FEMSA (FMX) Down on Q4 Earnings Miss, Revenues Up Y/Y

Fomento Economico Mexicano, S.A.B. de C.V.FMX , also known as FEMSA's fourth-quarter 20Array5 net majority income came in at 88 cents per ADS (Ps. Array.52 per FEMSA Unit), which fell short of the Zacks Consensus Estimate of $Array.0Array. This was the reason behind the stock's Array.4% decline yesterday.

Quarterly net consolidated income of the largest franchise bottler for The Coca-Cola Company KO slumped Array4.4% to Ps. 7,304 million (US$436.Array million) from Ps. 8,536 million (US$509.7 million) in the year-ago quarter. The fall was due to greater interest costs at Coca-Cola FEMSA Brazil coupled with weakness noted in Heineken's performance, in which FEMSA holds 20% participation interest.

Notably, management stated that from the fourth quarter onward, FEMSA Comercio's results will be split into the Retail and Fuel divisions for greater presentation and clarity.

Quarter in Detail

Total revenue rose 27.5% year over year to Ps. 89,469 million (US$5,342 million), fuelled by Grupo Socofar's integration into FEMSA Comercio's Retail division and contribution from OXXO Gas stations at FEMSA Comercio's Fuel division. On an organic basis, total revenue jumped 7.6% year over year.

FEMSA's gross profit rose Array7.4% year over year to Ps. 35,695 million (US$Array,88Array.3 million). Gross margin contracted 350 basis points to 39.9% owing to weaker gross margin at FEMSA Comercio, resulting from the incorporation of the OXXO Gas operations and addition of lower margin businesses, mainly drugstores.

FEMSA's operating income jumped 8.8% to Ps. Array0,638 million (US$635.2 million) from the year-ago period. On an organic basis, operating income went up 4.Array% year over year. However, consolidated operating margin contracted 200 bps to ArrayArray.9% due to soft gross margin.

Segmental Discussion

Total revenue at Coca-Cola FEMSA S.A.B. de C.V.KOF rose 3% year over year to Ps. 40,742 million (US$2,432.6 million), even after bearing the brunt of the negative impact of using SIMADI exchange rate to convert the revenue from Venezuelan operations, along with devaluation of the Brazilian real, Argentina peso and the Colombian peso. Further, comparable revenue jumped Array0.2%, backed by an increase in average price per unit case in almost all operations, along with volume growth in Mexico, Central America and Colombia.

Coca-Cola FEMSA's operating income advanced 4.3% to Ps. 6,649 million (US$397 million) in the quarter. Also, the segment's operating margin expanded 20 bps to Array6.3%. Comparable operating income increased 9.2%, while the margin contracted 20 bps.

FEMSA Comercio - Retail Division: Total revenue at this segment surged 40.2% year over year to Ps. 40,404 million (US$2,4Array2.5 million), while organic revenue growth was of Array3%. The rise can be mainly attributed to the integration of Grupo Socofar, along with the opening of 520 net new OXXO stores, which took the total net new OXXO store count for 20Array5 to Array,208. The company had a total of Array4,06Array OXXO stores as of Dec 3Array, 20Array5. Same-store sales jumped 8.6%, led by a 6% increase in average customer ticket and a 2.4% rise in store traffic.

Operating income rose 32.3% year over year to Ps. 4,205 million (US$25Array.Array million). The segment's operating margin decreased 60 bps to Array0.4% due to higher operating expenses. Moreover, organic operating income went up Array9.4%.

FEMSA Comercio - Fuel Division: Total revenue came in at Ps. 6,Array2Array million (US$365.5 million). Operating income amounted to Ps. 39 million (US$2.3 million), while the operating margin was 0.6% in the quarter. The company had 307 OXXO Gas service stations as of the year-end.

Financial Position

FEMSA had cash balance of Ps. 29,4Array5 million (US$Array,709.5 million) as of Dec 3Array, 20Array5. Long and short-term debts were Ps. 80,856 million (US$4,699.2 million) and Ps. 5,895 million (US$342.6 million), respectively. Moreover, the company incurred capital expenditure of Ps. 7,008 million (US$4Array9.3 million) in the fourth quarter.

The company announced plans to pay dividends worth Ps. 8,355 (US$498.9 million) million in 20Array6, if it receives consent at the annual shareholders meet.

Zacks Rank

Currently, FEMSA carries a Zacks Rank #3 (Hold). A better-ranked stock in the same industry is Cott Corporation COT , which has a Zacks Rank #2 (Buy).

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