By Amy Guthrie
MEXICO CITY--Soft-drink bottler Coca-Cola Femsa said Wednesday
its first-quarter earnings were hit in several markets by headwinds
that could persist for the remainder of the year.
Currencies have depreciated significantly throughout Latin
America in recent months as investors brace for an eventual
interest rate increase in the U.S. Meanwhile, consumer spending has
been weak in key markets for Coca-Cola Femsa, such as Brazil and
Mexico, Chief Financial Officer Héctor Treviño said on an earnings
call.
Latin America's biggest soft drink bottler expects 2015 to be a
"tough year" for Brazil, Mr. Treviño said, as inflation and
unemployment rise there and the country flirts with recession. In
Mexico, meanwhile, he said consumers seem keen to embrace beverages
that appear more natural, such as sparkling waters infused with
real juices.
Yet the reception in Mexico has been disappointing for Coca-Cola
Co.'s lower-calorie Stevia-sweetened soda, called Coca-Cola Life,
which rolled out in the country last year.
Coca-Cola Life "has not been working as we were expecting," Mr.
Treviño said, citing disappointing sales volumes in the Mexican
market.
Mexico City-based Coca-Cola Femsa's net income slid 5% on the
year during the first three months of 2015, to 2.19 billion Mexican
pesos, or around $145 million, while revenue fell 11% to 34.37
billion pesos. Although weaker currencies curbed results across the
board, the biggest hit came from Venezuela, where Coca-Cola Femsa
adopted a new official exchange rate and wrote down its equity in
the operation by 2.79 billion pesos.
The Venezuelan business now represents 7% of Coca-Cola Femsa's
consolidated volume sales, but just 2% of its total revenue. Mr.
Treviño said that Coca-Cola Femsa "remains fully committed to
Venezuela" despite the country's economic travails and the
complexities of doing business there.
The bottler is trying to source more raw materials locally in
Venezuela, to reduce the unit's foreign-exchange burden and need to
obtain U.S. dollars from the Venezuelan government. The imported
material mostly consists of plastic resin and caps for bottles.
Coca-Cola Femsa is also attempting to boost the percentage of its
returnable soda bottles that circulate in the country, from 7% of
the current sales mix.
Amid all the adversity, Venezuelans are still clamoring for
Coca-Cola products. "We're selling everything we produce," Mr.
Treviño said, predicting a sales increase of 10 million unit cases
this year in Venezuela.
Across its Latin American markets, Coca-Cola Femsa's volume
sales declined 1% on the year during the first quarter, with the
most notable decreases in the company's Mexican water sales.
Weather in Mexico didn't favor beverage sales during the quarter,
the company said, although the decline in bulk water sales could
also indicate that consumers are boiling their drinking water
rather than buying the packaged variety. Mexico represents just
under half of Coca-Cola Femsa's total volume sales.
Write to Amy Guthrie at amy.guthrie@wsj.com
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