Grupo Traxión, S.A.B. de C.V. (TRAXIONA) Earnings Call Transcript

Hello, and welcome to the Grupo Traxion 3Q '26 Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to Aby Lijtszain, Executive President. Thank you. You may begin.

Good morning, everyone, and thank you for joining us today. During the third quarter, Traction continued to operate in a complex business environment, characterized by elevated fuel costs and ongoing macroeconomic and geopolitical uncertainty. These factors have affected the conditions across our industry, reinforcing the importance of financial discipline, operational efficiency and a consistent focus on execution. Against this backdrop, our priorities remain clear enhanced operational performance, optimize our structure and strengthen the fundamentals of our business to support sustainable long-term growth. We recognize that certain areas of our operations present opportunities for improvement, and we are actively addressing them through targeted initiatives aimed at increasing efficiency, improving profitability and reinforcing accountability across the organization. At the same time, we continue to monitor external developments and adapt our operating strategies as market conditions evolve. Regarding foreign exchange, the Mexican peso has depreciated by more than MXN 1.5 against the U.S. dollar in recent weeks. However, this movement had no meaningful impact on our third quarter results. If this recent movement prevails, we expect some improvement in the coming months particularly in the portion of our revenues denominated in dollars. Turning to the recent tender offer for our shares. The transaction launched on September 22 was completed last week. The offer was designed to provide shareholders with an orderly and transparent liquidity alternatives under prevailing market conditions. Approximately 50% of tractions outstanding shares were tendered and acquired through the transaction. Finally, looking ahead, we maintain a disciplined approach to managing the business. while the timing and pace of an improvement in market conditions remain uncertain, our strategic priorities are firmly established. We will continue to focus on operational excellence, cost efficiency, and initiatives that strengthen our competitive position. We believe these efforts will enhance our ability to navigate the current environment while positioning traction to capture opportunities as industry conditions improve. Thanks for your attention. I will now hand over to the rest of the time.

Thanks, Aby. Good morning, everyone, and thank you for joining us. During the third quarter, we continued to execute our operational priorities while navigating a challenging transportation and logistics environment. Freight volumes remain under pressure, and we are seeing shifts in manufacturing activity. particularly in the automotive and electronics sectors. While pricing conditions have improved modestly, elevated fuel costs and subdued volumes continue to weigh on the pace of recovery. Against this backdrop, our focus remains on what we can control. Operational efficiency, commercial execution, asset productivity and cost discipline. Starting with our cargo division, revenue increased 8.6% year-over-year or MXN 167 million, supported by modest improvements in market conditions since June and the launch of new operations with customers in the consumer and e-commerce sectors. Importantly, we completed the restructuring of the division, establishing a leaner and more efficient operating model. This structure positions us to improve asset utilization, optimize our commercial resources, capture operational synergies and reduce our cost base. Revenue per kilometer improved year-over-year despite a drop in volumes. However, higher fuel costs continue to pressure profitability. Our priority is to translate these pricing improvements and structural efficiencies into stronger operating performance as volumes recover. Turning to logistics. Revenue increased more than 10% year-over-year, driven by new customer wins and expanded business with existing strategic accounts. We also continued to expand our cross-border operations, particularly in the United States, reinforcing our strategy to capture opportunities across the integrated North American supply chain. One year after the acquisition of Solistica, we have achieved our initial integration objectives. We are now focused on capturing additional synergies and improving operating efficiencies and leveraging our expanded capabilities to deepen customer relationships and support profitable growth. In mobility of people, revenue grew 4.1% year-over-year primarily supported by new customer operations in Monterrey and the Bajio region. We also advanced our fleet refurbishment program, which allows us to enhance service capacity and extend asset productivity while limiting incremental capital expenditures. This approach provides flexibility to pursue new business opportunities without materially increasing capital intensity. Looking ahead, while we remain cautious about the timing of a broader market recovery, we are encouraged by our commercial pipeline and the progress made across our operating platform. With this, I end my remarks. Thank you. Wolf, please go ahead.

Hello, everyone. Thanks for your time today. I would like to provide addition tonal perspective on our financial performance during the third quarter and our expectations for the remainder of 2026. Starting with our balance sheet, we maintained stable leverage levels despite a challenging operating environment. preserving financial flexibility and maintaining a disciplined approach to capital allocation remain key priorities for traction. Our comprehensive financing results continued to improve, reflecting our ongoing efforts to optimize our debt structure and secure more competitive financing terms. These initiatives have contributed to consistently lowering interest expenses as compared to prior periods, supporting our overall financial position. Turning to profitability. Our third quarter performance reflects a combination of external market conditions and temporary operational factors associated with the ongoing transformation of our business. First, fleet reallocations and adjustments to certain customers' operating requirements created transitional inefficiencies during the quarter. Additionally, the continued strength of the Mexican peso affected the operating environment for several of our customers, placing pressure on certain revenue streams. We also incurred approximately MXN 116 million in severance expenses associated with organizational adjustments. While these initiatives represent a near-term impact on profitability, they are part of our broader efforts to streamline our organizational structure, improve operating efficiency and establish a more competitive cost base. Furthermore, elevated fuel costs, which have persisted over the past 7 months, continued to exert pressure on operating margins. Against this backdrop, we remain focused on executing the initiatives within our control. including cost discipline, operational optimization and organizational efficiency. Looking ahead, we expect to achieve our full year revenue guidance of approximately 10% growth compared to 2025, supported in part by a higher-than-expected contribution from our asset-light division. However, given the operating challenges experienced throughout the year, the continued pressure from macroeconomic conditions and the evolving revenue mix, we no longer expect to achieve our original EBITDA margin guidance of 16%. -- we now anticipate our margin contraction of at least 200 basis points relative to our original guidance. While this represents a meaningful deviation from our initial expectations, we remain focused on implementing the necessary operational and structural adjustments to improve profitability and strengthen our business going forward, although the timing and magnitude of the benefits will depend partly on broader macroeconomic and geopolitical conditions. In the meantime, our priorities remain clear: protecting our balance sheet, maintaining financial flexibility, improving operating efficiency and positioning traction for sustainable, profitable growth. Thanks for your attention. I will now hand over to Tonio.

Thank you, Wolf. During the third quarter, we continued to advance our sustainability strategy, achieving important milestones that reinforce our commitment to operational efficiency, innovation and responsible long-term growth. We also published our latest annual integrated report, which provides a comprehensive overview of our environmental, social and governance initiatives, along with our progress across key sustainability priorities. The report is available on our corporate website, and I encourage you to review it. Turning to our environmental initiatives. One of the most significant developments this quarter was the completion of solar panel installations at 4 additional facilities. -- more than doubling our installed solar generation capacity to approximately 1,511 kilowatts peak. Based on preliminary estimates, this expanded infrastructure could generate approximately 2.4 million kilowatt hours of clean electricity annually, potentially avoiding more than 1,000 metric tons of CO2 equivalent emissions each year. Beyond the environmental benefits, these investments represent an important step toward improving energy efficiency, reducing our reliance on conventional electricity sources and potentially lowering long-term operating costs. We are also making progress in evaluating alternative energy technologies for our transportation fleet where we see meaningful opportunities to improve fuel efficiency and reduce emissions. During the quarter, we initiated a pilot program involving electric tractor trucks equipped with interchangeable battery systems. This technology has the potential to address certain operational challenges associated with electric heavy-duty vehicles, particularly charging times and fleet availability. Additionally, we completed trials of solar-powered air conditioning systems with encouraging preliminary results. These solutions could help reduce fuel consumption associated with auxiliary equipment, while maintaining operational performance. We also launched pilot programs involving hydrogen injection technologies in both buses and tractor trucks. We expect to evaluate the results over the coming months, focusing on technical performance, fuel efficiency and potential operational applications. Importantly, our approach to adopting new technologies remains disciplined. We prioritize solutions that can deliver measurable environmental improvements while meeting our standards for operational reliability, service quality and economic viability. We believe sustainability and operational efficiency are increasingly interconnected, particularly in an industry where energy consumption represents a significant component of operating costs. By continuing to invest in renewable energy and evaluating emerging technologies, we aim to strengthen traction's competitive position, improve the efficiency of our operations and create sustainable long-term value for our shareholders and stakeholders. With this, I wrap up management's remarks, and we'll open the floor to Q&A.

And your first question comes from Martin Lara with Meridian Global Research.

I have only 1 question. Could you please talk a little bit about your pricing strategy in mobility of cargo and mobility of personnel for the next few quarters?

Hello, Martin. So regarding the pricing, like to hear you. I'm Rodolfo. So regarding the pricing, what we are looking forward is in the Fargo segment, the pricing in the U.S. is getting better. So we're in the cross-border business, we think we can approach a little bit the prices. In the domestic business still it's not fully recovered. So we are still seeing a different type of volumes. So the pricing will stay accordingly. So what we have right now. And in the personal transportation business, that business is it's relatively stable as only the border business is a little wobble, but other than that, we see the pricing going forward, the thing we are hitting right now.