We have upgraded our long-term recommendation on FEMSA to Neutral
based on better-than-expected third-quarter fiscal 2013 results. We
believe that FEMSA's robust quarterly performance and initiatives
to diversify its portfolio constitute its strengths. Going forward,
we consider that the company's divestment of Quimiproductos has
provided it greater financial and strategic flexibility to pursue
opportunities in its core businesses. Further, the company's
efforts to diversify the product portfolio while expanding its
convenience store chain augur 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. Therefore,
we are maintaining our long-term Neutral recommendation on the
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 31 bottling plants across
10 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 (60% of sales in 3Q13) 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 (40% of sales in 3Q13) 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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