Arca Continental Earnings: Sales Miss on Currency Headwinds, but Digitalization a Long-Term Positive

Wide-moat bottler Arca Continental reported a 5% contraction in fourth-quarter sales, missing our 6% growth projection, but this is primarily due to sizable unfavorable currency moves in the U.S. and South America that make up 60% of total sales. Underlying trends remain healthy, with a 2.4% volume expansion and mid-single-digit pricing excluding currency impacts reaffirming the firm’s solid position in beverages and its agility in in-market execution. Net profits still grew 15% (though lagging our 18% estimate), which we attribute to easing input cost pressure, a favorable price mix, more efficient digital selling, and a lower tax rate. We plan to trim our 2023 sales and profit estimates to reflect the fourth-quarter shortfalls but continue to see our 10-year projections for 5% sales CAGR and 15% average operating margins as attainable. As such, we don’t plan any material changes to our MXN 173 fair value estimate.