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FEMSA (FMX) Stock Rises Despite Q1 Earnings & Sales Miss
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Fomento Economico Mexicano S.A.B. de C.V’s (FMX - Free Report) , alias FEMSA, top and bottom lines lagged estimates in first-quarter 2018. With this, the company reported a negative earnings surprise in six of the trailing seven quarters. Revenues surpassed estimates in four of the last five quarters.
However, the company’s top line improved year over year. Additionally, the reported quarter marked an improvement in the operating income at FEMSA Comercio’s Retail and Health divisions. It also reflected a recovery in operating margin at FEMSA Comercio’s Fuel division.
Consequently, shares of FEMSA rose 3.2% on Apr 26. Moreover, FEMSA outperformed the broader industry in the past month, reflecting a positive momentum on the stock. The stock has returned 4.7% against the industry's decline of 3.6%.
Q1 Insight
Net majority income per ADS was nearly at a break even (Ps. 0.0006 per FEMSA unit or US$0.0003 per ADS) in the first quarter, significantly below the Zacks Consensus Estimate of 55 cents.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
Net consolidated income of the largest franchise bottler for The Coca-Cola Company (KO - Free Report) was Ps. 1,478 million (net loss of US$78.8 million), reflecting a decline of 77.6% from the year-ago quarter. The unfavorable result can be attributed to the negative foreign exchange as the higher U.S. dollar-denominated cash position at FEMSA was impacted by rise in Mexican peso. This was partly offset by lower interest expense and higher operating income.
Total revenues increased 4% year over year to Ps. 115,337 million (US$6,148 million), mainly fueled by solid growth at FEMSA Comercio’s Retail division. On an organic basis, total revenues increased 5.2% year over year. However, the company’s total revenues, in dollar terms, lagged the Zacks Consensus Estimate of $6,263 million.
FEMSA’s gross profit grew 5.1% to Ps. 41,364 million (US$2,204.9 million). Gross margin expanded 40 basis points (bps) to 35.9%, owing to improved gross margin across all businesses.
FEMSA’s operating income rose 3.9% to Ps. 8,412 million (US$448.4 million). On an organic basis, operating income declined 0.8%. Consolidated operating margin remained flat at 7.3%.
Segmental Discussion
Total revenues at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) declined 3.2% year over year to Ps. 49,713 million (US$2,649.9 million). On a comparable basis, revenues improved 7.2% on the back of rise in the average price-per-unit case in Mexico and Argentina along with higher volumes in Brazil, Central America and Colombia. This was partly negated by volume declines in the company’s remaining operations.
Coca-Cola FEMSA’s operating income dropped 3.4% to Ps. 5,883 million (US$313.6 million) while comparable operating income declined 1.1%, attributed to cost pressures in Central America, Mexico and the Philippines, offset by raw material tailwinds in South America. The segment’s reported operating margin contracted 10 bps to 11.8%.
FEMSA Comercio - Retail Division: Total revenues for this segment grew 13.9% year over year to Ps. 38,806 million (US$2,068.6 million). The rise can be mainly attributed to the opening of 237 net new OXXO stores in the quarter, which took the net new stores count in the past 12 months to 1,362. FEMSA Comercio’s Retail division had 16,736 OXXO stores as of Mar 31, 2018. Same-store sales at OXXO increased 7.5%, driven by strong consumer demand as well as benefit from the Holy Week calendar shift. Average customer ticket increased 5.1% while store traffic rose 2.4%.
Operating income rose 22.5% year over year to Ps. 1,873 million (US$99.8 million) while operating margin expanded 30 bps to 4.8%, due to higher revenues.
FEMSA Comercio - Health Division: This segment reported total revenues of Ps. 12,454 million (US$663.9 million), up 3.6% year over year. The increase was backed by moderate growth in South American business and early signs of improvement in Mexico, offset by tough year-ago comparisons. The segment had 2,235 point of sales across all regions, of which about 10 net new stores were added in the first quarter. Same-store sales for the drug stores rose 0.8%.
Operating income amounted to Ps. 280 million (US$14.9 million), up 11.6% year over year. Operating margin expanded 10 bps to 2.2%.
FEMSA Comercio - Fuel Division: Total revenues were up 16.2% to Ps. 10,593 million (US$564.7 million). Same-station sales rose 3.6% year over year, driven by 8.9% rise in average price per liter, offset by 4.8% decline in average volumes. The company had 467 OXXO GAS service stations as of Mar 31, including 15 new OXXO GAS service stations that were added in the first quarter.
Operating income rose 121% to Ps. 137 million (US$7.3 million) while operating margin expanded 60 bps to 1.3%, driven by improved operating leverage that more than offset the rise in regulatory expenses.
Financial Position
FEMSA had a cash balance of Ps. 81,112 million (US$4,422.7 million) as of Mar 31, 2018. Long-term debt was Ps. 105,852 million (US$5,771.6 million). Moreover, the company incurred capital expenditure of Ps. 4,091 million (US$218.1 million) in the first quarter, reflecting lesser investments in Coca-Cola FEMSA.
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FEMSA (FMX) Stock Rises Despite Q1 Earnings & Sales Miss
Fomento Economico Mexicano S.A.B. de C.V’s (FMX - Free Report) , alias FEMSA, top and bottom lines lagged estimates in first-quarter 2018. With this, the company reported a negative earnings surprise in six of the trailing seven quarters. Revenues surpassed estimates in four of the last five quarters.
However, the company’s top line improved year over year. Additionally, the reported quarter marked an improvement in the operating income at FEMSA Comercio’s Retail and Health divisions. It also reflected a recovery in operating margin at FEMSA Comercio’s Fuel division.
Consequently, shares of FEMSA rose 3.2% on Apr 26. Moreover, FEMSA outperformed the broader industry in the past month, reflecting a positive momentum on the stock. The stock has returned 4.7% against the industry's decline of 3.6%.
Q1 Insight
Net majority income per ADS was nearly at a break even (Ps. 0.0006 per FEMSA unit or US$0.0003 per ADS) in the first quarter, significantly below the Zacks Consensus Estimate of 55 cents.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise | Fomento Economico Mexicano S.A.B. de C.V. Quote
Net consolidated income of the largest franchise bottler for The Coca-Cola Company (KO - Free Report) was Ps. 1,478 million (net loss of US$78.8 million), reflecting a decline of 77.6% from the year-ago quarter. The unfavorable result can be attributed to the negative foreign exchange as the higher U.S. dollar-denominated cash position at FEMSA was impacted by rise in Mexican peso. This was partly offset by lower interest expense and higher operating income.
Total revenues increased 4% year over year to Ps. 115,337 million (US$6,148 million), mainly fueled by solid growth at FEMSA Comercio’s Retail division. On an organic basis, total revenues increased 5.2% year over year. However, the company’s total revenues, in dollar terms, lagged the Zacks Consensus Estimate of $6,263 million.
FEMSA’s gross profit grew 5.1% to Ps. 41,364 million (US$2,204.9 million). Gross margin expanded 40 basis points (bps) to 35.9%, owing to improved gross margin across all businesses.
FEMSA’s operating income rose 3.9% to Ps. 8,412 million (US$448.4 million). On an organic basis, operating income declined 0.8%. Consolidated operating margin remained flat at 7.3%.
Segmental Discussion
Total revenues at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) declined 3.2% year over year to Ps. 49,713 million (US$2,649.9 million). On a comparable basis, revenues improved 7.2% on the back of rise in the average price-per-unit case in Mexico and Argentina along with higher volumes in Brazil, Central America and Colombia. This was partly negated by volume declines in the company’s remaining operations.
Coca-Cola FEMSA’s operating income dropped 3.4% to Ps. 5,883 million (US$313.6 million) while comparable operating income declined 1.1%, attributed to cost pressures in Central America, Mexico and the Philippines, offset by raw material tailwinds in South America. The segment’s reported operating margin contracted 10 bps to 11.8%.
FEMSA Comercio - Retail Division: Total revenues for this segment grew 13.9% year over year to Ps. 38,806 million (US$2,068.6 million). The rise can be mainly attributed to the opening of 237 net new OXXO stores in the quarter, which took the net new stores count in the past 12 months to 1,362. FEMSA Comercio’s Retail division had 16,736 OXXO stores as of Mar 31, 2018. Same-store sales at OXXO increased 7.5%, driven by strong consumer demand as well as benefit from the Holy Week calendar shift. Average customer ticket increased 5.1% while store traffic rose 2.4%.
Operating income rose 22.5% year over year to Ps. 1,873 million (US$99.8 million) while operating margin expanded 30 bps to 4.8%, due to higher revenues.
FEMSA Comercio - Health Division: This segment reported total revenues of Ps. 12,454 million (US$663.9 million), up 3.6% year over year. The increase was backed by moderate growth in South American business and early signs of improvement in Mexico, offset by tough year-ago comparisons. The segment had 2,235 point of sales across all regions, of which about 10 net new stores were added in the first quarter. Same-store sales for the drug stores rose 0.8%.
Operating income amounted to Ps. 280 million (US$14.9 million), up 11.6% year over year. Operating margin expanded 10 bps to 2.2%.
FEMSA Comercio - Fuel Division: Total revenues were up 16.2% to Ps. 10,593 million (US$564.7 million). Same-station sales rose 3.6% year over year, driven by 8.9% rise in average price per liter, offset by 4.8% decline in average volumes. The company had 467 OXXO GAS service stations as of Mar 31, including 15 new OXXO GAS service stations that were added in the first quarter.
Operating income rose 121% to Ps. 137 million (US$7.3 million) while operating margin expanded 60 bps to 1.3%, driven by improved operating leverage that more than offset the rise in regulatory expenses.
Financial Position
FEMSA had a cash balance of Ps. 81,112 million (US$4,422.7 million) as of Mar 31, 2018. Long-term debt was Ps. 105,852 million (US$5,771.6 million). Moreover, the company incurred capital expenditure of Ps. 4,091 million (US$218.1 million) in the first quarter, reflecting lesser investments in Coca-Cola FEMSA.
Currently, FEMSA carries a Zacks Rank #3 (Hold).
Meanwhile, investors can count on the alcohol-beverage stock Ambev S.A. (ABEV - Free Report) . The company, with long-term earnings growth rate of 23.8%, holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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