We have upgraded our long-term recommendation on FEMSA to Neutral
based on better-than-expected first-quarter 2014 results. We
believe, FEMSA's robust performance and initiatives to diversify
its portfolio constitute its strengths. Going forward, we perceive
the company's divestment of Quimiproductos has provided it with
greater financial and strategic flexibility to pursue opportunities
in its core businesses. Further, the company's efforts to diversify
its product portfolio along with expansion of convenience store
chain bode well for future operating performance. However,
imposition of tax on sugary beverages by the Mexican government,
stiff competition from private players and rising commodity costs
compel us to be on the sidelines.
Fomento Economico Mexicano SAB de CV, also known as FEMSA, is
one of the largest beverage companies operating in Latin America.
Headquartered in Mexico, the company has 35 bottling plants in
Latin America, across countries including Mexico, Brazil,
Argentina, Colombia and Venezuela, and exports its products to the
U.S., Canada, Europe, and Asia. The company also owns the largest
convenience chain, OXXO, in Mexico. During fiscal 2010, FEMSA
completed the divestiture of its brewery operations to Heineken
N.V., the third largest global brewer. As per the deal, FEMSA
received a 20% stake in Heineken. FEMSA currently operates through
its subsidiaries, Coca-Cola FEMSA and FEMSA Comercio.
Coca-Cola FEMSA (61% of sales in 1Q14) is the flagship segment
engaged in the production and distribution of carbonated beverages.
The division is the largest Coca-Cola bottler in Latin America and
the second largest Coca-Cola bottler globally, in terms of sales
FEMSA Comercio (39% of sales in 1Q14) operates a chain of
convenience stores in Mexico under the brand name, OXXO. At the end
of quarter, the division operated 11,210 OXXO stores.
Fomento Economico Mexicano S.A.-ADR (FMX): Read the
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