Earnings call transcript: Consorcio Ara’s Q1 2025 revenue rises, stock gains

Consorcio Ara, a prominent player in the Mexican housing market, reported a robust start to 2025 with a significant rise in revenues and net income in the first quarter. The company’s revenue reached approximately 1 billion MXN, marking a 16% year-over-year growth. Net income surged by 25%, totaling 179.5 million MXN. Following these results, the company’s stock saw a 1.58% increase, closing at 3.22 MXN. According to InvestingPro data, the company maintains strong liquidity with a current ratio of 11.03, indicating excellent short-term financial health. InvestingPro analysis suggests the stock is currently trading at attractive valuations, with multiple ProTips highlighting its investment potential.

Key Takeaways

• Revenue increased by 16% year-over-year.
• Net income rose by 25%.
• Stock price increased by 1.58% after earnings release.
• Strong performance in middle-income housing segment.

Company Performance

Consorcio Ara demonstrated solid growth in Q1 2025, driven by an uptick in housing sales and strategic investments. The company sold 1,442 homes, a 6.7% increase compared to the previous year, with the average home price rising by 9.1%. The revenue mix shows a strong emphasis on middle-income homes, which accounted for 46.7% of total sales.

Financial Highlights

• Revenue: 1 billion MXN, up 16% YoY
• Net income: 179.5 million MXN, up 25% YoY
• Operating income: Increased by 11.8%
• EBITDA: Grew by 4.3%
• Operating margin: 9.8%
• Net margin: 9.7%
• EBITDA margin: 13.3%

Market Reaction

Following the earnings announcement, Consorcio Ara’s stock price rose by 1.58%, closing at 3.22 MXN. This movement reflects investor confidence in the company’s growth trajectory and its strategic focus on middle-income housing. The stock remains within its 52-week range, with a high of 3.83 MXN and a low of 2.84 MXN. InvestingPro analysis reveals the company is trading at compelling multiples, with a low P/E ratio relative to near-term earnings growth. For deeper insights into Consorcio Ara’s valuation and growth potential, subscribers can access the comprehensive Pro Research Report, which includes detailed financial analysis and expert commentary.

Outlook & Guidance

Looking ahead, Consorcio Ara plans to expand its presence in the middle-income and residential segments and aims for positive free cash flow by the end of the year. The company is set to launch 11 new project phases, including five new projects, and is actively exploring government housing program opportunities. InvestingPro identifies Ara as a prominent player in the Household Durables industry, operating with a moderate level of debt and maintaining strong liquidity positions. Unlock additional ProTips and comprehensive financial metrics with an InvestingPro subscription to make more informed investment decisions.

Executive Commentary

Alicia Enriquez, the Administrative and Financial Director, emphasized the company’s strong position, stating, "We believe that the Mexico housing industry stands on solid ground." She also reaffirmed the company’s commitment to its annual targets, highlighting optimism about government housing programs.

Risks and Challenges

• Potential supply chain disruptions could impact construction timelines.
• Economic fluctuations may affect consumer purchasing power.
• Government policy changes in housing could influence market dynamics.
• Competition from other housing developers remains strong.
• Interest rate hikes could affect mortgage affordability.

Q&A

During the earnings call, analysts inquired about the company’s dividend payment schedule, which is expected in Q2. Questions also focused on operational margin recovery, with management expressing confidence in maintaining robust liquidity and collaborating with government housing initiatives.

Full transcript - Consorcio Ara, S.A.B. De C.V. (ARA) Q1 2025:

Leslie, Event Specialist: Hello, and welcome to today’s First Quarter twenty twenty five Results Conference Call and Webcast. My name is Leslie, and I will be your event specialist today. All lines have been placed on mute to prevent any background noise. Please note that today’s conference call and webcast are being recorded. During the presentation, we will have a question and answer session.

To follow the conference online, please visit https:consorciorara.transmission.com.mx. The word transmission is with one s only. If you would like to view the presentation in a full screen view, please click the full screen button in the upper left hand corner of your screen. Press the same button to return to your original view. It is now my pleasure to turn today’s program over to Alicia Enriquez, Administrative and Financial Director.

Please go ahead.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: Thank you, Letiz. Good morning, and I want to welcome to our conference call on the first quarter twenty twenty five results of Conferior. This call will be also transmitted via webcast accompanied by a slideshow for visual support. With me on the call to discuss the results are Mr. Felipe Omalaguzek, Vice Chairman of the Board Miguel Dozano, Chief Executive Officer and Felita Lorella, Chief Financial Officer.

I want to alert everyone that certain statements and comments made during the course of this call will be considered forward looking statements as defined by the Securities Litigation Reform Act of 1995. Consortium Arata means that such statements are based on reasonable assumptions, but there are no assurances that current outcomes will not be substantially different from those discussed today. All forward looking statements are based on information available to the company on the date of this call. The company is under no obligation to publicly update or revise any forward looking statements as a result of new information that may become available in the future. As usual, at the end of our prepared remarks, there will be time for Q and A.

We will wait until then to open the queue for questions. Results for the first quarter of twenty twenty five compared to the first quarter of twenty twenty four. We have a very good start to the year, which was reflected in solid results for the first quarter of twenty twenty five with improvement in virtually every financial metric. Revenues totaled billion, a growth of almost 16 over the first quarter of last year, while net income came to million, up 25%. Housing revenues came to MXN1.78 billion for the quarter, a 60.4% increase and resulted from the sale of fourteen forty two homes, 6.7% more than in the first quarter of twenty twenty four.

With this, average price of the homes sold this past quarter was MXN 1,000,002 and 35,700, which is 9.1% higher than the average price in the same period of last year. This increase is attributable mainly to the higher rate of middle income and residential homes in our revenue mix. Breaking down our revenues by segment, affordable entry level homes brought in million, 7 point 5 percent below the year ago in the first quarter of twenty twenty four, primarily due to the completion of our development that accounted for 32% of the revenues in that segment in the first quarter of twenty twenty four. Revenues in the new income and residential segments performed very well in the first quarter of twenty twenty five with significant double digit year to year growth. Both in the middle income segment, revenues totaled 8 and 63,500,000.0, up 36.7% year over year growth and residential home sales came to million, a 20.9% increase.

Revenues from other real estate projects in the first quarter of this year came to million, a growth of 4.8% compared to the same first quarter of twenty twenty four, supported by higher revenues from our shopping center division. The revenue mix for the first quarter of twenty twenty five, affordable entry level homes accounted for 29.9, middle income homes 46.7% and residential homes 90.9%, while the remaining 3.5% came from other real estate projects. In the first quarter of twenty twenty five, we saw growth of million under the deal with Iponabal loan or Line three project. This will be recognized in our results of revenues in a maximum of six months. As the homes are delivered, revenues from from cycle homes delivered under this program in the first quarter totaled BRL 3 and 26,200,000.0.

Also the homes cycle underlying fee were in the above average entry level set. In the first three months of the year, operating income totaled million and rose 11.8% over the same quarter of last year. Net income was MXN 179,500,000.0, a 25% increase and EBITDA was billion, a growth of 4.3%. The solid 25% growth at the bottom line was due mainly to the increase in revenues as well as in financial income and equity in joint ventures. The operating margin in the first quarter of twenty twenty five was 9.8%, the net margin was 9.7% and the EBITDA margin was 13.3%.

This is January and March free cash flow to the period was negative by million mainly because of our investment in the inventory, which is necessary to meet our 2025 targets. Financial position as of 03/31/2025. As of 03/31/2025, cash and cash equivalents totaled billion, eight point two % lower than at the close of 2024 due primarily to the payment of principal and interest on the debt. Accounts receivable ended the first quarter of the year at million, twenty 1% higher than on 12/31/2024. Due to an increased volume of whole cycle in the last weeks of the quarter.

A cut through fee doubled to one point one months. Total inventories as of 03/31/2025 amounted to ARS18.48 billion, a slight 2% increase. On the same day, corporate debt came to $59,000,000,000, a 3% decline from the growth of 2024. Short term maturities, meaning that coming due in the next fifteen months made up 14.4% of corporate debt and long term debt 85.6%. As of 03/31/2025, ’60 ’5 point ’2 percent of our recovery cost bearing debt was in the form of the ARA23F and ARA21F2F node, 12.5% were simple unsecured bank loans without real estate collateral, 13.5% were simple secured loans for our shopping centers and the remaining 8.8% were lease liabilities.

Net debt at the close of last year was positive by million. Leverage ratios remain at optimal level. Comparing debt to EBITDA was 2.47 times. The net debt to EBITDA ratio was just 0.43 times and the interest coverage ratio was 3.26 times. And if we take this ratio of coverage of net interest, meaning interest expense and interest income, it would be 9.65 times.

On March 12, Fitch Ratings ratified its long term national estate rating of Housing industry performance. According to Mexico’s National Institute For Statistics And Geography in EPI, in the first two months of 2025, industrial activity in general grew by 0.4% compared to the previous year. Construction industry growth was 0.5% and the business sector, which includes housing and industrial base grew by 24%. According to data from the Unified Housing Registry Group, in the first quarter of the year, ’40 ’3 thousand ’1 hundred and ’70 ’1 homes were registered, up 6.7% increase from the same period of last year and 28,534 homes were produced, a slight decrease of 1.4%. Regarding corporate lending in January of this year, based on data from Serato, it formally granted 12,929 loans for the full change of new homes, which is a drop of 2.3% compared to the same month of 2024.

These loans represented an investment of 9,000,000, a 5.9% growth in the same period. The average size of a new home loan in January of twenty twenty five was MXN734000, an 8.5% increase compared to January of the previous year. For this part, we accessed $9.00 5 loans for new homes in January of this year, ’14 point ’8 percent less than in the same month of 2024, and the investment in this totaled 900,000,000 pesos, 3 point 4 percent lower. The average size of our low granted in the first month of twenty twenty five was 994,000, which was 13.3% higher than the same period or most of last year. As for commercial bank home financing, in the month of January of this year, ’5 thousand ’7 hundred and ’90 ’3 mortgages were granted for the acquisition of new and used homes, a 10.2% reduction compared to the same month of 2024.

And investment in this totaled billion, a 3.1% decrease. The average size of our loan for assets in the first month of this year was MXN2.41 million, 8 percent higher than in January 2024. In the first quarter of twenty twenty five, ’60 ’6 point ’1 percent of our revenues came from home finance by Mifonas, eight point eight percent from Folisse and the remaining 25.1 from commercial banks and home purchase without finance. Shopping centers. Continuing with the good results, our shopping center division also delivered the strong numbers for the first three months of the year with revenues up 6.9% to million and net operating income rising 3.5 to MXN87.1 million.

These results correspond to shopping centers that are 100% owned by Ara and are consolidated into our financial which are entered under the SEC. Total growth leasable area in our six shopping centers and in unit and mini shopping centers is 212,003 square meters. The occupancy rate as of 03/31/2025 was 93.5%, a very competitive Federal Solutions passed in the Annual General Shareholders’ Meeting. On April 25, Concerto Arra’s shareholders met for its Annual General Extraordinary and Ordinary Meeting. Shareholders also welcome new board members, with Felipe Omala Brusse and Claudio Munoz Sanchez de la Barquera, whose participation we are confident will be of great value to the company.

We also extend our most sincere thanks to our Board members, Pedro Alonso Ambuo and Raul Robledo Tovins, who are resigning after more than twenty and ten years of service A dividend payment totaling million equivalent to 29.1% of our 2024 net income. The dividend per share amounts to $4.02 $8.00 per share, a yield of 5.13 based on the closing price of 2024, which was MXN 3.2. This dividend is paid out of the company’s retained earnings from 2014 fiscal year account and the net fiscal earnings account, which is not subject to that withholding. You may recall that Contoso Arda has a policy of paying dividends or dividends to its shareholders equivalent to up to 50% of net income from the prior fiscal year, provided the company has sufficient funds in the net fiscal earnings account and is generating positive free cash flow. Shareholders also voted to approve the cancellation of 4,731,327 shares acquired using the stock repurchase fund, representing 0.39% of our total capital stock.

After that cancellation, our capital stock consisted of 1,270,894,226 shares. Conclusions, although the global economic environment poses daunting challenges with high volatility and uncertainty. We believe that the Mexico housing industry stands on solid ground. It’s fundamental to stay in house demand and vigorous mortgage lending remain fiercely in place and should sustain the industry. Furthermore, as one of the strongest companies in the industry, we are deeply committed to supporting the government’s valuable initiatives aimed to providing access to decent housing for families that have not yet had the opportunity to purchase a home.

We are holding fast to the targets we set at the start of the year and are of the outlook for any factors that might either support us or require a change of strategy. Thank you, and we will now move on to questions and answers.

Leslie, Event Specialist: We will now start the Q and A session. We would like to take any questions you might have for us today. Again. If you have been listening to the webcast and would like to ask a question, you may type your question using the chat area located on the right hand side of your screen and click Submit. We will begin by answering questions from the audio lines followed by those we received from the webcast.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: We have questions from the line.

Leslie, Event Specialist: The first question from the audio lines is from Mr. Jorge Vargas from GBM. Go ahead.

Jorge Vargas, Analyst, GBM: Hi, good morning. Thank you for taking the call and congratulations on the results. You invested significantly in inventory during the first quarter of the year, leading to a slightly negative free cash flow. Could you share your expectations for inventory turnover in the next quarters? And should we expect positive cash flows towards the second half of the year?

Thank you.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: Yes, Jorge. Thank you very much. Well, regarding to the free cash flow generation, yes, at the end of the year, expect to have a positive free cash flow generation, although we have to consider that in this year, are going to open new projects. 11 considering new phases and five are new projects. So we need to continue investing in our inventories.

And according to the dividend payment, we expect to pay the dividend during this second quarter. As soon as we have the exact date, we are going to deliver the notice to the Mexican Stock Exchange, Jose. Jose.

Leslie, Event Specialist: Our next question is from Mr. Andres Aguirre from GBM. Go ahead.

Andres Aguirre, Analyst, GBM: Alicia. Thanks for the call and congrats on the results. We’ve seen a favorable shift towards middle income and residential segments. Is this trend expected to continue for the remainder of 2025? And additionally, we saw that during the quarter you had a slight increase in SG and As.

Can you talk about the drivers and if you expect this to continue for the remainder of the year? Thank you very much.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: MARTINEZ Well, for this year, yes, we expect greater participation of the middle income and residential segment because on progress, it’s I will be here, but unfortunately, we have the completion of one of very successful projects in the entry affordable levels. The good news is that we already have land, but we are going to start well, this is a new opening for this year and we expect to have revenues in the following year, not in this year. So yes, we expect a greater participation of the middle income and residential segment.

Yes, on that one, we have more general expenses because as we know, the start of the year is a little slow. So we have to increase promotions and pricing in order the homebuyer to the title. So yes, we have this increase. And also one thing that we have in this first quarter is that in order to be more efficient in terms of our operations, We downsized our commercial division along with the entire team, mean, managers, etcetera. So that requires us to make severance payments.

So in wages and in advertising and promotions, we saw the higher increases.

Andres Aguirre, Analyst, GBM: Perfect. Thank you, Alicia.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: Thank you, Andres.

Leslie, Event Specialist: Thank you very much for your question. We have finished with the conference call questions from the audio lines and we’ll now continue with the webcast questions. If you have been listening to the webcast and would like to ask a question, you may type your question in the chat located on the right hand side of your screen and click submit.

Alicia Enriquez, Administrative and Financial Director, Consortio Ara: Okay. Well, you, Leslie. The first question is from Michel Lugalco. Nice to hear from you, Michel. I already mentioned that we expect to pay the dividend during this second quarter as soon as we have the fact that we are going to deliver the notes.

And the second is from Carlos Alcaraz. Hi, Carlos. He says, hello, thank you very much for the call and for taking my question. My first question is about the operating margin for the quarter. Do you expect this to remain the same for the next quarter?

And regarding the approval entry level programs announced by the government, we will be looking to participate in these programs. Thank you very much. Already mentioned that we have some extraordinary expenses because we reduced one commercial director. So also we have to invest more in advertising. For the following quarters, could tell you that we expect to recover the operational margin.

Yes, we are very happy that now doors are open. So we are exploring some options that ARA has to work with the government. It’s a very big goal that the government has, as you know, is more than to provide in the following six years to provide 1,000,000 houses. So we are exploring. And as soon as we find something with the government, we are going to disclosure to the market.

But we are very positive on that. Then Michel Valdez, okay, well, the new members of the Board and the change of the CEO, it would change the liquidity policy of the company or we expect to maintain the robust liquidity. Now, Michel, I would tell you, Hermana Armada Aluncin, as you know, is son of Hermana Armada Rusev and also is very convinced that you have healthy financial positioning something mandatory in our housing sector. So no, no, don’t worry. And I think that’s it.

Thank you very much for your interest in Consortio Para. Please let me if we can finish the call.

Leslie, Event Specialist: That was the last question. This concludes the question and answer session for today. Consortiumara would like to thank you for participating in today’s conference call and webcast. You may now disconnect.

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