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Fomento Economico Mexicano S.A.'s (FMX - Analyst Report) first-quarter 2012 net income from continuing operation surged 13% to MXN 3,748 million ($288.2 million) from MXN 3,318 million ($274.4 million) in the year-ago period. The improved results were primarily driven by an increase in comparable income from operation and inclusion of 20% economic interest in Heineken Group.

Total revenue grew 25.2% year over year to MXN 53,746 million ($4,133.1 million). The increase was mainly attributable to revenue growth at Coca-Cola FEMSA and FEMSA Comercio.

Total revenue at Coca-cola FEMSA grew 29.7% to MXN 33,542 million ($2,579.4 million) in the quarter, primarily driven by increased per unit average price and volume growth in Venezuela, Mexico and Argentina.

FEMSA Comercio registered a revenue growth of 18.1% to MXN 19,033 million ($1,463.6 million), mainly due to the opening of 138 net new stores in the quarter along with an increase of 8% in same-store sales. Total net new stores came in at 1,078 in the past twelve months.

FEMSA’s gross profit recorded a growth of 26.3% year over year, and gross margin expanded 30 basis points (bps) to 40.8%. The increase was primarily driven by gross profit improvement at FEMSA Comercio.

FEMSA posted a 10.1% year-over-year growth in operating income to MXN 5,213 million ($400.9 million). However, operating income, as a percentage of total revenue, decreased 90 basis points year over year to 9.7%, primarily due to higher raw material cost pressures at Coca-Cola Femsa.

At the end of the first quarter of fiscal 2012, the company had cash and cash equivalents of MXN 27,249 million ($2,128.1 million) compared with MXN 27,170 million ($1,940 million) at the end of fiscal 2011. Long-term debt (including current maturities) at the end of the quarter was MXN 23,929 million ($1,868.9 million), reflecting a capitalization ratio of 11.7%.

FEMSA currently retains a Zacks #3 Rank, which translates into a short-term 'Hold' rating. Moreover, we maintain a long-term 'Neutral' recommendation on the stock.

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