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

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Summary:
We are disappointed with FEMSA's lackluster bottom-line results for second-quarter 2014. The company's earnings were mainly battered by a fall in Heineken's second-quarter 2014 net income, increased financing expenses resulting from the bonds issued by Coca-Cola FEMSA and unfavorable foreign exchange rates. 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. Despite all these negative factors, we have maintained our Neutral recommendation on the stock as we are optimistic about the company's initiatives directed toward top-line growth. We note that FEMSA has been diversifying its retail chain format operations and acquiring businesses across Latin America. Moreover, the company has been aggressively expanding its store base which we believe will help it in boosting its top-line.

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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