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What to Expect from FEMSA (FMX) When It Reports Q1 Earnings?

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Fomento Economico Mexicano, S.A.B de C.V. (FMX - Free Report) , also known as FEMSA, is slated to report first-quarter 2017 results on Apr 28. The big question facing investors is whether this leading Latin American beverage company will be able to deliver a positive earnings surprise in the quarter to be reported.

Last quarter, the company delivered a negative earnings surprise of 11.8%. Moreover, the beverage company lagged earnings estimates in two of the trailing four quarters, with an average negative surprise of 7.9%. Let’s see how things are shaping up for this announcement.

Factors Influencing This Quarter

FEMSA is on track to drive growth through strategic measures, which include increasing store count, diversifying business portfolio and focusing on core business activities. We believe the company is well positioned to gain from its venture in the drugstore business, as marked by recent acquisitions in this line of business. Additionally, the company's strong cash flow generation capacity enables it to make incremental investments in business expansion.

These factors indicate that the stock is positioned for growth. Further, this is evident from the company’s recent share performance. Shares of FEMSA jumped 19.1% year to date, outperforming the Zacks categorized Beverages – Soft Drinks industry’s gain of 8%.



While the current Zacks Consensus Estimate of 62 cents for first-quarter 2017 has dipped 2 cents in the last 30 days, it represents a 26.5% growth year over year. Also, analysts polled by Zacks anticipate revenues of $5.87 billion for the quarter, up nearly 23.1% from the prior-year period.

While these factors bode well for FEMSA’s growth, the company continues to struggle with adverse currency fluctuations, which have been weighing on Coca-Cola FEMSA's results for a while now. Additionally, it has been witnessing pressurized margins owing to growth and incorporation of lower-margin businesses in FEMSA Comercio’s Health and Fuel divisions. Together, these factors make us cautious ahead of the results.

Earnings Whispers

Our proven model does not conclusively show that FEMSA is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below:

Zacks ESP: Earnings ESP for FEMSA is currently -3.23%. This is because the Most Accurate estimate of 60 cents is lower than the Zacks Consensus Estimate of 62 cents. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: FEMSA carries a Zacks Rank #3 (Hold) which increases the predictive power of ESP. However, a -3.23% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some companies you may want to consider as our model shows these have the right combination of elements to post an earnings beat this quarter:

Panera Bread Company (PNRA - Free Report) , scheduled to release earnings on Apr 25, currently has an Earnings ESP of +2.21% and a Zacks Rank #3.

Pinnacle Foods Inc. (PF - Free Report) , expected to report earnings on Apr 27, currently has an Earnings ESP of +2.17% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Newell Brands Inc. (NWL - Free Report) , slated to release earnings on May 8, currently has an Earnings ESP of +6.90% and a Zacks Rank #3.

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