Genomma Lab lifts net income 5.5% as gross margin gains offset a 6% sales decline

Analysis: a quarter where the reported numbers and the operating numbers point opposite ways

Three separate effects move in different directions in this release, and reading any one of them alone gives the wrong picture. Currency cut reported sales below the like for like decline, so the top line looks worse than the underlying business. Currency also helped net income, through smaller foreign exchange losses, so the bottom line looks better than the operating business. In between, EBITDA fell 13.9% while gross margin rose, which is the clearest single measure of what the quarter cost: Genomma bought shelf space and promotion, and it has not yet bought back the volume.

The company’s own sell in and sell out disclosure is the most useful part of the report, because it separates shipments from consumer offtake. Sell in fell 4.4% and sell out fell 4.0%, narrowing the gap between them to 43 basis points, which Genomma reads as healthier channel inventory. It also reports the categories contracting around it, isotonic drinks by 6.6% and over the counter by 6.3%, and says market share held or rose in every business unit. Share defended in a shrinking category is a different result from share lost in a growing one, and only the first is consistent with the margin spending.

Two things the disclosure does not establish. It gives no volume or price split, so it is impossible to tell from outside how much of the 4.4% Mexican decline is fewer units and how much is mix or promotion. And the 2.4% sell out growth cited for the first two weeks of July covers only monitored key customers over a fortnight, which is a sample and a very short window; the release does not size it against the quarter.

The external backdrop supports the company’s account of a weak category rather than a weak company. Mexico’s national statistics agency reported that retail commerce revenue rose 2.4% year on year in May 2026, against 15.4% for wholesale, so household facing trade was close to flat in nominal terms before inflation. What a careful reader would track next is the working capital line: at 129 days, the cash conversion cycle is 14 days longer than a year ago, and the launch spending that created it has to convert into sell out before the trailing free cash flow figure stops falling.

What the documents say

Genomma Lab Internacional, S.A.B. de C.V. (BMV: LABB) reported second quarter net sales of 4,397.0 million pesos on July 22, 2026, down 6.0% from 4,676.4 million pesos a year earlier, and net income of 374.5 million pesos, up 5.5% from 355.0 million pesos. Between those two lines the direction reverses twice, and the reasons are worth separating.

Sales fell in pesos and in local currency, by different amounts

Like for like sales, which the company defines as net sales at constant exchange rates excluding its hyperinflationary subsidiary, fell 3.6%. The gap to the reported 6.0% decline is currency: Genomma said the Mexican peso appreciated 10.8% against the currencies of the region during the quarter, which shrank the peso value of everything sold outside Mexico.

Mexico, the largest market, produced net sales of 2,074.2 million pesos against 2,170.5 million pesos, a fall of 4.4% on both a reported and a like for like basis. Latin America outside Argentina grew 3.9% like for like, on strength in Central America and the Andean region, but in pesos the region fell 2.7% to 1,989.1 million pesos from 2,044.2 million pesos. The United States business, which sells into the Hispanic retail channel, fell 21.3% like for like and 27.7% in pesos, to 333.7 million pesos from 461.7 million pesos.

Argentina illustrates the translation problem in its sharpest form. Sales there rose 22.7% in local currency and sell out rose 37.7%, which the company said outpaced inflation by 4.5 percentage points. Reported in Mexican pesos, and after the hyperinflation adjustment required by IAS 29, the same business showed a 9.2% decline, because the Argentine peso depreciated 24% against the Mexican peso during the quarter.

By category, isotonic drinks grew 14.6% to 853.2 million pesos and infant formula grew 5.2% to 186.9 million pesos. Over the counter medicines fell 8.0% to 1,894.1 million pesos and personal care fell 13.7% to 1,462.8 million pesos. For the first six months, total sales were 8,587.7 million pesos against 9,082.7 million pesos, a decline of 5.5%.

Gross margin up, EBITDA margin down

Gross profit was 2,838.6 million pesos, a margin of 64.6% against 63.5%, an improvement of 106 basis points that Genomma credited to productivity initiatives. Those gains absorbed both higher promotional spending and the full effect of Mexico’s new tax on non caloric flavoured beverages.

Further down, operating leverage worked against the company. Operating income fell 14.9% to 877.2 million pesos, equal to 19.9% of sales against 22.0%. EBITDA fell 13.9% to 958.6 million pesos, a margin of 21.8% against 23.8%, a decline of 200 basis points. Mexico’s EBITDA margin fell 412 basis points to 20.5%, which the company attributed to spending made ahead of an expected sales acceleration. The United States margin fell 585 basis points to 9.9%. Latin America including Argentina was the only region to improve, up 41 basis points to 25.1%.

Net income rose despite that, and the release names the reasons: lower financial expenses and smaller foreign exchange losses, partly offset by a larger monetary position loss at the hyperinflationary subsidiary. Earnings per share were 0.37 pesos against 0.35 pesos.

Cash, working capital and two capital allocation decisions

The cash conversion cycle reached 129 days, against 115 days a year earlier and 119 days in the first quarter. Receivable days rose to 113 from 100, inventory days to 112 from 111, and payable days were unchanged at 96. Genomma described the build as a deliberate commercial investment in Mexican receivables to support product launches and secure shelf space, together with prepayments and inventory to supply those launches.

That shows up in cash. Free cash flow over the trailing twelve months fell 53.5% to 1,259.2 million pesos. Capital expenditure in the quarter was 120.2 million pesos, of which 102.4 million pesos went to the manufacturing plant and distribution centre. Cash and equivalents stood at 2,435,120 thousand pesos, 5.9% below the prior year. Net debt to EBITDA was 1.38 times and EBITDA covered debt service 5.23 times.

Two capital decisions landed in the same window. On June 29, 2026 the company paid a cash dividend of 0.200000 pesos per share, 200,000,000 pesos in total, its sixteenth dividend payment, under the authority of the annual shareholders’ meeting of April 24, 2025, and it restated an intention to pay quarterly. On July 22, 2026, the same day as the results, Genomma disclosed a 10 year amortising credit line of 1,500 million pesos from Bancomext to refinance existing financial liabilities. Half had been drawn at the date of the notice, with the remainder expected during the rest of the third quarter. Chief Financial Officer Antonio Zamora Galland framed it as lengthening the average duration of the company’s liabilities.