Excuse me, ladies and gentlemen. Thank you for your patience in holding. We now have our presenters in conference. Please be aware each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given for the procedure to follow if you'd like to ask a question. I'd like to now turn the conference over to Mr. Pablo González. Please go ahead.
Good morning. 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 the details behind the numbers. During the quarter, we faced three distinct challenges. The comparison to last year's COVID sales, 4E continued recall, and raw materials-related cost pressures. As you all know, last year's second quarter sales were atypical since some of our businesses saw a boost from the pandemic, particularly 4E, but also exports and some consumer health-related products, while others experienced a severe contraction, mainly Away From Home. 4E deserves specific attention since it had extraordinary export sales and profits during that period.
If you add to that the fact that it is currently facing the continued costs of the recall of some of its products, the corresponding impact to our consolidated results is very significant. That is why, for purposes of clarity and to facilitate the analysis, we provided more information on our press release and are ready to discuss it with you today. With respect to cost pressures, we experienced high and rapid price increases in most of our raw materials. This is not unique to our industry and it is certainly unprecedented. A combination of increased demand due to strong global economic growth, some speculation, and the supply chain and distribution bottlenecks have caused big disruptions. We expect this will correct itself, but it is hard to say when. In the meantime, the increased costs are upon us while measures to deal with them take some time to implement.
Having said that, excluding 4E , our EBITDA contraction was in the low single digits, and we maintained healthy margins. We're not happy with the quarter results, but we believe that given the above-mentioned circumstances, the adjusted results clearly reflect the underlying resilience and strength of our business. Let me pass it on to Xavier.
Good morning. Given the impact of 4E in the quarter results, particularly when compared with last year, on this occasion, we presented results excluding this business, and I'll provide more details on both the consolidated as well as the segregated numbers. Let me start with the underlying business results. During the quarter, our sales were MXN 11.3 billion, a 3% increase versus the second quarter of 2020. Volume was stable with better price and mix. Consumer products, again, not including 4E, grew 1% as we continued to face a slow consumer environment. If we exclude from 2020 the one-time sales related to the COVID-19 pandemic, namely antibacterial soaps, cleaning sprays, surface wipes, hand sanitizers, and face masks, consumer products grew 4%. Away From Home product sales increased 50% as they compared with their weakest quarter last year when most of the economy was shut down. Export sales decreased 9%.
The contraction comes from lower parent roll sales. Exports of finished products continue to grow and are expected to double total 2020 sales, despite exceptional sales of tissue finished products last year, as we supplied a large volume to Kimberly-Clark to help them cope with the surge in demand. Cost of goods sold increased 5%. We continued to face rapid and unexpected cost increases in most of our raw materials. Against last year, pulp, domestic recycled fibers, fluff, super-absorbent materials, resins, energy, and natural gas compared negatively. Particularly damaging has been the very strong rise in resins and super-absorbent material prices. Only imported recycled fibers compared positively. The FX was lower, averaging 13% less. Our cost 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 improvements and process efficiency. Gross profit increased 3%, and margin was 35.3% for the quarter. SG&A expenses were 2% lower year-over-year and down 60 basis points as a percentage of sales. Operating profit decreased 4%, and the operating margin was 20.1%. We generated MXN 2.7 million of EBITDA, a 4% decrease, and EBITDA margin was 24%. Let me now talk about the consolidated results. On a consolidated basis, during the quarter, our sales were MXN 11.7 billion, a 5% decrease versus the second quarter of 2020. Volume decreased 6%, and price and mix grew 1%.
With respect to 4E, the sales comparison is particularly challenging, as last year they sold a very large volume of sanitizers in the U.S., and sales this year are still impacted by the effect of the product recall. Given the recall, not only 4E is not selling in the U.S., but we are creating provisions that further affected this year's sales, which were lower by more than MXN 900 million and decreased 80%. Gross profit decreased 14%, and margin was 34.5% for the quarter. SG&A expenses were 5% lower year-over-year and flat as a percentage of sales. Operating profit decreased 21%, and the operating margin was 19%. EBITDA decreased 18%, and the EBITDA margin was 23.2%. Cost of financing was MXN 452 million in the first quarter, compared to MXN 401 million in the same period last year. Net interest expense was 24% higher as we have additional debt.
During the quarter, we had a MXN 4 million foreign exchange gain, which compares to a MXN 33 million loss last year. Net income for the quarter was MXN 1.2 billion, with Earnings Per Share of MXN 0.40. We have a very strong balance sheet, which reflects solid cash generation from EBITDA. Our total cash position at June 30 was MXN 14 billion. Our net debt to EBITDA ratio was 1.1 x, with an EBITDA to net interest coverage of 7x. Thank you.
We hope we've provided greater clarity behind second quarter results, and we'll be happy to answer any additional questions you may have. Before doing so, let me make a few comments on the second half of the year.
In the short term, although we will still face some COVID-19 top-line headwinds, the toughest comparisons are behind us, and continued impacts related to 4E recall will be smaller. As the Mexican economy reopens and domestic consumption improves based on a recovery of jobs and strong remittances, our domestic sales should improve both in the consumer and Away From Home businesses. Sales of finished product exports will continue to show strong growth, and for the year will be double those of last year. On the cost side, on a year-on-year basis in dollars, the second half will present negative cost comparisons in almost all raw materials, with very significant increases in energy and resins and superabsorbent materials. Industry publications point to the fact that many such raw material prices will peak in the third quarter before tapering during the fourth quarter, year-on-year comparisons will continue to pressure margins.
To address this situation, we will be implementing price increases in the coming months averaging 4% to 5%. We'll accelerate our efforts to achieve greater price realization, operate ever more efficiently, leverage raw material purchasing contracts, and accelerate cost and expense reduction efforts. We expect top line to strengthen and margins to remain under pressure while raw material costs come off their highs and our price increases take effect. Our business fundamentals remain strong, and as we use this period to push further and harder to achieve efficiencies, we are certain we will come out stronger and better positioned for what lies ahead. With that, let me open it up for questions, and thank you all again for participating on the call.
Thank you. At this time, we will open the floor for questions. Could you like to ask a question please press star key followed by the one key in your touch tone phone now. Again, you may press star one now. Our first question comes from Ben Theurer with Barclays.
Hey. You and your families are all well and safe as well, so thanks for all the details. Two quick ones. You've talked about just now about the price increases you're targeting. We're in the usual summer promotion period. Could you elaborate a little bit of what you've been seeing more recently in recent weeks with some of the promotional activity in retail and by when you actually plan to implement some of those price increases to get a little bit of a feeling when we should expect those to actually kick in? Is it already in 3Q, or is this more a 4Q event? That would be the first question.
Thanks, Ben. Thanks for the question, and likewise hope you and your family are doing okay. Look, the summer promotional season has been pretty similar to last year and prior years. What we are expecting is that as the summer tapers out, that we will be able to implement our price increases. You should be seeing, or we should be seeing a little bit of a price increase late in this quarter, particularly September. Mostly we will see the impact during the fourth quarter.
Basically, with that in mind, we should really expect that the margin compression is most likely going to peak in 3Q because you've said that the raw material costs would you expect to be peaking into 3Q and then easing off a little bit into 4Q. Now, with those raw material pressures in mind and the cost cutting, could you give us a little more guidance or at least directional guidance, how much of incremental cost savings you see within the organization and what you think you can realize over the next couple of quarters?
Sure. Look, again, industry publications point to the fact that costs should peak in the third quarter. This has been changing almost every week.
It's been unprecedented, the rise that we've seen, and hopefully we'll see a correction that's equally important on the downside. So far that's not the prediction. The prediction is that it'll peak in the third quarter and start to taper in the fourth quarter. Yes, we'll continue to see some pressure in the third quarter and hopefully by fourth quarter, we'll have not only our price increases, but we're working very hard to price. We have greater price realization. That together with increased focus on savings, as you just mentioned, should help us bring our margins back up late in the year. When it comes to savings, I think you should at least expect the same amount of savings that we've been able to deliver in the first and second quarter of this year.
We're certainly working hard to see what else we can bring to the table.
Okay. Perfect. Thank you very much.
Thank you.
Thank you. Thank you. Our next question comes from Juan Guzmán with Morgan Stanley.
Yes. Hello. Thank you for taking my call. I just want to ask how much upside do you still see for the recovery on Away From Home going forward? Also, if you could elaborate on the 4E impact, how much ballpark figure was impacted by high comps, and how much of it was related to the recall of the product? Thank you.
Hi, Juan. Well, first on Away From Home, we can still expect more growth. I mean, the 50% increase from prior year, that number still leaves us short of where we were pre-pandemic. As the economy continues to reopen and Mexico's economy recovers, we expect that growth to continue going forward and reach not only pre-pandemic levels but be higher than that given some of the new product that we've launched in that area. When it comes to 4E, let me put it this way. Normally, 4E sales are roughly MXN 300 million in a quarter. Last quarter, they were over MXN 1.1 billion. Of that, most of it had to do with just sales that were lost. The recall is about MXN 100 million for the year.
Okay. That's very helpful.
The cost of it.
Yes. Thank you.
Thank you, Juan.
Thank you. Again, I'll remind if you would like to ask a question. Our next question comes from Nicolás Larrain with JP Morgan.
Good morning, Pablo, Xavier. Thank you for taking my question. I wanted to ask you guys about how you're seeing the underlying trends in excluding 4E during these recent months. You guys mentioned down around 3% excluding 4E in the second quarter. I want to understand how you're seeing these during the last few months. Thank you.
Hi, Nicolás. Yeah, let me just come back to 4E for a second. I mentioned in the sales, if we take a look at the EBITDA 4E, quarter-over-quarter, there was a difference of almost MXN 500 million. Again, the impact was very important for the quarter. Going forward, what do we see underlying? The domestic demand in Mexico is still not very strong, but there is growth. Again, we expect domestic consumption to pick up as the economy reopens and gain some steam behind job growth and remittances. I think we can expect growth going forward of, I don't know, I'm going to say roughly 3% to 5% going forward given domestic consumption.
When you consider the sales of consumer products for the quarter, which were up 1%, but when you account for the fact that we also had COVID sales last year, and you adjust for that, we were again, as Xavier mentioned, above 4%. We're comfortable with where our brands are and our shares are. Hopefully with more growth with the economy, we can increase our growth as well.
That'll be good. Thank you, Pablo.
Thank you, Nicolás.
Thank you. Our next question comes from Rodrigo Alcantara with UBS.
Yeah. Hi. Good morning, guys. Thanks for taking my question. Just a quick one here, if I may, given we've strengthened already. You reported a 1% mix increase this quarter, right? If I'm not mistaken, during last conference call, you mentioned about a price increase of 4% for this year. I was wondering if you can help me and translate this previously announced 4% price increase versus the reported 1% in this quarter. I assume most of it had to do with product mix or the recall, but just if you can help me understand this. The second question, very quickly, if you can just repeat that's interesting about the consumer products growing 4% excluding these COVID-related products.
If you can repeat it as well, like what were those products, and what are the latest dynamics that you have seen on these products that may support consumer growth for the rest of 2021? That would be my two questions. Thank you.
Thank you, Rodrigo. Yes. As you know, we talked about pricing in the last quarter. When you break down the numbers and you take a look at the consumer products for the quarter, again, 1% growth. That really comes from price and mix because volume was down. We did see some of that price certainly come into the market. It's just that it's not enough given the very rapid and unexpected increases in cost. Again, volumes are down, prices are up, and that's why we're seeing growth in consumer products. We expect volumes to recover as the economy reopens, and we hope that these new price increases will add to what we've done in the year and push us forward.
When it comes to the products that have to do with COVID, again, there was some increased sales last year on bathroom tissue, certainly not quite as big as it happened in the U.S., but there was an uptick last quarter in those products. Particularly, the increases had to do with antibacterial soaps, cleaning sprays, surface wipes, hand sanitizers, and face masks. Although all these products are above pre-pandemic levels, they certainly have come down significantly from where they were last year. There will continue to be a lag during the third quarter, given the comparisons to COVID last year. As we get into the fourth quarter and early into next year, they will be a positive. It's really just a time lag.
Again, we expect all of those categories to be higher pre-pandemic, but just not at the levels of the peak which was second and third quarter of last year. Hope that helps.
Sure does.
Thank you, Rodrigo.
Thank you. As a quick reminder, you may press star one now to ask a question. Our next question comes from Mohammed with SGP.
Hi, guys. Thank you very much for taking my questions. Good to hear that everybody is doing well. Just want to sort of confirm some of the numbers because the phone broke up for me a little bit. You said quarter-over-quarter, MXN 400 million EBITDA impact from 4E recall. Can you also confirm the revenue quarter-over-quarter impact? I know you gave those numbers, but I didn't quite catch them right.
Yes, Mohammed. Thanks for the question. When it comes to the revenue, the impact was a little over MXN 900 million. When it comes to the EBITDA margin, it was over MXN 450 million, close to MXN 500 million in impact. That's really most of it, Mohammed, yeah, that's for the quarter, and most of it has to do with the fact that last year both sales and EBITDA of Away From Home were really extraordinary for the company. It has less to do with the fact of the recall. There is some impact on the recall there, most of it has to do with just very high sales and profitability second quarter of last year for Away From Home.
S o sorry, these numbers are Q2 last year versus Q2 this year then?
Correct.
O kay. I understand. If you compare to Q2 2019, and if I look at the gross margin, obviously with the cost inflation, it is down quite a bit. Can you sort of give me a little color? Because you have gone through very high cost as well, and the worst your gross margin got was around this level, which is around 34%. I'm just trying to get a sense of, as you talk about more cost inflation into Q3, are we actually going to start seeing your gross margin hitting all-time or 10-year lows here, or this quarter sort of sets the floor?
Well, again, we certainly hope that this quarter is the lowest you will see. That we will see a little bit of pressure on some of the raw materials coming into the third quarter, a little more pressure on raw materials coming in the third quarter, particularly for pulp. We will see some better comparisons, even though versus last year, it will be very high. The comparisons will be better for resins and some other materials. Our initiatives on pricing and cost savings, we hope will be able to offset this impact in the third quarter, and that little by little, we will bring those margins up to the levels that we are used to. Again, in the second quarter, notwithstanding all these impacts, our EBITDA margin was 24%, which is very healthy and close to our 25%-27% long-term range.
We will work hard on the pricing front and on the cost reduction front to make sure those margins continue to tick up.
From that, the message seems to me, and again, I realize you don't do guidance or anything like that, but it does seem like that at least sequentially, things should improve from here. Pulps, your compares get easier, and sequentially, the cost inflation might not be as much as higher. Sequentially, not year-over-year.
Given what we see right now, Mohammed, that is the case. Again, this is changing, has changed so rapidly that we hope it changed for the better, and it helps us. It's very volatile at this point.
Yeah. No, I understand. That is unfortunately the case with the world right now. No, I just wanted to see how you're thinking right now, and I appreciate your clarity on that. Thank you very much.
Thank you, Mohammed.
Thank you again. Press star one to want to ask a question. Our next question comes from Jeronimo De Guzman with INCA Investments.
Hello, can you hear me?
Yeah. Now we can hear you.
O kay. My name is Jeronimo de Guzman from INCA Investments. I wasn't sure if you were talking about me. I had a question on, well, a few follow-ups just on the 4E. Just wanted to confirm, so is the recall impact done, and we're mostly going to see the comparison base effects in Q2, or are we still seeing some impact from the recall, going forward? Then I also wanted to confirm the numbers in your release because I'm seeing your EBITDA, with and without 4E is the same in your release. Just wanted to understand if that's correct.
Let me first take the one regarding 4E and the recall. The recall is still on the way, but most of the impact has already been put into the numbers. You will still see a little bit of an impact in the third and forth quarter, but it'll be much smaller than what we had to impact the results in the first half of this year.
I guess for the spectrum, that's correct, the EBITDA number is the same with and without 4E. The recall effect that 4E still has this past quarter basically neglected all of its profitability.
Okay. Got it. Okay. I guess another, just a follow-up on your cost pressures. I wanted to understand, I mean, you mentioned that you're going to, I forget how you said it, but leverage or kind of lean on your purchasing contracts. Just wanted to understand how we should think about those purchasing agreements. Have you been able to secure raw materials farther in advance? Have you been able to get bigger discounts than what we see in the market? Another question I had on the cost pressures was just on the energy and natural gas side. Just because I can get a sense of the oil derivatives and the pulp, but I'm not sure exactly what you're facing there. If you could give us a little bit more color on those as well.
On the purchasing contracts for some raw materials, we negotiated contracts back in October of last year that work throughout all of this year. We've used those contracts in some instances to secure raw materials, which has been a concern in certain areas. In others, certainly to minimize the price impact that you see out there in the market as a whole, given the discounts we negotiated. Those contracts have been very favorable for us and we will continue to leverage them, going forward, again, to get the volume we need and the best prices we can get. On oil and gas, oil seems to be tapering off a little bit and might be a little bit more stable after what the OPEC and OPEC Plus, as they call it, has agreed to.
Gas seems to continue to be pushing higher, and that's certainly having an impact. We have no hedges for those. We really have never had hedges on those, and we're just working through it and making sure we operate as efficiently as we can to use less gas, less energy, and have those increases affect the least they can our costs.
When you say energy compared negatively, is that energy and natural gas compared negatively, is that including also electricity costs are increasing for you? Can you confirm there's more or less natural gas, what kind of weight it has on your cost of goods sold?
Energy is not increasing significantly, like electricity. Natural gas is increasing significantly.
How much is that weigh on your costs, more or less? If you could give me a little color on that.
Total energy, including all of its components, is around 7% to 8%. Natural gas will be a small component of that.
Okay. Thank you very much for all the info.
You're welcome.
Thank you. There are no additional questions at this time.
Well, thanks again, everyone, for participating on the call. Hope you and your family stay healthy and safe, and we'll look forward to talking to you after the third quarter results. Hope you have a great summer.
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