Coca-Cola FEMSA - Q1 2023

Transcript

Operator (participant)

Good day, and welcome to Coca-Cola FEMSA first quarter 2023 conference call. Today call is being recorded. At this time, I will now turn the call over to Jorge Collazo. Please go ahead, sir.

Jorge Collazo (Director of Investor Relations)

Thank you, and good morning, everyone. First of all, we apologize for the technical difficulties on the call. I know that some of you had trouble connecting. We decided to wait a few more minutes before we begin the call. Apologies for that. As usual, I'm joined this morning by Ian Craig, our Chief Executive Officer, and Gerardo Cruz, our Chief Financial Officer. Before we begin, let me share the following information and disclaimers. Due to a conflict in his agenda, Ian, our CEO, will not be able to join us for the full length of our earnings call. At around 35 minutes into the call, Ian will have to disconnect. Gerardo and I will continue for the remainder of the call to answer any remaining questions.

Additionally, please bear in mind that this conference call may include forward-looking statements concerning Coca-Cola FEMSA's future performance and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's performance. Now let me hand the call over to our CEO. Please go ahead, Ian.

Ian Craig (CEO)

Thank you, Jorge, and good morning, everyone. We appreciate you joining us for today's call. The positive momentum of our company, coupled with the solid execution of our team-

Operator (participant)

Pardon for the interruption. Speaker will be reconnected shortly. Speaker, we are reconnected. Please proceed.

Jorge Collazo (Director of Investor Relations)

Yes. Apologies again for the technical difficulties. I'm gonna turn it back to Ian, and he will take it from the start. Thank you.

Ian Craig (CEO)

Thank you. The positive momentum of our company, coupled with the solid execution of our teams, support a positive first quarter. Our volume increased in eight of the nine markets where we operate, enabling us to grow our total revenues in the double digits despite significant currency translation headwinds. Additionally, in the face of cost and expense inflation, we achieved double digits operating income and net income growth. During the quarter, we attained another milestone in the rollout of our Juntos+ B2B omnichannel platform, reaching more than 900,000 monthly active purchasers, adding approximately 100,000 as compared with the end of last year.

These quarterly results are in line with our plan for the year. We are confident that we have the right initiatives to accelerate the growth of our core business. With that, let's begin with a review of our consolidated results for the first quarter. Our consolidated volumes increased 6.6% year-on-year, reaching 940 million unit cases. This volume growth was driven mainly by increases in Mexico, Brazil and Guatemala, partially offset by a flat performance in Colombia. As reported in our earnings release, it is important to note that these volumes include the integration of Cristal, a bulk water business that we acquired at the end of last year in the southeast region of Mexico. Although relatively small, we are confident in this acquisition's potential to strengthen our direct-to-consumer capabilities in the region.

Excluding this integration, consolidated volumes increased 4.9%. During the quarter, performance across our core beverage categories remained strong. Sparkling beverage volumes grew 4%, while our still beverage and bottled water portfolios grew 9% and 19% respectively. Importantly, despite currency translation headwinds, our consolidated total revenue grew 12% to reach MXN 57.4 billion, driven by volume growth and mix initiatives across our territories. Our gross profit increased 12.6% to reach MXN 25.4 billion, leading our gross margin to expand 30 basis points to 44.4%. This expansion was driven mainly by our top line growth, which was partially offset by higher raw material costs such as sweeteners and PET. Our operating income increased 12.9%, reaching MXN 10.7 billion, and our operating margin remained stable at 13.5%.

This performance reflects our positive top line, favorable mix effect, and a non-cash operating foreign exchange gain related to the appreciation of the Mexican peso. Finally, our EBITDA for the quarter increased 7.1%, reaching MXN 10.5 billion, resulting in an EBITDA margin of 18.3%, a 90 basis point contraction. This contraction was driven mainly by increases in costs and operating expenses such as labor, marketing, and maintenance. In summary, we began the year with positive momentum and a performance that is in line with our plan for the year. I will now take a moment to share a few highlights across key markets. In Mexico, we continued to deliver solid volume growth. Our performance was driven by growth across all channels, with double-digit growth in the modern trade.

Additionally, aligned with our strategy to improve our mix, our single serve presentations continued increasing as compared with the previous year. We continue making progress in the rollout of our Juntos+ B2B platform, which now reaches more than 460,000 active monthly buyers in Mexico. As a result, digital revenues in the country are up more than threefold compared with the first quarter of last year. In Brazil, despite unfavorable weather during most of the quarter, our volumes increased 4.3%. This positive performance was driven by growth across all categories, including double-digit growth in both still beverages and bottled water. Specifically, the traditional trade and the on-premise channels mainly drove this growth. In Brazil, across our company, we're focused on continuing to improve our customer service metrics. In Argentina, we continue focusing on our commercial capabilities to grow volumes and gain share.

During the quarter, our volume increased 6.2%, driven mainly by growth in Coca-Cola Sin Azúcar and double-digit growth in both our bottled water and still beverages portfolio. I want to highlight Uruguay's solid quarter with double-digit volume growth of 14.8%. This performance was driven by growth across all categories, with double-digit growth in brand Coca-Cola and in our still beverage and bottled water portfolios. Our team's effort to support our execution and improve customer service metrics is resulting in share gains across most beverage categories. I also want to take a moment to speak about ESG. On March 27th, we published our integrated annual report for 2022, which includes key operating, financial, and ESG achievements.

A few highlights include: the allocation of more than $300 million during 2022 to eligible green projects under our environmental pillar, which include circular economy, water stewardship, and climate action. In total, we have allocated 94% of the proceeds from our green bond issued in 2020. On the circular economy front, we collected more than 80,000 tons of PET during 2022, as compared to 50,000 tons in 2021. We continue to focus on strengthening our collection capabilities and collaborating with communities, authorities, industry allies, and NGOs as we continue progressing towards our goal of collecting 100% of the bottles we place in the market by 2030.

Notably, through our water stewardship, we continue gradually improving our water efficiency metrics and prioritizing water replenishment actions and water access, creating water resilience that provides for the return of water to nature. We aim to ensure a safe and reliable water supply for our communities. Finally, on the climate action front, we achieved a 29% reduction in Scope 1 and 2 absolute greenhouse gas emissions and 17% in Scope 3 emissions as compared with our 2015 baseline. These reductions are in line with our commitment to reduce Scope 1 and 2 emissions by 50% and Scope 3 emissions by 20% no later than 2030. Aligned with this progress, we have become a signatory to the United Nations CEO Water Mandate.

The CEO Water Mandate is a partnership between the UN Global Compact and the Pacific Institute that mobilizes different stakeholders such as companies, NGOs, and governments to take concerted collective water action globally and commit business leaders to sustainable water management across their operations and supply chains. I am confident in our capabilities as we continue to make a difference for our people, our communities, and our planet. We are on the right track to achieve our objectives for 2030 as we continue winning in the market and progressing on our key strategic priorities across our operations. Let me address the cybersecurity incident that was disclosed yesterday. In recent days, the company cyber monitoring processes determined that we were experiencing a cybersecurity incident, and as such, we immediately implemented our cybersecurity protection and response protocols.

At all times we remained and continue to remain in full control of all of our IT applications. The measures we implemented are preventive in nature, and we have not had a material negative impact. While these measures are undergoing, the company expects to continue our business operations through backup procedures. We will prioritize the protection of the integrity, confidentiality, and availability of its information. The current assessment of the situation is that our controls identified the incident in a timely manner, and we expect that by this weekend we will return to our normal primary processes. Additionally, we're conducting a comprehensive forensic assessment of this cybersecurity incident and are taking all the proper measures to ensure no risks remain. With that, I will turn the call over to Gerry to expand on each division's results and CapEx for the year.

Gerardo Cruz (CFO)

Thank you, Ian. Good morning, everyone. Let me first expand on our division's results for the quarter. In Mexico and Central America, volumes increased 8.8%, driven by growth across all of our territories in the division. Excluding the integration of Cristal's bulk water business, volume increased 5.7%. Our quarterly revenues in Mexico and Central America increased 16.2%, driven by volume growth and revenue management initiatives, offsetting unfavorable translation effects from most Central American currencies into Mexican pesos. Our gross profit increased 13.6%, resulting in a margin of 47.4% and a compression of 100 basis points year-on-year. This compression was driven mainly by increases in raw material costs such as sweeteners and concentrate in Mexico.

These effects were partially mitigated by our top-line growth, raw material hedging initiatives, and the appreciation of the Mexican peso as applied to our dollar-denominated raw material costs. Our operating income for the division increased 1.2%, resulting in a margin contraction of 220 basis points. This was driven mainly by increases in costs and operating expenses such as labor, marketing, and maintenance that were partially offset by an operating foreign exchange gain in Mexico. Finally, our EBITDA margin for the division declined 330 basis points. Moving on to our South America division, volumes increased 3.8%. This increase was driven by 4.3% growth in Brazil, 4.5% growth in Argentina, and 14.8% growth in Uruguay. This growth was partially offset by a stable volume performance in Colombia.

On a comparable basis, excluding volumes of CVI in Brazil, the division's volume would have increased 2.8%. Our revenues for the South America division grew 6.6%, driven by our volume growth and revenue management initiatives. These factors were partially offset by the unfavorable currency translation effects of most of our operating currencies in the division into Mexican pesos. When excluding currency translation and M&A effects, our comparable total revenues would have increased a solid 27.5% during the quarter. Gross profit in South America increased 11%, resulting in a 160 basis point margin expansion. This was driven mainly by the positive operating leverage resulting from volume growth and favorable mix effects. These effects were partially offset by an increase in raw material costs such as PET and sweeteners.

Operating income for the division increased 43.3%. Margin expanded 290 basis points as compared to the previous year. This increase was driven mainly by the combination of our positive top-line operating leverage and tight expense control across our operations that offset higher fixed costs and expenses. EBITDA in South America increased 22.9%, resulting in an EBITDA margin expansion of 220 basis points. Moving on to our financial results, the quarterly comprehensive financing result recorded an improvement of 36.2% as compared with the previous year. This reduction can be explained mainly by a favorable comparison base that included a one-off market value loss in financial instruments of MXN 936 million recorded during the first quarter of last year.

This loss was recognized as a result of interest rate increases and its effects on floating rate denominated debt during that period. By normalizing this effect, our comprehensive financial results would have improved 9.2% this quarter, driven mainly by an increase in interest income. These effects were partially offset by a higher foreign exchange loss, driven by the appreciation of the Mexican peso as applied to our U.S. dollar cash position and a lower gain in hyperinflationary subsidiaries. Finally, our controlling net income increased 35.3% to reach MXN 7.1 billion, resulting in earnings per share of $0.23.

Ian Craig (CEO)

As we mentioned during our previous earnings call, one of our priorities is to continue allocating capital toward supporting our organic growth. For this reason, our CapEx expectation for 2023, as disclosed in our 20th annual report, is a ratio of around 8% of revenues. These investments will be primarily focused on increasing our manufacturing and distribution capacity. Our projects include installing seven new production lines this year and increasing our warehouse capacity through new distribution centers and warehouse expansions. Over the next 3-5 years, we expect to increase our warehouse capacity by 30% and our manufacturing capacity by 15% to continue supporting our growth.

Finally, as announced on March 27, our annual general shareholders meeting approved a cash dividend equivalent to MXN 5.8 per unit, which represents an increase of 6.8% as compared with the previous year's dividends. With that, operator, we are ready to open the call for questions.

Operator (participant)

Thank you. Dear participant, if you'd like to ask a question, please press star one on your telephone keypad. To withdraw your question, please press star two. We'll take our first question from Ricardo Alves from Morgan Stanley. Your line is open, please go ahead.

Ricardo Alves (Associate)

Hello, gentlemen. Can you hear me?

Ian Craig (CEO)

Yes, Ricardo. Hello. We hear you fine.

Ricardo Alves (Associate)

Thank you. Was just double-checking. I had a few issues. Thanks for the call. I had a couple of questions. On, perhaps a question to Ian. We've been discussing this a lot with investors, Juntos+ and FEMSA. Just wanted to get an update from you on the overall role of Coca-Cola FEMSA, the importance of Coca-Cola FEMSA in the context of the FEMSA Forward. We already discussed this in other instances, but from your perspective, given the recent meetings that you've had working closer, you know, OXXO, with OXXO and overall FEMSA operations, what makes you more bullish today versus the last conversation that we had a couple of months ago? Would assume that Juntos+ in Mexico is still the main opportunity.

We've also discussed this in the past. I don't know if there is any other details that you can share with us with ongoing process, progress that you guys have already achieved or, you know, envision to achieve. I'm not sure if there's anything new for you to share on the digital initiatives, you know, premium and spin, which is also another key focus from investors from a FEMSA perspective, also trying to come to terms with what is the upside from cost as well. Just a broader update on your, you know, Coca-Cola FEMSA's role in this broader FEMSA strategy. That's the first question. Second question, this one much quicker. Mexico margins. Appreciate the very strong top line performance, very strong execution.

Was just, just wanted to get a little bit of update on the profitability outlook that you have for the rest of the year. If you still envision a scenario where you're able to protect margins year-over-year, if that's the case, just a little bit more details on the cost front?

Ian Craig (CEO)

Hello. Thank you for the question. First, Ricardo, on the B2B front or digital collaboration front. For us, in Juntos+, we bring to the table the largest, you know, B2B or traditional trade access in Mexico by far, in Latin America as well. At the same time, FEMSA Digital has the most or the most advanced, in our opinion, fintech or wallet offering, as well as a very interesting and powerful loyalty offering. We are developing and looking to integrate these offerings in our Juntos+ platform. This is going to take some time to bring to fruition, but those are two of the areas where we clearly can add value to both sides, FEMSA Digital as well as Coke FEMSA in our Juntos+ platform.

We want to become that one-stop shop to our B2B customers. For that, these value-added services in fintech, as well as making our loyalty points more powerful by leveraging Spin Premia, is something that's very interesting to us in our Juntos+ platform. When you talk about margins, I think we mentioned this in our prior call. The first quarter was the toughest comps where we expected the most pressure. These pressures should be reduced gradually and turn into a margin expansion by the fourth quarter. Gerry, would you like to go into the details of the cost impact so that we could share that with Ricardo, please?

Gerardo Cruz (CFO)

Yes, Ricardo, addressing the margin impact, we had unusual higher expenses related to labor, marketing, and maintenance during the first quarter, as Ian mentioned, with a tough comparison versus margins last year. For the fourth quarter, we expect an expansion of margins ending the year with margins for the full year at similar levels where margins were at the end of 2022. This is Mexico specifically. As you saw in our report, South America division presented a very healthy margin expansion.

Ricardo Alves (Associate)

That's very helpful. Thank you, gentlemen.

Operator (participant)

We will take our next question from Ben Theurer from Barclays. Your line is open. Please go ahead.

Ben Theurer (Equity Research and Senior Analyst)

Thank you very much and good morning. I wanna bring it down to South America. Obviously, very strong volume performance in some regions, other a little softer. If we take a look just at the results in their respective local currency terms, and particularly if we take a look at the profitability, what's been, like, the key driver of these massive profitability gains? I mean, margin expansion was really big in the quarter, and were there some things that were more of, like, a one-time nature? Do you think just by having reached certain levels of volume in some of that, some of these countries that the profitability can actually be sustained at these levels or maybe even further expanded?

You just alluded a little bit to it on the strength. Maybe to dig a little better into a little more detail into the margin evolution here in South America. That would be much appreciated.

Gerardo Cruz (CFO)

Thank you, Ben, for your question. South America, it did perform quite well in terms of profitability and margin expansion. The good news here is that it was mainly driven by a top-line performance, both in volume and favorable mix performance. The expansion in margin was more than 200 basis points for that division. Particularly Brazil and Argentina were able to absorb certain fixed expenses by the increase in sales, delivering a positive operating income in the region. Also during the quarter, we had a favorable raw material environment in most countries in South America, and we expect that raw material environment to continue to be favorable for the remainder of the year.

Probably, potential impact in sweeteners that have been the nagging impact in our P&L. The rest of the raw material environment seems to be pretty positive, stable to positive for the remainder of the year.

Ben Theurer (Equity Research and Senior Analyst)

Okay. Perfect. Thank you very much.

Gerardo Cruz (CFO)

Thank you, Ben.

Operator (participant)

We'll take our next question from Alvaro Garcia from BTG. Your line is open. Please go ahead.

Alvaro Garcia (Associate Partner)

Hi, gentlemen. Thanks for the space for questions. two questions. First, I was wondering if you could just remind me of sort of sweetener dynamics in each of your main markets, so raw sugar in Brazil versus fructose in Mexico, and how you can hedge in each of these respective markets. My second question is in Argentina. Gerry, I was wondering if you could sort of walk us through, you know, whether you are taking dividends out of Argentina at the moment, and sort of what the outlook is given the FX environment there. Thank you.

Gerardo Cruz (CFO)

Thank you, Alvaro, for your question. I'll start with the sweetener situation, and I'll give you a few details. As I was mentioning in my previous answer to Ben's question, sweeteners is the raw material that we are a little bit more concerned with, particularly in sugar. For Brazil and Uruguay, we have a pretty healthy hedge position. Brazil, very close to 40% of our requirements for the whole year at a significant premium to or below the current market price, significantly, as well as in Uruguay, where that position is close to 60% of our requirements.

In the case of fructose, for Mexico, which is the main operation where we use fructose, we have more than 90% of our requirements for the year already hedged at a very competitive price, which is also reducing any worry for us for the remainder of the year on that front. We have the expectation that sugar prices will continue to be tight for the remainder of the year, mainly due to the sugar world environment being pretty tight and countries that are swing players in the sugar market like India, not exporting that much sugar to the market. That's, that's where we are in terms of sweeteners.

For your question regarding Argentina, dividends, as you know, it's a very complex environment to be able to extract dividends from Argentina. We've been following the market and obviously, taking advantage of any opportunities that present in the local market to be able to use our excess cash to invest in our organic growth requirements. Given that, performance in Argentina has been very good for the last, at least 2 years, we have the good problem of having to create capacity to serve a very positive market, and protect our excess cash from any adverse impact that it can have by foreign currency depreciation.

Alvaro Garcia (Associate Partner)

Great. Thank you.

Operator (participant)

We'll take our next question from Thiago Bortoluci from Goldman Sachs. Your line is open. Please go ahead.

Thiago Bortoluci (Analyst)

Yes. Hi, good morning, everyone. Thanks also for taking the question. I would just like to go back once again to the discussion on margins, right? Specifically in Mexico. Fully appreciate that the commodity prices are still a headwind and this should normalize going forward. If I try to break down the bulk of our margin compression there, it's essentially SG&A, right? I think Gerry pointed out some of the drivers that are impacting the quarter. I would just like to understand when you share and reiterate the vision of margins potentially improving by year-end and being traditionally in your data, what you're assuming for this, right, is that some room to improve the SG&A and reduce expenses, or would it require further pricing for you to reach this more normalized margin level?

If this is the case, how confident you are on the Mexican consumption that dropped. Right? Volumes, I guess, for most of the Mexican bottlers are in the first quarter, right, have been surprising on the upside. It seems there is a stickiness still there. Just wanted to hear a little bit from you how confident you are that, you know, elasticity could remain relatively low going forward. Thank you very much.

Gerardo Cruz (CFO)

Thank you, Thiago. We certainly expect cost SG&As to normalize for the remainder of the year. As we mentioned during the script of the call, first quarter was the toughest comp in terms of margin as compared to last year. We expect better cost absorption. The costs that we experienced during the first quarter were a bit unusual. That, in fact, we do not expect to maintain for the remainder of the year. As mentioned as well, by the fourth quarter, having an expansion in margins and ending the year at very similar levels of margin to where we ended the prior year.

Operator (participant)

We'll take our next question from Emiliano Hernández, from GBM. Your line is open. Please go ahead.

Emiliano Hernández (Analyst)

Hi, Gerardo, Jorge. Thanks for taking my question. Just a quick one here regarding Mexico. Very impressive volumes there. Could you give any discretional breakdown on the evolution by month, and also have you seen how are you seeing the performance in April? Also another one regarding profitability in Mexico, just to follow up here. You said you're expecting to improve there quarter by quarter going forward. Are you expecting any price increases there to drive a better operating leverage, or are you still comfortable with the carryover that you already have?

Gerardo Cruz (CFO)

Thank you for your question, Emiliano. For the first part, in terms of volume, as we stated in our fourth quarter call, for this year, we are very focused on growth. Considering that the slowdown in economic activity globally and throughout our region, we're very focused in maintaining the competitive position of our portfolio, promoting volume growth. In that sense, going into the second part of your question, we're gonna be very selective in any pricing action that we take, focusing a lot more on driving favorable mix, improving prices through mix rather than being very aggressive in pricing.

We obviously we'll take care of internal inflation impacts, but we're being very careful in trying to promote growth and maintaining a competitive, positive position.

Emiliano Hernández (Analyst)

Okay. Thank you. [crosstalk]

Jorge Collazo (Director of Investor Relations)

I just wanted to mention that, you know, performance during the quarter in Mexico was, as Gerry mentioned, was solid and was consistent pretty much across the quarter. So far during April, I think what we can say is that we have seen a continuation of that performance. You know, of that resilient and solid performance in Mexico.

Emiliano Hernández (Analyst)

That's very clear, Jorge. Thank you.

Operator (participant)

We'll take our next question from Rodrigo Alcantara from UBS. Your line is open. Please go ahead.

Rodrigo Alcantara (Equity Research Director)

Hi. Good morning. Thanks for taking my question. The first one I would say on Bepensa acquisition deal in Mexico. Just curious, Bepensa is a large bottler, right? We know in the South territories would be kind of like synergistic for you guys. Just curious if at some point it was on the table a full acquisition of Bepensa's bottling operations instead of just the water operations. That would be my first question. The second one, just to confirm, you mentioned you expect to increase manufacturing capacity about 15% and warehouse capacity by 30%, right?

If that's the case, in which regions are you going to do that? Will you be focusing more in Brazil, Mexico or like on survey-based? Those would be my two questions. Thank you.

Jorge Collazo (Director of Investor Relations)

Hi, Rodrigo. Sorry, it's Jorge. We did catch your second question, but I think the first question was not that clear. If you could first repeat your first question and then we'll answer that and then go on to your second one. Can you repeat your first?

Rodrigo Alcantara (Equity Research Director)

Yeah, sure. Yeah, sure, sorry. Sorry about that. My, my question was on, on Bepensa, right? My question was, if at some point, you know, what's the possibility for you to acquire the full bottling operations of Bepensa, not just the water segment, but the full operations, the bottling operations of Bepensa? Was that in consideration in, in this deal, or you were not looking for, for that possibility? That was my question. I don't know if it was clear.

Gerardo Cruz (CFO)

Perfect, Rodrigo. On the first question. This transaction that we closed last year was a very specific transaction that we were that made a lot of sense because it was in our territories. It helped us create a capability that we didn't have in that region to take advantage of the very good competitive position of that jug water business in that region to strengthen our capability of serving the direct-to-consumer market. That is the market that we're focusing now on throughout Mexico. That's the extent of that operation and what we are looking at for any foreseeable future.

Regarding your second question on creation of manufacturing and warehouse capacity, I think the good thing about this is that it's a good problem that we have throughout our operations, with a lot of focus, I would say in our four largest volume markets, which are Mexico, Brazil, Colombia and Guatemala. All of those four markets are very close to operating at full capacity, both in manufacturing and warehouse. This is a problem that we see throughout our operations. Given that we're promoting growth, and you've seen it with our numbers, we are expecting to have to continue investing to create that capacity to serve this growth environment that we're facing.

Obviously coupled with our multi-category commercial platform initiative, which also needs to be obviously supported with the correct capacity to serve this market.

Rodrigo Alcantara (Equity Research Director)

Okay. That's great. Just a third one very quickly on the... Was very nice to see the growth you reported there on the beer segment. You can comment that perhaps driven by price and volumes and some comments about the performance of the Eisenbahn brand. Anything that you can comment us about that line, about the beer in Brazil would be also very helpful. Thank you very much.

Jorge Collazo (Director of Investor Relations)

Sure. Sure, Rodrigo. Yeah. You know, on beer, definitely during our previous call, Ian expanded a little bit on what the trends have been across different segments from premium, mainstream, and economy. During the first quarter, we have seen a continuation of that, you know? Economy, we are doing well, but it's a segment that has been becoming smaller. You know, we're gaining share there and also, you know, pretty much in line in the other segments, mainstream and premium with also what Heineken recently disclosed for trends for the first quarter, you know? All in all, we're focusing on the portfolio opportunities that we have. Eisenbahn brand, as you know, is a brand that we are betting a lot on in the market.

It's a brand that has a lot of potential. It's a great recipe as well. We're expanding its coverage. Therezópolis as well, it's a brand that as Ian mentioned in February, you know, it's a brand that was not very present across the territories. Obviously, a small brand, but we are expanding coverage as well and leveraging those brands, you know. Also what we're doing with Estrella Galicia, you know. All in all, you know, it's in general a first quarter that is in line with our expectations and in line with the trends that Ian also described for beer in Brazil last quarter.

Rodrigo Alcantara (Equity Research Director)

Okay. That's helpful. Thank you very much, Jorge.

Operator (participant)

We'll take our next question from Ricardo Alves from Morgan Stanley. Your line is open. Please go ahead.

Ricardo Alves (Associate)

Yes. Thanks for the follow-up. A quick one. It's actually just to double-check. I think you mentioned in the preliminary remarks, your CapEx expectation for the year. Just wanted to make sure that I got that number right, around 8% of revenues. Just wanted to double-check that. I ask this because we noticed FEMSA 20-F earlier this week. I think that it had a higher budget for KOF CapEx than what we expected. Just wanted to double-check with you what is the most likely scenario for CapEx this year and perhaps next. Thank you.

Gerardo Cruz (CFO)

Yes, of course, Ricardo. We have a range of 8%-9% of revenues. FEMSA, I think was mentioned at the higher end of the range of the 8%-9%, but that's where we are. I think we spoke about this a little bit on our last call, that this expectation for this year, we expect to continue for the following at least 2 years, where we're trying to build this capacity to serve the growth requirements of the business.

Ricardo Alves (Associate)

Very helpful. Thank you.

Operator (participant)

There are no further question on the line, sir. Please proceed.

Gerardo Cruz (CFO)

Thank you. Thank you very much for your confidence and interest in Coca-Cola FEMSA, and for joining us on today's earnings call. As always, our investor relations team is available to answer any of your remaining questions, and we look forward to speaking again soon.

Operator (participant)

Thank you for joining today's call. You may now disconnect.