We issued an updated research report on
Fomento Economico Mexicano S.A.B de C.V.
), also known as FEMSA following the company's dismal
fourth-quarter 2013 bottom-line results.
This largest franchise bottler for
The Coca-Cola Company
) reported net majority income of US$1.05 per share that was
significantly lower than the year-ago quarter figure of US$2.08
and lagged the Zacks Consensus Estimate of US$2.01.
However, total revenue rose 11.1% year over year to Ps. 70,490
million, mainly aided by improvement in revenues at
Coca-Cola FEMSA S.A.B. de C.V.
) and FEMSA Comercio divisions. On an organic basis, total
revenue climbed 3.2% from the prior-year comparable quarter.
Despite strong top-line performance, FEMSA reported lackluster
bottom-line results mainly due to higher cost of sales and
operating expenses, fall in Heineken's fourth-quarter 2013 net
income in which FEMSA has a 20% participation interest, and
increased financing expenses resulting from the recently issued
bonds by Coca-Cola FEMSA and FEMSA Comercio.
FEMSA has witnessed sharp downward estimate revisions after
reporting disappointing fourth-quarter 2013 results. The Zacks
Consensus Estimate for fiscal 2014 decreased 5.4% to $4.19 per
share over the last 60 days. For fiscal 2015 too, the Zacks
Consensus Estimate declined 2.8% to $4.78 per share.
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. The Mexican
government has imposed a tax of 1 peso (approximately $0.08) per
liter on carbonated soft drinks to tackle the rising health
problems related to obesity in the country.
However, we observe that FEMSA has been diversifying its
retail chain format operations and acquiring businesses across
Latin America. Recently, FEMSA bought 80% stake in the fast-food
restaurant chain Dona Tota. The company is taking prudent steps
to diversify its product portfolio while expanding its small-box
retail segment, which augurs well for its future operating
Further, in May 2013, the company forayed into the drugstore
retail chain business by fully acquiring Mexico-based Farmacias
FM Moderna and buying 75% stake in Farmacias YZA. We believe that
FEMSA's venture into the drugstore business is a strategic fit
for its store chain business, which will be accretive to its top
and bottom lines in the long term.
Currently, FEMSA carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
A better-ranked stock worth considering in the sector is
Coca-Cola Enterprises Inc.
) carrying a Zacks Rank #2 (Buy).
COCA-COLA ENTRP (CCE): Free Stock Analysis
FOMENTO ECO-ADR (FMX): Free Stock Analysis
COCA COLA CO (KO): Free Stock Analysis Report
COCA-COLA FEMSA (KOF): Free Stock Analysis
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