Fomento Economico Mexicano, S.A.B. de C.V.
), also known as FEMSA, posted lower-than-expected bottom-line
results for the second quarter of 2014. This world's largest
franchise bottler for The Coca-Cola Company (
) reported net majority income of 65 cents per share, which was way
below than the year-ago comparable quarter earnings as well as the
Zacks Consensus Estimate of 78 cents.
Moreover, quarterly net consolidated income of the company
declined nearly 12.1% to Ps. 4,463 million (US$343.2 million) from
Ps. 5,078 million (US$407.3 million) in the year-ago quarter. The
decrease was primarily due to a fall in Heineken's second-quarter
2014 net income in which FEMSA has a 20% participation interest,
increased financing expenses resulting from the recently issued
bonds by Coca-Cola FEMSA S.A.B. de C.V. (
) and unfavorable foreign exchange rates.
Quarter in Detail
Total revenue rose 14.4% year over year to Ps. 70,956 million
(US$5,456.9 million), mainly aided by improvement in revenues at
Coca-Cola FEMSA and FEMSA Comercio divisions. On an organic basis,
total revenue climbed 7.3% from the prior-year comparable
FEMSA's gross profit rose 13.1% year over year to Ps. 29,764
million (US$2,289.0 million). However, gross margin contracted 50
basis points (bps) to 41.9% primarily due to margin contraction at
the Coca-Cola FEMSA division.
FEMSA's operating income increased 9.0% to Ps. 7,953 million
(US$611.6 million) from Ps. 7,294 million (US$580.3 million) in the
year-ago period. On an organic basis, operating income grew 5.5%
year over year. However, consolidated operating margin fell 60 bps
to 11.2% due to margin contraction at Coca-Cola FEMSA and FEMSA
Total revenue at Coca-cola FEMSA increased 14.3% year over year
to Ps. 41,434 million (US$3,186.5 million). The year-over-year
revenue growth at the segment was primarily due to integration of
Yoli in Mexico, along with Fluminense and Spaipa in Brazil.
However, on a currency neutral basis and excluding the
non-comparable effect of Yoli, Fluminense and Spaipa, total revenue
rose 20.5% due to increase in average price per unit case in almost
every region and volume growth in Columbia, Brazil, Central America
The segment's operating income for the quarter increased 11.7%
to Ps. 5,742 million (US$441.6 million) from the year-ago quarter.
However, Coca-Cola FEMSA's operating margin contracted 30 bps to
13.9% in the quarter due to higher operating expenses as a
percentage of sales and lower gross margin.
FEMSA Comercio registered 12.4% year-over-year-revenue growth to
Ps. 27,896 million (US$2,145.4 million). The rise was mainly
attributable to the opening of 348 new stores in the quarter and a
3.6% upside in same-store sales. The growth in same-store sales was
led by an increase of 4.3% in average customer ticket partially
offset by a 0.7% decline in store traffic. The company opened 1,189
new stores in the last 12 months, bringing the total store count to
12,204 as of Jun 30, 2014.
Operating income for the quarter rose 8.9% year over year to Ps.
2,126 million (US$163.5 million). However, the segment's operating
margin contracted 30 bps to 7.6% primarily due to higher operating
expenses resulting from the incorporation of drugstore and
restaurant operations as well as expenses for new initiatives.
FEMSA had cash balance of Ps. 36,785 million (US$2,836 million)
as on Jun 30, 2014. Long and short-term debts were Ps. 73,787
million (US$5,689 million) and Ps. 2,205 million (US$170.0
million), respectively. Moreover, during the quarter, FEMSA
incurred capital expenditure of Ps. 3,951 million (US$303.9
Currently, FEMSA carries a Zacks Rank #3 (Hold). However, a
better-ranked stock worth a look in the same industry is Dr Pepper
Snapple Group, Inc. (
), which has a Zacks Rank #2 (Buy).
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