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FEMSA (FMX) Q1 Earnings Lag Estimates, Revenues Surpass
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Fomento Economico Mexicano S.A.B. de C.V’s (FMX - Free Report) , alias FEMSA, reported net majority earnings per ADS of 56 cents (Ps. 1.11 per FEMSA unit) in first-quarter 2022, missing the Zacks Consensus Estimate of 94 cents.
Net consolidated income was Ps. 5,848 million (US$285 million), reflecting a decline from Ps. 6,260 million (US$308.1 million) reported in the year-ago quarter. The improvement can primarily be attributed to reduced interest expenses and increased participation in associates’ results, mainly Heineken’s.
Total revenues were $7,199 million (Ps. 147,636 million), which improved 18.6% year over year and 27.3% from first-quarter 2019 in the local currency. Revenues, in U.S. dollar, beat the Zacks Consensus Estimate of $6,834 million. Revenue growth was driven by gains across all business units. On an organic basis, total revenues rose 15.2%.
Shares of the Zacks Rank #3 (Hold) company have dipped 0.9% in the past three months compared with the industry’s growth of 0.6%.
Image Source: Zacks Investment Research
FEMSA’s gross profit rose 17.1% year over year to Ps. 54,469 million (US$2,654.4 million). The consolidated gross margin contracted 50 basis points (bps) to 36.9%, owing to the gross margin contraction of 40 bps at FEMSA Comercio’s Fuel Division and 50 bps at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) , partly offset by margin expansion of 110 bps at FEMSA Comercio’s Proximity Division, 60 bps at Health Division and 110 bps at the Logistics & Distribution business.
FEMSA’s operating income (income from operations) was up 24.9% year over year to Ps. 11,892 million (US$579.5 million). On an organic basis, operating income improved 22.2%. The consolidated operating margin expanded 40 bps to 8.1%, driven by margin expansion across all business units.
Fomento Economico Mexicano S.A.B. de C.V. Price, Consensus and EPS Surprise
FEMSA Comercio — Proximity Division: Total revenues for the segment rose 15% year over year to Ps. 49,918 million (US$2,432.7 million). The increase can primarily be attributed to a 12.7% rise in same-store sales on 1.8% growth in store traffic and a 10.7% increase in average ticket. FEMSA Comercio’s Proximity division had 20,500 OXXO stores as of Mar 31, 2022. Operating income accelerated 54.6% year over year, while the operating margin expanded 190 bps to 7.5%, owing to higher operating leverage.
FEMSA Comercio — Health Division: The segment reported total revenues of Ps. 18,657 million (US$909.2 million), up 5.1% year over year. Revenues benefited from favorable trends in Mexico and Colombia operations as well as higher consumption in Chile. This was partly offset by negative currency translations. On a currency-neutral basis, total revenues increased 12.5%, whereas same-store sales increased 9.5%. The segment had 3,718 points of sales across all regions as of Mar 31, 2022. The operating income improved 31.7% year over year, while the operating margin rose 110 bps to 5.7%. The increase can be attributed to tight expense control and efficiency gains across its operations.
FEMSA Comercio — Fuel Division: Total revenues rose 27.7% to Ps. 10,894 million (US$530.9 million). Same-station sales improved 18.5%, driven by a 9.6% increase in the average volume and 8.1% growth in the average price per liter. The company had 569 OXXO GAS service stations as of Mar 31, reflecting the addition of two stations in the reported quarter. Operating income advanced 81.3% and the operating margin expanded 110 bps to 3.5%.
Logistics and Distribution: Total revenues for the segment were Ps. 16,032 million (US$781.3 million), up 48.3% year over year. On an organic basis, revenues increased 12.2%. Revenues reflected positive demand trends across several categories in the United States as well as strong growth of warehouse management operations in Latin America. The segment’s operating income increased 101.1%, whereas the operating margin expanded 120 bps to 4.6%.
Coca-Cola FEMSA: Total revenues for the segment advanced 14.6% year over year to Ps. 51,195 million (US$2,494.9 million). Revenues were mainly aided by improved volume, pricing initiatives, a positive price mix and favorable currency translation effects.
On a comparable basis, revenues improved 13.4% year over year. Coca-Cola FEMSA’s consolidated operating income increased 16% and comparable operating income rose 13.9%. The segment’s operating margin expanded 20 bps to 13.4%, driven by robust sales growth, operating expense efficiencies and an operating foreign currency gain. This was partly negated by higher raw material prices.
Financial Position
FEMSA had cash and cash equivalents of Ps. 93,222 million (US$4,663.4 million) as of Mar 31, 2022. Long-term debt was Ps. 174,858 million (US$8,747.3 million). The company incurred a capital expenditure of Ps. 6,092 million (US$296.9 million) in the first quarter, reflecting higher investments in most businesses.
Other Developments
On Feb 28, 2022, FEMSA completed the acquisition of the previously announced OK Market. The small-format proximity store chain in Chile added 131 locations to FEMSA’s proximity business, reaching 258 locations.
On Mar 20, the company acquired ATRA Janitorial Supply Co., Inc. in the United States through its Envoy Solutions subsidiary. ATRA Janitorial recorded $16 million in sales every year prior to the acquisition.
On Apr 12, Envoy Solutions subsidiary agreed to acquire Sigma Supply of North America Inc., an independent specialized distribution company based in Hot Springs, AR. This marks another step in FEMSA’s strategy of building a national distribution platform in the United States. Sigma operates 18 distribution centers, which will expand Envoy’s distribution network to include almost 70 facilities in 34 states. Sigma generated sales of $370 million in 2021. The transaction is subject to customary closing conditions and is anticipated to be completed in second-quarter 2022.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely The Duckhorn Portfolio (NAPA - Free Report) and Ambev S.A. (ABEV - Free Report) .
Duckhorn currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 11.3%. NAPA has a trailing four-quarter earnings surprise of 122.4%, on average. The company has gained 0.3% in the past three months.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 9.6% and 3.5%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Ambev currently has a Zacks Rank of 2. ABEV has a trailing four-quarter earnings surprise of 3.3%, on average. It has a long-term earnings growth rate of 9.6%. The company has gained 4% in the past three months.
The Zacks Consensus Estimate for Ambev’s current financial-year sales and earnings suggests declines of 33.8% and 6.7%, respectively, from the prior-year reported number. The consensus mark for ABEV’s earnings per share has moved up by a penny in the past 30 days.
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FEMSA (FMX) Q1 Earnings Lag Estimates, Revenues Surpass
Fomento Economico Mexicano S.A.B. de C.V’s (FMX - Free Report) , alias FEMSA, reported net majority earnings per ADS of 56 cents (Ps. 1.11 per FEMSA unit) in first-quarter 2022, missing the Zacks Consensus Estimate of 94 cents.
Net consolidated income was Ps. 5,848 million (US$285 million), reflecting a decline from Ps. 6,260 million (US$308.1 million) reported in the year-ago quarter. The improvement can primarily be attributed to reduced interest expenses and increased participation in associates’ results, mainly Heineken’s.
Total revenues were $7,199 million (Ps. 147,636 million), which improved 18.6% year over year and 27.3% from first-quarter 2019 in the local currency. Revenues, in U.S. dollar, beat the Zacks Consensus Estimate of $6,834 million. Revenue growth was driven by gains across all business units. On an organic basis, total revenues rose 15.2%.
Shares of the Zacks Rank #3 (Hold) company have dipped 0.9% in the past three months compared with the industry’s growth of 0.6%.
Image Source: Zacks Investment Research
FEMSA’s gross profit rose 17.1% year over year to Ps. 54,469 million (US$2,654.4 million). The consolidated gross margin contracted 50 basis points (bps) to 36.9%, owing to the gross margin contraction of 40 bps at FEMSA Comercio’s Fuel Division and 50 bps at Coca-Cola FEMSA S.A.B. de C.V. (KOF - Free Report) , partly offset by margin expansion of 110 bps at FEMSA Comercio’s Proximity Division, 60 bps at Health Division and 110 bps at the Logistics & Distribution business.
FEMSA’s operating income (income from operations) was up 24.9% year over year to Ps. 11,892 million (US$579.5 million). On an organic basis, operating income improved 22.2%. The consolidated operating margin expanded 40 bps to 8.1%, driven by margin expansion across all business units.
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-eps-surprise-chart | Fomento Economico Mexicano S.A.B. de C.V. Quote
Segmental Discussion
FEMSA Comercio — Proximity Division: Total revenues for the segment rose 15% year over year to Ps. 49,918 million (US$2,432.7 million). The increase can primarily be attributed to a 12.7% rise in same-store sales on 1.8% growth in store traffic and a 10.7% increase in average ticket. FEMSA Comercio’s Proximity division had 20,500 OXXO stores as of Mar 31, 2022. Operating income accelerated 54.6% year over year, while the operating margin expanded 190 bps to 7.5%, owing to higher operating leverage.
FEMSA Comercio — Health Division: The segment reported total revenues of Ps. 18,657 million (US$909.2 million), up 5.1% year over year. Revenues benefited from favorable trends in Mexico and Colombia operations as well as higher consumption in Chile. This was partly offset by negative currency translations. On a currency-neutral basis, total revenues increased 12.5%, whereas same-store sales increased 9.5%. The segment had 3,718 points of sales across all regions as of Mar 31, 2022. The operating income improved 31.7% year over year, while the operating margin rose 110 bps to 5.7%. The increase can be attributed to tight expense control and efficiency gains across its operations.
FEMSA Comercio — Fuel Division: Total revenues rose 27.7% to Ps. 10,894 million (US$530.9 million). Same-station sales improved 18.5%, driven by a 9.6% increase in the average volume and 8.1% growth in the average price per liter. The company had 569 OXXO GAS service stations as of Mar 31, reflecting the addition of two stations in the reported quarter. Operating income advanced 81.3% and the operating margin expanded 110 bps to 3.5%.
Logistics and Distribution: Total revenues for the segment were Ps. 16,032 million (US$781.3 million), up 48.3% year over year. On an organic basis, revenues increased 12.2%. Revenues reflected positive demand trends across several categories in the United States as well as strong growth of warehouse management operations in Latin America. The segment’s operating income increased 101.1%, whereas the operating margin expanded 120 bps to 4.6%.
Coca-Cola FEMSA: Total revenues for the segment advanced 14.6% year over year to Ps. 51,195 million (US$2,494.9 million). Revenues were mainly aided by improved volume, pricing initiatives, a positive price mix and favorable currency translation effects.
On a comparable basis, revenues improved 13.4% year over year. Coca-Cola FEMSA’s consolidated operating income increased 16% and comparable operating income rose 13.9%. The segment’s operating margin expanded 20 bps to 13.4%, driven by robust sales growth, operating expense efficiencies and an operating foreign currency gain. This was partly negated by higher raw material prices.
Financial Position
FEMSA had cash and cash equivalents of Ps. 93,222 million (US$4,663.4 million) as of Mar 31, 2022. Long-term debt was Ps. 174,858 million (US$8,747.3 million). The company incurred a capital expenditure of Ps. 6,092 million (US$296.9 million) in the first quarter, reflecting higher investments in most businesses.
Other Developments
On Feb 28, 2022, FEMSA completed the acquisition of the previously announced OK Market. The small-format proximity store chain in Chile added 131 locations to FEMSA’s proximity business, reaching 258 locations.
On Mar 20, the company acquired ATRA Janitorial Supply Co., Inc. in the United States through its Envoy Solutions subsidiary. ATRA Janitorial recorded $16 million in sales every year prior to the acquisition.
On Apr 12, Envoy Solutions subsidiary agreed to acquire Sigma Supply of North America Inc., an independent specialized distribution company based in Hot Springs, AR. This marks another step in FEMSA’s strategy of building a national distribution platform in the United States. Sigma operates 18 distribution centers, which will expand Envoy’s distribution network to include almost 70 facilities in 34 states. Sigma generated sales of $370 million in 2021. The transaction is subject to customary closing conditions and is anticipated to be completed in second-quarter 2022.
Stocks to Consider
We highlighted some better-ranked stocks from the broader Consumer Staples space, namely The Duckhorn Portfolio (NAPA - Free Report) and Ambev S.A. (ABEV - Free Report) .
Duckhorn currently has a Zacks Rank #2 (Buy) and an expected long-term earnings growth rate of 11.3%. NAPA has a trailing four-quarter earnings surprise of 122.4%, on average. The company has gained 0.3% in the past three months.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Duckhorn’s current financial-year sales and earnings per share suggests growth of 9.6% and 3.5%, respectively, from the year-ago reported numbers. The consensus mark for NAPA’s earnings per share has been unchanged in the past 30 days.
Ambev currently has a Zacks Rank of 2. ABEV has a trailing four-quarter earnings surprise of 3.3%, on average. It has a long-term earnings growth rate of 9.6%. The company has gained 4% in the past three months.
The Zacks Consensus Estimate for Ambev’s current financial-year sales and earnings suggests declines of 33.8% and 6.7%, respectively, from the prior-year reported number. The consensus mark for ABEV’s earnings per share has moved up by a penny in the past 30 days.