Jose Cuervo distiller’s profit dips, hit by North America headwinds

By Kylie Madry

MEXICO CITY (Reuters) -Mexican distiller Becle, the world’s largest tequila producer, on Thursday posted a 5% drop in second-quarter net profit off the back of decreased volumes and sales in its largest market, the United States and Canada.

Net profit fell to 1.33 billion pesos ($77.5 million) from the 1.40 billion pesos reported in the year-ago quarter.

Shares in Becle closed up 1.6% ahead of the report’s publication Thursday afternoon, but “should underperform” on Friday, Citi analysts wrote, as core earnings missed analysts’ forecasts by 12%.

The Mexico City-based firm, which sells Jose Cuervo family tequilas as well as mezcal, whiskey and other liquors, reported revenues down 2.4% over April to June, landing at 11.06 billion pesos.

The North American region saw volumes sink 5.6% after price increases, which, combined with the appreciation of the Mexican peso against the dollar, caused sales to drop nearly 13%, Becle said.

The peso has strengthened around 13% versus the dollar since the beginning of the year. On a currency-neutral basis, sales in the U.S. and Canada would have only dropped 1.4%, the distiller said.

“The prevailing theme throughout this year has been the pressure on profitability, primarily driven by exchange rate appreciation, input cost inflation and region mix headwinds,” Becle management said in a statement.

The strong peso will likely affect Becle’s earnings through the end of the year, analysts at Citi added. However, agave prices are beginning to drop, which will help results into 2024, they said.

Management will need to continue strengthening its brands to capture the “premiumization” trend in the U.S. and Canada, the analysts wrote.

Top-shelf tequila has taken on growing market share and U.S. consumers increasingly consider the spirit to be “a luxury sipping drink, rather than a party drink,” Citi said in June.

Becle’s volumes also dipped slightly in Mexico, which the company attributed to energy drink distribution changes, though sales were up from price hikes.

In the rest of the world, Becle was able to shift nearly 18% more drinks volumes, with sales up around 8%.

($1 = 17.1156 pesos at end-June)

(Reporting by Kylie Madry; Editing by Brendan O’Boyle, Isabel Woodford and Sonali Paul)