On Oct 1, 2013, Zacks Investment Research downgraded Mexican
Coca-Cola FEMSA S.A.B. de C.V.
) to a Zacks Rank #5 (Strong Sell).
Coca-Cola FEMSA is co-owned by the
Coca Cola Company
Fomento Economico Mexicano S.A.
), also known as FEMSA. It produces and distributes Coca-Cola,
Fanta, Sprite, Del Valle and other trademark beverages of The
Why the Downgrade?
There was a sharp downward revision of estimates after
Coca-Cola FEMSA announced take overoftheprivately-owned bottler,
Spaipa S.A. Industria Brasileira de Bebidas (Spaipa).
On Sep 2, KOF entered into a definitive agreement to take over
Spaipa, the second largest privately-owned bottler in the
Brazilian Coca-Cola system for $1.9 billion, in order to augment
its Brazilian business volume by 40%. The all-cash deal, subject
to the Brazilian antitrust authority's approval, will be financed
with a new bank debt.
Analysts, in general, are concerned that the takeover will
largely increase Coca Cola Femsa's debts and affect its
liquidity. KOF's cash on hand in the recently concluded second
quarter of fiscal 2013 was lesser than the previous quarter. The
new bank debt is also expected to increase the interest expense
of the company, which was already higher in the second quarter
compared to the first.
Coca Cola Femsa is on an acquisition spree and is taking over
Brazilian bottlers to bolster its presence in the Brazilian
market and diversify itself from the low-performing Mexican
beverage sector. In August, it acquired its Brazilian peer -
Companhia Fluminense de Refrigerantes - for $448 million in an
all-cash transaction. We, however, are skeptical about the
strategy as the Brazilian market is currently facing
macroeconomic headwinds in the form of food inflation, lower
government spending and higher taxes.
Another soft beverage company worth considering are
Coca Cola Enterprise Inc.
),which carry a Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
FOMENTO ECO-ADR (FMX): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
COCA-COLA FEMSA (KOF): Free Stock Analysis
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