Back to top

Image: Bigstock

FEMSA (FMX) Beats on Q2 Earnings: Do You Hold the Stock?

Read MoreHide Full Article

Fomento Economico Mexicano S.A.B. de C.V. (FMX - Free Report) , alias FEMSA’s second-quarter 2016 net majority income came in at 74 cents per ADS (Ps. 1.36 per FEMSA Unit), ahead of the Zacks Consensus Estimate of 66 cents.

Quarterly net consolidated income of the largest franchise bottler for The Coca-Cola Company (KO - Free Report) rose 16.2% to Ps. 6,156 million (US$341 million) from Ps. 5,296 million (US$345.9 million) in the year-ago quarter. The increase was backed by higher income from operations which nullified the effect of improved non-operating and financial costs.  
 

Quarter in Detail

Total revenue rose 25.9% year over year to Ps. 94,543 million (US$5,228.8 million), fueled by solid performance across its segments as well as Grupo Socofar’s integration into FEMSA Comercio’s Health division. On an organic basis, total revenue increased 12.6% year over year. Also, the company’s total revenue in dollar terms surpassed the Zacks Consensus Estimate of $4,884.9 million.

FEMSA’s gross profit grew 20.2% to Ps. 35,328 million (US$1,957 million). Gross margin contracted 170 basis points to 37.4% owing to the incorporation and growth of lower-margin businesses in FEMSA Comercio’s Health and Fuel divisions.

FEMSA’s operating income increased 13.4% to Ps. 9,409 million (US$521.2 million). On an organic basis, operating income was up 8.4% year over year. However, consolidated operating margin contracted 110 bps to 10% due to rapid growth of the lower-margin businesses at all three divisions of FEMSA Comercio.

Segmental Discussion

Total revenue at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) was up 9.3% year over year to Ps. 39,939 million (US$2,212.4 million). On a comparable basis, revenues improved 9.1% on the back of a rise in average price per unit case in almost all operations and higher volume growth in Mexico and Central America.

Coca-Cola FEMSA’s operating income increased 6.6% to Ps. 6,004 million (US$332.6 million) in the quarter. However, the segment’s operating margin contracted 40 bps to 15%. Comparable operating income increased 12% and the margin expanded 40 bps.

FEMSA Comercio – Retail Division: Total revenue at this segment rose 12.6% year over year to Ps. 34,197 million (US$1,894.4 million). The rise can be mainly attributed to the opening of 263 new OXXO stores in the quarter, which took the total new store count for the past 12 months to 1,196. FEMSA Comercio’s Retail division had a total of 14,461 OXXO stores as of Jun 30, 2016. Same-store sales at OXXO jumped 5.1% on a 5.6% increase in average customer ticket offset by a marginal 0.5% fall in store traffic.

Operating income rose 11.9% year over year to Ps. 2,764 million (US$153.1 million). The segment’s operating margin remained flat at 8.1%.

FEMSA Comercio – Health Division: This segment reported total revenue of Ps. 10,413 million (US$576.8 million) compared with Ps. 1,181 million (US$77.1 million) in the year-ago quarter. Organic revenue grew 18.5%. The segment had a total of 2,034 point of sales across all regions, of which about 99, including small acquisitions in Mexico, were added in the second quarter. Same-store sales in Mexico rose 7.7%.

Operating income amounted to Ps. 327 million (US$18.1 million). Operating margin expanded 80 bps to 3.1% owing to higher margins at Socofar, offset by higher operating expenses in Mexico. The rise in operating expenses is attributable to the company’s efforts to build infrastructure and integrate the Yza, Moderna and Farmacon acquisitions as a single operating platform. Organic operating income fell 46.2% due to progress on these growth initiatives.

FEMSA Comercio – Fuel Division: Total revenue was up 35.1% to Ps. 6,937 million (US$384.3 million) on the back of the addition of 16 net new OXXO GAS stations. Same-station sales rose 4.2% year over year, driven by a 7.1% increase in same-station volumes, which was offset by a 2.7% decline in average revenue per liter. The company had 335 OXXO GAS service stations as of Jun 30.

Operating income fell 26.3% to Ps. 59 million (US$3.3 million), while operating margin contracted 70 bps to 0.9% owing to higher operating expenses that stemmed from accelerated expansion across all territories.

Financial Position

FEMSA had cash balance of Ps. 49,956 million (US$2,641.6 million) as of Jun 30, 2016. Long and short-term debts were Ps. 108,003 million (US$5,711 million) and Ps. 5,458 million (US$288.6 million), respectively. Moreover, the company incurred capital expenditure of Ps. 4,711 million (US$261 million) in the second quarter due to increased investments across all segments.

FOMENTO ECO-ADR Price, Consensus and EPS Surprise

FOMENTO ECO-ADR Price, Consensus and EPS Surprise | FOMENTO ECO-ADR Quote

Zacks Rank

Currently, FEMSA carries a Zacks Rank #3 (Hold). A better-ranked stock in the related beverage-alcohol industry is Constellation Brands Inc. (STZ - Free Report) , which has a Zacks Rank #2 (Buy).

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>

Published in