Sigma Foods, S.A.B. de C.V. (SIGMAFA) Earnings Call Transcript & Summary

Good morning, and welcome to the Sigma Foods Second Quarter 2026 Earnings Conference Call. [Operator Instructions] As a reminder, today's call is being recorded. The replay will be available on Sigma Foods Investor Relations website later today. I will now turn the call over to Hernan Lozano, Sigma Foods IRO.

Thank you, operator, and good morning to everyone joining us today. Further details regarding our second quarter results can be found in the press release and earnings presentation that were distributed yesterday. Both documents are available in the Investor Relations section of our website. Before we begin, please note that today's discussion will include forward-looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results may differ materially. Sigma Foods undertakes no obligation to update these statements. It is my pleasure to participate in today's call together with Rodeo Fernandez, CEO; and Roberto Olivares, CFO. Today's agenda is straightforward. Rodrigo will start a strategic overview. Roberto will follow with a financial review and we will conclude with Q&A. With that, I'll turn the call over to Rodrigo.

Thank you, Bernard, and good morning, everyone. Sigma Foods continued to build on the strong start of 2026, delivering record second quarter volume, revenues and comparable EBITDA. This good performance reflects the stability of our diversified business model and reinforces active trajectory towards our financial objectives. During the quarter, we also made meaningful progress on several strategic priorities by investing in strengthening our manufacturing network and complementing our portfolio through a disciplined acquisition. In Europe, we reached important milestones in our capacity recovery plan. We advance in the start-up process of new vacant production capacity at Laguea plant and continued the construction of our new facility in Valencia to begin production in summer of 2017 as planned. Together, these assets will restore the capacity loss in the talented plant floating and support the long-term profitability and growth of our European business. In the United States, we completed the acquisition of Royer Wood Foods, a sausage producer with a leading brand in the outer region. This bolt-on transaction complements ongoing organic initiatives, including a recent nationwide Sigma product launch, as we expand our participation in the sausage category, which represents a high potential opportunity for our U.S. operations. In addition to disciplined investment in return projects, returning capital to shareholders is a core component of our capital allocation strategy with cash dividends representing the primary mechanism. During the second quarter, we paid the first installment of our approved annual cash dividend, totaling $76 million. The segment installment will be banning of to. We also executed opportunistic share buybacks, reflecting our constructive view of the underlying value of the business, particularly in the context of the recent share price trends. From a valuation perspective, we're actively engaging with consumer sector investors and analysts to strengthen awareness of Sigma Foods as a leading global food company. These efforts have contributed to expanding our sell-side coverage and enhancing our reach within the investing community and supporting a greater understanding of our long-term value proposition. We appreciate the opportunity to connect with all market participants. As we reflect on the first half of 2026, Sigma Foods has made encouraging progress across multiple fronts. Our diversified business is well positioned to navigate a food macro environment where we continue to see a healthy balance between external tailwinds and headwinds. Looking ahead, we have greater confidence in delivering our full year EBITDA guidance of $1.1 billion. With that, I will now turn the call over to Roberto for a more detailed review of our first quarter financial results.

Thank you, Rodrigo, and good morning, everyone. The second quarter represents another period of solid consolidated results driven by consistent execution and the positive effect of currency translation. Revenues were up versus second Q '25 and increased 10% in the first half of the year, reflecting moderate volume growth stable currency-neutral average prices and a favorable foreign exchange conversion effect. Importantly, comparable EBITDA was 17% higher, both on a quarterly and accumulated basis. with strong contributions from Mexico, Europe and Latin America. Let me walk you through key results by region. Mexico delivered another outstanding performance with record high second quarter volume, revenues and EBITDA. In the current consumer environment, we continue to see different volume dynamics by channel, categories and brand segments with a stronger momentum in retail relative to food service, in the dairy category and in value-oriented brands. Positive volume growth, improving input costs and a favorable currency translation effect boosted accumulated EBITDA by 23% versus the first half of 2025. In Europe, volume and comparable EBITDA continued to grow, supported by the fresh meat business, which benefited from a temporary decline in the light hog prices in Spain. The business delivered its highest second quarter comparable EBITDA since 2021, reflecting the continued progress of our turnaround efforts. Due to the comparable EBITDA is 66% higher than the first half of 2025. In the United States, seasonal trends supported sequential increase of 12% in volumes, 9% in revenues and 12% in EBITDA, excluding the integration of Royal Wood Foods. Toward the end of the quarter, we also observed early signs of year-on-year improvement in monthly volume trends. We expect further improvement in year-on-year trends during the second half 2. Also, the integration of Royal Wood Foods is advancing as planned with results during the first 2 months of operation in line with our expectations. On a final note, Latin America continued its positive momentum, delivering record second quarter volume and the fourth consecutive quarter of sequential EBITDA improvement, supported by better price cost alignment and operational efficiencies across the region. Moving on to selected items below the EBITDA line. Our accumulated net financial cost was $123 million, compared to $57 million in the first half of 2025. This increase was primarily driven by lower foreign exchange gains, reflecting a more stable Mexican peso in the current period. Accumulated net income was $164 million compared to $209 million in the first half of which benefited from extraordinary items, including insurance reimbursements related to property damage as well as higher foreign exchange gains. Let me close with a brief comment regarding our strong balance sheet. Net debt ended the quarter at approximately $2.9 billion, up EUR 78 million quarter-on-quarter, reflecting primarily a noncash foreign exchange conversion effect related to our peso-denominated debt. Our net leverage ratio stood at 2.7x at the close of the second quarter. We expect this key metric to trend lower closer to our long-term target of 2.5x by year-end, supported by strong cash generation. Simba Foods remains well positioned to continue investing in its business model. backed by solid cash flow and ample liquidity. And I now turn the call back to Hernan for Q&A session. Thanks, Hernan.

Thank you, Roberto. We will now open the line for questions. Operator?

[Operator Instructions] Our first question comes from Ben Theurer of Barclays.

Two quick ones I had for you. So first of all, you've highlighted some of the sequential improvement in your prepared remarks, and particularly in the U.S. So as we're looking into the back half and thinking of just normal seasonality but still kind of like a protein market that it's somewhat stretched too thin, particularly on the beef side. Are you seeing any opportunities as it relates to kind of like some sort of share gains within your portfolio against other core proteins. And within that, what is your cost outlook from a raw material piece because you obviously highlighted the lower crisis, et cetera. So just as you look into the second half, what's your outlook volume and cost? And then I have a quick follow-up on Europe.

Ben, this is Roberto. Let me answer the question from the end to your question, and then I will move to the beginning. Starting with costs, yes, we are seeing a better dynamic in raw material particularly in the Turkey segment. As we reported in our earnings release, Turkey Thigh and Turkey Breast has increased significantly during the quarter, and we're seeing that new level of is at least to continue at that level, if not to continue a little bit lower. In the case of port, which is also a relevant component of our cost structure particularly in Europe, we're also seeing a better dynamic there given the ASF in Spain that is helping us to mitigate any impact there. In the dairy segment, I will say, particularly some missed proteins and nonfat dry milk during the quarter was a little bit tighter in the market, hopefully by the second half of the year. We will see a better dynamics there. In regards to the sequential improvement, there is some seasonality, I will say, particularly in the second quarter in the U.S. because of the summer season and how volume trends higher in that segment. But for the second half of the year, we do expect that the year-on-year trends on volume for the U.S. to get better due to 2 things: first, a better comparable base, lower comparable base and the second 1 as well, new listings that we are getting into the main retailers in our categories. And I will say, in adjusting categories or high potential opportunities for us in the U.S. like the case of cookies. In regards to market share, I will say that in most of our categories in the U.S. or in our biggest category in the U.S., which is hotels, we're pretty much in line with the industry. So our market share has remained solid there. in other categories where we see high potential opportunities as in the case of Hamanor or dinner Sasa, we are gaining some share in those categories, which is still a small portion of our sales, but where we want to continue growing in those segments.

And just as a complement, Ben, I would say that by the end of the quarter by June, we saw almost flat compared to last quarter. So we expect something similar in the third quarter, seeing almost flat in the U.S., and we see a positive comparison compared to fourth quarter compared to fourth quarter 2025 volume-wise.

Okay. Perfect. And then in Europe, you had again a quarter with higher fresh contribution, which kind of like brought your prices down, for how long should we expect this to last? Is that still something that's probably going to be a drag on pricing, just average pricing in the third quarter, just given what the dynamics are right now? Or how should we think about the pricing dynamics as it relates to the fresh business.

Sure. Thank you, Ben. I think the first business is important to think about price cost alignment. And at the end, price cost alignment volume and at the end, what is most important is if you see EBITDA per ton. So if you see, for example, this quarter and you see Total Europe, you do see a definite price. And again, that's coming from the cost dynamics in fresh meats, but at the end, when you see price cost and you see volume, you see EBITDA per ton positive 7%. So at the end, that is the number that we should be consistent with. And if price of raw materials go up or down. I think what is important is just to follow through on the EBITDA per ton.

Congrats on the results.

Our next question comes from Rodolfo Ramos of Bradesco.

Congrats on the great results. It was interesting to see the slide with the marketing campaign with Gaia, I mean would you say that there was a notable influence from the World Cup on volumes? Or in other words, should we expect the moderation or weakness in the second half? And also on revenue potential, can you talk a little bit about the drivers of sales growth in Mexico during the quarter, I mean, between pricing and mix, just to understand that very strong top line. That's the first question. And the second 1 is it's a bit on the cost side. I mean you're getting clearly breathing room on some of your import costs. I mean does the news around the straight or moves or El Nino, I mean does that make you worry at all for the second half or maybe even next year?

Thank you, Rolf. Let me start with the first one, and I'll leave the second 1 for Roberto. The campaign is terseactually was pretty good. The food instead of food, and it was very viral. And at the end, I would say that we do have campaigns for the rest of the year. That was a good campaign, but we do have compen also for the rest of the year in the different geographies. It is important to support the brands all over the place. And we do see sales growth in all the regions for the rest of the year, low single-digit volume, but we do see positive in other geographies. And again, all of them sorted with some campaigns. And as far as Mexico for this quarter, we do see -- depending on the cater, so we do see very good growth in dairy, especially if you think about it in volume in yogurt. We do see a lot of growth in jortsuch as rage, which has very nice contribution on that end. What we do see is that people are using some dairy products like yogurt for different occasions before it used to be for breakfast, for example, and now they use it between the day and some other things. So we do see a positive stable change for the feature. We also see some positive trends on the proximity channel within Mexico and also in value brands. And if you think about the case of pricing and mix, it also depends a lot on raw materials. So we have been increasing prices, for example, in the case of Turkey in the last couple of months, years. And what we see forward, again, it's having a good price cost alignment, which then will allow us to have some volume growth, which is important, margins that comes from Prescott line, but at the end per ton. So if you think about what we think going forward, it's both balancing the volume for having revenues growth in the medium and long term. but at the same time with very nice EBITDA per tonne going forward.

If I can just complement a little bit on the question on volume regarding the workup. So we were expecting a little bit more volume coming from the food service sector. We didn't see that much as we expected. So we have a limited benefit from there. we saw and this were lower. The new lower expected international tourist particularly in Mexico or charter stays with if there were vacationing and and higher ticket prices that we think that affected the overall performance of the industry, however, as Rodrigo mentioned, a lot of the growth that we saw in Mexico during the quarter has to do with retail and has to do more with the dairy and category. So that's a good part about the diversification that we have different levers that we can pull out in case someone performs lower than expected. Let me move to the cost side. Yes. I mean if you see there's a lot of volatility in the market, you just mentioned 2 different drivers of that -- we have seen some impact in our -- in some of our costs, particularly those related to freight in some regions in the U.S., in Mexico, we have seen some additional costs as well as some of the plastic packaging for our products. However, as we have said in the past, we do not see this impact as something that we cannot manage through our even revenue management initiatives or efficiencies that we're looking in the organization. So there's still some headwinds, I will say, in the second half of the year. But as we mentioned in our initial remarks, we remain confident that the tailwinds, particularly in meat raw material is going to help us offset that headwind.

And just maybe 1 last one, if I may. Can you remind us your FX sensitivity?

Sure. For each of depreciation, the translation effects is around $30 million to $35 million of translation in EBITDA.

Wonderful. And congrats on the results. .

Our next question comes from Nicolas [indiscernible].

Rodrigo, better then -- and with first half compare EBITDA effectively halfway to EUR 1.1 billion target could you discuss which regions are tracking ahead of your original plan? And where you still see the greatest execution risk. This achieving guidance require meaningful U.S. recovery or can the other regions can offset this? My first question.

Thank you, Nicolas. Yes. So -- we are -- I will say, we're on track on all geographies in regards to what we expected in guidance. I know that the U.S. is performing a little bit softer than the rest of the region, but that was our initial assumption since the beginning of the year. We'll see -- we see better dynamics, particularly in Mexico that could potentially help a little bit more, but in general, all of the regions are tracking in line with what we expected since the beginning.

Okay. If I may, another, you highlight an improvement in new U.S. trends during June. And could what changing during this month, what's happening in June, please? There are 2 things, Nicolas. On 1 side, as Roberto mentioned, we had a comparison base. We -- last year, we lowered the little the inventories that we had through some promotions and taking away that, but June, as I said, was almost flat. But at the same time, rentals mentioned that we have had new listings in national retailers. Those new listings have been going through the months of the quarter. So by now, most of them are on and therefore, we expect those listings also to help us within the next months until the end of the year.

Our next question comes from Enrique of Morgan Stanley.

Thank you for I have 2 follow-ups here. The first 1 on Mexico top line growth, more specifically on pricing. You mentioned some price increases in some categories, some discounts in others and the idea that you have been conveying for a while of passing through the lower cost for consumers as well. But thinking about the prices for this quarter specifically, were there any mix effects or something like that impacted the the unit revenue growth, having in mind the deceleration? And considering the favorable costs on a sequential basis that you mentioned as well and considering that even with lower accelerating unit costs. You also grew margins a lot in Mexico. If you could also comment on how are you thinking about the magnitude of what to additional discounts going forward? And what are you expecting in terms of elasticity from the consumer or volume growth coming from that -- those discounts in the second half of the year? That would be very helpful. And my second follow-up on the below-the-line dynamics. We noticed the higher net financial results that you mentioned in the initial remarks. I understand as well the higher FX results you mentioned, but just to make sure if there was any one-off effect or noncash effect that impacted that line during the quarter? And how should we think about that normalized behavior going forward? Those are my true follow-ups.

Thank you, Enrique, this is Roberto. Let me go first to your second question, the net financial cost. If you see almost 90% of the change has to do with lower FX gains in second Q 2016. And that has to do with the appreciation of the Mexican peso. In the second Q2 '25, the Mexican peso appreciated around CHF 143 while in the second quarter of 26, the peso appreciated around $0.60. So in the second quarter of 2016, we have a lower acquisition of the Mexican peso. Our U.S.-denominated debt is translated into a lower peso figure as the peso appreciates and this is reflected in the net financial cost as an FX gain. So most of the fact, again, has to do with the -- in the net financial cost, it has to do with that effect. And the remaining 10% has to do with higher interest expense coming from a large proportion of peso-denominated debt as in this year, we moved a little bit more of our debt into Mexican peso to be more in line with our EBITDA generation. Let me move now to your first question regarding Mexico top line and additional volume dynamics. Let me just say that we Broderwas mentioning that in previous years, due to the inflation of Turkey, we have increased prices. Actually, this quarter, prices, if you compare it to last year, in currency neutral are around 1% higher, and that has to do a little with mix because we're seeing higher volume in yogurt, and yogurt in general has lower prices than process meat and cheese. If you see how we're doing with how we're managing margin going forward, we -- as we have said in the past, we are very conscious of trying to incentivize volume. So we will try to manage our revenue management initiatives in order to also capture a good margin, but also being able to incentivize volume in the long term.

And Enrique, I think that the last thing that Roberto said, it's very important, and it's a good way of thinking about it, how we think about it is just how to make sure that we can have sustainable volume growth for the long term. but balanced with a good EBITDA per ton. So at the end, those are most of the check balances that we do very often in other geographies for the present and for the future.