Good day, and welcome to Grupo Herdez's First Quarter 2026 Earnings Conference Call. This call is being recorded. Information discussed may include forward-looking statements subject to risks and uncertainties. Please refer to the forward-looking statements disclaimer in the company's press release. I will now turn the call over to Andrea Amozurrutia, Chief Financial and Sustainability Officer. Please go ahead.
Thank you, Bailey. Good morning, everyone. Thank you for joining us today to discuss our first quarter 2026 results. I am pleased to walk you through our performance and, more importantly, the strategic steps we are taking to solidify our position for the remainder of the year. Before we discuss the numbers, I would like to clarify the structural changes in our financial reporting. As you know, we successfully finalized the sale of our 25% stake in McCormick de México at the beginning of the year. To ensure total clarity, our stake is now recorded under equity investments in associated companies, and strategic fees are integrated into revenue from related parties. Consequently, the figures we explained in the press release and in this call are on a pro forma basis, excluding McCormick de México from our consolidation and removing Grupo Nutrisa from the baseline.
We believe this is the most accurate way to understand the organic evolution of our core business. Turning to our quarterly performance, we posted a 17.5% growth in net sales, reaching MXN 5.2 billion. While the market context remains complex, this growth is a direct result of our proactive operational planning ahead of our new SAP S/4HANA go live on April 1st. This was a massive logistical challenge that our teams managed exceptionally well, allowing us to deliver a historic volume of nearly 7,000 tons in March. This milestone proves that our infrastructure is more than capable of handling major technological transitions without disrupting our service levels. Furthermore, key categories like pasta, vegetables, and homemade salsa expanded their market share, which reinforces the strength of our brands even when consumer demand faces headwinds. Our operating profit grew 27.1% to MXN 620 million, and EBITDA rose 23.7% to MXN 810 million.
Margins expanded to 11.9% and 15.6% respectively, primarily driven by the operating leverage resulting from that extraordinary top-line performance. Regarding our financial structure, we are executing a very deliberate deleveraging path. With the proceeds from the McCormick transaction, we have already reduced our debt by MXN 1.4 billion in the first quarter. Our roadmap is set to reduce it by almost MXN 4 billion by year-end through additional loan repayments and the settlement of the HERDEZ 22-2L at maturity. This will bring our net leverage to a very comfortable level, under 2.5 x, giving us the financial flexibility to continue investing in our future growth. Please be aware that as a result of our strategic frontloading in the first quarter, we anticipate a compensatory adjustment in the second quarter figures.
Consequently, we expect Q2 net sales to show a slight decrease when compared to the 2025 pro forma figures. These volume shifts will naturally impact our operating and EBITDA margins, as lower expense absorption will temporarily put pressure on profitability. As a result, we recommend analyzing the full first quarter performance to extract the ERP impact. By year-end, we expect sales to grow in the high single digits and margins to retract around one percentage point due to SG&A pressure related to the implementation of the ERP during the year. Having said that, we are closely monitoring geopolitical tensions in the Middle East and rising crude oil prices, which suggest potential pressure on plastic packaging and logistics for the coming quarters. While we do not expect this impact to be material, our focus remains on securing supply availability and implementing mitigation strategies.
If any guidance updates are required, we will let you know in the following quarters. As well, yesterday, during our annual shareholders' meeting, we presented audited financials for 2025. An ordinary dividend of MXN 1.50 per share was approved, payable in two equal installments in May and October. I would also like to take a moment to discuss our approach to governance and climate risk. For the first time, we are reporting under the IFRS S1 and S2 standards alongside our audited financial statements. This is not just a regulatory update. It is an integration of our sustainability strategy into our core financial reality. Through our materiality assessment, we have identified water stress as our most critical risk. This is not a new focus for us. We have been aggressively managing this since 2022, supported by our sustainability-linked bond.
The progress we have made in optimizing water consumption per ton produced has been significant, and we are fully on track to meet our 25% reduction target by 2030. We view this as a fundamental aspect of our business continuity and efficiency. Finally, regarding our operational strategy, on April 13th, we announced the formalization of our 50/50 joint venture with Froneri for our ice cream business, which we expect to close at mid-year. This is a strategic pivot that allows us to capture more value. Under this agreement, Froneri, a world-class global leader, will assume operational control of the ice cream business. They bring the technical expertise and global scale that this segment needs to thrive, allowing us to focus our resources on the areas where we can deliver most sustainable returns.
In summary, at 112 years young, Grupo Herdez is a company that does not just react to the market. We evolve ahead of it. The results of this quarter, combined with our technological transformation and our rigorous approach to climate risk, positions us for a very bright future. Thank you for your time, and I will now turn the call over to Bailey for the Q&A session.
We will now begin the question and answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question comes from Regina Carrillo with GBM. Please go ahead.
Hi. Thank you for taking my question. We saw a positive contribution to net income from the McCormick participation, but can you tell us more about its performance during the quarter, and what do you expect sales and EBITDA of that business to be during 2026 or to grow?
Good morning, Regina. Do you mean the McCormick business?
Yeah.
Well, it is performing according to the rest of the portfolio. Even in the case of McCormick categories, we saw double-digit growth in the first quarter. As we mentioned, it is mainly related to the inventory build-up at the client level. We do not have any disruptions regarding the go-live of the new ERP. According to internal estimations, and trying to extract the extraordinary benefit from the ERP, the underlying growth of the core business has been around 4% or 5%. We believe it is in line with what you are seeing in the consumption environment in Mexico. It is mainly driven by volume and practically no benefit from pricing.
Excellent. Thank you so much. If I may ask another question, I was wondering if you expect any positive benefits from the World Cup in Mexico, and if you are implementing strategies to benefit from that.
Of course, we are. We believe that we have many brands in the space of the World Cup. We have already incorporated the benefits and all the promotional and additional activity that we will have related to the World Cup. However, at year-end, we do not believe that the benefit will be so significant. Definitely, we will need the following months to unwrap in order to give more detailed feedback on that.
Perfect. Thank you so much.
You're welcome.
Again, if you have a question, please press star then one. At this time, there are no more questions. I would like to turn the call back over to Andrea Amozurrutia Casillas for any closing remarks.
Thank you, Bailey, and thank you everyone for connecting to this call. We hope to see you and hear you in the following quarter. Have a nice day.
The call has now concluded. Thank you for attending today's presentation. You may now disconnect.