U.S. Markets close in 4 hrs 33 mins

Edited Transcript of CUERVO.MX earnings conference call or presentation 24-Jul-19 2:00pm GMT

Q2 2019 Becle SAB de CV Earnings Call

Jul 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Becle SAB de CV earnings conference call or presentation Wednesday, July 24, 2019 at 2:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Fernando Suárez Gerard

Becle, S.A.B. de C.V. - CFO

* Gordon Dron

Becle, S.A.B. de C.V. - MD of Europe, the Middle East & Africa & Asia Pacific

* Juan Domingo Beckmann Legorreta

Becle, S.A.B. de C.V. - CEO, GM & Director

* Luis Fernando Felix

Becle, S.A.B. de C.V. - General Director of Mexico & Latam

* Mariana Rojo Granados

Becle, S.A.B. de C.V. - Corporate Treasurer and IR Officer

* Michael J. Keyes

Proximo Spirits, Inc. - President & CEO

* Steve Shanley

Becle, S.A.B. de C.V. - SVP of Commercial Strategy for Proximo Spirits

================================================================================

Conference Call Participants

================================================================================

* Andrea Faria Teixeira

JP Morgan Chase & Co, Research Division - MD

* Antonio Gonzalez Anaya

Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research

* Benjamin M. Theurer

Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director

* Luis Miranda Valenzuela

Santander Investment Securities Inc., Research Division - Head of Food and Beverage

* Miguel Angel Tortolero

GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Good day and welcome to the Becle's Second Quarter Earnings Conference Call. My name is Jim, I'll be facilitating the audio portion of today's interactive broadcast. (Operator Instructions) At this time, I would like to turn the show over to Mariana Rojo. Ma'am, the floor is yours.

--------------------------------------------------------------------------------

Mariana Rojo Granados, Becle, S.A.B. de C.V. - Corporate Treasurer and IR Officer [2]

--------------------------------------------------------------------------------

Good morning, everyone, I'm Mariana Rojo, Corporate Treasurer and Investor Relations Officer. Thank you for joining us to discuss the unaudited financial results for the second quarter ended June 30, 2019, of Becle, commercially known as Jose Cuervo.

I am joined today by Mr. Juan Domingo Beckman, Chief Executive Officer; Michael Keyes, President and CEO of Proximo Spirits; Steve Shanley, Senior VP of Commercial Strategy for Proximo; Mr. Luis Felix, Managing Director of Mexico and LATAM; Gordon Dron, Managing Director of EMEA and APAC regions; and Fernando Suárez, Chief Financial Officer.

Before we begin, I would like to remind you that the figures discussed on this call were prepared in accordance with IFRS and published in the Mexican Stock Exchange. The information for the second quarter of 2019 is preliminary and is provided with the understanding that once financial figures are available, updated information will be shared in the appropriate electronic format. (Operator Instructions)

Now I will pass the call onto Juan Domingo Beckman, CEO of Becle.

--------------------------------------------------------------------------------

Juan Domingo Beckmann Legorreta, Becle, S.A.B. de C.V. - CEO, GM & Director [3]

--------------------------------------------------------------------------------

Good morning. Thank you for joining us today to discuss Becle's second quarter results. I will make some opening comments, and then I will ask Mike Keyes to discuss performance of our U.S. and Canada business units. Luis Felix will review our Mexico and Latin American results, and Gordon Dron will discuss the results in EMEA and APAC regions. Fernando Suárez will then walk you through the details of our financial results.

During the second quarter, we achieved underlining volume and net sales increases of 6% and 4%, respectively, with Mexico and Rest of the World driving the growth. With these second quarter results and coupled with the strong first quarter we have already reported, we remain on track to achieve upper mid-single-digit volume guidance for the full year. Depletion trends have been strong during the first semester of the year and our consumer takeaway trends are outpacing the product, Spirits and tequila categories in our key markets.

Our Spirits portfolio is well positioned in the right categories, and we continue to invest and develop our brands. From recent industry reports data, we continued to observe that in the last year, the categories that outpaced the spirits industry are tequila, Irish and American whiskey in volume and value.

We have a leading position in tequila and have made significant progress in the whiskey category, not just [in Irish] but in America as well. On the brand front, premium tequila brands of ours have achieved important milestones. For example, tequila Centenario and 1800 just crossed 1-million-case mark at the end of last year in Mexico and the U.S., respectively.

We also continued driving growth with the Cristalino segment across our premium tequila brands. We [are to] keep pace with the premium tequila demand and future growth. We are well underway with construction of our third tequila distillery due to be completed at the end of next year. It is expected to be our largest distillery and will enhance our production capabilities for years to come.

On the whiskey front, Irish whiskey is set to continue to be one of the fastest-growing categories in the world over the coming years. And we have [enacted] with new brand launches and formats. Hence, we are expanding our Bushmills distillery over the next 2 years.

On the agave front, supply continues to be pressured from increased demand, in particular from that tequila premium category. We have seen quarter-over-quarter consistent agave pricing. We are not in a position to represent that we are at the top of the agave price cycle. Despite sequential gross margin improvement in the second quarter, we still expect cost pressures to continue in the short term. We will remain active in taking the necessary measures to enhance our supply and input pricing position to mitigate the impact on gross margin.

We have been focusing efforts for more structured and aggressive third-party agave purchases with emphasis on sugar ideal contents and increasing our own agave plantations. The company is well positioned in the global spirits industry with a leading portfolio of strong brands in growing categories. We're confident we can continue to deliver premiumization with our portfolio.

Now let me turn the call over to Mike Keyes to discuss our U.S. and Canada results.

--------------------------------------------------------------------------------

Michael J. Keyes, Proximo Spirits, Inc. - President & CEO [4]

--------------------------------------------------------------------------------

Thank you, and good morning, everyone. We were pleased with our commercial performance in the United States and Canada during the second quarter. Consumer takeaway for our brands in the United States, as measured by Nielsen and NABCA data, grew over the past 3 months by 5% and 7%, respectively, outpacing the industry in both measures. Depletions were up 1.4% for the quarter and are now up 5% for the year-to-date. Tequila was up 5% for the quarter. It is now up 8% year-to-date, driven by continued strength in our offerings of premium tequilas, consistent with our recent trends.

However, our ready-to-drink Margarita category growth has slowed during the second quarter as we faced increased competition from alternative-flavored cocktails. Year-to-date, our ready-to-drink offerings were up 4%. We have extended our flavored offerings on our 200-millimeter ready-to-drink Margarita line to capitalize on this increasing trend, as it will serve convenient sizes.

Strong consumer takeaway and depletions growth for the quarter continued to reinforce our shipment trends. After adjusting for the nonrenewal of the distribution contract with the Cholula Food Company in the region, overall, our shipments grew 1.8% on a pro forma basis for the quarter compared to the prior year, in line with depletions.

Inventories remain constant throughout the quarter. Net sales in the region were also up 2.4% on a pro forma basis during the quarter, excluding both the nonrenewal of the distribution contract and the delay in billing of discounts from one of our large distributors that occurred in the last year's second quarter. The timing difference will normalize when we report 9-month results in the coming quarter. In conclusion, we remain pleased with overall depletion trends in the United States and Canada and with our corresponding shipment volumes.

I will now turn the call over to Luis Felix to discuss the Mexico and Latin America results.

--------------------------------------------------------------------------------

Luis Fernando Felix, Becle, S.A.B. de C.V. - General Director of Mexico & Latam [5]

--------------------------------------------------------------------------------

Thank you, and good morning, everyone.

In Mexico, during the second quarter, we reported 16.5% growth in volume, while our net sales increased 11.4%. Volume growth in this quarter included the continued strength of our nonalcoholic category and the tequila portfolio, including aggressive promotional activities in the self-service channels. (inaudible) volumes as a result of our sales mix. Industry sales in Mexico remained soft, reflecting weakening economy conditions, with the Spirits category up less than 1% year-to-date. However, we continue to generate higher market share in both tequila categories where we reached 40% share of market, both in volume and in value. And in the spirits industry, as a whole, growing 1-percentage-point market share in value from 18.7% to 19.7%. We anticipate that the industry could remain weak in the second half of the year.

In Latin America, the second quarter volumes declined, reflecting lower depletions in Brazil and Canada and timing of shipments at the end of the second quarter. Excluding these 2 markets, depletions were up across the remaining Latin America market.

I will now turn the call over to Gordon Dron, Managing Director of our EMEA and APAC region.

--------------------------------------------------------------------------------

Gordon Dron, Becle, S.A.B. de C.V. - MD of Europe, the Middle East & Africa & Asia Pacific [6]

--------------------------------------------------------------------------------

Thank you, Luis Felix, and good afternoon from Europe. The EMEA APAC region had an improved second quarter, recording strong recovery with positive tequila shipments and depletions for the first half. Shipments across the region are now in line with last year with net sales running ahead of last year.

Across EMEA, depletions were up during the second quarter and are in line with last year for the first half, despite having taken price increases on our tequila brands. Whiskey shipments, in general, were strong across EMEA. However, we continue to experience challenges in Russia and Ukraine. Our shipments are running just [behind] last year, depletions are showing strong positive single-digit growth with positive performance in all our major markets except for those not mentioned.

In APAC, shipments are running strongly ahead of last year, showing a double-digit increase and contributed significantly to the Rest of the World region's volume. Depletions overall are showing mid-single digits rise, driven by solid performance in Australia, Philippines and Japan. We are gathering traction for our Irish whiskey sales with an encouraging performance in Australia and evidence that our Asian strategy is beginning to gain traction in Taiwan and Japan where we are undergoing initial [trialing].

Additionally, our rum category continues its strong double-digit growth on shipments and depletions across both regions. Overall, we remain confident about the outlook for the rest of 2019, and I will now turn the call over to Fernando Suárez to review the financial results.

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [7]

--------------------------------------------------------------------------------

Thank you, and good morning, everyone. Let me walk you through the second quarter financial results. During the second quarter, the company increased net sales 3.8% on an underlying basis to MXN 7 billion. As mentioned by the U.S. team, the net sales pro forma effect reflects the nonrenewal of the distribution agreement with Cholula Food Company and the delay in billing discounts from one of our large distributors in the region that occurred during the second quarter of 2018.

Again, the billing discounts effect should normalize when we report 9-month results in the coming quarter. During the second quarter, gross profit decreased 13.3% to MXN 3.8 billion. Gross margin decreased to 54.6% from 61.1% for the second quarter of 2018. On a sequential basis, gross margin improved from 52.8% in the first quarter of 2019.

The lower year-over-year gross margin continues to reflect the ongoing impact of record-high third-party agave cost and its effects on production efficiencies that has impacted the entire industry as a result of a strong consumer demand for premium tequila.

Despite consistent quarter-over-quarter agave pricing, we continue to expect these cost pressures to remain. AMP expenses as a percentage of net sales decreased to 23% from 24% in the second quarter of 2019. This decrease reflects the planned timing of AMP spend relative to the prior-year period. During the second quarter of 2019, SG&A expenses increased 14.7%, representing 10.4% of net sales compared to 8.8% in the second quarter of 2018, mainly driven by base effect of a reclassification of certain distribution expenses into cost of goods sold during the same period of last year, with a neutral effect [on] operating profit.

Operating profit decreased 24.9%, while the operating margin was 17.9% primarily reflecting higher third-party agave supply costs, along with higher SG&A, partially offset by reduced AMP. EBITDA decreased 22.2% to MXN 1.4 billion, translating into 20.0% EBITDA margin.

Net financial results this quarter were MXN 88 million, mainly driven by net interest expense. Second quarter net income decreased to MXN 858 million, driven in part by a MXN 455 million unfavorable impact in net financial result as a consequence of the Mexican peso appreciation. Net margin was 12.3%, and net earnings were MXN 0.24 per share. As of June 30, 2019, cash and cash equivalents were MXN 8.7 billion, and total debt was MXN 9.5 billion. We continue to maintain a strong balance sheet with conservative financial leverage and ample liquidity to execute our long-term growth strategy.

In May, a MXN 2 billion dividend was paid to Becle shareholders, corresponding to 50% of 2018 net income, representing a 1.8% dividend yield. Also 34.4 million of treasury stock, accounting for approximately 1% of shares outstanding, were canceled. In closing, we would like to reiterate our full year volume guidance of mid-single-digit growth.

Operator, if we can proceed to Q&A.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question comes from the line of Andrea Teixeira from JPMorgan.

--------------------------------------------------------------------------------

Andrea Faria Teixeira, JP Morgan Chase & Co, Research Division - MD [2]

--------------------------------------------------------------------------------

So my question -- I have 2 questions. First on the Cholula contract. What is the main reason for not renewing it as it is obviously related party to Becle? And if you can kind of like talk to us regarding, like, how the normalized gross margin and EBIT margin -- I understand you did a pro forma for the volumes and revenues, but if you can do pro forma gross margin and EBIT. I remember, at the time of IPO, I think, it was about 100 basis points negative impact at the time, but I don't remember, like, it was the ownership of the brand and then the distribution. So I want to find out what is the normalized ongoing margins for you?

And related to that, I think, Fernando and the other members of the management team had said, "This is going to linger. Agave's an all-time high." So if you can give us, like, a sense of how we stand at [spot] and a sense of what is the normalized gross margin? Because you did quote saying, like, on a sequential basis, margins got better, but I think they have to because it's a -- because of the -- this is the mix in the second quarter. So if you can give us like a sense of the normalized margin impact from agave cost at this point?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [3]

--------------------------------------------------------------------------------

Yes, Andrea, thank you. Regarding Cholula, as you recall, the Cholula business was separated from Becle prior to IPO, a couple of years ago. We only retained distribution agreement. And the Cholula shareholders sold the company in April of this year to a financial sponsor, and the distribution contract was not renewed. So that's the explanation regarding Cholula.

On providing pro forma margins for this transaction, we don't break out brand's profitability and investments. We cannot open our pro forma for this transaction. That's all we can say at this stage.

Regarding agave costs, as was stated in the call, we have seen consistent agave price between the first and second quarter, relatively flattish. But we're not in a position to be able to represent that the agave cycle is over. We expect cost pressures to continue, and we are dealing and managing through the situation on the agave supply. That's all we can say.

--------------------------------------------------------------------------------

Andrea Faria Teixeira, JP Morgan Chase & Co, Research Division - MD [4]

--------------------------------------------------------------------------------

So it's just -- that's helpful. But it's just the 100 basis points that I recall being at the time the impact of the Cholula. Is that a fair assumption to what was disclosed in the past as the positive impact of the margin from that contract on the distribution contract?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [5]

--------------------------------------------------------------------------------

I have no comments on what was said in the past on that, unfortunately.

--------------------------------------------------------------------------------

Andrea Faria Teixeira, JP Morgan Chase & Co, Research Division - MD [6]

--------------------------------------------------------------------------------

Okay. And then just to double-check, you said on a sequential basis, neutral-to-mix agave is relatively flat to your COGS. Is that the way we should think, the second quarter against the first quarter?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [7]

--------------------------------------------------------------------------------

We saw a consistent agave price in the quarter-over-quarter, flattish with a bit of an increase. But that's what we can say at this stage. We cannot forecast what can be the trend going forward. We expect cost pressures to continue. And that's the position that we can state at this stage.

--------------------------------------------------------------------------------

Operator [8]

--------------------------------------------------------------------------------

Our next question comes from the line of Miguel Tortolero of GBM.

--------------------------------------------------------------------------------

Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [9]

--------------------------------------------------------------------------------

The first one is related to the one just asked. I would like to understand a bit better the trend in gross margins. What will you say is driving the quarter-over-quarter improvement from what we have seen, and you mentioned on you initial remarks, agave prices have been either stable or increasing a little bit quarter-over-quarter but not decreasing. So is it fair to assume that the quarter-over-quarter improvement in gross margin comes from a higher use of [own] agave?

And the second one is regarding working capital. When you see the free cash flow burn of the quarter, it is fully explained by working capital issues. But within working capital, I understand the seasonal change in your receivables. But if I'm doing my numbers right, explains about half of the negative change in working capital. So you just would like to give more color [on the increase] of inventories is driving the other half. It has to do with seasonality issues. That will be the second question.

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [10]

--------------------------------------------------------------------------------

Okay. On agave prices, it's basically the gross margin improvement. It's just efficiencies, in general, that we're able to achieve, despite the flattish agave prices. That's all we can say on gross margin.

And with respect to working capital, as you saw in the changes in inventory and different working capital accounts, the bulk of what's consuming cash is the purchases of third-party agave. That's what taking the lion's share of that specific change in the working capital. But other than that, the seasonality of the working capital cycle is normal and is consistent to what we have been seeing in other quarters.

--------------------------------------------------------------------------------

Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [11]

--------------------------------------------------------------------------------

All right. Could you make any comments regarding the use of own agave during the quarter?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [12]

--------------------------------------------------------------------------------

Can you repeat the question?

--------------------------------------------------------------------------------

Miguel Angel Tortolero, GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division - Research Analyst [13]

--------------------------------------------------------------------------------

Could you make any comments on the use of own agave during the quarter compared to 2 other quarters?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [14]

--------------------------------------------------------------------------------

No, unfortunately not. As you recall, we do not disclose the integration level because of competitive reasons, and we wouldn't be in a position to comment on that.

--------------------------------------------------------------------------------

Operator [15]

--------------------------------------------------------------------------------

Our next question comes from the line of Antonio Gonzalez of Crédit Suisse.

--------------------------------------------------------------------------------

Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [16]

--------------------------------------------------------------------------------

I have 2 if I may. The first is perhaps for Mike Keyes. I wanted to ask first, quantitatively, there is this announced the merger by 2 of the largest distributors in the U.S., one of which is particularly relevant for you guys. Anecdotally, are you seeing any or anticipating any transition phase on which volumes will be more depleted in one network versus the other, and any sort of distortion that you anticipate over the coming quarters? I believe the announced merger is supposed to close during the third quarter, right?

And I guess related to that same topic, I wanted to ask if -- you made the comment, Mike, that now during the second quarter, shipments and depletions were roughly aligned, right? When you look into the third quarter, the second quarter was cycling 2 years of the negative shipments, right? Minus 13% and minus 75%, if I look 2 years ago and 1 year ago. Now in the third quarter, you will be cycling 2 years of very strong shipment growth, right? So I wanted to ask if you can quantify towards whether you expect any sort of volatility shipment-wise during the third quarter, given that you are cycling a very different comparison base?

--------------------------------------------------------------------------------

Michael J. Keyes, Proximo Spirits, Inc. - President & CEO [17]

--------------------------------------------------------------------------------

Yes. So thank you for your questions. I thought you were going to ask 2 distinct questions. I'll take the first question, and I'll give the second question to Steve Shanley, our commercial expert. But for first question, we will continue and have continued to see discussions between the major distributor partners in consolidation. We have one -- we had one situation where 2 partners were trying to combine, and they didn't get approval to combine, and then we have what you referenced, which would be joining forces of RNDC and Young's Market Company for the Western part of United States.

We did business with both of those partners independently. And so they're both 2 strong partners. We've had these partners for many, many years. And they're coming together. We like to look at it as a coming together of strength, not weakness. And there will, I'm sure, be some rough patches with the consolidation of the company. That's to be seen as normal, I think. But I don't see anything [that's of] size with regard to 2 of our strong partners coming together. And then Steve, If you want to touch on shipments?

--------------------------------------------------------------------------------

Steve Shanley, Becle, S.A.B. de C.V. - SVP of Commercial Strategy for Proximo Spirits [18]

--------------------------------------------------------------------------------

Yes, sure. And I just want to add to Mike's comment on that. I think your question was around any abnormal phasing that might occur when a company sells distribution to another company, sometimes there can be some abnormal [phasing] of depletions. But because Young's management is staying involved, we see that as not an issue in this particular case. So we're not anticipating anything out of the ordinary as far as phasing of depletions.

And to your second question, the shipments and depletions did line up very closely here in the second quarter. We anticipate the shipments and depletions to line up very closely in the third quarter as well as the inventory will probably hold around the same level that it is until we get to the fourth quarter where there's a natural build to the end of the fiscal year.

So we are anticipating that to pretty much hold constant. As far as against previous year, and I think you referenced 2 years, I would just stay with referencing the one year, which we thought was pretty consistent last year, except maybe for the third quarter where there were some slight supply issues. So if anything, there might be a little bit of an outpacing of the depletion growth by the shipment growth.

--------------------------------------------------------------------------------

Antonio Gonzalez Anaya, Crédit Suisse AG, Research Division - Senior Analyst of Latin American Equity Research [19]

--------------------------------------------------------------------------------

Okay. That's very clear. And secondly, if I may very quickly, I think, Juan Domingo, you mentioned in your prepared remarks some increased exposure to agave plantations, right? And I obviously understand that you cannot guide on gross margin at the moment, but I just wanted to, I guess, reconfirm with you all of the comments that I recall being made before as you try to normalize gross margin were more related to third-party agreements, right?

So I just wanted to reconfirm if these higher agave plantations are an incremental initiative? And whether you are very early in the cycle and would only expect improvements to be reflective 7 years from now or whenever the harvesting period is over? Or is this not new, and you were planning on this all along since the high volatility in the agave market started?

--------------------------------------------------------------------------------

Juan Domingo Beckmann Legorreta, Becle, S.A.B. de C.V. - CEO, GM & Director [20]

--------------------------------------------------------------------------------

Hello. Yes, we just finished [plantations] this year, and we planted more or less 20% more than last year. And we will see results in 6 years, more or less. So we feel very confident on that.

--------------------------------------------------------------------------------

Operator [21]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question comes from the line of Luis Miranda from Santander.

--------------------------------------------------------------------------------

Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [22]

--------------------------------------------------------------------------------

I have a couple of questions. The first one is probably on Mexico. And you mentioned on the press release the more promotional environment in Mexico and also the slowdown in consumption. I don't know if you could give us some color on what are you seeing in the market in terms of premium versus mainstream brands, and if you are seeing core and promotional activity sustained during the second half or it could be even more aggressive?

And my second question is with regard to the U.S. I know that you don't like to disclose the information on a category by country, but if you could give us some color in terms of -- when we take a look at the volume growth of Jose Cuervo of 8.9% and Other Tequila of 8.1% year-over-year on a consolidated basis, how is the growth by region or at least on a relative trend?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [23]

--------------------------------------------------------------------------------

Thank you, Luis. I'll take the first one. So yes, in terms of promotional activities in the second quarter, it was very aggressive and, particularly, in the self-service channel. And many of them had the (inaudible), and some of them responded to that. So we saw depletions were in June and July around 7% for our brands in terms of depletions from that channel. So we don't expect that to continue because that's very centered in this particular time of the season. So yes, it was very aggressive, but we came out with strong depletions compared to previous year.

You asked also if premium versus standard, we have seen some differences in terms of depletions. We don't. We see some of our brands, particularly Centenario continued growing very strongly in the market, and we also saw in that -- in the self-service channels Maestro Tequilero and 1800 growing as well. So I think -- it still don't reflect the contraction that we may see in the future, but -- so I think both our -- all our brands are growing in the marketplace, and that's why we're gaining some market share.

--------------------------------------------------------------------------------

Michael J. Keyes, Proximo Spirits, Inc. - President & CEO [24]

--------------------------------------------------------------------------------

And with regards to the second question for the U.S., I wasn't certain, Luis, if you were asking about Jose Cuervo Tequilas or Jose Cuervo Especial?

--------------------------------------------------------------------------------

Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [25]

--------------------------------------------------------------------------------

No, overall, I think on -- overall on tequila as a trend. As you report the Jose Cuervo family and the Other Tequila families, just to have an idea of the relative performance of the consolidated numbers, this 8.9% and 8.1% in the U.S.?

--------------------------------------------------------------------------------

Michael J. Keyes, Proximo Spirits, Inc. - President & CEO [26]

--------------------------------------------------------------------------------

Yes. So we expect to grow the family of tequilas, I would say to mid- to high single digits.

--------------------------------------------------------------------------------

Luis Miranda Valenzuela, Santander Investment Securities Inc., Research Division - Head of Food and Beverage [27]

--------------------------------------------------------------------------------

For full year, correct?

--------------------------------------------------------------------------------

Michael J. Keyes, Proximo Spirits, Inc. - President & CEO [28]

--------------------------------------------------------------------------------

Correct.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

Your next question comes from the line of Ben Theurer of Barclays.

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [30]

--------------------------------------------------------------------------------

Two questions if I may. So one, just very quick on Cholula, following up to a little bit of math. Is it right to assume that you have on average, in the first and second quarter, you would have had or have about 180,000 cases for the second half? Is it fair to assume that's going to be a similar level that we have to adjust our estimates going forward, just to get a little bit of a sense on how pro forma second half '18 would have looked like because you gave first half '18 but not the second half '18. So if you could just confirm those numbers?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [31]

--------------------------------------------------------------------------------

Yes. The pro forma figures that we gave for second quarter and in the annex of the press release, we gave first half as well. But just on second quarter, specifically, yes, you're right, it's about 184,000 cases, the Cholula effect on volume.

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [32]

--------------------------------------------------------------------------------

And that going forward is going to be similar, right?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [33]

--------------------------------------------------------------------------------

We terminated the agreement...

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [34]

--------------------------------------------------------------------------------

For 3Q and 4Q?

--------------------------------------------------------------------------------

Fernando Suárez Gerard, Becle, S.A.B. de C.V. - CFO [35]

--------------------------------------------------------------------------------

In due time, we will disclose our amount. But the effect that happened effective April 15 of second quarter, and we can get back to you on third quarter and fourth quarter of last year.

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [36]

--------------------------------------------------------------------------------

Okay. Perfect. That's on that. And then just to understand, I would like to dig in a little bit on what happened to sales and price mix in Mexico because clearly, you had a very strong volume growth, pro forma up 17%, but sales growth was just about 11.5%. Can you elaborate a little bit on the dynamics behind the price-per-case reduction? Was it a shift in consumer? Was it having to do with calendar? What were the drivers behind the lower sales growth compared to the volume growth? That would be great to understand.

--------------------------------------------------------------------------------

Luis Fernando Felix, Becle, S.A.B. de C.V. - General Director of Mexico & Latam [37]

--------------------------------------------------------------------------------

Yes. Remember, we mentioned that the growth came from 2 different regions. One is the nonalcoholic products, and that's particularly B:oost. B:oost was very aggressive -- growth in the first quarter. And then on the second quarter, the brand grew around 16%.

If we take out B:oost from the second quarter, our Spirit business also grew 14% in volume. However, the growth was concentrated in -- basically in Cuervo Especial and Cuervo Tradicional. So the change that which -- that you can see it's because of the mix. So we have some slowdown, and some didn't grow as much as the others.

So Centenario Tradicional and Especials were the ones that grew significantly and less growth in the super-premium tequila products. So it's an effect of the mix that you can see. So for one side, B:oost growing significantly; and then on the other side, partial mix of Centenario, which just continues growing more than 20% in the quarter.

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [38]

--------------------------------------------------------------------------------

Okay. So that shift mix, do you think it has to do with somehow slowdown in the economic activity as some of other consumer companies have been talking about? Or do you think about it's more specific to the quarter on certain promotioning that might -- you guys might have done with [B:oost], which has caused the shift? Or is that something you would expect to happen going forward as well to continue that kind of strong volume and not-so-strong net sales increase in Mexico?

--------------------------------------------------------------------------------

Luis Fernando Felix, Becle, S.A.B. de C.V. - General Director of Mexico & Latam [39]

--------------------------------------------------------------------------------

We believe that the...

--------------------------------------------------------------------------------

Benjamin M. Theurer, Barclays Bank PLC, Research Division - Head of the Mexico Equity Research & Director [40]

--------------------------------------------------------------------------------

Putting B:oost aside.

--------------------------------------------------------------------------------

Luis Fernando Felix, Becle, S.A.B. de C.V. - General Director of Mexico & Latam [41]

--------------------------------------------------------------------------------

Yes. We have seen that the economy has slowed down. And the overall trend of the Spirits category on a year-to-date -- on an annual basis, is less than 1%. Particularly, in tequila, it's 0.3% growth in volume. But it's growing 14% in value. So the tequila category premiumized significantly.

So that is a reflection of the market. So we expect that in the second quarter, just the products, the super-premium products, if the economy continues to decelerate, it may suffer. So yes, we will continue -- we have a very strong portfolio that covers all the different price segments. So I think we will be in good shape if the economy continues to slow down.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

I would now like to turn the call over -- the call to Mr. Juan Domingo Beckmann, our CEO.

--------------------------------------------------------------------------------

Juan Domingo Beckmann Legorreta, Becle, S.A.B. de C.V. - CEO, GM & Director [43]

--------------------------------------------------------------------------------

I would like to thank you again for your continued interest in Becle. We remain extremely confident in our family of brands and our prospects for long-term growth. Have a great day.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

This concludes today's conference call. You may now disconnect. Have a great day.