I would now like to turn the conference over to Mr. Adolfo Fritz, GRUMA's Investor Relations Officer, who will present earnings results. And then we'll open the Q&A session, where Mr. Raúl Cavazos, GRUMA's Chief Financial Officer, and team will be available to answer any additional questions. I would now like to turn the conference over to Mr. Fritz, Investor Relations Officer. Please go ahead, sir.
Thank you. Good morning, and welcome to our third quarter 2023 conference call. We're pleased to have you on the line and thankful for the opportunity to share our results with you. With me today, as always, is Mr. Raúl Cavazos Morales, GRUMA's CFO, and Rogelio Sánchez Martínez, GRUMA's Corporate Finance VP. To start, we'll take a few minutes to discuss the highlights and results for the quarter, and then we'll open it up to any questions you may have. We're very pleased with GRUMA's performance in 3Q 2023. Market fundamentals for our business have remained strong in the U.S. and Mexico, while the rest of our subsidiaries are seeing varying growth dynamics. Demand for our products is still quite positive, especially for our Better For You product line, and at the same time, there is a rapid adoption of our products in our other markets of focus.
Our key objective has always been to safeguard profitability and interest of all shareholders, and we're pleased to have reached this objective in the quarter. In terms of market fundamentals, the third quarter of this year continued the positive trend in the tortilla category in the U.S., although economic conditions still showed mixed signals as to the possibility of a recession in the country. Outside of the U.S., price sensitivity has been more evident, with consumers less sheltered against the effect of inflation. As I just mentioned, in the tortilla business, the U.S. continues to show resiliency and strong demand, which allows us to grow 2% in volume terms. In tortilla business in Europe, the economic conditions have put the consumer under pressure.
In Asia and Oceania, the Chinese economy has been impacting volumes despite positive results, which we have been able to leverage to protect profitability in the subsidiary. Total consolidated tortilla volume growth for the quarter stood at 1.2%, highlighting once again, its versatility and health benefits in every meal in which it is used. In the corn flour business, price sensitivity continues in the U.S., while stable and strong demand in Mexico has been characteristic not only of the quarter but year- to- date as well. In the rest of the world, price sensitivity has also been mixed. The combination of attractive growth rates in Europe and consumer pushback in Central America, where despite a contraction in volumes, we were still able to achieve comfortable profitability. The balance sheet remains healthy.
Inventory levels decreased by 13% relative to a quarter ago, thus disproportionately decreasing our net working capital needs. As we communicated in the past investor calls, this reflects our current strategy of bringing net working capital needs back to normalized levels, and in doing so, right-sizing our indebtedness as well. We had increased to back our risk mitigation strategy against potentially harmful logistic challenges when the war in Ukraine broke out. Our efforts in decreasing working capital needs should continue going forward, as we strive to release close to $100 million in capital by year-end and reach a net debt to EBITDA multiple below 2x. Excess capital released during this process will be used to help us reach this objective at a much faster pace. With the aforementioned fundamentals, sales grew 18% and EBITDA expanded by 34%.
This represents 190 basis points expansion in consolidated EBITDA margin, achieving 16.4% and EBITDA per ton growth of 34%. In the U.S., the tortilla market presented positive fundamentals during the quarter, expanded by 2% in volume. As a category in the U.S., tortilla grew approximately 12% over the last 13 weeks. Much of this growth has been captured by GRUMA on the back of its optimal response to market trends and the private label of the result of consumer sensitivity in more basic tortilla. This juncture, we're yet to see trade downs or overall relevant price sensitivity in our product lines, and the consumer remains robust in the face of ongoing inflation. The corn flour business has experienced a much tougher comparative base and also price sensitivity for a couple of quarters now.
Nevertheless, as we have pointed out before, as prices in the market normalize among competitors, we believe the differentiation of our product in this business channel will drive volumes back up where they were prior to this effect and be higher than those of last year. The third quarter of the year had a tough comparison base in 3Q 2022, but we are very pleased to see the response we have had as we execute our strategy going forward. Our U.S. division has been successful at improving profitability, growing by 90 basis points, reaching 19.8% EBITDA margin and 19% growth in EBITDA per ton as a result of EBITDA growth of 19%. In Mexico, demand has remained stable for most of the year.
During the first six months, we saw stable recovery from corporate clients, and this third quarter, we saw strong demand from tortilla producers as we try to keep a balance between our industry and the traditional method, highlighting our quality of the products. This subsidiary managed a volume expansion of 1% during the quarter and yet experienced EBITDA contraction of 5%. On the European side of the business, as we saw since the beginning of the year, consumer trends have been quite different from those in the U.S. The consumer has a strong preference for private label, being the fierce competitor in the continent under normal circumstances, and more so now with the levels of inflation over the past 12 months. Nevertheless, we've been able to cope with these market dynamics in the tortilla business and have added distributors across our main markets in Europe....
It has promoted more brand awareness for our product in specific, and we've been able to protect profitability quite effectively in our operation despite volume contraction, which reflects accentuated price sensitivity in the region. Corn milling products, however, have completely made a comeback as breweries and animal feed manufacturers have returned to the market and increased their activities in Europe. This has led to attractive growth rates in this business line while setting the volume contraction in the tortilla business in the subsidiary. Volumes and sales increased 7%, yielding EBITDA growth 51% and reaching an attractive margin of 10.5%. In Central America, challenging comparative base and additional price sensitivity as a result from significant pressure from economic conditions in the region, in addition to declining demand for rice, drove volumes to contract.
Just as it is the case in Europe, we anticipate that with improving economic conditions and waning pressure on the consumer, we should get back to our normal levels of volume sold on the back of the quality and price points for our products in Central America. Profitability-wise, and again, echoing the performance of other subsidiaries, we reached an attractive EBITDA margin of 11.9%, EBITDA growth of 31% and EBITDA per ton growth of 43%. This was on the back of sales growth of 6% in Q2 2023. Our Asian-Oceania division continues to work in an uphill effort in the face of a slower than expected and more variable Chinese economy.
Still, through a global strategy and localized efforts, we've been able to take advantage of increased economic activity in China in recent months and combine it with a solid performance in Australia and Malaysia. With this dynamic stretching through the third quarter of the year, we reached 11.9% EBITDA margin, albeit with a 1% contraction in volumes, which we expect to recover with time, in line with the Chinese economy recovery. In terms of EBITDA per ton, our internal profitability metric, we reached a 26% growth, mirroring EBITDA performance. With the third quarter behind us, we're very pleased with our results thus far. The company's had a very positive performance in the second half of the year. Nevertheless, we do see room for growth with the way our products are being adopted worldwide and especially in the U.S.
Therefore, we will be surpassing our guidance we provided at the beginning of the year. We still have to wait and see how and if or when a recession takes place in the U.S. Each of these levels of inflation are uncharted waters for everyone in the industry. But for the time being, we see a solid foundation for growth and further profitability protection of our products' gain popularity around the world as we keep producing products for different focus markets that add resiliency to our performance. With that, I'd love to open the call for questions from our listeners today. Operator, be helpful with that, please.
Thank you, sir. We will now begin the question and answer session. As a reminder, if you have a question, please press the star key followed by the number one on your touchtone phone. If you would like to withdraw your question, please, please press the star key followed by the number two. If you're using speaker equipment, you will need to lift your handset before making a selection. Our first question is from the line of Fernando Olvera with Bank of America. Please state your question.
Hi, good morning, everyone, and thanks for taking my questions. I have two. The first one is related to the U.S. How should we think about U.S. volume and margins in the fourth quarter, given the additional week that you had last year? And how much can these results dilute the margin expansion that you already registered in the first nine months of the year? And my second question is, very quickly, if you can explain the gain registered at discontinued operations line and how should we think about this line in coming quarters? Thank you.
Thank you, Fernando. Well, in regards to your first question, we really have a very good momentum in terms of the performance of the company and its products. We believe that at this point, as I just mentioned, we are surpassing the guidance for the year. And if you're looking for guidance for the fourth quarter, I really would just assume the same performance we had during the third and streamline that towards the end of the year. With that, you probably have a very good proxy as to what levels we'll be closing the year at. In terms of the discontinued operations, that was an extraordinary gain arising from the sales of assets in our discontinued operations in Venezuela. And therefore, it's just a one-time gain that won't repeat itself in the future.
Please let me know if there's any additional questions.
Great. Thank you, Adolfo.
Thank you.
Our next question comes from Benjamin Theurer with Barclays. Please state your question.
Yeah, good morning, and thank you very much for also taking my question. I have also two quick ones. So one, in the U.S., obviously, and it's been very positive this year, and just reiterate the positive momentum and the guidance surpassing. But can you elaborate a little bit about the different channels in the U.S., retail versus food service, what you're seeing there in terms of demand trends? And if it's broad-based, the demand that's driving up your results, or if there's a difference between the two channels? That would be my first question, then I have a quick follow-up.
Sure. Thank you, Ben. Well, you know, the reality, the two channels have had a great performance. In retail, the main driver there has been really the quality of the product and also the focus that there is today in our Better For You product line. That itself has grown significantly, and we're just pleased to see the performance and acceptance for the product itself. And that is a huge incentive for us to keep innovating what we've done so far. So that's on the retail side. We haven't seen also any trade down, as I was just mentioning a minute ago, in terms of, you know, along our product lines in on the retail space.
The food service space, it's quite a different dynamic as our clients have been recovering from the COVID times, if you will. They've been gradually increasing their operations and results, which obviously have had a positive impact on us. I believe that those were the two main drivers for those two channels. So far, unless the economy starts being pressured severely, and unless inflation keeps on being as it was six months ago, in addition to probably high unemployment rate, if there's any of it at some point, those would be the challenges that lie ahead in terms of seeing how the two channels respond to them. But so far, those are the two drivers, and we're very pleased with the performance in them.
Okay, perfect. Then my second question, if you could just give us an update on where you stand as it relates to the hedges and the contracting for your needs into the next couple of quarters. What's the current level you're at, and how is that favorable or unfavorable on a year-over-year basis from the levels you've been locking in? Thank you.
Yeah, sure. Well, as everyone knows, we do have an internal, more than a policy, a practice of hedging 12 months prior to our needs in the U.S. that is. Mexico is different because with the harvest 2 times in a year versus 1 time in the U.S. But so far, what pertains to corn, we have all our needs covered so far. In terms of our other raw materials, for example, wheat, we have partially covered ourselves there. Now, the reason being is that the wheat price dropped dramatically, and we decided to leave that portion open, the still remainder. So we're about—we should be around 60% hedged on that front in the U.S.
With that being said, it is obvious that the hedges that we're closing are attractive relative to the levels that we had prior to, prior to this year, so what we're operating with right now. However, we're cautioning investors and market participants that it's not to at the, at the direct benefit of margins, given that we have inflationary pressures on other items outside of raw materials that are still ongoing. So I would not take the full benefit of the differential or the positive differential in hedges at this point as a 100% benefit. But I would just caution you to use maybe half of that as a benefit to margins, assuming that the other half is being pressured by other items, by inflation outside of the raw materials.
Perfect. Rogelio, thank you very much, and congrats on the results.
Thank you, Ben. Take care.
Our next question comes from Luis Willard with GBM. Please state your question.
Hi, guys. Good morning, thanks for taking my questions and congrats on the very good quarter. So Adolfo ... I mean, we've discussed this in previous calls, but I want to touch a bit again on your long-term vision for the U.S. margins. Rather than a specific number, maybe just conceptually. I mean, this quarter and also in previous ones, most of the EBITDA margin expansion in the U.S. has come from operating leverage, mainly. So is it fair to assume that we might still have some room for further margin expansion in the long term as the overall businesses- business continues to grow in the U.S., and in particular, the effect of Better For You or better mix? That's the question. Thank you.
Yeah. Thank you for the question. Sure. So far we've been our main drivers, as I said in the previous question from Ben, has been the Better For You, according to the trends that we see today. We see these trends to continue, obviously, as there is a worldwide preference for healthier living, and also a world, a world preference for substituting some items with wraps or flatbreads, instead of buying other substitutes that would be maybe a little bit more unhealthy, for people that are conscious of that. That is a global wave.
We believe that it's not only the Better For You, which today it is, but it's a whole wave of switching to wraps and tortilla-like items to eat healthier that will bring our operation to a handy standard. In terms of the strategy we have for margins in the long term, would obviously be to the U.S., as we already have 80% presence in the retail space. We would love to increase our presence or composition within that, in our Better For You product line. You know, in Europe, where we don't have that privilege as having 80% in retail, the strategy there is just to increase retail overall. In Asia and Oceania, as you can see from the margins, it's attractive as it is today.
However, we need to add capacity, production capacity there to keep on delivering the product and keep adding volume there for that margin to become representative of the consolidated numbers. So, that is basically the plan we got right now. Obviously, as trends change, and the capabilities that we have to adapt to those trends may change the strategy to protect profitability, but so far, that is the strategy that we got.
All right. Thank you.
Thank you for your question.
Thank you. Our next question comes from Alvaro Garcia with BTG. Please state your question.
Hi, Adolfo. So thanks for the space for questions. My first question is on guidance for 2023. Just wanted to clear up. I think in the last call, you sort of shifted it from slight pressure in margin to a slight expansion in margin. Is it fair to assume that you're gonna beat that slight expansion margin, or do you have any update? Or maybe if you could just reiterate the guidance, that'd be great.
Sure. You know, that was something before. We feel very comfortable with the way margins are looking. We're most likely that if you copy the performance we had during the third Q for the fourth Q, you'll be over that guidance that we gave during the last conference call in terms of marginally increasing our EBITDA margin. So, it's as we speak today, on the year-to-date numbers that I'm sure you've got in front of you. I mean, we're over that at this point. So, we are expecting a benefit over what we guided on in terms of margins during the last conference call.
Great. And then one second question. That's very helpful. Thank you. And then my second question is on Europe. You mentioned sort of price sensitivity and inventories that are maybe a little bit higher than you'd like to see in Europe in the tortilla division. Is it fair to... Are prices coming down? Is it fair to assume that maybe you guys are coming down to look a little bit more competitive relative to private label? Or, you know, how severe is the volume weakness? Any color on European tortilla would be great. Thank you.
Sure. Thank you for the question. So right now, we're focusing really on expanding our presence through the continent by having a broader distribution in place. With that, at this point, we're not planning on adjusting prices further, given that we have already, and we're dependent on the circumstances going forward. But we feel that with this adjustment that you can see from the EBITDA growth that we were able to generate and the margins that we were able to get this time around, at least during this quarter, you know, things in terms of pricing are looking good despite the volume contraction.
We believe that as we increase our distribution in the continent, given that the products are not very similar to the ones the private label is selling, we feel that we can recover those volumes with the prices that were set today. Obviously, circumstances could change, but so far, this is where we have been.
Great. Thank you very much.
Thank you all.
Thank you. There are no further questions at this time. I'll hand the floor back to Mr. Fritz for closing statements.
Well, thank you all for your time today, and we look forward to seeing you guys in future market events. Thank you for the interest in our company. Thank you. Bye.
Thank you. Ladies and gentlemen, this concludes GRUMA's third quarter 2023 earnings conference call. Thank you for your participation. You may now disconnect.