Mexican distiller Becle, the world's largest tequila maker, said it expects its profit margins to slowly improve thanks to lower input costs that helped it post a forecast-beating fourth quarter profit.
Becle reported a more than 40% profit jump, despite declining sales after months of unfavourable exchange rates, which it attributed to lower costs as well as its strategy of selling more higher-priced premium liquors.
"We foresee a gradual improvement in gross margins throughout 2024 helped by easing supply chain pressures and lower input costs," Luis Fernando Felix, the distiller's US and Canada director, told analysts in an earnings call.
Product Range
While Becle makes the bulk of its revenues from its Jose Cuervo tequila brand, it also sells other spirits including 400 Conejos mezcal, Pendleton whiskey, Kraken rum and Boodles gin, as well as some non-alcoholic drinks.
Company executives noted that this year should begin to reap rewards from a prior decline in prices for agave, the prickly succulent used to make tequila. They added that the company planned 2024 capital expenditures of up to $180 million. However, they warned that an economic slowdown, notably in Europe, was denting demand for expensive spirits.
"Although the company beat our estimates on the operational side, we wonder how sustainable these expense savings might be in the coming quarters," analysts at Itau BBA wrote in a note.
'Better Trends Materialising'
At J.P. Morgan, analysts cited 'better trends materialising' during the quarter.
Becle reversed three straight quarters of declining profits with the strong jump in the fourth quarter.
The company suffered from a stronger Mexican peso during the first nine months of 2023, which diluted its foreign earnings and pushed up costs.
Becle added that it expects to spend up to 23% of its net sales value on promotional activities this year, and that this revenue metric should grow by 'mid-single digit' assuming little foreign exchange fluctuations.
