FEMSA Q2 Earnings Miss Estimates - Analyst Blog
July 26 2013 - 4:00PM
Zacks
Fomento Economico Mexicano
S.A. (FMX) – also known as FEMSA – reported
lower-than-expected bottom-line results for the second quarter of
2013. This largest franchise bottler for The Coca-Cola
Company (KO) posted net majority income of 77 cents (Ps.
1.00) per share, lagging the Zacks Consensus Estimate of
US$1.22.
Moreover, quarterly net
consolidated income of this Zacks Rank #4 (Sell) company fell
nearly 6.6% to Ps. 5.078 billion from the comparable year-ago
quarter income of Ps. 5.437 billion. The decrease was primarily due
to foreign exchange losses in connection with Coca-Cola FEMSA’s
U.S. dollar denominated debt position and increased interest
expenses resulting from the recently issued bonds by Coca-Cola
FEMSA and FEMSA Comercio.
Quarter in
Detail
Total revenue grew 4.1% year over
year to Ps. 62.047 billion ($4.982 billion), mainly aided by
improvement in revenue at FEMSA Comercio. On an organic basis,
total revenue climbed 3.1% from the prior-year comparable
quarter.
FEMSA’s gross profit rose 5.3% year
over year to Ps. 26.325 billion ($2.114 billion), and gross margin
expanded 50 basis points (bps) to 42.4%. The increase was primarily
driven by gross profit improvement at the company’s Coca-Cola FEMSA
segment.
FEMSA’s operating income increased
9.1% to Ps. 7.294 billion ($0.586 billion) from Ps. 6.686 billion
($0.494 billion) in the year-ago period. Consolidated operating
margin improved 60 bps to 11.8%, primarily driven by increased
gross margin at Coca-Cola FEMSA due to lower raw-material costs,
which were benefited by a strong Mexican currency exchange rate
against the U.S. dollar. On an organic basis, operating income
increased 8.0% year over year.
Segmental
Discussion
Total revenue at Coca-cola FEMSA
was almost flat year over year at Ps. 36.260 billion ($2.912
billion), as revenue growth of 6.3% in the Mexico & Central
America division was offset by the negative impact from currency
devaluation in South America. However, on a currency neutral basis
and excluding the non-comparable effect of Grupo Fomento Queretano
and Grupo Yoli in Mexico, total revenue rose 12.7%.
The segment’s operating income for
the quarter grew 9.1% to Ps. 5.142 billion ($0.413 billion) from
the year-ago quarter. Consequently, Coca-Cola FEMSA’s operating
margin expanded 120 bps to 14.2% in the quarter.
FEMSA Comercio registered revenue
growth of 11.7% year over year to Ps. 24.808 billion ($1.992
billion), mainly attributable to the opening of 279 net new stores
in the quarter and a 0.9% upside in same-store sales. The growth in
same-store sales was primarily driven by an increase of 1.1% in
average customer ticket, partially offset by a 0.1% drop in
customer traffic. The company opened 1,026 net new stores in the
last 12 months, bringing the total store count to 11,015.
Operating income for the said
quarter rose 6.7% year over year to Ps. 1.952 billion ($0.157
billion). However, the segment’s operating margin contracted 30 bps
to 7.9%, primarily due to increased operating expenses on new store
openings, development of organizational and IT structure as well as
specialized distribution channels.
Financial
Position
FEMSA, which competes with
Coca-Cola Enterprises Inc. (CCE), had cash balance
of Ps. 46.572 billion ($3.585 billion) at the end of the second
quarter. Long and short-term debts were Ps. 44.457 billion ($3.422
billion) and Ps. 11.686 billion ($899.4 million), respectively.
Moreover, FEMSA incurred capital expenditure of Ps. 3.581 billion
($0.288 billion) toward incremental investments at Coca-Cola FEMSA
and FEMSA Comercio.
Other Stocks to
Consider
Apart from FEMSA, other stocks in
the Beverages-Brewers industry that are worth considering include
Monster Beverage Corp. (MNST), which carries a
Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis Report
FOMENTO ECO-ADR (FMX): Free Stock Analysis Report
COCA COLA CO (KO): Free Stock Analysis Report
MONSTER BEVERAG (MNST): Free Stock Analysis Report
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