Arca Continental Earnings: In-Market Execution and Digital Engagements Fuel US and Mexico Growth

We plan to keep our MXN 182 fair value estimate after absorbing wide-moat bottler Arca Continental’s solid third-quarter results. Sales rose 10% and net profit expanded 13%, buoyed by strength in Mexico and the US (80% of total volume combined). However, weakness persisted in South America, given macroeconomic challenges. Management deserves credit for agile price-pack strategies and savvy investments in digital capabilities, which bode well for long-term growth. We also view the firm as prudent in continuing to invest in affordability initiatives (including returnable bottles) in South America amid the tough economic backdrop. These should pay off when macro headwinds subside and commercial beverage demand rebounds. We retain our 2024 forecasts for sales and adjusted EPS to rise 9% and 10%, respectively, and our 10-year projections for 5% average sales growth and 15% average operating margins. Shares look slightly undervalued.