M. Dias Branco S.A. Indústria e Comércio de Alimentos (MDIA3) Q2 FY2025 Earnings Call Transcript & Summary

Good morning. Welcome to the video conference of M. Dias Branco with reference to the results of the second quarter of 2025. We have with us today is Gustavo Lopes Theodozio, Vice President of Investments and Controllership; and Fábio Cefaly, Director of New Business and Investor Relations. We inform that this event will be recorded and that during the presentation of the company, [Operator Instructions] The transmission is also being done simultaneously on YouTube in the address www.youtube.com.ri.mds. We'd like to also mention that eventual declarations, which may be made during this teleconference relative to business perspectives of M. Dias Branco, projections and operational goals and financial goals are beliefs and premises of the directors of the company as well as information currently available. They involve risks and uncertainties and premises as they refer to future events, which depend on circumstances, which may or may not happen. Investors should understand that economic conditions of the industry and other operational factors can affect the future performance of M. Dias Branco and lead to results which differ materially from those considerations mentioned here. We'd now like to pass it over to Senhor Gustavo, who will begin the presentation. Gustavo, please go ahead.

Good morning. Welcome to our teleconference results for this second semester. Before we start in the numbers, I'd like to initiate expressing my thankfulness to the entire M. Dias Branco team for the excellent performance, which we have seen in this quarter, a direct result of the dedication and the work and the passion of each one of our collaborators, each 1 of our employees. We have the pleasure to announce that thanks to these forces, M. Dias Branco had a quarterly with very solid results. Showing the resilience of our business and the efficacy of our strategy. Even though the challenging scenario, the company has had a performance, a finance -- financial performance, which was in relation to creation of value, efficiency -- operational efficiency and the evolution -- consistent evolution that we have been committing to you all in our call results -- in our results calls -- earnings calls. I am going to pass it over to Cefaly, who's going to start off by pointing out some of the points, which marked -- highlighted the -- this performance in the period. First of all, our net profit reached BRL 216 million, which represents an increase of 14% in relation to the previous year, and overcoming -- over surpassing significantly the expectation of the market, pressured really by the efficient financial management and EBITDA of BRL [ 345 ], an increase of 2.4% year-on-year, demonstrating a controlled expenses and general expenses of sales and administrative expenses, representing 28% of our revenue. When we compare to last year, this group of SG&A represented almost 24%. And we talked a lot about the initiatives for optimization, increase of productivity and many actions, which we have taken of cost controls, we expect an absolute number year-on-year. We not only neutralized the inflationary impact, however, beyond that, we made real savings year-on-year over and above inflation. This represents a free cash flow -- operational free cash flow of BRL 416 million, almost doubling in relation to the same period of last year, growth of 97%. Beyond the discipline, lots of discipline in SG&A and working capital, we are closing the -- closing the free cash flow of BRL 228 million, maintaining our AAA rating in Fitch and our solid capital structure and with a very low level of leverage. We're looking at future opportunities for growth. These results are reaffirming our strategy we're implementing for quite a while, focusing on strengthening our commercial capacities in this area as compared to last year. Just looking at these -- to earn these results -- see these results and continuing the search for sustainable growth with attractive margins for the coming quarters. I want to thank again all of your presence and pass it over to Cefaly. And afterwards, we'll come back for your questions. Fabio, please go ahead.

Thank you all very much for your introduction. Good morning to everyone who are accompanying us in our second quarter call. Before starting -- entering the numbers, I'd like to just mention that this image, which is on the screen is a photo which was taken at the sales convention of M. Dias at the beginning of this year, with united all of the areas of the company, the sales team, the industrial manufacturing, logistics, finance, HR, sustainability, marketing, absolutely the entire team and shows that everybody is going after the same results which is help M. Dias grow to grow in profitability with a return on investment and a spirit of overcoming and a spirit of reaching goals. It's with this spirit that we have entered 2025 and we have started to feel an evolution which is very positive evolution of the results. Following along with the presentation, I'm going to go over the numbers which were mentioned by Gustavo, and I'm going to start with the presentation. The first subject, which I wanted to share with you, with everyone is the execution and construction of the future, which is what we have already been announcing in our recent calls. The results which were seen in the second quarter are results which did not happen by chance. We have defined a plan and executed this plan, and we are better to say we are executing this plan. And the plan was established based on several priorities, #1 priority, which is a clear commercial plan of growth and profitability, evolve and accelerate our commercial capacities, the continuous revolution of the structure of costs and expenses of M. Dias, which we've seen very evident in this second quarter. The search to increase productivity, manufacturing capacity for distribution because here, we have something that's very important, which is the growth of our volume, which helps us to dilute our fixed costs and improve our margins return -- margins of return and the development -- continuous development of an agile culture. The entire plan was defined and designed and is being executed based on these priorities. On the right-hand side here of the screen, you see some of these actions, which we maintain a continuous focus on sellout with a bigger presence at this point of sale, which is an important part of our plan, which is looking at the quarter. This involves all of the areas of the company, especially those which are at the head of the commercial area, the evolution in the route to the market, which is the way that we get to our clients and also the management of our distributors, which is a channel which M. Dias has started to invest more in the recent years, the acceleration of programs of productivity and strengthening of the metrics management of expenses, which is something that's been gaining relevance and importance in the company and the improvement of the indicators of service, looking principally at our client satisfaction and the metrics of satisfaction of our clients. So the results were not by chance. There was a plan that was designed and which is being executed and the entire team is filled with the same spirit. The team that sales is the team that helps to sell. And this is the spirit with which we started 2025. Looking at a few other examples. In the food service category, which is a channel for distribution, where we started to speak more about in recent quarters, which unites principally the categories of wheat flour and fats -- oils and fats. We had some important events in the recent months. We launched the Boulanger flour, which is a high value-added for pizzas -- pizzerias and restaurants, which needs a special product. The Medal flour for frozen bread and specialty houses. It's a line of special fine flour and a new digital platform to give a little bit more fluidity to our relationships with our clients who need this type of product. Coming back here, this image here on the right-hand side illustrates well one of the initiatives that we are doing, which is the program open doors where we invite our clients from various regions of Brazil to come and meet our industrial units, our manufacturing units. Here's our factory production plan of oil -- vegetable oil, something that we're doing also in the mills in the Northeast and in the South of Brazil as well. In the first half of this year, we did a day, which was called point-of-sale day with the spirit that we are all salespeople -- in this day, PDV is our point-of-sale. This was -- we united all of our employees from different parts of the company, more than 370 people who were in more than 130 stores in 40 cities in 20 different states. So it's an operation and action, which gave an experience and closeness with the clients and consumers, not just from the sales team, which is really in this function every day, but also some of our teams who are in the back office of the company. We're also in May, -- remember in May in APAS, which is the -- which happens every year. M. Dias was won an award. We were recognized there in the category of stand -- mega stands, very important for our relationship with our clients. Our stand was voted the best in terms of the concept of promotional activities, visual merchandising, sustainable stand, and we were in the third place in terms of visual communication. So here's our thanks and our recognition to the entire team who worked very, very hard in the design of that stand and the building of that stand and the execution of these days when we're at the APAS. Here, a look from the medium to long term, the results of the investments in marketing, which have been done over the recent -- over recent years. of the 50 brands most consumed in Brazilian homes in 2024. This is a research which is done by Kantar. 3 brands are M. Dias Branco brands, Vitarella, Piraquê and Richester. And these brands gained relevance from '23 to 2024. Vitarella is now in the 10th position, went up 1 position, Piraquê 27th went up 6 positions, one of the brands which has received the most investments in marketing and Richester is in the 40th position, moved up 5 positions. So M. Dias is very focused on the volume and growing revenue and at the same time, at the construction of its brands. An important parenthesis here is the brand Vitarella brand, which is the first in terms of relevance in the homes, in the categories of biscuits and cookies -- crackers and cookies. We made investments here in marketing and trade. Just to give you 4 examples of things which have already happened, the investment which was made in the São João festivals, which are in the Vitarella and Fortaleza brands in Ceará and Pernambuco state, all the promotional material from the point of sale, this is a very important for the turnover during in the stores, the activation of the ramen, the unfried ramen and new product, one of the principal launches of 2024 in which we've invested a great deal and also a question of sampling, especially with the Piraquê brand. Just an example in the stand here in Sao Paulo with the malted cookies and -- malted products and cookies. In terms of launches, we have 2 new flavors in the personal crackers in the Piraquê brand. Presuntinho and Queijinho crackers in new packages, the multipacks, which are -- have 12 small packages inside of each package. Looking at the numbers on the market and net revenue. The number here is -- it's important to mention that these are not M. Dias numbers. These are numbers of the markets that we're talking about, the cookies and pasta market. We're looking at the top line of the 2 tables here, both in the comparison and year-on-year as well as in the comparison quarter against quarter. The cookies and pastas markets presented growth in value, which is the actual amount in reals in those markets. The cookie market had a small falloff in volume compared to year-on-year. We believe that this has something to do with the increase of 8%, which the industry had between the second quarter of '23 and '24 -- '25, which impacted 2% in the number of units sold. When we look at the information for short term from the first quarter to the second quarter of this year of '25, the cookie market has grown in value, volume and in units sold and the average price went up 2%. Pasta market grew in value in both comparisons, it was stable in volume year-on-year and grew by 9% quarter-on-quarter in comparison with the first quarter, but also 9% in units sold and wound up with a price -- stable price compared to the beginning of this year. These are M. Dias Branco's numbers. We see starting on the left-hand side, we saw net revenue versus the second quarter of '24 grew by 4%, the first quarter of '25, it grew by 23%, double-digit growth in terms of volume compared to last year, there was a retraction of 10%. And compared to the first quarter, an increase of 16%. Important to explain that this retraction in volume of 10% is basically 2 factors -- the 2 factors, an internal and an external factor. The external factor is that the question of the cookie market, which grew 3% in volume compared to the second quarter of '24 and an internal question, which is important, which is that in the first quarter of '24, we did a changeover in our systems in M. Dias implementing SaaS. And so we needed that first quarter to make this change and part of the reposition of stocks of inventories happened -- wound up happening during the second quarter. So this creates a comparison of 2T -- the second quarter of '23 to second quarter '24 -- '24, '25, it makes it difficult. When we compare to second quarter of '25, there was growth in volume when we compare this month. The average price grew in both comparisons, 15% compared to last year and 6% when compared to the first quarter of '25. This growth compared to the first quarter of '25 has 2 factors. One is the adding the readjustments and increases that were done in the first quarter and also a mix -- a favorable mix factor in that period. When we look at the following slide, we see the evolution of net revenue per group of categories, which is a model that we have used since the third quarter of 2024. Principal products, which would talks about cookies, pastas and margins. We're talking about the wheat mills, the refined oils and the adjacency, which are cakes, mixtures, mixes, sauces and spices, we saw growth in every division. The 3 groups grew in the comparison with last year, 3%, 3% and more than 11% here in the adjacent products, which are categories with a potential for higher growth. And in the comparison with the first quarter, there was a double-digit growth in the principal products. This is explained part of the mix effect, which is favorable -- which was favorable between the first and second quarter and the mixes and refining of oil, which had growth of 9% in the adjacencies, which grew by 29% in this comparison of the first quarter to the second quarter. Looking at the area of costs and expenses. I'm going to talk here with the 3 principal lines, which impact our variable costs, which is the exchange rates, the wheat -- price of wheat in dollars and the price of palm oil in dollars. When we look at the second quarter of '24 to the second quarter of '25, remembering that these are market numbers. These are not M. Dias numbers. These are market numbers. There was an unfavorable effect of exchange rates from 5.2 and 5.3 to 5.7 in comparing these periods. Wheat has been stable, while palm oil had an increase -- a relevant increase from $1,080 per ton last year to about closer to $1,200 per ton this year. So this is a comparison, a dynamic which is unfavorable in costs year-on-year. When we look at the short term for the first quarter to the second quarter, we already saw there was an appreciation of the real. Here, wheat in dollars, it was stable and palm oil has started to show a slight reduction from the second -- from the first to the second quarter. When we look at these variable costs reflected in our variable costs, this is the information that we have. The variable cost per kilo in the second quarter of '24 was BRL 2.7. It increased over the year -- during the year and due to the devaluation of the real and the increase of oil palm oil in dollars and got to BRL 3.2 in the second quarter of 2025. Our fixed costs in reais went from BRL 0.9 to BRL 1.1 and remained stable at this level until the second -- through all through the second quarter. The average price, which are the factors which impact our gross margin, the average price was BRL 5.2 went up, went down here a bit from the second to the fourth. And it is now BRL 6 per kilo in the second quarter due to 2 factors, the pass-throughs of prices in the first quarter and the mix -- positive mix effect with the recovery of growth in the category of cookies. In essence, we started the second quarter with a gross margin of 33.4%. In terms of expenses, recovering the comment that Gustavo made in the introduction to our call, SG&A, which is our expenses with sales and administrative expenses as a percentage of net revenue, we closed this quarter with 20.8% below the first quarter of '25 and lower than the first -- the second quarter of 2024. So it was an improvement in relative terms when we compare it to net revenue and also an improvement in nominal terms. We went from BRL 621 million in expenses in the second quarter of last year to BRL 565 million in the second quarter of this year. Opening also sales expenses with sales and administrative expenses, there was a reduction in both expenses with sales, which went from BRL 531 million to BRL 477 million and administrative expenses from BRL 90 million to BRL 88 million in -- during this quarter. Putting together what happened in revenue and gross margins and our expenses, we see a growth -- a very strong growth of EBITDA from the second -- first to the second quarter of 2025 from BRL 161 million to BRL 345 million versus the BRL 337 million of last year. So our EBITDA grew both in the quarterly comparison as well as the year-on-year comparison, and we closed the period with 12.7% EBITDA margin. Net revenue represented the same tendency, strong growth compared to the first quarter of this year and growth compared to the second quarter of last year with a margin expansion, which was 7.9%. Looking now at the generation of cash generation and investments and debts. In the quarter, we generated BRL 416 million in operating cash, BRL 696 million in the first quarter -- in the first half. So there was growth in both comparisons. And going back to the quarter, the generation of cash comes from the improvement in results, BRL 345 million in EBITDA and the free up of BRL 83 million in working capital. Understanding our working capital situation, suppliers, we had a reduction of 2 days compared to the first quarter, clients of 1 day and inventories went from 100 days to 25 -- went down by 25 days. So a large part of that increase in working capital came from the inventories. Looking at our leverage and our position of -- cash position on our balance sheet. We closed the quarter with a net revenue -- net cash on hand, more cash than debt of BRL 328 million with a leverage of minus 1%, which means that we have more cash than debt and maintaining the AAA Fitch rating for the seventh consecutive year, which is the highest rating available from Fitch. 67.9% of our debt is long-term debt with highlights for the payments starting in 2028, which are basically the CRA, CRA which was issued in 2021. The investments looking at our quarterly -- for the first half, which are long-term investments, through the impact for the long term, grew by 25%, totaling BRL 142 million, including in this first quarter last year, of the BRL 113 million, BRL 30 million was still related to investments that were necessary for the changeover of systems and the implementation of S-A-P SAP. On the 2 images on the side, 2 examples of these investments focused on efficiency, productive efficiency and operational efficiency and energy efficiency, digitalization of our factories. So we maintain an agenda, which is very strong and robust investments in our operation, both in systems as well as in the distribution questions and production, distribution and production. Subject, which is a subject which we like to open up with you today are the investments in artificial intelligence, which here are bringing 2 examples. And at the end of my speech, I'm going to pass a very short video to illustrate what's being done. However, the investments in industry with our manufacturing with a focus on maintenance, predictive maintenance and prescriptive maintenance, which happens with recommendations based on insights and artificial intelligence, which helps us to reduce the amount of corrective maintenance and emergency maintenance, investments which are being done in various processes, back-office processes in that same spirit, we have the team that the sales and the team that helps sell. The finance team today offers to the sales team a series of reports, which previously would take us 2 weeks to generate. These reports today are generated automatically. And in the analysis, and we do this in less than 24 hours, something that was offered to 30 people is now offered to more than 300 people. These are personalized reports, which are available in less than 24 hours for 300 people. Remembering our strategy, the growth of our current business in all of Brazil. Today, we just have one commercial director heading up this entire business. The other categories, which are adjacencies, which of our growth in our international operations from [indiscernible] and export products. Looking at ESG, positive highlight for the indicator of women in leadership, which gained 4.4 percentage points in the comparison quarter-on-quarter, also half on half. And these indicators on the left show a small falloff. However, this is related directly to the volume of production. So I'm going to close here this part of our presentation. And afterwards, we'll go over to the Q&A. I'm going to ask for the M. Dias team to put that video, which is going to show one of the initiatives that we have in artificial intelligence. The digital transformation is important for those who need precise investments in automation -- we strengthened our position in the market. Now we want to show our case of the case one marginal contribution, which are involved with partners, Manu, our virtual assistant is now able to evaluate more contribution margin data comparing -- generating reports for 300 people, reports in text, charts, audio and video. Before the team was limited to only internal clients to attend, it was difficult to generate granular insights in real time for artificial intelligence. Now with Manu and our artificial intelligence, these analysis have been automated. They are fast and personalized at different levels in the region, distribution channels, brands, product -- family products and others. With them, M. Dias Branco guarantees that its employees receive the right information at the right time. With not having access to this -- that is -- was increased from 30 to 300 and the time of analysis was reduced from 24 hours to -- 2 weeks to 24 hours. They now have access to these insights in a fast and objective way. This is information is being delivered to the commercial team and is done through artificial intelligence. When we look at the contribution margin with one of the regions, in January of 2025, the region of Bahia, Sergipe registered a marginal contribution realized of BRL 23.5 million, overcoming the margin of BRL 21 million, resulting from a variation positive of BRL 2.2 million. This is a representation of how the reports look in PDFs. We are changing the shape with -- changing the future with technology.

[Operator Instructions] Our first question comes from Senhora Renata Cabral from Citibank.

Congratulations on the results. I have 2 questions here. First, -- the release mentions a readjustment in execution of investments with areas for greater possibilities of growth in principal products. If you could detail the regions and qualitatively, the principal effects -- positive effects that you see helping this result for the quarter? My second question is about the effective rate -- tax rate, which was seemed quite low. And my question is about the fiscal benefits. We also wanted to understand how much was a one-off for this quarter or if it will eventually -- there may be carryovers for future quarters as well.

This is Fábio speaking. Thank you for your questions. I'm going to start off by talking about the effective rate, and then we'll look at the first quarter -- the first question. First of all, the question of the context, we had an effective rate in this quarter close to 3%. We commented in recent quarters that due to the taxes on the investment subsidies, we should have an increase in the effective rate, partial increase close to 15% in an annual vision, perhaps having some volatility quarter-on-quarter, principally due to the effects, noncash effects. And that's exactly what we saw in this quarter. There was a provision of expenses in the results with result to the financial results with reference to some losses in swaps, in noncash effect, which could affect -- which could change in the future, the swaps of these debts in dollars where we exchange dollars for CDI. So there was appreciation of the real in this period. And so we had this unfavorable impact on our cash, which went up contributing to this rate -- effective rate in the quarter below 15%. However, perhaps in a more structural way in the annual vision, the idea would be to consider a rate closer to 15%.

Let me also add here one comment in relation to the effective rate. Renata, thank you for your question. Beyond the effect that Fabio mentioned, we also launched in this quarter all the credits of depreciation after the new law, which taxes these subsidies, calculating over the quarters, we're seeking together with the governments, the approval of the different assets, which are in the courts. We were able to have an approved list by the government asset by asset at the end of the quarter. So in this quarter now, you'll see a credit due to the depreciation, the taxation of fiscal incentives accumulated for the quarter and in the half, but released only in this quarter, in the coming -- in the third quarter. So it has this effect as well.

This is Fabio again. So going back to your first question in relation to the expansion in the regions with the greatest potential for growth, we're talking basically about the South, Southeast. And I think it's important to point out that some questions that were done during recent months. The first, we have a united team, which looks at Brazil as one -- as one market from the standpoint of commercial for the principal business areas, which are cookies, crackers and pastas and margins. We have the synergies with the other areas of M. Dias from the angle of our clients, looking at from the point of view of our clients. The second point is that the entire process of revenue management, which involves both the process of pricing as well as the management of commercial budgets, we have found a good equilibrium in the pricing, the growth in volumes and margins. The investments in marketing, which have been done, both for the construction of our brands as well as such as Piraquê, which is a very important brand in all of Brazil, but especially in the Southeast as well as the investments in marketing and trade marketing within the stores to give turnover for our products and also to cite some 3 examples. For example, we have, in fact, contributed to an improvement in our results of these regions, which have the greatest potential for growth.

Thank you, Fabio. Thank you, Gustavo. Our next question comes from Felipe from Scotiabank.

This is Fábio from M. Dias. Felipe sent his question by e-mail. I'm going to read his question. And later on, we will respond. Felipe asked for us to comment about prices and the implementation phases of the competition. The question is the following. The price readjustments, are they completely reimplemented? Or do you think that you will need to make new increases? The sector has been maintained -- the sector maintained discipline in this area? I can comment, Felipe, very important your question. In principle, yes, we shouldn't have new price increases, especially if we have something that might be a onetime due to the scenario today, we look at wheat production -- global wheat production is doing well. The Americans have done well with 53 million tons. Europe doing well with their harvest. We have a provision of 20 million to 22 million tons. Brazil had a slight reduction in area in Paraná. But in general, when we look at the global offering, we don't see for wheat, any perspective for price increases. The exchange rate in Brazil has pulled back. Looking at the scenario, we don't see any perspective for big increases. M. Dias has gone to the market. We've gone out first. We reduced our price list before our competitors did. And all of the competitors have been accompanying our prices. We had several specifically in pastas, which had a slightly lower prices, and we lowered our prices in sequence. And in the month of July, when you compare the price and mix, it hasn't changed. We can affirm that everybody wound up following M. Dias prices. So there's a disconnect. There's no disconnect in pricing. For the future, the thing that is extremely strategic is a category which has gone less than it should with some specific impact of some specific raw material, but the new table for these products is not what we're seeing for this year, unless the scenario changes completely.

Our next question comes from Guilherme Palhares from Santander.

From my side, 2 questions. Gustavo, you mentioned about the wheat prices. And what about the tariff questions? Do you see any risk where this might hit? The second point is hear from you the questions of the factories, which have had recent deactivations of a recovery of certain lines. The question -- your manufacturing question in terms of installed capacity and when we're looking at levels of production, to understand a little bit if you have a strategy for increasing volume and what can we expect going forward?

Guilherme, thank you for your question. With respect to the question of tariffs, we don't see anything from the standpoint of purchasing any relevant risk between Argentina and Brazil. We have 80% of our wheat comes from these 2 countries and it comes from the U.S. and Canada. So looking forward, looking at these trading companies, we don't see any risk from the side of raw materials, any relevant differences in raw materials. On the top line sales, we have an export area, which has evolved greatly, especially in the U.S. market, but it's still an initial work we're selling something like 5 million 60,000 tons per month. This represents 0.5% of the total sales. So it's also nothing relevant. It's a shame because it does -- it is part of a -- that we have done a consistent job with this number had been growing and the impact -- initial impact is very big, looking at export, but not looking at the whole thing as a company, it's nothing relevant. So it's a point of attention. Some solutions are already being studied. Some things that we're producing in Brazil and selling to the U.S., we will wind up presenting -- producing in Uruguay, which will help a little bit, but it will have an effect on sales only in the U.S. As far as the deactivation of factories, remembering that we deactivated Rio from the area of pasta and a factory for cookies in the interior of Sao Paulo in the city of Lençóis Paulistas. Rio de Janeiro continues the same way. The company is hibernating these factories, doing maintenance on the factories, but without production. And in the case of Lençóis, with the recovery of the commercial team and marketing and so forth, you remember that we did an important change last year. The team today is completely complete and involved and tied in and several actions, especially at point of sale and much more participation in the point-of-sales, a lot of focuses on sellout and execution. We see a recovery of volumes principally in what touches on the area of cookies in the region, the South, Southeast region. This has helped us -- has caused us to reactivate the factory in Lençóis Paulista, which is also in hibernation. We mentioned that we will be deactivating it temporarily until the volumes grew enough to justify it. And so that's exactly what happened. We thought that this would be something for the third or fourth quarter. But I mentioned this in the previous call. But as the measures taken by the new team have already started to have effect at the end of the second quarter. And so these actions to deliver the results going forward. So this has caused us to reactivate that factory to not run any risk of having a shortage of products for the market. But very much concentrated on cookies.

Our next question comes from Pedro Fonseca of XP.

First of all, I wanted to make a follow-up regarding prices. As Fábio mentioned, there's no expectation on the part of the company to have to change prices before the end of the year due to the cost scenario. But I wanted to hear from you what have you seen the competitive environment in this context of costs. Do you -- have you heard or have you seen if there's any competitor who are -- might be inclined to lower prices or whatever in the next semester? That's the first question. And the second question is in relation to the selling. We've had an efficiency very interesting in the second quarter. And I wanted to hear from you a little bit more about -- in relation to that, what should we expect going forward? If this is possibly the new run rate that we should expect for the company or if you have a little bit more juice to squeeze out of these measures that have already been taken in according with the external things and it would be good to hear from you more about that?

I'm going to start here with -- then Fabio can complement. As far as prices, the market has matured. We don't see anything -- anyone doing anything crazy as we've seen in the past. We had a scenario of -- we had great variations in commodities or exchanges. This generates confusion because everybody has a hedge or an inventory on hand. And sometimes it takes a while to implement these price changes. Many smaller companies don't have an area for revenue management. So it's more complicated when you have these huge macroeconomic type of changes. What we're seeing now with the market being more stable, this means that the market itself can be more stable. It's what's happening. Once again, -- what helps us to speak of this is the price index, which is how we see things in the marketplace. We haven't seen any big variations in prices, which is the ideal if there was an important relative -- difference relative in the next and which is what we used to see regularly. I think prices, that's it. We've done a lot of homework regarding this, we have a higher level of efficiency, especially in the South, Southeast. We have less critical mass, less volume. And we have done an important job of efficiency in the operation of our distribution center, the size of our fleet. And the evolution has been very relevant. In fact, our cost per ton, we have an economy of savings, excluding the volume of the purchase, the company has operated in a more efficient way. I don't see much opportunity for reduction in selling costs. The marketing is -- we've actually held on a little bit on that because the team was being filled, being trained. Now we have everybody on board. So we imagine that the campaigns -- marketing campaigns will begin in a more consistent way. So I would say as far as selling expenses, I see the cost of serving and more investments in the point of sale with marketing. But that's what we see looking forward. I don't see -- overall, I don't see any big changes in the level of SG&A as a whole. Our mind is something between 18% and 20% of net revenue that will be our target.

This is Fabio. Just to add 2 points in relation to this point, which Gustavo mentioned. When we look at the selling, selling has logistics, marketing, commercial expenses. The cost of freight in the second quarter of '24 to the second quarter of '25 per kilo fell 3.8%. This is the direct result of all of the initiatives that we have underway for the reduction of this line for the search for productivity such as, for example, the delivery of products from factories directly to the stores without the need of certain items passing through our distribution centers. Another important point which was to mention here is the question of marketing. In recent years, we've launched -- made important launches, product launches such as the unfried ramen from last year. And this year, the decision was to slow down the number of launches and focus on what we already have in the portfolio. So this is demanding a little bit less in marketing investments. And part of that budget is being allocated in the trade area to give -- to create more turnover in our points-of-sale.

Our next question comes from Isabella Simonato from Bank of America.

Two questions. First, focused on dynamic of revenue. It still calls our attention, the performance of volume even when we look at the semester year-on-year and the comparison between 2023, the volumes are lower. So I wanted to understand -- I understand that you're not going to need to raise prices. But removing what is up to the company to execute in terms of the product category overall, what do you see in the way of performance going forward? You mentioned the reopening of capacity, increasing capacity. But in our vision, it seems very pressured in certain categories and without much chance for changes going forward. I want to see what you're looking at for the growth in volume of that category. And the second question in relation to top line growth, I'm not sure if it's too clear what you've done with the implementation of prices in the last 2 calls, especially in the call for the fourth quarter, if I understood correctly, the message was that you were not going to lead the price increases in the category and try to do something a little bit more in line with the price increases of the peers. However, what's being said here is that this changed a little bit that this time, you led the price increases -- the recent price increases. And when we compare your prices, your performance, of course, there is impact from the mix. When we look at your -- the sellout of the category, it seems that you went a little bit beyond that. If you could remember -- remind us how you're thinking about the strategy of price increases that might be necessary. So we have this a little more clear. And finally, you also mentioned in your release to return to direct distribution from the factory to the retailers using our own in-house fleet. I wanted to understand what's the magnitude of this within the strategy of distribution? And what can we think in terms of the impact of that change?

Isabella, this is Gustavo. Thank you for your question. In terms of volume, the volume has been pressured not only in Brazil, but you look at the 11 consumption companies in the world, they've all had price increases, but the volume of the 11, 3 have had some type very subtle growth in volume. The whole world is with this -- these costs growing worldwide have the price in and the consumer has been feeling this for some time, these price increases. So that's what's happening with the market. When we look at the market here, not just M. Dias, but the cookie market overall, it grew by 8% in price and fell by 4% in volume. So the entire market in terms of volume is more challenging in Brazil as well as the rest of the world. In our case, it's been a challenge, 2 things to gain market share both in volume as well as in value. This is our occupation, our concern in looking at this today and going forward. There are things that we cannot control. There are some categories where M. Dias has 60%, 70% certain specific efforts to help the whole market to grow because since we're part of that market, it's so good for us. In general, we have a more resistant market, a market that is more resistant to higher price increases, which is challenge us once again to have a better performance than the market, to beat the market because we lost some market share last year. So the methodology is a little bit different since our planning phase, we've done a planning, which is quarterly -- we're negotiating this ahead of time for each retailer by category and by region. Naturally, it's impossible, practically impossible to not push this market because there are some regions where our participation is extremely relevant. We have to come out in front. What we're doing is taking more care to not position ourselves beyond the competitors. We fought a lot to pull this category along for a long time. We reached the conclusion that this is very expensive for us. It has a large cost attached. So what we're doing is the company is having more agility to correct price increases that were not accompanied by the rest of the market. These gaps that we've seen from the past, we don't see them anymore. We come out first. We may set our prices and category by category, region by region. But eventually, when a certain competitor doesn't follow us, we have enough agility to position our price in the correct price. Remembering that this quarter, the market has fallen all over the world. And so in our case, it's a large part of that price has come from that. Fabio perhaps can mention that a little more. Direct distribution has a lot to do with the big volumes, the big trades. Lots to the cash and carry market, aims basically at the South, Southeast where we have a higher level of efficiency and better margins for serving. I don't have a dimension to give you. Perhaps in the next quarter, we can give a little more perspective about how much that will mean to us over time.

This is Fabio. You can comment at Gustavo's comment here. In the next quarter, we'll bring a little more granularity about that question. The question of the direct distribution. What happens is -- this happening countrywide in terms of potential, especially in the cash and carry channel is the question of greater use of our own trucks, our own fleet, which is more concentrated in the Northeast, remembering that the Northeast, 60% of our sales are delivered by our own trucks. In terms of magnitude of these movements, if we look at the line of freight in the second quarter, this is what's in our financial statements, we'll see that there was a kilo -- a reduction of 3.8% per kilo, as I mentioned in the previous question, in nominal terms, something close to BRL 21 million in reduced expenses in that area. However, in the next call, we'll bring more granularity on that question.

Our next question comes from Henrique Brustolin from Bradesco BBI.

I also have 2. First from the question of volume. This year, you have a base of comparison on the question of the Torcida. We have a difficulty with this recovery. What I wanted to ask is if you could qualify when you look at the commercial performance over 2025 in the third quarter, how you look at this performance in volume, gaining that traction? And what are the principal indicators that give you confidence that this recovery will be happening in a more structural way and what we should think about looking forward? That's the first question. And the second is about the gross margin. I think in the annual comparison where we see some compression, but the impression is that we -- the cost of commodity, the unit cost was better in the first quarter than in the second quarter than in the first quarter. If that makes sense and if the cost benefit is clear during the second semester, second half, looking at the price increases, it's not something that you should be doing more of this year. How comfortable are you with the level of prices that you currently have to think about your recovering your gross margins of 35%, 36%, which is perhaps what's necessary for the EBITDA margins to go back to the mid-teens. This would be a discussion of volume coming back? Or do you have some target of prices to get there? That would be my question.

Let me start, Henrique, and then Fábio can add on. Starting off with our gross margins. Yes, we have a pressure on costs with the stabilization of wheat prices. When you look at wheat compared to the price of the dollar, it winds up being more expensive than the unit cost in the past. The exchange rate, especially at the beginning of the year, was close BRL 6, BRL 6.20 impacted really our costs. It should have an improvement now in terms of cost, especially in margin, not just by the cost, but also due to the increase in volumes and fixed costs. If nothing happens, the third quarter and the fourth quarter are better quarters than the first and second quarters of the year. Historically, this is our trajectory. In our case, we see that the actions underway are already having an effect. As I mentioned, we expected to see something different in the third and fourth quarter, how we already see something happening in May and June with these changes in our mindset. When we look at volumes, -- we're looking at negotiations, which are much less based on negotiations with trade and much more looking at the -- we look at the trade -- we look more at sellout. We can look at sellout so that the sales come together with the consumer. We don't want any retailer to be stocked at certain maize and not by in the following month, just at a moment where we have financial costs with a Selic at 15%. We are doing quarterly plans with the traders so that the goals of these plans are combined ahead of time and can be reached in according with our sellout. This is changing very quicker even sincerely faster than we thought. The receptivity on the part of the traders for this type of plan has been very well received. It's had a good reception. So looking ahead, I see growth in volume by itself, which is due to the seasonal question, growth in volume due to the improvement in the processes focused on sellout, more control from the point-of-sale and clients that are much more involved and obviously, better margins due to the things we mentioned, lower costs for the next quarters.

Henrique, this is Fábio. I just wanted to add to what Gustavo mentioned that your question that gives us confidence that we can maintain the same level, same traction. What we've seen in recent months is the consistency -- we see consistency in the volumes, sell-in volumes with consistency with the sell-out, pushing the sell-in. And this all leaves the operation much more fluid and much more predictable, both from the standpoint of both from the commercial standpoint as well as the operational standpoint, the manufacturing and distribution, which has been very favorable for the profitability in the quarter. This consistency that we've seen over recent months gives us the confidence that we can maintain the same level of volumes.

Our next question comes from Thiago Duarte from BTG Pactual.

Two questions from our side here. First, I wanted to ask for if we have access to some information that you used to open up in the past, both with respect to the channels as well as the geographies. I wanted to understand if these elements had in your vision, any impact -- more significant impact in that which we're seeing with the average prices in this quarter. In relation to that, you also mentioned that there was a positive effect of mix, which I imagine is the products, for example, in biscuit -- cookies in relation to the categories. I know that you don't -- if you don't open this information, if you can qualify a little bit beyond the mix, any effect of channel and geography, which could have impacted the evolution of the average prices in the first quarter -- in the quarter. Also, I'd like to make reference to like Gustavo mentioned at the beginning of the presentation, he spoke about strengthening your commercial capacities and highlighting both in the presentation as well as in some of the answers that there has been a more sales of direct distribution, the increase in participation in your own in-house fleet and more concentrated on the trade marketing, perhaps at the cost of sales of marketing for you guys. Using these 3 examples that I just mentioned, and certainly, there will be others, when we look at these initiatives, several of them are heading in the direction of almost the opposite of that, which the company was proposing to do during a certain time over recent years. For example, when you start to use more of third-party logistics and intensify your spending on marketing, I wanted to see how you're taking advantage of these changes and this feeling that this quarter has brought -- you commented a great deal. I wanted to understand a little bit about how do you understand the positive impacts either through terms, what do you understand about these commissions and this correction -- your route correction brings to the company differently from that, which we've seen in recent years. Taking advantage to give a -- when we talk about market share, which is a line which was not so great in recent years. But if you can exploit that a little bit more for us.

Let me start with the last question, and then Fábio will help. Thank you for your question. It's great. Your question is very interesting. I wouldn't call it a correction or a cross correction, but there are different moments in time. In the past, I would say that in 2019, we had a process of scaling up the Piraquê brand, which was very concentrated in Rio de Janeiro, in Espírito Santo and not well known in the rest of the country. So naturally, you had to do a branding work, which was more investment in recent years. So it wasn't -- was it necessary? I think it was, yes. I think the results are there. We have more than doubled our sales for the Piraquê brand. It is exposed now in virtually all of Brazil. So there was some important branding work to reach that level. This branding work was also very important for these moments of necessity of bigger pricing. Looking at the pandemic and everything, our costs practically doubled and the less strength of a brand you have, the more difficulty you have in pricing. So I would say that in the previous moments, these type of things needed to be done. Perhaps with a little bit less intensity or a little bit more. I don't know -- I don't think anybody has the actual answer to this. It's good if there was a financial -- mathematical model, but there isn't one. So we've made various attempts to extract, but we haven't been able to find this formula. However, conceptually, we're in that moment -- that moment it made sense. What we see now is a movement much more to be head towards this level of pricing, which is very important in the past due to the inflationary costs. Otherwise, our margin will be 5 -- instead of 5% if we had capacity for pricing, it will be 13%, 14%, we have a much lower level of pricing power. It's different than what we see at the current moment. However, now with the stability of the brands, and as Fábio showed that research of recall, the brands most present in Brazilian homes, not because we're going to not invest in branding, but it is a moment for -- to reduce a little bit and increase in an area in which we have not been prioritizing branding in the past. It's a little bit -- this is a little bit of the dynamic since these increases in prices have brought us to a loss of market share. Market share, I always said much below the price would -- income would be very disturbing for M. Dias. So we're looking at the commercial execution, commercial routines, quarterly results, certain KPIs, specific KPIs. The daily meetings of the sales teams with the managers. And so it's -- which is underway. It began this year and which will show its effects in its execution. It's a big job for execution. So I think beyond that, we need to improve the investments to increase -- to improve this execution. I need to get my product on the shelf. And another thing is to incentivate the client to pick out our product. This how do I do that? By having more sampling in the stores, more extra sales points, sales promotions, investing with the retailers. This has been a little bit of what's on our mind to be able to do that recovery of market share that you mentioned. So that's a little bit the logic that we're using. For sales, direct sales, it's not a relevant change. We're seeing a few opportunities for sale. direct sales. We have lots more industrial plants in the Northeast than in the Southeast. So certain products we're not able to attend in the South, Southeast to get to arrive with a -- the more direct sales I'm able to do with these high-volume items, the better. So it's much more in that sense. I don't see it as a transformational operation. For me, the efficiency is in the routines and the sales, daily sales, better controls, better collections and better involvement with the support of the trade marketing teams and the point of sale. We have this change in service to view via direct sales. Did you want to mention anything, [ Gustavo ], about these channels?

Yes. Thiago, in relation to -- I think you must be asking about average prices. Looking at what we see in the evolution from the first quarter to the second quarter, there was no big impact of mix between the channels or even between the regions or geographies. The principal differential that permitted an improvement in the mix and a favorable impact on the average price is more of a growth in the category of cookies where we have almost half of our revenue and where we have average prices above BRL 10 per kilo in terms of net revenue. So the recovery of growth in cookies is fundamentally important for the improvement of our average price without considering any type of pass-through for the price. When we look at the question of mix and our regional channels and levels of margins, talking more about the margin and the bottom line, a series of initiatives that were done to improve our efficiency in those regions where we to be able to continue to be able to present favorable results -- favorable for our EBITDA margin for the rest of the semester, the rest of the second half of the year.

Our next question comes from Lucas Ferreira from JPMorgan.

My question is about cash generation was very strong in this quarter. But as I see, there must have been some gain in the line of inventories because prices have continued to fall of the principal raw materials. This might be on the part of clients or suppliers, but the expectation is that with an improvement in the level of inventory, you have a comfortable position in cash. So my question is, how do you evaluate that? Should we expect a bigger distribution eventually CapEx, some new things will come into the plants? And my other question is just to clarify, looking at the graphs which you showed up of raw materials, the numbers of the -- it looks like there's still some there's more price. We have palm oil falling with wheat prices falling year-to-date in dollars and the real 15% stronger year-to-date. And so at the point of sale, if you're seeing the results of these reductions in cost.

Lucas, this is Gustavo. I'm going to start here and then Fábio can jump in afterwards. As I mentioned previously, there is a -- nothing changes. There is a price improvement already contracted. We see the exchange rates improving, palm oil and wheat prices helping us. However, this freeing up of working capital has 2 effects. It has to do with volume as well, the volume of stocks compared to the previous, we have more stock of wheat. Now it's stable and the stocks are smaller. The inventories are smaller. So it's not just a question of costs, which is -- from the standpoint of costs, yes, there will be some from the volume of Trigo of wheat. I think that the current stocks are okay. Due to the other stocks and finished products. So we have a much better control of that stocks, we can see better costs going forward. Look at the current deliberation of stocks. These volumes are at adequate levels. We're looking at the CapEx, we don't see any big changes coming. Perhaps for the next years, we'll have a project of modernization. We're doing a study of that. The first discussions with the council in São Paulo on Friday. So we have certain things that we're going to need to do to improve our operational costs, our cost of production. It's not going to hit us this year. We had the CapEx normalized without the effect that we saw last year of the SAP, the switch over to the SAP system, which carried that cost last year.

Our next question is from Gustavo Troyano from Itau BBA.

I wanted to ask about a little bit more. Is this comparison of the top line with the Nielsen data which you reported, which shows the performance of sell-in of the company has performed above the Nielsen numbers. My data is to know if this difference is due to a difference in the sell-in with the sell-out in the quarter to try a little bit -- understand a little bit better if the sell-in grew ahead of the sell-out, if we may see a movement of increased inventories for the retailers? Or what was the performance of the sell-in based on what the Nielsen numbers or is it something more geographical or geographical mix or mix from your point of view? I wanted to understand a little bit more about the level of inventories in the retailers. We've seen this with other companies, other consumer companies with the high cost of capital, this is a higher discussion that has more frequently appeared. So I wanted to understand a little bit more your perception of this dynamic of how is the level of stock with the retailers due to this question of the comparison of sell-in and sellout that we saw.

Gustavo, Fabio here. Yes. Thank you for the question. The first point that what we monitor in our inventories of the M. Dias items in our clients, no big change, no change up or down. We have been able to have visibility both in the retail clients and also a reading in the distributors. So we don't see any overstocking in our clients. I think your reading is correct. The sell-in comes in before the sellout when we look at the numbers for the quarter and some reading of the very short term of sell-out, which have already started to appoint to a recovery of share.

The question-and-answer session is now closed. I'd like to pass the microphone over to Gustavo for his final comments.

I want to thank you all very much for participating with us in this earnings call and reinforce our availability to speak with you, take any doubts or questions you might have. We're very confident in the future, certain that the -- we're starting to pick up the results that we imagine we'll be consistent with our strategic planning. So once again, thank you all very much.

The video conference of M. Dias Branco is now done. We thank you all for your participation and have a good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]