Release Date: October 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- The export segment showed strong performance with a 24.1% increase in dollar sales, driven by mayonnaise and new product introductions in the US market.
- The company achieved a healthy gross margin of 40.5%, supported by a favorable sales mix and operational efficiency.
- Retail business within the impulse segment demonstrated resilience, growing close to 7% despite weather-related disruptions.
- Grupo Herdez SAB de CV (GUZOF, Financial) maintained a strong free cash flow of MXN603 million, allowing continued investment in growth and sustainability projects.
- The company is actively investing in capacity expansion, equipment modernization, and new store openings to support future growth.
Negative Points
- Severe weather events, including hurricanes and flooding, significantly impacted the impulse segment, resulting in approximately MXN40 million in lost sales.
- Megamex faced challenges due to soaring avocado prices, increased competition, and a shift in consumer preferences, leading to lower income from unconsolidated affiliates.
- The company's EBIT was pressured by weather-related disruptions and increased commercial investments.
- Grupo Herdez SAB de CV (GUZOF) is experiencing capacity constraints in the mayonnaise category, which could limit growth potential.
- The business environment in Mexico is becoming more expensive and complex, with potential impacts from proposed labor reforms and inflationary pressures.
Q & A Highlights
Q: Can you provide insights on the current consumption environment in Mexico and whether the slowdown is temporary or structural? Additionally, what are your expectations for export growth in the coming years?
A: We observed a deceleration in the first quarter, but the gap has recently closed. We anticipate consumption in our sector to be between flattish and low single-digit growth in volume. The current administration's strategies should continue to support disposable income, translating into more consumption. Regarding exports, particularly in the mayonnaise category, we are experiencing capacity constraints, which we plan to address to meet U.S. demand. We expect to continue growing in the single-digit range in terms of volume, and we are investing in salsa production to drive exports further in the next 12 months. - Gerardo Miguel, Chief Financial and Information Officer
Q: What are the main challenges faced by Megamex, and what strategies are being implemented to address them?
A: Megamex is facing challenges due to soaring avocado prices, increased competition from cheaper alternatives, and a shift in consumer preferences towards home cooking. To stabilize the business, we are exploring options such as diversifying sourcing and investing in marketing to adapt to evolving consumer trends. We have also named an interim CEO to ensure effective execution of these strategies. - Andrea Casillas, Head of Finance and Sustainability
Q: How did weather-related disruptions impact your business, and what measures are being taken to mitigate such risks in the future?
A: Severe weather events, including hurricanes and flooding, significantly impacted our impulse segment, resulting in approximately MXN40 million in lost sales. Despite this, our retail business within the impulse segment showed resilience, growing close to 7%. We are implementing several initiatives across our brands to mitigate future risks, such as flavor innovation and strategic investments. - Andrea Casillas, Head of Finance and Sustainability
Q: What are the key projects and investments Grupo Herdez is focusing on for future growth and sustainability?
A: We are committed to investing in growth and sustainability, with key projects including capacity expansion, equipment modernization, and new store openings. Our strong free cash flow allows us to continue these investments while maintaining a healthy financial position. We are also focusing on operational efficiency and product innovation to drive long-term growth. - Gerardo Miguel, Chief Financial and Information Officer
Q: How is Grupo Herdez addressing the challenges of doing business in Mexico, given the proposed labor reforms and inflationary pressures?
A: Doing business in Mexico has become more expensive and complex due to proposed labor reforms and inflationary pressures. We are implementing tactical and operational strategies, such as expanding our logistics footprint and manufacturing capacity, and implementing an ERP system. We are prepared to sacrifice short-term performance for stronger long-term growth and are confident in our strategy. - Gerardo Miguel, Chief Financial and Information Officer
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
