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FEMSA (FMX) Lags Earnings and Revenues in Q1, Stock Gains
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Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) , alias FEMSA, posted first-quarter 2017 net majority income of 49 cents per ADS (Ps. 92 cents per FEMSA unit), falling much below the Zacks Consensus Estimate of 62 cents. This marked the company’s third consecutive bottom-line miss.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
Nonetheless, quarterly net consolidated income of the largest franchise bottler for The Coca-Cola Company (KO - Free Report) jumped 51.3% to Ps. 6,590 million (US$323.2 million) from Ps. 4,356 million (US$213.6 million) in the year-ago quarter. The increase was driven by higher non-operating income, partly offset by adverse foreign exchange translations related to FEMSA’s US dollar-denominated cash position.
Shares of FEMSA climbed 1.8% following the earnings announcement. Further, FEMSA outperformed the broader industry in the last three months. The stock jumped 15.6% in the past three months, surpassing the Zacks Categorized Beverages - Soft Drinks industry's gain of 8.5% in the same period.
Quarter in Detail
Total revenue advanced 29.1% year over year to Ps. 110,862 million (US$5,437million), fueled by solid performance across its segments, taking into account the inclusion of Philippines and Vonpar’s incorporation at Coca-Cola FEMSA. On an organic basis, total revenue increased 18.6% year over year. However, the company’s total revenue in dollar terms fell short of the Zacks Consensus Estimate of $5,754 million, breaking its three-quarter long positive surprise trend.
FEMSA’s gross profit grew 26.2% to Ps. 39,355 million (US$1,930.1 million). Gross margin contracted 80 basis points (bps) to 35.5% owing to decline in Coca-Cola FEMSA’s gross margins (primarily due to the addition of Philippines) and lower-margin businesses growth at FEMSA Comercio.
FEMSA’s operating income ascended 18.7% to Ps. 8,093 million (US$396.9 million). On an organic basis, operating income improved 4% year over year. However, consolidated operating margin contracted 60 bps to 7.3%, on account of lower margins at most of its segments.
Segmental Discussion
Total revenue at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) was up 38.4% year over year to Ps. 51,357 million (US$2,518.7 million). On a comparable basis, revenues improved 2.7% on the back of a rise in average price per unit case in majority of the company’s operations along with higher volumes in Mexico and Central America.
Coca-Cola FEMSA’s operating income climbed 24.1% to Ps. 6,090 million (US$298.7 million) in the quarter, while comparable operating income rose 7.2%. The segment’s comparable operating margin contracted 130 bps to 11.9%.
FEMSA Comercio – Retail Division: Total revenue at this segment grew 11.9% year over year to Ps. 34,070 million (US$1,670.9 million). The rise can be mainly attributed to the opening of 170 net new OXXO stores in the quarter, which took the total net new store count for the past 12 months to 1,203. FEMSA Comercio’s Retail division had a total of 15,401 OXXO stores as of Mar 31, 2017. Same-store sales at OXXO increased 5.7% on a 3.1% increase in average customer ticket and 2.5% rise in store traffic.
However, operating income dropped 2.9% year over year to Ps. 1,529 million (US$197.6 million), owing to higher operating expenses. The segment’s operating margin declined 70 bps to 4.5%.
FEMSA Comercio – Health Division: This segment reported total revenue of Ps. 12,024 million (US$589.7 million), up 26.4% year over year. The increase was backed by strong growth in South American business and persistent store expansion in various regions, along with a currency translation gain from the appreciation of the Chilean and Colombian pesos. The segment had a total of 2,136 point of sales across all regions, of which about 16 net new stores were added in the first quarter. Same-store sales for the drug stores rose 20.7% driven by strong growth in South America that nullified the impact of soft trends in Mexico.
Operating income amounted to Ps. 251 million (US$29 million), inching up 0.8% year over year. Operating margin contracted 50 bps to 2.1% owing to higher operating expenses in Mexico, increase in incentives for in-store personnel and greater services at Mexican stores.
FEMSA Comercio – Fuel Division: Total revenue was up 49.9% to Ps. 9,114 million (US$447 million) on the back of impressive volume growth, improved national prices and the addition of 6 net new OXXO GAS stations in the quarter. Same-station sales rose 24.8% year over year, driven by a 0.9% increase in same-station volumes and a 23.6% rise in average revenue per liter, as a result of the aforementioned national price increases. The company had 388 OXXO GAS service stations as of Mar 31.
Operating income rose significantly by 113.8% to Ps. 62 million (US$3 million), while operating margin expanded 20 bps to 0.7% driven by cost-control efforts and enhanced operating efficiency.
Financial Position
FEMSA had cash balance of Ps. 41,176 million (US$2,189 million) as of Mar 31, 2017. Long -term debt was Ps. 114,462 million (US$6,085.2 million). Moreover, the company incurred capital expenditure of Ps. 5,835 million (US$286.2 million) in the first quarter due to increased investments across all segments.
Currently, FEMSA currently carries a Zacks Rank #3 (Hold).
Embotelladora Andina outperformed the Zacks Consensus Estimate significantly in the last two quarters.
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FEMSA (FMX) Lags Earnings and Revenues in Q1, Stock Gains
Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) , alias FEMSA, posted first-quarter 2017 net majority income of 49 cents per ADS (Ps. 92 cents per FEMSA unit), falling much below the Zacks Consensus Estimate of 62 cents. This marked the company’s third consecutive bottom-line miss.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote
Nonetheless, quarterly net consolidated income of the largest franchise bottler for The Coca-Cola Company (KO - Free Report) jumped 51.3% to Ps. 6,590 million (US$323.2 million) from Ps. 4,356 million (US$213.6 million) in the year-ago quarter. The increase was driven by higher non-operating income, partly offset by adverse foreign exchange translations related to FEMSA’s US dollar-denominated cash position.
Shares of FEMSA climbed 1.8% following the earnings announcement. Further, FEMSA outperformed the broader industry in the last three months. The stock jumped 15.6% in the past three months, surpassing the Zacks Categorized Beverages - Soft Drinks industry's gain of 8.5% in the same period.
Quarter in Detail
Total revenue advanced 29.1% year over year to Ps. 110,862 million (US$5,437million), fueled by solid performance across its segments, taking into account the inclusion of Philippines and Vonpar’s incorporation at Coca-Cola FEMSA. On an organic basis, total revenue increased 18.6% year over year. However, the company’s total revenue in dollar terms fell short of the Zacks Consensus Estimate of $5,754 million, breaking its three-quarter long positive surprise trend.
FEMSA’s gross profit grew 26.2% to Ps. 39,355 million (US$1,930.1 million). Gross margin contracted 80 basis points (bps) to 35.5% owing to decline in Coca-Cola FEMSA’s gross margins (primarily due to the addition of Philippines) and lower-margin businesses growth at FEMSA Comercio.
FEMSA’s operating income ascended 18.7% to Ps. 8,093 million (US$396.9 million). On an organic basis, operating income improved 4% year over year. However, consolidated operating margin contracted 60 bps to 7.3%, on account of lower margins at most of its segments.
Segmental Discussion
Total revenue at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) was up 38.4% year over year to Ps. 51,357 million (US$2,518.7 million). On a comparable basis, revenues improved 2.7% on the back of a rise in average price per unit case in majority of the company’s operations along with higher volumes in Mexico and Central America.
Coca-Cola FEMSA’s operating income climbed 24.1% to Ps. 6,090 million (US$298.7 million) in the quarter, while comparable operating income rose 7.2%. The segment’s comparable operating margin contracted 130 bps to 11.9%.
FEMSA Comercio – Retail Division: Total revenue at this segment grew 11.9% year over year to Ps. 34,070 million (US$1,670.9 million). The rise can be mainly attributed to the opening of 170 net new OXXO stores in the quarter, which took the total net new store count for the past 12 months to 1,203. FEMSA Comercio’s Retail division had a total of 15,401 OXXO stores as of Mar 31, 2017. Same-store sales at OXXO increased 5.7% on a 3.1% increase in average customer ticket and 2.5% rise in store traffic.
However, operating income dropped 2.9% year over year to Ps. 1,529 million (US$197.6 million), owing to higher operating expenses. The segment’s operating margin declined 70 bps to 4.5%.
FEMSA Comercio – Health Division: This segment reported total revenue of Ps. 12,024 million (US$589.7 million), up 26.4% year over year. The increase was backed by strong growth in South American business and persistent store expansion in various regions, along with a currency translation gain from the appreciation of the Chilean and Colombian pesos. The segment had a total of 2,136 point of sales across all regions, of which about 16 net new stores were added in the first quarter. Same-store sales for the drug stores rose 20.7% driven by strong growth in South America that nullified the impact of soft trends in Mexico.
Operating income amounted to Ps. 251 million (US$29 million), inching up 0.8% year over year. Operating margin contracted 50 bps to 2.1% owing to higher operating expenses in Mexico, increase in incentives for in-store personnel and greater services at Mexican stores.
FEMSA Comercio – Fuel Division: Total revenue was up 49.9% to Ps. 9,114 million (US$447 million) on the back of impressive volume growth, improved national prices and the addition of 6 net new OXXO GAS stations in the quarter. Same-station sales rose 24.8% year over year, driven by a 0.9% increase in same-station volumes and a 23.6% rise in average revenue per liter, as a result of the aforementioned national price increases. The company had 388 OXXO GAS service stations as of Mar 31.
Operating income rose significantly by 113.8% to Ps. 62 million (US$3 million), while operating margin expanded 20 bps to 0.7% driven by cost-control efforts and enhanced operating efficiency.
Financial Position
FEMSA had cash balance of Ps. 41,176 million (US$2,189 million) as of Mar 31, 2017. Long -term debt was Ps. 114,462 million (US$6,085.2 million). Moreover, the company incurred capital expenditure of Ps. 5,835 million (US$286.2 million) in the first quarter due to increased investments across all segments.
Currently, FEMSA currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the same industry is Embotelladora Andina S.A. (AKO.B - Free Report) , with a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Embotelladora Andina outperformed the Zacks Consensus Estimate significantly in the last two quarters.
Sell These Stocks. Now.
Just released, today's 220 Zacks Rank #5 Strong Sells demand urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. These are sinister companies because many appear to be sound investments. However, from 1988 through 2016, stocks from our Strong Sell list have actually performed 6X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>