Kimberly-Clark de Mexico Aktie

Hello, and welcome, everyone, joining today's Kimberly-Clark de México First Quarter 2026 Earnings Conference Call. [Operator Instructions]

Please note, this call is being recorded. [Operator Instructions]

It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez. Please go ahead.

Thanks so much, Nicki. Good morning, everyone. I hope you're all doing well, and thanks for participating on our call. We had another strong quarter and a good start to the year with record revenue behind a strong performance in our Consumer Products businesses, double-digit increases in gross profit, operating profit, EBITDA and net income and EBITDA margin at the top end of our range. Our strategies and actions are having the intended impact, spearheaded by strong commercial and operating execution, and we continue to make progress on our KCM+ innovation, growth and transformation strategy. More on that after Xavier takes you through our first quarter results. Xavier?

Thank you. Good morning, everyone. During the quarter, our sales were MXN 14.3 billion, a 3.6% increase versus the first quarter of 2025 and an all-time high. Total volume was up 3.7%, driven by consumer products, while price/mix was flat. Net sales were boosted by consumer products, which grew 5.4% with a 3.7% volume increase and 1.7% price and mix growth, while away-from-home decreased 1.3%. Exports were down 6.8% due to lower hard rolled sales, while converted products grew 15.8%.

Sequentially, Consumer Products grew 1.4%, mainly volume driven, while away-from-home and exports grew 10.1% and 6.2%, respectively. Cost of goods sold decreased 1.1%. Our cost reduction program once again had very good results and yielded approximately MXN 450 million of savings during the quarter. These savings are mainly at the cost of goods sold level. They were generated through a combination of global fiber contracting initiatives, changes in sourcing and the use of alternative fibers, product redesigns and the introduction of new raw materials in nonwoven fabrics, diaper geometry redesigns to improve material efficiency and logistics and distribution efficiencies across our network. These initiatives reflect ongoing actions across procurement, product design, manufacturing and logistics.

In addition to these actions, compared to last year, virgin and recycled fibers, fluff, superabsorbent materials and resins compared favorably. The FX was also lower, averaging around 15% less than last year. Gross profit increased 11.1% for the quarter. SG&A expenses were 10.2% higher year-over-year and as a percentage of sales were up 100 basis points.

Distribution expenses were higher, while we continue to invest behind our brands and work to improve our footprint and streamline logistics operations. Operating profit increased 11.9% and operating margin was 23.2%. We generated MXN 3.8 billion of EBITDA, a 10.1% increase year-over-year with EBITDA margin at 26.7% at the upper part of our long-term range. Cost of financing was MXN 439 million in the first quarter compared to MXN 295 million in the same period last year. Net interest expense was higher since we earned less on our cash investments.

During the quarter, we had a MXN 9 million foreign exchange loss compared to a MXN 14 million gain last year. During the quarter, in early March, considering that maturities of recent years have been paid from cash, we issued Certificados Bursátiles for MXN 10 billion through 2 placements. The first placement was for MXN 8 billion with equal amortizations in years '10, '11 and '12, and the second placement was for MXN 2 billion with a 2.6-year term. This allowed us to benefit from favorable conditions and improve our debt maturity profile.

Net income for the quarter was MXN 2 billion, a 10.2% increase. Earnings per share were MXN 0.68, a 13.3% increase. We maintain a very strong and healthy balance sheet. Our total cash position as of March 31 was MXN 20.4 billion. Our net debt-to-EBITDA ratio was 0.9x with EBITDA to net interest coverage of 9x.

With that, I turn that to Pablo.Thank you.

As mentioned, we had a strong start to the year despite still subdued economic growth and private consumption. We expect growth to improve as the year progresses, spurred by job creation and higher salaries, together with increased spending in anticipation of and during the World Cup. We expect consumer products businesses to continue to lead the way, Professional business stabilizing during the second quarter and growing during the second half of the year and parent roll sales still trailing due to more tissue required for consumer product sales, but becoming less of a drag as the year goes on.

With respect to raw material costs, fundamentals support lower dollar prices versus last year, but we will experience some months of higher costs, both sequentially and in some cases versus last year, stemming from the oil shock the world is experiencing. We hope the impact will be limited in both strength and duration with prices returning to underlying market fundamentals.

In the meantime, we're focused on price realization. We just implemented price increases in most of our businesses averaging 4%, and we'll continue to apply our revenue growth management capabilities. And we'll continue to be focused on operational efficiencies and ensuring another good year in cost reduction efforts.

Of greater importance, we continue to make good progress on our KCM+ strategies. Our core businesses are performing well, and our diamond categories are accelerating growth behind consumer-centric, relevant and differentiated innovation together with greater engagement and improved commercial execution. Further, we're making inroads in private label and have identified opportunities to strengthen the North American supply chain together with our strategic partner. When it comes to new areas of growth, in the coming quarters, we will be working to consolidate and to increase efficiencies in adjacencies.

Further, we continue to make progress on pet food and are actively analyzing the Kenvue opportunity. All in all, our KCM+ initiatives focused on accelerating growth are going well. Equally important, we have specific initiatives to develop our skill set, better utilize data to define consumer needs and engagement, work closely with our retail partners to remain a supplier of choice and continue to improve and where needed, transform our end-to-end cost structure in an increasingly dynamic environment.

Effectively deploying and efficiently utilizing the most advanced technology solutions is the fundamental layer to support and drive all these efforts and time is of the essence. We hope these comments provide a good picture of where we stand and why we are so excited about KCM's present and future.

With that, let me open the call for questions.

[Operator Instructions]

We'll take our first question from Ben Theurer with Barclays.

Two quick ones. So first, if I remember right, about a year ago, the strategy over summer in terms of campaigning, promoting, you took a little bit more of a hands-off approach, a little bit more on the back, not as aggressive as in prior years. So just wanted to understand with the announcement you just had the 4% price increase on certain products that you're pushing, what should we expect from you guys as we go into the summer promotional campaign that usually kicks off by the end of the second quarter? That's my first question. And I'll have a quick follow-up.

Sure, Ben. Thanks for the question. We will follow the same path as last year, meaning we will not be as aggressive as in the past, although one thing that is happening is that the summer promotional season continues to expand in length. It's pretty much has already started here in mid-April. And it might have to do with the World Cup and all of the retailers wanted to get ahead of that event. But we're starting to see more promotion out there. But in our case, we continue to be more disciplined about it to ensure we can keep the value of our categories.

Okay. And then a quick follow-up on the commodity cost side because I kind of like missed the commentary because obviously, you do have some exposure to oil price derivative products. So I just wanted to understand how the current surge in oil prices is kind of like affecting you on what might be more like, call it, a petro-exposed or just oil derivative exposed raw material cost pressure.

Yes, we are seeing some pressure on oil derivatives. But so far, and given where things stand, we believe it will be limited both in strength and duration. But that's where it stands right now. And as it is, it would have some impact, of course, on our cost and our margins, but we don't think it will be significant. Now things can change, of course, but where it stands right now, again, limited in both strength and duration.

Our next question comes from Bob Ford with Bank of America.

Pablo, can you comment a little bit about how clients and competitors are responding to your 4% price hike? And when it comes to the North American production footprint with Kimberly-Clark Corp, how should we think about the magnitude of the opportunity as well as the economics of that? And is there a role for you in the very short term to help address the inventory loss that Kimberly-Clark Corp suffered in California? And then lastly, how are you thinking about Kenvue Mexico with respect to the final deal terms and the closing date?

Sure. Thank you, Bob, for the questions. First, on retailers and competitors responding to our price increases. I mean we're right in the midst of implementing those. It was really at the end of March, early April. We haven't seen anyone respond so far, not unusual because you know they always lag. Now it might be a little bit more difficult this time around to see that response and to even have this reflected quickly.

Because again, we're already starting with the summer promotional season. And although we're going to be more disciplined, that always has an impact. So we expect that as this season goes through and we get into the third quarter, then we might see competitors react and our own prices reflect fully on going forward.

When it comes to the U.S., I mean, we continue to have very good meetings with our partner to understand our regional footprint and what's best for everyone and how we can have the most competitive and efficient footprint in the region. And we're finding really good opportunities that I think will take a little bit of time to materialize, but we're seeing some very interesting opportunities, both for them and for us, and we continue to work on those going forward.

And I think some of them will start to materialize end of this year, probably next year. Hard to tell the magnitude of the opportunity. We believe it's important. But again, we're starting with a couple of projects to make sure this goes the way we all expect and continue to look for opportunities.

In the short term, yes, we are helping them bring back their inventories given what happened in the warehouse in California. So in the short term, we'll be helping with that.

And then when it comes to Kenvue, we are in the process of the due diligence of the business and we're starting our discussions with our partner on the business. As you know, they're moving forth with their integration plans. And as part of that, we're discussing with them what would be next for KCM Mexico. I expect that we will have a more complete analysis and discussion with them probably May, early June and hopefully have a decision by the end of this quarter or early next quarter on whether we move forward with this or not, but things are looking good.

We'll take our next question from Renata Cabral with Citigroup.

Congrats on the results. So my first question is related to costs and a follow-up actually. As considering the current level of the FX, it's natural we consider that those margin improvements can carry over along the year, but we are now in a situation of volatility in terms of raw material prices. Just to check the view regarding this margin trend along the year broadly, if you can?

And the number two is related to the consumer division that had a growth of 5%. We see the slowdown in the Mexican economy. If you can give us some color in terms of a category that is doing better, would be great as well.

Thank you, Renata. Well, first, on the cost side, yes, you're right. I mean, the FX will continue to be a tailwind. And again, if raw materials were driven at this moment for by fundamentals, we would continue to see improvements, and that would also be a tailwind.

But again, we're experiencing this uncertainty right now with the oil shock and the impact that, that's having on all derivative commodities. So that will have an impact, but we still believe that we have enough with our efficiencies, our cost reduction program and the FX to continue to post margins within our target and most likely at the upper range of our target even with that cost impact. Now if that goes away, then we could see further improvements throughout the year.

When it comes to the market, yes, it still feels, as I mentioned, the economy is still stagnated. I mean we are not seeing great growth and domestic consumption is still pretty subdued. And we continue to see the same dynamics in our categories as we saw second half of last year. So that's soft volume growth and some pricing in most of the categories, particularly on the core categories, that's bathroom tissue, diapers, napkins, a little bit more growth in categories that have further room for penetration like incontinence and wipes, et cetera. So no changes really there on the dynamic on the categories.

So all in all, given where the categories stand, our results of 5.4% in consumer products and I think particularly 3.7% in volume, we believe those are pretty strong given that there's not a lot of volume growth in the categories. So that also means that our shares are strong, and we continue to make inroads with the innovation we're putting out there in the market.

So good start to the year, and we feel good about where we're positioned and a lot more coming in terms of innovation and commercial execution to continue this trend that really started in the second half of last year with consumer products. We had a very strong 3 quarters sequentially in Consumer Products, and we hope we can get that to continue.

We will move next with Alejandro Fuchs with Itau.

Pablo, Xavier, and team, congratulations on the results. My question is just a very quick one regarding the MXN 10 billion increase in debt that you posted during the quarter. I wanted to see maybe, Xavier, if you can elaborate a little bit more on what the use of proceeds is -- and if this has anything to do maybe with, as Pablo was mentioning, a potential deal with Kenvue and KC in the U.S. in the second half of the year, maybe.

Alejandro, in principle, the placement was not tagged to anything directly. As you know, we usually like to renew debt in advance when we see an opportunity, given the size of the deals that you need to do for them to be efficient. We prefinance, let me use that word, 2 or 3 years ahead. And the last 2 debt payments that we did came from our cash. Having said that, if we were to do anything in terms of M&A coming forward, this places us in a good position to be already prefinanced for that. I hope that answers it.

[Operator Instructions]

We will take our next question from Antonio Hernandez with Actinver.

Congrats on the results. Just a quick one regarding Away from Home that continues declining. What is your perspective here? Do you see any data that reflects an overall improvement, maybe how you started the quarter versus how you ended the quarter?

Thanks for the question, Antonio. Look, Away from Home was lower versus last year, but it did have an important sequential improvement. So we see the business starting to improve. As I've mentioned in prior calls, this is a business that suffered more the effects of the slowdown of the economy and the adjustment in inventories by the trade. And we continue to see some of that.

But again, our volumes are starting to improve sequentially. And we believe this might be -- the second quarter might be still a little bit flattish. But given where we see inventory levels at this stage in the trade and our plans going forward, we expect this business to grow in the second half of the year. So it's had a little bit of a rough patch, but I think it's coming under control and the right trend. And again, second half, we should be growing the business nicely.

And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing comments.

Well, nothing more to say. Just thanks so much for participating in the call. We really, really appreciate it. And as always, if there's further questions, you can certainly reach out to us, and we'll be more than glad to talk to you. So thanks again, and have a great rest of the week.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Thank you, Nicki.

Hello, and welcome, everyone joining today's Kimberly-Clark de México Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the meeting over to CEO, Pablo Gonzalez.

Thanks so much. Hello, everyone. Thanks for participating on the call. We wish you and your families a terrific 2026. We'll go straight to results and then make some brief comments about the quarter and our expectations going forward. So I'll pass it on to Xavier.

Thank you, Pablo. Good morning, everyone. Our sales reached MXN 14.1 billion in the fourth quarter, an increase of 2.1% versus the same period of 2024. Total volume was flat and price/mix improved 2%. Growth was driven by consumer products, which expanded 5.5%, supported by healthy year-over-year growth of 1.4% and price/mix of 4.1%. Export hard rolled sales continued to decline as we converted more tissue towards higher-value domestic products.

Sequentially, results continued to improve from Q3 to Q4 as sales increased 4.8%, with Consumer Products up 8.5% primarily volume less, reflecting strong commercial execution, the planned innovations to products and improved market dynamics. Cost of goods sold was flat and as a percentage of sales improved by 130 basis points. Compared to last year, virgin fibers, recycled fibers, SAM and resins were favorable, partly offset by higher fluff costs. The peso remained supportive with an average appreciation of roughly 8%.

Our cost reduction program once again delivered solid results, generating approximately MXN 500 million in savings during the quarter, mostly within cost of goods sold. These efficiencies came from sourcing, materials optimization and ongoing process improvements across our operations. As a result, gross profit increased 5.4% and our margin reached 40.4%, reflecting both disciplined revenue management and cost tailwinds.

SG&A expenses increased 0.8% year-over-year and as a percentage of sales decreased 22 basis points as we continue to carefully prioritize brand investment and overhead efficiency. Operating profit grew 9.2%, and our operating margin expanded to 22.9%. We generated MXN 3.7 billion of EBITDA, an increase of 6% with an EBITDA margin of 26.4%, a 140 basis point sequential improvement and 100 basis point expansion versus the fourth quarter of 2024.

Financing cost was MXN 398 million compared to MXN 350 million last year, driven mainly by lower returns on cash balances. Net income reached MXN 2.2 billion with EPS of MXN 0.73, a 23% increase year-over-year. For the full year, sorry, sales reached an all-time record of MXN 55.4 billion, up 1.1%. EBITDA was MXN 14.1 billion, representing 25.5% of sales, while margins declined 170 basis points due to the cost pressures we faced, particularly during the first half of the year. Net income was MXN 7.6 billion or 13.7% of sales.

Throughout 2025, our cost reduction initiatives delivered MXN 1.95 billion in savings, driven by sourcing, operating efficiencies and product design optimization. We invested MXN 1.8 billion in CapEx, consistent with our plan and focused on technology upgrades, cost reductions, efficiencies and strategic capacity additions. We also repaid MXN 3.7 billion of debt, paid MXN 6.2 billion in dividends and repurchased nearly 43 million shares, equivalent to 1.4% of shares outstanding.

We closed the year with a strong and healthy balance sheet. Total cash stood at MXN 9.7 billion. Net debt-to-EBITDA was 1.0x, and EBITDA to net interest coverage remained very solid at 10x. Thank you very much. I return it to Pablo.

Thanks. So we continue to operate against a soft consumer backdrop. However, we've delivered year-over-year growth, strong margins and a meaningful sequential improvement. Consumer Products performance was notably stronger, supported by innovations and commercial initiatives. Overall, consumer confidence remains subdued and private consumption growth has moderated.

Within retail, value formats and private label continue to gain share as shoppers seek savings, while e-commerce growth remains robust. Against this backdrop, our categories continue to show resilience, and our brands have benefited from our strong innovations, price and mix discipline and market execution. As we get into 2026, we have solid plans to strengthen our core businesses, accelerate growth in our diamond categories, expand into adjacencies and new categories, most notably in pet food as well as participate in markets we have traditionally not emphasized in the past, such as private label.

On costs, we're seeing the benefits of lower pulp, recycled fibers, resins and superabsorbent materials, which together with a stronger peso, will provide important tailwinds as we move into 2026. Cost reduction program remains a key structural lever, and we will stay aggressive in sourcing, product design and process efficiencies. A few additional comments before we open it up for Q&A. First, Kimberly-Clark Corporation, our strategic partner, announced in November its agreement to acquire Kenvue. This combination will create a leading global health and wellness company with a complementary consumer portfolio and expanded capabilities.

As the transaction progresses towards closing expected in the second half of 2026, we will evaluate potential strategic implications for Kimberly-Clark de México, including the possibility of integrating Kenvue's operations in Mexico. Our focus will remain on achieving operational excellence and capturing value-accretive growth opportunities for the business. Additionally, we will hold our Annual Shareholders Meeting on February 26, where the Board will propose a dividend increase in the high single digits, reflecting our solid cash generation and confidence in future performance.

We will also propose a share repurchase program, which will remain significant and aligned with our commitment to disciplined capital allocation. One final note. Starting with the first quarter results, we will be releasing them to the public on the third Tuesday of the month after the end of the quarter as soon as the Board approves them at the regularly scheduled meeting later on the same day, and we will hold our call early on Wednesday morning.

In summary, looking ahead to 2023, we face 2026, we face external risks, including ongoing tariff uncertainty and a slower domestic demand backdrop tied to softer formal employment and slower remittances. However, we are optimistic. We are entering 2026 with better momentum than 2025, and we have mitigating factors to those risks, including our leading positions in essential categories, portfolio initiatives focused on value and affordability, continued excellent execution with customers and, of course, a robust balance sheet. With that, let me turn it over to questions.

[Operator Instructions] Our first question comes from Alejandro Fuchs with Itaú.

Congratulations on the results. I have 2 very quick ones. First for Pablo. I was wondering, Pablo, if you could comment on the expectations for this year, maybe on competitive environment, what you're expecting? And maybe if you can elaborate a little bit more into going into private label, how relevant do you think this will be for the business in the medium to longer term? And then the second one, very quickly to Xavier. I was wondering, Xavier, if you could give us some color on the tax rate during the quarter. I think it was quite low. So maybe you could explain a little bit more what was the case, that would be very helpful.

Thanks, Alejandro. Thanks for being on the call. Yes, first, on the competitive environment, I mean, we faced a pretty competitive environment during 2025, again, given that the economy is not growing much and consumption is subdued. I don't think it was more aggressive than in some years past, but it certainly was, I would say, maybe a tidy more aggressive. And we expect that to continue this year. I mean we expect the economy to grow at a higher rate not what it should be growing, but certainly at a higher rate. So we expect categories to expand a little bit, but competitors to be aggressive to try and gain share and grow at a faster clip than categories.

So nothing that we haven't seen in the past. This is the nature of our categories. And against that backdrop, I guess, we performed very, very well, particularly in consumer products during the second half of the year and we're entering with that momentum and with stronger shares into 2026. And we've got plans on innovation, price mix, et cetera, that I think will carry us forward. So we're pretty optimistic with the year as a whole. It might start a little bit slow, but I think for the year as a whole, we're pretty optimistic.

On private label, as I mentioned in my opening remarks, and you guys know this, I mean, given the consumer is so stretched, private label has been gaining ground in many categories, not only ours. We've been able to fend off on our part the private label, given our -- the strength of our shares, but it is no doubt increasing. It's important and both hard discounters and overall retailers are pushing it forward. So what we decided to do is to participate more aggressively in private label, and we put together a dedicated team with dedicated assets to look into this and with some early successes. And we will be going forward, competing on private label and of course, competing overall in the market for this business. So we expect this can be a benefit for us going forward. And together with, again, strengthening our core, accelerating diamond categories, being more aggressive on the supply chain front with Kimberly-Clark Corporation, Private label, I think, can add an additional opportunity for growth in KCD Mexico's case. Javier, on the tax rate?

Sure. Alejandro. You are correct in pointing out that the tax rate -- the effective tax rate shown in the fourth quarter was lower than what we traditionally have. And that, of course, also had an impact for the full year. This comes from an accounting adjustment that primarily reflects improvements in our estimation processes and those yielded a more accurate estimate, and that allowed us to reverse some provisions. This adjustment does not result from any change in our tax strategy nor from the adoption of new tax positions or any aggressive tax assumptions. And it will also not impact how much taxes we pay. This is -- these are mostly accounting and noncash adjustments. And let me underline that we continue to apply a consistent, conservative and very responsible approach to tax accounting. So I hope that helps.

Our next question comes from Ben Theurer with Barclays.

Congrats on the results. Two very quick ones. So one, obviously, 2025, you've done a relatively good job on continued cost savings initiatives. And I mean, the run rate was really good. So if you could share maybe how you think about that into 2026, also in the backdrop of the better environment that you're expecting? And then as it relates to raw materials, I mean, I would say it was mixed, but obviously, FX supportive. So how do you feel about the raw material price environment and then obviously, as FX as a tailwind and how that then ultimately comes down to profit margins into 2026?

Thanks, Ben. Thanks for the questions. First, on the cost reduction program, as we've said before, I mean, this is really an essential part of our culture. And that's why year-over-year and every year we deliver very strong results. And we are confident 2026 will not be the exception. We have identified already upwards of MXN 1 billion in savings for this year and most likely will be close to what we achieved in 2025. And again, this is just part of our culture of continuously looking for opportunities in product design and sourcing and materials on efficiencies to continue to improve our execution operationally.

So we expect another strong year on our cost reduction program, and we are off to a very, very good start. When it comes to raw material price environment, I mean, we're entering 2026 in a very different position as most of our raw materials are -- have come down, and we don't necessarily expect them to continue to go down throughout the year. But certainly, they will compare very, very favorably at least through the first half of the year and maybe through the whole year. I mean it's hard to tell these things can -- they're very volatile and they can change. But the scenario we're looking at right now is pretty favorable to start the year together with the exchange rate. So we do expect, as you could see in the fourth quarter, that to trickle down to our margins on the bottom line.

We will move next with Antonio Hernandez with Actinver.

Congrats on your results. I wanted to check what's the current standpoint on the Nutec partnership? At what stage are you currently in terms of operations, distribution and sales?

Sure. Thanks, Antonio. We -- as you know, we entered the pet food business in the second quarter of last year and really have been working on ramping that up over the last half of last year, and that will continue to be our priority this year. We continue to gain space at shelf as consumers have reacted very, very positively to the products, I would say, particularly to the premium offering, so Prime Care. And as that has happened, of course, retailers have become more and more interested in giving us more space, putting the brand out there, and that is allowing us to increase our penetration. And that will be our main focus still on 2026. As we said from the very beginning, this is a category that will contribute to our results in the medium term. It won't be immediate. But I think we continue to make very good strides, and we believe 2026 will be a breakout year for us in that sense. And in the coming years, it should be a category that delivers more in terms of both top line and bottom line for Kimberly-Clark de México.

We will move next with Renata Cabral with Citibank.

I have one that is a follow-up about the consumer segment that you just commented. Just would like to ask if you can provide some color in terms of price mix for this quarter. And since last quarter, I think it's performing really well, and you already commented something about why this is going well. And my second question is if you can comment something about dividends and buybacks for 2026.

Sure. First, on the price/mix, Renata, I mean, as we mentioned, Consumer Products overall grew 5% for the quarter. Volume was a little bit over 1% and price/mix was a different 4%. And when you look at price and mix, if you break it down, it was pretty much even, 2.1% price was up and mix was up 2%. And again, this is not only a testament to the discipline on our pricing, but also on our good commercial execution and the effort we've placed on improving our mix in all of our categories and driving consumers up to the higher tiers. And we've been very successful, for example, in doing that in bathroom tissue as we move users up to Cottonelle.

So even in a very, I would say, subdued consumer environment, we've shown that we can bring mix and price to the table. So those 2 components together with gaining a little bit of volume, that's what really has delivered a very strong showing for Consumer Products in fourth quarter and also third quarter. So we'll continue to work on that to think about where we see pricing opportunities, continue to push for a stronger and better mix and of course, continue to look for ways to grow the categories and volume. So it's really the combination of the 3 that allowed us to post these results, and that will that's the objective for 2026 is to continue to move on all those 3 fronts.

When it comes to dividends, as we mentioned, we will have our shareholder meeting late in February, and we will be discussing with the Board on February 10, the dividend that we want to propose and the repurchase program that we want to go forward with. But we are -- we will -- we know we'll be proposing a dividend increase in the high single digits. And again, this reflects our solid cash generation and confidence in future performance. So it will be another year where we provide this high single-digit dividend increase into 2026.

And we will also be proposing a share buyback, which will continue to be significant.

We will move next with Guilherme Mendes with JPMorgan.

I have 2. First, on your short-term and long-term thoughts about the degree of cannibalization between private label and your own branded portfolio. Where do you see it now? And long term, is there some, let's say, mindset around what degree of cannibalization this can make to your long-term volumes in your core branded brands? And secondly, if you could share more thoughts around what the Kenvue potential acquisition in Mexico could mean in terms of incremental revenue, CapEx, returns? That's it.

Thank you. Thanks for the questions. First on cannibalization. Look, with our strategy of multi-tier, multichannel, multi-brand in our categories, our brands have held up steady very, very nicely. I mean our shares are very strong in many categories growing, even though private label in the category is growing. So in many, many instances, we're the #1 player with very strong shares and then private label is now the second player in those categories. So we will continue to focus on our brands, and I want to be very, very clear about that. Our brands are our priority. We're a branded consumer products company.

But given the opportunity for growth in private label and the fact that we believe we could be good partners with some of our clients in strategic areas, we want to participate -- and -- but our, again, multi-tier innovation program, multichannel, multi-brand continue to be the priority. And as it's held up very strongly until this point, we expect it to continue to hold on very strongly going forward. We just see an added opportunity for growth if we can participate in private labels. And as we've started to do this, we've seen some early success. So we'll see what it means going forward.

But I can't stress enough that our main priority is our brands, innovation behind our brands and bringing to consumers the best products at the best cost in every single tier, in every single channel with the best brands, which -- and preferred brands, which are ours. On the Kenvue issue, and thanks for asking that question. As I mentioned, we've just started conversations with our partners -- with our strategic partner. And these conversations will evolve here through end of January, February, March. By -- I'm going to say by April, we should have a much clearer understanding of where we stand, what the Kenvue business in Mexico would mean for Kimberly-Clark de México and whether we can come to an agreement with our strategic partner as to how to move forward.

So we'll have more information certainly in our conference call when we report first quarter results in April. But let me just say this. Our understanding is that on the top line, Kenvue, Mexico is about roughly $200 million in sales company. So it's about 1/10 of where we stand. So not huge, but also not insignificant. It's a nice size, and it would be a transaction that would add quite a few categories that we're interested in, in the health and wellness.

And as we've always said, categories that have great growth potential, categories where we see we can add value given the way we operate innovations, brands, channels, tiers, et cetera, categories where we think we can add value not only to consumers but also to clients and that in the medium term would be accretive to our, of course, top line, but also bottom line results and margins. So early. Again, we've just started the conversations, but it's a good opportunity for us. Again, not a huge one, but an opportunity that opens very nice windows of growth going forward that would add to our core diamond categories, new categories where we've entered like pet supply chain integration with Kimberly-Clark Corporation. And if this happens, then Kenvue categories. So the whole scenario, I think, paints a very good picture of the possibilities of growth for Kimberly-Clark de México going forward.

Our next question comes from Bob Ford with Bank of America.

Congrats on the results. Pablo, given the concerns around private label, could you maybe provide some examples of innovations across major categories and price tiers? And maybe touch on like some of the materials innovations, right? We're going through this pretty big technology cycle. And I'm just curious if you -- if there are any things that have been patented or maybe a product cycle that you feel really comfortable that you can maintain leadership in for an extended period of time?

Yes. Thanks, Bob. Thanks for the question. These are all very, very dynamic categories. And I can talk about a few of the things we did this past year. I wouldn't want to get ahead of myself and talk about 2026. But I'll give you some color on where we stand. But in 2025, for example, we -- in bathroom tissue, we introduced new products in a whole range of products. And particularly, we were very aggressive in bringing new technologies into the premium category with Cottonelle with great, great results. I mean our sales in Cottonelle are growing double digits and continue to do so very strongly. When you look at diapers, we also brought even a Tier 7 diaper to continue to premiumize the category with softness that is unparalleled in the market and of course, the absorbency that consumers come to expect from Huggies.

And we've also improved even our economy tiers with now stretchable ears in diapers, which is a first really for the economy tiers. So again, across all of the tiers, -- we've improved our products in feminine care. We brought a new nocturnal pad that it's considered by consumers the best product in the market by an important margin, and it's just a new platform that we're bringing to that category. And incontinence, we brought new products, again, in pads and panty liners that have also preferred by consumers that also offer a new platform. So very, very excited about what we've done and even more so with what we see going forward because I think we're going to be bringing to market some new technologies, first-in-market technologies and in some cases, first to the world technologies that I think will continue to strengthen our platform, strengthen our brands and strengthen our position in the market.

So this is never ending, and I'm very excited about our plans for 2026 and innovation, but already looking at '27, '28 and making sure we bring very relevant innovations to market and try and step ahead -- and keep stay a step ahead of competition in every tier in every channel going forward. So sorry, I can't say more about '26, Bob. I'll share more as we go through the year and bring those innovations to market. But as you can see, I'm very, very excited with what I see we can bring to the table in this year.

No, that's definitely well communicated. It's a great teaser. With respect to maybe playing a greater role in the supply chain, can you touch on what you think your competitive advantages are, right? I mean you're clearly doing a much more sophisticated kind of tiering of products. You're doing more shorter production runs. I'm familiar with some of the productivity rates that Kimberly-Clark de México versus the rest of the system. Beyond that, what should we think about when it comes to maybe selecting Mexico to play a much bigger role in the North American supply chain?

That's a great question, Bob. Look, we are at a great point on that issue because after working with Kimberly-Clark on specific projects over the past years, we really have -- it's come to the point where we're sitting down, we're taking a look at the whole supply chain. We are being completely transparent in putting the numbers out there, costs, efficiencies, logistics, et cetera, and identifying the biggest opportunities going forward. And as you mentioned, in many respects and particularly when it comes to certain of the tiers in the market, we have advantages because of the way we operate, because of our costs and because of how we know to manage different tiers, which, again, it's much easier said than done.

So we're finding very interesting opportunities. But the key thing is where I started that it's not now just hey, we found this project, how do we move forth together with it. It's really a holistic look at the supply chain, figuring out where we can add value, figuring out where they can add value and putting all of that together so that when we think of a project now, it's really for the medium and long term. It's not just a one-timer. We will still have some one-timers, but it is becoming more of a, hey, can we think of certain area of the U.S. where Mexico would be better positioned to supply products and put us in a better competitive position overall in such a market. So we're delighted that that's where the conversations stand. And we just had our Kimberly-Clark Board members attend our Board meeting, and they expressed the same confidence that we're finding very interesting opportunities and that we're very confident going forward our supply chains can come together and deliver very positive improvements for both Kimberly-Clark Corporation and Kimberly-Clark de México. So again, another area where we're very excited and where we think that '26, '27 could be breakout years when it comes to really determining how to play together.

[Operator Instructions] We will move next with Jeronimo de Guzman with INCA Investments.

I had 2 questions. The first one was just a follow-up on what you talked about with the shift. You talked a little bit more about the shift or increasing the emphasis on private label and value. And I was just -- you kind of touched upon it, but I just wanted to see if we should expect any kind of impact on pricing/mix or margins as a result of this.

No, we don't think so, Jeronimo, certainly not in the short term. And in the medium to long term, we'll see how successful we are and how many -- how strongly we can participate. But of course, and you know our culture, we're already working into, okay, if we are very successful and can participate meaningfully, how do we change our cost structure so that we continue to deliver the margins that we've targeted and that continue to be our target. So no, don't expect a change anytime soon on that target. And we will find ways to, over the medium to long term, be there within that target range.

Okay. Makes sense. And then a question on just how are you thinking about pricing because you're mentioning the raw material environment being very supportive, but you're also talking about competition continue to be aggressive, trying to gain share. So yes, kind of how are you thinking about pricing going forward?

Thanks for the question. We are looking at all of the opportunities on pricing because notwithstanding, as you say, that raw materials are a tailwind right now and so is the exchange rate. These are very volatile, particularly -- well, both of them. And we've seen in past years that things can change relatively quickly. We don't expect that to happen, but it could. So we're ready. We're ready to move on pricing. And with our revenue growth management initiative, we're always looking for opportunities, both on pricing and mix. So we -- I would venture to say that we will -- you will see some pricing coming to the market this year and aiding our results. And again, we'll continue to work on the mix, and you will see some mix also come into the equation and also help our results during the year. No specific plans at this point, but pretty confident that both factors will be relevant and help us with the results in 2026.

Our next question comes from Juan Guzmán with Scotiabank.

Congrats on the strong performance. Just one quick question here as most of my questions have already been answered. Regarding Away from Home, given this 10% contraction that you mentioned due to channel inventory adjustments, what's your outlook for this business going forward? And even when it's early in the year, what trends have you been observing recently? And what strategies are you implementing to recover sales growth here? And that will be it.

Thanks, Juan. Thanks for the question. Yes, not happy with the results on the professional side. Again, a combination of a softer economy and our wholesalers reducing their inventories given their concerns on the market. Having said that, again, we believe the economy will pick up a little bit this year. And particularly on that side, when it comes to hotels, restaurants, et cetera, we will definitely see the benefit of at least some of the games of the World Cup being played in Mexico. And not just because of some of the games, I think tourism overall will be a positive for the country this year.

So we expect really this to turn around in the coming -- I don't know by the first quarter, I think we'll do quite better, and we're already seeing much better performance in the first quarter, early, but we're seeing much better performance in the first quarter. But certainly, by the second quarter, I think we'll see better performance. And our strategies, same as in consumer products, we're very clear of the different areas we want to go after, and we're bringing also innovation and interesting -- very interesting innovation to the different categories, and we're working very, very closely with our wholesalers to go after specific accounts and to try and premiumize in different categories. So not very different in terms of the strategies that we're pursuing in Consumer Products. And again, we expect this to turnaround certainly by second quarter, and we expect the business as a whole to grow nicely throughout the rest of the year. And again, we're already starting to see early signs of that turnaround, but I think it will take a little bit more so maybe by second quarter.

And at this time, there are no further questions in queue. I will now turn the meeting back to Pablo Gonzalez for closing remarks.

Well, thanks again, everyone, for participating. As you can see, very exciting things going on at Kimberly-Clark de México, and we -- we will have more to share when we have our call on April, certainly on many of the initiatives that I just mentioned on innovation, on Kenvue, et cetera. So looking forward to it and looking forward to have a very good year at Kimberly-Clark de México.

And with that, again, thanks so much, and I hope that you also have a terrific 2026. Thank you all.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Good day, everyone, and welcome to Kimberly-Clark de México Third Quarter 2025 Results. [Operator Instructions] Please note this call is being recorded, and I will be standing by. It is now my pleasure to turn the conference over to CEO, Pablo González. Please go ahead.

Hello, everyone. I hope you're doing well, and thanks for participating on the call. We'll go straight to results, and then we'll make some brief comments about the quarter and our expectations going forward. Xavier?

Thank you. Good morning, everyone. Results for the quarter were better, with net sales growing and gross and operating profits recovering. During the quarter, our sales were MXN 13.4 billion, a 2% increase versus last year. Hard rolled sales impacted total volume, which was flat and price/mix was up 2%. Consumer Products grew 5%, 1% volume and 4% price/mix, while Away from Home remained flat. Exports were down 15%, impacted by a 32% decrease in hard rolled sales, while finished products grew 7%. Cost of goods sold increased 3%. Against last year, SAM, resins and virgin fibers were favorable. Recycled fibers were mixed, while fluff compared negatively. The FX was slightly lower, averaging 1% less.

During the quarter, our cost of goods sold reflected the higher prices of raw materials from prior months and very significantly, the much higher FX, including the hedges as those trickled down the inventory layers. Our cost reduction program once again had very good results and yielded approximately MXN 500 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing, materials improvement and process efficiencies.

Gross profit was flat and margin was 38.7% for the quarter. SG&A expenses were 4% higher year-over-year and as a percentage of sales, were up 30 basis points as we continue to invest behind our brands. Operating profit decreased 4% and the operating margin was 21.3%. We generated MXN 3.4 billion of EBITDA, a 3% decrease, but within our long-term margin range at 25%.

As mentioned, the benefits of better raw material prices and a stronger peso take time to show up on the actual cost of goods sold, due not only to inventories, but also to contract transit time and particularly in this case, the currency hedges. Having said that, our gross margin did improve 50 basis points sequentially from the second quarter to the third quarter. That improvement does not go down to the operating profit or EBITDA level because the SG&A remained constant and was, therefore, higher as a percentage of sales because the third quarter sales are traditionally lower than the second quarter sales.

Cost of financing was MXN 404 million in the third quarter compared to MXN 287 million in the same period last year. Net interest expense was higher at MXN 401 million versus MXN 290 million last year, despite our lower gross debt because we earned less on our cash investments. During the quarter, we had a MXN 3 million FX loss, which compares to a MXN 4 million gain last year.

Net income for the quarter was MXN 1.7 billion with earnings per share of [ MXN 0.56. ] We maintain a very strong and healthy balance sheet. Cash position as of September 30 was MXN 11 billion. We have no debt maturing for the rest of the year and maturities for the coming years are very comfortable. Net debt-to-EBITDA ratio is 1x and EBITDA to net interest coverage is 10x.

Over the last 12 months, we have repurchased close to 50 million shares, around 1.5% of shares outstanding, which brings the total payout to shareholders to approximately 7%. And with that, I turn it back to Pablo.

So we continue to operate against a soft consumer backdrop, but we managed to increase sales and post EBITDA margin within the target range. Growth in Consumer Products was significantly better supported by innovations and commercial initiatives, together with a strategic decision to reduce spending during the heavy summer promotional season to protect the value of our brands as well as reduce the negative price effects. Volume was slightly ahead of last year, an important improvement, but consumers remain stretched and cautious given the increased uncertainty, job growth deceleration, remittances slowdown and overall lack of economic growth.

We see no significant catalyst for this to change in the short term and are strengthening strategies accordingly. Still more relevant and differentiated innovation, more effective engagement with consumers efficient execution hand-in-hand with our clients, and importantly, relentless focus on our most important opportunities by category, channel and brands will guide all our actions.

In a market that's not growing much, gaining share and playing in areas where we haven't participated at least not aggressively, will be key to accelerate our growth. We look forward to sharing more details on the strategies as we get into 2026. The same holds true for Away from Home business, and we expect exports of finished products to continue to grow and accelerate in the coming years, behind a concerted effort with our partner, Kimberly-Clark Corporation.

With respect to costs, we have yet to see the full effect of lower input prices on results and lower sequential volumes typical of the third quarter meant we had weaker operating leverage. Despite these headwinds, margins remain strong. As we get into the final stretch of the year and particularly into next year, we will see lower costs reflected in our numbers.

We expect lower pulp prices, stable recycled fibers, lower resins and superabsorbent materials plus a stronger peso to be tailwinds going forward. In summary, our results continue to improve. And despite an expected continued weak consumer environment, we're executing strategies that will translate into stronger results in 2026 and the years to come. With that, let's turn to your questions.

[Operator Instructions] We'll take our first question from Ben Theurer with Barclays.

Congrats on the results despite the challenging environment. So I wanted to follow up a little bit on just the consumer sentiment and what you've been seeing across the different categories. So maybe help us understand and kind of like getting a bit closer into that 4% price/mix change. How are you able to kind of like implement that and at the same time, actually get about a 1% volume growth, just given the consumer is weak, but it felt like a very good execution on price mix with volume growth. So that would be my first question.

Sure, thanks for the question. Look, as I mentioned, we see a stretched consumer. And this is [ not news of ] uncertainty. And as I mentioned, job growth has decelerated, remittances have slowed down. I mean overall, the economy is pretty slow and consumers' sentiment is not at its best, if you will. So consumers are being very careful in how they are spending. We do see a fork, if you will, with consumers that continue to spend on premium products, but there are those who are trending down from value to economy products, not at a very marked rate, but there's certainly something happening there given the -- how the consumer is stretched. So the way we were able to put all of this together -- and let me say, by the way, the growth in our categories is pretty muted. Some of them, the categories that don't have such high penetration like kitchen towels and others are growing at higher rates. But even those the rates have slowed down a little bit. And the more, if you will, mature categories are flat or slightly growing when it comes to volume. So what we did is, one, Remember, we decided not to play as aggressively on the summer promotional season. Because what we were seeing over the past couple of years is that when you did that, the price would take a hit not only within the promotional season, but then beyond that, because consumers ended up with some inventory on their hands. So then it was a little harder to move volumes forth. So we were very careful on how we manage that, and I think we were successful in doing so. Plus the fact that we are through our revenue management -- revenue growth management capabilities found certain instances where we could adjust pricing and move forth. So that's how we were able to keep prices going and then volume really helped because of innovation and all of our commercial activities during the third quarter. So it was really a combination of executing on price and innovations that allowed us to put together both growth in price and for the first quarter in the year, growth in volume.

Okay. And then just one quick follow-up. You've called out the softer hard roll sales volume. Was there a technical issue? Is it a demand issue on the export side? What's been driving that?

Really, I think what's happening there is that there's a lot of supply of hard rolls in the U.S., a combination of companies with excess capacity sending it to the U.S. and then maybe a little bit of companies buying before some of the tariffs came into effect. So there's paper out there that I think the system is going through. And hopefully, that will become more normalized, if you will, in the fourth quarter, certainly, I think by the first quarter of next year. But overall, just oversupply in the market of hard rolls in the U.S.

We will move next with Bob Ford with Bank of America.

Pablo, I also was impressed by the growth in consumer given your intent to stay away from some of the summer promotions. Can you give some examples maybe of some of the more successful innovation and execution of efforts that are enabling you to improve pricing and take share? And with respect to the export mix between hard rolls and finished products, can you give us a sense both in volume and value in terms of the breakdown of those exports? And then how should we think about current capacity utilization rates for both pulp and finished product?

Thanks, Bob. Thanks for your question. Yes. Look, I mean, when it comes to innovation, as I mentioned earlier in the year, we have strong innovations for all of our categories throughout the year. And by the way, we have a very, very strong pipeline for the coming years. So we're very excited about that. And a couple of particular examples are on the diaper front, where we pretty much improved on every single tier of our offerings. And when you take a look at our shares, we're -- even though the categories, as I said, pretty flat, we're gaining share in pretty much all of the channels given the -- all of the channels and all of the tiers, given the innovations that we were able to put into the market. And again, those have to do with better observancy core, better fit, better stretch, better softness. So depending on the tier, again, we improved every single one of them, and that's a category where we see our shares improving nicely. Also, for example, in bathroom tissue in the premium tier, where we've introduced a couple of new features and new sub-brands under Kleenex,

Cottonelle, and we're absolutely convinced we have the best product in market and products that can compete with products anywhere in the world. and they've been very, very well received by consumers. And as well, we also made some innovations to our economic product, particularly Vogue in the -- or [ Vogue ] in the wholesale channel, and we've been able to gain ground with that product consistently and significantly. So again, innovation at the core of everything we do and very, very excited with what we see for the coming years when it comes to innovation. With respect to the breakdown of our exports, I mean, hard roll sales represent 46% of the sales and finished product, 54%. And hard rolls, as I mentioned, hopefully, volumes will stabilize here in the coming quarters, and we expect that to continue to be -- hopefully, be a tailwind and if not, certainly not a headwind going forward. And on the finished product, we're excited. I mean we've had a couple of meetings with our partner, and we're looking at opportunities in the coming years to further integrate our supply chain. We've done a good job here in the past couple of years, but many more things that we can do, and we're working very closely together to make that happen, and we're excited with the opportunities we see for it. And as we move and are able to turn more of our capacity into finished product, then certainly, our hard roll sales will decline accordingly because, as you know, what we do is our excess capacity is what we turn into hard rolled sales and sell outside. So as this plans with our partner materialize, a little by little, we'll start to see lower hard roll sales, but finished product sales increase hopefully significantly.

And that was actually the idea behind the question on capacity utilization is we agree. We see this massive opportunity in exports of finished product. And as a result, we're a little curious in terms of where you are right now in terms of capacity utilization, both for pulp? And then how should we think about where you are today on finished product and we can make some estimates in terms of what you need to add.

Yes. And it's a great question, Bob, and we -- let me put it this way. We have enough capacity to grow on finished products aggressively together with our partner in the coming years. And not only what we're producing right now, but we're putting plans together so that we can get more throughput through our equipment or through our machines. So we will be able to support growth with them. And I think we will still continue to be able to put a decent amount of hard roll sales out there in the U.S. So I think the combination over the coming years will certainly be a support our growth and support our margins going forward.

Our next question comes from Alejandro Fuchs with Itau.

I have 2 very quick ones. Pablo, maybe I want to see if you can discuss a little bit about competition, right? How do you see competition today in Mexico, given the increase in price and sales mix, are maybe the competitors following? Are they being more aggressive promotionally? And if you can also discuss maybe your expectations into next year, hopefully, with a better consumer environment in the country. Maybe you can talk us about what do you expect going forward?

Sure, Alejandro. Look, when it comes to competition, I mean, you know our categories have always been very competitive. And we maybe are seeing a little bit more from some participants, not all when it comes to their promotional aggressiveness. I wouldn't say it's something that it's radically different, but a little bit more as, again, the pie is not growing, some are losing share. So they're trying to recoup some of that and are being a little bit more aggressive on it. But not -- again, not something that it's too surprising or too different from other instances. And the fact also that our retailers are, one, continuing to keep inventories and overall working capital under control, they're putting a lot of pressure on that. And two, trying to keep prices, it seems to me a little bit more consistent. I mean that helps in terms of the aggressiveness of promotions not being even more so that it could have been in other instances when the economy is not growing. So a little bit more, but really nothing marked, if you will. Coming into next year, I mean, we hope that a lot of the -- or at least some of the uncertainty that is hanging over the economy can be resolved or at least we get a clear direction as to where it's going. Certainly, the uncertainty that's coming from the USMCA revision or renegotiation and what will happen with that. I mean, you've heard -- we've heard that in a couple of weeks, we'll be hearing from our government as to some of the agreements they've come to with the U.S. administration. So hopefully, that will start to settle down, and we'll know a little bit better where it heads. Hopefully, as we get into the first -- or the workings of the judicial reform, we start to see how it how it works, and we start to see some decisions that support, again, giving more certainty to investment. And again, just hopefully, some of this uncertainties start to play out and we start to get a better sense of what's going on. We know then what to expect. And if that happens, I think the economy will be able to start growing again at a faster clip, maybe come back to what we were doing before all of this uncertainty, about a 1.5%, 2% rate, which at this stands would be pretty good. Not what we need certainly as a country. I mean, we really should be working hard to take all of the obstacles away from investments so that we can start growing at 3% or higher rates, but that's going to take some time and uncertainty is key for that certainty. So that will hopefully play out by '27, but at least by '26, if we can get some uncertainty out, we'll see greater economic growth and then we might see a consumer that feels a little bit better about things and then domestic consumption can start to pick up again. That's our expectation. But let's see how quickly we can -- how quickly it unravels and happens.

Our next question comes from Renata Cabral with Citibank.

Congrats on the results. So my first question is still about the consumption environment, but specifically to understand if consumers are making the trade downs and if you see a bigger penetration of private label in the categories that the company has? And the second question is related to cost. In the initial remarks, I understood that the company expects that the raw material prices should maintain for the upcoming months. I would like just to confirm if that's the view. And for the fourth quarter, if the company has any hedges or the effects?

I hope I can answer your questions. You were not coming through too clearly, but if I don't, please let me know. Again, when it comes to consumers, we're seeing a divergence. Those that buy premium products continue to do so. Those consumers that are used to buy either value or economy products, we see a little bit of trade down to the economy segment. not a big trade down, but a little bit of trade down given how stretched they are. And tied to that, we are also seeing growth in penetration of private labels in the country. And it's a combination of the economic situation and retailers being a little bit more aggressive when it comes to pushing their private label. When it comes to costs, again, we already have seen in our purchases lower costs of most of our raw materials, excluding fluff. And that's just taking a little bit of time to reflect on our cost of goods sold, but we expect that to continue to -- start to happen certainly in the fourth quarter. And no doubt early in 2026. And our expectations for costs in the 2026 is that we will come in with, again, most of them on a downward trend and that will certainly be tailwinds for our cost together with the exchange rate, which will compare very favorably in the first half of the year. So that should be very, very helpful going forward. And when it comes to hedges, no, we have no more hedges during this quarter, and we don't expect to hedge going forward.

We will move next with Antonio Hernandez with Actinver.

Just following up on [ Renata's ] question, should we expect given that because of the tailwinds from FX and maybe raw materials and so on, that maybe EBITDA margin, at least in the short term has already hit rock bottom. Is that like you see basically upside on going forward?

Yes, absolutely. And it's interesting how you put it rock bottom when it's 25%, and it's still one of the best EBITDA margins out there for any Consumer Products company in the world. But yes, we probably have hit rock bottom. And going forward, we should expect better margins, no doubt.

Exactly. Yes. I mean, rock bottom considering the 25% to 27%.

I understand. I just -- quite frankly, I just used it to make a point, sorry.

Exactly. It's all relative in the end, but yes, pretty good margins. Just a quick follow-up. In terms of innovation and how you're also treating these consumers that are willing to buy these premium products. Maybe if you could provide any color on how much do they represent or innovation in terms of sales? Anything like that would be helpful.

Look, I think most of our growth really is coming from products that -- where we've innovated. And again, we're very, very excited with what we've done, but even more so with what we have coming. And early in 2026, we hope to share a little bit more of our strategies when it comes to areas -- main areas of focus and opportunities by category, channel and brands and also the -- what we see would be some of the very exciting innovations that we're going to be putting into the market. So let's hold on that until the first quarter of '26, and we'll be able to provide you more insight and details into what it's done and how we expect it to contribute to our growth going forward.

[Operator Instructions] We will move next with Jeronimo de Guzman with INCA Investments.

Start with a follow-up on the cost side. You mentioned that there's no hedges impacting the fourth quarter, but I just wanted to understand how much did the FX hedges impact the third quarter?

I would probably say they did impact about 50% of our purchases for the second quarter and for the first part of the third quarter. So assuming that what we saw on the third quarter was mostly based on those purchases. You could say that approximately 50% of our dollar-denominated purchases were impacted by those hedges in the quarter. I don't know if that made sense.

But only half -- but only for half of the third quarter...

Yes, because of the -- no, I would say for the full quarter, about 50% of our U.S. dollar purchases, which are about 50% of our costs were hedged.

Got it. Okay. And what was the average FX for those hedges?

[ 20 70 ] something.

That will be a big improvement. And then just want to understand, given the much better cost outlook and the fact that these hedges are less of a headwind going forward or not a headwind going forward, how are you thinking about pricing going forward?

Look, we continue to take a very close look at each category and each tier and each channel to see where there are opportunities for pricing because, yes, we see tailwinds when it comes to costs of raw materials. We see headwinds in other costs, for example, on labor costs, which have been increasing in Mexico for quite some years. And when you compound their impact over the years, it's becoming a little bit more impactful, if you will, and some other issues. And plus we want to continue to generate important margins and profit so that we can further invest behind our brands. So pricing will not be as maybe in the past where you would just [indiscernible] we're going to increase 4% in the diaper category in March and period. It's going to be more of a strategic analysis, again by tier, by channel, et cetera, to determine where the opportunities are together with a very important push behind mix for our brands given the innovation we have. And so we will continue to look for opportunities to price and opportunities to improve our mix going forward.

Okay. Yes, that's helpful. So the 4% that you had this quarter year-on-year, how much of that was mix versus actual price changes? Or was it just less promotions versus a year ago, I guess, which is kind of a...

It was about half and half. It was about 2% price, 2% mix.

Okay. Got it. Great. And just one other question on the competitive environment. I wanted to get your sense on market share trends in general, kind of where -- in what areas are you seeing maybe more pressure on the market share side and where you're seeing more more of the market share gains that you're having?

Overall, I think we have a very stable market shares, maybe except on diapers, as I mentioned, we see that share growing. When you take a look at bathroom tissue, we're fairly stable. Napkins, we're growing share. kitchen towels, we're growing share. Wipes, we're growing a little bit on value, not on volume. But that's a category where we have lost a little bit of ground to not only private label, but a whole bunch of offerings coming from Asia and other parts of the world at very cheap prices. So we've got plans to attack there and recoup some of the share. And I would say about that, I mean, facial tissue is is flat at about 92%. I mean, our shares are pretty stable overall.

Okay. Sorry, one more question on the new JV, the penetration, any updates on that?

On what, sorry?

The new business, the pet, animal [indiscernible]

Pet business. No, thanks for the question. Yes, we continue to make inroads. I mean we're getting cataloged in more retail chains and improving our reach within them. So getting more SKUs in there and getting into more stores. And again, the consumer reaction so far has been very, very good. The retail reaction has also been good. So right on track where we wanted to be, and hopefully, that will accelerate in 2026. Again, this is a long-term play, but we should be this -- we absolutely should see this business accelerate in 2026.

We will move next with [ Miguel Ulloa ] with BBVA.

It could be regarding the CapEx for next year and any changes in the repurchase program.

Miguel, CapEx will remain very likely in the $120 million range. Could be a little bit more if some of the opportunities for exports capitalize, but nothing that would change significantly the capital allocation. For buybacks, this year, we will complete our EUR 1.5 billion program. Still too early to talk about next year. We will definitely have retained earnings from the net income this year to grow the dividend. And as usual, whatever we have left, we will devote to to buybacks. So that we'll have to see after we end the year.

That's helpful. And just one, if I may, is regarding further investments or big investments in line for capacity in coming years?

Right now, it doesn't look like we need to do anything beyond that 120 average CapEx. Again, if we see more opportunity, we could see a couple of years of ramp-up. And even if at some point, we need a tissue capacity, which at this point, it doesn't look like, but hopefully, that changes, then we would see a couple of years of 150, maybe somewhere around that. Again, nothing that should change significantly the capital allocation.

And this concludes our Q&A session. I will now turn the call over to Pablo González closing remarks.

Thank you. Nothing else to say just thanks for participating in the call. I hope you all have a terrific weekend. And since this is our last call before the year-end, I know it's early, but I hope you all have happy holidays and a terrific New Year's and look forward to talking to you early in 2026. Thank you.

And this does conclude today's program. Thank you for your participation. You may disconnect at any time.

Good day, everyone, and welcome to the Kimberly-Clark de México 2Q '25 Earnings Conference Call. [Operator Instructions]. Please note, this call is being recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Mr. Pablo Gonzalez, CEO. Please go ahead..

Thank you. Hello, everyone. Hope you're having a good summer. Thanks for participating on the call. We'll go straight to results, and then we'll make some comments about the quarter and our expectations going forward as well as update you on some important initiatives underway. So Xavier

Thanks, Pablo. Good morning, everyone. During the quarter, our sales were MXN 14.1 billion, basically flat versus last year, 1.7% higher than the first quarter and an all-time quarterly record by a couple of million.

Total volume was down 3.3%, and price/mix was up 3.3%. Consumer Products and Away from Home decreased 2.2% and 7.8%, respectively. Exports were up 24.5% with double-digit increases in both converted products and hard roll sales. Cost of goods sold increased 7.2%. Against last year, SAM and resins were favorable, virgin fibers were mixed, while recycled fibers and fluff compared negatively.

The FX was significantly higher, averaging 17.3% higher. Our cost reduction program once again had very good results and yielded approximately MXN 500 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing, materials improvement and process efficiencies.

Gross profit decreased 9.7% and margin was 38.2% for the quarter. Mix was negatively affected by an increase in lower-margin hard roll sales.

SG&A expenses were 3.6% lower year-over-year and as a percentage of sales were down 60 basis points. Operating profit decreased 13.9% and the operating margin was 21.7%.

We generated MXN 3.6 billion of EBITDA, an 11.5% decrease. As we had anticipated, even with the significant Peso depreciation, we were able to maintain our EBITDA margin within our long-term range at 25.4%.

Cost of financing was MXN 352 million in the second quarter compared to MXN 356 million in the same period last year. Net interest expense was slightly higher at MXN 3,73 million (sic) [MXN 3,730 million] versus MXN 390 million last year.

During the quarter, we had a MXN 21 million foreign exchange gain, which compares to a MXN 37 million loss last year.

Net income for the quarter was MXN 1.9 billion, with earnings per share of $0.62. We maintain a very strong and healthy balance sheet. Cash position as of June 30 was MXN 11 billion. We have no debt maturing for the rest of the year and maturities for the coming years are comfortable. Net debt-to-EBITDA ratio is 1, and the EBITDA to net interest coverage is 10x.

Over the last 12 months, we have repurchased close to 50 million shares, more than 1.5% of the shares outstanding, which brings the total payout to shareholders to 7.5%, including the cash dividend. Thank you.

As expected and mentioned in our prior call, the first quarter trend continued in the second quarter and resulted in top line basically flat versus last year, albeit a quarterly record, lower bottom line margin, but improving sequentially and EBITDA still within our target range despite significant uncertainty, consumption deceleration, raw material cost increases and very negative exchange rate. Once again, this reflects the strength and resiliency of KCM.

On the top line, we compared to a very strong second quarter of last year, and we faced a challenging environment with leading indicators signaling a slowdown of the economy of private consumption. A key indicator for us is that volume growth in some of our most important categories is muted and even in higher growth ones, it's been slower.

In addition, we continue to see clients aggressively manage their inventories given the economic conditions and uncertainty plus, and this is very important, we intentionally reduced our support during the heavy summer promotional season.

This strategic decision had an important negative effect on our volumes, but it's intended to protect the value of our brands, as well as reduce the negative pricing effects and it means that both consumers and clients did not stock up on our products, which should translate into healthier volumes and prices during the second half of the year.

This together with our accelerated innovation plan, and I'll have more on that in a moment, increased investment behind our brands and execution behind the opportunities we've identified should translate in growth accelerating in the coming quarters. With respect to costs, the higher exchange rate plus the fact that the anticipated relief in pulp prices did not materialize particularly in softwood pulp and fluff, which were at record levels, had a meaningful impact.

Given soft demand from China, we are finally seeing prices come down, but slowly. Going forward, we expect dollar-denominated costs on tissue raw materials that is pulp and recycled fibers to have a more modest impact. And we expect a mixed picture in personal care, higher fluff but lower resins and superabsorbent materials.

Having said that, it's clear that the lack of certainty and many different moving parts could change the outlook. Accordingly, we've carried out selective price increases, have put in place actions to support a richer mix and are well on our way to achieving record savings for the year.

Now let me turn to innovation and provide an update on our launch of the pet business. During 2025, we will introduce product improvements in every category in which we participate. So far, we've introduced important innovations at the diaper, wipes and incontinence categories among others. And in the coming quarters, we'll continue to strengthen our offerings to consumers in bathroom tissue, incontinence pads and feminine care. We'll be in a position to share more details on this in future calls.

Also continue to make progress to bring to market technologies and products that will increase consumer preference for our brands in the coming years.

Finally, as we've discussed with you, in the medium term, we expect to accelerate our growth rate by achieving double-digit growth rates in categories with higher growth potential like wipes, kitchen towels, facial tissue and wipers, among others, as well as through adjacencies and entries into new categories.

With respect to adjacencies, the recent integration of 4e Global into the KCM operation, creating opportunities to strengthen our position and capabilities in the soap and toiletries categories as well as to participate in shampoos and other liquid-based product categories. As we move ahead with our plans, we expect sales to accelerate in these categories during second half of the year and particularly during 2026 and 2027 as we bring our pipeline of innovations to market.

And when it comes to our entry into the pet food business, we are in the process of gaining distribution behind our brands and have started the commercial and marketing efforts to support them. We have received excellent feedback from consumers and we'll embark on an aggressive sampling program to get more consumers to try our superior products and start to position and grow our brands.

We're in the first mile of a marathon, we are excited with the consumers very positive reaction to our products. We'll keep you updated on our products. With that, let's turn to your questions.

[Operator Instructions]. We'll take our first question from Alejandro Fuchs with Itaú.

I have just one brief one on the top line. Maybe Pablo wanted to see if you can elaborate a little bit more into the volume pressure. I know you mentioned some macro slowdown and consumption slower that we have seen across the board in Mexico, but I wanted to see maybe you can also touch if you think this is also maybe competition, what are some of your competitors doing?

And also, maybe you said that second half should be a little bit better, you had more growth but also you continue to see the slowdown today and comps are a little more difficult for Kimberly in the second half. So maybe what would be the drivers to grow in the second half of the year?

Thanks for the question, Alejandro and participating in the call. Yes, as you know, the Mexican private consumption and the economy as a whole has continued to slow down and we are certainly feeling it in our categories. As I mentioned, it's a key indicator for us that volume growth in our biggest categories is muted. So we're seeing, for example, in diapers, bathroom tissue, growth flat or slightly ahead of last year. In higher growth categories, we are seeing them growing at a higher cliff, but still not at the rates they were doing so.

So there's no doubt that the consumers stretched and they're trying to make ends meet and really trying to stretch their budget. So we continue to see that. And the thing is that -- that's the sell-out in our categories, but then you have the sell-in, and we're seeing a big difference between the sell-in and the sell-out because we see our clients being very, very aggressive in the way they're managing their inventories.

So that whole -- those 2 things are certainly having an important impact in volumes overall in sellout, but then even a higher impact in our case in selling as clients work through their inventories given all of the uncertainty.

Now going forward, we currently see no big support for the domestic consumption to increase significantly in the coming quarters. The reason why we're a little bit more bullish on our end is because one, as I mentioned, we did not participate as aggressively as we have done in the past in the summer promotional season. And we did that to protect the pricing and the value of our brands. But what that means then going forward is that you don't have clients as inventories as they have been in past years and consumers as inventory in our products as they were in past years.

And I'm mentioning clients, not just client because what happened in past years and still continues to do so with these promotions that those who do the promotions, bringing a lot of product to their inventories before they go ahead and then put the promotion in place and then they sell that product both to consumers but also to other clients, they do sell this product to the wholesale channel.

So what would end up happening in past years is that during the third quarter, many clients were inventory and many consumers were inventory plus the price with the value. So now that we didn't do that, we're expecting going forward that our inventories are a little bit healthier out there both with clients and consumers, and we expect that to translate into volumes increasing going forward. That's one.

And certainly, the other is the -- all of our push we have behind our innovations. We are continuing to work on a multi-tier and multichannel strategy that you know very, very well, and we will be strengthening that strategy so that we strengthen our differentiation at every level. We are adjusting accounts, presentations and the corresponding prices to make our products even more accessible to, as I said, stretched consumers.

And also, we are fine-tuning and strengthening our private label strategy where it makes business sense. So again, we think we're in a healthier position, plus the actions we're taking in innovation and strategy-wise, we believe, over the coming quarters, it won't be quick, but over the coming quarters, we should -- we expect our volumes to start to pick up.

Our next question comes from Robert Ford with Bank of America.

Pablo, are your exports to the U.S. impacted by the incremental tariffs? Or are they shielded by the USMCA?

So far, shielded by the USMCA bond.

Fantastic. And I was just curious, how are the tariffs on China kind of impacting KCC sourcing out of China? And how are you thinking about the export opportunity into the U.S.?

Yes. Thanks for the question, Bob. Look, there's, of course, a lot uncertainty as to where all this will end. But there's no doubt that there's going to be higher tariffs on China and many other countries. And we believe that relatively speaking, Mexico will be in a much better position versus all those countries to continue to integrate further with the U.S.

Our partner is looking at this very, very closely, and we're having very productive conversations with them to understand where the opportunities are so that we can increase our exports of finished products to them. I think we'll see this certainly come to bear in the fourth quarter and through next year.

And it's not only with KCC, we're doing this with quite a few other players that are -- they believe they're going to be impacted with what's happening. And we're certainly trying to take advantage of that since we believe we're not only well positioned right now. But as I say, we're confident we'll continue to be better positioned than the rest. So we're exploring all the opportunities. As you know, it takes a little bit of time. But we do believe that many of this will bear fruit in the coming quarters and certainly to 2026. So it's a good opportunity for us, Bob.

That's great to hear. And with respect to the discipline that you showed in December promotional campaigns, did competition show similar discipline? Or was it the classic, it's almost like a game theory problem, right? So I'm not sure -- I'm just curious what you're seeing in terms of the competitive environment.

I think competitors pretty much approached the summer promotional season as they've done in the past. So when the promotions did go into effect for those 4 or 5 days when they do them, we were certainly at a big disadvantage.

But again, we believe that for the long run, this is the right thing to do. It will hurt us during the quarter. but it positions us very, very well going forward. And we'll continue to be very, very diligent in how we approach this to protect the value of our brands and to bring the best value possible to consumers and clients.

That makes sense. And one last question, if I could, please. And that is you've touched on entering the shampoo category. And I was just curious if you could -- do you plan to extend a scoot on to the shampoo category? Are you thinking about a different branding campaign? I'm just trying to understand the addressable market, the positioning of the product and maybe the margin profile?

Sure. We'll be able to share more in the coming quarters, Bob, because we're going through the whole analysis. What I can tell you right now is that we already participate in the shampoo category, particularly when it comes to certainly toddlers and kids, but also in adults, we have some specific brands that we sell through different clients, and they sell pretty well.

So we're just taking a look at the market. We're taking a look at the participants and figuring out what would be our best strategy to participate in that market so that we can do it in a way that we can grow, but grow profitably.

Otherwise, it's something that we have no interest in. So we've been -- we've made inroads so far with a couple of clients and we're finding our way, but I don't think you'll see -- let me just put it this way. I don't think you'll see a national brand and a big, big push behind the national brand. It's really niche and the way we're playing with certain clients with certain brands that they're supporting very aggressively. But again, we'll be able to share more on this and some other very interesting and important initiatives for us in the coming quarters.

Our next question comes from Antonio Hernandez with Actinver.

Just could you provide a little bit more light on how were sales trending during the quarter? I mean, was it a soft start and then becomes stronger? Or was it [indiscernible] and maybe if you can provide more light also in terms of Consumer and Away from Home within this perspective?

Sure. Just Antonio, to make sure I got your question because you didn't come out very clear, but you're asking about during the quarter, how we progress, right?

Exactly. How you're seeing this start of the third quarter?

Okay. I'm going to say that it was -- again, given economic conditions, we didn't see, in our case, very big differences, April, May or June. Again, our competitors who were more aggressive during particularly June promotional season probably saw a difference. In our case, since we managed it differently. It was pretty consistent, and we're seeing the same thing with the start of July.

So again, unfortunately, at this point, we see no big catalysts for domestic consumption to really accelerate. Hopefully, that changes in the near term, but there haven't been any catalysts for that to change. So it's really more about us putting a strategy that allows us to get closer to the consumer and to our clients and gaining some share so we can get growth in the second half of the year.

Now when it comes to professional, yes, we saw an important decrease in sales in our professional business this quarter, and it was mainly driven by volume, our price/mix was slightly positive. And it really has to do with the same economic conditions that we're seeing. And as we talk to our distributors and we talk to our end clients, particularly outside of Mexico City, both hotels, restaurants, et cetera, they're seeing a sharp slowdown versus last year. I mean, double-digit low downs when it comes to tourism in Cancun and many other places.

It's just much, much lower than it was and when you put that together with the distribution system we have for that business, which is through distributors and distributors in this case, tend to have quite a bit more days of inventory then say, in the consumer product side.

So they just have been -- they needed to bring down those inventories. So again, it's a combination of a slower economy and our distributors needing to bring down inventories because of the uncertainty and the slower economy. And we'll see if that picks up here in the coming quarters, but everyone I've talked to so far says that Mexico City particularly seems to be doing well.

But outside of Mexico City, things seem to be quite a bit slower when it comes to services, and that's certainly hitting us on that business. So doing the same as we're doing in consumer products, making sure we have the right products for this moment in time that we're working with our distributors to get those products to market and that we're talking to clients to make sure we understand their needs and we can get those products to them as quickly as we can. But certainly, it's low market at this point.

Our next question comes from [ Brian Lavit ] with Barclays.

This is [ Ryan ] on for Ben. So focusing on consumer behavior a little bit here, are you guys seeing any trade down amid the price increases you took during the quarter and lower remittances coming into the country as well.

And going on that a little bit with the value proposition for KCM, what do you think in the third quarter, fourth quarter, as you talk about potential volume increases is going to have customers choosing your products over competitors, especially with the larger price gap now?

Thanks, Ryan. Thanks for the question. A very important one. Yes, no doubt, we are in the market. We're no doubt seeing consumers trade down. And I'm being very cautious saying in the market because in our case, we have a richer mix because we've supported many of our upper tier products, and they've performed very, very well. So you've got a dichotomy market where consumers that have a little bit more to spend, continue to do so.

But the majority of the population is stretched and they're certainly trending or trading down to a lower-priced products and lower account products. So what are we doing about it? And we have been doing it, and we have very important plans in the second half of the year to strengthen this.

Again, we're working on our multi-tier strategy, making sure that we have the right prices for every tier and the right product for every tier. As you know, we have products in the economy tier also in the value-add premium. And many -- or most of the times when people are trading down, they trade down from one of our brands in value to one of our brands in economy because we lead in value economy and premium.

But we need to continue to strengthen that proposition because there's certainly more competition out there. So we are strengthening that proposition, and we're seeing in many instances, some very good results.

The other thing we're doing, and this is not just for the economy products, but for all of our portfolios, we're making sure at this moment in time, we have the right count, the right presentations and the right prices out there to make sure our products, again, notwithstanding the tier or even more accessible to consumers. And we're putting in place quite a few things in the coming quarters to that respect.

And finally, as I said, we're fine-tuning and strengthening our private label strategy where it makes business sense. We've always said that we could -- we analyze this and wherever we see an opportunity that we believe makes sense, we pursue it and we continue to fine-tune that strategy, and you'll probably see us be more aggressive on it in the coming quarters.

So I would say those are the key areas behind our push for higher growth in the coming quarters. It won't be -- again, it won't be fast because it's slow out there. But we continue to believe that we're well positioned. And with the actions that I've just described, we'll be even better positioned to take advantage of or to serve our clients and our consumers and certainly in the coming quarters and into 2026 be in a much, much better place.

Our next question comes from [ Froylan Mendez ] with JPMorgan.

[indiscernible] [Foreign Language] Pablo, just want to make sure I understand because you mentioned that second half should better volume and even growing volumes. But when I hear more of your comments and your deeper dive into the dynamics in specific categories, et cetera, the only lever that I can hear from your speech is the fact that you're probably with less inventory at the different channels that will allow for the sellout -- sorry for the selling to be more, let's say, more robust into the second half not really that the consumer is actually willing to buy more.

So in that sense, second half outlook on top line, is it really a game -- not a game changer but an inflection point? And if it is the case, what should we expect for margins? Because there, you do have some levers, right, better effects? You mentioned about input costs coming down. In that sense, with the combination of top line plus costs, do you feel more comfortable to end up the year in the higher range of the guidance?

Thanks, [indiscernible]. Thanks for the question. Let's see if I can provide a little bit more clarity. Let me put it this way. When we think of top line in the short term, we've got a couple of headwinds. One is, as we've mentioned, the economic slowdown and two, the inventory reduction we're seeing from our clients. And we're still experiencing that.

But again, we believe we're in a better position, so we'll be healthier, certainly through this than many other competitors. So those 2 things are headwinds. Now when we think of tailwinds as you mentioned, we certainly -- I think the strategy we put in place protected volumes, protected prices, very importantly, prices also. So that should certainly help.

And as I was just mentioning to Ryan, very importantly, the adjustments we're making in the second half to a portfolio and strategies which we are confident we'll be able to aid our volume growth. So putting that -- those strategies and portfolio in place doesn't happen overnight. So July might be a little bit slower, but we're certain that by the end of this quarter, we'll see a very different picture. And certainly, by fourth quarter, some of these things we've done already, and there is surely great, great progress.

And we are confident that many of the other adjustments we're making will also provide us with an advantage and bring volume to our site. So might still be a little slower start of the third quarter, but certainly picking up throughout and we believe we'll be in a much better position in fourth quarter certainly in 2026.

So that's on the top line, and I hope that provides a little bit more clarity. On the bottom line, which you mentioned, also some headwinds and some tailwinds. And let me go through that very quickly.

On the headwind side, a couple of raw materials, still pressuring our cost, but we believe the impact will be more moderate than it's been this past quarters, which has been pretty aggressive between the increase in prices, for example, in pulp and fluff plus the exchange rate.

So going forward, that pulp starting to change. As we said, recycled fibers might provide a little bit of a more moderate impact. Fluff will continue to impact. But superabsorbent materials, resins will be a positive. So we're starting to see a different picture of raw materials that have a more moderate impact, those that are still higher and some that are coming down.

So that's one headwind. The other one is that, of course, we've got some inventories in our balance sheet, given the prices that we've seen in the past couple of quarters. Our inventories are higher, not in volume, just in price because of how prices went up. So we have to go through that inventory, but we'll do that here in the coming 1 month, 1.5 months and get through that.

So those are the headwinds. And then the tailwinds, very important is, as I mentioned, some raw materials have certainly turned around. The exchange rate will be in a much, much better place during the second half of the year. And our savings plan continues to bring about great savings, and we're working hard to bring even more in this year and working into 2026 and 2027 already.

So headwinds and tailwinds in both cases, top line and bottom line, as we move through the second half of the year, we have -- we're very, very confident that the tailwinds will be much stronger than the headwinds, and our results will continue to improve. I hope that provides clarity.

Perfect. So thinking about the margin guidance of ending in the lower end or in the higher end or in the middle, as you see it today, where do you feel more profitable, on marings?

It's uncertain with all of the things happening, for them. But you've seen that we've been able -- even with all of the pressure, we've been able to keep our margins strong. And again, these tailwinds, particularly towards the end of the year and into 2026 go our way, our margins should continue to improve.

Our next question comes from Juan Guzmán with Scotiabank.

Congrats on the results. Quick ones here and as a follow-up to your previous answer. Regarding expenses, we have seen some improvements in operating leverage along the year. Although SG&A as a percentage of sales is still a bit above your historical levels.

So my question here is how sustainable do you see these gains? And how much room do you see for further improvements over the next quarters? And aside from the positive effect of a higher top line growth in the future, what measures are you taking on this front?

Juan, I'll take the first one in terms of SG&A. Yes, as you noted, this quarter and the first quarter of the year, we made significant efforts to curtail some of our expenses due to the situation we're facing. Some of these and for the most part, we will continue to have going forward, although we will also ramp up our investment behind the brands.

So I would probably say that going forward, we will pretty much be in line with what we've seen on average on the past few quarters, one opportunity and one area where we've reduced expenses and this one will provide -- will continue to provide benefits going forward. But again, it's going to take time, is distribution expenses. That's one on the -- what's happened and what we believe where we'll be in the near term -- longer term going forward, I mean, we're living in a very different environment.

And even though we've always been a very lean and efficient company, we're working very hard and have exciting plans to make sure we stay as lean and efficient as possible. And that, hopefully, in the future, will mean that even the current scenario we can improve upon.

Because again, it's a different competitive environment. It's a different economic environment -- that's the way we see it, and we're approaching it in the sense that we need to continue to evolve with it and transform ourselves and make sure we are the most efficient and leanest company out there, and we've got plans to -- for that to continue to be the case going forward.

[Operator Instructions] We'll take our next question from [ Renata Cabral with Fifth Third Bank].

My question is a follow-up regarding SG&A. We know that other industries are more labor-intensive, but there is the discussion of gradual reduction of labor hours in discussions in Mexico. Just want to understand how do you see this impact in the company, if there is any ongoing simulator or initiative to mitigate this impact if the law passes in the future?

Renata. The analysis that we've done so far point to 2 things. Number one, any impact will be not on SG&A in our case, but on cost of goods sold because this labor changes could affect union workforce. There's some impact but I'd probably say 2 things there. Again, this is what we've identified so far.

Number one, the size of the impact is not that significant. If you recall, labor represents about 8% of our cost of goods sold. But out of that, a significant proportion comes from profit sharing, and that would not be affected.

The other part, which is directly related to salaries would be impacted in a proportion. But again, it's only on 5% of our COGS. Number two, having identified these risks, we have put in place several teams, several initiatives to see where we can offset this increases, where we can add automation, improve efficiencies so that over the long term, it doesn't have a significant effect on our costs.

It appears we have no further questions at this time. I'll turn the program back to speakers for any additional or closing remarks.

Thank you, [ Risa]. Thanks for your help. And thank you, everybody, for participating in the call. Again, I hope you have a wonderful summer. We're ready to take your calls if you have any further questions. And as you know, always happy to discuss further with any of you. Thanks again. Talk to you soon.

This does conclude today's program. Thank you for your participation, and you may disconnect at any time.