Arca Continental Earnings: Solid US Execution, but Overall Performance Pressured by South America

Wide-moat bottler Arca Continental reported flat first-quarter sales and a 1% net profit expansion as economic challenges in Argentina and widespread social unrest in Ecuador offset solid performance in the US and Mexico. We think the bottler’s execution has been strong in areas within its control, including innovation, digital investments, and multicategory expansion. However, we plan to trim our 2024 sales and net profit estimates by a low-single-digit percentage to reflect more severe headwinds in South America than we anticipated. That said, we see no need to change our 10-year projections for a 5% sales compound annual growth rate and 15% average operating margins or our MXN 180 fair value estimate, and we view shares as undervalued.