Fomento Economico Mexicano S.A.B. de C.V. (FMX)

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Fomento Económico Mexicano, S.A.B de C.V (FMX)

Q1 2013 Earnings Call

April 24, 2013 1:00 pm ET


Juan F. Fonseca -

Javier Gerardo Astaburuaga Sanjinés - Chief Financial & Strategic Development Officer and Corporate Vice-President


Alan Alanis - JP Morgan Chase & Co, Research Division

Karla Miranda

Lauren Torres - HSBC, Research Division

Lore Serra - Morgan Stanley, Research Division

Alexander Robarts - Citigroup Inc, Research Division

Alexandre Miguel - Itaú Corretora de Valores S.A., Research Division

Antonio Gonzalez - Crédit Suisse AG, Research Division



Good morning, and welcome, everyone, to FEMSA's First Quarter 2013 Earnings Results Conference Call. [Operator Instructions] During this conference call, management may discuss certain forward-looking statements concerning FEMSA's future performance, and should be considered as good faith estimates made by the company. These forward-looking statements reflect management's expectations and are based upon currently available data. Actual results are subject to future events and uncertainties, which can materially impact the company's actual performance.

At this time, I'd like to turn the conference over to Mr. Javier Astaburuaga, FEMSA's CFO. Please go ahead, sir.

Juan F. Fonseca

Good afternoon, everyone. This is actually Juan Fonseca, just for a second. Welcome to our first quarter results conference call. Javier is on the call, and I will turn it over to him in just a moment, but we wanted to let you know that he is traveling and therefore, you may notice that while we're during the Q&A session, we're actually not in the same location. So I just wanted to give you the heads up on that. Jose Castro is also on the line, as always. So with that, Javier, go ahead, please.

Javier Gerardo Astaburuaga Sanjinés

Thanks, Juan, and hello, everyone. As is customary in our calls, today, we'll focus on the consolidated figures for FEMSA and on FEMSA Comercio's results, since many of you probably had the opportunity to participate in Coca-Cola FEMSA's conference call earlier today. As you have also likely seen our detailed results, we will use this opportunity to share some of what we see as highlights and main trends in our business.

As we mentioned in our release, we operate across many different markets and sometimes the diverse economic environments we face manifest themselves with particular clarity in our results. This was the case during the first quarter with our operations in Mexico performing solidly, both Coca-Cola FEMSA and especially FEMSA Comercio, but some of our operations in South America reflecting not only challenging operating conditions, but also the impact of currencies that weakened significantly against a strong Mexican peso. In terms of the macro drivers on our presumption of the consumer environment, we see trends that generally carry over the end of 2012. In Mexico, inflation has picked up slightly, while GDP growth and manufacturing activity have stabilized off the recent highs. The business mood is still positive, aided by expectations of upcoming structural reforms. However, we are sensing a slightly more cautious consumer, relative to this time last year.

Conditions are more fragile in our South American markets. In Venezuela, as you know, we are dealing not only with the recent devaluation of the currency and pricing inflation with low real growth, while the current post-electoral environment remains delicate.

In Brazil, Colombia and Argentina, growth seems to have stabilized but at low levels and inflation has become a concern everywhere except, perhaps, in Colombia.

Generally speaking, the macro backdrop is still not very constructive in many of these markets. However, as we have stated before, these types of environments are not new or unfamiliar to us, and we continue to deploy measures and strategies accordingly.

Moving on to discuss our consolidated quarterly numbers. Total revenues increased 5% and income from operations increased 2%. On an organic basis, excluding the integration of recently acquired bottling operations in Mexico, total revenues increased 3% and income from operations decreased 3%. For the first quarter, the land label participation in Heineken results represents FEMSA's 20% participation in Heineken's first quarter net income, which was reported earlier today. Staying on the subject of net income, we see that it increased 5% in the first quarter. As we explained in our press release, this increase reflects an increase in FEMSA's participation in Heineken's first quarter '13 net income, combined with lower financing expenses, which more than compensated lower income from operations. Our effective tax rate was 33% for the quarter, very much within the expected range in the low- to mid-30s. And in terms of our cash position, during the fourth quarter, we went from having a consolidated net cash position of MXN 2 billion at the end of December to now having a consolidated net debt position of MXN 6 billion at the end of March, reflecting the acquisition of 51% of Coca-Cola Bottlers Philippines, which was partially compensated by cash generation at both our corporations.

Before we move on to discuss our operations, as we have mentioned before, and as you read in our release, we are exploring the possibility of tapping the international bond markets given the historical low long-term interest rate environment. While the decision to actually issue debt will depend on market conditions as determined during upcoming conversations with investors, the general objective would be to increase our liquidity in order to be ready to undertake strategic transactions as they become available. As we have said before, we have a good pipeline of potential acquisition opportunities that are in various degrees of development. But there is nothing imminent and certainly, there is no major transaction in the immediate future that would be linked to the issuance of this debt. So it really is all about capturing the low rate opportunity while the window is out there.

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