Moving ahead with its strategy of business expansion,
Fomento Economico Mexicano SAB de CV
) or FEMSA's retail subsidiary - FEMSA Comercio - has agreed to
buy a majority stake in the fast-food restaurant chain Dona Tota.
FEMSA will acquire 80% stake while the other 20% holdings will
remain with Dona Tota's founding shareholders.
The transaction is still in its early stage and awaits certain
customary regulatory approvals. Details about the transaction
have not been provided. The Mexico-based restaurant chain
operator currently has 204 units across Mexico and 11 units in
The co-owner of
Coca-Cola FEMSA S.A.B de C.V.
), which is the world's largest franchise bottler of
The Coca-Cola Company
) products, is taking prudent steps to diversify its product
portfolio while expanding its small-box retail segment, which
augurs well for future operating performance.
We observe that FEMSA has been diversifying its retail chain
format operations and acquiring businesses across Latin America.
In May 2013, the company forayed into the drugstore retail chain
business by fully acquiring Mexico-based Farmacias FM Moderna and
buying 75% stake in Farmacias YZA. We believe that FEMSA's
venture into the drugstore business strategically fits its store
chain business, which will be accretive to its top and bottom
lines in the long term.
FEMSA, which competes with
Coca-Cola Enterprises Inc
), has a healthy balance sheet with cash and cash equivalents of
Ps. 46.572 billion ($3.585 billion) at the end of second-quarter
fiscal 2013. This huge cash balance was primarily an outcome of
the sale of its beer business to Heineken NV in 2010 in exchange
of 20% stake in the latter.
We believe that FEMSA is aptly utilizing its available funds
to focus on the core bottling and convenience store operations as
well as to implement organic and inorganic expansion plans. In
the second quarter of fiscal 2013, FEMSA incurred a capital
expenditure of Ps. 3.581 billion ($0.288 billion) toward
incremental investments at Coca-Cola FEMSA and FEMSA
However, we noticed that FEMSA's comparable-store sales
registered only a meager 0.9% growth in the second quarter of
fiscal 2013, which is the slowest since 2009. Moreover, the
company has witnessed a fall in customer traffic during the
quarter, for the first time since 2003. Therefore, we remain
cautious over the stocks future performance based on the
aforementioned factors. Currently, FEMSA holds a Zacks Rank #5
COCA-COLA ENTRP (CCE): Free Stock Analysis
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COCA-COLA FEMSA (KOF): Free Stock Analysis
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