Company is adding two new bottling lines in the country to start operating in the second half of the year
07/25/2024
Coca-Cola Femsa, the world’s largest bottler by sales volume, told analysts it must open new factories in Brazil and Mexico to meet increasing demand. Currently, the company has “maxed out” its existing factory capacity to handle orders.
In this scenario, focusing on maximizing its installed capacity, the company is adding two new bottling lines in Brazil, set to begin operations in the second half of the year. “As long as we can add lines, that’s the way to go,” said CEO Ian Craig García.
The company did not immediately respond to Valor’s request for comment.
In a conversation with analysts, the company revealed details about the impact of the floods in Rio Grande do Sul, which had a non-recurring effect on the balance sheet, costing nearly R$40 million. The tragedy led to lower margins in Latin America.
In addition to Coca-Cola, the group’s portfolio includes brands like Fanta, Sprite, Schweppes, Leão, Sucos Del Valle, Ades, beers such as Therezópolis, Eisenbahn, Sol, and Kaiser, and Crystal mineral water.
During the second-quarter earnings conference call on Friday (19), the management team was asked about investments in Brazil and Mexico, in light of the addition of seven new bottling lines in Latin America this year. Mr. García said the company is trying to “max out” current facilities before making new investments.
Regarding the lines, CFO Gerardo Cruz Celaya explained that of the seven planned, two will be in Mexico, two in Guatemala, two in Brazil, and one in Colombia.
Despite this expansion, the CEO admitted that a new plant would eventually be needed in southeastern Mexico and, at some point, a “completely new greenfield project” for Brazil and Mexico, though he did not specify timelines or product focuses for this investment.
According to him, the bottler is executing a production capacity expansion plan initiated last year, which aims to add 15% production from 2023 to 2025. However, in the distribution area, he said they are “a bit behind” and need to increase capacity by 30% over the same period.
Earlier this month, Valor reported that Uberlândia Refrescos, a Coca-Cola System franchisee and distributor in the Triângulo Mineiro, Alto Paranaíba, and northwestern Minas Gerais regions, will invest R$1.5 billion in the region from 2024 to 2030, with R$860 million allocated for a new factory in Uberlândia.
The CEO also noted that the operating profit margin in Latin America reached 14% from April to June, and would have been 14.2% excluding the negative impacts of the floods in Rio Grande do Sul.
According to Mr. García, operating profit rose 13.8% to 9.7 billion Mexican pesos ($540 million) in the quarter, with a profitability rate of 14%—compared to 13.9% a year earlier. Coca-Cola Femsa managed to partially shield itself from the impacts in Brazil and global cost increases, avoiding a downturn compared to last year. Excluding the extraordinary effects related to the floods in Brazil, the margin would have been 14.2%.
The CFO added that in the South American division, operating profit grew 19.6% in the quarter, with a margin of 10.1%. However, gains in the region were impacted by pressures in Argentina and costs from the tragedy in Brazil.
Mr. García mentioned that the supply chain team in Brazil had to adapt the sales and distribution network in Rio Grande do Sul, setting up two distribution centers around Porto Alegre. Finished products were sent from Uruguay, Argentina, and other bottlers in the system to mitigate production losses while working to reopen the Porto Alegre base.
Due to the tragedy, over 5,000 tonnes of debris and lost products had to be cleaned and removed from the facilities. “We are working with our equipment manufacturing partners for a gradual reopening in the fourth quarter of the year,” said the CEO.
Despite the challenges, Mr. García noted that sales volume in Brazil increased by 12.1% from April to June, reaching 269 million units, but did not specify what the increase would have been without the tragedy. From January to June, the growth was 11.2%.
Itaú analyst Alejandro Fuchs asked the company about non-recurring effects in Brazil, estimating a negative impact of 200 million pesos on the balance sheet due to the floods in Rio Grande do Sul. The effect, absorbed in the second-quarter balance sheet, amounted to 130 million pesos (R$39 million, according to June’s exchange rate), Mr. Celaya calculated.
Regarding Femsa’s operations, the Oxxo supermarket chain, created in a joint venture with Raízen, saw an 89% increase in net sales in Brazil from April to June, driven by new store openings that boosted total sales. There were 179 net openings (balance between openings and closings) in 12 months until June. From April to June, 14 new stores were added, bringing the total to 525 stores in the country. Same-store sales increased by 22%, well above the market average, which has been in single digits during this period.
*Por Adriana Mattos — São Paulo
Source: Valor International