Betterware de Mexico SAPI (NYSE:BWMX) held its first-quarter earnings conference call on Thursday. Below is the complete transcript from the call.
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Summary
Betterware de Mexico SAPI reported a slight revenue growth of 0.3% year over year, with EBITDA growing by 14%, and an expansion in EBITDA margin from 15.3% to 17.4%.
The company is focused on diversifying its revenue mix and expanding into new markets, with a significant acquisition of Tupperware expected to close in Q2, anticipated to contribute 40% to earnings per share.
Future growth is expected from geographic expansion, particularly in Ecuador and Guatemala, and the company continues to prioritize financial discipline, with a reduction in net debt to EBITDA from 3.1 to 1.5 times.
Operational highlights include the launch of Betterware Colombia and enhancements in digital capabilities, such as the Betterware Plus app and Salesforce CRM.
Management remains optimistic about market conditions, particularly with a recovering Mexican consumer market, and anticipates stronger performance in the latter half of the year.
Full Transcript
OPERATOR
Forward looking statements which are subject to various risks and uncertainties that could cause actual results to differ materially from expectations. Please consider these statements alongside the cautionary language and safe harbor statement in today’s earnings release as well as the risk factors outlined in BEFRA’s SEC filing. BEFRA undertakes no obligation to update any forward looking statements. A reconciliation of and other information regarding non GAAP financial measures discussed on this call can be found in the earnings release published earlier today as well as the Investor section of the Company’s website. Present on today’s call are BEFRA President and Chief Executive Officer Andres Campos and Chief Financial Officer Raul Salvijar. Now I would like to turn the call over to Mr. Campos. Please go ahead sir.
Andres Campos (President and Chief Executive Officer)
Thank you operator and good afternoon everyone. Thank you for joining our call today. First, I’d like to introduce Raul Del Villar, our new CFO. Raul brings more than 30 years of experience in senior finance roles within multinational consumer companies, playing strategic roles in expanding their brand portfolios and entering new geographic markets, both of which are integral to BEFRA’s own growth strategy. His experience and leadership will be instrumental in supporting our growth objectives. Turning to key Highlights on Slide 4, we delivered slight revenue growth of 0.3% year over year and EBITDA growth of 14% year over year, expanding our EBITDA margin from 15.3% to 17.4%, supported by improving profitability across all of our business units. Net income and free cash flow remain strong and reflect a more normalized quarter without the extraordinary effects seen last year. Turning to Slide 5, we continue to diversify our revenue mix in terms of brands and geographies. We expect this trend to accelerate once we receive regulatory approval of the Tupperware transaction, which we expect to happen in Q2. In addition to significantly diversifying our revenue and giving us entry into the Brazilian market, this new brand will be immediately earnings accretive, contributing an estimated 40% to earnings per share. Looking at revenue on a quarter on quarter basis, I’d like to highlight the early success of Betterware expansion into Ecuador and its improving performance in Guatemala, the contributions of which increased from 0.1% to 0.7% of total revenue over the past year. We expect this share to continue growing as the business scales in the region. Now I will hand the call over to Raul so He can explain BEFRA’s key financials in detail.
Raul Del Villar (Chief Financial Officer)
Thank you Andres. Very excited to be part of the team. Let’s turn to slide 6. Contributing to the 0.3% year over year increase in revenue was Betterware which grew 2.6% despite one less week in the quarter and which benefited from its geographic expansion. Improving Trends at Jafra U.S. also contributed to BEFRA’s top line growth which was partially offset by lower sales at Jafra México. Looking at the associate base, we are beginning to see the impact of targeted initiatives with Betterware base returning to growth Although Jafra México’s associate base declined as a result of our focus on productivity, we are now shifting towards initiatives aimed at attraction and retention which we expect to begin showing results in Q2. Overall, these trends demonstrate improving momentum across both businesses and position us well for sustained growth on slide 7, EBITDA performance reflects a clear improvement in profitability across our business units, with margin expanding 211 basis points to 17.4%. It is important to note that extraordinary expenses related to Tupperware transaction impacted the margin. Without these expenses, margin would have been approximately 18.4%. On the right-hand side of the slide, net income accelerated nearly doubling year over year, reflecting a return to more normalized profitability levels following the extraordinary expenses recorded in the prior year as well as lower interest expenses. Overall, BEFRA’s improving profitability embodies our fifth strategic pillar of maintaining financial discipline. Turning to the next slide, free cash flow normalized during the quarter, converting 58% of EBITDA into cash, supported by stronger underlying profitability and continued discipline in working capital management, particularly with respect to inventory. This will enable us to pay our 25th consecutive quarterly dividend since going public, which the Board has proposed at 200 million pesos. Subject to shareholder approval. Dividend payments remained aligned with our disciplined capital allocation framework, maintaining a 33% trailing 12 month dividend to EBITDA ratio while also using the cash we generate to further reduce debt leverage and continue investing in geographic expansion. Slide 9 summarizes BEFRA’s financial strength. Total debt continued falling with net debt to ebitda improving to 1.5 times following the completion of the Tupperware transaction, we expect our leverage ratio to increase to approximately 1.9 times with the aim of maintaining healthy leverage levels. As you can see in the chart
Andres Campos (President and Chief Executive Officer)
at the left of the slide, we successfully reduced leverage from 2.4 times at the end of 2022 and 3.1 times at the time of the Jafra acquisition to current levels. Our asset light model remains a key source of resilience with rota improving to 22.7%, demonstrating greater capital efficiency and stronger profitability. On the right hand side you can see that returns have also strengthened versus last year’s quarter with ROIC increasing to 27% and EPS reaching 31.9 Mexican pesos on a trailing basis, reflecting a stronger earnings profile. Overall, we are not only improving profitability but also translating these gains into stronger results, a healthier balance sheet and high returns on capital while enabling us to continue funding initiatives across our five strategic pillars. I will now pass the call back to Andres who will talk more about each brand’s performance as well as provide an update on the strategic pillars. Thank you Raul Turning to Slide 10 as in previous quarters, we continue advancing across our five strategic pillars which define the next stage of BFRA’s evolution. First, strengthen our leadership in Mexico with our Betterware and Jafra brands. Second, continue our regional expansion, driving Jafra’s growth in the US and selectively expanding across latam. Third, develop or acquire new brands and or product categories. Fourth, further advance our digital transformation and finally, maintain strict financial discipline, prioritizing profitability, cash generation and a strong balance sheet as the foundation of sustainable long term growth. These pillars remain the framework guiding our strategic decisions and capital allocation going forward. On slide 11 is the first pillar strengthening our leadership in the Mexican market, starting with Betterware. On the next slide, the business delivered a solid start to the year with improving commercial momentum, we are seeing a clear inflection point in the Associate base which has returned to growth and is beginning to rebuild scale. This represents an important milestone as it supports the recovery in revenue and reinforces the strength of our commercial model going forward. It is important to note that the quarter had one fewer week compared to last year which affected reported growth. On a comparable basis, revenue growth would have been approximately 3.3%. Additionally, although Latin America currently represents only 1.7% of Betterware total revenue, it is expected to continue expanding as we further scale our regional operations. On the right hand side of the slide, EBITDA margin improved significantly by 190 basis points to 20.5% with EBITDA increasing 12.9% year over year driven by disciplined cost management and solid execution. …
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