COCA COLA FEMSA SAB DE CV

Coca-Cola FEMSA is the largest franchise bottler of Coca-Cola trademark products in the world by sales volume, and in 2025 its sales volume represented approximately 12.3% ¹ of the total sales volume of the Coca-Cola system. The company produces and distributes Coca-Cola trademark beverages, offering a wide portfolio of brands to approximately 268 million ² consumers each day through approximately 2.1 million ³ points of sale, with more than 90,200 ⁴ employees and approximately 4.2 billion ⁵ unit cases sold per year. The industry is highly competitive, with competition based on brand recognition, product quality, price, packaging, effective promotional activities, access to retail outlets, customer service, marketing capabilities, product innovation, and the ability to identify and satisfy consumer preferences.

Primary competitors include local Pepsi bottlers, other bottlers and distributors of local beverage brands, and producers of low-cost B brands. In Mexico, the principal competitor is Grupo GEPP, the exclusive bottler of Pepsi beverage products. In Brazil, the company competes against AmBev, which distributes Pepsi brands and proprietary beer brands, as well as small local producers of low-cost sparkling beverages known as Tubainas. In Colombia, the main competitor is Postobón, a local bottler that also distributes Pepsi products. Competitive advantages include the strength of the Coca-Cola trademark portfolio, the scale of operations as the largest franchise bottler by sales volume, and the multi-category strategy that includes distribution of beer and other beverages.

The company generates revenue primarily through the production, marketing, sale, and distribution of Coca-Cola trademark beverages, including sparkling beverages, waters, and other non-carbonated beverages, as well as certain alcoholic ready-to-drink beverages. Revenue is transactional in nature, derived from sales to approximately 2.1 million ⁶ points of sale across nine countries. The business model also includes distribution agreements for third-party products such as Monster energy drinks, Heineken-owned beer brands, and other alcoholic beverages, enhancing the value proposition for retailers and generating network effects that strengthen the platform.

The product portfolio is dominated by Coca-Cola trademark beverages, with the Coca-Cola brand together with its reduced- or no-sugar products accounting for 60.3% ⁷ of total sales volume in 2025. Sparkling beverages represented 74.7% ⁸ of total unit case mix in 2025, still beverages 8.3% ⁹, and water 17.0% ¹⁰. The company offers a variety of packaging formats including returnable and non-returnable glass bottles, cans, and plastic bottles made primarily of PET resin, with presentation sizes ranging from 192-milliliter personal sizes to 20-liter bulk servings. In addition to core Coca-Cola products, the company distributes beer and spirits in certain markets, with total revenues for beer amounting to Ps. 5,328.0 million ¹¹ in 2025.

The Mexico and Central America segment generated total revenues of Ps. 169,641 million ¹² in 2025, with gross profit of Ps. 81,234 million ¹³ representing a 47.9% ¹⁴ gross margin. The South America segment generated total revenues of Ps. 122,105 million ¹⁵ in 2025, with gross profit of Ps. 51,942 million ¹⁶ representing a 42.5% ¹⁷ gross margin. The company operates 55 ¹⁸ bottling plants and 256 ¹⁹ distribution centers across its territories.

During 2025, the company issued US$500 million ²⁰ aggregate principal amount of 5.100% senior notes due 2035. The company also paid dividends totaling Ps. 15,735 million ²¹ during the year. Capital expenditures, net, were Ps. 26,765 million ²² in 2025, focused on increasing production capacity, distribution capacity and efficiency, placing coolers with retailers, returnable bottles and cases, and information technology.

Consolidated total revenues increased 4.3% to Ps. 291,746 million ²³ in 2025 from Ps. 279,793 million ²⁴ in 2024. Gross profit increased 3.4% to Ps. 133,176 million ²⁵ from Ps. 128,736 million ²⁶, with gross margin decreasing 40 basis points to 45.6% ²⁷. Net income attributable to equity holders of the parent was Ps. 23,845 million ²⁸ in 2025, compared to Ps. 23,729 million ²⁹ in 2024, a 0.5% increase. Basic earnings per share were Ps. 1.42 ³⁰ in both 2025 and 2024.

The company has budgeted capital expenditures in an amount ranging between 7.0% and 7.5% ³¹ of total revenues for 2026, primarily directed toward strengthening infrastructure including investments in manufacturing, distribution, and assets that increase market presence such as coolers and returnable bottles and cases, coupled with investments in information technology. Of the projected capital expenditures for 2026, approximately 41.6% ³² will be for Mexican territories and the remaining for non-Mexican territories.

The company is focused on growing the core business by capturing growth opportunities for the Coca-Cola portfolio across markets and channels, accelerating the growth of Coca-Cola Zero across territories, improving competitive position in flavors, developing growth opportunities in low per-capita markets, and accelerating growth of profitable non-carbonated beverage categories. The company aims to capitalize on the AI capabilities of Juntos +, its omnichannel commercial platform, and continue to roll out Juntos + Advisor, its sales force tool, across markets, leveraging a curated portfolio of brands together with The Coca-Cola Company and a multi-category portfolio.

The company aims to pursue value-enhancing acquisitions, leveraging a disciplined approach, and to increase manufacturing and distribution capacity while implementing best-in-class logistics and distribution enablers. The company also aims to promote a growth mindset, fostering a customer-centric and psychologically safe culture, building a multiplier leadership style and empowering leaders to develop its people.

The company's gross margin decreased 40 basis points in 2025 to 45.6% ³³, driven mainly by higher promotional discounts and an unfavorable mix, coupled with higher fixed costs such as labor, partially offset by lower sweetener costs and revenue growth. Administrative and selling expenses as a percentage of total revenues decreased by 10 basis points to 31.4% ³⁴ in 2025, mainly driven by a decline in freight and marketing expenses, partially offset by higher labor and depreciation.

The company's capital expenditures, net, were Ps. 26,765 million ³⁵ in 2025, focused on increasing production capacity, distribution capacity and efficiency, placing coolers with retailers, returnable bottles and cases, and information technology. The company has budgeted capital expenditures in an amount ranging between 7.0% and 7.5% ³⁶ of total revenues for 2026.

The company paid dividends totaling Ps. 15,735 million ³⁷ in 2025. For fiscal year 2025, the company declared dividends of Ps. 1.935 ³⁸ per unit, payable in four installments in 2026. The company issued US$500 million ³⁹ aggregate principal amount of 5.100% senior notes due 2035 during the second quarter of 2025.

Total sales volume decreased by 1.8% to 4,150.4 million ⁴⁰ unit cases in 2025, driven mainly by volume decline in Mexico, Colombia, and Panama, partially offset by volume growth in the rest of the territories. Sales volume in Mexico decreased by 5.2% to 2,013.6 million ⁴¹ unit cases as a result of macroeconomic deceleration and the temporary effects of negative brand sentiment at the beginning of the year. The company faces headwinds from currency volatility, with the average depreciation of the Brazilian real relative to the U.S. dollar of 3.7% ⁴² and the Mexican peso of 5.1% ⁴³ in 2025 as compared to 2024.

The company faces structural headwinds from regulatory developments, including new excise taxes in Mexico effective January 1, 2026, with the excise tax on beverages with added sugar and HFCS increasing to Ps. 3.0818 ⁴⁴ per liter and a new excise tax of Ps. 1.50 ⁴⁵ per liter for beverages containing non-caloric sweeteners. In Colombia, the excise tax for beverages with 5 to 9 grams of added sugar per 100 milliliters increased to 40 Colombian pesos ⁴⁶ and for beverages with more than 9 grams to 68 Colombian pesos ⁴⁷ as of January 1, 2026. The company also faces risks from the depreciation of local currencies relative to the U.S. dollar, which increases the cost of raw materials paid in or determined with reference to U.S. dollars, and from the potential for hyperinflationary accounting treatment in Argentina.

The company's business depends on its relationship with The Coca-Cola Company, as substantially all sales are derived from Coca-Cola trademark beverages, and concentrate prices are determined by The Coca-Cola Company as a percentage of the weighted average retail price. The Coca-Cola Company indirectly owned 27.8% ⁴⁸ of outstanding capital stock as of the date of the report, representing 32.9% ⁴⁹ of capital stock with full voting rights, and FEMSA indirectly owned 47.2% ⁵⁰ of outstanding capital stock, representing 56.0% ⁵¹ of capital stock with full voting rights. The company faces significant currency risk, as 74.9% ⁵² of total revenues were attributable to Mexico and Brazil, and raw material prices for PET resin, aluminum cans, and HFCS are paid in or determined with reference to the U.S. dollar. As of December 31, 2025, variable rate funding constituted approximately 26.1% ⁵³ of total debt. The company identified a material weakness in IT general controls over financial accounting, concluding that internal control over financial accounting was not effective as of December 31, 2025. New excise taxes in Mexico effective January 1, 2026 increased the tax on beverages with added sugar to Ps. 3.0818 ⁵⁴ per liter and introduced a new tax of Ps. 1.50 ⁵⁵ per liter for beverages containing non-caloric sweeteners.

Management's message emphasizes a long-term sustainable growth model with a refreshed vision to be customers' and partners' preferred commercial platform and ally for growth, fostering a sustainable future. The company has strengthened its longstanding relationship with The Coca-Cola Company by updating and enhancing four main objectives: growth principles, relationship economics, potential new businesses and ventures, and digital strategy. The six strategic priorities emphasized for the period ahead are: grow the core, be the preferred commercial platform, strategic M&A, de-bottleneck infrastructure and digitize the enterprise, strengthen customer-centric culture, and foster a sustainable future. Management has budgeted capital expenditures in an amount ranging between 7.0% and 7.5% ⁵⁶ of total revenues for 2026.