Release Date: April 24, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Consolidated net sales grew by 9.3%, reaching 9.7 billion pesos, driven by substantial increases in sales volumes across key categories.
• The company achieved a consolidated gross margin improvement to 40.7%, an increase of 1.3 percentage points.
• Grupo Herdez SAB de CV (GUZOF) reported a 17% increase in EBITDA, reaching 1.5 billion pesos, which drove the operating margin to 15%.
• The successful launch of new products and strategic partnerships, such as the McCormick Diablo Rocos sponsorship and Alice in Wonderland tea licensing agreement, boosted volume, revenue, and brand visibility.
• The company announced a spinoff of Grupo Nutrisa, which is expected to generate significant value by allowing both entities to focus on their specific sectors.

Negative Points

• The impulse segment experienced a contraction in EBITDA, resulting in an operating loss of 105 million pesos due to higher cocoa prices and an unfavorable sales mix.
• Free cash flow was impacted by higher than expected sales volume, leading to a significant increase in accounts receivable.
• The company faces challenges with high avocado prices, which could impact future profitability.
• The spinoff of Grupo Nutrisa may lead to liquidity concerns for the newly independent company.
• There is an ongoing investigation by the Mexican tax authority regarding VAT at Nutrisa, which could pose a potential liability.

Q & A Highlights

• Warning! GuruFocus has detected 4 Warning Signs with NSE:IEX.

Q: What is the main rationale behind the spinoff of Grupo Nutrisa? Is it more of an operational decision or a financial one to unlock value? A: The rationale is both operational and financial. The focus is on operational control, while the value will be determined by external forces. (Respondent: Unidentified_2)

Q: How did Grupo Herdez manage to achieve positive volume growth in the preserves segment when most food and beverage companies reported negative volumes? A: Several factors contributed, including seasonality effects, a strong finish to the quarter, and the regularization of mayo availability after egg shortages in the previous quarter. (Respondent: Unidentified_2)

Q: Can you provide more details on the impressive results from MegaMex, particularly regarding Don Miguel and Wholly Guacamole? A: The results are due to management changes, focus on new products like chunky salsa, and increased distribution, especially on the East Coast. A new CEO has also brought different dynamics to the business. (Respondent: Unidentified_2)

Q: Will any debt or cash be transferred to Nutrisa as part of the spinoff transaction? A: No, the transaction is debt-free, and there will be no transfer of cash or debt to Nutrisa. (Respondent: Unidentified_2)

Q: Regarding the potential liability from the Mexican tax authority investigation on VAT at Nutrisa, will this remain with Nutrisa post-spinoff? A: Yes, the potential liability is confirmed to be under Nutrisa, and all related information is publicly available. (Respondent: Unidentified_2)

Q: What is the expected timing for the Nutrisa spinoff dividend to take place? A: The plan is to complete the spinoff this year, pending regulatory approval. (Respondent: Unidentified_2)

Q: What is the optimal capital structure for Grupo Herdez post-Nutrisa spinoff, particularly regarding leverage? A: Currently, Grupo Herdez is under-levered, and the capital structure is flexible enough to pursue new business opportunities. (Respondent: Unidentified_2)

Q: How did channel performance impact the results, particularly in the preserves segment? A: Wholesalers outperformed retail and modern trade channels this quarter, which contributed to the strong performance in the preserves segment. (Respondent: Unidentified_2)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.