in the U.S. and Latin America. We have a very strong balance position in order to close any opportunities. In the meantime, we’ve been able to find other avenues for inorganic growth that are aligned with our core business, such as the recent acquisition that we announced, the Imperial, depending on micro-market business in the U.S. We keep exploring opportunities basically within the Americas.
Perfect. Very clear. Thank you.
Thanks, Axel.
Operator: Thank you. We will move next with Fernando Olvera Espinosa de los Monteros with Bank of America. Please go ahead.
Hi. Good morning all, and thanks for taking my question. I just have one, and it’s related to Mexico. Arturo, Emilio, how are you thinking about CapEx next year and the potential tax increase? Any insight on this would be helpful. Thank you.
Arturo Gutiérrez, CEO, Arca Continental: Thank you, Fernando, for your question. Yes, regarding CAPEX, as I mentioned, as of September, we reach $11.8 billion pesos, representing 6.4% of sales. We were expecting to invest around 7%. That’s what we mentioned at the beginning of the year. 76% of those CAPEX are in Mexico and the U.S. At the beginning of the year, when we saw a slowdown in volume, we have postponed some initiatives this year. The CAPEX ratio will be around the same level that we have right now, 6.4% instead of 7%. We just adjusted some of the CAPEX that we were expecting for this year without compromising our long-term growth strategy. We remain committed to the strategic investment that we have for our capabilities and expanding our capacity and distribution. I would say in a slower pace than we expected at the beginning of the year.
Okay, Emilio. Considering that the increase of the excise tax was just announced, how do you expect CapEx to behave in Mexico next year? Is it possible that you keep postponing some projects for 2027, or?
There are some projects that we started and we need.
Melanie, Conference Moderator: To continue, in order to be ready for the volume in the next, let’s say, two or three years. There’s some of the CapEx that needed to keep going to be ready in two, three years. The short-term ones are the ones that we are just postponing and see how the volume behavior, and then we’ll decide if we continue with those next year or if we move it to 2027. We expect around 5% to 6%, maybe, in Mexico CapEx to sales.
Arturo Gutiérrez, CEO, Arca Continental: Okay. Perfect. Thank you, Emilio.
Emilio Marcos, CFO, Arca Continental: Thank you.
Operator: Thank you, Fernando.
Thank you. This concludes today’s Q&A portion. I would like to now turn the conference back to Arturo Gutiérrez for closing remarks.
Arturo Gutiérrez, CEO, Arca Continental: Thank you. We really appreciate your time today and especially your ongoing commitment to our company. Please reach out to our investor relations team for any follow-up questions you might have. Look forward to speaking with you again next quarter. Have a great day.
Thank you. This does conclude today’s program. Thank you for your participation. You may disconnect at any time.
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