Good day, everyone, and welcome to today's Arca Continental conference call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. You may register to ask a question at any time by pressing the Star and one on your touch-tone phone. Please note this call may be recorded. I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Melanie Carpenter of Ideal Advisors.
Thank you, operator. Good morning, everyone. Thanks for joining the senior management team of Arca Continental to review-
Hi, Melanie. Are you there?
... For the third quarter and first nine months of twenty twenty-four. Their earnings release went out this morning, and it's available on the company website at arcacontinental.com in the Investor Relations section. It's now my pleasure to introduce our speakers. Joining us from Monterrey is the CEO, Mr. Arturo Gutiérrez, the CFO, Mr. Emilio Marcos, and the Executive Director of Planning, Jesús García. They're gonna be making some forward-looking statements, and we just ask that you do refer to the disclaimer and the conditions surrounding those statements in the earnings release for guidance, and with that, I'm gonna go ahead and turn the call over to the CEO, Mr. Arturo Gutiérrez, who is going to begin the presentation, so please go ahead, Arturo.
Thanks, Melanie. Good morning, and thank you, everyone, for joining us today. I am pleased to report that we delivered sound financial results and a solid operational performance in the third quarter. By staying focused on our strategic priorities, we delivered top-line growth, expanded underlying margins, and increased market share. With the first nine months now in the books, we're on track to achieve full-year results in line with our outlook. Let's take a closer look at our performance. Total consolidated volume in the quarter decreased by 4.6% to reach 634 million unit cases. This decline follows strong volume growth in the same quarter over the past three years, which recorded increases of 7.4%, 4.2%, and 7.1%. Consolidated revenues rose 10% to reach MXN 62.6 billion.
In terms of profitability, our results were rewarding. Consolidated EBITDA increased 10.2%, reaching MXN 12.7 billion. Remarkably, this is the highest consolidated EBITDA margin for a third quarter over the past eight years. While the third quarter proved to be challenging, we achieved sequential earnings growth through a disciplined approach to volume, price, and mix management. Now, let's delve deeper into our performance across our regions, beginning with Mexico. Unit case volume, not including jug water, declined 2.6%, cycling an outstanding 8.7% record-breaking third quarter of last year, and strong growth rates in 2022 and 2021. Volume contraction this quarter was caused by heavy rains and unseasonably below average temperatures across most of our territories.
This decline was partially offset by an 8.2% growth in still beverages, mainly driven by the sports drinks, tea, and coffee categories. Coca-Cola No Sugar sustained its momentum, up 19.1%, thanks to continuous product innovation with Coca-Cola Zero Sugar Oreo and appealing campaigns with Coca-Cola Marvel. Total net sales rose 4.8% to reach MXN 29.3 billion. This marks the thirty-third consecutive quarter of net revenue growth in Mexico. Average price per case in the quarter, not including jug water, rose 7.6%, reaching MXN 85.88. Additionally, we gained value share in non-alcoholic, ready-to-drink beverages this quarter, outpacing the industry in Mexico. EBITDA increased 6.6% to MXN 7.4 billion for the quarter, achieving a margin of 25.3% and marking the twenty-third consecutive quarter of EBITDA growth.
In South America, the region was challenged once again by the volatile macroeconomic environment and weakening consumer demand. Total volume was down 8.6% in the quarter, reaching 141 million unit cases. Volume performance in the third quarter is cycling strong growth rates of 8.1% in the same quarter of 2023, 6.4% in 2022, and 24% in 2021. Total revenues rose 8.7% in the quarter to MXN 10.6 billion, and EBITDA increased 1% to MXN 1.7 billion, representing a margin of 15.7%. Moving over to our beverage business in Ecuador, the country is facing a severe energy crisis due to the worst drought in 61 years, resulting in widespread power outages and economic challenges.
Daily blackouts now last up to 10 hours, with industrial firms ordered to cut back on electricity usage. Volume declined 8.1% compared to solid growth in the previous three years, which is consistent with the trend seen in our other South American markets. While we cannot change the market conditions, we have continued to focus on the things we can control. We gained value share across NARTD beverages by perfecting our price-pack-channel strategy, promoting returnable packages, and investing in market-focused initiatives. So far this year, our team in Ecuador has installed over 21,000 cold drink units and expanding our cooler coverage. In Peru, the country has been experiencing unseasonably cold weather, especially in Lima and other key coastal areas. Due to these challenges, volume declined 6.7%, following strong double-digit growth in the same quarter of last year.
However, we are beginning to see a moderation in the rate of volume contraction, bolstered by our affordability initiatives and ongoing investments in returnable bottles. We continue to advance in our strategy to capture new revenue streams. As you may recall, at the start of twenty twenty-four, we began distributing one of the top pisco brands, which has resulted in double-digit growth in our ginger ale category. In Argentina, volume in the third quarter was down 13.1%. As anticipated, we are seeing positive signs that the economy's contraction is starting to ease. Our actions to provide an affordable portfolio and expand returnable presentations are driving sequential, steady volume recovery across channels. Returnable presentations continue gaining positive momentum, up 9.3 percentage points in mix.
Moreover, as part of our multi-category strategy, we began distributing two prestigious brands, one in the craft beer category and the other in the value-added dairy segment. We are encouraged by our results in Argentina, and remain optimistic that this forward momentum will carry through the rest of 2024. In the United States, Coca-Cola Southwest Beverages sustained its business momentum and achieved strong third quarter results. Net revenues for the quarter rose 5.1% to $1.1 billion. Average price per case grew 7.6%, with 3.6% of true rate increase. This reflects our successful strategy of optimizing price, packaging, and promotional spending, growing transactions and value share while maintaining efficient labor management. Volume for the quarter declined 2.4% to 118 million unit cases.
Importantly, the sparkling beverages category grew 1.3%, led by Coca-Cola brand and flavors. The zero sugar portfolio keeps growing, too, led by Coca-Cola Zero and Sprite Zero, up 11.2% and 6.2%, respectively. The Stills portfolio finished the quarter up 0.8%, as we continue to see positive momentum in Monster, smartwater, fairlife Core Power, and tea. The Topo Chico brand delivered 10.5% volume growth, led by Topo Chico Sabores. We gained value share in non-alcoholic, ready-to-drink beverages this quarter, with growth in both the SSD packages and still beverages categories. For the quarter, EBITDA grew 10.5% to $182 million, with a margin of 16.2%, marking the 26th consecutive quarter of EBITDA growth.
This represents the highest third quarter EBITDA margin since we acquired the US operation, setting a record for the longest consecutive growth streak across all our business units. Our food and snacks businesses posted high single-digit sales increase and sustained steady earnings momentum in the third quarter, led by Bocados in Mexico. I would like to take a moment to highlight an important announcement we recently shared. We're thrilled to unveil the next phase of our digital transformation with the launch of tuali, our next generation B2B digital platform. Our core B2B capabilities have gained significant traction, with over 60% of traditional trade volume now captured digitally, contributing $2.4 billion in digital sales. Tuali builds on the evolution of AC Digital, aiming to further revolutionize the operations of nearly one million of our customers in the traditional trade across our geographies in Latin America.
Developed by our Digital Nest in Monterrey, tuali is designed to empower customers by offering a wide selection of features, including AI-powered predictive ordering based on data-driven insights. It also includes advanced loyalty programs and financial services, ensuring our customers not only streamline operations, but also benefit from these tools designed to grow their businesses. I'd like to conclude my opening remarks with an update on our sustainability efforts. Through PetStar, the world's largest PET recycling plant, and together with Coca-Cola Mexico and other bottlers of the Coca-Cola system, we've reached a key milestone by boosting our PET bottle collection and recycling capacity to 74%, meaning we now collect and recycle seven out of every ten bottles we sell in Mexico. This is equivalent-
... Please, Emilio.
Thank you, Arturo, and good morning, everyone. Thank you for joining our conference call. As Arturo mentioned, this was a challenging quarter in terms of volume performance due to the combination of unfavorable weather conditions and tough comps from a very strong third quarter last year. Nevertheless, our price pack architecture strategy, along with the foreign exchange effect and key input cost tailwinds, led to a solid top line and bottom line results, with double-digit growth in both revenues and EBITDA, with improved profitability. Let me now provide you with further details on our financial results. In the third quarter, consolidated revenues rose 10%, driven by effective pricing and exchange rate gains as a result of our exposure to U.S. dollars and the depreciation of the Mexican peso. For the first nine months of the year, revenue grew 5.1%.
On a currency neutral basis, revenues rose by 5.9% in the quarter and 7.6% year to date. Gross margin grew ahead of revenue, up 11.3% during the quarter, reaching MXN 29.2 billion. This resulted in a contribution margin expansion of 60 basis points. In the nine-month period, gross profit increased 7.2% to MXN 80.4 billion, while gross margin expanded by 80 basis points. The improvement was largely due to our pricing strategy, favorable conditions for most raw materials, and our disciplined hedging strategy. Operating income reached MXN 10.3 billion in the quarter, a 10.2% increase. Year to date, it rose by 7.1% to MXN 27.7 billion, with margin expanding by 30 basis points.
For the quarter, consolidated EBITDA increased 10.2% to MXN 12.7 billion, with a 10 basis points margin expansion reaching 20.3%. In the nine-month period, EBITDA grew 6.6%, while EBITDA margin expanded by 30 basis points to reach 20.1%. On a currency neutral basis, EBITDA rose by 5.7% in the quarter and 7.9% of, as of September. These results explained by the expansion of the contribution margin, which is mainly due to a strong pricing and raw material benefits previously mentioned. Net income in the third quarter reached MXN 5.1 billion, for an increase of 13.1%, and the net profit margin increased by 20 basis points.
For the nine months ended in September, net income rose 10.3%, reaching MXN 14.3 billion, while net profit margin expanded by 40 basis points. Continuing with the balance sheet, as of September, cash and equivalents reached MXN 28.1 billion, while total debt was MXN 48 billion, leading to a levered ratio of 0.45 times. The operating cash flow totaled MXN 29.7 billion. On August twenty-ninth, an extraordinary dividend of MXN 2.50 per share was paid, reaching a total dividend of MXN 6.30 per share for the year. This implies a dividend yield of close to 3.4% and a payout ratio of 62% of retained earnings.
For the first nine months of the year, CapEx was MXN 10.6 billion, representing 6% of consolidated revenues, in line with our guidance, guidance set at the beginning of the year, as we strengthen our production, distribution, and commercial capabilities. Looking ahead, our strategic priorities remain unchanged. Our commercial strategies, CapEx deployment, sustainability initiatives, and the implementation of the digital transformation agenda will enable us to maintain overall profitability and generate value for our shareholders. And with that, I will turn it back to Arturo. Please, Arturo.
... Thank you, Emilio. In closing, we are pleased with our overall year-to-date performance. Our superior execution capabilities, the strong brand equity of our product portfolio, and our exceptional team of dedicated associates, provide a solid foundation for navigating a competitive landscape. Looking ahead, we are confident that we are in line to deliver full year results consistent with our guidance. Thank you for the time, and we are now happy to answer your questions.
Thank you. At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. As a reminder, due to high interest and time, please limit yourself to one question. Again, press star one to ask a question. We will pause for just a moment to allow everyone the opportunity to signal for questions. And we'll take our first question from Ben Theurer with Barclays. Your line is open. Ben Theurer, your line is open. Please ask your question. Please make sure you are not muted on your end. No response. Moving to the next question. We'll take our next question from Alejandro Fuchs with Itaú BBA. Your line is open.
Thank you, operator. Hola, Arturo, Emilio, Jesús, and team, thank you for the space for questions, and congrats on the results. Very two quick ones from my side. First, in the U.S., another strong quarter in terms of margin performance. Maybe you could walk us through what is driving the better margin performance, and if we've already seen some of the benefits from the efficiency program in the distribution that you mentioned a couple of quarters ago? And then the second one, very quickly on Mexico. Volume comp was very challenging, but maybe, you know, the drop was a little bit, you know, tougher than expected. Was wondering if you could comment on how you see overall consumption in Mexico towards the end of the year and your expectations for next year? Thank you.
Yes, thank you, Alejandro. Let me address your Mexico question first. Consider volume without jug, we were down 2.6%, but we were cycling very tough comps from last year. We had a more than 8% growth in the same quarter. We also were facing very difficult temperature and weather conditions throughout the quarter. If you think about rain, if you think about you know how warm it was last year, particularly, that reduced traffic in stores. But we continue to see growth for the remainder of the year. There's some mild industry contraction due to that, but we again, we're facing the highest growing period from the previous year.
Some of the insights we have from our own system, from Yomp, as you know, we monitor traffic and consumption in the stores through our own sample of stores. We saw slowdown in some categories, but regional performance is starting to recover, particularly in the west side of Mexico. So, and we are gaining share value in our market in Mexico. So we still expect to grow low single digit versus previous year if we take 2024 as a whole. And we are focusing on, you know, things that we've already talked about.
Affordability, very important on deploying our analytic capabilities on our cooler investment plan, that now we've reached 100% of that deployment. Very importantly, in Mexico and for the future, we're gonna be capitalizing on the new investments that we've made throughout the year. We've added six new production lines, two new distribution centers are coming into operation very soon. We also added 280 additional routes. That's reflected in some of our OpEx, but that's, again, it's gonna be capitalized throughout the end of the year and throughout the rest of the year in 2025. We're optimistic about growth.
Again, it's not gonna be a straight line, as we know in Latin America, but we still expect to grow in the year. Then moving into the U.S., and you asked about profitability in the U.S. Our EBITDA for the quarter grew significantly. Our margins, we're very satisfied with our margins above 16%. We've had mostly a combination of very good pricing and volume mix. Our pricing tools, our promotional tools have been very effective. We've had some raw materials tailwinds, but a good strategy also, and good negotiations in hedging. And many of the efficiency projects that you mentioned are also coming into effect throughout the year and for the future. We have-...
A number of projects in all of our operations, but specifically in the U.S., that are going to be very relevant to maintain sustained margins for the future. We've been working through a digital transformation and project transformation office to focus on the most important initiatives to gain productivity. Let me just mention a few in the U.S. We are working on tools to help us figure out the SKUs that should be produced at each site. That will result in better logistic costs. We've been investing in predictive maintenance to improve equipment reliability and mechanical efficiency. We are working on light weighting as well. Some of these projects are giving results throughout the year, and some will come in the future.
The most important one of those is we're expanding and improving our production facilities in Fort Worth, Texas, and that will result in supply chain efficiencies. It also will enable growth. It's a significant investment in the next three years. We're gonna bring into operation three new production lines. That's replacement and incremental. We're gonna expand warehouses and process automation, and that certainly reduces our production costs throughout the system. So we are engaging in a number of projects that will help us you know navigate this competitive environment, sustain our margins as we move forward.
Very clear. Muchas gracias, Arturo.
Thank you. Gracias.
Thank you. And we'll take our next question from Felipe Ucros with Scotiabank. Your line is open.
Thanks, operator. Good morning, Arturo, Emilio, and team. Thanks for the space. Perhaps one on distribution agreement. So, congrats on formally adding PepsiCo to the portfolio in Peru. I was wondering if you could talk about that experience, perhaps the data that you saw in the pilots, which eventually led you to sign the formal agreement. You talked a little bit about the results that you've had on ginger ale from that. But maybe also, if you could give us some details about whether the agreement is exclusive, or whether you expect to add other brands or other spirits categories, as you show good performance in this distribution. And then probably the same for Argentina, maybe not exactly the same drivers in Argentina with the deals you signed, but you also signed a couple of deals there.
Congrats on that, and any details would be great. Thank you.
Thank you, Philipp. With respect to this multi-category initiatives that we've been working on, this is basically, again, the premise here is that we are leveraging our distribution capabilities based on, you know, two developments that are fairly recent. Our first, our new agreement with the Coca-Cola Company that is, you know, that was executed about two years ago. And second is, as we deploy new technologies, we're able to manage the complexity of a broader portfolio much better in the marketplace. So with that, as you said, we started some pilot tests with different categories. So we're basically exploring three categories for distribution agreements, which is beer, spirits, and groceries.
We've been doing this in all of our Latin American markets, and we believe these categories complement our core portfolio very well. We currently have track revenues in the traditional trade, in the territories where we operating those categories, and this is about, you know, it's about 2% of revenues where we have the penetration of those categories. We still find a lot of opportunity to increase our coverage in the routes that we are presenting this option to our customers. What we've noticed, and I think what's very important, and that's maybe the starting point, is the effect it has on the core business.
Because we had historically this paradigm of, you know, will this distract our front line from focusing on the core categories of our business? But basically the customers who are buying these new categories are actually buying more of our core products, significantly more, I would say. Let's say around 6% growth gap is what we've tracked. So it also helps in customer satisfaction. Our Net Promoter Score, which we've also measured, is improving. And also the increase of the use of our digital platform in those customers as they expand also the portfolio of products they purchase from us. The increased time in the digital platform also increases and the number of users.
So we also have the opportunity to have cross-category activations to create connections with those products that drive incremental volume. That's why we believe this basically increases loyalty with our customers, which is, you know, what our business is all about. With respect to exclusivity, we are analyzing potential partners aligned with our capabilities. We have not provided exclusivity to our partners. We're actually discussing longer-term relationships with all of them, you know, with brewers, where I think it would be natural that we need a partner with a single brand or a single company. But then we have in groceries a number of different suppliers. And then in the case of spirits, we also think there are, you know, opportunities in the different categories.
So this is something that it's still expanding. We have our own aspiration, strong aspiration, but it, it's gonna be evolving, and we believe in the next few years, very favorably in all of our countries. In Argentina, it's particularly important because, as you know, we've had distribution of beer before, very successfully, and now we are replacing that with both beer and spirits, and actually we're also selling dairy products and snacks in those routes as well. So again, this is something that is complementing our core and strengthening our core, which is the most important part of that initiative.
No, very clear, Arturo. Thanks for the color. Maybe if I could just do a follow-up on Argentina. Do you believe you're close to the point with all these new agreements that you have signed, to kind of close the gap that CCU left behind? Or is there more to do before you can sort of do like a full replacement on the volume side? Thank you.
Argentina, you know, we all know we have been facing a very adverse economic environment, a very adverse environment in general. The end of 2023, the first half of 2024, I think it was the most challenging situation we've seen. Consumption in the industry and the consumer goods industry declined significantly, but now we're looking at much better outlooks. We did decline volume 13% in the quarter, but September looked much better than the third quarter as a whole, so we are optimistic that the fourth quarter has a much better outlook. We expect to continue closing that gap, and mostly we'll be protecting margins and profitability.
If you look at what we have been doing, it's focusing on returnables as part of our strategy, on the universal bottle as part of our returnable packaging strategy, and we've expanded our stills category, introducing new products. So there's opportunity to capture market share as well. And we are also deploying the digital and analytical capabilities, similar playbook to what we have in the rest of Latin America. Service models, suggested order algorithms, and all those capabilities are being deployed here. So we're optimistic that the gap is being closed. It's been obviously a very difficult year, but the trend is certainly improving.
Fantastic. Thanks so much for the color.
Thank you.
Thank you.
Thank you, Felipe.
We'll take our next question from Ben Theurer with Barclays. Your line is open.
All right. Does this work now?
Yes.
Ah, fantastic!
Yes, Ben.
It's got to work. All right. Sorry for that earlier on. Little tech issues on my side. I wanted to just dig a little bit a deeper into some of the initiatives and the benefits you're seeing from it. I wanted to understand, like, in terms of, like, a broader rollout, what are the things that you need to see, or what are the things that you need to accommodate with your current pilot projects, if you want to call it this way, in order to sign more formal agreements? And what are, like, kind of like the, maybe a few steps that you can share where things are better, like the Net Promoter Score or things you've highlighted.
How sustainable do you think that is as you kind of expand in the product portfolio beyond the Coca-Cola beverages and have a little bit of these third-party distribution things on the truck?
Yes, Ben. Well, again, this is part of our overall strategy, as we have been deploying new technologies in our processes, especially in our go-to-market model. And this has brought these new opportunities. It's not only, you know, distributing other categories, it's also opportunities in services to the stores through our platform. And now we're exploring fintech services and also the use of data that we collect, et cetera. So this is part of a new ecosystem that we're building in the traditional trade in Latin America. So I think what technology has brought is the opportunity to manage complexity better, and that presents, again, the chance to have a wider portfolio of products that we didn't have before.
These are products that are part of the Coca-Cola branded products as well. If you think about alcoholic, ready-to-drink beverages, this is also an expansion that was very hard in the past and a complexity that was more difficult to manage, and those are things that we're doing more effectively now as we again evolve our go-to-market models. So speaking about multi-category, again, the premise here has always been, you know, the loyalty with the customer, making the traditional trade more competitive and strengthening those customers, and these are the pain points that they present to us many times. They do want to have, you know, better management of the store with technology, but also they want to have a better assortment of categories.
similar to what we do with beverages, because we're not really a distributor. If you look at what we do, we bring value and we create shared value with the store through training, through you know coolers, through suggestive pricing, et cetera. So this is similar to what we're trying to do right now. So to your point, I think the evolution here is to identify the optimal portfolio of many of these products. But think about groceries. We're now delivering a basic assortment of what we believe makes sense for those stores, and also what is for us makes sense from the volume perspective and the capacity to distribute and deliver, and based also on our improved order taking for the store.
So, and that continues to evolve. And also our negotiations with those vendors continue to evolve, 'cause we certainly know that we bring significant value to that equation. So I think it's a matter of expanding our reach. If you look at the routes where we are selling those products, it's still probably around 30% of the customers that we reach through those routes. So we need to expand that, and it's as we evolve our service models, we're gonna be able to achieve that. And also, obviously, we're gonna focus on profitability of those SKUs.
And at the end, this, it's a virtuous cycle of increasing loyalty and our Net Promoter Score with the customer, which is gonna reinforce our ecosystem, and again, it connects to other things that we can do with our core or with services that we provide. So we truly believe this is an opportunity that connects very effectively with our core, and so that's why we're gonna pursue in all of Latin America with the initiative.
Okay, perfect. And then one, just a quick follow-up. I mean, leverage is, like, really low, below 0.5 times now. And I mean, what, despite having a somewhat elevated CapEx versus what would be more run rate history, how should we think about, like, this excess cash? What are the opportunities? What are you looking at?
Yeah, well, you know, we've talked about this before. I will turn it over to Emilio to elaborate. But, you know, our priorities will, I would say, remain consistent with our historical track record in terms of CapEx and dividends. So, I will let Emilio comment on that.
Yes, thank you, Arturo. Thank you for the question. Yes, as Arturo just mentioned, our priorities remain the same. CapEx this year will be higher than the historical rate of 5%-6%. This year, we're planning to invest 7%, and maybe next year with the investment that Arturo already mentioned. Well, the second one is dividend. As you know, we have a policy to distribute at least 3% of our return earnings. The third one is M&A. We are constantly looking for opportunities in US and LatAm. But in the absence of M&A in the past years, we've been paying extraordinary dividends. We just did a payment of extraordinary dividends last August. We paid MXN 2.50 per share.
The total dividend this year is MXN 6.30 per share, with our payout ratio of 62% and a dividend yield of 3.4%. That's been the strategy in the absence of M&A. And again, we're very active on looking for opportunities that create value.
Perfect. Thank you.
Thank you.
Thank you, Ben.
Thank you. We'll take our next question from Renata Cabral with Citibank. Your line is open. And Renata, your line is open. Please ask your question. I'm hearing no response. Moving to the next question. We'll take our next question from Rodrigo Alcantara with UBS. Your line is open.
Hi, thanks for taking my question, Arturo, Emilio. First one for Arturo. Arturo, if you can, perhaps comment a bit more on the performance we have seen at Monster in the US. Like you mentioned during the press release, a 7% volume growth. Also, if I recall, in the last quarter, you mentioned that you reported the highest among the bottlers of the brand, right? So just to share your thoughts on what, I mean, what do you attribute to this performance, how the relevance that you see for this brand into your, to your portfolio?
And also, I mean, comparing the performance of Monster versus the rest of the stills category, it doesn't look like they moved a lot the needle, right? So just share some on what happened there that, you know, mitigated or offset the performance of Monster within stills in the U.S. That would be my question for you, Arturo, and I have a very, very quick one for Emilio after that, just on the balance sheet. Thank you very much.
... Thank you, Rodrigo. Well, yeah, in the U.S. market, for us, well, we all know it's certainly different in its configuration and dynamics to what we face in Latin America. So stills categories and or I would say this, the categories that are different to the core, which where we include Monster, are much more important in our portfolio. So if you look at the mix of Monster in the U.S., in volumes, it's around maybe 6%, I would say, approximately. And that means in revenues it's gonna be more because of the premium pricing. And so growth in those categories is important because of the mix and also because of how the market has been evolving.
We see stills as an important source of the growth in the U.S. and maybe some of even of the subcategories where, you know, we see more of this granular growth phenomenon that we're gonna see in every market. That certainly adds complexity, but I believe it does work in our favor. In our performance in the quarter, our stills categories grew in the quarter. We had a volume decline, but it's basically explained by the performance in water, but in stills we grew 0.8 point. Monster had a better performance than that. We still are performing better than I would say the average.
We have a great partnership with Monster, and we continue to find that as a tremendous opportunity and as a source of growth for our market. You know, having said that, we still believe in the U.S., there's a big runway for growing sparkling categories. The Coca-Cola brand, just to mention, in the U.S., grew 1.5% in the quarter, which for us is very relevant, in a quarter that we had some adversity from, you know, from not favorable weather in general. But again, these categories, Monster particularly is providing growth, same as Topo Chico, for example, continues to grow in the U.S., 10%. And that is, again, where we have the sources of growth in that market.
I see. Thanks for your thoughts, Arturo. And the other one, very quickly for Emilio. I mean, just looking here, I mean, it looks like the mix that the consensus we had on your earnings pretty much came from the financial expenses, right? That, I mean, having one third, a bit less of your EBITDA in the US, you know, I mean, a depreciation of the Mexican peso in theory should have helped you, right? Given your cash balance, but we didn't see that. Just to, I mean, if you can help me understand what's happened here, Emilio, and how do you think about your cash balance position as we move through the year end? Thank you very much.
Well, the results in the first nine months of the year, we have this year a positive result on exchange gain since depreciation of the peso. And last year, we have, as you know, appreciation of the peso. We have some losses because we have a high cash in US dollars. So that was the main effect in this regard. Since last year, we have, like, around 700 million MXN in exchange loss, and this year we have, like, 200 million MXN in gain. So that's mainly the difference on this concept.
So that's basically because of our position in U.S. dollar in Mexico, that's making the difference. And regarding the hedges on the-
Thanks for that.
You asked about the hedges also in Mexico?
Yes. Yes, please.
Yes. Well, this year we hedged 100% of our needs, as we have mentioned, and we already hedged 80% of our needs for next year at a lower exchange rate than the current level. So we're very well positioned there for next year. And also this year, our hedges are lower than 2023 levels. So we're good on that with a positive effect in Mexico. And also in Peru, we hedged already 80% of our needs of our FX of dollar needs at a lower exchange rate than 2024 for 2025.
Awesome. Thank you.
Again, the other thing is that-
Thanks for closing.
The leverage ratio is very low, so we, as I mentioned previously, we are looking for opportunities, so we have a strong balance sheet in order to do a very good investment there.
Thank you.
Thank you, Rodrigo.
We'll take our next question from Antonio Hernández with Actinver. Your line is open.
... Hi, good morning. Thanks for taking our question, and congrats on your results. Quite impressive regarding the EBITDA margin in the U.S. and still believe that you have plenty of opportunities there. Where do you see potential normalized margins there? Do you have any specific target? Thanks.
Hi, Antonio. Thanks for your question. Well, in the US, as I said, we're very satisfied with the margins that we have reached. If you look at the history of our operation in the US now for, what, seven and a half years, our margin has been continuously improving. As I mentioned, it's a combination of the original synergies of the project and then our focus in revenue management and better mix of products on also promotion management and also the efficiency projects that continue even after the original synergy plan that we had, and our management of raw materials and the strategy and hedging.
So we are confident on our ability to sustain margins, going forward, especially if we think about our pricing strategy, which continues to be to price at least in line with inflation for the future, and that's very important. As you saw, we increase price more than 7% in the third quarter, and this is driven by the strategy and the mix effect. Our focus on the high profit SKUs is very important, and also the rollout of our trade promotion tool, which has reduced unproductive promo spend by 25%, which is pretty significant.
We've been again focusing on a very effective price-pack architecture, on growing transactions, growing immediate consumption, and that also contributes to a more profitable operation. So, in terms of raw materials, we've had a good environment for PET and aluminum, and we've been very effective in hedging our needs for fructose for this year. And we expect 2025 to be pretty much in line with inflation in that input. So again, we are optimistic. There's still a lot to do in our facilities, in our supply chain, and more efficiency coming, so that's where we're confident on our ability to maintain a very profitable operation in the US.
Okay, thanks a lot. Have a great day. Thanks.
Thanks, Antonio.
Thank you. We'll take our next question from Carlos Laboy with HSBC. Your line is open.
Yes, thank you. Good afternoon, everyone. Arturo, I was hoping you could expand a little bit on how your digital needs in the US might be different from your digital needs in Mexico or in Latin America, and how you're going about to meet those needs.
Yes, Carlos. Thank you. Thanks for your question. Well, the big difference, if you look at our approach to digital, is that there's a number of projects in Latin America that are focusing in the traditional trade and strengthening our relationship in that particular channel. And obviously, some of those very specific initiatives will not be applicable to the US. But if you look at the basic transformation initiatives that we have, I would say the building blocks are very similar. We actually have the Digital Nest operating here in Monterrey, but this unit is providing services to Latin America and to the US operations as well. And let me mention a few things that we're focusing in the US.
One is the myCoke.com platform in the U.S., and that would be maybe the equivalent of what we're doing in Latin America with Tualy, which was recently announced. The idea here is the same, to kind of deepen the connection with customers, improving our relationship and mostly customizing our communication with customers. It enables targeted promotions, it simplifies order taking, it resolves issues, it manages requests, it provides flexibility to place orders anytime. That's similar to what we're doing in Mexico, obviously, with a different channel. For 2025, we expect more than 20,000 users actively engaging through the B2B platform that we have in the U.S.
And we're also piloting new features there, like, the Easy Order, which is also similar to what we're doing for the traditional channel and to deliver a smooth ordering experience. Then, we also have solutions to drive profitability, also are launched from our Digital Nest, centralized our revenue growth management tools, our leverage on digital technologies, and these are also similar, obviously adapted to every particular market, but this is something that we have been deploying in the US. I mentioned our Trade Promotion Optimizer. This has enabled us to be more precise in our expenditures, in our promotions and reducing unprofitable promotions. The suggested order algorithm also applies to the US.
Again, it's based on the analytics, and it's been adapted in the U.S. actually to the modern trade as a new capability. And, it's basically works by recommending a base order to frontline associates, and it's been deployed in, you know, customers like Dollar General. So again, it's a great example of what we've been doing in the U.S. for a number of years. We believe that the building blocks are similar, but it's not a template that we bring from Latin America, either in digital or in any other process. It's how we adapt it to that market, but based on developments that we are generating in a centralized way.
Thank you.
Thank you, Carlos.
Thank you. And we'll take our next question from Fernando Olvera with Bank of America. Your line is open.
Hi, good morning, all, and thanks for taking my question. Just a quick one, about Mexico. According to recent news, the sale of sweetened beverages will be prohibited in schools starting in March of next year. So can you give us your thoughts on this and what could be the potential impact on sales? Thank you.
Yes, Fernando, thank you. Good talking to you. Yeah, we've read that in the news. Really, you know, in Mexico, as part of the Coca-Cola system, and not only us as a company, but everyone in the system in Mexico, since a long, long time ago, we have been implementing self-regulation based on the marketing policy of the Coca-Cola Company. So we basically sell only water in most of the schools and education centers, and we restrict advertising activities to kids under thirteen. This has been going on, I think, since 2015, basically. We...
We continue to pursue a strategy to offer various options for everyone and continue to have a portfolio with all the options in low and no sugar products in soft drinks and all the other categories that we manage. We work very closely with the authorities to analyze, you know, regulation and contribute, but the impact is not significant, again, because we've been self-regulating for quite some time.
Great. Thank you so much.
Thank you. Thank you, Fernando.
Thank you. We'll take our next question from Renata Cabral with Citibank. Your line is open.
Hi, everyone. Thank you so much for taking my question. My question is a follow-up regarding digital initiatives in the U.S. I wonder if you could qualitatively rank the stage that Arca Continental is today in digital initiatives versus other bottlers in the U.S. My question is more related if the digital initiatives that you are developing now could be a competitive advantage when potentially acquiring a bottler in the U.S. Thank you.
Thank you, Renata. Yeah, you know, the system in general has been pursuing these type of initiatives, I would say, around the world, not only in the U.S., and we've been very open to sharing good practices because we also learn from other bottlers, and we've incorporated practices from other bottlers. The Coca-Cola Company has been coordinating and taking the lead also in the sharing of best practices and even on developing some of the tools that then are being shared across the system. So I would mention two things: First, when you adopt practices, it's not something that's automatic. You have to incorporate data to adapt it to your market.
So it takes a lot of effort to incorporate that idea into every market, and that's why, you know, sometimes the deployment takes time. But also, I think there's an element of scale. Many times for the larger bottlers, it would be easier to have the scale to develop some of these new technologies in their system, 'cause it, you know, it requires a specific effort. Like in our case, we have our Digital Nest here in Monterrey, where we have one hundred and eighty people working only on the developing of our digital tools, so and digital technology. So that's, I would say that is harder for a medium or smaller sized bottler.
So I think it presents the opportunities to partner throughout the Coca-Cola system, I would believe, in the future. And I think it's an example, again, of what we've said over the years, that the business of a Coke bottler has more economies of scale than maybe it had twenty, thirty years ago. And again, these new capabilities that you know require I would say more sophisticated approach are a great example of how scale is becoming more relevant across the system.
... That's awesome. Thanks so much for the call.
Thank you, Renata.
Thank you. We'll take our next question from Thiago Bortoluci with Goldman Sachs. Your line is open.
Hey, Arturo, Emilio, good morning, everyone. Thanks for taking our questions. I have two follow-ups, somehow related. The first one in Mexico, right? You posted a very good EBITDA margin, expanding some fifty basis points, which is way stronger than the general expectation of keeping margin stable, right? This is more into how you see consumption trending into the fourth quarter, but is there a scenario where you are considering eventually reinvesting part of these margins to reignite consumption? This is the first one. And related to this, I appreciate the color you gave on the hedges for the remainder of the year next year. If we analyze this sequentially, right, would you say the hedges you have for the fourth quarter are sequentially better than the ones you had for the third quarter in Mexico? Those are the questions. Thank you very much.
Yeah. I'll turn it over to Emilio on your question on hedges. Let me talk about Mexico first. And again, the situation we've seen in Mexico is a decline in the quarter, but it's clearly explained with, you know, what we've been cycling, a very strong growth, not only in 2023, but also in 2022, and not very favorable weather across our territory. So we're facing actually the highest growing period from the previous year. And even under those circumstances, we've been able to sustain our margins through a number of, you know, activities and initiatives that we're doing in our market.
We believe that going forward, we're gonna have a better volume scenario in the fourth quarter. As I mentioned also, we're gonna be focusing in the management of our key inputs as we had before. In Mexico, PET has been favorable. Also, aluminum, although we don't use as much as in the U.S., but our requirements were also mostly hedged, and they are also hedged to a great extent for twenty twenty-five. Sugar has been above inflation throughout the year, and there would be some price hikes, but in the case of fructose, we also have hedged our needs very favorably for twenty-five. Same thing as FX hedges, which Emilio mentioned before.
So we look at our margins going forward, again, with optimism, and even when our volume was impacted, we were able to sustain the margins. If you look at, margins in Mexico are among the highest, and on a consolidated basis, the highest in eight years, in a quarter that was very very adverse in many aspects. So that's why we remain, again, very optimistic about profitability in the future. So I will turn it over to Emilio, to your second part of the question, with respect to hedges.
Yes. Thank you. Thank you, Arturo, thank you, Thiago, for your question. As Arturo mentioned, we're very confident to maintain the profitability trend in Mexico. So, our hedges in Mexico, as Arturo already mentioned, we have for 2024 hedged already 80% of our aluminum needs in Mexico and also in U.S. this year. And, talking about sweeteners, we hedged 100% of our needs in Peru for sugar needs below our 2023 prices. And, talking about high fructose in Mexico, we hedged 100% also of our needs in line with 2023 prices for this year. And also in U.S., we hedged 85% of our needs for this year, in line with 2023 prices.
And in Mexico also, we hedged 100% of our US dollar needs below 2023 prices. That's for 2024. And as we mentioned already, we started hedging for 2025 in Mexico and US, and some in Peru. In Mexico, for example, we hedged already some of our needs for high fructose. We hedged 50% of our needs of high fructose and 60% of our aluminum needs for next year. And 80% of our hedges are also covering the needs of our US dollar in Mexico at a level below 2024. So we are very well positioned on the hedges for 2025 and also for the rest of the year of 2024.
Very importantly, Thiago, we are confident that we're gonna finish the year in terms of top line in Mexico, in line with our guidance.
Great. Thank you, Arturo, Emilio. If I may follow up? One quick one. Would you say, or do you see any difference in the average prices realized for costs year-to-date in Mexico versus what you have had for the remainder period?
Can you repeat your question, please, Thiago? It is about pricing in Mexico?
Do you see any difference-
Cannot hear you very well.
Can you hear me?
We cannot hear you very well, so can you repeat your question?
Sorry, I don't know. The question is: do you see any material difference in the costs realized year to date versus what you had hedged for the fourth quarter?
Difference, between margins, you say? The question is about margins year to date versus going forward?
It's on cost hedges.
Or hedges? Well, hedges, we have the same. Talking about hedges, we have the same level of pricing for the whole year. But what we have positive for fourth quarter is sugar prices. Sugar prices starting to stabilize and even going lower than third quarter. That's in Mexico. But hedges are the same level for the full year, for the whole year.
That's great. Thank you very much, both.
Thank you, Thiago.
Thank you. This concludes today's Q&A. I would now like to turn this call back over to management for closing remarks.
Thank you, everyone. We really appreciate your time today and your ongoing commitment to our company, and as always, our investor relations team will be available to address any follow-up questions that you may have. Thank you, and have a great day.
Thank you, ladies and gentlemen. This concludes today's conference. You may now disconnect.