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

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Summary:
Riding on its strategic measures of increasing store count, diversifying business portfolio and focusing on core business activities, FEMSA recently posted strong third-quarter 2014 results, wherein both top and bottom lines marked a double-digit year-over-year improvement. Moreover, the company's strong cash flow generation capability helps it in making incremental investments in expanding its business both organically and inorganically. Despite all these positive factors, we remain slightly pessimistic about the stock's future performance as increased financing expenses resulting from the bonds issued and unfavorable foreign exchange rates can weigh on the company's margins. 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. Thus, we retain our Neutral stance on the stock.

Overview:

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 (59% of sales in 3Q14) 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 (41% of sales in 3Q14) 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.



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