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

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Summary:
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.

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 (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 volume.

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.


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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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