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.
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
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.
Fomento Economico Mexicano S.A.-ADR (FMX): Read the
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