Grupo Herdezb-series * Aktie

Good day, and welcome to Grupo Herdez's First Quarter 2026 Earnings Conference Call. This call is being recorded.

Information discussed may include forward-looking statements subject to risks and uncertainties. Please refer to the forward-looking statement disclaimer in the company's press release.

I'll now turn the call over to Andrea Amozurrutia, Chief Financial and Sustainability Officer. Please go ahead.

Thank you, Bailey. Good morning, everyone. Thank you for joining us today to discuss our first quarter 2026 results. I am pleased to walk you through our performance and more importantly, the strategic steps we are taking to solidify our position for the remainder of the year. Before we discuss the numbers, I would like to clarify the structural changes in our financial reporting.

As you know, we successfully finalized the sale of our 25% stake in McCormick de Mexico at the beginning of the year. To ensure total clarity, our stake is now recorded under equity investments in associated companies and the strategic fees are integrated into revenues from related parties. Consequently, the figures we explained in the press release and in this call are on a pro forma basis.

Excluding McCormick de Mexico from our consolidation and removing Grupo Nutresa from the baseline. We believe this is the most accurate way to understand the organic evolution of our core business.

Turning to our quarterly performance, we posted a 17.5% growth in net sales, reaching MXN 5.2 billion. While the market context remains complex, this growth is a direct result of our proactive operational planning ahead of our new SAP S/4HANA, go live on April 1. This was a massive logistical challenge that our teams managed exceptionally well, allowing us to deliver a historic volume of nearly 7,000 tonnes in March.

This milestone proof that our infrastructure is more than capable of handling major technological transition without disrupting our service levels. Furthermore, key categories like pasta, vegetables and homemade products, expanded their market share, which reinforces the strength of our brands even when consumer demand faces headwinds.

Our operating profit grew 27.1% to MXN 620 million and EBITDA rose 23.7% to MXN 810 million. Margins expanded to 11.9% and 15.6%, respectively, primarily driven by the operating leverage resulting from that extraordinary top line performance.

Regarding our financial structure, we are executing a very deliberate deleveraging path. With the proceeds from the McCormick transition or transaction, we have already reduced our debt by MXN 1.4 billion in the first quarter.

Our road map is set to reduce it by almost MXN 4 billion by year-end through additional loan repayments and the settlement of the assets from the 2.2 at maturity. This will bring our net leverage to a very comfortable level under 2.5x, giving us the financial flexibility to continue investing in our future growth.

Please be aware that as a result of our strategic front-loading in the first quarter, we anticipate a compensatory adjustment in the second quarter figures. Consequently, we expect Q2 net sales to show a slight decrease when compared to the 2025 pro forma figures. This volume shift will naturally impact our operating and EBITDA margins as lower expense absorption will temporarily put pressure on profitability.

As a result, we recommend analyzing the full first quarter performance to extract the ERP impact. By year-end, we expect sales to grow in the high single digits and margins to retract around 1 percentage point due to SG&A pressure related to the implementation of the ERP during the year.

Having said that, we are closely monitoring geopolitical tensions in the Middle East and rising crude oil prices, which suggests potential pressure on plastic packaging and logistics for the coming quarters. While we do not expect this impact to be material, our focus remains on securing supply availability and implementing mitigation strategies.

If any guidance updates are required, we will let you know in the following quarters. As well, yesterday, during our Annual Shareholders Meeting, we presented audited financials for 2025. An ordinary dividend of MXN 1.50 per share was approved, payable in 2 equal installments in May and October.

I would also like to take a moment to discuss our approach to governance and climate risk. For the first time, we are reporting under the IFRS S1 and S2 standards alongside our audited financial statements. This is not just a regulatory update. It is an integration of our sustainability strategy into our core financial reality.

Through our core materiality assessment, we have identified water stress as one or our most critical risk. This is not a new focus for us. We have been aggressively managing this since 2022, supported by our sustainability-linked bond. The progress we've made in optimizing water consumption per ton produced has been significant, and we are fully on track to meet our 25% reduction target by 2030. We view this as a fundamental aspect of our business continuity and efficiency.

Finally, regarding our operational strategy, on April 13, we announced the formalization of our 50-50 joint venture with Froneri for our ice cream business, which we expect to close at midyear. This is a strategic pivot that allows us to capture more value. Under this agreement, Froneri, a world-class global leader, will assume operational control of the ice cream business. They bring the technical expertise and global scale that this segment needs to drive, allowing us to focus our resources on the areas where we can deliver most sustainable returns.

In summary, at 112 years young, Grupo Herdez is a company that does not just react to the market, we evolve ahead of it. The results of this quarter, combined with our technological transformation and our rigorous approach to climate risk positions us for a very bright future. Thank you for your time, and I will now turn the call over to Bailey for the Q&A session.

[Operator Instructions] Our first question comes from Regina Carrillo with GBM.

We saw a positive contribution to net income from the McCormick participation. But can you tell us more about its performance during the quarter? And what do you expect sales and EBITDA of that business to be during 2026 to grow?

Do you mean the McCormick business?

Yes.

Well, it is performing accordingly to the rest of the portfolio. So even in the case of McCormick categories, we saw double-digit growth in the first quarter. And as we mentioned, it is mainly related to the inventory buildup at the client level. So we don't have any disruptions regarding the go-live of the ERP. According to internal estimations and trying to extract the extraordinary benefit from the ERP, the underlying growth of the core business has been around 4%, 5%. So we believe it is in line with what you are seeing in the consumption environment in Mexico. It is mainly driven by volume, and practically no benefit from pricing.

Excellent. And if I may ask another question, I was wondering if you expect any positive benefit from the World Cup in Mexico and if you are implementing strategies to benefit from that?

Of course, we are. We believe that we have many brands in the space of the World Cup. We have already incorporated the benefits and all the promotional and additional activity that we will have related to the World Cup. However, at year-end, we don't believe that the benefit will be so significant, but definitely, we will need the following months to unwrap in order to give more detailed feedback on that.

[Operator Instructions] At this time, there are no more questions. I would like to turn the call back over to Andrea Amozurrutia for any closing remarks.

Thank you, Bailey, and thank you, everyone, for connecting to this call. We hope to see you and hear you in the following quarter. Have a nice day.

The call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone, and welcome to Grupo Herdez Third Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 Canavati, Chief Financial and Information Officer. Please go ahead.

Thank you, Rocco. Good morning, everyone, and thank you for joining us today to discuss Grupo Herdez third quarter results.

This quarter was marked by significant steps in our company's trajectory, one that designates 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 Herdez 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.

Thank you, Gerardo. Good morning, everyone. Before diving into the figures, it is important to consider that starting September of 2025, the results of the retail business were deconsolidated from Grupo Herdez. Thus, our third quarter and year-to-date growth rates versus last year are highly distorted.

As you have seen in the press release, we decided to also report pro forma 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 segments.

Now our domestic sales have incorporated the results of a lot of [indiscernible]. We believe this segmentation will allow the market to better assess the inherent profitability and growth of our core portfolio in the key 2 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 a flattish consumer environment, largely influenced by structural factors such as the decline in remittances in petitor, inventory adjustments in some clients and extraordinary weather conditions.

Despite this challenging environment, Grupo Herdez 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 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 purée 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 1 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 would have seen modest growth of close to 1%, reaching MXN 1.5 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 MXN 426 million. This strong growth underscores the benefits of our operational streamlining and core business efficiency effectively as well as the contribution of our associates MegaMex.

This last result obviously compared with a very low base in 2024, but as you can recall, had a significant pressure from the prices of avocado. So in this quarter, the profitability was driven by a sequential improvement in the profitability of Don Miguel and Wholly Guacamole, which allowed us to largely offset the negative operational impact faced by our Export segment.

Finally, the financial position reflects the benefits of the strategic transformation that we have already mentioned, supporting a stable and strong cash flow. We ended the quarter with a cash position of MXN 2.3 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 MXN 452 million, reflecting the cleanup of the Retail segments lease portfolio. Our financial position remains sound with a net debt-to-EBITDA ratio of 1.2x.

With that, I will now turn the call over to Gerardo to discuss further on the outlook for the remainder of the year.

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 of next year. 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 forma 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 that the figures are lower in the third quarter, we are expecting to complete our guidance near between MXN 1.502 billion.

That will conclude my prepared remarks, and we're open for your questions. Rocco?

[Operator Instructions] 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.

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.

Yes, sir. Thank you. And we thank you all for attending today's presentation. You may now disconnect your lines. Have a wonderful day.