Becle, S.A.B. de C.V. (BMV:CUERVO) Q3 2026 Earnings Call

0:00 Good morning, and thank you for joining Beckley's third quarter unaudited financial results call. During this call, you may hear certain forward-looking statements. These statements may relate to your future prospects, developments, and business strategies, and may be identified by your use of terms and phrases such as anticipate, believe, could, estimate, expect, intend, and similar terms and phrases, and may include references to assumptions. Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those in forward-looking statements.

0:50 Before we begin, we would like to remind you that the figures discussed on this call were prepared in accordance with International Financial Reporting Standards and published in the Mexican Stock Exchange. The information for the third quarter of 2026 is preliminary and is provided with the understanding that, once financial statements are available, updated information will be shared in the appropriate electronic formats. At this time, we would like to remind participants that your lines will be in listen-only mode until the question-and-answer session. Now, I will pass the call on to Beckless CEO, Mr. Juan Domingo Beckmann.

1:26 Good morning, everyone, and thank you for joining us today to discuss Beckless' third quarter 2026 results. In a quarter where the industry backdrop remained challenging, our business took a meaningful step forward, and we continue to strengthen our position in our key markets. In the U.S., the distributor transition continues to progress and the inventory rebalancing that came with it is behind us. In Mexico, we continue to outperform the market despite a deeper industry contraction supported by the resilience of our tequila portfolio and our disciplined pricing approach. In the rest of the world, consumer demand for our brands in EMEA and APAC continue to grow. with Tequila outperforming the wider spirits category in our priority markets.

2:17 Although our reported results for the quarter were affected by facing effects, our reported figures also reflect a demanding comparison base and the appreciation of the Mexican peso. Even so, our financial position remains solid and our balance sheet gives us the flexibility to continue investing behind our brands. We remain realistic about the environment. Consumers are still cautious, and competition is increasingly centered on price. But we entered the fourth quarter with a stronger commercial platform, clear priorities in every region, and confidence in our ability to return to sustainable, profitable growth.

3:02 With that, I will turn it over to Mauricio Vergara to walk us through Our US and Canada results in greater detail.

3:13 Thank you, Juan, and good morning, everyone. The third quarter marked an important milestone for the U.S. and the Canada business. The distributor transition we outlined at the beginning of the year continues to progress, and the related inventory rebalancing is behind us. As a result, our performance continued to improve sequentially. Shipments declined 3% during the quarter, a significant improvement from the declines of 23.8% in the first quarter and 8.7% in the second. Depletions increased 0.3% versus the same period last year compared to the declines of 9% and 4.7% in the first and second quarter respectively. Notably, transition markets grew approximately 4.6% in the quarter, while non-transition markets declined approximately 3.1%.

4:04 With the stocking now behind us, the gap between shipments and depletions continues to narrow. Net sales declined 7.6% in U.S. dollars. From a category standpoint, the industry remains in contraction, and while the decline is less severe than earlier in the year, we're not yet seeing signs of recovery. According to S.A.B. source data through August, full strength spirits depletions declined 5%, with tequila down 3.1%. Within tequila, consumers are becoming more discerning, favoring brands that offer a stronger value proposition and strong craft credentials. Our portfolio is well positioned to benefit from this dynamic as we have strengthened the value proposition of some of our brands and continue to see growth in the ultra-premium segment.

4:53 Turning to consumer takeaway, Nielsen data for the 13 weeks ending September 26th shows Proximo Spirits volumes excluding prepared cocktails declined 1.8% against a 3.2% decline of the broader market, while our tequila volumes declined 0.8% versus 3.1% growth of the industry. Importantly, we added 10 basis points of volume share in our core full-strength spirits portfolio during the quarter. Tequila remains our main area of focus. It is where our targeted promotional activity is concentrated. While it is early, the initial response is encouraging, with our tequila volumes growing 1.5% over the last four weeks, a sign that the trend is moving in the right direction.

5:41 When we isolate the markets least affected by the transition, the underlying strength of our brands becomes much clearer. In the NAVCA or control states, which are the most effective or reflective of true consumer pool, we have delivered share growth in total tequila in seven of the first eight months of the year. Turning to pricing, the environment remains highly competitive as average prices have come down across periods. Our approach has not changed. We are taking targeted actions to keep our price position aligned with key competitors, mainly through promotional depth and frequency rather than resetting frontline prices. We remain disciplined in our A&P, ensuring every dollar goes where it delivers the highest return.

6:29 Looking ahead, we expect shipments and depletions to remain closely aligned in the fourth quarter and our share performance to keep improving into 2027. While the industry remains challenging, our major markets are returning to growth and the steps we have taken position the business for sustainable long-term growth. I will now turn the call to Olga Limon to discuss the Mexico and Latin America results.

6:54 Thank you, Mauricio, and good morning, everyone. Turning to Mexico, the spirits industry remained under pressure during the quarter, and the contraction deepened in an increasingly promotional environment, with August being the industry's weakest month of the year in both volume and value. Against this backdrop, our portfolio continued to outperform the broader market. As in prior quarters, the clearest view of our performance excludes the Boost brand, which materially impacted our volume comparison during the quarter. On an organic basis, our volumes grew 0.3% in the quarter against our toughest comparison of the year, as volume grew 18.3% in the third quarter of 2025. Year-to-date, organic volume is up 3.7%.

7:40 Excluding boost, net sales value declined 6.4% in the quarter, and on a reported basis, net sales value declined 9.3%. According to NISCAN data through August, we continue to outperform the industry across every key metric. In total spirits, our volume declined 2.5% compared to a 6.6% contraction for the industry, while our value declined 6.1% versus an 8.9% for the market. Within Tequila, our volumes declined 1% while the category fell 3.5% and our value declined 5.5% against an 8.2% decline for the category. Once again, these results reinforce our leadership position in Mexico. During the quarter, our product mix was less favorable, reflecting the relative strength of our more accessible brands.

8:32 Across the industry, the decline is broadly based, reaching even the deluxe and prestige tiers, while more affordable products are falling at a slower pace. On a reported basis, our average price per case continued to benefit from the exit of Boost. From a pricing standpoint, competition intensified with some competitors discounting more aggressively in whiskey and most notably in the tequila segment, where our position is strongest. We have not made any structural pricing moves and our pricing positioning remains unchanged. In Latin America, results were mainly affected by timing, as part of the quarter shipments was delayed by weather conditions and shipped in early October, as well as by softer demand in Colombia. We remain focused on protecting value and further premiumizing our portfolio. With the market still contracting, our priority for the fourth quarter, the most important period of the year, is to keep inventories healthy.

9:26 Overall, the resilience of our Tequila portfolio and our pricing discipline reinforce confidence in sustaining our leadership across Mexico and the broader region. I will now turn the call to Shane Hoyne. Thank you.

9:41 Thank you, Olga, and good morning, everyone. Year-to-date Q3 Proxima continues to perform resiliently in the market. Despite increasingly challenging market conditions that have persisted through the year, we see the underlying demand for our brands remain strong. In Europe, the spirits market continues to decline at a mid-single-digit rate as consumers remain under pressure from increasing cost of living. Tequila, however, continues to grow despite the macro conditions affecting our industry. We are seeing strong depletion growth in European markets and taking share in our priority markets. In Asia, we see tequila continue to grow in value, supporting a healthier mix. This is further driven by distribution gains and strong consumer demand. Across Asia, Tequila outperforms other spirit categories and we see strong growth and share gains continue in our core markets.

10:29 In the Middle East, logistics disruptions prevented us from supplying the region during the quarter, but we remain confident in the long-term potential of this region for our super premium brands. In Q3, proximal depletions grew 2.9% whilst shipments declined minus 16. However, on a year-to-date basis, shipments are largely flat while depletions are up 1.1. As we have said before, shipments and depletions can move at different paces, but they tend to balance out over the course of the year. Inventory levels across the region remain healthy as we continue to balance our stock holdings. Tequila pricing remains very competitive with increasing depth and frequency of promotion activity across the region. We remain disciplined on price and we will continue to put healthy inventories ahead of short-term shipments.

11:14 From a category perspective, tequila continues to stand out in softer spirits market and our portfolio is capturing that demand. Looking ahead, the fourth quarter remains a key trading period for the region. Shipments and activations plans are in place to succeed. Overall, while the environment remains complex, demand for our brands is resilient, with share gains in key markets and tequila continuing to outperform the wider spirits category. We remain confident in the long-term opportunity for tequila across EMEA and APAC. I will now turn the call over to Rodrigo de la Maza, who will take you through the financial results.

11:51 Thank you, Shane, and good morning, everyone. I will now walk you through the financial results for the third quarter of 2026. The company reported a 15.3% decrease in consolidated net sales, reaching 9.3 billion pesos. This decline reflects unfavorable foreign currency effects from the appreciation of the Mexican peso against the U.S. dollar the third quarter of 2025. On a constant currency basis, net sales decreased 10.3% or 9.6% excluding boost, driven by lower volumes and unfavorable regional price mix. Gross profit decreased 22.8% in the third quarter to 4.7 billion pesos, while gross margin decreased from 56.1 in the third quarter of 25 to 51.1%.

12:49 The decrease in gross margin was largely driven by unfavorable foreign currency effects, an unfavorable geographic mix in a heavier promotional environment. This was partially offset by stable input costs. On a constant currency basis, the gross margin would have decreased 330 basis points from 56.1% to 52.8%, driven by net sales per case pressure. ANP expenses declined 6.6% in the quarter. On a year-to-date basis, ANP stood at 20.2% of net sales within our full-year guidance range of 19 to 21%. Distribution expenses decreased 8.2%, representing 4.8% of net sales.

13:37 SENA expenses increased 3.3%, representing 12.7% of net sales. Reflecting operational deleveraging driven by the decline in net sales value. Operating income decreased 64.4%, and operating margin contracted 1,660 basis points from 28.6% to 12%. The third quarter of 2025 included a 753 million peso gain in other income, mainly from the sale of boost and contractual settlements related to U.S. distribution agreements. Excluding non-recurrent gains from 2025, operating margin would have decreased 800 basis points from 21.7 in 2025 to 13.7 in 2026, adjusting for FX. EBITDA for the third quarter declined 57.9% to 1.5 billion pesos, An EBITDA margin contracted 1,600 basis points from 31.7% to 15.7%.

14:54 Excluding the 753 million peso gain in other income recorded in the third quarter of 2025, the EBITDA margin would have decreased 760 basis points from 24.8% in 2025 to 17.2% in 2026 on a constant currency basis. The net financial results recorded an expense of 256 million pesos compared to an expense of 24 million pesos in the third quarter of 2025. This variation was primarily driven by a foreign exchange loss of 152 million pesos, reflecting the depreciation of the Mexican peso against the U.S. dollars during the quarter. Compared to a gain of 188 million pesos last year, Partially upset by lower interest expense reflecting our reduced debt levels.

15:50 Third quarter consolidated net income decreased 84.6% to 633 million pesos, reflecting lower operating income and the gain from asset divestitures recorded in the third quarter of 2025. Excluding the gain from asset divestitures and other income recorded in the third quarter of 2025, Net margin would have decreased 790 basis points from 15.9% to 8% on an FX adjusted basis. Earnings per share were 18 pesos cents compared to 1.15 pesos for the third quarter of 2025. As of September 30th, 2026, cash and cash equivalents totaled 11.2 billion pesos, A decrease of 0.8 billion pesos compared to the prior year. While total debt was 19 billion pesos, a decrease of 2.3 billion pesos.

16:51 In the first nine months of 2026, the company generated 5.2 billion pesos in net cash from operating activities. Our balance sheet remains strong with adjusted net leverage of 1.3 times. within our target range of 1 to 1.5 times. The increase from 1.1 in the previous quarter mainly reflects the lower EBITDA of the last 12 months. Our capital allocation priorities are unchanged, investing in the business to support long-term growth, sustaining a consistent dividend, and preserving financial strength and flexibility. Finally, we are revising our 2026 guidance to meet single-digit consolidated net sales value decline on a constant currency basis.

17:42 I will now turn the call back to the operator for the questions and answers session. Thanks. Thank you. We will now conduct a Q&A session. If you would like to ask a question, please press the raise your hand button located at the bottom of the screen. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be given permission to speak. You will then be able to unmute yourself and ask your question. Our first question comes from the line of Nadine Sarwat. Please state your company name and ask your question.

18:18 Yes, hello. This is Nadine from Bernstein. My question is on rest of world for the third quarter. You called out shipment timing. Based on what you said for depletions, there seems to be around a 20 percentage point gap in the quarter between shipments and depletions. And in the prepared remarks, you also mentioned that some shipments will be happening in Q4. But then when you mentioned your nine month performance, it already sounded like shipments were close to depletion. So could you help us understand how we should think about Q4? Should we be expecting a sizable shipment tailwind or should shipments be closer to that 2.9% depletion that you mentioned? Thank you.

19:11 Hi Nadine, this is Shane Hoyne. Thank you for the question. Throughout the year we see that in certain quarters we have a gap between shipments and depletions and it tends to level out by each quarter. In quarter three, our depletions were strong. And in quarter four, we were already seeing in October a lot of the late shipments delays from September were picked up in October. So we are expecting a kind of a normalization of business in October as the shipments continue to balance out. We have a lot of plans in place to, you know, in our European markets, especially a high proportion of our business happens in October. and we are pretty confident that by the end of the year we will have normalized our shipments plan against what we expected. Our depletions will continue to grow as we see tequila continuing to grow in our markets as well.

20:06 So the performance in Q3 was a I would say it was a month by month phasing, shipment phasing issue rather than an underlying demand issue on the brand. And we expect that by the end of the year, we'll see a more normalized shipments and depletions profile in our business. And as I mentioned before, we are very confident of a strong depletion performance in Q4.

20:33 Got it. Are you able to provide any quantification of the shipments versus depletion? You know, I think a lot of people were hugely surprised by how big the gap was this quarter. And so should we be expecting a catch up in terms of shipments? So shipments exceeding depletions by a huge amount or them broadly being in line? And I know I'm harping on this, but it's only because I think that's what a lot of people have on their mind today.

21:02 Yeah, we should definitely see a catch up in shipments in Q4 that we're clear on. And because we have good foresight on that, we're already seeing in our Asian markets and in all of our European markets, our shipments are in place already for Q4 and some of them have departed. So our shipments will catch up. On our depletions, we remain bullish on our depletions profile. We've been performing ahead through the year on it. And I think that we will see slightly more favorable depletions and shipments in Q4 and as a year as a whole. We do try overall to keep our shipments and depletions quite close. We don't want to be building excessive inventory in the market. But as we remain very confident on our shipments, we expect that our depletions will outperform shipments by the end of the year.

21:55 Understood. Thank you. Thank you. Our next question comes from the line of Ben Thier. Please state your company name and ask your question.

22:14 Good morning. This is Ben Thier from Barclays. Thanks for taking my question. So the first I wanted to kind of like get a little bit of an understanding, if you could elaborate a bit more on the shipment dynamics and just on the transition in the U.S. territory. You've called out a little bit as territory where you did not face too much of disruption. Things are starting to normalize. So as we phase into 2027, what's your expectation in terms of the cadence of normalization of what is just Thank you, Ben. It's Mauricio. As I mentioned, we are already seeing, and that's the expectation for Q4, I would say, and even more for 2027, to have our depletions aligned to shipments.

23:14 So we are done with the stocking that we program at the first of the year to rebalancing our inventories. So I think right now we're going to close the year at very normalized inventory levels. So for 2027, I don't see any discrepancy in speaking about normal business in both transition and non-transition markets. Depletion should equal shipments.

23:40 Okay. Perfect. Thank you very much. And then just coming back to some of the cost items as you look into it. I mean, clearly, we're talking about a lower a lower top line basis that affects as GNA, for example, as as as it is as a percentage of sales. But we're seeing barely any change here in terms of like trying to to do any cost efficiencies and so on. I was wondering, Are there certain opportunities for you guys to get the absolute peso amount lower, particularly in light of a top line that is now with the revised guidance on the softer side? I was just wondering if there are any cost-cutting opportunities that you have, especially as it relates to the selling and administrative piece, but also to a degree distribution. Thank you.

24:32 Thank you for that question, Ben. Yes, we certainly, you know, on a continuous basis, we seek for productivity opportunities and savings and efficiencies. And we have identified as part of our ongoing process and opportunities that should materialize next year as well, mostly on the supply chain front, you know, not necessarily on the SG&A front.

25:03 Okay, perfect. I'll pause it on. Thank you. Thank you. Our next question comes from the line of Fraulein Mendez. Please state your company name and ask your question.

25:18 Hello, gents. Freud Landman is from J.P. Morgan. Thank you for taking my question. First on U.S. pricing. So we know agave prices are significantly lower and probably there are some less vertically integrated peers or competitors that This situation is defining their pricing behavior. So do you think this very high promotional activity, how long do you think this very high promotional activity lasts? Can persist? Is it a matter of just the consumer to come back or do you think given the oversupply of cheap agave out there that this very competitive environment can persist for a couple of years and then we would need to think for, let's say, a different threshold on gross margins, especially in the U.S., for the next couple of years?

26:17 That's my first question. And second, on demand, when you look at the spirit, US spirit consumption, have you done any analysis or what are your thoughts around how much of the weakness is structural? Mauricio Vergara

26:56 I mean, I would start by saying that the very aggressive pricing that you're seeing in the market is not only restricted to tequila, it's across every single category. So there's definitely a behavior in general by many competitors that are sacrificing margin regardless of the category they're in and just playing at lower price points. I personally don't see the, or we don't see any indication that at least over the next 18 months, the contraction in the industry will revert, potentially will slow down a little bit, but I don't see it coming into growth in the next 18 months. and since a lot of the focus of the companies in general is on share I think that we will continue to see this pricing dynamic affecting yes tequila and total spirits regardless of the cause of the of the raw materials because in other categories that's not necessarily a dynamic and still the pricing is very aggressive. So as I mentioned from our approach, what we're trying to do is not reset our baseline price, stay competitive through managing our promotional frequency and depth, But what we want to make sure is that we're doing that in a smart way to protect the equity of the brands in the long term. But we do see that this environment from aggressive pricing will continue at least into 2027.

28:22 For your second question, it's a... I think that's the question that we all want to have the answer to now. All in our analysis is a combination of both. There's part that is cyclical. I think that, in my opinion, the single biggest contributor to the contraction of the demand is economy, which I would bucket that in the cyclical aspect of it, because inflation continues to be a dynamic there. Share of pocket of consumers just needing to really make wise choices on where they're putting their disposable income. That's, I think, the biggest impact. That being said, there's also a component that is structural in terms of moderated consumption, GLP-1, all the things that you mentioned that it's impossible to quantify how much GLP-1 contributes.

29:15 But even though those things are real, I still believe the biggest impact continues to be the economy.

29:22 Gracias, Mauricio. Thank you. Our next question comes from the line of Antonio Hernandez. Please state your company name and ask your question.

29:34 Good morning. Thanks for taking my question. Just a quick one regarding maybe M&A, if given what you just said regarding some cyclical versus structural changes, if you're considering maybe any Bolton acquisition or any type of acquisition to foster growth in categories that maybe have better growth prospects. Thanks.

30:00 This is Juan Domingo. Yes, we're always looking to see if there are interesting premium brands that could be acquired. As of now, we haven't seen anything really appealing, but we're always open to that.

30:20 Okay, and would that be within whiskey and tequila and your main categories, or are you open to basically any type of category, alcoholic or even non-alcoholic?

30:34 Ideally, categories that we are already in, but at a premium price, above $30, let's say.

30:47 Okay, perfect. Thanks a lot. Have a nice day. Thank you. Our next question comes from the line of Alejandro Fuchs. Please state your company name and ask your question.

31:02 Thank you, operator. Alejandro Fuchs from Itaú BBA. Juan Domingo, Rodrigo, thank you for the space for question. And my question is just one very quick one. Wanted to see if maybe you could elaborate a little bit in the U.S. and Mexico Where are, let's say, regional bases or what type of consumer is being, let's say, more cautious in terms of demand? Do you have maybe mapped out a little bit if there's any specifics where you see more pressure than other or any type of channel that you see more pressure than other? I think that would be also very helpful. Thank you.

31:41 Talking about the U.S., I think the pressure is across the board. We see consumers making choices on, as I mentioned, more value-driven brands for lower price points. So we see definitely a trading down happening. The people are actually going out less, so you see a lot of pressure in the on-premise. And I would say that what we see in the new generation, let's say Generation Z that are starting to enter legal drinking age, which I think it's encouraging, we see that younger generations starting to Thank you very much. and then the other one is on the amount of drinks per occasion that consumers are enjoying.

32:48 I see that as the new generation returns into the industry and into the categories and really engaging with the brands, Thank you very much. and two or three years, we should see that new generation having a positive impact as they behave different than the generation that is really right now more affected by moderation.

33:30 Okay, so as for Mexico, the consumer demand remains to be soft for many factors. One of them, I think, I agree with Mauricio, is the economic factor. There is a redistribution of consumer spend in the consumer spending and On-premise high prices are discouraging for consumers as well. So I think that that's coupled with the less occasion, the consumers are drinking in less occasions as well. So, but I am, you know, optimist that our brands are, we remain investing in our brands and to be in those moments where those occasions are happening and to have strong brands to capture the consumption.

34:16 So basically that's it for my talk.

34:20 Superpeer, thank you very much. Thank you. That is all the time we have for questions, so that concludes today's call. You may now disconnect.