Mexico's Arca Continental Ready For More Coke Bottler M&A
October 26 2011 - 2:47PM
Dow Jones News
Mexican soft drink bottler Arca Continental SAB (AC.MX, EMBVF)
said Wednesday it has a war chest of more than 3.0 billion pesos
($223 million) it could deploy, plus ample access to credit, should
another acquisition opportunity present itself in the
near-term.
Chief Executive Francisco Garza told analysts during a
conference call that the company is in a "strong financial position
to invest" given its consistent cash generation and conservative
debt load.
Once separate entities, Embotelladoras Arca SAB and Grupo
Continental SAB merged during the second quarter of this year to
create the second-biggest bottler of Coca-Cola Co. (KO) products in
Latin America.
The Coke system as a whole in Mexico is consolidating at an
accelerated rate, with Coca-Cola Femsa SAB (KOF), Latin America's
largest Coke bottler, announcing plans in September to acquire
regional Mexican Coke bottler Grupo Cimsa after having agreed in
June to acquire the beverage operations of another privately held
Mexican firm, Grupo Tampico.
The Cimsa and Tampico deals were valued at MXN11 billion and
MXN9.30 billion, respectively.
There are nine additional independent bottlers in the Mexican
Coke system; two of the bottlers--Corporacion del Fuerte and
Bebidas Refrescantes de Nogales--are now engulfed geographically by
Arca Continental's operations.
"We consider ourselves to be friendly," Garza said Wednesday,
explaining the bottler would consider either a merger or an
acquisition. "We are flexible."
Arca Continental recently paid down a bridge loan, bringing its
cash position to a little over MXN3 billion. It anticipates capital
expenditures this year in the neighborhood of MXN2.6 billion, and
MXN3 billion for 2012, with efforts to expand operations in
Argentina and Ecuador while also rolling out more coolers in
Mexico.
Garza said the bottler has been gaining market share across all
categories in its main market, Mexico, aided by favorable economic
and weather conditions.
A key challenge for Arca Continental will come from rising raw
materials costs, with the company having said earlier Wednesday
that its cost of goods sold increased 15.8% on the year in the
third quarter as a result of higher PET plastic and sugar
prices.
Garza said Arca Continental expects to cover all of its sugar
needs in Mexico from its own sugar mill, while it has also
negotiated palatable corn prices for its high-fructose corn syrup
next year. The bottler aims for a sugar/fructose mix of 40/60.
The bottler has also invested in a plastic recycling plant at
which it hopes to double production.
Arca Continental said earlier Wednesday its third-quarter net
profit slipped 1.2% on the year to MXN1.45 billion on a pro forma
basis that incorporates results of its newly merged operations as
if they had been combined in 2010.
Consolidated net sales grew 14.8% on a pro forma basis to
MXN13.44 billion during the July-September period, driven by
increased volume sales and a higher price per unit case.
The company had net debt as of end-September of MXN7.71 billion
and generated cash flow as measured by earnings before interest,
taxes, depreciation and amortization in the third quarter of
MXN2.84 billion.
The third-quarter results were well-received, with Arca
Continental shares recently trading up 1.7% to MXN61.39 versus a
1.2% gain in Mexico's broader IPC stock index.
-By Amy Guthrie, Dow Jones Newswires; (5255) 5980-5177,
amy.guthrie@dowjones.com