Earnings call transcript: Grupo Herdez Q3 2025 sees mixed results

Grupo Herdez presented its Q3 2025 financial results on October 23, revealing a complex picture of modest growth and persistent challenges. While domestic sales showed resilience, the export segment faced significant contraction. The company’s stock saw a slight decline of 0.05% post-announcement, though InvestingPro data shows impressive year-to-date returns of 39%. According to InvestingPro’s Fair Value analysis, the stock appears undervalued, making it particularly interesting for value investors. The company maintains a "GREAT" financial health score of 3.35 out of 5, underpinned by strong profitability metrics.

Key Takeaways

• Domestic segment sales rose by 4.2%, showcasing local market strength.
• Export sales contracted by 25.9%, indicating challenges abroad.
• Gross margin expanded to nearly 40%, reflecting operational efficiency gains.
• Majority net income surged over 23%, reaching $426 million.
• Stock price fell slightly by 0.05%, indicating a neutral market reaction.

Company Performance

Grupo Herdez demonstrated resilience in its domestic operations, with a 4.2% increase in sales. The export segment’s 25.9% contraction underscores ongoing challenges in international markets. The company maintained a steady operating profit margin of 15.3%, while trading at an attractive EV/EBITDA multiple of 5.43x. As a prominent player in the Food Products industry, the company has maintained dividend payments for 11 consecutive years, demonstrating consistent shareholder returns despite market fluctuations.

Financial Highlights

• Revenue: Consolidated net sales grew by 1% for the quarter.
• Gross margin: Expanded by over 1 percentage point to nearly 40%.
• Operating profit: Increased slightly above 1% with a stable 15.3% margin.
• Majority net income: Surged over 23% to $426 million.

Market Reaction

Following the earnings announcement, Grupo Herdez’s stock price declined by 0.05%, closing at 66.25. This minor movement suggests that investors are weighing the company’s domestic strength against its export challenges and broader economic pressures.

Outlook & Guidance

Grupo Herdez anticipates a gradual recovery in the consumption environment and expects to end the year on a higher note. The company remains confident in its MEGAMEX performance and targets its original guidance for net sales, operating income, and EBITDA. Capital expenditure is projected between ARS 1.5 billion and 2 billion. With a P/E ratio of 15x and strong free cash flow yield, InvestingPro analysis suggests the company offers compelling value. [Access the detailed Pro Research Report for comprehensive analysis of Grupo Herdez’s financial health and growth prospects.]

Executive Commentary

"This quarter was marked by significant steps in our company’s trajectory," said Gerardo Cannavati, CFO. He added, "We believe that the third quarter marks the bottom of the consumption environment." Andrea, a financial executive, noted, "Despite this challenging environment, Grupo Herdez demonstrated remarkable resilience."

Risks and Challenges

• Export market contraction poses a significant challenge to growth.
• The consumption environment in Mexico remains under pressure from macroeconomic factors such as declining remittances and extraordinary weather conditions.
• Anticipated significant working capital requirements could impact financial flexibility.

Q&A

No specific details from a Q&A session were provided in the earnings call transcript.

Full transcript - Grupo Herdez, S.A.B. De C.V. (HERDEZ) Q3 2025:

Rocco, Conference Call Moderator: Good morning, everyone, and welcome to Grupo Herrera’s Third Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, today’s event is being recorded. Also note, information discussed may include forward looking statements subject to risks and uncertainties.

Please refer to the forward looking statements disclaimer in the company’s press release. I’ll now turn the call over to Gerardo Cannavati, Chief Financial and Information Officer. Please go ahead.

Gerardo Cannavati, Chief Financial and Information Officer, Grupo Herrera: Thank you, Rocco. Good morning, everyone, and thank you for joining us today to discuss Grupo Ede’s third quarter results. This quarter was marked by significant steps in our company’s trajectory, one that delineates a new course for continued value creation. We successfully completed the split of Grupo Nutrisa, a move designed to allow the retail division to unleash its full potential and having Grupo Areva dedicated completely to its core business. This action, alongside the divestment of a portion of our stake in McCormick de Mexico, fundamentally reconfigures our portfolio to pursue further opportunities.

We will now transition to the details of our operational performance. Andrea, please go ahead.

Andrea, Financial Analyst/Executive, Grupo Herrera: Thank you, Gerardo. Good morning, everyone. Before turning into the figures, it is important to consider that starting September 2025, the results of the retail business were deconsolidated from Grupo Herbes, thus our third quarter and year to date growth rates last year are highly distorted. As you have seen in the press release, we decided to also report pro form a figures that do not consider numbers of the retail business both in 2024 and this year. As well, we adopted a new segmentation reporting that resulted in domestic and export sectors.

Now, our domestic sales have incorporated the results of Eladros Mescliffe. We believe this segmentation will allow the market to better assess the inherent profitability and growth of our core portfolio in the key two markets that we attend. Getting into the results. The consumption environment during the third quarter in Mexico faced persistent pressure. This slowdown was characterized by the flattish consumer environment, largely influenced by structural factors such as the decline in remittances in pesticides, inventory adjustments in some clients and extraordinary weather conditions.

Despite this challenging environment, Grupo Erdes demonstrated remarkable resilience. Our disciplined execution allowed us to report a mid single digit growth rate in the top line, while increasing our market share in key categories of our portfolio. Our consolidated net sales would have recorded a 1% growth for the quarter. This is a solid performance given the macro headwinds, and it was entirely anchored by our domestic segment, which saw sales growth of 4.2%. This growth rate supported by our core categories such as mayo, tomato puree and ketchup was crucial in compensating for the 25.9% contraction in the export segment, which faced challenges, particularly in The U.

S. And in The Hispanic consumers. The structural change from the divestiture have a clear positive effect on our profitability. Gross margin would have expanded by more than one percentage point, reaching almost 40%, thanks to effective cost management and favorable sales mix within the domestic segment. Operating profit would have grown slightly above 1% with a stable margin of 15.3%, while the domestic segment would have reached a 16.1% operating margin.

EBITDA was having modest growth of close to 1%, reaching MXN1.5 billion. This EBITDA stability is further reinforced by the structural benefit from the elimination of the lease or the IFRS 16, which mitigates the overall depreciation and amortization expense of the retail business. Moving below the operating line, we saw bottom line resilience too. Our majority net income would have surged more than 23% for the quarter, reaching $426,000,000. This strong growth underscores the benefits of our operational streamlining and core business efficiency effectively as well as the contribution of our associates, Nidemek.

This last result obviously compares with a very low base in 2024, but as you can recall, had a significant pressure from the prices of our cap. So in this quarter, profitability was driven by a sequential improvement in the profitability of Don Miguel and Holy Guanzamole, which allowed it to largely offset the negative operational impact faced by our export segment. Finally, the financial position reflects the benefits of the strategic transformations that we have already mentioned, supporting a stable and strong cash flow. We ended the quarter with a cash position of ARS2.3 billion. The decline in available cash versus the previous quarter was due to a strategic buildup of inventories and the extraordinary dividend paid in May.

The assets and liabilities related to operating leases significantly decreased to million, reflecting the cleanup of the retail segment’s lease portfolio. Our financial position remains sound with a net debt to EBITDA ratio of 1.2 times. With that, I will now turn the call over to Gerardo to discuss further on the outlook for the remainder of the year.

Gerardo Cannavati, Chief Financial and Information Officer, Grupo Herrera: Thank you, Andrea. We believe that the third quarter marks the bottom of the consumption environment, and we expect a gradual recovery going forward, despite the softness of the overall economy to end the year on a higher note held by easy comps. I would like to update you in the implementation of our new program. As you may be aware, we transitioned a subsidiary in June, which carried 80% of the overall processes of the group. It was a huge success.

Now we have the confidence to preparing the rollout to go live in April. This obviously will require significant working capital for the next quarters. Talking about the closing of the year, I’m going to refer to our guidance and the pro form a figures, that is excluding Grupo Nutrisa for the fourth quarter. So in all our lines, net sales, operating income and EBITDA, we are hitting the target discussed in the start of the year. We have seen a performance in MEGAMEX better than expected, and we are confident that, that’s going to continue going forward.

In terms of our CapEx, even though the figures are lower in the third quarter, we are expecting to complete our guidance near between ARS 1,500,000,000 and 2,000,000,000. That will conclude my prepared remarks and we’ll open for your questions. Rocco?

Rocco, Conference Call Moderator: Yes, sir. Thank And that concludes our question and answer session. I’d like to turn the conference back over to the management team for any closing remarks.

Gerardo Cannavati, Chief Financial and Information Officer, Grupo Herrera: Thank you for participating in our earnings call. If you have any questions, don’t hesitate to contact our team, and have a good day. Thank you, Rocco.

Rocco, Conference Call Moderator: Yes, sir. Thank you. And we thank you all for attending today’s presentation. You may now disconnect your lines. Have a wonderful day.

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