Excuse me, everyone. We now have all of our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of today's presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question. I would now like to turn the conference over to Pablo González, CEO. Mr. González, you may begin.
Thank you. Good morning, everyone. Thanks for participating on the call. I hope you and your families are all safe and well. Let me first make a few brief comments about the quarter, and then Xavier will provide more details. Last quarter proved to be very trying, even more than anticipated. Overall consumption remains subdued and compared poorly to 2020 panic-stricken volumes, and very significant raw material inflation continues. Topline grew 2% with stable volumes, while price increased 3% and mix was down 1%. Our brands and market shares remain strong, but our categories are either not growing or doing so slowly, given strong comparisons and the state of the Mexican economy, where GDP growth is not necessarily translating into robust private consumption increases. As you may recall from our last call.
Excuse me, everyone. We now have Mr. González back. Please go ahead, sir.
Thank you, Nick. I'm sorry, everyone, for some reason we got disconnected. I don't know exactly how far we got, so I'll take it over from topline growth and then get into the cost environment. I hope we have no further issues. I was mentioning that topline grew 2% with stable volumes, while prices increased 3% and mix was down 1%. Our brands and market shares remain strong, but our categories are either not growing or doing so slowly, given strong comparisons and the state of the Mexican economy, where GDP growth is not necessarily translating into robust private consumption increases in all categories.
As you may recall from our last call, with the expectation of a reverse or at least a stabilization of the cost environment trend and considering the consumer environment, we decided to increase prices by approximately 4%. The effect of these price increases will be fully reflected in the fourth quarter. In hindsight, given the continued very high cost inflation, we fell short.
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Excuse me, everyone. We now have our speakers back online. Please go ahead, sir.
Hello, everyone. Again, we're really sorry. Don't know what's happening with the connections. We'll give it another try. I'll pick it up where I started last time and hopefully cover everything. I was saying that our top line grew 2% with stable volumes, while price increased 3% and mix was down 1%. Our brands and market shares remain strong, but our categories are either not growing or doing so slowly, given strong comparisons and the state of the Mexican economy, where GDP growth is not necessarily translating into robust private consumption increases in all categories. As you may recall from our last call, with the expectation of a reverse or at least a stabilization of the cost environment trend, and considering the consumer environment, we decided to increase prices by approximately 4%. The effects of these price increases will be fully reflected in the fourth quarter.
In hindsight, given the continued very high cost inflation, we fell short. Our costs have continued to rise very significantly. The sharp increases in prices that have affected most commodities, oil and gas, as well as processed raw materials in general, continue to place severe pressure on our margins. This is certainly not unique to our industry, but it is unprecedented. In this environment, costs grew much faster than sales at 12%, and despite containing and reducing costs, EBITDA margin for the quarter was 20%. Strong cost pressures will continue during the coming quarters, but we will get through this inflationary environment. We remain confident in the resilience and strength of our business and have plans in place for a solid margin recovery in 2022. We'll talk about it some more after Xavier provides details behind the results. Let me pass it on to Xavier.
Thank you. Good morning. During the quarter, our sales were MXN 11.3 billion, a 2% increase versus the third quarter of 2020. Volume was stable, with price and mix contributing 2%. Consumer products decreased 1% as we continue to face a slow consumer environment and strong COVID-related comparables. Away-from-home product sales increased 38% as the economy starts to reopen. We're still slightly below pre-pandemic levels but continue to show strong sequential improvements. Export sales grew 20%, with finished product sales more than doubled. Cost of goods sold increased 12%. Against last year, every raw material category compared negatively.
Pulp was up between 20% and 30%, depending on the grade. Recycled fibers and fluff averaged high single-digit increases. On the personal care side, super absorbent materials were up more than 40%, and resins more than 120%. Finally, energy and natural gas was-
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Excuse me, everyone. We now have our speakers back online. Please go ahead, sir.
Hello again. We're really sorry about this. We don't know what's happening. Our fixed lines continue to be bombing us, so we're trying it via a cellphone, so we can make this work. All right. Again, very hard to say where we left off or how much you were able to hear. Apologize if we're repetitive, and we say it again, but we just want to be sure that we get the messages across, and that we can answer your questions. Apologize if we're repeating some of the information. Let me take it over again from top line, and then Xavier will go through the details. Once more, I was mentioning that our top line grew 2% with stable volumes. Our prices increased 3%, and mix was down 1%.
Mentioning that our brands and market share remain strong, but our categories are either not growing or doing so slowly, given strong comparisons and the state of the Mexican economy, where GDP growth is not necessarily translating into robust volume consumption increases in all categories. As you may recall from our last call, the expectation of a reverse, or at least a stabilization of the cost environment trend, and considering the consumer environment, we decided to increase prices by approximately 4%. The effects of these price increases will be fully reflected in the fourth quarter. In hindsight, given the continued very high cost inflation, we fell short. Costs have continued to rise very significantly. The sharp increases in prices that have affected most commodities, oil and gas, as well as processed raw materials in general, continue to place severe pressure on our margins.
This is certainly not unique to our industry, but it is unprecedented. In this environment, costs grew much faster than sales at 12%, and despite containing and reducing costs, EBITDA margin for the quarter was 20%. Strong cost pressures will continue during the coming quarters, but we will get through this inflationary environment, and we remain confident in the resilience and strength of our business, and the plans in place for a solid margin recovery in 2022. We'll talk about it some more after Xavier provides details behind the results. Again, let me pass it on to Xavier.
Thanks. Good morning. During the quarter, our sales were MXN 11.3 billion, a 2% increase versus the third quarter of 2020. Volume was stable, with price mix contributing 2%. Consumer products increased 1% as we continue to face a low consumer environment and strong COVID-related comparisons. Away-from-home product sales increased 38% as the economy starts to reopen. We're still slightly below pre-pandemic levels, continue to show strong sequential improvements. Export sales grew 20%, with finished product sales more than doubling. Cost of wood pulp increased 12%. Against last year, every raw material category compared negative. Pulp was up between 20% and 30%, depending on the grade.
Recycled fibers and fluff averaged high single-digit increases. On the personal care side, super absorbent materials were up more than 40%, and resins more than 120%. Finally, energy and natural gas also compared negatively, with the latter growing more than 90%. The effect was lower, averaging 11% less. Our cost containment and reduction program once again had very good results and yielded approximately MXN 350 million of savings in the quarter. These savings are mainly at the cost of goods sold level and are generated by sourcing material improvement and process efficiencies. Gross profit decreased 14%, and margin was 31.7% for the quarter. SG&A expenses were 1% higher year-over-year and down 20 basis points as a percentage of sales. Operating profit decreased 26%, and the operating margin was 15.3%. We generated MXN 2.2 billion of EBITDA, a 21% decrease, and EBITDA margin was 19.7%.
Cost of financing was MXN 445 million in the third quarter, compared to MXN 428 million in the same period last year. During the quarter, we had an MXN 8 million foreign exchange gain, which compares to an MXN 10 million loss last year. Net income for the quarter was MXN 879 million, with earnings per share of MXN 0.29. We have a very strong balance sheet, which reflects solid cash generation. Total cash position at September 30 was MXN 14.3 billion. net debt to EBITDA ratio was 1.1 times, with a net debt to interest coverage of six times. For the last nine months, sales were flat, and we had a 23.3% EBITDA margin. Thanks. Back to Pablo.
In the short term, we expect uncertainty to be the norm.
During the fourth quarter and heading into 2022, we will have to contend with an economy that is rebounding but not quite recovering and a still very complicated cost environment. Mexico's economy has been losing momentum. Consumers are stretched because of the pandemic, and they're feeling the pinch of inflation. As the economy continues to reopen behind an improving labor market and strong remittances, domestic consumption should improve, albeit slowly. On the cost side, given supply-demand imbalances and increased logistical costs, we will continue to face significantly higher costs in basically all raw materials. At this point, it is not clear when we might see some meaningful relief. Overall, without an important change in trend, given how much and how quickly they've risen, all raw materials will be significantly higher during the fourth quarter and into the first half of next year. What are we doing?
We are focused on achieving greater price realization, accelerating our innovation pipeline, increasing CapEx focused on product improvement and cost reduction, and stepping up our productivity and cost reduction efforts. On the price realization front, we have already announced additional price increases averaging 7%, which will start to be implemented at the end of this quarter and show their full effect late in the first quarter of 2022. Given that the third quarter increase is in the midst of being reflected, that consumption is not strong, and given the competitive environment, we expect it will take longer for this additional increase to be fully reflected and help absorb some of the cost increases. In addition, we'll be leveraging our revenue growth management models to invest more effectively behind our brands.
To support our volumes as we further increase prices, we are accelerating our innovation efforts in all categories, and we are confident that 2022 will be a very strong year in that regard. The new and improved products, together with strong investments in our brands, will help strengthen our position in the different channels and tiers. Another key component behind our strategy will be increased CapEx in the coming years to incorporate new state-of-the-art technology, improve our footprint, increase capacity and efficiencies, and reduce costs. This investment, which will also support our innovation efforts, will bring about strong savings next year. We plan to provide more details on all these plans early next year.
As we move into 2022, better price realization together with our plans on innovation and investments behind our brands and CapEx to improve efficiencies and accelerate cost reductions, will set the stage for a much stronger year with a solid path towards growth and margin recovery. Thank you all for participating on the call, and we will now take your questions.
Our first question comes from Ben Theurer with Barclays.
Hey, good morning. I hope you can hear me.
Yes, we can hear you, Ben.
Okay, perfect. Well, first of all, thank you very much for all the details and the clarification you gave towards the end in terms of what you expect on the pricing side and how these prices are going to come through. On the other side of the equation, and you've mentioned it at the beginning of the call, obviously, cost was significantly up during the quarter, and there were certain items that really were significantly 100% plus up compared to last year. Could you give us a little bit of a preview how that current level you've seen in the third quarter actually runs into the fourth quarter? Just to understand a little bit, is that cost pressure is going to be the exact same, if it's actually getting worse, or if it's getting slightly better? How do you feel currently about that cost environment?
That would be my first question.
Thanks, Ben. It's a very good question and, unfortunately, a difficult one to answer because there's been a lot of uncertainty around this throughout the year. The predictions early on in the year reflected that the prices were going to go up in some of the raw materials, but as the year progressed, costs were going to start to come down. Certainly, that hasn't happened. On the contrary, every new prediction seems to put the rate a little bit higher. Let me go through a little bit the detail of this. What we're expecting for the fourth quarter is that pulp prices will start to come down slightly. This is an interesting one because inventories are really high out there in the market.
Given all the logistical difficulties in getting pulp around the world, its prices have not yet reflected decreases, but we expect a little bit. Again, I'm saying slight decreases in the fourth quarter. At some point, as things start to normalize, we expect that there will be more relief there, given the very high inventories that we see on the pulp side. When it comes to recycled fiber, we will see a little bit more pressure in the fourth quarter versus the third quarter. This has to do with, to some extent, with pulp. Until we start to see pulp coming down, before that happens or until that happens, sorry, then people will continue to try and use recycled fiber to supplant pulp. The pressure behind recycled will continue to be there.
Again, pulp slightly down in the fourth quarter, recycled slightly up in the fourth quarter versus the third quarter. When we talk about resins, we also expect to see slight decreases. Then, of course, these are the materials that have had the higher increases throughout the year, over 120% up in the market. We'll see very slight decreases in the fourth quarter. There's capacity, there's volume out there, but again, all the supply and demand imbalances, plus logistical issues, are not allowing the market to normalize and so that we can see further decreases. We expect that to happen at some point in next year. Then super absorbing materials will be pressured in the fourth quarter. A mixed picture coming in the fourth quarter versus the third quarter.
Again, as things start to come together, we expect some relief in next year, but it's hard to tell when and by how much, given all the uncertainty behind the different elements that impact this.
Okay. In summary, fair to say most likely very much a similar gross margin environment into 4Q as what we saw in 3Q. Very long term, I mean, that's obviously a massive pressure and we've been seeing this like 600+ basis points down on gross margin, and I am very sure you are not happy with that slightly below 20% EBITDA margin, having been used to more like mid to high 20s. If we think a few years out, how many pricing cycles do you think you need in combination with some easing cost pressure to actually gain those margins back? Is that a thing maybe we should consider 2023, 2024, to snap back or to the old levels? What would be the condition to get there?
Really hard to tell, again, because there are so many variables coming into this. One, raw material costs. Two, what happens with the logistical or supply chain issues. Three, the exchange rate, and four, prices and of course then our cost reduction efforts. It's hard to tell. Of course, the biggest issue we will have to deal with how fast and when raw material prices start to come down. That's really the biggest impact. If we start to see some relief next year together with our price increases and our very aggressive investment to improve our products but also to reduce our costs, we will certainly see much better margins in 2022, and that's what we're expecting. Again, a lot of variables in the mix, so it's hard to tell exactly at this point when we'll get back to normal.
Okay, perfect. I'll leave it here, and thank you very much.
Thank you, Ben.
Our next question comes from Jens Spiess with Morgan Stanley.
Yes. Hello, Pablo and Xavier . I hope you're well as well. I just wanted to ask regarding the 7% price increase, how have been competitors reacting to that given that the consumer environment is still quite weak? Also, if I may, to your second question regarding the Professional division, which performed quite well this quarter. I was wondering how much that impacted your whole price mix. In other words, how much did you actually increase prices, for example, at the consumer division, excluding the Professional? Thank you.
Thank you, Jens. On the question of the price increase, we very much just announced that price increase into the market a couple of weeks ago. A little early to say what the competitors might do. We've heard, particularly in the diaper front, that the participants in that market might also be increasing prices, but nothing certain at this point. On the tissue side, we have not heard so far. Again, early in the stage of implementing this. Now, as I mentioned, it is important to consider that we're coming off implementing a 3%-4% price increase, and that given conditions in the market, we do expect the implementation of that 7% to take longer than it normally would. We don't expect that 7% to be fully reflected until late first quarter or early second quarter next year.
As we always do, we will be very aware and cognizant of what's happening in the market, both in terms of consumer reaction and certainly competitive reaction, and will react accordingly. This is unprecedented. We all have the same cost pressures, so you would expect that others having the same cost pressures would also move eventually. We'll see when that happens. Early to tell at this point. When it comes to Professional, well, we know our Professional business is recovering nicely. We still have some room to go. If the economy continues to recover as it is right now, in particular in the U.S., as that gets into the fourth quarter, and we get some more people coming out and tourists coming to Mexico, et cetera, that business will continue to grow and do better.
We're also increasing prices on that business, overall, that business has lower margins than our consumer products business. To the extent that one grows better or more than consumer products, it certainly has an impact on our mix and our margins.
Okay. Thank you so much.
Thank you, Jens.
Our next question comes from Miguel Ulloa with BBVA.
Hi, good morning, and thanks for taking my question. Regarding the electricity bill that is being discussed in Congress, do you have any idea of how this will play in Kimberly's numbers so far? Thank you very much.
Thanks, Miguel. No, we, of course, are following this closely and are analyzing what it would mean, but we have nothing to mention at this point, and we'll see what happens with the law going forward, whether it can pass Congress or it doesn't pass. We'll see what happens.
Understood. Thank you very much.
Our next question comes from Robert Ford with Bank of America.
Hey, good morning, everybody, and thank you for taking the question. Well, Pablo, you mentioned innovation and ad support in conjunction with pricing. Are there elements of your innovation and differentiation pipeline that you can share? How should we think about the A&P budget going forward as you move on price?
Hi, Robert. Thanks for being on the call and thank you for your question. As I mentioned, we will share more information early on next year, both on the innovation side and our CapEx efforts. Again, I mentioned, pursue quite a few things, among them bringing more state-of-the-art technology, improving products, reducing costs, and improving efficiency. We will share a little bit more about this early in the next year. We'll provide more details. A little early to go ahead and do that at this point. Of course, we want to be careful with our competitive position and what we say right now. You'll hear more about this early next year, and we'll provide all the detail you need.
The only thing that I'd probably add is that as you can see, CapEx is already ramping up from what we have seen the previous two years, and this is a trend that will continue in the coming quarters and years.
No, that's very helpful. Thank you. December's always a little bit difficult, right? It's more promotional. There's and all the competitive responses. Can you talk a little bit about the noise over the course of the summer and maybe how your mix is evolving with all this pressure on disposable income right now?
Sure. Look, just as you mentioned, Bob, some promotional season always brings about a lot of noise. We didn't see anything during this season that was different from what we've seen in the past, which I think is an important point. What we believe is that same as we expected some relief or some stabilization of costs, that's probably what the market was also expecting. Again, it didn't happen. On the contrary, we've seen costs continue to rise. When that happened, I think we all were not able to cut or bring back the promotions that we have already committed to in the third quarter. There's certainly some of that happening, as you clearly pointed out in your reports, Bob, particularly on the tissue side.
It remains to be seen as we all now have more information and we see what's happening with the cost environment going forward, how everyone reacts and how everyone moves forward with good pricing and good promotions and et cetera. I mean, just trying to figure out how we all go about trying to absorb some of these costs. On the consumer side, again, there's certainly a recovery of the Mexican economy, there's no doubt about that. It's very uneven. It seems to be more of a rebound so far than a recovery. You've seen some of the numbers and the economy is losing momentum and some of the most recent numbers behind what third quarter GDP will be, which will be pretty much in line with second quarter, and particularly consumption when you take a look at wholesale and others.
I mean, it seems that it certainly is losing momentum because consumers have felt the pinch of both inflation and their financial stretch, because during the pandemic, they really had to go in and grab some of their savings to make front to the situation. A somewhat subdued consumer environment overall, a somewhat uneven recovery between the categories that compare to low volumes last year versus categories to compare with the panic-stricken volumes last year. It's a lot of unevenness out there and difficult to say where we head from here. Again, we expect that hopefully with the reopening and remittances, the economy will little by little improve. We expect that as everyone sees what's happening with the raw materials and the cost environment, that we will all at some point move forward. We'll see how this evolves. Bob, I hope that helps.
No, it's very helpful. Thank you. Thank you both very much.
We'll take our next question from Mohammed Ahmad with FGP.
Hi, guys. Thank you very much for taking my question. Hope everybody is well. A couple of questions here. They might be repetition because I had some trouble hearing some of the answers. Could you tell me what the consumer segment volume was or did in the quarter Q3?
Sure, Mohammed. Good to have you here. Volume was down 3%, price was up 3%, and mix was down 1%.
Sorry, mix was down 1% and price was up 3%, you said?
Yes. Volume down 3%, price up 3%, and mix down 1%.
Okay. That's great. Thank you. Just to confirm, you said electricity pricing was up 90%?
Sorry?
When you talked about raw material cost increases, I missed two of them. One was the recycled material price increase in the quarter, and then you talked about, I think, energy and electricity prices, and I couldn't quite clearly hear that.
Yes, energy and natural gas convert negatively with natural gas being above 90%.
Okay.
90 .
Okay. Got it. What about the recycled fibers?
Recycled fibers for the quarter were up high single digits.
Okay. That's great. Just wanted to confirm that. Thank you very much, guys.
Thank you, Mohammed.
We'll take our next question from Ulises Argote with JP Morgan.
Hi, guys. Good morning. Thanks so much for the space for questions here. A follow-up first on the pricing side. Any color you can share here on the pricing strategy ahead, how do the negotiations work in the retail channel for you guys? Are there any restrictions or limits here on how much price can you pass on at once or anything on this regard? That would be super helpful. The second question I had was just maybe if you can share also some thoughts there on reactivating buybacks at these levels. Thank you.
Sure, Ulises. On the pricing, I mean, there's really no hard set restrictions. Of course, we have to take a look at what's happening with the consumer environment and decide how far and how much we can do. There's really no restrictions out there, specific restrictions out there to move on pricing.
Ulises, in terms of reactivating buybacks, we usually don't comment on the strategy on the short term. What I can tell you is that we have authorized for the year MXN 850 million, and we still have most of that on our arsenal.
Perfect. Thank you so much. That's really helpful. Thank you, guys.
You're welcome.
Our next question comes from Rodrigo Alcántara with UBS.
Hi. Good morning, guys. Thanks for taking my questions. I have two questions, if I may here. The first one on the consumer products, the breakdown that you just gave, Pablo. I remember last quarter when we discussed about the impact of COVID-related products. We were discussing this about, you know, you were experiencing here tough comps versus 2020 and in part responsible of the low volumes there. Just curious in this quarter, how you saw that breakdown, I mean, COVID-related products and non-COVID. Just thinking, perhaps 2022, if it would be fair to say that perhaps we could see some volume acceleration as these categories stabilize. Just curious about your thoughts about this. My second question would be related to the outlook that you have for the export segment.
Do you think that 2022 could be a year where exports could be growing strongly, similar to the numbers that we have seen? Just curious about your thoughts about the export segment. That would be my two questions, Pablo. Thank you.
Thank you, Rodrigo. Thanks for being here for the questions. There is still some impact on COVID-related volumes or products from last year. It's not as big, certainly as it was in the second quarter, but it still had a little bit of an impact, probably one to two points in terms of sales. It really comes behind a little bit on the tissue side, but mostly for this quarter on products that we put out there for hygiene and health, with that I'm referring to antiseptic gels and wiping products and aerosols, et cetera, which continue to perform well, but certainly not at the levels that they did last year when sales of those products were much, much higher. In comparison, it is still having a little bit of an impact, but certainly not as much as it did in the second quarter.
We expect that impact to continue to trickle down into the fourth quarter and then for next year, of course, it won't have an impact. When it comes to the exports and the outlook, hey, we're very bullish on our export business. We're doing very well behind the sales of our finished product, particularly to our partner, Kimberly-Clark Corporation, both in the U.S., but also Latin America and other parts of the world. As I've mentioned before, we've been partnering with them to understand what's the best, more efficient, more cost-effective supply chain. They've seen in us a reliable, low-cost, high-quality partner, and that's why we continue to be a bigger part of their supply chain. It continues to look good. We believe it will continue to grow in the fourth quarter and into next year.
Okay. That's great. Thanks for answering my questions, Pablo.
Thank you, Rodrigo.
Our next question comes from Luis Willard with GBM.
Hi, guys. Good morning. I apologize if I ask something that you've already answered, but I'm having lots of connection issues. You mentioned in your remarks, Pablo, these are unprecedented times, and I'm sure they are. If it is tough for yourself, I cannot imagine what the smaller competitors are going through. My question is, have you seen market participants reducing their offering or their participation in certain categories or marketing that could form some potential market share gains once it evolves, settles afterwards?
Not so far, Luis. Again, we're just coming off the third quarter on summer promotion season. That's always a very highly promoted, very aggressive season when it comes to pricing and promotions, et cetera. The season was pretty much in line with other seasons. Again, we were all expecting, I think, that in the second quarter coming into the third quarter, that we would start to see some of the input cost increases. We had our plans in place for the summer season, and at least we couldn't stop much of what we had already committed to with clients. A little bit of noise there because of the summer season. We'll see how everyone reacts in the fourth quarter and going forward as we continue to see pressures on the raw material side. We'll learn as we go.
All right, Pablo, thank you. Just maybe as a follow-up, in your experience, this is not the first time things get complicated. I think, participants exiting is something that you would expect in the coming months or quarters?
Sorry, Luis. We couldn't quite hear your question. Can you repeat it, please?
Yeah, sure. My question is, or the follow-up is, in your experience, would you expect market participants in the future, it's not happened yet, in the future exiting some categories or reducing their operations in the country?
No, I think what we expect, again, is that, given our experience, as you say, that they usually lag it, what we do. We expect that there will be some lag in interactions to increase our prices. We know that, and we'll be monitoring it and figure out how to respond. Again, given the very, very high increase in the raw materials that we described, we expect that eventually everyone will move. Now, that given the pressures, will someone walk out of the market? We don't expect that to happen anytime soon. We'll see how the scenario with the raw materials and pricing moves forward, and then we'll see what the competitors' reactions are going forward.
All right. That's great to hear. Thank you.
Thank you.
Once again, if you would like to ask a question, please press star one now. Okay, it appears we have no further questions at this time. Mr. González, I will turn the conference back to you for any additional or closing remarks.
Thanks, again. Thanks everyone again for participating on the call. We again apologize for the issues of our landline dropping a couple of times. Hope you were able to hear as well, and hope that we answered your questions. If for some reason that didn't happen, we are of course open to hearing from you, and we'll be glad to answer any additional questions you may have or any clarifications you want. Hope to hear from you. Have a terrific weekend. Thanks again for participating.
Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.