By Amy Guthrie
MEXICO CITY--Latin America's largest soft drink bottler,
Coca-Cola Femsa SAB (KOF), expects Mexico's proposed tax on sweet
beverages to reduce its volume sales in the country and result in
workforce cuts.
Coca-Cola Femsa Chief Financial Officer Hector Trevino told
analysts during a conference call Thursday that if the Mexican
Congress signs off on the proposal of one Mexican peso (eight U.S.
cents) per liter, the bottler will reconfigure prices in an effort
to sustain profits. Even so, the company sees the proposed tax
curbing its volume sales by about 5% next year.
That would leave several production lines idle, Mr. Trevino
said, while eliminating the need to purchase more delivery trucks
or invest much in coolers for retailers.
Mr. Trevino said Coca-Cola Femsa and the rest of the bottling
industry are likely to pass the price increase on to consumers,
with his company seeing the average price hike at 12% to 15% for
nondiet sugary drinks.
"We need to look for the magic price points," Mr. Trevino said,
calling the proposal a "heavy tax."
The Mexican Senate is currently debating the tax, with the
left-leaning Party of the Democratic Revolution, or PRD, pushing
for it to be doubled to two Mexican pesos per liter.
The Senate is expected to vote on the measure in the coming
days.
Mexican President Enrique Pena Nieto proposed taxing heavily
sweetened soft drinks in an effort to fight the country's weight
and diabetes problems.
Seven of 10 adults in Mexico, and one-third of children, are
either overweight or obese. Mexico has now surpassed the U.S. for
the title of the fattest country in the Organization for Economic
Cooperation and Development, according to the organization.
The obesity has contributed to an alarming rise in chronic
illnesses such as adult-onset Type 2 diabetes, which afflicts an
estimated 15% of Mexicans over the age of 20, the highest rate for
any country with more than 100 million inhabitants. Illnesses
related to excess weight cost the Mexican public health system more
than $3 billion a year, according to the legislation.
According to Bernstein Research, Mexico supplied Coca-Cola Co.
(KO) with $2.5 billion in revenue last year, representing about 5%
of the Atlanta-based company's global annual sales.
Coca-Cola Femsa, which operates in 10 countries, reported
earlier Thursday that its net profit tumbled 17% on the year in the
third quarter to MXN2.95 billion, hurt by higher interest expenses
on debt and foreign- exchange losses. Acquisitions in Brazil,
Mexico and the Philippines have raised the company's net debt
position year-to-date by just over $1 billion.
The company said its quarterly revenue rose 3.6% on the year to
MXN37.49 billion, despite tough consumer dynamics in major markets
like Mexico and Brazil. Mexican results also suffered because of
heavy rains that flooded parts of the country in September, while
the company's Philippines sales fell due to a typhoon.
Write to Amy Guthrie at amy.guthrie@wsj.com
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