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Can FEMSA (FMX) Q2 Earnings Break its Dismal Surprise Trend?

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Fomento Economico Mexicano, S.A.B. de C.V. (FMX - Free Report) , or FEMSA is slated to release second-quarter 2017 results on Jul 25. The question lingering in investors’ minds is whether this major beverage company will be able to deliver a positive earnings surprise in the quarter to be reported. The company witnessed a negative earnings surprise of roughly 21% in the last reported quarter, and has been missing our estimates for three straight quarters. Let’s see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is pegged at 83 cents, reflecting year-over-year improvement of over 12%. Also, we note that our earnings estimate has trended upward in the last 30 days. Additionally, analysts polled by Zacks expect revenues of $6.4 billion, representing growth of more than 22% from the year-ago quarter.

FEMSA forms part of the Consumer Staples sector. As of Jul 15 Earnings Trends, the Consumer Staples sector’s earnings are expected to rise 4%, with 1.5% revenues growth.

Factors at Play

FEMSA’s dismal earnings surprise history reflects that 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.

While these factors pose concern about the company’s upcoming performance, we remain impressed with FEMSA’s focus on strategic measures such as increasing store count, diversifying business portfolio and focusing on core business activities. FEMSA’S concentration on portfolio diversification is well-evident from its series of acquisitions. Additionally, the company is well positioned to gain from its venture in the drugstore business, which displays significant potential.

Notably, FEMSA’s shares have gained 6.5% in the last seven days. This impressive momentum ahead of earnings clearly reflects investors’ positive sentiments about the upcoming release. Also, this has helped this Mexican company to surge 35.4% on a year-to-date basis, outperforming the Zacks categorized Beverages – Soft Drinks industry’s growth of 12.8%. So, let’s see if FEMSA’s quarterly performance can help it break the murky surprise trend, and help it sustain the robust momentum.

What the Zacks Model Unveils?

Our proven model does not conclusively show that FEMSA is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

FEMSA currently carries a Zacks Rank #2 (Buy), which increases the predictive power of ESP. However, the company has an Earnings ESP of -8.43% as the Most Accurate estimate of 76 cents is pegged below the Zacks Consensus Estimate of 83 cents. The combination of FEMSA’s Zacks Rank #2 and a negative ESP makes surprise prediction difficult.

Stocks with Favorable Combination

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

Dollar General Corporation (DG - Free Report) has an Earnings ESP of +0.94% and a Zacks Rank #2.  You can see the complete list of today’s Zacks #1 Rank stocks here., Inc. (AMZN - Free Report) has an Earnings ESP of +13.77% and a Zacks Rank #3.

Nordstrom, Inc. (JWN - Free Report) has an Earnings ESP of +4.92% and a Zacks Rank #3.

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