Fomento Economico Mexicano S.A.-ADR (FMX): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

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Based on lower-than-expected bottom-line results for fourth-quarter 2013, we have downgraded our long-term recommendation on FEMSA to Underperform. The weak year-over-year performance was primarily due to higher cost of sales and operating expenses, fall in Heineken's fourth-quarter 2013 net income and increased financing expenses resulting from the recently issued bonds by Coca-Cola FEMSA and FEMSA Comercio. Further, we believe that continued regulatory pressure can lead to significant attrition in the Mexican soda market, which can have a material impact on FEMSA's business. In addition, the company's premium valuation limits the upside potential in the stock. Our bearish view on the stock is further justified by the decline in the Zacks Consensus Estimate, following the company's dismal results.


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 across countries in Latin America, 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 (62% of sales in FY13) 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 volume.

FEMSA Comercio (38% of sales in FY13) 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.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Stocks

Referenced Stocks: FMX

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